Only free men can negotiate. A prisoner cannot enter into contracts.

In Texas, unlike other states, an imported beer assignment to a distributor must come from the brewery, not from the importer.  This is true even if the importing company is owned by the brewery.  Importers may come and go, but in Texas, with the appointment made by the brewery, the distributor will not lose any brands when an importer is changed.

I had acquired distributing rights for Corona when we purchased the Pearl Beer operation in McAllen where I was a Schlitz distributor.  At that time, Corona was sold in a brown bottle and sales were light.   When Coronas became available in a clear bottle, however, things changed.  Out of nowhere the small Lone Star distributor in San Benito started selling Corona on top of me.

I immediately contacted Modelo, in Mexico City, and spoke to their export manager Carlos Alvarez.  True.  Carlos came up to Harlingen, and while having lunch, we discussed appointment letters and the possible devaluation of the Mexican currency, the peso.  If you ever had the opportunity to visit with Carlos, you can imagine the conversation.  Shortly thereafter, I received an appointment letter from Modelo, and that ended the issue of dueling wholesalers.  Contracts during those years were somewhat simple.  In many cases these agreements were composed only of simply an appointment letters.

Negotiating contracts in today’s environment, however, has become much more challenging for both parties.  The larger and more successful the brewery is, the more leverage it has in determining the language in the agreement.  Conversely the same applies to the distributor when the brewery is small.  Regardless, in most contracts, breweries want or demand certain stipulations, one being the right to approve new ownership when a distributor decides to sell all or part of their business.

While President of Warsteiner, it seemed that there was at least one buy-sell a month, so I reviewed multiple contracts during my tenure.  Most were approved, however, some were not.

Last week, Lagunitas announced a JV with Heineken.  Both companies, in their public statements, highlighted the fact that this agreement would in no way affect the U.S. operations of either company.  Right!  Lagunitas wholesalers, who are not currently Heineken wholesalers, are now accessing the future.  While it is important for a brewery to have a say so as to who owns and operates the distributorship, a wholesaler who commits to take, or even buys rights to a brewery, has no say so in the event that the brewery sells out, or in this case, brings in a partner.

Consider the wholesaler who acquires the brand for nothing. One might assume this is not a big deal, however, when one understands that the wholesaler has spent years in developing a market for a particular brand and now the importer has changed, the wholesaler could face some major decisions.  Even though the wholesaler has made money on the brand, the wholesaler, in their mind, could have developed other beers instead.  This JV between Lagunitas and Heineken, in one sense, can be used as an example illustrating why wholesalers should not pay for distribution rights from a brewery.

This year we have seen a number of crafts sell all, or part, of their business for various reasons. And we can expect this to continue in the coming years.  When it comes to contracts, only free men can negotiate.  A prisoner cannot enter into contracts.