Craft Brewers' Battle with Distributors Returns to Beacon Hill

Discussion in 'US - Northeast' started by BRYeleJR, Sep 30, 2015.

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  1. BRYeleJR

    BRYeleJR Disciple (346) May 18, 2013 Massachusetts

    Legislators held a hearing at the State House on Tuesday to discuss rewriting the law on beer distribution and allowing brewers to end relationships with their distributor. The beginning of the article and a link to the full piece is below.

    Jim Koch, Rob Martin (Ipswich) and "the co-founder of Night Shift Brewing" testified on a panel... not sure if it was @masterob8 or someone else from Night Shift, but it doesn't look like the article names the person. Of course, Bill Kelley, president of Beer Distributors of Massachusetts, opposed the bill.

    LINK to the full piece:

    Even though I feel like I know a lot about beer, I have a limited understanding of a) how the beer distribution system works or b) how consumers would benefit from the passage of this law. Perhaps there are others wiser than me on that topic who could ELI5?
  2. IPAkindaguy

    IPAkindaguy Initiate (0) Aug 20, 2010 Florida

    Simplest way to put why a brewery would want to this happen (and I'm sure someone who ones a brewery can comment on this too) would be the attention and sales they get from their distributor. Some distributors simply focus on their top 10 or so brands with heavy push, incentives etc to keep growing their "hot" brands' While other breweries are using up resources and time to catch up and get the distributor to push their products and gain distribution, displays etc. So allowing a brewery to opt out for any reason would be a benefit in the sense they could go elsewhere that could better serve their needs and grow their distribution.
    So from a consumer stand point it could grow the portfolio and what products you see on the shelves from breweries if a new distributor were willing to give them a larger focus and push and put new styles and packages on store shelves.
    Its an interesting article esp. when smaller , boutique distributors are now popping up in the state that are giving focus on a small book of brands versus the bigger guys that have huge brands like Coors, Yuengling, Lagunitas, BP to focus on.
  3. robNSB

    robNSB Initiate (140) Oct 6, 2009 Massachusetts

    Yes, that was me who testified at the state house yesterday. Interesting experience for sure and happy to represent small brewers in our state on trying to change this law that locks in a brewer FOREVER into a relationship with a distributor.

    While we currently self-distribute we are getting to the tipping point of needing a distributor partner. But with the current laws, signing with a distributor is a very scary thing. The distributor that is right for us today might not be the right one in a few years. Because of that it makes us hesitant to continue to grow, it makes us not able to distributor our beer throughout the state, and it limits our ability to invest in future expansion. We started Night Shift because we had a passion for brewing beer not a passion for distributing it. The distributors are way better at that than we are. For us to be confident in signing with a distributor we need this bill to be passed.

    Brewer's aren't looking to jump ship to new distributor every year, we are just looking for the ability to leave if things go south. Like @IPAkindaguy mentions, sometime wholesalers shift interest to only focus on hot brands, or brands that offer promotions, sometimes they decide to not sell the brand anymore because it competes directly with the mega breweries that "keep their lights on". In those cases, brewers should be able to leave to a distributor and move to one that will grow their business versus staying with the current one and having them kill off the breweries existence (that can and has happened). We are just trying to fight for a fair and level playing field not one where wholesalers have power over brewers.

    Happy to try and answer anyone's questions here about the law and why this is good for brewers and consumers alike. Cheers!
  4. EnronCFO

    EnronCFO Zealot (567) Mar 29, 2007 Massachusetts

    Imagine you're a growing local brand (Night Shift, Newburyport, Notch, etc) that is suddenly railroaded by Not Your Fathers Root Beer and beers of its ilk flooding the market and you end up relegated to the back-end of your distributor's priority list. Maybe you'll get their attention again when the current fad dies down, but maybe not. But hey, you signed a contract 6 months ago and are stuck for life as an also ran in your distributors portfolio.
  5. emannths

    emannths Initiate (0) Sep 21, 2007 Massachusetts

    I read the bill yesterday--it looks like if a brewer leaves a distributor the old distributor must be compensated by the new distributor. Anyone have any idea what a brand's distribution rights typically cost?

    How do other industries handle this? Is there precedent in franchise contracts or something?
  6. DeanGeorge

    DeanGeorge Initiate (0) Mar 11, 2013 Massachusetts

    I've heard a rumor that if a Brewer isn't happy with Craft Collective as a distributor then they can buy out the distributor for $1. @aoliveri37 is this true? Just thought I would add this tidbit to the story because it pertains.
  7. robNSB

    robNSB Initiate (140) Oct 6, 2009 Massachusetts

    The distro rights cost would be passed on the annual profit the distributor makes on that breweries product times an industry factor of somewhere around 5-7x. If this bill was passed and Sam Adams decided to switch its wholesale network it would cost $150 million dollars! Sam adams and/or the new distributor would need to come up with that chunk of change. Not to mention the cost of training a new sales force and distro partner to know your products and be able to effectively sell them. This bill still makes it very hard to leave a wholesaler but at least it give brewers the ability to do so.
  8. EnronCFO

    EnronCFO Zealot (567) Mar 29, 2007 Massachusetts

    I just don't get the protections in place for the distributors. It's so anti-competitive that it's almost laughable these structures exist in the current economy.
    DucRacer900, meefmoff, Horbar and 2 others like this.
  9. emannths

    emannths Initiate (0) Sep 21, 2007 Massachusetts

    Those receiving campaign donations aren't laughing.
    lateralusbeer, Horbar and ChrisMyhre like this.
  10. ChrisLohring

