E-Malt.com News article: USA, MA: Brewer tries to challenge inflexible state law

Antonio Rizos, owner of Opa Opa Brewing Co., wants to see a change in a 47-year-old state law that he and other small craft brewers say is harming their ability to do business by keeping their distribution rights locked to wholesalers indefinitely, Masslive.com reported on March 3.

In his case, he said the law as it is written locks him into an indefinite relationship with a distributor. He says the law needs to change so his needs for getting his beer out to consumers can be met.

“There has to be a way out of the contract,” he said. “There should be no way that you can be stuck with it forever.”

In Massachusetts, brewers need to contract with wholesalers for the distribution of their products to bars and package store. Rizos can sell as much beer as he wants at his own two restaurants, Opa Opa Brewery and Steakhouse in Southampton and the Brewmaster’s Tavern in Williamsburg, but he needs a wholesaler if he wants to deliver a case to a package store down the street.

Rizos’ issue with the law, Massachusetts General Laws Chapter 138, section 25E, is that once a brewer has a relationship with a wholesaler lasting six months or more, the wholesaler gains distribution rights indefinitely regardless of performance. And that, he said, is bad business.

In the last four years, Opa-Opa has seen its business in Western Massachusetts drop significantly, from 3,000 barrels per month to 300, which forced him to lay off people. Rizos attributes the drop-off to an inability to more broadly distribute his product.

Opa-Opa is distributed in Western Massachusetts by Commercial Distributing Co., of Westfield, and Rizos believes Commercial is focused more on sales of bigger name beers like Miller and Coors.

Mark Placek, president of Commercial Brewing, called the brewer’s argument “extremely misleading and a mischaracterization” of the relationship between brewers and distributors.

Placek, reached by telephone for a comment, instead faxed a four-paragraph statement.

“Opa Opa voluntarily elected to sign an exclusive contract for a geographic area chosen by them. In this agreement, Opa Opa chose to trade their proprietary rights to use other distributors in exchange for providing exclusivity to Commercial,” he wrote. “This was a strategic move that Opa Opa decided was in their best interests.”

He goes on to say that Opa Opa’s dispute is not with the provision of 25E but “with Massachusetts law regulating all contracts.”

He also said Commercial in its 79 years has had successful working relationships with 40 craft beer brands. The company's dispute with Opa Opa, he said, is one of just six such cases that have gone before the Alcoholic Beverage Control Commission in the last 20 years.

Placek said “No one wants a craft brewer to succeed more than a beer distributor like Commercial.”

Rizos and his head brewer, Dennis Bates, are reluctant to criticize Commercial, but each said they are not happy with the way things are, and their focus is in changing the law which they say locks them into a situation they cannot change.

Bates said “We know how to make beer, we know how to sell it. It’s difficult to accept that this is it.”

The law, commonly referred to in shorthand as 25E, stipulates that if a brewer and a wholesaler have been working together for at least six months, the brewer cannot stop using that wholesaler and start using someone else.

To sever a relationship, the brewer has to demonstrate "good cause," which is defined as the wholesaler making disparaging comments or hurting the reputation of the product or brewer, giving preferential treatment to competitors, failing to provide best efforts at promotion, engaging in improper trade practices or failing to comply with the terms of the agreed upon contract.

A brewer citing good cause must still give 120 days notice, and if the wholesaler appeals, the whole matter goes to the state Alcoholic Beverage Control Commission for hearings and an eventual ruling. And until a ruling is handed down, a process that can take years, the brewer is still required to continue using the same wholesaler.

Martin, Rizos and the brewers guild support changing the law by creating an exception for small brewers, giving them a little more flexibility if they find their relationship with a wholesaler is not a good fit.

Martin said he decided to cease production on one of his beers because of 25E. He was trying to fire his wholesaler, the wholesaler appealed and, while the ABCC deliberated, the law required him to keep using the wholesaler. With the appeal going on five years with no end in sight, he said, the prudent thing to do was to just stop making that brand.

The Massachusetts Brewers Guild favors revising the law, amending 25E to create an exemption called “a small brewer relationship.” The wording of the House bill H267, or “An Act Relative to Small Brewers,” would allow the brewer to terminate a relationship with a distributor by giving 30 days notice and by paying the wholesaler “fair market value” for distribution rights.

If no agreement on fair market value can be reached, both parties would go before an arbitrator and a decision made within 90 days.

The bill is currently before the Joint Committee on Consumer Protection and Professional Licensure. In November, Bates, Martin and other people associated with craft brewing testified at a hearing to recommend revisions to the law.

Speaking in favor was Jim Koch, founder of the Boston Beer Co. which makes the Samuel Adams line of craft beers. Koch said, "Businesses change and grow…The law should allow that to happen instead of requiring business relationships to last for eternity."

Martin said 25E is simply antiquated, a reminder of a time when there were a dozen or so large breweries doing business in Massachusetts and 60 or so small wholesalers in Massachusetts. The law was intended to protect the small wholesalers from being steamrolled by the large beer manufacturers, he said.

Forty years later with the explosion of craft breweries in Massachusetts, the picture has been flipped. There are 55 breweries and microbreweries in Massachusetts and because of consolidation, just 10 wholesalers.

“The playing field has changed,” he said.

Opposing any revision to the law is William Kelley Jr., president of the Beer Distributors of Massachusetts Inc. Like Martin, he testified before the house committee in the fall, only he was testifying against changing 25E.

The bill before the house, he said, “proposes a solution to a problem that does not exist.”

He takes issue with the complaint that the law locks brewers into an indefinite relationship with the wholesaler. “That is just not so,” he said.

The law allows any brewer to sever ties with a wholesaler at any time, providing they can demonstrate a legitimate reason under the just cause stipulations, he said.

“The current law does nothing at all to put the brewer in an eternal relationship.”

While Martin says 25E is choking the burgeoning Massachusetts craft brewing industry, which now has about 1,300 jobs, Kelley argues the law as it stands is responsible for the growth of that industry.

He called 25E an unqualified success for brewers and for wholesalers because it prevents the mega-breweries from dictating to the wholesalers what products they can distribute.

Walk into any package store, he said, “and it’s wall-to-wall choices. And all of them were brought to the store by a beer distributor truck.”

That alone is why Massachusetts has a craft brewing industry, he said. Small breweries are not barred from the marketplace.

“No one wants the craft brewers to succeed more than the Massachusetts Beer Distributors. When they succeed, we succeed,” he said.

Rizos said he tried negotiating to win his rights back, offering as much as $500,000 as a buyout but without success. He’s also paid another $60,000 in legal fees.

Bates and Rizos each say what is ironic about the whole business is that considerably more Opa-Opa beer is sold in the Boston area than in Western Massachusetts.

They contracted with a distributor in the Boston area, and since then have been selling 3,000 cases per month in Greater Boston, compared to 300 per month in their own back yard, Rizzo said.

“There was a point where I could walk into any bar and have one of my beers and people knew me,” Bates said. “I can go to Boston and have one of my beers but no one knows who I am.”


05 March, 2014