How to Start a Beer Distributor Business

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Starting a beer distributor business can be a great opportunity, especially if you have a passion for the product. That said, due to the regulation of the alcohol industry, it's important to understand what's involved. Learning more about the beer distributor business model is essential before moving forward.

Alcohol Regulation in the United States

In the U.S., alcohol distribution and sales are regulated at both the state and federal level using a three-tier system. In this system, the alcohol industry is divided into suppliers, distributors and retailers.

The brewers are the suppliers, and with few exceptions, they are not permitted to sell their product directly to retailers, who are the ones who sell alcohol to individual customers. Instead, brewers must sell to distributors who then move the product to retailers. This system helps ensure transparency and accountability and also promotes a more level playing field between huge brands and small microbreweries, allowing products from all types of brewers to sit side-by-side on the shelves.

Beer Distributor Business Structures

Just like starting any other type of business, the first step is to decide on a business structure. There are several business structures available, including sole proprietorships, partnerships, corporations, S corporations and limited liability corporations; LLC is the most common.

Especially since the Tax Cuts and Jobs Act of 2017 has changed aspects of how various business structures are taxed, it's recommended that you consult with both a tax professional and a legal expert when selecting a business structure appropriate for your needs. You may also need to file a Doing Business As certificate with your state. This is typically filed with the secretary of state's office for $20 to $50.

Trademarking Your Business Name

You may also want to trademark your word mark or logo mark with the United States Patent and Trademark Office. This process can be on the expensive side, but it helps build credibility with both clients and competitors. An attorney can assist you in research to make sure your intended mark is not already trademarked, and you will also need to provide proof that you are actively using your mark in commerce.

EINs and Taxes

As part of setting up your business, you must obtain an employer identification number from the IRS. This is necessary for issuing W-2 forms to your employees for them to file their taxes. You can obtain an EIN for free by completing IRS Form SS-4. The IRS website download of the form includes detailed instructions for filling it out.

Writing a Beer Distributor Business Plan

To get started with your distributor business, you must put together a business plan, including planning for or sourcing property, equipment, vehicles and employees, such as drivers. A solid business plan also includes financial projections, a marketing plan, market analysis and competitor analysis, among other components. Your business plan can help prove the viability of your business to potential investors and partners.

Once you have your beverage distributor business plan, you can start getting the various types of licenses and permits that you will need at both the federal and state levels. Finally, you can start building relationships with brewers and merchants, hiring staff and moving and storing product.

Finding a Facility

To find a facility, hire a qualified commercial realtor or broker who may be able to help you with not just finding a location but also in networking with other businesses in your area or sector. The ideal facility for a beer distributor is usually a warehouse with well-designed loading docks. You may also be able to find a facility that has previously been used to store food or even beverages, thus coming with refrigeration cases, structural pallet-racking systems and beverage storage systems.

You must also consider whether to buy, lease or build. While it's possible to build a facility from scratch, this is a huge investment and also runs into legal considerations such as easements to streets and highways and establishing utilities.

Buying is a good option for an established business. For a brand-new distribution business, leasing is usually the best option, though it can be a little complicated. You may be able to obtain a lease option wherein your rent contributes to eventually buying the property. The qualified commercial realtor you've hired can help you consider all options and choose the best one for your business.

Insuring Your Business

Once you've selected a property, you will need to plan to insure it. At minimum, purchase insurance for your warehouse against theft, flooding, fire and liability. You may also need more geographically specific policies for things like tornadoes or earthquakes. It may be good to look into an umbrella policy that covers what your primary policy or policies do not.

Some insurance companies also offer insurance plans specific to alcohol distribution. These policies may include commercial auto and fleet insurance that covers your trucks and drivers, various types of property insurance tailored to beer bottlers and distributors and workers' compensation policies to protect your workers.

Purchasing Equipment and Trucks

You will also need to plan for trucks and equipment. Most equipment, such as forklifts, can be obtained used for much less than buying new. If your facility did not come with equipment for refrigeration, beverage racking and pallet racking, you will need to obtain these also.

Trucks are also good to obtain used, or you can lease, which often cuts down on overhead, costs, fees, interest and insurance. Your trucks should be able to carry at least 2,000 pounds (about 100 cases). Aim for trucks with a gross vehicle weight rating of under 26,000 pounds.

This way, your drivers will not need a commercial drivers' license, and you can still transport around 250 cases of product per trip. Ideal trucks have "beverage bodies" for easy loading and unloading. Diesel or hybrid engines and automatic transmissions are also a plus to decrease fuel and wear-and-tear costs.

