Last week’s post, “Success is How High You Bounce When You Hit the Ground,” brought more responses from readers than normal. In fact, comments came from all levels of the beer industry, including both large and small companies. There were two topics in the post, but all the comments were directed at the difficulty vendors are having when negotiating contracts with wholesalers.
It was surprising that one response came from a large craft brewery, despite that fact that this same brewery has, in the past, noted difficulty when negotiating contracts for new wholesale appointees? Their solution: that the NBWA needs to lead, and if they do not, the crafts will continue to legislatively attack franchise laws.
Last week’s topic is a perfect example of the NBWA’s inability to lead. Three Texas brewers: Live Oak, Peticolas, and Revolver, sued the state to overturn a 2013 statute which prohibited brewers from selling their distribution rights. Wholesalers retained such rights, however, the brewers did not.
District Court Judge Karlin Crump sided with the brewers in this lawsuit. The ruling stated that the government had no compelling state interest in restricting the ability of brewers to be paid for their distribution rights. Matt Miller, an attorney with the Institute for Justice representing the brewers noted, “The Texas Constitution prohibits the legislature from passing laws that enrich one business at the expense of another.” Miller further stated, “This ruling is a victory for every Texas craft brewery and the customers who love their beer.” The state has 30 days to appeal, and more than likely, the Wholesale Beer Distributors of Texas is working with their legislators to ensure the state appeals this ruling.
Now the question is, how will this ruling affect vendor-wholesaler relationships going forward? Small or new craft breweries will probably have little to no leverage without any history of sales, yet they will still have the ability to self-distribute. One would predict that if the start-up crafts did get some traction, that the wholesalers would, in turn, become aggressive.
After last week’s ruling, the more established or larger breweries, like the three who sued, should be in a stronger negotiating position. Of course, once a price is determined, a contract needs to be executed. Now the vendor is in a more neutral position to get a contract whose language reflects a vendor-favorable agreement instead of being behind the eight-ball with the wholesaler.
Finally, the most interesting situation to watch will be how wholesalers approaches the handful of super craft brewery start-ups. One such brewery is Wild Acre in Ft. Worth, a brewery that spends millions on state of the art equipment, hires experienced beer executives, and has retained a highly acclaimed brew master with a capacity of 20K+ bbls. Breweries like Wild Acre will be successful. But how aggressive will the wholesalers be in trying to get the distribution rights of these super crafts?
Whatever happens going forward, it is safe to say that this overturned statute in Texas is just the beginning. There will be more and more attempts to change what many vendors feel are the barriers erected to prevent them from getting their beer to market. This will happen. Success is a lousy teacher; it seduces smart people into thinking they can’t lose…