Vermont Craft Breweries Push For More Flexible Distribution Law

Feb 23, 2018

Vermont's craft brewers are asking lawmakers to update the state's franchise law because they say it unfairly benefits beer and wine distributors.

The law was written in 1975, at a time when there were many more smaller distributors around the state who needed protection from large national beer companies.

Under the current law, breweries have to continue working with a distributor once it begins to carry their product. This franchise system was put in place so national breweries couldn't move between distribution companies and play one Vermont distributor against another.

But Avery Schwenk, president of the Vermont Brewers Association, says the beer industry is now completely different.

Today, four distribution companies control most of the state's market, and Vermont's craft brew industry has seen explosive growth.

According to the Vermont Brewers Association, the industry brought in more than $376 million in 2016 and the craft beer industry employs around 1,900 people in the state.

Avery Schwenk is president of the Vermont Brewers Association and also co-founder of Hermit Thrush Brewery in Brattleboro. Schwenk supports an update of the state's franchise law.
Credit Howard Weiss-Tisman / VPR

Schwenk says it's time to re-write the franchise law to make it fair for both the distributors and the craft beer industry.

"Once brewers work with a distributor for a certain amount of time, essentially the rights to distribute their beer are owned by the distributor forever," says Schwenk. "They have the right to distribute your beer, trade your brand, and you have no say in that relationship or what happens to your beer after that."

Schwenk is co-founder of Hermit Thrush Brewery in Brattleboro, which makes Belgian-style sour beers. Hermit Thrush, like many of the small craft breweries in Vermont, has been growing from the day it opened.

The brewery opened in 2014 with just three employees. Now nine people work there. They've more than doubled their output and just moved into a larger warehouse where they are aging their beer in large oak casks.

"I think really just looking for equality with the distributors is kind of what we're going for." — Avery Schwenk, co-founder of Hermit Thrush Brewery

"I think really just looking for equality with the distributors is kind of what we're going for. ... As our brewers are, you know, getting more mature and growing, having those options and not being afraid of entering into contracts with distributors," Schwenk says. 

"Because right now I know there are small brewers that are concerned about joining with distribution companies. Because if they, you know, grow in certain ways over the next few years, they may not like, you know, where they end up."

There's a House bill under discussion that would change Vermont's franchise law, giving brewers more power to negotiate contracts and get out of bad distribution deals.

Todd Bouton, general manager of Farrell Distributing, said the change would be bad for the whole industry.

"We'd like to see the franchise law stay the way it's been since it was first started back in 1975," he says.

"We'd like to see the franchise law stay the way it's been since it was first started back in 1975." — Todd Bouton, general manager of Farrell Distributing

Bouton says distributors work hard to ship beer around the state, and it's an investment they make in startup beer companies when they market the product and make sure consumers know about the latest double IPA.

He says there might be some room for discussion, but the House bill is being rushed through and the distributors want more time to reach common ground.

"It's very abrupt. It's very disrupting to a system that has really helped grow the Vermont craft beer industry," Bouton says. "And that success is both on the part of the brewers and the distributors. And, you know, we just don't want this thing to happen too fast without fully vetting everything that it could do to the market."

The craft brewers say they're willing to phase in the change, but they don't want to wait another year to get the bill passed.

Hermit Thrush produces Belgian-style sour beer. The brewery has doubled its output since opening about three years ago.
Credit Howard Weiss-Tisman / VPR

Mary Sullivan is a Democratic representative from Burlington, home to many of the state's most well-known craft brewers and cider makers. She's a co-sponsor of the House bill.

Sullivan says it's as much an issue of economic development as it is fixing the franchise contract system.

"We talk a lot about keeping young people here, trying to be more entrepreneurial," says Sullivan. "This is a classic example, this and renewable energy — and I'm sure there's others out there — that, you know, are keeping people here. And they're getting good paying jobs, and they're able to be creative and do something they love. And so it's time to update the laws with the changing realities."

The craft brewers are trying to get the bill moved out of the committee in time for crossover, in order to give the Senate a chance to help move it on to the governor's desk this year.