Tied House Laws Revisited - Middle Ground May Be the Way to Go

With the recent opening of East Vancouver's Parallel 49 Brewery, the dilemma of whether or not to relax the tied house and trade practice laws has once again become a topic of discussion in Vancouver and BC craft beer circles.

For those not familiar with what tied houses and trade practices are, "a tied house is an establishment that has an association, financial or otherwise, with a liquor manufacturer or its agent that is likely to lead to its products being favoured," according to the Liquor Control and Licensing Branch's Tied Houses and Trade Practices Consultation Paper, released January 2011. If a tied house situation exists, the manufacturer is not allowed to sell its alcohol through the tied house.


Trade practices laws regulate "commercial interactions between liquor suppliers and licensed establishments including restrictions on promoting specific manufacturers and their products in exchange for benefits provided by the supplier" (LCLB Consultation Paper, p.2).These trade practice restrictions are meant to stop producers of alcohol from basically bribing licensed establishments by offering freebies to them in exchange for exclusive or preferred sales deals.  

Vancouver's newest craft brewery

Because of these laws and the fact that Parallel 49 Brewery and St Augustine's Craft Brew House and Kitchen have some common owners, St Augustine's is considered a tied house and are not only prohibited from pouring Parallel 49 beers from any of its 40 taps or sell any of the brewery's bottled products, but are also prohibited from placing so much as single Parallel 49 coaster, poster, beer umbrella or any other Parallel 49 promotional swag in the restaurant. This is not an isolated problem as there are other tied houses here in BC where small breweries and wineries are being hurt by the laws that are meant to protect them.


"Quite simply I can't do any sort of cross-promotion, cross-branding, cross-anything with my 2 businesses," states Parallel 49-St Augustine's co-owner Anthony Frustagli.  

Vancouver's newest tied house

"I don't know of any other industry this applies to.  If you own a farm and grocery store, can you not sell your veggies in your store?  If you own coffee roaster and a cafe, should you not be able to sell coffee made from your beans?"

Frustagli makes some good points, but then the alcohol industry, especially in BC, is like no other industry out there in regards to unique regulations, restrictions and government control.


The existing tied house-trade practice laws date back to the 1950's and were put into place to stop the larger, national breweries from using their deep pockets to buy up pubs or bribe them in order to feature and favour their beers. The laws were meant to protect the smaller, local breweries by allowing them compete on a level playing field, but as the craft beer industry grows here in BC and more and more entrepreneurs, with varied business interests get involved, these laws, in some cases, are actually harming those smaller businesses they are meant to protect.

When asked if he felt the tied house and trade practice laws were protecting his newly-opened, craft brewery, Frustagli was not really in support of maintaining the status quo.

"Does it (tied house-trade practice laws) protect P49 (Parallel 49),  debatable," stated Frustali. "Giving the big boys the green light to open up their cheque books is a bit of a scary thought, but at the same time the rule isn't exactly being enforced right now anyway.

"I'd like to see a reasonable middle ground.  Perhaps capping a percentage of taps/bottles in your bar/restaurant/LRS that can come from your brewery/winery/distillery, and something ensuring that they are marketed competitively with other products."

This seems to me like a reasonable middle ground, allowing the alcohol manufacturer to offer their products in licensed establishments linked to them, but prohibiting them from favouring their products by mandating them to offer competitors' products at a competitive prices. This would restrict the bigger breweries from squeezing out competition by monopolizing all the taps and cooler/shelf space and still allow the smaller breweries to offer their products in these tied houses.

In my original post dealing with this issue, I came out as against loosening up the laws due to a fear that the big breweries would open up their wallets and try to stifle the competition, namely the craft beer industry, which is slowly eating into their market share here in BC. But in the past year the craft beer market, at least here in Vancouver, has changed so much, with craft beer getting support from a variety of new establishments, including unlikely sources like The Donnelly Group, The Cambie Malone's Group and Earls. I believe the smaller local breweries will have no problems finding licensed establishments that are willing to ignore the big breweries. There are just too many places committed to serving locally produced, quality craft beers and there are more and more coming on board the craft beer wagon every week. Some are motivating by money, just wanting to cash in on the craft beer craze, some are motivated by wanting to serve the best local beers they can source because, quite simply, they are superior products, but either way, more and more taps are becoming available to pour craft beer.

As mentioned above, the BC Liberal Government issued a consultation paper asking for written feedback on three proposed options to loosen up laws and/or deregulate in regards to tied houses and trade practices. Since that time, not a word has been spoken about the tied house rules. At the time when the deadline for the written submissions passed, the whole HST debacle was in full swing and the Liberals were in survival mode so "non-important" issues, like tied houses, were put on the back burner where they have seemingly been forgotten about.

 I recently asked the Liquor Control and Licensing Branch directly as to what happened to the proposed changes and received an email from a LCLB spokesperson saying, "the Province (government) is reviewing possible changes to tied house regulations that specify how liquor manufacturers can promote their products in licensed establishments. Meetings have been held with industry associations to seek their views. Results of the consultations have been mixed and the Province is continuing to review the matter."


