A Battle That’s Been Brewing for Over 40 Years

Relationships deteriorate over time. And the people who lose out the most are the ones who have no say in the matter. The craft beer industry is thriving in Massachusetts—Boston had 45 breweries in 2011 and 110 in 2016— but the relationship between brewers and distributors is strained. An outdated law and unfair business practices are harming the people that brewers and distributors are trying to serve: the consumer.

The beer industry relies on a three-tier system: brewer, distributor, and retailer. Breweries create the product; distributors purchase the brewers’ products and distribute to retailers; retailers sell the products to consumers. Distributors are more important to breweries than just getting the product into stores and restaurants so customers have access to it. Distributors are responsible for marketing and promoting the brand and product, thereby building the brand’s popularity while increasing the distributor’s profit. Massachusetts’ craft brewers claim that distributors aren’t playing fair.

In the 1970s, when there were only a handful of breweries in Massachusetts, the state passed the franchise law that today has become the center of the debate between craft brewers and distributors. The law locks breweries into a contract with a distributor after a six-month trial period in which the brewer and distributor worked together. When the franchise law was passed, the idea of being locked into a contract was to protect the distributor and everyone who worked for the distributor including marketers, drivers, and warehouse staff. There were only a few breweries in 1970s Massachusetts, so a distributor would likely fail after losing one of its clients.

Almost 50 years later, the ratio of breweries to distributors has flipped. Brewers greatly outnumber distributors, yet the franchise law still stands. So, what do brewers have to fear with the franchise law? Essentially their whole business. Distributors have portfolios of hundreds of clients, and the loss of one partner would not shutter a distributor as it would have in the past. Brewers are still stuck in contracts that may be negatively affecting them or hindering their growth. The franchise law is outdated and needs to be replaced. Brewers need to be able to leave their distributor should they feel they are not getting their products out to the most people. The franchise law is detrimental to the consumer. If brewers can’t get their beers out, then consumers have fewer choices at the bar. A brewer wouldn’t want to leave a distributor that is doing its best to get the brewer’s beers out. If a distributor knows that brewers are stuck with them, then the distributor is less inclined to do the most for the brewers.

President of the Massachusetts Brewers Guild and founder of Night Shift Brewing, Rob Burns is an advocate for changing the franchise law. Brewers like Burns claim that once they’re locked in a contract with a distributor, the distributor favors larger, more profitable breweries, while pushing smaller ones to the side. They also claim that distributors hoard small breweries to expand their portfolio and to keep them out of the hands of competing distributors. Brewers can get out of a bad distributor contract if the distributor tarnished the brand’s reputation, preferred competitors’ items, failed to promote the sale of the item to the best of the distributor’s ability, engaged in improper practices, or failed to comply with the terms of sale. The process of terminating the contract, however, is long and complicated.

Massachusetts Rep. Alice Peisch is pushing for a new bill, H183, that would benefit craft brewers like Burns. She was introduced to the issue by a constituent years ago. She said she found the franchise law unfair, and she has been working to change it ever since. Under her bill, breweries that make up less than 20 percent of a distributor’s product would not be forced to stay with their distributor even after the six-month trial period. While this would benefit small breweries, distributors argue that it would allow larger distributors to steal clients.

“Those that benefit from the current law see no need to change it,” Peisch said. “And making the case for the need to change a very complicated law that does not directly impact most constituents is challenging.”

Distributors also argue that more popular craft breweries will be able to influence distributors not to sell rival craft beer brands because Peisch’s bill allows too much leeway. The Joint Committee on Consumer and Professional Licensure has until February 2018 to make a recommendation on the bill. If the committee responds favorably to the bill, it will pass on to the two branches of legislature for a vote. Finally, it would be up to Governor Charlie Baker to sign the bill in order for it to take effect.

Distributors, however, say they are open to change that would benefit brewers. Rep. John Mahoney is advocating for a bill that would only require breweries that produce more than 30,000 barrels, or 413,000 cases, a year to be affected by the franchise law. While this would keep brewers such as Lord Hobo, Harpoon, and Boston Beer Company under the franchise law regulations, 97 percent of Massachusetts craft brewers would be exempt because they produce less than 30,000 barrels annually. This standard would limit the growth of up-and-coming craft brewers.

“I want to be able to grow,” Brazo Fuerte Artisanal Beer founder Bev Armstrong told Boston magazine. “Why should I be forced to make a decision about staying at 29,000 barrels versus growing?”

