Published in Food/Agribusiness

Michigan distilleries cite distributor troubles in making case for self-distribution

BY Sunday, December 01, 2019 06:27pm

Order delays and technology glitches for one of the authorized liquor distributors in Michigan have craft distilleries calling for changes to the state’s Prohibition-era distribution system. 

While Michigan-based wineries, breweries and cideries can all self-distribute a limited amount of their products, craft distillers wanting to get into distribution must sell all their spirits to the Michigan Liquor Control Commission, which uses authorized distributor agents to warehouse and deliver the spirits. 

“As Michigan spirits producers, we get categorized all the time with Michigan beer and wine, but we’d just like parity with beer and wine,” said Jon O’Connor, president of the Michigan Craft Distillers Association and co-founder of Grand Rapids-based Long Road Distillers LLC. “Wine, cider and beer all have limited self-distribution.”

Only three authorized distribution agents — Republic National Distributing Co., Imperial Beverage, and Great Lakes Wine & Spirits — are licensed by the MLCC. 

RNDC has been the subject of statewide criticism and MLCC scrutiny in recent weeks for a string of shipment delays and missed orders stemming from the company’s move into a new Southeast Michigan warehouse and other technology-caused disruptions. 

The Michigan Attorney General’s office this week issued an 88-count complaint against RNDC  for missed deliveries calling for $26,000 in fines and reduced per case payments that could amount to a reduction of more than $3 million in annual revenue, as Crain’s Detroit Business reported

According to the MLCC spirits price book, Holland- and Grand Rapids-based New Holland Artisan Spirits, Kentwood-based Wise Men Distillery, Kalamazoo-based Green Door Distilling Co., and Traverse City Whiskey Co. use RNDC.

“A situation like this shows the system is failing, at least for one distributor,” O’Connor said. 

He added that he’s heard from members of the Michigan Craft Distillers Association about the need to push for limited self-distribution in the wake of the RNDC problems. 

“I’ve had a lot of interesting discussions,” O’Connor said, noting that the group hasn’t yet started to draft or push any new legislation regarding self distribution, “but there is an emphasis from our membership to pursue it.”  

Joel Bierling, founder of Comstock Park-based Bier Distillery Co., said being allowed to self-distribute “would be a huge win for small craft distillers.” Bierling had worked with RNDC in the past, but switched to Kalamazoo-based Imperial when he relocated his business to Comstock Park. 

“For small distillers, especially just starting out, the whole distribution system is a really big problem. It’s just hard to get products out to the market. It’s just so convoluted,” Bierling said, citing limited-run products as particularly challenging to move through the existing system. “If I have 10 cases of something, trying to get into distribution is kind of silly.”

Bierling said he’s fielded messages from concerned customers and had to reassure them that the RNDC troubles were not affecting his company. 

Michigan’s three-tier distribution system dates back to 1933 and the repeal of Prohibition. According to the National Alcohol Beverage Control Association, Michigan operated state-owned warehouses and distribution stores until 1997. Under the original laws, the authorized distribution agents would relay orders from liquor licensees to the state. Now, retailers order directly from the state using an online system, and receive shipments from the distribution agents. 

The state sold about $1.5 billion worth of liquor last year, according to the MLCC.

Bierling says the three-tier system has its positive and negative aspects that craft distillers need to wrestle with until any changes are made to the laws. While acknowledging that the three-tier system allows Bier Distillery to ship to parts of the state it would have a difficult time servicing on its own, Bierling described the lack of self-distribution “one of the two largest hurdles that craft distillers face in the state of Michigan” along with the state’s onerous tax scheme.  

O’Connor also noted that distillers only get paid when the product is sold, and then the state has 30-day terms. If RNDC deliveries are getting held up, that causes delays for producers getting paid. 

“It puts small companies like us at a disadvantage in the system,” he said, noting that most members of the Michigan Craft Distillers Association use Imperial or Great Lakes as their distribution agents. 

Given that RNDC worked with mostly national brands, the company’s troubles might even have a silver lining for Michigan craft spirits makers, according to Bierling. 

“It gives you a reason to choose craft spirits,” he said. “For better or worse, (the RNDC situation) has not affected craft distillers very much.”

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