Categorized under: beer laws, Brewery

BEER LAW: Bells Brewery in a disty battle in Michigan

As you may or may not know, I find the laws surrounding the beer industry very intriguing.

Here’s a story about Larry Bell and Bell’s Brewery, Inc. You may or may not remember, but back in 2007, Bell’s Brewery got into a legal pickle with a former distributor named National Wine & Spirits Inc. Click here to read about it.

Today, Bell’s Brewery is battling with one of their distributors that desires to sell the distribution rights to a different company (M&M Distributors).

Like the article mentions, this sounds like the real beer wars. Too bad this battle didn’t make it into the movie.


Drink Craft Beer, You’ve Earned It!!

Bell’s Brewery Inc.’s lawsuit against distributor may spotlight Michigan’s three-tier system debate, Big Beer vs. craft beer
by KalamaBrew Staff

KALAMAZOO — Bell’s Brewery Inc. is in another fight with one of its distributors, this time in Michigan, and several breweries and wholesalers will be paying close attention.

It spotlights a debate about the state’s Beer Franchise Code and the three-tier distribution system, as well as the battle of Big Beer against craft beer.

The Kalamazoo-based craft brewery filed a lawsuit more than a week ago in Kalamazoo County Circuit Court against its Lansing-based distributor, Classic Wines Ltd., seeking to stop the sale of distribution rights.

Classic Wines is trying to sell its distribution rights to M&M Distributors Inc., also an Anheuser-Busch InBev (“A-B”) distributor, according to the lawsuit. The lawsuit says M&M’s loyalties to A-B will not allow the distributor to fairly promote and sell Bell’s brands. Bell’s, the largest beer producer in the state, refuses to consent to the proposal because it “does not meet the material and reasonable qualifications and standards required by Bell’s.”

Officials with Classic Wines Ltd. and Bell’s Brewery Inc. president Larry Bell had no comment.

The eight-page complaint addresses A-B’s control of the U.S. beer market and its efforts to “stifle competition” from other Big Beer companies and craft brewers. It also says that the merger of A-B and InBev last year will create a more competitive climate where “companies like Bell’s … are jeopardized if the distribution of their product line is controlled by an A-B distributor.”

Classic Wines is the fourth largest distributor of Bell’s in the state, selling around 55,000 cases a year, Bell’s president Larry Bell said. Sixty-five percent of Classic Wines sales are of Bell’s brands, according to the lawsuit.

In addition to the David vs. Goliath argument, several Michigan brewers, including those currently being distributed by Classic Wines, will be watching the case unfold as the franchise law may be an even bigger issue for them.

Classic Wines distributes several craft beers in addition to Bell’s, such as Marshall’s Dark Horse Brewing Co., Battle Creek’s Arcadia Brewing Company, Holland’s New Holland Brewing Company and Dexter’s Jolly Pumpkin Artisan Ales, to Lansing and surrounding counties. It is unclear which direction the other breweries will take, either as a whole or individually.

“This may preface the larger issue and it’s something we’ll grapple with in 2009 and beyond,” Arcadia Brewing Company founder and president Tim Suprise said. “It effects the viability of small brewers.”

At the heart of the case seems to be this paragraph from the state’s beer franchise code, “A supplier (brewery) shall not withhold consent to any transfer of a wholesalers business if the proposed transferee meets the material and reasonable qualifications and standards by the supplier. A wholesaler (distributor) shall give the supplier written notice of intent to transfer the wholesalers business. A supplier shall not unreasonably delay a response to a request for a proposed transfer of a wholesalers business. However, a transfer of a wholesalers business which is not approved by the supplier shall be null and void. A supplier shall not interfere with, or prevent, the transfer of the wholesalers business if the proposed transferee is a designated member.”

“We’ll be watching closely,” said Fred Bueltmann, a partner and New Holland Brewing Company in Holland. “I think it’s very interesting.”

Scott Graham, president of the Michigan Brewers Guild, which has more than 40 member breweries from around the state, said the franchise laws were originally put into place to protect small distributors from large suppliers. But as distributors consolidate and more and more small breweries open, “It’s kind of reverse,” meaning small suppliers or breweries have very little control over distribution.

Bell’s, which made headlines with a distribution fight in Illinois in 2007, is not a member of guild and Graham said his organization is “on the sidelines watching.” Graham said he doesn’t want to get into a battle with wholesalers and would rather “have an ongoing discussion” with the Michigan Beer and Wine Wholesalers Association, which represents 75 beer and wine distribution companies around the state, including Classic Wines.

“We feel it’s unfortunate that Bell’s has filed this lawsuit,” MB&WWA president Mike Lashbrook said last week. “Larry Bell and his brewery have maintained a positive relationship with Michigan distributors over the years.”

Lashbrook said the case “boils down to interpretation of the law” and the balance of a brewer’s rights and the abilities of a small business to sell to the buyer. Lashbrook, who said this kind of lawsuit is rare, said the law has been effective.

“A majority of the businesses involved in the industry here are happy with it,” said Lashbrook.

The association has legal funds for its members and Classic Wines has applied for the financial help, Lashbrook said.

“The problem is when there’s a dispute, there are a couple key words attorneys will argue about at great expense to the parties involved,” Bueltmann said.

Brewers Association’s position on the three-tier distribution system

• Self distribution

The Brewers Association (BA) believes the American consumer should have access to the widest range of domestically produced beers made available by licensed breweries. The success or failure of a beer should depend on consumer demand, rather than artificial barriers to distribution. The absence of a willing and/or viable wholesaler should not prevent a small brewer’s products from reaching a retailer who is willing to sell them.

BA supports state laws that respect and enhance consumer choice in the marketplace. The BA believes that to provide the greatest ongoing choice for consumers, small brewers need the right to act as their own wholesaler and be allowed to distribute to retailers. Such brewers should be subject to all laws and taxes applicable to both brewers and wholesalers.

• Franchise Laws/Access to Market

BA believes that small brewers and wholesalers should be free to establish enforceable contracts between the parties that both parties agree are fair and equitable. Franchise laws were enacted to protect wholesalers from the undue bargaining power of their largest suppliers. Applying those laws to relations between small brewers and wholesalers is unfair and against free market principles.

Where franchise laws exist, the BA believes that any brewer contributing less than 20% of a wholesaler’s volume should be exempted from those laws and free to establish a mutually beneficial contract with that wholesaler. Without the leverage inherent in being a large part of a wholesaler’s business, a small brewer and wholesaler can negotiate a fair contract at arm’s length.

• Independent Wholesalers

The BA supports the independence of wholesalers and believes independent wholesalers are wholesalers who are contractually and economically free to allocate their efforts among the brands they sell without the undue influence of their largest suppliers. Each brand gets the attention it deserves on its own merits in the marketplace.

Link to article.

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