Hindy & Purser Debate Three-Tier Reform


The Breakers in Palm Beach, Fla.

When you stick a few hundred beer executives in a room with each other, you can usually count on two things happening: a debate about franchise law reform will undoubtedly break out and some suave corporate marketer will tell you how he unlocked the secrets of the internet and is finally getting through to all those unloyal millennial beer consumers.

That was the case last week in Palm Beach, Fla., where upscale oceanfront resort The Breakers played host to Beer Business Daily’s 12th annual Beer Summit.

But before any CMOs had a chance to wax poetic about the latest advances in digital advertising, a pair of longtime beer industry veterans took the stage to partake in a debate about franchise laws.

Brooklyn Brewery co-founder Steve Hindy and NBWA chief Craig Purser joined Beer Business Daily publisher Harry Schumacher in an engaging discussion that focused primarily on three-tier dynamics and franchise law reform.

Franchise laws were originally enacted to protect independent wholesalers from losing the rights to sell brands marketed by large suppliers like Anheuser-Busch and MillerCoors. Now, however, some small brewers, in an effort to switch distributors, are working to reform what they see as onerous franchise laws that prohibit them from doing so.

Hindy, who in the past has expressed his discontent with strict distributor contracts, backed off slightly from his viewpoint that “archaic distribution laws” inhibit a craft brewers’ access to market.

“I don’t oppose having a state franchise law,” he said. “People forget that I was a distributor for 15 years. I feel we played a role in creating the craft and import segment in New York City.”


Brooklyn Brewery co-founder Steve Hindy

Indeed, when Brooklyn Brewery first launched in 1987, large beer distributors weren’t interested in selling the small craft brand, according to Hindy. With no viable route-to-market, Hindy and Brooklyn co-founder Tom Potter formed their own distribution company, selling their brand as well as a handful of other craft brews from around the country. The two would later sell the division, which had grown to 1 million cases, for “about $12 per case,” Hindy said.

“Were it not for the New York state franchise laws, that company would have been worth nothing,” he told attendees. “I have no problem with franchise laws, except when it comes to a brewery that is not being treated well by a distributor.”

And that’s where the conversation gets tricky. Assessing a distributor’s performance is a daunting task for brewers, lawyers and legislators alike. That’s why Hindy, and others, have advocated for small brewer carve-outs that would give some companies the ability to opt-out of a distribution contract.

He believes recent legislative reform in New York — which enables craft breweries that produce less than 300,000 barrels annually and make up less than 3 percent of a wholesaler’s sales to terminate contracts without cause and for fair market value – serves as a perfect model for reform.

“This whole issue can be addressed the way it was in New York, with a carve-out of 3 percent,” he said. “I think that is a reasonable way to make franchise law more fair for small brewers.”

Ever the diplomat, Purser said he doesn’t like the notion of “changing the rules that have been established,” leaning on empirical evidence to bolster his argument.

“A number of states have franchise laws,” he said. “The facts are — in 1983 there were fewer than 50 breweries in the U.S. Now there are over 3,000. All of this occurred against a backdrop where franchise laws were a part of the rules.”

In other words, wholesalers deserve a pat on the back and (at least some) credit for craft beer’s robust growth over the last three decades.


National Beer Wholesalers Association CEO Craig Purser

So what’s Purser’s suggestion for craft brewers that are trapped in strict, and perhaps even unfair, wholesale contracts?

”Before you have a broad-based national, loud and proud discussion in front of everyone, we ought to utilize the laws that exist,” he said. “The better way to proceed on these kinds of things is to document and terminate.”

That means hiring lawyers, which can be costly for small indie brewers with restrictive budgets.

“It is incredibly expensive and risky,” said Hindy. “Most small brewers can’t even dream of taking on an action like that.”

The conversation took place at a time when small brewers across the U.S. are pushing hard for reforms that would give their companies a chance to terminate contracts and switch wholesalers. But since every state has its own set of franchise laws, craft brewers have been unable to come together on a national level and propose a solution to reform what they perceive as a major roadblock in growing their businesses.

In Indiana, small brewers are pushing to double the state’s production cap for self-distributing craft companies. The Support Indiana Brewers campaign, launched last week by Sun King Brewing and 3 Floyds Brewing, aims to change Indiana statutes that prohibit a brewery from self-distributing more than 30,000 barrels of its own product.

And in 2013, Illinois passed legislation that enabled self-distributing craft breweries to produce up to 30,000 barrels.

Naturally, the question of how to distinguish between a “small brewer” and a “large brewer” arose during the Beer Summit.

“I don’t think there are any plans to change the definition,” Hindy said, when asked about any changes the Brewers Association (BA)  might have planned as it looks to determine who is and who isn’t a craft brewer.

“The definition was created when the BA was created, and the reason we defined craft brewer was to determine who the BA would be working for. It was a very practical thing.”

Definitions aside, the issue of size is particularly important to Purser, especially when state lawmakers are trying to determine which “small” beer companies should be allowed to self-distribute.

“This is definitely a great example of something that has been evolving,” Purser said. “What is small and who should be allowed to have these separate privileges? Size matters. There are robust discussions about what should be allowed and what shouldn’t be allowed.”

“The healthiest craft markets in the country allow self-distribution,” said Hindy. “For the most part, craft brewers do not want to be in the distribution business.”

That may be, but Purser is cautious and understands that the robust growth in the craft segment is “something that we all have to pay attention to.”

“You guys are the big brewers of tomorrow,” he added.

And as small brewers continue to take share from their big brewer counterparts, debates about franchise law reform and self-distribution rights are sure to intensify.