Disrupting the Craft Beer Market With Chad Meigs

Here’s a glimpse of what you’ll learn:

• Chad Meigs discusses the challenges faced by small craft breweries in New York
• The importance of individual cans and resale
• Why there’s a need for a more efficient distribution system for craft beer
• How breweries can scale through self-distribution and partnering with distributors
• The process of mailing alcohol across state lines
• The challenges of scaling a DTC alcohol delivery service
• Craft beer distribution and e-commerce potential
• The value of supporting local breweries

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In this episode…

In a market dominated by giants, how is the craft beer industry being reshaped by innovative distribution methods?

According to Chad Meigs, a visionary entrepreneur in the craft beverage sector, the key to disruption lies in a unique distribution model that caters to independent breweries and craft beer aficionados. He highlights how his approach prioritizes DTC sales, leveraging technology to connect a diverse range of local craft beers with a wider audience. This not only aids small breweries in scaling their operations but also revolutionizes the way consumers discover and enjoy craft beer, fundamentally altering the landscape of the industry.

In this episode of America Open for Business, Cameron Heffernan speaks with Chad Meigs, Founder and CEO of Third Space Distribution and President of Drink NY Craft, about the transformative trends in the craft beer market. They discuss the challenges of navigating state-specific alcohol regulations, the strategic use of e-commerce platforms like Shopify, and the potential of AI in enhancing customer experiences.

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Resources Mentioned in this episode

• Cameron Heffernan on LinkedIn
• Your B2B Marketing
• Chad Meigs on LinkedIn
• Drink NY Craft
• Third Space Distribution
• “The Story of UGG: Birthing a Billion-Dollar Global Brand With Brian Smith” on the America Open for Business podcast
• New York State Brewers Association

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Sponsor for this episode…

This episode is brought to you by Your B2B Marketing.

Are you a mid-market B2B company facing challenges articulating your value proposition to customers? Without a well-defined strategy, allocating marketing funds may not yield optimal results.

Your B2B Marketing, a team of experts specializing in devising and implementing plans, helps entrepreneurs and leaders understand what makes them invaluable to customers and puts that front and center in their messaging for scalable growth.

Discover how strategic marketing and communication approaches can drive your expansion by visiting www.yourb2bmarketing.co/ or contacting us at info@yourb2bmarketing.co.

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Transcript

Welcome to America Open for Business, where we talk with high-growth entrepreneurs and leaders who have found success in one of the world’s most important markets. Hi, I’m Cameron Heffernan, and I’m the host of America Open for Business, where I talk with high-growth entrepreneurs and leaders who found success in one of the world’s most important markets. Our past guests on the show include Brian Smith, who’s the founder of the UGG brand, the sheepskin boots from Australia, and author of Birth of a Brand, the book about his own personal journey building what became a billion-dollar consumer footwear brand. This episode today of America Open for Business is brought to you by Your B2B Marketing, a truly global marketing agency. Many midmarket B2B companies face challenges in clearly defining their value proposition and articulating it, so we help founders and leaders understand what makes their products and services invaluable to customers and put that front and center in their messaging. You can check us out at our website, yourb2bmarketing.com. And somebody who knows more about dooms and me is our guest today on the show, and that is Chad Migs, who I’m very happy to welcome on the show from Central New York. He’s the founder and CEO at Third Space Distribution, which is an innovative craft beverage distribution company. Founded in 2020, 3SD’s primary focus is assisting independent breweries to grow in scale by offering a new model of distribution while at the same time introducing craft beer fans to their next favorite beer. Chad loves to learn new things every day, and what gets him excited is connecting with others to make life better for everybody. It’s a fantastic mission to start with, and they can just jump right in. Chad, welcome to the show. Cameron, thanks for having me, excited to be here.

