Industry

Massachusetts: Legislators pressure beer brewers, distributors to end long-running dispute

By Dan Adams July 19, 2016
bostonglobe.com
The state Senate on Thursday approved a measure that pressures Massachusetts beer distributors to compromise in their yearslong fight with brewers, who want greater flexibility in choosing which companies market and deliver their beers.

The measure would create a task force comprised of brewers, distributors, and several political appointees. The group would have until Dec. 31 to draft new rules spelling out when and how a brewery is permitted to fire its distributor and switch to a new one.

If the task force fails to reach an agreement by the deadline, state senators would reintroduce a bill relaxing restrictions on breweries' ability to switch distributors, said a person with direct knowledge of Thursday's closed-door discussions between legislative leaders, brewers, and distributors.

A senior Senate staffer confirmed that account, saying, "if they can't figure it out, we'll figure it out for them."

Under the current beer "franchise" law, a brewery is effectively stuck with its distributor unless it can prove to state regulators that the wholesaler has met one of several conditions - such as disparaging the brewer's beer or failing to "exercise best efforts" in selling it. In some cases, the law could result in a brewer's having to pay its distributor several years' worth of revenue to leave.

Brewers want to lift those restrictions, arguing they shouldn't be bound to distributors indefinitely. They want brewer-distributor relationships to be governed by contracts and general commercial law, as are most other industries.

Rob Martin, president of the Massachusetts Brewers Guild, hailed Thursday's proposed measure, and said his group is willing to make concessions to reach a deal. He accused distributors of repeatedly walking away from past talks.

"If it takes a piece of legislation to actually have them come and negotiate, I'm all for it," he said. "Whether we compromise on the current language or start from scratch with new language, everything will be on the table."

The Beer Distributors of Massachusetts did not comment.

The current franchise law dates to 1971, when the number of US beer suppliers was quickly shrinking due to consolidation. It was intended to prevent massive breweries, such as Anheuser-Busch, from effectively dominating local distributors because they provided so much of their product. (Most states passed similar laws in the 1970s and 80s; today, only Alaska, Hawaii, and Washington, D.C. lack any beer franchise restrictions.)

Brewers say today's beer industry is the reverse, characterized by thousands of small craft makers that have little leverage compared to large distributor networks. If distributors feared losing those craft brands, brewers argue, they would work harder to market the beers, leading to lower prices and more choices for consumers.

Until Thursday, a group of powerful distributorships had successfully lobbied to kill perennial attempts at change, saying the current system is working and providing consumers with plenty of choices. But with renewed attention on the state's convoluted alcohol rules, those long-running block-and-delay tactics appear to have finally frustrated lawmakers, leaving the distributors more politically isolated than in the past.

On Tuesday, House Speaker Robert DeLeo warned that distributors "better get serious about coming to the table." And another top lawmaker, Senate President Stan Rosenberg, said Thursday that the current law is outdated.

"The landscape of the beer industry has changed significantly since our franchise laws were adopted more than thirty years ago," Rosenberg said in a statement. "This commission will bring all parties to the table to find a solution to create a more equitable and fair marketplace for both distributors and craft brewers."

Governor Charlie Baker has not commented specifically on the franchise law. However, his administration introduced several alcohol-related reform bills of its own this year, and Baker has said he wants to make the state's system of alcohol regulation more business-friendly. Moreover, Paul McMorrow, a former journalist who once emphatically editorialized in favor of franchise reform, is now the director of policy in Baker's housing and economic development office.

Earlier this week, brewers submitted a measure that would have effectively repealed the franchise law. That proposal has now been replaced with the task force measure.

To become law, the measure approved by the Senate Thursday must survive a legislative process next week intended to reconcile differences between House and Senate versions of an economic development bill. Then, Baker would need to sign it.

The state Alcoholic Beverages Control Commission said this week that under a 1988 Supreme Judicial Court decision, contracts between breweries and distributorships already trump the franchise law.

Brewers dispute that interpretation, saying it has not been legally tested. They also argue that many brewers lack contracts with their distributors and are therefore subject to the franchise law's difficult-to-meet restrictions on switching distributors.