Texas has one of the strongest craft brew environments in the country, made even stronger by a package of laws that crafts and distributors hammered out and agreed to during the last legislative session.
Less than a year after those laws took effect, however, the legislative director of the state’s craft brewers group is backpedaling on one of the laws his group originally supported in order to get their wish list passed – and the law’s House sponsor, Rep. Charlie Geren, R-Fort Worth, is not AT ALL pleased about the switch.
“I’m very disappointed that he’s bringing this up, and I’m not going to go into the next session with a very good taste in my mouth with him starting this crap this early,” Geren, a restaurant owner and House chairman, told the Texas Beverage Industry Journal on Friday. “It is the law, and I’m going to fight to keep it the law.”
The law in question codified a ban on brewers being able to sell their distribution rights – a practice that forces distributors to pay the brewers to distribute their brands, something that was already illegal anyway.
The law was part of a historic overhaul of the craft brew laws, a package touted as some of the best pro-craft legislation in the country, allowing them to self distribute and serve their own beer on site and a host of other things that craft brewers have been wanting for years but were stymied on by Big Beer, which didn’t want the competition it would create. In short, it was a huge win.
The problem now is that the craft brewers are apparently, as Geren says, “changing spouses” and backing off on their support – now that the distributors helped get them the hookup during the session (convenient!).
On Thursday, Scott Metzger, who sits on the board of the Texas Craft Brewers Guild, told members of the House Economic Development committee that while some of the laws passed during the session were good, the franchise law that was part of the package is bad for them – even though they signed off on it last year.
His complaints are that craft beers want to charge distributors for the privilege of promoting their beers, and they want to be able to fire distributors at will and sell their brands’ distributing rights to another distributor for no reason. The franchise law prevents both of these things, which are already prohibited anyway.
Not only is he wrong that the law is bad for craft beers – it’s actually very good for craft beers because it empowers distributors to invest in the success of their brand – but he’s also doing an about-face on his position during negotiations that everyone thought were being done in good faith.
This type of thing does not sit well with anyone who has ever lost blood, sweat and tears during political negotiations, particularly when they’ve gone out on a limb, like the distributors have, in order to pass a package everyone was happy with.
“Their group and their lobbyist all agreed to this,” Geren said. “It was a package deal and everybody signed off on it. It’s awfully fast to be changing spouses here, I think.”
Besides being bad politics, it’s just a bad position to take, period. The franchise law helps the craft brewers by protecting the investment a distributor makes in their brands when they spend their money and infrastructure promoting and selling the brewers’ beer for them, Geren said.
For example, Geren says, Metzger, who owns Freetail Brewing Co. in San Antonio, chooses to avail himself of that system even though he is free to avoid the issue altogether s and distribute his products himself, which even Budweiser and Miller and the other Big Beer guys can’t do. Craft brewers choose the system because it works for them, the way it is.
“He can distribute the beer himself, legally, today, but instead he chooses to use the system,” Geren said. “If he chooses to use the system through the bigger guys (distributors), they have an infrastructure already in place. They spend a lot of money on advertising, on the trucks, on labor, and he’s taking advantage of that when he uses the system. And if he wants to be paid for that, he’s nuts.”
After all, Budweiser doesn’t charge La Mantia distributors every time it rolls out a new beer – what would be the incentive for La Mantia at that point?
Metzger also complained about part of the law that makes it difficult to break contracts with distributors or fire them at will, saying it restricts the craft brewers’ ability to make money off a valuable brand. Big beers can’t just dump a distributor for no good reason, but craft beers want to.
But ask yourself this: Why on EARTH would a distributor even bother to pour its infrastructure into building up a brand, getting it into bars and stores (they’re the ones who send the beer girls to the sports bars, for example, to introduce patrons to their beers), only to have it taken away for no reason and sold to another distributor to enjoy the fruits of the first company’s hard work and valuable resources?
“You don’t want to build up this guy’s market and then have him jerk it out from under you and give it to the competition,” Geren said.
Distributors invest millions of dollars in craft brands and undertake long term commitments in warehouse build-outs, marketing, refrigeration systems, rolling stock, and employment commitments. Simply put, franchise laws prohibit a brewer from unfairly taking that investment.
The law allows a distributor to invest heavily in new and emerging brands without risk that the investment will be unfairly taken from them without compensation.
This only HELPS the craft brewers and also shuts down opportunities to game the system unethically – but Metzger and the others don’t seem to realize that.
Geren warned that the guild did very well last session and should be careful about opening up the can of worms again so soon.
“They’ve got a good thing going, and I hope they don’t try to screw it up,” Geren said. “The one thing I’ve learned in my 13 years down there is that you can pass laws that cut either way.”
Pretty clear warning shot across the bow, isn’t it?
I understand that craft brews want to keep growing, and the thing is, the package of laws that was passed in 2013 help them enormously because it bolsters them AND it protects the distribution network that makes the Texas industry one of the strongest in the country.
Putting the screws to that network will only hurt the craft brews, and the sooner they realize that, the better off they’ll be.