Saturday 20 November 2010

Grey market beer

I'd not heard of this one before. @yeastieboys points to controversy over the status of grey market beers: beers imported into a country market without the brewer's explicit authorization. If I were to buy a few cases of some interesting beer from the UK or US, shipping it via surface mail, it probably wouldn't taste the best on arrival if I didn't take precautions to ensure that it were refrigerated and handled properly. An authorized importer will presumably follow whatever guidelines are set out by the brewer; a grey market distributor will take care that varies with the expected effects on his reputation.

Foreign brewers worry that they'll bear the reputational cost if a grey market importer fails to take due care and beer arrives in subpar condition: customers will reckon the brand isn't very good rather than blame the distributor.

I've a few of worries about this line of argument.

First, even in home markets, a brewer's product isn't always sold through authorized outlets with guaranteed fridge temperatures. A bar can buy a keg of any kind of beer, fail to clean its lines, and provide a poor experience to the customer. The beer vendor (barring those that own the taps) can't guarantee that the bar does a proper job in cleaning its lines just like it can't guarantee that a shipper will take due care. Why is the latter that much worse?

Second, importers will still face reasonably strong incentive to handle product with care. Even if the customers can't tell what's a brewing fault and what's due to rough treatment, the beer buyer for a serious outlet ought to be able to. And it's that buyer who chooses whether again to deal with the importer. A retailer who consistently sells quality interesting products will have an easier time in getting customers to try new things than one that sells products that have gone off.

Finally, the reputational damage is likely to be fairly constrained. Beers will only arrive in a country via the grey market if the brewer hasn't reckoned the country worth the effort, if the brewer tries to engage in international price discrimination, or if retailers are insensitive to product quality and prefer product that's been poorly handled but sells at a discount. But retailers also earn reputation. Let's assume for the moment that the grey market supply always provides poor product experience. If a US microbrew figures that the New Zealand market isn't worth exploiting due to the fixed costs and it's subsequently served by a poor grey market, what are the losses to the brand?
  • Its reputation within the country is somewhat eroded, making it more expensive for the brewer to open an official channel - they'd have to work to rebuild reputation. But how likely is it that they ever would have sold product here anyway?
  • If Kiwis post bad reviews of the beer on the various online beer forums, surely folks would start picking up a fixed effect: glowing reviews from domestic reviewers followed by scathing reviews from folks thousands of kilometers away ought to look to most folks like shipping problems. It's hard to see this as having big reputational costs for the brewer.
The bottom line for beer lovers ought to be that they shouldn't hesitate to buy grey-market beers, but that they should:
  • Check the expiry date on product
  • Only buy from retailers who care about quality product. If a retailer's chiseling on buying cut-rate imports that arrive in damaged condition, how do we know he's not chiseling on other margins that affect product quality? But if the retailer cares about quality, he's probably making sure to stock from distributors who also care about quality: grey market or not.
  • Have a chat with the retailer if they get a bottle that seems off. A good retailer will take it seriously and check other bottles from the same shipment for faults; one that doesn't may not be worth repeat custom.


  1. Hi -

    Great to have you weigh in on the issue. I edit Brews News and the debate sort of spiraled out of control during the week and away from the initial point - and that is some brewers strongly don't want their beers shipped. Greg Koch from Stone Brewing is one. I'd invite you to hear from him his views, which obviously I found very persuasive. It would be good to hear what you think.

    Beyond that, 'grey' market beers are unavoidable and, for many, desirable. How good they are comes down to how good the importer and your points about selecting beer are very well made - and the sort of debate about beer quality that we wanted to encourage. Thanks.

    Finally, (and it delves into the philosophy a little) something that I have noticed about this debate is there are many beer lovers who have weighed in essentially saying, "but I want this beer, I should have it". It's hard to avoid generalities in this debate, so apologies, but I am sure that many of the beer lovers saying that would also be against the globalisation of beer by big business, talking about how good craft beer is because it's small and bringing in elements of the slow food ethos to support their choices. However, just as with slow food, you shouldn't expect to be able to have strawberries, grapes and stone fruit 12 months a year as they are seasonal, good beer isn't something that can necessarily be available in 100 countries whenever it is wanted.

    It is the "I want it" philosophy that led to the development flavourless tomato designed to withstand a 20 km/h collision. Today it is hard to find anything else apart from them. Expecting every great beer of the world to be on hand all of the time is the mindset that leads to compromises of quality that over time lead to bland and generic beer - and flavourles fruit! I think supporting Greg's call supports a philosophy and approach to beer that I like. I think beer lovers should be leaders in this by drinking local, rather than the ones further driving the concept that beer is international. But that's just me...

  2. Disclaimer: I'm an importer and retailer of craft beer trying my best to source great products through official channels.

    I was amazed when I arrived in Japan a few years ago at how spoiled consumers there seemed to be. But then Nagano Trading started bringing in their extraordinary portfolio of mainly US beer and the whole scene went to another level. You can now walk into several bars in Tokyo and find beers on tap that are rare in the town that they're brewed in. These are all "legit" imports - possible because the brewers trust the importer.

    The president of Nagano Trading doesn't sweat about the grey market because he trusts that the quality and price of his imports will win out over the competition. And he's being vindicated.

    I'm confident that in time we'll have the same effect here. But a little customer awareness will help.

  3. @Matt: I'd read your piece, thanks. The easy part first - there is no way that grey market importing leads to problems like the cardboard tomato. Why? We already have that - Heinekein. A grey market beer that arrives in good shape will be enjoyed; one that ships poorly will wind up only serving a local market.

