New state laws change rules for Texas craft brewers | Crain's Austin

New state laws change rules for Texas craft brewers

Ian Davis and JD Gins, like many small Texas craft brewers, would like to see their Texas Beer Co. blonde, pale and amber become the next Shiner Bock of Texas.

Every bottle of Shiner Bock carries the label that proclaims it was approved by the people of Shiner, Texas, and that’s just the tack Davis and Gins took when they opened their small brew pub in Taylor, north of Austin. For two years, Davis and Gins spent weekends on Taylor’s main square, testing recipes and catering to the tastes of faithful supporters.

“We wanted our beer to be approachable to all Texans,” said Davis, formerly of the Texas Sierra Club. “We didn’t want to make it too hoppy or too malty. At the same time, we both really enjoy craft beer, and we wanted people to recognize it as our own.”

That’s gone pretty well. The duo has moved from weekend tastings to a tap room, from a backyard to a 30-barrel brewery located just outside downtown Taylor. Last month, with the help of Armadillo Mobile Canning, Texas Beer Co. hit the craft beer shelf of seven Austin H-E-Bs.

Austin is one of the largest craft brewing communities in the country, and craft beer has grown to a $4.5 billion business in Texas, according to the national Brewers Association. It wasn’t much of a leap for these two Austin community organizers to pitch a $30,000 Kickstart campaign for Texas Beer Co. to turn a backyard hobby into a full-time business.

“What drew us to this was a love of making beer,” Davis said. “The first year we opened our doors we did $300,000 in sales. Now our 30-barrel brewery lets us make ten times our (3-barrel) pilot, and it gets us to be canned for distribution.”

Brewers tapped into new market

Four years ago, Texas lawmakers opened up the craft brewing market, allowing small brewers of no more than 10,000 barrels a year to sell their product in on-site tap rooms. Brewers like Jester King Brewery, a farmhouse brewery south of Austin, reaped the benefits.

A few dozen visitors to Jester King Brewery each weekend turned into well over 1,000 and a half-dozen tour buses, said owner Jeffrey Stuffings. Suddenly, wine and beer tours were popular. Instead of free tastings, visitors could walk out the door with a six pack.

“Our production didn’t increase very much at all. The way we aged the beer doesn’t lend itself to making a lot,” Stuffings said. “But with a tap room we got to keep our margin, instead of seeing half of it go to distributors and retailers.”

That’s because Texas liquor law works on a three-tier hierarchy of manufacturer, distributor and retailer. Profits are shared. The craft beer law of 2013 allowed Jester to be both manufacturer and distributor with its on-site tap room.

But when large beer brands began to purchase popular Texas brew labels in the summer of 2016 – Anheuser-Busch picked up Houston’s Karbach and Miller Coors bought Granbury’s Revolver – distributors got concerned and pushed a law through last session to curb growth.

Now current craft brewery craft rooms are limited by volume of production, and that production must combine brands and locations. Suddenly, Karbach isn’t a small label. It’s treated the same way as a bottle of Miller Lite or Shiner Bock.

A chilling effect

That hasn’t impacted the majority of small brewers, but it has chilled the market for future investment, said executive director Charles Vallhonrat of Texas Craft Brewers Guild, which helped open the market four years ago.

“There really has been no direct impact, with the exception of one brewery, but it’s definitely changed plans from a financial standpoint,” Vallhonrat said. “There were people who were looking to secure funding during session. Now they’re not. Not because it’s directly prohibited; just because it increased ambiguity in the law and it scared people off.”

Current tap rooms are grandfathered, but any small brewer bought by a large manufacturer can no longer open a tap room. And existing tap rooms that combine with large manufacturers in the future must pay distribution fees, even if the beer only goes from the cold room to the brew pub counter. Stuffings and other brewers like to label it “an extortion fee.”

What brew pubs do have is support from local businesses like H-E-B. Davis, who relies on word of mouth and in-store tastings, credits H-E-B for its willingness to stock local brands.

“They've created a craft beer aisle, they added to their cold storage,” Davis said. “They have proactively sought out local breweries. Without question, they have been one of the biggest catalysts in the craft brewing industry in Texas.”

Vallhonrat said he sees no sense in the maintaining the three-tier system. The playing field remains the same between big and small brewers, with the only difference between increased costs to the small craft brewers.

“The distributors will say they’re protecting small breweries,” Vallhonrat said. “They’re not protecting small breweries. Small breweries have never shied away from competition with larger breweries. All we’re looking for is fair straight-up competition.”

December 12, 2017 - 11:09am