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Wednesday, April 5, 2006

By KEVIN G. DeMARRAIS
STAFF WRITER



Americans are drinking microbrewed beers as never before.

But New Jersey brewers say they're not enjoying the full benefits of the national upswing in the popularity of craft beers because of antiquated state laws that put them at a competitive disadvantage.
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And a new law that took effect Saturday that gives more power to wholesalers only makes things worse, they say.

"New Jersey has the dubious distinction of being one of the more difficult states in which to do business," said Greg Zaccardi, owner of the High Point Wheat Beer Co. in Butler.

Whereas other states allow brewers to combine restaurant sales and retail sales, New Jersey's beer makers must choose one or the other.

"We're battling uphill," said Rick Reade, owner of the Cricket Hill Brewing Co. in Fairfield.

The hill got even steeper Saturday when the state's Malt Alcoholic Beverages Act kicked in. The law makes it extremely difficult and time-consuming for a brewer to change distributors, even when the distributor changes ownership or service is less than ideal. It was intended to protect distributors from brewers who use the threat of cancelling a contract if the distributor does not agree to what may be unreasonable demands or contract terms.

But it had the unintended effect of making life more difficult for microbreweries, which don't have the financial clout of the big breweries, Zaccardi said.

"The fate of our brands is in the hands of wholesalers, who are controlled by our competitors," he said.

"We are on great terms with our wholesalers now, but the potential for problems exists."

Even without the new law, the state's microbrewers were not fully sharing in the rebirth of their industry after a shakeout in the late 1990s.

Last year, sales of craft beers -- specialty brews made in small regional or local breweries -- grew by 9 percent from a year earlier to 7.1 million barrels, reports the Brewers Association, a Boulder, Colo.-based trade association for 1,300 craft brewers.

That was the biggest jump since 1996. Even so, craft beers still accounted for just 3.5 percent of the more than 6.3 billion gallons of beer Americans bought last year.

New Jersey's liquor laws have held back growth, said Reade, whose five-year-old brewery produces 700 barrels of beer a year.

"We have a choice of being a microbrewery, which sells only through retail outlets, or a brew pub, where there's only on-site consumption," he said.

"In every other state, you can be both. New Jersey is doing far less for its craft brewers than our neighboring states."

Combined breweries and restaurants allow consumers to provide immediate feedback to the brewer and an additional revenue source, said Fred Forsley, founder and owner of the Shipyard Brewing Co., makers of a craft beer in Portland, Maine.

"I think it's very important, especially in the beginning stages," he said.

Forsley started his company at Federal Jack's Restaurant and Brew Pub in Kennebunk in 1992, with the lower-level brewery serving customers in the upper-level restaurant.

"At Federal Jack's we had a very small system, seven barrels [a day]," he said. Most was sold in the pub, but Maine law allowed him to sell excess production to other outlets.

"When we first started, we distributed it ourselves, out of my Blazer, to bars in Portland," Forsley said by phone.

"Our outside sales supplemented the overhead," he said, while the company's brews gained exposure to a wider audience, increasing demand.

"That helped start the growth," he said.

Within two years, demand for Shipyard outgrew the small operation, leading the company to open a larger one in Portland. The beer is brewed in batches of 50 to 100 barrels and is now distributed in more than 30 states, including New Jersey.

New Jersey's microbreweries can't do that, and the restrictions are costing the state money, officials say.

The foundation of the state's regulation of alcoholic beverages is a three-tiered system of separate bottlers, distributors, and stores or restaurants whose licenses are based on the population in the municipality in which they are located.

Easing rules for one level could have a potential ripple effect that is too far-reaching, said Deborah Dowell, president of the 20,000-member New Jersey Restaurant Association.

"If you change a little piece over here, it will have an impact on other aspects of the system," she said.

"An awful lot of people have vested a lot of money in a liquor license," Dowell said.

"I bet they don't have that nut to cover in Maine. We are dedicated to preserving the value of that investment."

What's frustrating to brewers is that the state's growing wine industry -- backed by the agriculture and tourism departments -- is allowed to sell directly to consumers at up to six restaurants each.

If New Jersey breweries had similar rules as the wineries, "we would be happy," Reade said.

"You could go to the busiest pizza parlor and sell your beer there."

Why do wine-makers have more lenient rules?

"It's a bit of a joke, but it's also true: The wine industry has a very strong lobby, but the brewers don't," Zaccardi said.

The microbrewery trade organization in the state -- Garden State Craft Brewers Guild -- is essentially a club, with no formal lobbying program.

"Our goal is to have parity with the wine industry, not to undermine retail licenses," Zaccardi said.

E-mail: [email="demarrais@northjersey.com"]demarrais@northjersey.com[/email]