A lawsuit is giving loud and emphatic voice to a complaint craft brewers have whispered for years: that a handful of large beer distributors, enabled by antiquated state laws, manipulate the Massachusetts beer market for their own benefit by bullying smaller companies.
The legal broadside comes from Shelton Brothers Inc., a Belchertown beer importer that has challenged distributors and alcohol laws in a number of states. On Friday, Shelton sued Craft Brewers Guild, the Everett distributor at the center of the “pay-to-play” scandal roiling the state’s beer industry, alleging that company’s “unfair and illegal” practices cost it $1.7 million in lost sales.
In February, Craft Brewers Guild was fined a record $2.6 million by state regulators for paying Boston bars to put its beers on tap. Officials said the years-long scheme by the state’s largest craft beer wholesaler was a “pervasive illegal enterprise” that undermined market fairness.
But in its lawsuit, filed in Hampshire Superior Court, Shelton Brothers alleged those “pay-to-play” payments were just one part of a complex system of favoritism at Craft Brewers Guild. Steady-selling beers from large, preferred suppliers were priced competitively and actively pushed, while those from smaller breweries and importers were allowed to languish in the warehouse, the suit alleges.
“These big distributors have framed themselves as friends to small brewers and beer drinkers, all the while using unfair practices like illegal pay-to-play schemes to control the market,” Shelton Brothers said in a statement. “They’re limiting access and choice to line their own pockets at the expense of brewers . . . and consumers. We’re hoping this lawsuit will free our products from being held hostage.”
Shelton Brothers wants the court to award it damages, affirm that it’s allowed to sell through other distributors, and order Craft Brewers Guild not to harass other companies with which the importer does business.
Craft Brewers Guild, which is part of the Sheehan Family Cos. network, denied the allegations in a brief statement.
“Craft Brewers Guild will vigorously defend itself against the meritless allegations made by Shelton Brothers,” the company said. “Craft Brewers Guild is confident it will prevail.”
Shelton Brothers represents a handful of US craft breweries, but most of its beer roster is comprised of European brands that appeal to connoisseurs, such as Loch Ness Brewery in Scotland, Magic Rock Brewing in England, and Mahrs-Bräu in Germany.
The company hired Craft Brewers Guild in 2009 to market, sell, and deliver those beers to Massachusetts retailers. At the time, Craft Brewers pledged to boost sales, the importer claimed.
But in 2011, revenue declined precipitously and has remained essentially flat since, according to data provided by Shelton Brothers. The company said the slump resulted from Craft Brewers Guild’s decision to jack up prices on beers supplied by the Shelton Brothers — including by manipulating freight cost calculations — so retailers would instead buy from St. Killian Imports, a supplier that’s also owned by Sheehan Family Cos. and carries similar foreign styles.
At the same time, Shelton Brothers said, Craft Brewers Guild launched a program that offered retailers steep discounts if they bought beer only from a limited selection of brands that didn’t include Shelton Brothers products.
The wholesaler also reassigned two salesmen it had promised would focus on the Shelton Brothers portfolio, according to the lawsuit, and paid bars to carry beers from other suppliers.
“Each dedicated tap line or cash kickback to secure placements of products from . . . preferred suppliers eliminated a sales opportunity for other suppliers, including Shelton Brothers,” the company said in its lawsuit.
Frustrated, Shelton Brothers in 2011 started to sell beer through another distributor. But, the company alleged, Craft Brewers Guild launched “a campaign of harassment and intimidation” against the competing distributor and its retail customers, threatening them with legal action. Shelton Brothers said it backed down because it lacked the resources to fight in court.
Shelton Brothers alleges these tactics are part of a larger strategy by Craft Brewers Guild: Sign on numerous brewers and importers to keep them away from competing wholesalers, then impede their sales to block competition with similar, lucrative brands that the wholesaler relies on.
Under the state’s controversial “franchise” law, brewers and other alcohol suppliers are effectively bound to their distributors indefinitely after a six-month trial period. Shelton Brothers and many brewers argue this system allows distributors to “hoard” suppliers without having to worry they will bolt for a competing wholesaler. Distributors have argued the law protects their investments in marketing brewers.
Shelton Brothers on Friday notified the state Alcoholic Beverages Control Commission that it intends to stop selling beer to Craft Brewers Guild, citing rarely invoked provisions of the franchise law that allow suppliers to walk away if their distributor has broken the law, engaged in “unfair preferment in sales effort[s],” or failed to “exercise best efforts in promoting the sale of any brand item.”
Craft Brewers Guild can challenge the move at a hearing, though it was not immediately clear whether it would do so. The company is currently fighting the $2.6 million fine imposed by the ABCC for its payments to bars in state court.