What’s brewing in Albany: Brewer-Distributor Bill clears Senate

New York is one step closer to giving small brewers a fair shake when it comes to their relationships with distributors. Senate Bill 1315, which loosens regulations that once protected small distributors from large breweries, passed the State Senate earlier this week by a 55-5 vote.

This year’s bill was immediately referred to committee in the Assembly. Since the Senate bill contained virtually identical language to a bill passed in the Assembly by a wide margin last year, the potential for this bill to become law this year is not only possible, but likely, meaning that by the first of next year, brewers will be granted the freedom to change distributors.

To understand what this bill does for brewers, you first must understand the beer distribution system. The “Three-Tier System,” as it’s called, was designed after prohibition, essentially as a way to limit power in the booze industry. Brewers must provide beer to the distributors, and distributors then mark it up and sell the beer to a retailer - be it a store, restaurant, or bar. No one tier can be involved in any other tier, so a brewery cannot own a bar (except when a law is changed for selfish reasons), and a distributor doesn’t sell directly to the consumer. Brewers and distributors make contractual agreements so the brewer’s beer can be distributed.

As recently as a few years ago, there were more distributors than there were breweries in New York. So, New York passed a bill that insulated distributors from being screwed over by large brewers: by law, breweries could not renege on their contract with a distributor without “good cause.” Given that breweries like Budweiser and Miller control a huge portion of the beer market, if those large breweries pulled out of a distribution deal, it could cost a distributor their livelihood.

Unfortunately, this law came at the cost of smaller brewers’ freedom of choice. Since no brewer could pull out of their contractual obligation to the distributor without proving good cause, many brewers would be stuck with them for life, regardless of how the distributor treated them. The process by which they would have to prove “good cause” is stringent, and they’d be up against the distributor’s team of lawyers, which would be presumably much larger and pricier. While distributors used to jockey to service any brewery, today’s larger distributors carry so many breweries’ beers in their portfolio that smaller ones might not get the attentive service they want while the large, multinational breweries that make up most of their business get the most attention. If the distributor doesn’t dedicate any resources to promoting a brewery, or doesn’t meet the brewer’s expectations, there isn’t much they can do about it - they’re stuck in that deal for good. If their product isn’t sufficiently promoted and retailed, a brewery could suffer at the hands by a bad distributor.

Seem unfair? It is, but at the time the law was passed, there were nearly twice as many distributors in New York as there are now, and a third as many small breweries. The original law was designed for a different era, so this bill simply proposes that smaller breweries - specifically, those that produce less than 300,000 barrels a year and make up less than 3% of the distributor’s total sales - can end their contract without good cause as long as they compensate the distributor fair market value for terminating their deal.

So, what does this mean for you, the consumer? Well, it means smaller breweries may not be as fearful of using a distributor if it’s financially feasible. Many small local breweries, like Bronx Brewery and Barrier Brewing, self-distribute their beer. Since these are often two-man operations, that means taking time away from more important activities - like brewing, marketing, and promotions - simply to deliver their beer to bars. That means there’s less beer to go around, and less ways for you to know about it and where you can find it. Giving brewers the freedom to change distributors will also put pressure on distributors to step up their service. That stands to benefit the consumer most with wider and more consistent distribution.

This is a long overdue bill that tips the scales in favor of small brewers. Several other states have already passed similar bills, recognizing that the boom in small craft breweries has changed the distribution system. It’s refreshing to see New York recognizing the wants and needs of the craft beer industry with this and other bills, like the farm brewery bill and a bill to allow brewers to pour at beer festivals.

We’ll keep you updated on this new version of the bill as it moves through the Assembly, and hopefully, to Governor Cuomo’s desk.