    The harder question is where the brewer has made explicitly clear that he does not want the beer transported. In the easy case, he has sold the beer only under restrictive covenant and then is able to sue folks who violate the terms of sale by onselling abroad. I do not think that NZ courts should help in such enforcement, but courts in the brewer's home market ought to be able to. Absent that, it would be down to whatever the customer thinks the moral weight of such appeals ought to be. Like if the liner notes in a CD beg that you never burn it to your iPod, or only listen to the album on sequence to preserve its artistic vision. Or if I put a disclaimer on the blog begging it never be read on an iPhone and only on Android phones. I tend not to put much weight on such appeals, but other folks might. Bottom line is that if the beer tastes good after shipment, folks abroad are going to want to drink it; if the brewer is right about quality deterioration, they won't.

    Further I expect that having access to international microbrews is a strong positive for local microbrewing. It educates local palates and inspires local brewers to try new things they otherwise might not have thought of. Like how rock music plus traditional Tuvan throat singing yields Yat-Kha, improving both.

  4. @Eric...bear in mind that I'm only talking about beers where the brewer has gone out of his way to make his wishes clear.

    I'm not sure if you're listened to the interview that I did with Greg, it went up yesterday. Yes, there's a lot of things a brewer could do to stop not sell it to you. That's where it's different to the iPod. He's not saying buy it but only drink it in a pint glass. He doesn't want you to buy it and doesn't make it available to you to buy. That should be enough. Buy a beer from a guy who doesn't care that you're drinking it.

    As far as I'm concerned, the reason that Stone Ruination and Pliny the Elder are so desirable is because the people that make them are passionate and uncompromising. If that same passionate and uncompromising approach leads them to say I won't ship my beer to Australia or NZ, then the two go hand-in-hand. I can't have it here. Tough. Life's unfair. I'll deal with it.

    I really question the mindset that on one hand says "I love your approach to brewing" while flipping them the bird with the other by saying I'll drink it despite your express wishes. I'm sorry, but that just sounds like a three year old having a tantrum at the checkout counter because they can't have the lolly they want.

    I would love to try the food at El Bulli...but I can't without going there. While you can physically transport Stone beer unlike food at El Bulli, Greg's saying that you lose the intrinsic thing that makes it sought after. Should I complain that I should have the food? Or should I seek out chefs that are inspired by what El Bulli are doing and support them as they develop the local market and push it further?

    As for Heineken, you're exactly right - and we got there because people didn't care enough to say "no". As supposed beer advocates, we should be leading the charge in changing that - not by seeking out every possible beer that we can drink. The expectation that we deserve to have every beer in our loungeroom is just the reverse mindset as "where ever we are in the world, food should be the same". Result, McDonalds.

    Change is creeping. This comment is getting a little bit metaphysical, I know, but the blandness and sameness that is now 95% of the beer market didn't just happen in beer over night. It crept in over time as people gradually lowered their expectations. Conversely, it won't be reversed over night.

    If guys like Greg Koch aren't the anchor point at the idealist end of the market, the ship slowly drifts towards the purely pragmatic and entirely commercial end and the majority just accept that all beer is the same and that you should be able to buy it everywhere. It becomes McDonalds, Gloria Jeans and Corona.

    I genuinely believe that we need arrogant bastards like Greg Koch at one end of the market to show how good it can be. I think genuinely passionate beer lovers would applaud that not undermine it.

  5. And you also like Yat-Kha... You are starting to freak me out.

  6. @Matt As a person that likes beer I *do not care at all* about the philosophy of the brewer, either I like the beer or not. In the same way, I may like some music but I may not stand the personal side of the artist. Last year I tried some fantastic beers in Oregon and I would happily pay to buy them here in Christchurch; they may arrive OK (or not) but I would give it a go.

  7. @Matt: You're right; I'd missed the interview. I've not a chance now to listen to the podcast, and I can get how a passionate brewer might really want a lot of control, for good reasons, on how the beer is presented and that he'd prefer it not be bought at all under inferior conditions.

    I'm still not sure though how this would be different from some band issuing an album where they've engineered it in studio to sound its very best on a very particular kind of sound system, then insist strongly that nobody buy the album unless they had that particular sound set up. Me, I'd still buy the album and would just keep in the back of my head that it would sound even better on the sound system for which it was designed.

    Now, how could this all wind up being detrimental to the quality of the specialist microbrews? If, given grey market imports, the brewer worries more about suboptimal experiences for folks abroad than the local drinkers, he might rejig brewing techniques to favour transport. That's not necessary, but it's possible. That's about the only plausible one I can think of, but I can't see it as all that likely.

  8. @Eric The difference with your music analogy is that you can't stop what an individual does once they buy it, of course. But you can (try to) stop the business of people selling it in what he regards as a compromised state and that's what he's doing.

    There's a difference between listening to the compromised music yourself and opening a shop to sell it to everyone.

    As for the how could it be detrimental. I saw this yesterday on Stan Heironymus's's paraphrased.

    "If a beer is stale make sure it is always stale. People will buy bad beer. They’ll get used to it."

    Teach the market that beer is stale (or bland) and that's what they'll expect and buy.

  9. I don't have any particular problem with the brewer using restrictive contracts prohibiting on-selling if he wants.

    If a foreign microbrew comes into the market and is sold stale, it's a lot more likely that it induces beer lovers to drink other microbrews instead rather than wrecking the local folks' palates.

    Lots of folks really do like the plain mass market beers. It can be produced at low cost and can be thirst quenching on a hot day. The market is properly viewed as segmented. It's great that more folks are liking good beer, but we oughtn't reckon that the mass market folks are just slouches who've been brainwashed into liking stale beer. It's like complaining about folks who like Olive Garden.