Brewers back change to old law, distributors call for status quo
November 26, 2013
A proposed change to state law could spell trouble for beer distributors, allowing small brewers to terminate contracts at will. But brewers say they just want to operate within a free market.
“We feel that we’ve had these contracts and they were entered in good faith,” said Frank B. Sousa III, president of Colonial Wholesale Beverage, which employs more than 150 people out of its Dartmouth warehouse.
For three generations, stretching back to the end of prohibition, the Sousa family has closely watched the beer industry evolve. Although the multinational brewers still control the lion’s share of the market, craft brewers have been claiming an increasing slice in recent years.
Sousa said he is worried that a change to a long-standing state law could allow the craft guys to cut him out overnight. “We feel that we’re doing our job in going (out) and selling the brands and distributing the brands — and that’s our life bread. If we don’t have brands, then we’re not around.”
Current law gives the benefit of the doubt to the distributors, who hold exclusive rights to distribute in their territories. Brewers can fire distributors during the first six months of the relationship, but after that it’s up to the distributors or the courts to decide if a brewer can take its brand elsewhere.
The revised law would allow craft beer brewers — as long as the product doesn’t represent more than 20 percent of a distributor’s sales — to change distributors at will.
Rob Martin, president of the fourth-largest brewer in the state, Ipswich Ale Brewery, and head of the Massachusetts Brewers Guild, said it’s about simple fairness.
“It’s about the free market and capitalism,” he said. “This is the only industry where you find this kind of law.”
If a distributor isn’t maintaining sales for a brewer, Martin said the brewer can be left without options. That’s bad for business, he said, and has even forced brewers to terminate brands.
“That’s the problem we face as an industry, that when a wholesaler distributes a product for six months, they (basically) own the rights to the product.”
Back when the current law was established, the state was home to 60 distributors, Martin said, while there were only 55 commercial brewers in the country. Most distributors carried just one brand. Things have turned around since then, with just 10 distributors in the state and 2,600 brewers nationwide, and so has the significance of the law.
“This law that was protecting the small wholesaler from the big brewer is now protecting the big wholesaler from the small brewer,” he said.
Martin said he has no plans to terminate relationships with distributors — one of whom is Colonial Wholesale Beverage — and he doesn’t foresee it happening on a large scale if the law is changed.
That doesn’t assuage Sousa’s concerns, who said 30 percent of his business could be affected by the rule change. Colonial’s brands, which total more than 100, include the behemoth MillerCoors, Guinness and Pabst, and the craft brews Long Trail and Shipyard. Although the terms vary, Sousa has exclusive rights to sell his brands in whole or parts of Bristol, Norfolk, Plymouth and Barnstable counties, as well as Martha’s Vineyard and Nantucket.
“If they decide at some point that they want to change distributorships, then all the sweat equity that we’ve put into “» building that brand would be transferred,” Sousa said.
Martin said the law would continue to require brewers to pay distributors four to six times the annual gross profit brought in by the brand — which could come out to millions — giving distributors ample time to regroup.
Buzzards Bay Brewing of Westport, producers of Buzzards Bay IPA and Moby D, among other brands, won’t be affected by a change in the law. It operates under a farm brewing license, allowing it to sell beer directly to restaurants, bars and retail stores, owner William Russell said.
Rep. Antonio Cabral, D-New Bedford, is among about 90 legislators who attached their names to the bill that would change the law. Cabral said it’s all about small businesses.
“The way the law is now, it’s very, very difficult to get out of a contract once you start with a particular distributor,” Cabral said. “In most cases you have to go to court in order to get out of a contract.”
“I think there ought to be an easier way to get out of the contract.”
William A. Kelley, president of the Beer Distributors of Massachusetts, recently testified against the bill before a House committee. He argued that the current rules should stay in place because changing them could be devastating for distributors.
“They could lose 20 percent of a business overnight, with no reason, no notice,” he said. “And when you compound that with the number of brewers that any single distributor does business with, the magnitude of the problem grows tenfold.”