Craft Brewers And Distributors Both Bitter Over Updated Franchise Bill

Apr 30, 2018

As lawmakers finish up a bill that would change the relationship between craft brewers and distributors, both sides of the debate say they’re unhappy with the proposed changes.

Under Vermont’s franchise law, once a brewery starts working with a distributor, it’s very hard for the brewer to leave, whether to self-distribute or move to another company.

Burlington Democrat Rep. Joey Donovan is a sponsor of the bill, and she says craft brewers should be able to choose which distributor they want to work with.

“This is a ‘free the brewers’ bill,” Donovan says. “Let them have some choice. They’re small business people. They’re growing. Let’s free them.”

The law was written at a time when there were many small distributors in the state. Back then, lawmakers did not want the big, national beer makers to be able to leave a local distributor and create unfair competition.

So they wrote a law that says if a beer company works with a distributor they can’t leave.

Since then though, the number of distributors has decreased due to consolidation, and the number of Vermont craft beer brewers has exploded.

Donovan says it makes sense to change the law to reflect the current business landscape.

The bill — known as H.710 — made it through the Vermont House, and the Vermont Senate is finishing its work with it this week.

But as the bill seems poised to end up on the governor’s desk, neither side is entirely happy with the final provisions.

A rental van is loaded with cans and kegs of Upper Pass beer. The driver delivered the beer across central and northern Vermont.
Credit Howard Weiss-Tisman / VPR

Andy Puchalik owns Upper Pass Beer Company and he distributes his own beer, in part, he says to be able to control how and where the beer is purchased.

Puchalik says Vermont’s current beer distribution law doesn’t give brewers enough control over the future of their companies.

“There’s about a year where you can break up with each other and a distributor can choose to release a brewery, but you’re basically ... locked with them,” says Puchalik. “So we didn’t want to necessarily tie in with somebody for a long-term thing, so that definitely drove our thinking.”

But the proposed changes to the law only make minor adjustments to that relationship, according to Sean Lawson, co-owner of Lawson’s Finest Liquids.

“I’m a little disappointed that the bill doesn’t go a little further,” Lawson says. “It’s a small step in the right direction of allowing small brewers the freedom to do business without the undue government interference, but there are a number of provisions that were concessions to the concerns of wholesalers and distributors.”

"I'm a little disappointed that the bill doesn’t go a little further. It's a small step in the right direction of allowing small brewers the freedom to do business without the undue government interference, but there are a number of provisions that were concessions to the concerns of wholesalers and distributors." — Sean Lawson, Lawson's Finest Liquids

Lawson says brewers are disappointed that the new rules won’t fully start until 2022.

And the new law will only affect the smallest breweries — once a craft beer gets popular, and grows, there's a chance that it will not benefit from the new rules.

Under the new law craft brewers will be able to get out of contract, but they will have to buy their way out, another rule which Lawson says doesn’t sit well with craft brewers.

The distributors argued that they invest time and money in building brands, and that they should be compensated if a company leaves.

Lawson says the law does not go far enough to recognize the work and investments the brewers make in supplying the beer.

“I think that’s what irks many small brewers, is that, by simply doing business with wholesalers you become a commodity that’s tradeable,” Lawson says. “And also that they've, without purchasing the rights to distribute your brand up front, that they own now a financial asset that could be sold to another distributor or you have to pay to get out of that relationship.”

But if the brewers are disappointed in what the new law does not do, the distributors are worried about the impact on what has been a very successful partnership.

Farrell Distributing president Dave Farrell says Vermont’s craft beer business has become so successful, in part, due to the partnerships the distributors and brewers have built over the past decade or so.

And he says the new law could jeopardize the consumers’ options and the breweries themselves.

 

"This type of legislation distracts us from the core mission about selling more beer, and making more beer available to the consumers and retailers that we try to serve every day. And we think that's been done very, very well, for very long, and we just don't think this legislation is necessary." — Dave Farrell, Farrell Distributing

“You know we’ve got nothing but positives to say about our relationships with our brewers. ... This type of legislation distracts us from the core mission about selling more beer, and making more beer available to the consumers and retailers that we try to serve every day," Farrell says. "And we think that’s been done very, very well, for very long, and we just don’t think this legislation is necessary.”

Farrell says some of the brewers he works with opposed the changes, and he says in the past when brewers want to leave Farrell Distributing, he usually has been able to work out a deal that made everyone happy.

“We don’t like the legislation,” says Farrell. “We didn’t like the bill, due in part just because we think it’s a solution looking for a problem that we don’t think exists.”

Under the new rules, any new craft breweries that want to sign a contract with a distributor will have rights and powers to negotiate a long-term deal.

Craft brewers that are currently working with distributors will be able to leave, but the law won’t go into effect until 2022. And they’ll have to pay a percentage of their sales to leave a distributor.