Success is how high you bounce when you hit the ground

The beer industry of the 1980s was quite different than that of today.  Of course there have been many brand changes, and there is the obvious rise of crafts and imports, but there has also been an underlying transformation in the culture of the industry as a whole.

Consider that in 1980, there were less than 50 operating breweries in the US.  At the same time, however, there were approximately 4,550 operating beer wholesalers.  Today there are more than 4,200 operating breweries with over 6,000 brewing licenses, yet the US has only 3,000 beer wholesalers.  The growth in the number of breweries, is, in itself incredible, and has dramatically changed the industry. One could, however, also make the case the that loss of over 1,500 wholesalers has had an even more dramatic impact on the industry than the growth in number of breweries!

In 2013, the beer wholesalers in Texas were able to get a law passed that prohibited breweries from selling distribution rights, yet allowed wholesalers to continue to sell those rights if they so desired.  In 2014, three breweries sued the state to overturn this provision: Live Oak, Revolver and Peticolas.  The court heard both sides this past week and a ruling is soon expected.  It is possible this case could end up in the Texas Supreme Court.  As of late, this case has been a hot topic for industry publications.

This is just one key example of how the middle tier has evolved due to the resulting decline in number of wholesalers.  Even though the overall numbers have declined for wholesalers, and an unprecedented number of breweries currently exist, the franchise laws which protect the wholesalers, have strengthened.

Another example of this change is apparent in vendor-wholesaler contract negotiations.  Most wholesalers of any size, even the new start-up craft/import specialty wholesalers, have their own contracts.  All have been written by lawyers familiar with the beer laws of that particular state.  These contracts, to some, are heavily sided to the wholesaler.  Even a few contracts are evergreen. Given the fact that access to market is now so limited for craft brewers, many feel compelled, or even forced to sign these contracts just to get to market.

Is this the definition of a partnership?  Wholesalers will say the same about a brewer’s contract, that it is one-sided in favor of the brewer, even if the contract has the language supporting that state’s beer franchise laws.  For the small brewer, the relationship starts with a bad taste in their month.  Many feel as though they figuratively have a gun to their head.

But as we all know, this does not apply to those larger, well established crafts such as Yuengling, Founders, or New Belgium.  For the big boys, it is a different ball game when it comes to contract negotiations.  Such breweries can have a dramatic financial impact on a wholesaler, especially if they are awarded the brand.   Even with a substantial financial support commitment, most wholesalers will do whatever it takes to land one of the big suppliers.

In the foreseeable future, crafts will be addressing this contract issue through the legislative process. Many believe the Texas law will be overturned and allow self-distributing brewers to sell their distribution rights.  Stay tuned!

Success is how high you bounce when you hit the ground…