The post-Prohibition "three-tier system" requires the separation of the production, distribution, and retailing of alcohol in most states. That was not a major issue for craft brewers during the explosive growth years, such as 2011-2015, when craft beers doubled their beer-market share and had trouble keeping up with demand. However, when craft beer volume through the three-tier system declined steadily from 2016-2020, craft brewers turned to direct distribution for growth. Adding direct distribution, mainly through operation of taprooms and brewpubs, results in approximately 4 percent volume growth. Taprooms are locations where consumers can buy beer, and brewpubs are restaurants with their own breweries. Taprooms account for almost 8 percent of all U.S. bar traffic. Small craft brewers are excited about this-they make higher margins selling direct compared to using an indirect channel of distributors and bars. A brewer's average cost per keg of craft beer is $70, and a keg sells to distributors for $120. The distributor then resells the keg to a bar for $150. Each keg serves about 100 14.5-ounce glasses, the amount typically poured into a 16-ounce glass at a bar to accommodate a foam head. Therefore, a bar's cost per glass of craft beer poured is approximately $1.50 per glass. The standard in the bar industry is to have 19 percent liquor cost, meaning 19 percent of the price to consumers represents the bar's cost of goods sold, leaving 81 percent for the bar's margin.

Determine the brewer's cost per 14.5-ounce serving (one glass). What price would a brewer sell that glass of beer for to achieve an 81 percent margin based on its selling price at its own taproom or brewpub? What dollar and percentage margin would a brewer realize if the glass of beer was sold for the same price as it is sold in bars? Is the brewer better off using the direct channel compared to the "three-tiered system" indirect channel?