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September 30, 2015

Craft brewers’ battle with distributors continues

PHOTO/MATT VOLPINI Wormtown Brewery founding partner Ben Roesch, developer Robert Branca, founding partner Tom Oliveri and managing partner David Fields inside their new facility on Shrewsbury Street in Worcester. The craft brewer could be affected by changes to regulations surrounding beer distribution in the state.

The overflow crowd spilled out of a State House hearing room and into the hallway on Tuesday as lawmakers weighed a bill that supporters say would level the playing field for small beer brewers, but that opponents say would irreparably damage the very craft brewing industry that supports it.

At issue is a bill that would rewrite the law on beer distribution to allow some brewers to end the relationship with their distributor. Under the current law, which has been in effect since 1971, once a beer supplier has worked with a particular distributor for six months, that distributor has indefinite distribution rights to the products it has already distributed.

A beer supplier can only terminate its contract with a distributor if the Alcoholic Beverages Control Commission determines that the distributor has violated one of five statutorily-defined conditions.

Opponents say the bill (H 245) would allow brewers to break a contract with a distributor at any time and for any reason. But supporters say the bill would give small breweries a better chance to compete and grow by allowing them to move to a distributor that better suits its needs.

"Under the current law, we are locked in forever. Not my life, not my children's life, not my grandchildren's life, under the current law we are locked in for all eternity," Jim Koch, founder and chairman of Boston Beer Company, said. "I don't want to be forced by antiquated state regulations to work with the wrong partner."

Koch testified as part of a panel that also included the co-founder of Night Shift Brewing and the owner of Ipswich Ale Brewery. Rep. Alice Peisch (D-Wellesley), the bill's lead sponsor, introduced the panel to the Joint Committee on Consumer Protection and Professional Licensure and said the issue is truly a consumer issue.

But the Beer Distributors of Massachusetts and the Teamsters told legislators the bill would upend a successful and competitive craft beer marketplace in Massachusetts that has given beer drinkers a greater variety of beer in the package store coolers.

"Make no mistake, we are enjoying a brewing renaissance. But H 245 will throw us back into the dark ages," Bill Kelley, president of Beer Distributors of Massachusetts, told the committee. "If this legislation is advanced and breweries get a new, unilateral power to fire a distributor for no reason, you will change the system in a very harmful way for all parties involved, including consumers."

Kelley also took exception to the way the bill defines the "small brewers" that would be allowed to change distributors. Under the bill's language, any beer supplier who accounts for less than 20 percent of their wholesaler's total annual sales is deemed to be a "small brewer." Kelley said the bill would count breweries that produce the equivalent of 83 million cases of beer per year -- more beer than is sold in the entire state each year, he said -- in that definition.

"The biggest beneficiaries are among the largest breweries in America, with valuations of billions of dollars," he said. "Under H 245, virtually all beer brands distributed by a Massachusetts distributor would enjoy the special treatment, with the possible exception of the distributor's one major supplier, either Anheuser-Busch InBev or MillerCoors."

Though the brewers who testified said they currently do not desire to leave their distributors, they said that other beer brewers might want to change wholesalers if they feel the distributor is not giving their brands as much attention as others.

"Not every wholesaler is right for every beer brand. At this point in time there is no way for my small business, my first generation business, to be able to move to an appropriate wholesaler," Rob Martin, president of the Massachusetts Brewers Guild and founder of Ipswich Ale said. "All we're looking for is the ability to move between wholesalers to do what's best for our business, as they can do with their business."

Martin said most breweries would move from one distributor to another only under "pretty extreme dire circumstances."

Under the bill, any brewer that chooses to leave its distributor absent an ABCC ruling would have to pay the distributor "an amount equal to the fair market value of the supplier's distribution rights granted to the wholesaler in the terminated wholesaler's territory," a price that Koch said would be too steep to take the decision lightly.

"If Sam Adams were to leave the five wholesalers we have in Massachusetts, I'd be writing checks to those wholesalers for about $150 million," he said. "Just for the right to go to someone who can better represent our brand."

Though similar, if not identical, bills have been proposed in each of the last five years, according to Kelley, this year's bill has garnered bipartisan support from both chambers¬-- at least 85 legislators have signed on to co-sponsor the bill.

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