    ChrisLohring Initiate (101) Jan 25, 2010 Massachusetts

    Share of mind is an issue with every wholesaler, but this "stuck for life" song is really not an absolute in my experience. A brewery that builds itself through self distribution can sell that annualized volume to a wholesaler (multiple of annual case equivs), and that is the same equation wholesalers use to sell brands to each other. The concern is that wholesalers can sit on a brand, not promote it, and refuse to sell it to another wholesaler with little recourse by the brewer. It is a real concern, but each time I have requested to switch wholesalers, it has never been an issue. There are only one or two wholesalers in MA that will sit on brands and refuse to allow a switch of wholesalers, but I've had the good fortune not to have worked with these wholesalers.
    robNSB likes this.
  11. robNSB

    robNSB Initiate (140) Oct 6, 2009 Massachusetts

  12. Horbar

    Horbar Initiate (0) Feb 24, 2012 Rhode Island

    Tired of watching distro get rich because of govt. protection. Time for the three tier to go!
    DucRacer900 and robNSB like this.
  13. Sheppard

    Sheppard Poo-Bah (1,809) Mar 16, 2013 Virginia
    Society Trader

    Is it common knowledge amongst brewers who those wholesalers that sit on brands are?
  14. guy-who-likes-beer

    guy-who-likes-beer Initiate (0) Sep 15, 2015 Massachusetts

    If this law passes, is there anything stopping the distributors from requiring the breweries to sign away their right to leave the distributors via contract? In the same vein, can a brewery ask the distributor to waive their right to the franchise law via contract currently?
  15. EnronCFO

    EnronCFO Zealot (567) Mar 29, 2007 Massachusetts

    The value of a BMC distributorship is insane. I worked with a family that cashed theirs out roughly a decade ago in upstate NY and the amount of money they received then was disgusting, can't even imagine what it would be now for those that have built out craft arms as well.
  16. robNSB

    robNSB Initiate (140) Oct 6, 2009 Massachusetts

    As things stand today, no matter what is in a contract between a brewery and a distributor state law supersedes it. So even if the two parties put in a contract that a brewery can leave if unhappy, a distributor has the legal power to change their mind and use state law to force the brewer to stay, essentially voiding that contract.

    For that reason, many brewers in the state don't even have contracts with distributors since they are kind of worthless.
  17. robNSB

    robNSB Initiate (140) Oct 6, 2009 Massachusetts

  18. jesskidden

    jesskidden Poo-Bah (2,199) Aug 10, 2005 New Jersey
    Society Trader

    The Franchise Laws are separate from the Three Tier laws. Three Tier systems evolved, state by state, over the first 2 or 3 decades after Repeal and are hardly absolute - thus the existence of brewpubs, and the ability for brewers to self-distribute in the majority of states (sometimes limited by barrelage).

    Franchise laws came later - coincidentally, Massachusetts is usually cited as passing the first one in 1971 (noted by Koch in the article noted below). When the first Franchise laws were enacted in the 1970-1980s, there were under well under 100 US brewing companies and between 4 and 5 thousand wholesalers. Safe to say that in the vast majority of cases at the time, the distributor was a much smaller business than the brewery(ies) they had contracts with, and many distributors depended on just one or two brewers' brands for the majority of their sales. Thus, losing a brand could mean the end of the business. Law makers were obviously protecting their "local" businesses from the mostly out-of-state large brewers.

    :rolling_eyes: I count four:
    • Carling - Natick
    • Diamond Spring (aka Black Horse Brewery) - Lawrence
    • Piels (Associated - formerly Hampden-Harvard) - Willimansett
    • Rheingold (dba Jacob Ruppert)- New Bedford
    Koch would have been going to Harvard at the time, too, so he'd have known what breweries were still running in Mass (----if he was interested). No idea what he was drinking :grinning: --- Bud or Heineken? Can't picture Harvard men drinking 'Gansett in the '70s (which still had ~1/6 of the MA market at the time, behind only AB and Schiltz).​
    #18 jesskidden, May 29, 2016
    Last edited: May 29, 2016
    fistfight and Auror like this.
  19. noob

    noob Initiate (152) Jan 23, 2004 Massachusetts

    Curious why you don't go with Craft Collective who has a very loose contract (so I am told) or use a bonded carrier to get your beer to PTown?
  20. Auror

    Auror Initiate (0) Jan 1, 2010 Massachusetts

    @jesskidden answers the how/when pretty well above. As someone who in the recent past has worked to try to get a bill passed that was not in distributors' interests and even had protections built in for them, I can answer the still. it's very difficult to overcome the 50 people they jam into a 40-seat state courtroom wearing buttons and holding signs and the 100s of drivers they get to sign petitions against a bill, and the calls of local jobs!, notwithstanding that 98% of those people never read the bill.
    kliend likes this.
  21. robNSB

    robNSB Initiate (140) Oct 6, 2009 Massachusetts

    State law supersedes contracts. So it really doesn't matter what's in the Craft Collective contract as the state law trumps what is actually written. That being said the CC crew are pretty honest people and seem to be ok with ignoring the franchise ability granted by the state law. But if push came to shove they have the power to keep you. Not saying they would do that but other distro companies certainly do it.
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