Brewers, Distributors Discuss Franchise Law Reform at NBWA Legislative Conference

Picture this: It’s 10 A.M. and Dogfish Head founder Sam Calagione, the veritable poster child for craft beer, is sipping from a translucent green Heineken bottle in front of 800 beer distributors. He plucked the bottle from a range of options, passing up his brewery’s own 60 Minute IPA in favor of the import lager.

“I’ve already got some 60 Minute in my coffee cup here, so I’ll leave that for someone else,” he said, chuckling and selecting the beer from a bucket of choices being offered to a panel of beer industry leaders that  included Heineken U.S.A. president Dolf van den Brink, NBWA Chairman Greg LaMantia and John Bodnovich, the executive director of American Beverage Licensees.

Van den Brink returned the gesture, uncapping Calagione’s 60 Minute.

That was the scene at today’s NBWA Legislative Conference in Washington D.C., where Calagione, who joined the panel discussion moderated by NBWA president Craig Purser, defended the Brewers Association’s (BA) position on franchise law reform, excise tax reductions and the organization’s craft versus crafty media offensive.

The conversation comes at a time when U.S. craft brewers are advocating for new legislation that, they say, will allow them to continue expanding.

“It is the most exciting time and most challenging time to be in the beer industry,” said Calagione, speaking on behalf of the Brewers Association. “Our concern is access to market in the face of consolidation.”

In an effort to combat those concerns, the Brewers Association — the non-profit organization that represents the interests of America’s small and independent craft brewers — has advocated for franchise law reform and pushed for state-by-state carve-outs for the country’s 2,700-plus craft brewers.

To help draw public attention to the concerns of small brewers, Brooklyn Brewery co-founder Steve Hindy penned a New York Times opinion piece that many wholesalers felt cast somewhat of a negative light on franchise laws. In the op-ed, Hindy said the regulations are “used to limit consumer choice by keeping small and start-up breweries from moving easily into new markets.”

The piece drew the ire of the NBWA officials and beer distributors who worry that carve-outs for craft brewers will damage their businesses.

“Isn’t franchise reform a solution looking for a problem?” Purser asked. “Op-eds and cable news networks are not the place to have the franchise law debate.”

That’s why, he claims, the NBWA hasn’t publicly responded to its critics.

“It’s like mud wrestling with a pig,” he said. “You both get dirty, and the pig likes it.”

Most distributors that attended the event agree with Purser, sharing the opinion that the debate around franchise law reform should stay out of the public forum.

“Sometimes we will all have disagreements or differences of opinion,” LaMantia said during today’s panel discussion. “I am not sure that we should bring these opinions out to the whole world and public.”

Instead, LaMantia would rather see brewers and distributors meet behind closed doors and “beat the hell out of each other and come out or not come out.”

Calagione doesn’t see it that way.

“To some extent the craft beer community has earned its place at the big boy table, but we still have a very small voice at that table,” he said. “Sometimes we feel like our voice is a bit meek.”

Calagione believes that highlighting the issues for the public enables craft’s “grassroots force” — the consumers — to create a “greater dialogue in the media.”

Nonetheless, Calagione said he is eager to work with wholesalers on finding an amenable solution that would allow craft brewers more flexibility with regards to franchise laws.

“We created this market for craft beer together,” he said. “Let’s address these inequalities together.”

Van den Brink, however, said he doesn’t see much need for reform.

“It has always been a level playing field and I would love for it to stay that way,” he said. “We have been operating for 81 years in the U.S. and have done it without any exemptions and special considerations. For us, it is important that it stays a level playing field. That is how the market has always been.”

The BA, on the other hand, points to the evolution of the category in the last 25 years as reason enough for change.

“These franchise laws that came about 25-30 years ago were enacted at a time when there were fewer suppliers,” said Acacia Coast, the BA’s State Brewers Associations Coordinator.

Indeed, a lot has changed since the early 1990’s. According to figures from the Beer Institute, a trade group representing the beer industry, there are now 1,600 fewer distributors and 2,500 more breweries.

