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  • Disruption – Liquor

    Posted by Carl from Chicago on April 14th, 2017 (All posts by )

    “Disruption” is a word usually reserved for hyped sectors of the economy like technology and “Uber” is the ubiquitous example that even a child would recognize. However, there are other components of the economy ripe for disruption, especially those that are heavily regulated, which generally causes significant distortions, monopolistic behavior, regulatory capture, high prices, and a lack of innovation.

    The liquor industry is a heavily regulated industry, with layers of distributors and obscure rules which enforce local monopolies, entrench incumbents (often with inferior products), and provide many opportunities for the government to extract tax income and solicit donations from favored groups. Typically liquor uses a “three tier” system, where there is a producer, a distributor, and a retail outlet (a store or a bar). This is a system ripe for disruption.

    Alongside this archaic regulated system (which works for the benefits of the government and the local monopolies), there was a multi-decade process of concentration within the liquor industry, as local beer manufacturers were bought up by massive multinationals, culminating in the InBev company which controls a huge chunk (28%) of world-wide beer sales. If it wasn’t for the craft beer counter-revolution (see below), the epic consolidation of the liquor industry would have gone on indefinitely, bringing out “innovations” like Bud Light Lime.

    Some of the components of the disruption of liquor in Oregon include:

    1) Craft breweries or brewpubs which brew their own beer (and cider) and can sell it onsite

    2) Distilleries able to make their own spirits and sell themselves out of their facility

    3) New technologies such as Growlers or Crowlers which enable customers to fill directly from a keg into a re-usable container and take the beer home to drink

    4) This is all in addition to the vast wineries (seemingly everywhere) that can sell directly and even ship to many states

    Craft Breweries:

    Portland and Oregon have been leaders in the craft beer movement, enabled by laws (passed against the political power of the beer distributors) which allowed for the brewpubs to sell their own alcohol.
    This article describes how the modern brewery was instituted in Oregon.The “beer culture” is everywhere, with 116 breweries within an hour of Portland, as evidenced by the cover of this recent magazine I picked up. Here is a link to the magazine online.

    I live in downtown Portland and there are great brewpubs all around me. Portland is a tourism town for beer drinkers and usually the food at each of these brewpubs is excellent as well (it isn’t gourmet but far, far better than what you’d get at a bar in Chicago, for instance).

    Hard Liquor and Local Distilleries:

    Oregon still has a ridiculous law that allows hard liquor to be sold only at designated liquor stores (this law is particularly out-of-synch with reality since you can essentially buy dope seemingly everywhere, even for recreational purposes). However, there are a lot of cracks in this system. Recently I was out at a farmer’s market near Portland State University when I saw a distillery selling this “Townshend Gin” and I picked up a bottle for $24. Local distilleries in Oregon can sell directly to customers, bypassing the rule stating that hard liquor can only be sold at state-designated liquor stores.

    New Technologies:

    As you drive around the state you can see advertisements for “growlers” everywhere. These are re-fillable jugs that you can have local stores fill with beer out of the keg and you then drink at home. These are another great way to disrupt the system. There is also a “crowler” (a can growler) model where they will make a 32 oz can of any keg beer on tap that you can walk away with – a bar in my building let’s me do this and take it upstairs.

    Wineries:

    There is a wide variety of vineyards and tasting rooms in Oregon, particularly in the Willamette Valley. You can purchase wine by the bottle or the case and they have fun tasting rooms where you can purchase and sample wines (the fees are often waived if you buy bottles / cases during the same trip). It seems obvious but I didn’t realize that the vineyards changed colors each fall – below is a beautiful picture that I took last September.

    Conclusion:

    The liquor industry was trending towards an oligopoly of poor products produced in vast quantities with competition limited due to a politically entrenched distribution system, under the guise of protecting citizens from alcohol abuse while actually preserving the “sin taxes” to enrich local government. Competition and new regulations have allowed for better products to emerge and for people to “buy locally” rather than enriching a vast beer titan that ships beer across the country which could be better served by local companies.

    Cross Posted at LITGM

     

    11 Responses to “Disruption – Liquor”

    1. Mike K Says:

      I brewed my own beer as a medical student. I had a 5 gallon crock and used quart bottles, which were less trouble to wash. Whe quart beer bottles became rare, I sort iof lostninterest in home brew. MY beer was very good and tasted a bit like Heinekens.

    2. Mike K Says:

      My stepson is a contractor in McMinnville and builds custom homes there and in the wine country, Some of his projects involve wine country bed and breakfasts. His mother and I may visit one next summer.

    3. PenGun Says:

      It’s the whole north west really. Washington and BC have a thriving craft brew culture as well. There must be 6 or 7 in Victoria alone.

      We get to drink some wonderful beer and there is even a developing ‘cheap beer’ solution being offered by some of the producers. That gets you considerably better beer than the regular crap, and cheaper as well.

    4. Mike K Says:

      My home brew cost about 25 cents a quart back in the 60s when I was making it.

    5. Grurray Says:

      I think Pennsylvania has the weirdest liquor laws with the state owning the liquor stores. I prefer imperial stouts myself. Black coffee and dark beer, I guess my taste buds have hardened up over the years.

    6. Mike K Says:

      The state owns the liquor stores in New Hampshire and used to in Washington. I”m not sure about Washington anymore.

      It used to have the blue laws when I was there in 1959. Bars closed at midnight Saturday and all day Sunday. No woman could be in the room with the bar. No men could stand and drink in a bar.

      There could be no more men than the number of bar stools.

      I could go on.

    7. Brian Swisher Says:

      Now if we can just get rid of the OLCC…

    8. Whitehall Says:

      Think those laws are weird? Come to the UAE.

      Only hotels can serve alcohol but put a hotel in a mall and the restaurants in the mall may also serve.

      The retail outlets for home consumption look like speakeasies. No signage out front and no windows plus your purchases are wrapped in opaque black bags before you exit. But Thursday night (Friday is the day off), the stores are crowded with Pakistanis and Filipinos stocking up.

      You are supposed to get a government license to consume, with your photo on it. Supposedly you can get in trouble if you have your purchase from a liquor store in your trunk and you have an accident and you don’t have your liquor license.

      DUI laws are strict but the taxis are cheap.

      My familiar California wines are hard to find. Napa Valley is about as far away as a vineyard gets.

      The upside? Taxes are low.

      Even with all that. Dubai is about the most partying town I’ve seen outside of Las Vegas and New Orleans.

    9. Rich Rostrom Says:

      “far, far better than what you’d get at a bar in Chicago…”

      Chicago has 146 brewpubs, microbreweries, and craft breweries, with 22 more under construction. Many of the brewpubs and micro/craft beer bars have excellent food.

      I wouldn’t vouch for the quality of food in an old shot-and-a-beer joint, or a nightclub, in Chicago, but I doubt that such places are any better in Portland.

      I’ve been to Oregon, and I was impressed with the beer culture there. It doesn’t need building up by phony putdowns of other regions.

    10. Gene Says:

      I hope that magazine took the trouble to identify which of those 116 breweries have a fetish for hops.

      I’ve been drinking microbrews for decades but the hopping is starting to get ridiculous. Makes me think about buying something mass-produced again.

    11. Carl from Chicago Says:

      Hey Rich – I’ve been to lots and lots and lots of bars in Chicago. I’m from Chicago. I can categorically state that the food here blows away the food in Chicago on a price for price basis. The low tier here is good the mid tier is great and the high tier… well I usually don’t spend that much. That’s been my experience.

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