Brewers and distributors renew their quarrel over exclusive contracts
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Supporters of a bill promoted by beer distributors packed a State House hearing room Monday, clad in blue T-shirts that called their bill "the fair compromise."
Brewers and beer distributors are renewing the effort to create new pathways out of their business partnerships, but a "compromise" bill put forward by distributors has already been rejected by brewers, who are offering a plan they said would be "painful" for them but still preferable to the distributors' option.
"We're not trying to make it easy for us to leave our wholesalers," said Boston Beer Company founder Jim Koch. "We're willing to make it very painful in order to get something done. We'd love it differently, but it's not going to happen. We have to make it painful for us."
Under current law, once a beer supplier has worked with a particular distributor for six months, that distributor has indefinite rights to the products it has already distributed, and a supplier can only terminate the contract if the Alcoholic Beverages Control Commission determines that the distributor has violated one of five statutorily-defined conditions.
Brewers have been filing bills that would allow smaller beer-making operations to break away from their distributors since 2011, according to Marty Correy, legislative counsel for the distributors. Correy said a major sticking point since then has been where to set the threshold of what qualifies as a small, or "emerging," brewer.
After backing legislation last session that had a 30,000-barrel threshold, the distributors this session support bills filed by Rep. John Mahoney and Sen. Marc Pacheco (H 3549, S 178) that would establish a way for "emerging breweries" annually producing less than 100,000 barrels, or 1.4 million cases, to terminate their distribution deals.
"In a day and age where compromise is hard to come by, this bill does just that, granting flexibility to 99 percent of the market while protecting distributors from losing key brewers that make up a significant portion of their market share," Sen. Patrick O'Connor, a Weymouth Republican, said. "Flexibility, options, freedom to choose and logical protections can only increase the success of both sides of the craft beer industry."
O'Connor said there are more than 120 craft brewers in Massachusetts that help sustain 3,400 workers in brewing and distribution. "We cannot stifle economic growth for either party when this industry is quickly turning into one of the most popular and locally based business models in the commonwealth of Massachusetts," he said.
Atlas Distributors Vice President Jamie Salois said the 100,000-barrel limit covers 99 percent of all brewers in Massachusetts and nationally.
Koch -- whose Boston Beer Company makes Samuel Adams and, with about 4.5 million barrels last year, represents just over 2 percent share in the U.S. beer market -- said the distributors' bill would put his company in the same category as brewers ranging from 20 to 100 times its size, like Anheuser-Busch and MillerCoors.
Dozens of supporters of the distributors' bills, wearing blue T-shirts with a full pilsner glass and the slogans "the 99% solution" and "the fair compromise" packed into a hearing room as the Consumer Protection and Professional Licensure Committee solicited testimony on the two sets of brewer/distributor bills.
The brewer-backed bills (H 327, S 104), filed by Rep. Alice Peisch and Sen. Joseph Boncore, propose a three-tiered system, with different payments and notice periods required to terminate a distributor based on the size of the brewery.
The requirements would differ for breweries that produce between one and 5,000 barrels of beer, between 5,001 and 350,000, and 350,000 to 6 million. Six million barrels, Koch said, is the cutoff the federal government uses to define a craft brewer.
Maureen Fabry, whose Milford-based CraftRoots produces about 500 barrels annually, said many brewers of her size hesitate to enter into an agreement with a distributor.
"It truly can be paralyzing for a growing business, a small business, to think that the decisions I make about my business today will stay with me for the life of my operation," she said.
Keith Sullivan, co-founder of Medusa Brewing Company in Hudson, said smaller brewers want freedom to "move about" as they're growing, and that the middle tier is where having a relationship with a distributor becomes "integral." He said that of the breweries in Massachusetts who reported production statistics last year, one fell into the top tier proposed under the bill, 19 were in the middle tier, and 134 were in the smallest tier.
Massachusetts Brewers Guild President Rob Burns said under questioning by the committee that "one, almost two" breweries in Massachusetts would land above the 100,000-barrel threshold proposed in the distributors' bill.
"But I think it's important to call out that the other bill put forward by the wholesalers, while that number is there, there's other pieces of that legislation that actually make it worse than today," said Burns, one of the founders of Night Shift Brewing in Everett. "We'd rather keep it as status quo than take that bill. Part of what this bill does is make it a longer process for breweries to exit, which for a small business would be a death nail."
Last year, the House Ways and Means Committee endorsed a redrafted version of the distributors bill on the final day of formal legislative business for the two-year session, and it received initial approval in the House before ultimately dying.
The Ways and Means redraft included a 100,000-barrel threshold.
Louis Cassis of the Wine and Spirits Wholesalers of Massachusetts said his organization had "worked tirelessly" with distributors to reach a compromise with the brewers, and that the brewers "rejected out of hand" both the original 30,000-barrel limit last session and the 100,000 limit.
"We have put our best efforts forward to try to reach a bill that would solve all the problems for the small brewers in Massachusetts and keep the franchise law in place and intact the way it has been for the last 70-odd years," Cassis said, speaking in support of the Mahoney/Pacheco bill. "There's been no chance to resolve it with them, and I think the only real solution is to pass this bill and not the craft brewer bill that is proposed by the opposition."
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