Franchise Laws—Chronic Injustice in the Alcohol Business

If one were to make a list of the various chronic injustices that exist in the alcohol industry, it would be a long one. But, if you were to rank those many injustices, it seems unquestionable that the Franchise Law would top the list. Franchise Laws are supported by wholesaler across the country because it makes it nearly impossible for their suppliers to change distributors, thereby giving wholesalers all the power in the business relationship and placing suppliers at their mercy.

For the perfect example of the evil of the Franchise Law, consider the injustice visited upon Massachusetts beer and cider importer Shelton Brothers. The Boston Globe reports that “In February, the [Massachusetts] ABCC imposed a record $2.6 million fine on Craft Brewers Guild [Shelton’s Distributor] for engaging in a ‘pervasive illegal enterprise’ by paying some Boston bars to put certain beers on tap, a practice known as “pay-to-play.”

Among those harmed by this distributors illegal actions was Shelton Brothers, whose products were shoved to the side while Craft Brewers Guild pushed other products—illegally. Shelton Brothers has sued the Craft Brewers Guild for “overpricing its products and intentionally allowing them to languish on shelves while aggressively pushing beers from preferred suppliers.”

At this point, in any normal business environment, Shelton Brothers would terminate its distribution contract with Craft Brewers Guild and find a new distributor that was actually interested in selling its products rather than keeping them off the shelves.

But a normal business environment would not include a Franchise Law as Massachusetts does.

The Massachusetts Franchise Law makes it nearly impossible for an importer like Shelton Brothers to move on to a new distributor. In order to liberate one’s self from a relationship with a wholesaler, an importer or producer must show good cause. What would constitute “good cause”? Glad you asked: wholesaler’s disparagement of the brewer’s product, unfair preference of a competing brand, failure to exercise best efforts, encouragement of improper practices, or failure to comply with contract terms.

Remember, Craft Brewers Guild is a wholesaler that shoved aside Shelton Brothers brands and focused on other brands to the point of actually paying off taverns to take those bigger brands. It got caught by the Massachusetts Alcohol Beverage Control and was fined $2.6 million for its crimes.

However, the MA Alcohol Beverage Control Commission has issued an order that Shelton must continue to sell product to Craft Brewers Guild until a hearing can be held later in 2017—likely around May. Does anyone think that Craft Brewers are going to work gangbusters for Shelton? Of course they are not. Yet the Massachusetts Franchise Law requires Shelton continue to sell Craft Brewers Guild wine and rely only on them for distribution.

This year there have been legislative attempts to end the unfair and one-sided Franchise Law in Massachusetts. And there are more to come in 2017. However, the wholesalers, who can’t put up a real argument for the continuation of Franchise Laws, unfortunately have bought the attention of legislators who are often very happy to do the bidding of wholesalers in exchange for campaign contributions.

The Shelton Brothers situation is just one example of the chronically stupid and unjust nature of the Franchise Law that also exists in numerous other states. It is perfect example of how wholesalers, though their indefensible regulatory advantage, have gamed the system to make them among the most unreliable business partners in America. If ever there were an example of the need for reform in the American alcohol system it is the Franchise Law.