In other words, nothing has been done. I don't know who these "industry associations" are, but I certainly have not talked to anyone who has been involved, including a few people I know who are directly impacted by the tied house rules. I spoke to one LCLB Liquor Inspector a few months back and he stated to me the government would "never" relax or change the tied house or trade practice laws, but offered no reasons as to why he believed this or where his information came from.


Let us hope that the government gets it right if they are indeed going to include these issues in the upcoming review and promised changes to the province's liquor regulations. If they choose to not make changes, small breweries like P49, who are motivating by making great beer and not by crushing the competition, will continue to be restricted by the laws that are meant to help them and if they deregulate completely, it may leave the door open for the big, national breweries, owned by gigantic, multi-national corporations, to attempt to throw their financial weight around in order to crush the craft brewing industry. 


I think even if the market is opened up completely, the local breweries are producing enough great beer and have enough loyal support to withstand the onslaught, but why even put them in that position. The government should be supporting this local, viable industry and encouraging it to grow, not stifling it or allowing it to be swallowed up by mega-conglomerate corporations.


And on a more person level, I would love nothing more than be able to walk 200 metres from my front door and enjoy a P49 IPL in my favourite local craft beer establishment, which happens to be St Augustine's.

Why Are Craft Beers Found in Restaurants More Often Than Pubs?

This post was first published at www.openfile.ca as a part of their BeerFile series last week. Check out the other great articles and posts on OpenFile Vancouver by clicking on the link above.

Traditionally, “going out for a pint or two” means meeting at a local pub with friends, but that is not necessarily so for Vancouver’s craft beer aficionados. There is a small but vibrant craft beer culture in the city, and a surprising majority of Vancouver’s discerning beer drinkers gravitate, more often than not, to one of the many craft beer-focused restaurants when going out for a night on the town.
Arguably, the two major “go-to” craft beer establishments in Vancouver are the not-to-be-missed Alibi Room, located on the eastern edge of Gastown, and Commercial Drive’s St. Augustine’s Craft Brew House and Kitchen. Both establishments have world-class craft beer selections and are operating with a food-primary license, more commonly known as a restaurant license, which indicates the licensee’s primary focus is food.
Although these two eateries (both of which have great menus that complement their beer lists brilliantly) are the dominant two craft beer spots in town, they are relative newcomers to the scene. The Alibi Room began to focus on craft beer in 2006, followed by St. Augustine’s, who opened their doors in 2008 but who did not begin to expand their tap list beyond a few until July 2009. Both have taken the concept of craft beer in restaurants to the extreme, and judging by their near-capacity crowds most nights, it is a concept that has caught on.

In fact, it caught on long before these two restaurants arrived on the local craft beer scene. Even then, with the exception of brew pubs who brew and sell their own beers, restaurants had been the main supporters of the local craft beer industry. Craft beers from both local microbreweries and beyond can be found in exclusive, fine-dining establishments and local cafés alike. And where you find craft beer, you will no doubt find those knowledgeable and loyal craft-beer lovers who make up the colourful Vancouver craft beer community.


In the 1980s, the early days of Vancouver's commercial craft beer scene, nearly all the beers brewed were only available as draft. This limited their sales to either pubs or restaurants. Brew pubs did not enter the Vancouver craft beer market until the mid-1990s and as mentioned before, existed mainly to promote and serve their own products.
Before then, BC beer drinkers had been limited to the bland, mass-produced, lager-style brews produced by the three major breweries in Canada. These three companies -- Molson Canadian, Labatt and Carling-O’Keefe -- had a stranglehold on the Canadian beer market.

Selling restaurants and pubs on the idea of serving beers that were unique, full of flavour, made with quality ingredients and brewed in small batches seemed next to impossible in the beginning. Other than the brewers and a few astute and forward-thinking restaurant owners, no one believed that Vancouver beer drinkers were ready for IPAs, porters, lambics and the like.
James Walton, owner and head brewer of East Vancouver’s Storm Brewing remembers how hard it was in the beginning to get his beer on tap.

“There was a lot of rejection at first,” says Walton, whose brewery’s licensee sales have consistently been over 90% to restaurants. “I was told by a lot of people at first that I could not sell my beers."
Established in 1994, Storm was part of the second wave of microbreweries to hit the market in Vancouver. They followed in the footsteps of Granville Island Brewery and Shaftesbury Brewery, who led the local charge against the big three.
“I found that the [restaurant] owners and chefs were more open to my beers and in tune with the tastes. They had a taste for variety,” says Walton.

He believes that many restaurant owners were "kindred spirits" in relation to the owners of microbreweries, since they both owned small businesses with focused concepts.
“Usually [a restaurant's concept] is one person with a vision, so they can relate to small brewery owners. They get it. They care more about what they were putting in their [customers’] glasses and realize people will come back if you give them quality,” Walton says.

Nigel Springthorpe, co-owner of the Alibi Room and Anthony Frustagli, co-owner of St. Augustine’s, both support Walton's views. Their establishments feature a staggering array of craft beers and only craft beers – the Alibi has 44 taps and three permanent beer engines to pour cask-conditioned beers, and St. Augustine’s has 40 taps.

