Brewers & Wholesalers Clash on Proposed Distribution Law Changes in Massachusetts
By David Eisenberg, Brewebound.com
November 18, 2013
Members of the Massachusetts Brewers Guild said the state law binds brewers to wholesale distributors no matter the wholesaler’s performance in distributing craft beers to restaurants, liquor stores and bars.
But the president of Beer Distributors of Massachusetts said the current system gives brewers efficient access to the market and gives the distributors compensation for financial risks and for the time and effort in getting the beer brand into stores.
Dennis Bates, brew master at Opa-Opa Brewing Co. in Southampton and Williamsburg, told legislators that the company cannot continue to do business under a law that provides no accountability or fairness.
Over the past four years, Opa-Opa has seen its business in Western Massachusetts drop from 30,000 cases to 3,000, Bates told members of the Committee on Consumer Protection and Professional Licensure during a hearing at the Statehouse. Over the same period, Opa-Opa has seen its business rise from 10,000 cases to 30,000 cases in the rest of the state.
“Our biggest competition has become our own distributor in Western Massachusetts,” Bates said.
Because of the drop in business in Western Massachusetts, Opa-Opa was forced to lay off four salesmen and two people in production, Bates told committee members.
“This bill would give us an opportunity to give notice and leave our distributor,” Bates said.
Massachusetts has a three-tier system of distribution, requiring the product to move from a supplier through a Massachusetts wholesaler to a retailer.
Currently, a supplier, or craft beer maker, must work through a process at the state Alcoholic Beverages Control Commission to sever a distributor or wholesaler. The supplier must show “good cause” to terminate the relationship for specific reasons spelled out in the law.
According to the law, an alcoholic beverage supplier must sell to a wholesaler a brand item if the supplier has made regular sales of the item to the wholesaler for at least six months before an attempt to end the partnership.
The craft brewers are pushing a bill that they said would modernize existing law to create a process for resolving disputes. They said the proposed dispute resolution process between suppliers and wholesalers would be more accessible than current law.
William A. Kelley, president of the Beer Distributors of Massachusetts, testified in opposition to the bill pushed by craft brewers.
Kelley said the bill would mean that a supplier could terminate a relationship with a distributor for no reason and would subject distributors to “arbitrary and capricious” decisions by suppliers.
If the bill becomes law, a brewer could enrich itself by seizing the value of a distributor’s capital investment and effort, he said.
“Brewers induce beer distributors to take a financial risk and to invest substantial capital and labor to create and grow a market for the brewer’s products,” he said.
Between 2008 and 2012, 60 brands of beer were moved by agreement between one distributor and another when the brewer wanted change, Kelley said.
The bill would protect some of the biggest labels in the business, not just craft brewers, Kelley said.
Bates appeared at the hearing with some heavyweights in the craft beer industry, including James Koch, brewer and founder of the Boston Beer Co., with products including Samuel Adams, and Dan Kenary, co-founder of Harpoon Brewery in Boston.
“Businesses change and grow,” Koch said. “The law should allow that to happen instead of requiring business relationships to last for eternity.”