The bricks in the wall are not all the same color. Hard love amongst small brewers and
beer distributors is being discussed throughout America. Photo by Charlie Papazian
America’s small brewers need beer distributors to get their beer to beer drinkers. But getting beer to beer drinkers is often threatened with thumb-squashed state based beer distribution laws.
In the beer business they call these laws “franchise laws.” Some who feel anger refer to these laws as “monopoly laws.”
Issues arise when distributors holding contractual rights to distribute their beers coupled with perceived onerous state “franchise” laws cannot leave to go from one distributor to another at any reasonable price.
Beer brands locked in for life
In some states, extreme laws have been passed that set “franchise” rights in a manner that effectively make it impossible to move a brand from one business to another – forever. That’s a long time and that is still the trend in new legislation. There is no reasonable recourse even if the distributor doesn’t live up to their end of the bargain. Of course there are always two sides of every conflict. It’s important to take the situation into perspective. For the most part, small brewers and beer distributors get along and enjoy the benefits of their relationship.
Why are there “franchise” laws?
Many decades ago most distributors were small, family run businesses. Brewing was dominated by many very large and powerful brewing companies. Distributors organized and helped legislate protective franchise laws preventing large brewing company’s from unreasonably pulling out of a distributorship and quickly collapse a family-run business.
It’s 2010. Distributorships are consolidating and may still be family run businesses, but some are billion dollar companies many others are hundreds of million dollar businesses. They continue to grow and effectively exert influence on both federal and state legislation. Meanwhile there are 1,500 small American breweries that are state regulated by franchise laws enacted in a bygone era.
Asking for a break
Small brewers strongly believe that they should get a break. Their state by state fights to get small brewer’s “exemption” from franchise laws have met with mixed support, long on political baggage. While many forward thinking distributors understand that the threat of a small brewer pulling out of a distribution agreement and paying the distributor for moving out is not at all a threat to their livelihood or the health of their business. There are others who simply want to maintain the status quo. It’s a value cost to small brewers and threatens to diminish choice for beer drinkers.
In Massachusetts small brewers are proposing exemptions to new and more onerous franchise legislation. But according to a report in the Patriot Star Ledger, the Beer Distributors of Massachusetts essentially say, don’t worry, let’s get this passed and we’ll fix it later. Small brewers are saying “no,” having heard that before.
It’s essentially a “killer of a deal” for both small brewers and distributors. Unfortunately it’s sweet for distributors and very sour for small brewers. Patriot Star Ledger story, Small brewers seek exemption in beer wholesalers' rights bill quotes Rob Martin, owner of Mercury Brewing Co. in Ipswich, saying getting out of a bad distribution contract isn’t easy for a small brewer. “If you find that the wholesaler isn’t in fact doing a good job, in order to get out of it, typically it goes to litigation that we can’t afford.”
In an Op-Ed piece in the Worcester Telegram, Crafting fairer rules about beer Dan Kenary president and co-founder of Harpoon Brewery and Martin Roper, president of The Boston Beer Company express their views.
Here are a few excerpts:
"A little-noticed piece of legislation currently on Beacon Hill would weaken craft brewers’ ability to achieve fair distribution. It threatens the 30-plus Massachusetts-based small brewers, as well as small brewers from around the country
Massachusetts wholesalers have legitimate concerns about recent consolidations among the global brewers...
Their reaction has been to seek additional legislation, in the form of House Bill 4743. The bill would further tighten already restrictive franchise laws, making it even more difficult and expensive for any brewer — large or small — to change wholesalers, even if the wholesaler fails to perform and is not living up to contractual obligations. This bill could help wholesalers from being unfairly pushed around by the mega-brewers, but it is damaging to small brewers, from whom such protection is not needed...
If H.4743 is passed without the amendment proposed by the Brewers Guild, it will almost certainly decrease the variety of craft beers on store shelves that beer drinkers desire."
For the full commentary go to Crafting fairer rules about beer
In short America’s small brewers are asking for a legitimate break. Small brewers are not threatening beer distributors with failure. The tables seem to be turned as distributors in their unending effort to tighten state “franchse” laws want to control the growth and destiny of America’s small brewers.
It’s time to reconsider the tide and beer drinkers future access to beer from America’s small brewers – Re-orient small brewers fair and effective partnerships with beer distributors.
The clock is ticking in Massachusetts and small brewers are on the short end. Ultimately it’s the beer drinker who get’s ticked.
August 4, 2010 UPDATE: This bill did not pass. Legislators adjourned for the year 2010.
Chasing the golden goose for the golden egg only to end up with a dead duck. Photo from motif at The George, London pub. photo by Charlie Papazian
Comments
What can we do to help? We must organize as consumers. The story told in Beer Wars is very scary indeed.
How can we get the consumer to push the issue to the retailers, distributors and politicians?
You can help by continuing to buy beer from small craft brewers. Some of the smaller ones do their own distribution as distributors take a HUGE cut of profit anyhow. The size of brewing without requiring a distributor should be increased, it's too small in many states--like Indiana
Charlie as a wholesaler I agree with you in content but there is always the other side. It must be understood that these laws have been in effect for a long time and the issue with the Craft Brewer is relatively short. We as wholesalers have seen the time when in the 80’s there was an onslaught of supposed craft brands coming to market and most failed. We have seen what a Macro Brewery can do to us as wholesalers. So we not only act slow but apprehensively in regards to change. Remember the three tier system and franchise laws were put into place for several reasons and one is to separate the control a brewer can have at retail which takes away the consumers right for a free choice of product. All one has to do is go to countries that have no three tier system and see what choices those consumers have. So even though it does not seem to come fast the changes that are needed will happen when we work together and as long as the consumer has an interest. We as wholesalers are
Jim, Some fair points. Thanks for offering your perspective.
In Vermont theres an easy way for Microbrewers and Wineries to bypass distribtors altogther they can sell direct from thier premises and apply for a Farmers Market Licence although you still need a distributor if you want to sell to any Liquor outlet but there is a alternative to the 3 tier system at least in this State .
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