Okay, cool. So, I love statistics, right? And I know you’re at heart a thinker and a contemplator who thinks things over. So, I’m going to throw some statistics at us to get things going. So, I read that around 133% of beers sold in the country are from craft brewers. Obviously, you have to define what does that mean, uh, small independent brewers making less than six million barrels a year. That sounds like a lot to me, but to a company, it’s not. Focusing specifically on beers that are distinctive and innovative, that’s very subjective, let them slide on that part. However, in the state of New York, craft beer makes up only 6.3% of the beers sold, and those made in the state represent 4% of the total. So, that to me is sort of a disconnect or a gap, and I wanted to hear your take on this, what you think about some of those numbers, and the opportunity it may mean for a company like yours.

Absolutely. So, I’d like to start out just by talking about New York in general. New York, at my last count, has approximately about 545 breweries, I believe, which is the second most breweries in the entire country behind California. Because of that, you would think New York would be selling a lot of craft beer, but for whatever reason, we are not. And the main reason behind it is because of distribution. It’s really the motivation behind large corporate distribution companies and what they carry. A lot of them don’t want to deal with the smaller craft breweries, and what that leads to is just a lot of the same beers everywhere you go and not a lot of innovation in the space, and then just ultimately poor choice for consumers. And you know, everyone loses in that type of situation, but that distribution company. So, we started this company to kind of even the playing fields, to get the little guy representation out in the market, and really to bring choice to consumers.

Okay, so your company, your storefront site, your consumer brand is drinknycraft.com. Drink NY Craft is just, it’s a Shopify website. You can go, and it’s like any other website like Amazon but just for New York State craft beer. So, you go in there, you can sort through the beers, you can choose ones that you like, add them to your cart, and then we ship them to your house via common carrier. Most people will come to the site, a first-time customer, and they’ll kind of browse the site to look at things that interest them. Say you’re an IPA guy, so they see a couple of IPAs that they maybe haven’t seen before, and they’ll try one of those. And we sell individuals, which I think is key. So, most people come on, they’ll pick out a few individual beers, say they’ll make up a 12-pack or a case or something of one-offs, have them sent to their house, they enjoy them with friends and family. And when they come back again, they tend to purchase more of the ones that they already bought that they enjoyed. If you know brewery X, they buy their porter, their stout, or something like that, on top of that first IPA that they tried. I think one of the most powerful things that we do is that single can. One of the pet peeves that I have is I would go out to my favorite beer store and try to pick up a four-pack or something like that, bring it home, you know, I haven’t had this four-pack before, but it looked cool, like the can looked cool, so I brought it home, try it, like, “Oh, this is awful.” And I’m the type that can’t pour it down the drain, so I take that four-pack, and I shove it into the back of my fridge, thinking that I’ll have some friends over next weekend, and I’ll pawn it off on one of them. Well, over time, the back of your fridge becomes the front of your fridge, and you know, your wife is on your throat for having too much beer around. So, I think that’s one of the powerful concepts, individual cans, you know, resale, and people coming back for more.

Yeah, and eventually, those friends will start to wise up and not take what you’re trying to offer them, right? Let’s not go to Chad’s; he’s got old beer. Yeah, um, so that you see that if you go to Wegman’s or Safeway or some of the bigger grocery store chains now, in the last 10 years, maybe you can, you don’t have to pick a six-pack of what they’re, you know, have there. You can mix and match. Maybe it’s a little more expensive, but yeah, that’s great, and I don’t have to make a sacrifice and get a 12-pack, and I only like one of them, or the first sip is terrible. So, uh, what problem do you see that you’re solving? So, I mean, you hit it right off the bat. There’s, there’s New Yorkers are not drinking New York beer, and having 545 breweries in the entire state is a sad statistic that we’re around 4% of New Yorkers drinking New York beer. So, a little bit on my background, I actually started a hop farm about 12 years ago, and through selling hops to these small individual breweries, I learned of the intricacies

of distribution, which are many. And for the common beer drinker, they really don’t understand how their beer actually gets out there. So, I learned that the intricacies of the distribution world, specifically for craft beer, and it doesn’t work for a lot of the breweries, like 80 plus percent of them, it doesn’t work. And for that reason, they don’t get into distribution at all. Some of them kind of dabble in self-distribution a little bit. Barely any of them do DTC just because it’s so expensive and time-consuming. So, I really saw a niche, you know, this was right after COVID, where, you know, people were getting things shipped to their house, and I really saw an area where I could really shine and, you know, help the consumer get more access to choice and help these little breweries be able to scale their businesses. So, we went for it.

