SB128 by Senator Paul Sanford of Huntsville would amend the so-called Beer Franchise Law to allow small brewers to enter into enforceable contracts with their distributor. According to the synopsis of the bill:
Under existing law, large and small breweries are restricted in their ability to terminate their relationship with a beer wholesaler.
This bill would allow small breweries to enter into enforceable contracts with beer wholesalers which provide for the termination or changing of their relationship with beer wholesalers.
The Current Situation
Under the three-tier system, breweries must execute a territorial agreement with a licensed beer wholesaler to access retail markets. We are fine with that – we are not challenging the three-tier system.The problem is with the beer franchise law.
Briefly, the beer franchise law says that once a brewery chooses a distributor, it is locked in. These statutes makes it virtually impossible for a brewery to modify, terminate, or fail to renew a territorial agreement with a distributor. It trumps any written agreement, which effectively renders contracts as unenforceable for small producers who already lack equal bargaining power with wholesalers in contract negotiations.
This undermines free market principals and criminalizes fair business competition. Agreements and investments with a brand should be protected by an enforceable contract, not by statutory law.
[pullquote]These statutes makes it virtually impossible for a brewery to modify, terminate, or fail to renew a territorial agreement with a distributor. It trumps any contract terms, which effectively renders the terms unenforceable for small producers who already lack equal bargaining power with wholesalers in contract negotiations.[/pullquote]
Alabama’s beer franchise law was created in the late 1980s due to the increasing consolidation of brewers and the need to hold large, out-of-state brewers accountable. It was developed with multi-billion dollar corporate conglomerates in mind. Alabama’s craft brewers are not multi-billion dollar corporate conglomerates.
An Exception for Small Producers
Like beer wholesalers, Alabama breweries are independent businesses, licensed and accountable to the Alabama Alcoholic Beverage Control Board, the Department of Revenue, and multiple law enforcement agencies.
SB128 will provide an exception to the franchise law for manufacturers who make up a small portion of a distributor’s portfolio. It will hold both parties accountable to the terms of a distribution agreement and provides for fair compensation and arbitration when a contract does not exist.
How does SB128 work?
For those interested in the finer points of beer legislation:
- It creates a new definition for a “small supplier,” a brewery or importer which accounts for less than 20% of a distributor’s volume.
- For those suppliers that do not meet the definition of a small supplier, nothing will change.
- For small suppliers, the terms of the relationship will be determined by mutual agreement as defined by contract.
- In the absence of a contract, SB128 will define default terms for the transfer of distribution rights to the succeeding distributor and compensation at fair market value to the previous distributor.
SB128 is about free markets and freedom of contract. It will bring competition to the distribution tier of the beer supply chain, which will improve quality, reward innovation and superior customer service, and provide consequences for inferior business practices.