Examining the Evil That is Alcohol Franchise Laws

theevilSomething interesting happened on the way to fairness and modernity.

It appears that brewers in the state of Massachusetts are putting the pieces in place to overturn the state’s evil Franchise Law.

For those of you unfamiliar with franchise laws, they are the equivalent of entering into a marriage with an untrustworthy person and not being able to divorce them even if they abuse you, walk out on you and take the kids too.

Franchise laws are in place in nearly half the states and apply in most cases to both breweries and wineries. In essence, these laws prevent producers from ever dismissing their wholesaler no matter how bad that wholesaler is performing.

Originally, franchise laws were put in place where there were less than 50 brewers in the U.S. They prevented wholesalers from losing the right to represent brands from large producers like AB-Inbev and MillerCoors. Today, however, in the case of brewers, there are thousands located across the country. Yet, still, these franchise laws exist.

Brewers in Massachusetts have for some time been looking to overturn these damaging franchise laws and wholesalers simply have not come to the table in good faith to discuss the issue. And why would they? In the case of franchise laws, all the power resides with the wholesalers. Their position has been to use their power to run out the clock.

However, on July 13, state Senator Barbara L’Italien filed a measure that would have essentially repealed the repugnant franchise law. This caused the Beer Distributors of Massachusetts to go a little nuts, start “leafleting outside the capitol, and led to he head of the organization, Bill Kelley, to claim:

“This is a last-minute, back-door attempt to force a more extreme version of a long-rejected bill into law. This amendment hurts locally owned family businesses, hurts working families, and uses an approach completely lacking in transparency, openness, and public deliberation.”

Actually, this kind of sorely needed reform would put family owned producers close to within spitting distance of the same level as wholesalers.

In any case, the legislation has been altered and now an amendment to a spending bill in MA has been introduced that would create a commission of brewers and wholesalers to examine and suggest legislation to reform Franchise laws in the state. They are required to report back on their progress by December 31.

If this amendment is adopted and if there is a commission set up to look at franchise laws and if brewers and wholesalers sit together to discuss reform, the odds are that no real reform will result as wholesalers will likely not support any reform that diminishes their power over brewers and producers.

This in turn will likely lead to bolder legislation being introduced in 2017 to significantly reform franchise laws as there is growing sentiment in all branches of the MA government that not only franchise laws but the entire alcohol beverage code in the state needs reform.

It is a convoluted situation, but in the context of alcohol regulatory reform, it’s progress.

What’s absolutely true is this: Franchise laws are evil. They are an example of the state insisting one business be subordinate to another business for the sake of campaign contributions. They inhibit entrepreneurship. They represent soviet-style business practices. They encourage continued wholesaler domination of an industry at the expense of producers, retailers and consumers.

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3 Responses

  1. John Nuechterlein - July 20, 2016

    But what do you really think?

    It appears they will get there. Eventually.

  2. damon - July 21, 2016

    Tom, usually I agree with you and I always love your passion. I disagree that franchise laws are evil, though maybe the hyperbole was used to prove the point.

    They can be one-sided and unfair, but they can be fixed while still protecting distributors when it matters. Clearly, franchise laws are broken because they do not allow a supplier to leave a distributor that is or has become ineffective. I have always been on the supplier side but thinking about it from the perspective of a small distributor, it also is not fair if a supplier leaves after you grow the brand and have one bad year of sales. Ideally, franchise laws should be re-written to take performance into account.

    It will make the laws more complex but I think there should be franchise laws in place to protect distributors that are doing a good job with a brand.

    • Tom Wark - July 21, 2016

      Damon,

      Why is any law at all needed. Other industries that use wholesalers don’t require laws protecting the wholesaler. They use contracts.

      There’s no reason why instead of radically unfair franchise laws, we revert back to business contracts. If a wholesalers wants to protect himself, have the supplier sign a contract that does just that.


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