Federal and State Licensing

Once you have your EIN and business plan and have settled on a business structure and name, it's time to start filling out permits. The alcohol industry is regulated at both the state and federal levels, so you will likely need permits and licenses from both.

The relevant federal agency is the United States Alcohol and Tobacco Tax and Trade Bureau, or TTB, which is part of the United States Treasury. This bureau regulates licensing, permits and taxation for the distribution, trade and importation of alcohol, tobacco, firearms and ammunition. The TTB maintains and oversees a thorough application process for each of its regulated industries to ensure that everyone in these industries is qualified and will conduct business fairly and legally.

Federal Permit for Distributing Beer

Obtaining a federal permit for distributing beer is contingent upon compliance with the Federal Alcohol Administration Act, which regulates permissible activities by wholesalers. This act is part of what forms the three-tier system that allows for brand and market diversity by dividing the alcohol industry into sectors and tiers.

Selling beer is not regulated the same as other articles of commerce, and it's recommended that you read and review the trade practices section of the Federal Alcohol Administration Act for more information.

Application for Basic Permit

To proceed, you must go through the application for basic permit. The primary form is TTB Form 5100.24, and the TTB website includes a tutorial on the application process. You will need to submit your business information including articles of incorporation, partnership information, EIN and logo trademark information.

In the section marked "Business To Be Conducted at Premises Address," check both the "Processing" box and the "Distilled Spirits Plant" box. Distributors must also register any facility holding food or beer with the Food and Drug Administration as a result of the Bioterrorism Act.

You must also check whether your premises are eligible for the National Register of Historic Places. The TTB has specific rules for handling premises under the National Historic Preservation Act, so check with your state's historic preservation officer and review the NHPA page on the TTB website.

State Licensing Requirements

All states also require licensing at the state level, but states differ in how they regulate the production, sale and distribution of alcohol. You will likely need a state distributor or wholesaler permit, and there may be different permit options depending on the type or types of alcohol you plan to distribute (for example, beer vs. hard liquor). You may also need to get warehouse permits to satisfy state requirements regarding the storage of alcohol, and you may be assessed on your ability to fulfill requirements around warehouse space, inventory and sales.

Your state may also have restrictions on how many distributors can be licensed in any given area. A general overview of state-level specifics can be found through the National Conference of State Legislatures. For information specific to your state, contact your state's secretary of state office or attorney general's office.

You will also need to check that the commercial property you intend to use as your premises is zoned for beer distribution and that it meets any requirements surrounding proximity to schools, churches or other types of buildings. Contact your county clerk to verify zoning and ask about proximity laws.

Distributing Beer as a Business

Once you've formed your business plan and obtained all the relevant permits and licenses, you're ready to distribute beer. This involves staying abreast of beer trends; forming relationships with brewers, breweries and retailers; and properly preserving the product while it's in your care.

To stay current on beer trends and news, attend beer conferences and subscribe to beer-related magazines and sites. Major breweries like Miller, Coors and Anheuser-Busch often provide training for startup beer distributors, including conferences and lectures. Large brewing companies like this also generally have local representatives in most areas of the U.S.

Locate your local representative of each major company and discuss possible distribution solutions with them. Sometimes, you will encounter the barrier of an exclusive arrangement with another distributor. These occasionally fall through or expire, so keep an ear out to see if you can't snap up a contract in such a case. The Association of Brewers and the Brewers Association of America also put on conferences that provide great opportunities to network with smaller breweries.

In-Person Opportunities

You'll also need to hit the streets in your city to talk to local brewers in person to discuss opportunities. Many breweries will also provide you with samples and advertising materials that you can then pass on to customers. Networking with customers is also important. Contact bars, restaurants, grocery stores and convenience stores and form relationships based on consistently providing quality product.

Beer distributors play an important role in preserving the quality of the beer as it moves from creator to customer. The Brewers Association recommends that all draft beer be transported and stored between 33 and 40 degrees Fahrenheit and packaged beer at 33 to 49 degrees. Talk to your brewer partners about interpreting their "packed on" and "best by" dates and their "true-to-brand" taste descriptions.

It's a good idea to organize tastings or tasting panels for your employees so that they understand the difference between true-to-brand product and bad product and understand their role in keeping up quality and helping every business in the chain to succeed — you, your brewers and your retail clients. Starting a distribution business can be a challenge but also holds the potential for great rewards and even fun. With persistence and patience, your beer distribution business can be a success.