Bill seeks more flexibility in beer distribution
Massachusetts brewers unveiled a last-minute legislative proposal that would dramatically reorder the state’s beer industry, making it far easier for breweries to switch among distributors that bring their brews to bars and package stores.
The measure, filed Wednesday by state Senator Barbara L’Italien, would effectively repeal the state’s decades-old beer-franchise law, which makes it difficult and expensive for breweries to fire their distributors. In some cases, the law could result in a brewer having to pay its distributor several years worth of revenue to leave, a sum beyond the means of the many small craft beer makers that have proliferated in recent years.
Instead, the legislation specifies that distribution deals would be governed by the same type of private business contracts common in other industries.
Perennial attempts at changing the franchise law have died under strenuous lobbying by distributors. But with recent controversies focusing public and official attention on the state’s convoluted and antiquated alcohol laws, brewers see a political opening. Even if the new bill fails, they hope to at least force distributors to negotiate changes to the law.
“When you’re in a good situation and you have all the power, why would you sit down and change anything?” L’Italien, a Democrat from Andover, said, referring to distributors. “It’s my hope that moving this amendment will potentially get the two sides to work it out. If not, the next step is to change it by pushing the issue.”
Distributors reacted with outrage, organizing a picket outside the State House by unions that represent some of their employees.
“This is a last-minute, back-door attempt to force a more extreme version of a long-rejected bill into law,” Bill Kelley, president of the Beer Distributors of Massachusetts, said in statement. “This amendment hurts locally-owned family businesses, hurts working families, and uses an approach completely lacking in transparency, openness, and public deliberation.”
Distributors argue the current system works just fine, pointing to the greater-than-ever selection of craft beer.
If the measure passes, Massachusetts would join Alaska, Hawaii, and Washington, D.C. as the only areas without restrictions on brewers’ ability to switch distributors.
But the bill’s political fortunes are uncertain at best. L’Italien is trying to add it to an economic development bill the Senate will debate Thursday. And with only days to go in the legislative session, House Speaker Robert DeLeo said lawmakers will likely put it off until next year.
But the speaker urged the sides to work out changes to the franchise law on their own.
“They better get serious about coming to the table,” DeLeo said.
Governor Charlie Baker’s office declined to comment on the measure. But he has broadly expressed frustration with the state’s alcohol regulations after a recent flap over the licensing of the Nashoba Valley Winery in Bolton. The governor has filed bills to change other sections of the state’s alcohol laws, and a spokesman said Baker wanted to “reduce bureaucratic hurdles [and] increase consumer choice and convenience.”
Treasurer Deborah Goldberg, whose office oversees the Massachusetts Alcoholic Beverages Control Commission, is also threatening to shake up the industry by launching a task force that will conduct a top-to-bottom review of the state’s liquor laws and regulations.
The state’s franchise law dates to 1971, when brewers were growing through consolidation. It was intended to prevent massive companies such as Anheuser-Busch from effectively dominating local distributors because they provided so much of their product.
Brewers say today’s beer industry is precisely the reverse: There are more breweries than ever, and most are small craft makers. They accuse large wholesalers of “squatting” on smaller brands, signing them on to keep them away from competing distributors, but doing little to sell them. If distributors feared losing those brands, brewers argue, they would work harder to market the beers, leading to lower prices and more choices for consumers.
Night Shift Brewing, in Everett, is still small enough that it can directly distribute its own beer under Massachusetts law. But at its current growth rate, Night Shift will soon exceed the 50,000-barrel-a-year threshold that requires brewers to use a wholesaler. Co-founder Rob Burns said he is not looking forward to signing a distribution deal he will have little power to change.
“It’s like marriage without the option to divorce,” Burns said. The new bill would “open the door to building a relationship that’s based on trust and makes sense for everyone.
Other brewers say the law is a relic.
“Franchise law reform would be a big and very meaningful down payment on bringing the laws that govern alcoholic beverages into the 21st century,” said Jim Koch, founder of Boston Beer Co. “The current laws are an impediment to craft brewers being able to grow their businesses.”
Under current law, a brewery is effectively locked into its distributor after six months unless it can prove to state regulators the wholesaler has met one of several conditions — such as violating the law or failing to “exercise best efforts” in selling the beer.
The ABCC could not cite cases where beer makers have sought approval to leave their distributors. Moreover the agency said brewers and wholesalers can negotiate private contracts that allow for breakups outside the terms of the franchise law. Brewers dispute the ABCC’s interpretation of the law and point out that many of them don’t even have contracts with their wholesalers because of the franchise law.
Meanwhile, Harry Schuhmacher, publisher of the publication Beer Business Daily, said eliminating franchise protections could hurt small brands.
Without franchise laws, Schuhmacher said, “there’s no incentive for the distributor to build the brand long term, because they know it could be pulled at any time.”
Schuhmacher argued the franchise law lets wholesalers promote small brands without fear of retaliation by larger beer makers. Brewers counter that such protections for distributors could be written into contracts.