That’s pretty cool. I pulled up an article about you guys from, I think, last summer on syracuse.com, and a couple of things stood out to me as interesting or noteworthy. One was a quote, probably like a paraphrase, from a brewer, the difference between selling direct to consumers and going through a distributor. Do you want to make, excuse me, do you want to make a $5 pint or a $5 case? In other words, a lot of these breweries, probably smaller, maybe they started as a family business or even a restaurant or something, were big, you know, their base but don’t have the scale and the logistical capacity to do much distribution. So, their sales are on-premise, people coming in, and they can have a much higher profit margin that way. Why would they want to go through some two or three-level distribution network when their margin goes down? Is that accurate?

Absolutely. So, it’s really a matter of, you know, do you want to be a lifestyle business, or do you want to be a growth business? So, I think, you know, in my last 15, 20 years in this industry, I’ve really noticed a couple of patterns. So, when a brewery first opens, it tends to be, you know, a glorified homebrewer that makes great beer, and his buddies talk him into opening shop. Their best model is, you’re right, pint glasses over the bar. You’re making your best margins there. And if that’s as ambitious as you want to get, great. That’s a great business. But for some, they do want to grow; they just don’t necessarily know how to get there. They look at the Sierra Nevadas of the world or the Dogfish Heads and like, well, how do I get there? So, those are the people that we can really help. So, the order of operations usually, you know, they start off at the taproom, selling pints over the bar. And then they get into a little bit of self-distribution, you know, they’re like, okay, let’s get out here a little, let’s keg some beer, let’s bring it around town to our favorite places. And they say, oh, like, this is pretty good, you know, we’re able to make larger batch sizes now, maybe we can upgrade a fermentor, maybe we can start canning, maybe we can start kegging. And then that starts to snowball a little bit, and then it becomes a point where it’s a pain in the ass. It’s usually the head brewer that’s also the head bartender that’s schlepping a keg or two across town, and they just get tired of it. So, they need help scaling that portion of the business out, and that’s where we come in. Like, one of the first questions I actually ask some of my breweries is, hey, have you tried self-distribution at all? And some of them that say no, I’m a little hesitant to work with them because you really need to know what it’s like. You really need to know the value of what a distributor brings because you’re right, if you just look at it from an accountant point of view, why am I going to give this company 30% to get my beer out there? Well, the answer is scale. So, if you want that growth business, you’re eventually going to have to have a partner.

So, when we first talked about this, I didn’t even know that this was possible, possible, right? Because you’ve got different levels of complexity. You’re not mailing steel or toys or things. You’re mailing, first of all, across state lines, a product that’s not legally consumable by everybody. So, maybe we start with that. How long has this been something that’s possible? You can mail alcohol to consumers.

It’s really state by state. So, some states allow it; some states don’t. And here in New York state, it’s kind of a gray area, so to speak. So, there’s only a handful of us that actually do this in the state because you have to have a certain license to be able to do it. But at the very beginning of this, and this is pre-COVID, I had this idea, and I wanted to be able to do this. Like, well, I need to somehow distribute beer through the mail, and I reached out to the state liquor authority, and they’re like, oh yeah, you can’t do that. I’m like, well, you know, I see company over here, how are they doing it? So, it’s kind of reading in between the lines with the state liquor authority, but I finally did get the green light from their head lawyer, and it’s been just full bore since. I think the reason others haven’t gotten into it is because of the barriers to entry. You know, alcohol being a regulated product, there is so much red tape that you have to get through in order to even open your doors. I mean, I had to be sitting at a warehouse for close to 12 months before I could even sell a beer, just waiting in line for the state liquor authority to approve my license. So, the cards are stacked against the average Joe entrepreneur that wants to start something like this. So, that’s probably the reason why we don’t see more of them. But it’s a very powerful thing. Consumers want that omnichannel experience, and I think it’s here to stay. More and more every day, we see this, I call it disintermediation, like Amazon just pulled up on the street here, dropped something off. I can go directly there; it’s very convenient for me. We’re just seeing disintermediation of the banks, of healthcare, of different sectors of this country and around the world, really. But, and this is always going to be a tricky one because it’s products that you don’t want my six-year-old going and ordering a six-pack from your site also. So, you’re trying to solve a couple of problems at once. And, uh, you’ve also got the aspect of the producers, the breweries. Are you finding them open to your idea, to this concept, or they think this is going to take away some of my sales, or is it a positive thing for them?

