Wholesalers’ fourth category frustrations finally boiled over late last week, as Blue Ridge Beverage Company and Premium Distributors, a Reyes Beer Division subsidiary, filed a complaint with the Virginia Alcoholic Beverage Control Authority against Boston Beer Company over its appointment of PepsiCo’s Blue Cloud Distribution as the distributor of Hard MTN Dew.
This marks the first formal challenge brought by an existing Boston Beer wholesaler to the company’s distribution agreement with PepsiCo for Hard MTN Dew. The timing of the challenge also comes just days before the start of the National Beer Wholesalers Association’s Annual Convention in Chicago this week, ensuring it will be a hot topic of discussion among attendees.
In the 13-page complaint, Blue Ridge and Premium argue that Boston Beer’s appointment of Blue Cloud violated the state’s beer franchise act (Beer Act), which reads: “no brewery shall enter into any agreement with more than one beer wholesaler for the purpose of establishing more than one agreement for its brands of beer in any territory.”
Premium has distributed Boston Beer offerings in northern, central and southeastern Virginia since acquiring Northern Virginia Beverage (2004), Chesbay Distributing (2012) and Loveland Distributing (2018).
Meanwhile, Blue Ridge has distributed Boston Beer products in western Virginia since being appointed by the brewery in the mid-1980s, as well as through acquisitions of “several distributors” in southwest Virginia.
The distributors argue that the law prohibits Boston Beer from “entering into any agreement that splits the distribution rights to its brands of beer between different distributors in the same designated sales territory.” As such, they argue Boston Beer “established an unlawful ‘dual-distribution’ scheme for its Hard MTN Dew brand” in the 37 counties and cities where Premium serves as Boston Beer’s “exclusive distributor,” as well as the 43 counties and cities where Blue Ridge holds exclusivity. The law does allow for dual distribution deals in situations such as one brewery purchasing another, but they note that this instance does not apply.
Premium and Blue Ridge also argue Boston Beer has “unilaterally amended” their distribution agreements by “eliminating” their role as Hard MTN Dew’s exclusive distributor in their respective territories without providing at least 90 days’ written notice.
“Boston Beer’s actions have been undertaken with full knowledge that the Beer Act does not permit a brewery (and the holder of a Virginia Beer Importer’s license) to divide its brands of malt beverages between two or more distributors appointed to service the same sales territory,” the complaint reads.
Premium and Blue Ridge allege Boston Beer’s violations of the act were in “bad faith.”
“Boston Beer knew, or should have known, that its ‘collaboration’ with PepsiCo to manufacture the Hard MTN Dew brand of malt beverage and distribute the same exclusively through distributors owned and controlled by PepsiCo would trample on the long-standing exclusive franchise distribution rights that Boston Beer had already granted to its other distributors, such as Premium and Blue Ridge,” they argue.
“The appointment of a single county or city to which Boston Beer had already granted distribution rights to another could be reasonably termed a mistake,” they continued. “To appoint 80 such cities and counties, however, displays a conscious disregard by Boston Beer towards both the good faith obligations owed to its existing distributors and to the laws of the Commonwealth.”
The distributors are asking the ABC to to enter orders:
- holding Boston Beer in violation of the Beer Act;
- nullifying the appointment of Blue Cloud as the distributor of Hard MTN Dew in territories already appointed to Premium and Blue Ridge;
- barring Boston Beer from appointing any distributor other than Premium and Blue Ridge to distribute the company’s malt beverages in their respective sales territories;
- asserting that Boston Beer acted in bad faith in violating the Beer Act;
- awarding Premium and Blue Ridge “reasonable costs and attorney fees;”
- and granting “such relief as the board shall deem appropriate.”
In a statement, a Reyes spokesperson said: “We deeply respect Boston Beer and our longstanding business relationship, but we are also committed to upholding the franchise laws of the Commonwealth of Virginia. We cannot comment further due to the ongoing nature of the litigation.”
A Boston Beer spokesperson declined to comment on the pending litigation.