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Paul McMorrow

A brewing beer fight on Beacon Hill

(Istockphoto/Globe Staff Illustration)
By Paul McMorrow
February 25, 2011

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IF ROB Martin made cardboard boxes, he’d be fine. Same with hats or shoes or hammers. If Martin made just about anything other than beer, he wouldn’t be in the position he’s in now, with his business at the mercy of 200 state legislators, and a well-financed and inflexible opponent gunning for him.

But Martin is a brewer, so when he’s not putting hops and malted barley in a kettle, the owner of Ipswich’s Mercury Brewing Company is on Beacon Hill, fighting to be treated like any other manufacturer in Massachusetts. Which is to say, he wants ownership over the product he makes.

That’s a more audacious request than it seems. Beer making has been heavily regulated for so long that it almost seems like the laws governing the business have forgotten it’s a business in the first place.

Most beer makers sell bulk orders of kegs and cases to wholesalers, which in turn stock bars, restaurants, and package stores. But a brewery’s relationship with its distributor isn’t like the contracts it maintains with its maltster or glass supplier.

State law locks brewers and wholesalers into contractual marriages that are nearly impossible to break. A brewery can’t terminate its distribution contract and dump its wholesaler, even if it’s unhappy with the wholesaler’s performance. It has to go through a long, arduous legal process and show cause for dissolving the relationship; even if a brewer wins the legal fight, it has to pay breakup damages to walk away.

Martin is unable to move an under-performing beer line to a wholesaler that would sell it more aggressively. His current wholesaler won’t let him go. This particular beer line isn’t even selling well, so the fight isn’t about big money. It’s about power. Wholesalers wield enormous power over small brewers. And the way state laws are written, they don’t have to give any of it up. There is no such thing as a free market for beer.

State alcohol distribution laws have been in place since the 1970s, when scores of mom-and-pop distributorships feared that one large brewery’s movement between distributors would wipe them out, so they got state lawmakers to treat them like the brewers’ franchise partners.

The beer market has flipped upside down in the past 40 years. The number of small independent breweries has exploded (Massachusetts is home to 43), while distribution power has become concentrated in the hands of a few regional cartels. The distribution franchise laws that were set up to protect wholesalers from brewers have become a tool for a few wholesalers to control the breweries they contract with.

Even though small independent breweries are booming, nearly 90 percent of wholesalers’ revenue comes from a few multinational conglomerates — conglomerates that have been on a consolidation spree in the past few years. First Molson and Coors merged, and then the two merged with Miller. InBev scooped up Anheuser-Busch. The question isn’t whether Grupo Modelo, makers of Corona, will get bought out, it’s when.

Amid that consolidation, Massachusetts’s powerful beer wholesalers tried to further strengthen their hand last year by eliminating a loophole in the alcohol franchise laws that let brewers change wholesalers freely when a brewery is sold. The state’s small brewers, seeing the law targeted at the Coronas, Heinekens, and AB-InBevs of the world, asked for a carve-out in the legislation that would exempt them. The wholesalers balked, but their bill didn’t clear the Senate before last year’s session ended. Now the wholesalers, who dumped $1.4 million into their successful anti-sales tax ballot question in November, and who spent $250,000 lobbying on their stalled franchise bill, are back on Beacon Hill, pushing the same bill that stalled last July.

However, the state’s small brewers have some pending legislation of their own. After being told they’d get no carve-out in the wholesalers’ pet bill, they began asking why they needed a carve-out in the first place. So now they’re asking the Legislature to replace the whole small brewer-wholesaler forced marriage with something approximating a free market. The wholesalers and their lobbyists will balk, since they’ve gotten fat and happy by controlling that which they don’t own. But any time a group of wealthy businesses are this scared of capitalism, something is seriously amiss.

Paul McMorrow is an associate editor at Commonwealth magazine. His column appears regularly in the Globe.