Sam Adams maker: Beer makers don’t leave distribution deals, they wait ’em out

Source: Boston Business Journal

By Jessica Bartlett

July 16, 2019

In his 35 years of running Samuel Adams beer, Boston Beer Co. Founder Jim Koch said he has never left a distribution agreement. It is easier to wait for an owner to die than it is to leave a contract with a distributor, he said.

“We have 400 wholesalers. We’ve never terminated one, because it’s so difficult,” Koch said. “We even had one in Massachusetts (in which) they migrated to wine and spirits. Beer became secondary. I didn’t terminate them. I knew the owner was going to die. You wait. You just wait. It’s easier than . fighting your wholesaler because they can strangle you in the years this litigation takes.”

Koch’s comments came during a hearing of the state Legislature’s Joint Committee on Consumer Protection and Professional Licensure on Monday, where brewers and distributors faced off over how to change the state’s so-called “franchise law.” The laws essentially lock brewers into lifelong contracts with any distributor they have worked with for more than six months. Brewers say the existing law inhibits the extent to which they can negotiate with a distributor. Yet distributors say the law protects what are mostly family-run businesses that invest heavily in brands up front and need the security of knowing a growing brand won’t walk away from a distributor that has helped build their brand.

The sides have been fighting for years over the franchise law, and they faced off again this week as the two sides pushed for competing bills to change the way brewers and distributors work together.

Koch, testifying alongside fellow brewers and members of the Massachusetts Brewers Guild, pushed for the state to adopt a new, tiered approach to the franchise law, one that would allow a brewer producing less than 6 million barrels a year to leave a contract. The bills, filed by State Rep. Alice Peisch and State Sen. Joseph Boncore, would require larger brewers to give longer notice than smaller brewers to leave a contract, and would require bigger brewers to pay more to the distributors for the book of business.

Large brewers such as Boston Beer, maker of Samuel Adams, say they have been trapped in agreements signed when their sales were a speck of what they are selling now. Meanwhile small brewers say they have avoided growth over concerns that they will be forced into lifelong contracts.

“Without this ability to enter into fair and equitable relationships, many in our tier hesitate to enter any agreement,” said Maureen Fabry, co-founder of CraftRoots Brewing of Milford.

The 100,000-barrel limit

The legislation was opposed by a room full of union distribution workers, decked in blue T-shirts that urged legislators to instead vote for the “99 percent solution.”

That bill, seen as a compromise by distributors, would let breweries that produce less than 100,000 barrels in any 12-month period leave franchise agreements. The proposal, which is sponsored in the House by state Rep. John Mahoney and in the Senate by state Sen. Marc Pacheco, is an increase from the 30,000-barrel limit proposed in a similar piece of legislation last year. At that barrel limit, it encompasses roughly 99 percent of the brewers in the state – all except Boston Beer Co. and Harpoon parent company Mass. Bay Brewing Co. Inc.

A bevy of distributors testified to the work they put behind selling a brand, and threatened widespread layoffs if the brewers bill was passed.

Burke Distributing pointed to the 72 layoffs it was forced to undergo in April after Red Bull pulled its decades-long contract with the Randolph company. Tim Burke, the former general manager of Red Bull for Burke Distributing, said energy drinks aren’t overseen by the same franchise protections as breweries, and he feared what would happen if breweries were able to abandon contracts in a similar way.

Burke added that the franchise law also protects brands – preventing a larger beverage company from coercing a distributor to stop selling a competitor’s products.

“The beer business in Massachusetts isn’t broken,” he said. “It has worked well since prohibition was appealed . The distributors have compromised – the 99 percent solution.”

But Koch called the idea that wholesalers would lay off employees after receiving a large payout for the book of business was “a fantasy.”

For his part, Bill Kelley, president of the Beer Distributors of Massachusetts industry lobbying group, said distributors weren’t in the business of accepting payouts.

And Rob Burns, president of the Brewers Guild, said that brewers would be happier with existing franchise law than the one proposed by distributors.

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