Despite running very different restaurants, Springthorpe and Frustagli share a commitment -- to a vision and to quality -- that has been unwavering from the start, even when they met with criticism and resistance. And like Walton, they stuck to their guns, stayed the course and are now successful. This similarity in attitude between many small brewery owners and independent restaurant owners may have indeed played a big part in coupling craft beer with local eateries.

“Consistency, sticktoitiveness and no compromise,” Springthorpe says, listing the key elements that made his restaurant so successful. “I think if you try to please everybody, all of the time, you end up with a watered down concept," he says.
“At the Alibi it was a big step for us to get rid of the (great-selling) mega-beer brands. At first people were outraged if they couldn't get the ubiquitous brands they were used to seeing everywhere without even having to engage a beer list. But, we stuck to it. Through staff education we were able to guide people in other directions to product we thought they might like.”

St. Augustine’s also met resistance when they dared to offer craft beer in a sports-oriented environment.

“I can't tell you how many reviews of our place I've read online, by people who claim to be enlightened craft beer drinkers, that say something along the lines of ‘they can't decide if they want to sell good beer to the craft beer drinkers or Molson Canadian to the sports crowd’,” says Frustagli.
In spite of the critical reviews and pressure to turn off the sports on their televisions, St. Augustine’s stuck to the idea that some craft beer drinkers also were sports fans. Now the restaurant is packed almost every night, whether it's game night or not.

Apart from similarities as small business owners, Walton, Springthorpe and Frustagli also agree that cost considerations play a role in the link between eateries and craft beer. Although there has been a local craft beer explosion over the past five years or so, craft beer drinkers are still the minority and are considered a fringe or niche market. According to the latest statistics from the BC Liquor Distribution Branch Quarterly Market Review (BCLDB QMR), sales for domestic craft breweries have more than doubled since 2007, but these breweries still hold only a 15 per cent market share. That leaves 85 per cent of domestic beer sales going to the bigger, national and multi-national macrobreweries who still produce mostly alike-tasting lagers.

“Because pubs cost a million dollars or more they are often owned by corporations or other large interests, and those types of businesses generally don't play on the fringe,” says Frustagli. “They have investors that need to be paid back, profits that need to be made...they play it safe and offer what they know 90 per cent of the population will drink.”

Springthorpe echoes those thoughts about why pubs are more likely to stick with the bigger breweries.
“I think a lot of pub owners don’t just own one place, but have a lot of liquor primary licensed pubs under the same corporate entity,” he explains.
“There may be some economies of scale to be had by representing some bigger brands in not one, but several of your places. This would also put you in a position to be quite demanding with suppliers. A lot of the smaller breweries and agents can't afford and/or are not ethically willing to bend over backwards for big accounts who make all kinds of demands in order for them to carry a particular brand,” says Springthorpe.

At Storm Brewing, Walton is now leery of doing business with pubs. He has been successful many times in getting his beers on tap only to see them replaced by beers from the bigger breweries. These breweries usually offer a better deal for pubs, often breaching the law by giving pub owners free products or financial enticements to carry their brands.

“I don’t even bother anymore,” says Walton about trying to interest bars in his product. “My beer has been dropped too many times in bars because of kickbacks. It’s not worth the effort.”
Despite statistics that show total domestic beer sales to be down 9.2 per cent over the last year, sales are up for smaller breweries producing fewer than 150,000 HL (their draft sales increased by 7 per cent, while bottle and can sales are up a whopping 30.42 per cent). This has the bars sitting up and taking notice. Some bar owners are seeing the success of places like the Alibi Room and St. Augustine’s and are trying to jump on the craft beer bandwagon to lure in new customers.

“Only when craft beer proves itself as a money maker and a differentiator will the corporations jump on board, which is what we're beginning to see,” explains Frugstagli.
“As craft beer begins to take a bigger chunk of the market and further proves its profitability we'll see more and more corporations jump on board, and that will lead to more people drinking craft beer which will further prove its profitability, etc. It's a self-fuelling fire,” he says.

“I think we're already seeing changes,” agrees Springthorpe. “[It's] mostly because some pub owners or multiple location restaurant owners are seeing dollar signs when it comes to the question of selling craft beer. The big boys are seeing craft beer as a gateway to another market. I don’t think the majority will ever switch to all craft product. Right now it’s a way to get more dollars rolling in.”
Whether this new trend will continue is yet to be seen. For now, restaurants are still the prime places to enjoy local and imported craft beer. But one thing is certain: if the current trend of increased sales for craft beer continues, it's a win-win situation for local breweries and consumers.

Increased sales means increased opportunities for craft beer lovers to drink their favourite brews, and more potential for new customers to be exposed to those beers. This in turn could result in increased sales for local breweries, encouraging others to open small breweries.
And for those who had the foresight and vision to support craft beer from the start, like Springthorpe and Frustagli, it will mean continued success and sense of satisfaction that their visions and “sticktoitiveness” has paid off.