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Say no to the beer distribution bill

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Bottles of craft beers. (Jessica Rinaldi For The Boston Globe)

By William A. Kelley
February 11, 2014
Opinion Piece in The Boston Globe

Without a doubt, Massachusetts has solidified its role as a leader within the nation’s craft beer industry. Consumers across the Commonwealth enjoy a wide variety of the nation’s finest craft beers, thanks in part to the overwhelming growth and success that many local brewers have experienced. Much of the booming development of the craft beer industry can be attributed to one key partner — the beer distributor. From barrel to bottle, the distributor helps fledgling craft breweries bring their brand to restaurants, bars and package stores all over the Commonwealth. In an increasingly competitive industry, craft brewers struggle to find the financial resources necessary to sell, manufacture, and market their specialty brews without a distributor on their side. However, pending legislation on Beacon Hill threatens the economic prosperity and job growth of the craft brew industry by significantly damaging the goodwill of the brewer-distributor relationship. The local craft beer industry is still relatively small by comparison to large national brewers. But in the past 30 years alone we’ve seen an explosion of craft beer brands, which has resulted in a market crowded with choices in available brands. It’s good for an industry when growth is often measured by the number of new brands coming onto the market. Massachusetts exemplifies the success of the craft beer industry with more than 60 of the roughly 2,200 craft brewers in the United States originating right here in the Commonwealth. Beer distributors have built upon a healthy and mutually beneficial relationship to allow even the smallest craft brewers to compete on a much larger scale and gain valuable visibility on the shelf and on tap. As the number of breweries continues to grow, the role of the distributor becomes even more crucial. No one can deny that distributors play a vital part in the sales and marketing process for craft brewers. Distributors serve as the go-to professionals for new and growing craft beer brands looking for industry expertise, sound marketing strategies and a talented sales force. Additionally, they facilitate relationships with retailers and offer access to strong networks that young craft brewers have not yet developed. The fact is brewers understand making beer, while distributors understand marketing and logistics. A distributor helps a brewer develop a range of advertising items such as signage, market and sales presence, and promotions. They invest a tremendous amount of money, time, energy, and take a serious financial risk when partnering with a new craft brand. Abrand’s distributor is one of its biggest cheerleaders and wants to see that brewer succeed. The legislation on the table aims to change the already flexible laws that are currently in place here in Massachusetts, which regulate brewer-distributor relationships. If passed, the legislation allows craft brewers to break partnerships with distributors at a moment’s notice for no specific reason at all. This instability would directly impact the ability and willingness of any distributor to make the necessary investments in new craft brands. This is unjust and unnecessary to the brewer-distributor relationship, the consumer, and ultimately the up-and-coming small brewers of Massachusetts. The numbers show that brewers and distributors can easily solve disputes within the current system. And disputes are few and far between. There are roughly six instances over the last 20 years where a brewer wanted to end their partnership with their distributor, according to the Alcoholic Beverages Control Commission. Most disputes are easily resolved through existing legislation, or by openly negotiating a swap between distributors to find a better match with certain brands. Distributors have worked hard to invest in the growth of craft brewers and to provide consumers access to the finest craft brands. Just like the Massachusetts small craft brewers, they’ve been a vital part of the industry’s economic progress and development within the state. It is unfortunate that giants like Sam Adams and Harpoon would push such unfair legislation and threaten the brewer-distributor relationship, as well as the craft brewing industry. This legislation may also harm many smaller craft breweries that will not stand a chance at succeeding in this already diverse, crowded and competitive market. This unfortunate repercussion will leave consumers with limited access to new products, and hinder other small brewers who are trying to enter a wider market. Distributors are passionate about craft beer. Distributors want to see small craft breweries succeed. We shouldn’t let unfair and unnecessary legislation suppress the craft beer entrepreneurs and the bond that has helped this industry thrive. William A. Kelley is president of the Beer Distributors of Massachusetts.

Read the full online article at BostonGlobe.com.

Brewers & Wholesalers Clash on Proposed Distribution Law Changes in Massachusetts

By David Eisenberg, Brewebound.com
November 18, 2013

BOSTON — Craft beer makers on Tuesday urged state lawmakers on Beacon Hill to overhaul a 42-year-old law they said is hurting their business.

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.”

Read the full online article at Brewebound.com.

Battle brews on Beacon Hill between beer makers and distributors

By Dan Ring, The Republican
November 12, 2013

Seated at the table in the foreground is Rob Martin, president of the Massachusetts Brewers Guild; and to his right are Dennis Bates, brewer at Opa-Opa Brewing Co. of Southampton; Chris Tkach, founder of Idle Hands Craft Ales in Everett and Steve Sanderson, owner of RiverWalk Brewing Co. in Newburyport. The brewers are shown testifying at the Statehouse on a bill that would change a state law that they said ties brewers to wholesalers regardless of the wholesaler's performance in distributing and marketing craft beers to restaurants, package stores and bars. (Dan Ring/The Republican)

Seated at the table in the foreground is Rob Martin, president of the Massachusetts Brewers Guild; and to his right are Dennis Bates, brewer at Opa-Opa Brewing Co. of Southampton; Chris Tkach, founder of Idle Hands Craft Ales in Everett and Steve Sanderson, owner of RiverWalk Brewing Co. in Newburyport. The brewers are shown testifying at the Statehouse on a bill that would change a state law that they said ties brewers to wholesalers regardless of the wholesaler’s performance in distributing and marketing craft beers to restaurants, package stores and bars. (Dan Ring/The Republican)

BOSTON — Craft beer makers on Tuesday urged state lawmakers on Beacon Hill to overhaul a 42-year-old law they said is hurting their business.

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.”

 

Read the full online story on MassLive.com

 

 

Brewers back change to old law, distributors call for status quo

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Kegs of craft beer fill the cooler inside the warehouse at Colonial Wholesale Beverage Co. John Sladewski/The Standard-Times

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.”

Read the full online article at SouthCoastToday.com.