There are nearly 1,500 craft brewers in the United States. But for all the passion of their devoted consumer base and the artisanal quality of their product, revenue from craft brewers only represent 6 percent of the $101 billion domestic market. Anat Baron, former general manager of Mike's Hard Lemonade, decided to find out why. Her documentary, Beer Wars, looks at the lobbying machine of the distributors, the strong-arming tactics of the corporate brewers, and why craft brewers are afraid to speak out. Baron, an entrepreneur in her own right, invested $750,000 into the making of the film, which will premiere in 440 theaters across the U.S. on April 16. Afterward, theaters will simulcast a panel with the co-stars of her film: Rhonda Kallman, co-founder of the Boston Beer Company, and Sam Calagione, founder of Dogfish Head Craft Brewery. Inc. reporter Nitasha Tiku recently spoke with Baron about her film and why she was drawn to tell the stories of the entrepreneurs in the craft-brewing industry.
Inc: How did you decide which brewers to focus on?
Baron: I started at the Annual Beer Industry Convention in 2005 and booked appointments with 15 different brewers. One of them was with Rhonda Kallman, who had been the queen of beer. She co-founded Boston Beer, which makes Sam Adams. She started talking about this new beer she was launching called Moonshoot and my crew was really intrigued. After the convention, I went to The Great American Beer Festival. I was like Alice in Wonderland at this thing. I mean I showed up in my Prada pumps with my big fancy yellow purse--but the minute I met Sam I was like, okay he's it. He was the only person who when the camera was rolling was willing to speak the truth. Beyond that he also had a story, which was that he and his wife were in the process of taking out this $9 million loan to expand their business. Sam's world has taken off like crazy, where Rhonda's story was not as happy. I thought that those two really spoke to the bigger picture of entrepreneurs in America.
Inc: The craft beer industry grew 10 percent last year, yet it's still only 6 percent of the overall market. Do you ever foresee that changing?
Baron: The big guys are really nervous about what the craft-beer movement means for their brands. But with the barriers to distribution and access to the market, it's really tough for a craft brewer to grow. Even today, Sam Adams and Sierra Nevada are the only national craft beer companies. If you ask the small brewers they say, "Oh we like it this way. It's good to be regional." But in reality it takes not just money to grow, but access to the market. How do you get to your consumers? How do you get more distribution? How do you get on supermarket shelves? These are all things that prevent you from getting bigger.
Inc: One of the issues in the industry, according to your film, is the antiquated, Prohibition-era distribution system. Producers must sell beer to distributors who then sell it to retailers. How has that system limited entrepreneurship in the beer industry?
Baron: The three-tier system was supposed to facilitate a separation of church and state. The brewer is supposed to stay away from the retailer and to avoid providing them with any incentives. But in truth, big brewers do provide incentives. For example, Anheuser-Busch is the category captain in most supermarkets. They help decide what goes on the shelf and they're not giving up a Budweiser spot for a Dogfish Head, even though Budweiser sales are down and Dogfish sales are up. The three-tier system started out as a mechanism to separate the taverns from the brewers, but it's created these extremely successful and powerful distributors whose political action committee in 2006 outspent tobacco and guns combined. One of the craft brewers in the film was almost put out of business by the big brewers who offer the retailers free cases and exclusivity.
Inc: Are there laws that favor the bigger players?
Baron: There are two sets of laws that I think craft brewers themselves will tell you are at issue. One is the three-tier system, which they're afraid to talk about because if you say anything bad about the system, you're not going to get distribution. Then there are franchise laws, which were set up to protect the small distributor from a big franchiser, like McDonald's. But the law has flipped to protect the distributor, and the little guy has very, very few rights. In some states, it's like an unbreakable marriage. When I ran Mike's, sometimes I went into a store, and saw that our product was expired. But you still can't fire your distributor for it.
Inc: What can an entrepreneur take away from your film?
Baron: You can have all the passion in the world and you can have all the credentials, but you have to work really, really hard, which these guys do, in order to get ahead. Sam, the founder of Dogfish Head, travels like a maniac, just selling, selling, selling. That's something else that differentiates entrepreneurs from kind of the impersonal corporation -- you can get to know the person behind the brand. So if you really want to be successful, you need to get out there with the people that you're trying to get your product to. And I think that's how corporations lose touch. They have focus groups, but with focus groups you're still sitting behind the glass.
Inc: Was this film itself something of an entrepreneurial venture?
Baron: Absolutely. I decided, maybe because I'm crazy, to fund it myself, which is kind of unheard of. I wear so many hats that my hat collection reaches beyond the ceiling. But when it came time to release it, the traditional distribution system for independent films is pretty much dead, or at least on life support and so I had two choices: I could give up my copyright to a distributor who would give me no upfront revenue, or I could try something like I'm trying, which is to work with Fathom Events to create an event around it. I wanted to start the conversation and to get it out to more people, but I am taking a huge risk. The satellite that the simulcast panel is being beamed from-I'm paying for that. I took out some loans, but I mean, I don't have a house. This movie is my house. I am actually the classic crazy entrepreneur who does what you're not supposed to do.
Inc: Last question: Is it true that you don't drink beer?
Baron: I am completely and utterly allergic to alcohol. When I was making the movie, the brewers would say, "This is the freshest beer you're ever going to have." And I'd be like, "Mmm, smells great, but I can't drink it." Two of them cried. But it made me really objective and I was able to focus on the intellectual and business part of it, which is entrepreneurship versus corporate America.