Oh, it’s absolutely a positive thing.

And because we have two lines of business, one being the more traditional, you know, kegs and cases to bars and restaurants, and then the DTC side of things, it’s really easy for a brewery to, you know, so to speak, get in bed with us because we can just start doing the DTC for them first. All of them want to do it; they just haven’t figured out how to do it effectively. So, being, having a distribution license and being able to work with, you know, 50 plus breweries that we have on our site right now, creates economies of scale. So, we’re able to do it at a lower cost if someone were to do it themselves. Plus, you know, consumers come onto the site, and as I said, they want to order individuals, they want to order beers they haven’t had before, they want to order seasonals from various places. So, they get choice, and I think that is the value add. And so far, the breweries, you know, some of them, I sometimes have to turn away because we have really too many. So, it is, I guess it’s a good problem to have. But, yeah, that’s been the easy part for them, is to get on the DTC site.

What’s the biggest impediment to your growth right now?

Funds. I mean, really. We’re doing a convertible note raise right now to try and scale us out. Right now, our scope is New York state, but we do have countrywide ambitions. But, yeah, it’s the traditional retail side of things, you know, kegs and cases to bars and restaurants. I need trucks; I need sales reps; I need things like that to be able to scale this out. And we can only grow so fast organically; we need a little, you know, we can’t, we can continue to bootstrap it, but at this point in time, I feel it’s a race for market share. Once other companies start, you know, catching on and starting their own DTC channels, we would be better fit if we have a large chunk of that pie than just to kind of take it slow. So, capital.

Yeah, I suppose not only are those entities you’re competing with, but then there’s nothing stopping Matt’s or Budweiser or other, you know, big brewers from taking their craft beers and doing a similar approach. The advantage you have is that you’re agnostic; you can offer beers from anybody and truly, you know, a locally made product.

Absolutely. And some of the larger guys are getting onto it because they, in New York state, some of them are allowed to self-distribute. So, some of them are jumping on board. But again, it’s limited choice. If you’re Saranac, you only have so many SKUs in your portfolio, where, you know, if you’re a distribution company, the sky’s the limit.

What do you see as the, you know, what’s the pie in the sky potential for this, if, if, if you go, if we flip through an investor’s prospectus right now, what do you see as the potential for this, for this market?

So, right now, we’re in our infancy as a company. I’d almost call it proof of concept. So, you know, once we nail this for New York state, I see there being a franchise opportunity here. So, if you notice, our site, it’s drink NY craft, drink New York craft. And I always get questions from investors, well, why New York? Why New York only? Well, for the answer, that is really local. You know, like people in New York want to support New York; they want to support their neighbors; they want their money to stay in state. So, I think if we were to franchise this kind of thing, we could take what we did here in New York, kind of, you know, package it up, and then have it throughout the rest of the United States. Like, we own, for instance, we own drink VT craft, drink CA craft, drink OH craft. So, all these websites could be tied in the back ends and all talk to one another, do some cross-selling and things like that.

Cool. I’m on, uh, for those on the video, not on the audio, it ain’t going to work, but I’m on his site now. I click yes, I’m over 21, and then we go to a very cool-looking website with a whole bunch of, I could spend hours on this site just kind of scrolling through. And you must have fun making the content and all the tasting sessions you just got to do it, right? The breweries are fun, you know, going, that’s my favorite part of the job, going to the breweries, meeting the brewers. They’re all, you know, very colorful, friendly people, and it’s the beer industry is like no other industry I’ve ever been in. There’s a sense of collaboration; there’s a sense of us versus, you know, the big guys. It’s craft versus the Budweisers and the Coors Millers of the world, the David versus Goliath type thing. So, the camaraderie is fun. You know, it’s a competitive industry, but yet people want to help each other out. People want to see others succeed. So, it’s a cool space to be for sure.