“It might seem that, to certain factions of the beer industry, we are asking for a lot,” Calagione told Brewbound. “All we are asking is to be treated fairly.”

To make their case, Coast and Calagione, point to New York, where recent franchise law reform has enabled craft brewers that produce less than 300,000 barrels annually and make up less than 3 percent of a wholesaler’s business, to terminate contracts without cause and for fair market value.

“I believe that New York brewers work very closely with their wholesalers to find common ground,” said Coast. “We do believe that is a good example of working together and evolving the law.”

The concept, Coast says, could serve as a model for franchise reform in other states.

“Let’s watch the impact of the change and the industry evolution after passing that law and point to it as an example of how it may benefit both tiers, moving forward, in other states,” she said.

But for LaMantia, some craft brewers are already beginning to act more like their domestic beer competitors, and he fears that continued reform could actually inhibit potential growth for the smallest craft brewers.

“We love craft,” he said. “We love selling it, promoting it and the dollars it brings us. The concern becomes, as we go forward, we see a little but of the ‘big-little’ versus ‘little-little’ and some people starting to eat their own in that space.”

During the discussion, LaMantia recalled a situation in which a large craft brewer said they would sign with a wholesaler only if that distributor agreed not to sell products from certain, smaller craft operations.

And while LaMantia used the time to call out some larger craft operations that are starting to flex their muscles, van den Brink — who noted that Heineken holds only a 4 percent market share in the U.S. — made his own plea for industry unity.

“Do I like franchise laws?” van den Brink asked. “No, not always. For me, it is part of this bigger thing called the three-tier system which has been incredibly beneficial, and we should cherish that and not start chipping away at that.”

While Calagione said he is hopeful that conversations about reforming franchise laws will continue, the NBWA, which credits franchise laws as being integral to the growth of craft beer, doesn’t appear to be backing down from its position.

“We will not reverse our course when amending state franchise laws,” said Purser.

  • Jim Smith

    No, the three tier system has not been beneficial to anyone except the leeching middlemen distributors. Time to get rid of it and kill the leeches!

    • I Can Read

      “Leeches” – Laughable.
      There is a reason the three tier system was put into place.
      Distributors make for much more equal grounds in the retail world. Small brewers would get eaten alive trying to expand in a supplier based world. Even craft brewers would focus smaller guys to leverage their brands “I deserve that space/handle/display because I can do X and that smaller guy can’t”
      Think back to tied houses. Read some history and see why the three tier system works and why it was created.

    • Biergirl

      Jim: I definitely think using a wholesaler should be voluntary and protectionist measures like franchise laws should be tossed out a window. However, it’s not fair to call all wholesalers “leeches”. We should be careful not to underestimate the value that wholesalers provide; without them, a person in California probably wouldn’t be able to buy Harpoon and folks in the East would have no idea about Lagunitas–because buying trucks, forming relationships with shops/bars, shipping millions of bottles; it’s an entirely different business than brewing beer. Of course, it’s *because* wholesalers are so valuable that they shouldn’t fear brewers having the option to use them. Greater competition in the distributing tier is definitely something we as consumers want.

  • Paul Martin

    Be careful what you wish for. Without our distributor partners we would not succeed. There are many in the industry that are short sighted when it comes to the importance of the 3 tier system. This is not unique to Beer or even alcohol. Snacks, Dairy, Bakery are all 3 tier systems. Suppliers cannot afford the infrastructure that distributors have to deliver our products to market. Who do you think checks code dates for freshness, delivers product at ungodly hours to the on premise, maintains relationships with every account.

    • Cletus

      That’s hardly a valid reason to FORCE a company to use a distributor.

    • Karl L

      Selling through a distributor can alleviate a huge number of logistical headaches for a producer, and should remain a very valid option for brewers.

      Key word there is *option*.

      When you’re legally mandating that organizations become your customers in order to do business, and don’t want to discuss that in public for fear that it may look bad, it’s usually a sign that you’re not really on solid ethical ground.