Mass Hysteria in Mass

FILED JULY 18, 2016

Dear Client:

For the past week there has been mass hysteria in Mass. As reported in CBD last week, Massachusetts's brewers and distributors could have the rest of the year to work out their differences on the state's franchise law.

Here's the interesting back-story: For years, Mass craft brewers from Boston Beer to Harpoon on down have been been pushing for New York-style franchise reform, where if a brewer represented a certain percentage of a distributor's volume or below, it could move distributors at will with fair compensation. But a deal could not be struck.

So a bill emerged which would repeal the entire franchise law and allow brewers to move without even fair market compensation, and it got the attention of the influential Boston Globe which supported the measure, even though it didn't have much of a chance of passing.

Then late last week, legislators introduced a measure that would force distributors to come to the table with brewers on the matter. If the new measure "survives a legislative process next week" and grab a signature from Gov. Baker, the commonwealth will assemble a task force of "brewers, distributors and several official appointees to come up with rules detailing "when and how a brewer is permitted to fire a distributor and switch to a new one." They have until the end of the year. If they can't come up with a compromise, expect another bill to repeal the entire franchise law.

As the Nexis of the beer industry, Beer Business Daily has fielded a variety of responses both from within Mass and well beyond. Here's a smattering of interesting takes from each tier:

WHOLESALER RESPONSE: "If Mass franchise bill passes, the two distributor networks capable of building a small brand and taking it from niche to next level is AB and MC. AB and MC distributors can live without outside craft. They will concentrate on main suppliers craft and FMB brands and to heck with a craft brewer that does not appreciate them or will not give an evergreen contract. Big brewers will be happy! They will say, we told you so!"

SMALL BREWER RESPONSE: "Oh my god I cannot wait for you to put in print 'MA Wholesalers Association opposes measure that would make them to talk to brewers.'"

AN OUTSIDE MASS DISTRIB RESPONSE: "The MA franchise law thing kinda boils my butt in that, at least in my franchise state a supplier has yet to ever had to pay to get out of a distributor. The successor distributor pays for the fair market value - not the brewery. Rights go for 4, 5, 6x gross and that is A LOT of money for a successor distributor who will not make any money on the brand for several years. The distributor needs protection if they are paying those dollars. The brewery still gets paid regardless when their customer - the distributor buys beer from them."

IS ANTI-REGULATION WHAT WE NEED? "MA brewers scorched earth feeds into the trade practices issue they've had in Boston. What MA brewers are saying is: Relations between supplier and distributor should be done like every other product - by contract. Why can't retailer say same thing? Relation between supplier/distributor and retailer be like every other product - by contract. Slotting fees, free glassware, pay for tap handles, services, exclusivity, etc. Do small brewers really want that?

"Don't give me the FAA Act as response. That only applies if a similar state law. MA controls its destiny. Every single free market argument made by the brewers is going in a file for retailers to break the system down. Recall [analyst] Trevor Sterling saying the downfall of the three-tier system is the greatest risk to brewer profits as it would expose brewers to margin pressure. These guys think they can break down the system and still charge $60 bucks a case? Unrealistic."
Great points all around. Send your thoughts. hs@beernet.com

BEER BRIEFS:

PIPING ALL HANDS. The inaugural Southern Brewers Conference is going down August 3-6, 2016 at the Music City Center in Nashville, Tennessee. The conference will include an opening night reception, two-­day trade show, educational seminars (with thoughts from yours truly), networking opportunities, and plenty of delicious beer from the South. For all industry folks interested in going, SBC is offering a 10% discount for all attendees. Enter the promo code, "lastchance" during registration at www.southernbrewersconference.com/#register to claim the discount.

Until tomorrow, Harry

"I never expect to see a perfect work from imperfect man."
- Alexander Hamilton

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