That’s awesome. That’s awesome. If you know, if you pull this off, this could be a pretty disruptive kind of play.

I think so too. You know, is, uh, the three-tier network of beer distribution, meaning the suppliers that make it, the wholesalers that distribute it, and the retailers that sell it, has been in place now for a century plus. So, it’s kind of a, you know, it’s an old model that has just been around forever, and it’s always been what it’s always been. And over time, it’s kind of benefited that middle tier, that distributor tier. So, what we’re trying to do is just, you know, bring that power back to the people, get that consumer choice, and then help these breweries. It’s kind of a tough landscape out there for them right now; they need all the help they can get. So, we just want a level playing field for everybody, and I think that is kind of a disruptive thing. You know, distribution isn’t all that sexy, but I think people, you know, getting beautiful craft beers that they couldn’t otherwise get their hands on delivered to the convenience of their home is something that people want.

Can you tell me a bit about why you settled on Shopify, just from some of our listeners in the e-commerce space, and that you’re able to share? Obviously, I think Amazon is a very different beast, but how’d you end up on Shopify?

So, I’m glad you asked. So, before I was a hop farmer, I was a computer geek, writing web development software for many, many years. I really like Shopify; it’s a really easy platform to, you know, you don’t need to write any code. Sometimes I do like to get my hands dirty in it, but they just made it really easy. Amazon’s great, but they’re all-en

compassing, right? Like, they’re just, they got a little bit of everything; they like to take a lot of your money, and then if you’re successful at it, they’ll just repeat what you’re selling under themselves, their own types of brands, and it’s a difficult market. But Shopify makes it easy. I think they have like 3% or something like that, which is relatively insignificant. And, you know, it’s just easy. The editor is easy; the adding products is a piece of cake. It helps with SEO; there’s all sorts of plugins, and they work. I’ve had experience with WordPress and things like that, where, you know, if you upgrade a plugin or something and everything breaks and all hell breaks loose, Shopify, so far, you know, knock on wood, has been very stable, and I enjoy working with it.

Okay. Anything you guys are doing in the AI space, either for inventory or your own site content or anything there for working with your breweries that would be interesting to talk about for our listeners?

I think there’s some value there in, like, big data, AI, maybe, maybe not. I don’t know. I’m trying to wrap my head around that and how it could, you know, benefit us. Maybe some sort of, you know, people come on our site. I think our biggest complaint that we get is they don’t know what to buy. The choice is a little overwhelming; they haven’t heard of a lot of the brands, or they don’t know. Maybe there’s something there with AI. You come in there, tell them a little bit about yourself, tell them what you like, you know, some engine that kind of spits something out that way. But there’s a lot of value in the data, too. I think, you know, one, a phase three of what we’re doing here could possibly be like some brick-and-mortar stores around New York state or wherever it might be. And just knowing who’s buying what, what they like, where they live, how much they make, male or female, age, you know, we’d be able to strategically place brick and mortars around. So, I think there’s a lot of value in the data that, you know, that our users have.

Have you guys thought about that before, like a popup tasting room or a Drink NY Craft traveling fall event or something?

Yeah, absolutely. We actually have a travel team. I got a guy that we do farmers’ markets, we do events, we do beer tasting dinners. I mean, obviously, this is all locally, but, yeah, absolutely. That’s a big part of the business.

Yeah, sure. Great way to get the brand, the name out. Harder to scale, but certainly a way. And there’s a gentleman I’m talking with, I talked with in the podcast, Brian Smith. He’s the founder of UGG, those sheepskin boots in Australia. And he talked about that, how at the beginning, this is in the ’80s, pre-internet and all that, but how a lot of it would start with word of mouth, and people, he’d go personally into the surf shops where he was selling his product, remembered him, and things kind of grew from there. And their strategy was to start with, rather than trying to get into Nordstroms and Macy’s at that time, starting with the smaller boutique brands. He called it going after the mice, not the elephants, and you get enough mice, eventually, you can take on an elephant.

