Craft Brewers Begin to Flex Their Muscles with Their Distributors

On December 10, 2007, the Wall Streeet Journal reports that “Small Brews Show They’re Not Weak Beer” by flexing their new-found muscle with their distributors.  As the Journal states, “[h]istorically, craft brewers have made relatively little fuss over distibutors, in part because they have been happy to have companies willing to hawk their brands.  But now, at a time when craft beer has become the industry’s fastest-growing segment, some small brewers are taking greater control over their destinies.  They are attempting to dump their distributors or fighting moves to sell distribution rights–often over allegedly poor services.”  Craft brewers seem “to be feeling their oats a bit,” says Benj Steinman, editor of Beer Marketer’s Insights, an industry publication.

Since the repeal of Prohibition in 1933, there have been laws generally requiring beer to be sold through distributors, which truck the beer to the bar, restaurant or store.  The laws are intended to keep alcohol producers from running bars and restricting consumer choice.  Many states have enacted franchise laws to protect distributors from being dropped arbitrarily by a brewer after they have spent a lot to develop a brand.  Whereas distributors can sell distribution rights whether the brewer likes it or not, brewers can only terminate a distributor for specific reasons, like fraudulent business practices.

Disappointed with sales in upstate New York, Brooklyn Brewery has terminated its agreement, dating back to 2001, with one of its distributors, alleging that the distributor made late deliveries and delivered stale beer.  The distributor responded by suing Brooklyn Brewery in state court, alleging that it did not properly notify it of any problems.  The new distributor reportedly has rapidly increased sales.  The brewer’s president,  Steve Hindy, says trying to switch distributors ”is a big gamble for a small company like ours, because these lawyers are not cheap and you want good representation.” He also says heightened consumer demand for craft beers is giving small brewers confidence to “assert our rights more forcefully.”  As the Journal reports, “Also emboldening them: Many distributors that once ignored craft beers are now clamoring to add them to their lineup to increase profits.  It ‘is a whole different world for us than has existed in the last 20 years,’ Mr. Hindy says.”

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