Hard tea and wine-based spritzer producer Loverboy is attempting to split from its Massachusetts wholesaler, Chelsea-based Night Shift Distributing, according to documents filed with the Massachusetts Alcoholic Beverages Control Commission.
Loverboy, which makes a line of hard sparkling teas and a line of canned wine-based cocktail spritzes, is insisting that it does not have to compensate Night Shift Distributing for its brand rights.
Night Shift Distributing, the wholesaler arm of the Everett, Massachusetts-based craft brewery, disagrees.
“We want nothing more than the best for the Loverboy brand and team behind it, and we want them to succeed in the Massachusetts market,” Night Shift co-founder Rob Burns told Brewbound. “All we’re looking for is our reasonable compensation for the effort and the brand rights, and we’re more than happy to transition to whatever wholesaler they’ve elected.”
Loverboy informed Night Shift Distributing on December 1, 2020, of its intent to terminate the relationship, effective January 3 — prior to Massachusetts Gov. Charlie Baker signing franchise law reform into law on January 12. The new section of the law, titled 25E ½, allows suppliers making fewer than 250,000 barrels annually to terminate wholesaler relationships at any time by giving 30 days’ notice and paying “fair market value” for their brand rights.
The contract that Loverboy and Night Shift signed in October 2019 allowed Loverboy to terminate the relationship without cause, but did not mention compensation.
“The metaphor I use is when you get married, do you get a prenup? Or do you not get a prenup?” Burns said. “You can divide it up front, or you can wait ’til the marriage falls apart. But at the end of the day, there’s compensation being transacted.”
Loverboy co-founder Kyle Cooke told Brewbound he was attracted to the freedom offered by Night Shift’s contract.
“I valued flexibility more than anything at that time, so this gave me the confidence to move forward,” he said. “Nothing was ever discussed about payment for termination, so our distribution agreement, like lots of commercial agreements in other industries, gives both parties the ability to terminate the agreement at any time and for any reason, without any required exit fees or other payments or ransom to set free our brands. They had the right to terminate us just like we had the right to terminate them.”
Night Shift Distributing brought Loverboy on in 2019, a year after the brand launched. Cooke and Amanda Batula, entrepreneurs and stars of Bravo TV’s Summer House, founded it as a better-for-you alternative to other tea-flavored FMBs.
“They didn’t have a full-service wholesaler at the time in any state,” Burns said. “We really believed in the products, the branding, the people, the opportunity, and were excited to get going.
“They were new to the industry, and so there’s certainly some learning curves involved,” he continued.
Loverboy became a top product in Night Shift Distributing’s portfolio, accounting for nearly 12% of the wholesaler’s more than 700,000 case sales.
“We ended up having, generally speaking, a wildly successful 2020 with Loverboy,” Burns said.
Last year, Night Shift Distributing sold 75,000 cases of Loverboy product, worth about $3 million. Since launching the brand, Night Shift Distributing’s sales team secured placements in off-premise retail chains.
“We’ve won big displays and big end caps in major retailers and put a ton of weight behind it, because we just saw the massive potential there was for the brand,” Burns said.
The sales successes weren’t without challenges. Loverboy inventory was tight, Burns said — something not surprising to fans of Summer House, as Cooke discussed the brand’s struggles on the show. On a recent episode, titled “Best Frenemies,” Cooke prepared for a meeting with a “strategic potential partner.”
“We need help on the production side, we keep selling out,” he said. “Due to all of our distributor problems and our production problems, I lost $7.5 million in June alone because that’s how many distributors ask for Loverboy. I have nothing to sell.”
However, Cooke told Brewbond the brand “wanted more from Night Shift than what we were getting from Night Shift and what we thought Night Shift could actually deliver after reviewing what they did in this past year.” He added that Night Shift was “only distributing to pre-sold accounts while ignoring other accounts that wanted the products” and called the notion of compensation “frankly very frustrating.”
“That’s, I think, part of the contention that they don’t, without having real industry experience, understand,” Burns said. “In their mind, it took zero effort to get to that amount of sales last year.”
Loverboy is distributed in Massachusetts, New York, New Hampshire, Wisconsin, Pennsylvania and Austin, Texas. The brand ships its wine-based products directly to consumers in 44 states.
ABCC filings depict a deteriorating relationship. Night Shift Distributing submitted a purchase order for product on December 15, 2020 — two weeks before Loverboy’s termination date. Loverboy rejected that order and another one on January 11.
Night Shift’s first petition for relief, dated January 13, asked for an ABCC hearing on Loverboy’s discontinuing sales to Night Shift and an order to them to continue selling their products to Night Shift while the matter was worked out. Its second petition, dated March 1, requested “full compensation” including the cost of “merchantable inventory” plus a 10% handling charge, the cost of sales and marketing material and “the fair market value of the distribution rights of the brand that are being terminated by Loverboy.”
Loverboy has moved to dismiss Night Shift’s petitions on the grounds that Night Shift waived its rights under Section 25E in creating its contract with Loverboy.
“Unhappy with the deal it promised Loverboy, Night Shift now seeks to enforce a law whose application it expressly agreed did not apply to the parties’ relationship,” Loverboy wrote in a memo dated February 16.
Loverboy has not appointed a successor wholesaler, and Cooke pointed to Night Shift’s petitions as the reasons why.
“Any distributor looking at that from the outside is going to be wary to jump in and get caught up potentially having to defend similarly baseless claims,” he said.
In its March 1 petition, Night Shift clarified that it did not seek “any other prospective relief that would prevent Loverboy from distributing its product using another distributor going forward.”
Loverboy filed a motion to expedite the dismissal of Night Shift’s petitions on Wednesday, March 17, in a memo that detailed Burns’ involvement in the years-long fight to reform franchise law during his term as the Massachusetts Brewers Guild president.
“During his tenure as the Massachusetts Brewers Guild president, Rob Burns advocated for legislative permission to terminate a distributor and refuse sales of brand items without any cause, upon 30 days written notice like the provision that was proposed by Night Shift and included in the signed, written distribution agreement between Night Shift and Loverboy,” the memo reads.
Burns acknowledges that he advocated fiercely to allow suppliers to terminate relationships with wholesalers, but not without compensation.
“We’ve always at Night Shift Distributing said that suppliers should be able to terminate the relationship — that’s something that I’ve advocated for years on behalf of the Brewers Guild,” he said. “But what we’ve also always advocated on behalf of the Brewers Guild is that wholesalers receive fair and reasonable compensation for their hard work.”
Night Shift would never have signed Loverboy — or any supplier — if termination without compensation was part of the deal, Burns said.
“That would have been a non-starter,” he said. “Our flexibility was allowing a supplier to move, but that never meant moving for free. That has been consistent in our messaging from Day One and in my efforts to reform franchise law.”
However, Cooke said Loverboy was promised the ability to terminate and move on without payment.
“The problem is that they want a ransom to let our brands go — millions of dollars that they’re not entitled to,” he said. “Had we known that they would hold our brands hostage until a ransom was paid when we entered into a contract with them, we wouldn’t have signed up.”