Absolutely. It’s the same concept here. I mean, brands are built on-premise, meaning people going into bars and things like that. That’s where they start to see; that’s where they do their experimentation. And then once you get out, you walk into a store, “Oh, I remember last Friday night when I was at the pub, I saw that beer. I’m going to pick that up and bring it home.” So, you want to get deep in your backyard before you spread a little too thin. So, I think that’s what we’re doing right now in New York, and who knows, maybe in your state, wherever you’re listening to right now, you’ll see a Drink [State Initials Here] Craft.com.

I would love that. I’d love to have you coming here to Ohio. I remember the movie The Founder about McDonald’s and Ray Kroc, and there was a big lightbulb moment in the movie where Ray Kroc was sitting across from one of his advisers, and he said, “You’re not in the restaurant business; you’re a franchise business; you’re a real estate business.” And I think one of the messages of him and Brian Smith talks about that evolution, you got to go through all these things, you got to fail, you got to have challenge and overcome that, and only then do you get, you know, in year eight or 11 or whatever, your breakthrough. And, you know, it’s just all about entrepreneurs going through these different steps and having those failures. Seth Godin’s book talks about the most fundable entrepreneur is the one who’s failed the most.

Yeah, I really wish there was a playbook for doing what we’re doing, you know, specifically dealing with the state liquor authorities and, you know, because it’s alcohol, each state has their own rules, so you have to make sure you follow those rules. So, that’s kind of why we’re nailing it for New York state. But if they had a playbook, I would welcome to read that, but they don’t. So, we’re making mistakes as we go, but we got a great team behind us. We got a lot of smart people that have been in the business for a long time, so we’re stumbling our way through, you know, one step backward, two steps forward, maybe. So, we’re making it happen.

Okay. Well, I’m going to ask you a final question before we wrap up and direct people again to your website, drinknycraft.com. When you look, so it’s been three years now, right, that you’ve been working on this iteration of the business. So far, what’s been your biggest success to point to that gives you that hope to get up in the morning and that drive to keep going and building?

It’s the DTC side of things. That, again, that’s kind of my background. We did a beer box with the New York State Brewers Association over Christmas. We called it the 24 Beers of Holiday Cheer, and it was highly successful. We had our biggest revenue month to date, and it was a great success. We had people reaching back out to us saying this was awesome; I would have never seen these beers or had them if it wasn’t for this. So, I think that’s kind of what we’re doing. Our mission is really mission-based. It’s we need New Yorkers to drink more New York beer, and that’s exactly what that box was. It was a curation of beers from all across the state, and it went all across the state. People from Buffalo to New York City, up to the Adirondacks, you know, all corners of New York State bought it, and it was a success. The New York Brewers Association thought it was

a success; we thought it was a success; the consumers thought it was a success, and that’s exactly why we’re here.

That’s very cool. A lot of people not from the state don’t realize to go from Buffalo to Saranac to Long Island is going to take you a good chunk of time to get through that whole triangle. So, yeah, it’s, um, I am excited. I’m going to keep my eye on this and watch this as it grows and takes off, and look forward to checking in with you as things evolve and wish you the best of luck. We’ve been talking today to Chad Migs, founder and CEO of Third Space Distribution, Drink New York Craft, an innovative craft beverage distribution company. And, Chad, anything else you want to close out with before we let our listeners go?

No, I just want to say thanks for having me. And wherever you’re listening to this, you know, if you’re into beer, support local. Go out, figure out who your local breweries are, and get to know them. The money that you spend in their taproom goes into their pockets and stays locally right around where you are, which helps everyone in the local economy.

Cool. Thanks, Chad.

Thank you, Kon. Appreciate you having me.

Thanks for listening to the America Open for Business podcast. We’ll see you again next time, and be sure to click subscribe to get future episodes.

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