Instead of waiting for legislative change to happen, some brewers are taking matters into their own hands. Burns started his own distribution company, Night Shift Distributing, and described it as “by brewers, for brewers.” The distribution company ensures that beers are taken care of from the brewer to the customer. Burns said that his company treats the beer the way the brewer wants it to be treated. Beers are stored cold and shipped in refrigerated trucks.

“We aim to not just sell beer but find homes that are appropriate for each beer,” Burns said. “Most importantly we chose to ignore the archaic franchise laws. If things aren’t working out then we will let a brewer leave. We don’t want to hold them back from doing what is best for their business.”

Years of unfair practices and limited choices for consumers by distributors led to Night Shift Distributing. What may have set off the biggest trigger for craft brewers to fend for themselves was the revelation that the largest distributor in Massachusetts was paying retailers and restaurants to stock its beers.

In 2015, the Massachusetts Alcoholic Beverage Control Commission (ABCC) discovered that Craft Brewers Guild, who is partners with Boston Beer Company and Cambridge Brewing Company among other New England brands, had bribed bars and restaurants to stock its beers. As a result, the ABCC, whose objective is to “provide uniform control over the sale, purchase, transportation, manufacture, and possession of alcoholic beverages in the state,” according to its website, suspended Craft Brewers Guild for 90 days. As part of ABCC policy, however, Craft Brewers Guild was allowed to pay a $2.6 million fine, or half of the profits the distributor would have made during its suspension, instead of suspending their operations.

According to Craft Brewers Guild’s lawyer, these “pay-to-play” policies are common practice within the beer industry. In 2016, the ABCC charged Anheuser-Busch, the largest beer producer in the world, with giving away free gear to restaurants in return for stocking the company’s beers. While you may see a variety of beer brands in a bar, it is possible that they are all under the same distributing company. Mainstream beer brands hog up fridges and tap handles. Small breweries deserve a chance to get their beers into the hands of beer drinkers.

“Because of these pay-to-play deals, I go into a bar and I don’t even get a chance to sell my beer, because somebody with more money has blocked off all the taps,” Burns told The Boston Globe. “I see these places with branded coolers, branded umbrellas — those are expensive. I couldn’t afford to give away five umbrellas to every bar that sells our beer.”

Night Shift Distributing is a solution for craft brewers to get a fair chance to sell their product, as well as for customers to have access to a wider selection of beers, Oxon and Burns said. Small brewers are forced to compete for shelf space with big beer companies such as Anheuser-Busch and MillerCoors that have started to produce their own “craft’ beers that overshadow real craft beers.

“It’s hard to think of any consumer who is helped by this anti-competitive law, which simply means that it’s harder for customers to get new products that might interest them,” former The Atlantic beer columnist James Fallows said. “And it’s obvious that it creates challenges to innovative new companies. Viewed from a distance, this has all the markings of the kind of anti-competitive law that most states have moved beyond over the past generation.”

When large beer producers like Anheuser-Busch bribe their way in to restaurants and bars, it makes it hard for consumers to have any real choice in the beer they drink. Burns said that these large companies bring in their “craft” beers and charge less than actual craft brewers thereby undercutting those brewers’ prices. Consumers end up giving money to one company, despite the illusion that there are so many brands to choose from. Unfair business tactics pose a threat to small breweries. If small breweries are locked in business contracts that don’t have the breweries’ best interests in mind, then companies like Anheuser-Busch will continue to dominate the beer industry. Massachusetts beer drinkers should have access to beers that aren’t just Budweiser and Busch.

Massachusetts is seeing a boom in its craft beer industry with over a dozen new breweries slated to open by the end of 2017, according to Boston Business Journal, which poses the question: Why do distributors need these protections from the current franchise law? A consumer’s next favorite beer may be at one of the upcoming craft breweries, but with no changes to the franchise law yet, they may never get to try it. The franchise law needs to be replaced. Distributors do not need the protections that were effective 40 years ago. The fairest solution would be for brewers to have the freedom to leave distributors whenever they want. And with a steady stream of craft brewer openings in Massachusetts, it’s safe to say that distributors will always find new clients.

“All brewers ultimately want is the ability to choose a business partner they can work with to grow their business,” Burns wrote in an article for Worcester Business Journal. “If the relationship works, then keep it. If it doesn’t, then change it. Simple as that.”

Leave a comment