Brewers Association Supports Ohio Craft Brewers’ Push for Franchise Law Reform

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This week, Ohio’s House Commerce and Labor Committee heard proponent testimony on House Bill 306. Led by the Ohio Craft Brewers Association (OCBA), this effort would exempt manufacturers producing less than 250,000 barrels of beer annually from the Ohio Alcohol Franchise Law, allowing the state’s craft brewers more mobility in the marketplace.

The Brewers Association was asked to submit written testimony for this hearing, and that is shared below.

We thank the bill sponsors and the efforts put forth by the OCBA to get this hearing scheduled and to share our testimony with lawmakers in Columbus.

Members of the Ohio House Commerce & Labor Committee: 

I write today on behalf of the Brewers Association, the national trade association representing America’s small and independent brewers to express our support for House Bill 306, a bill that would reform archaic franchise law and help Ohio’s locally owned and operated brewers continue to grow and thrive.

It is fitting that this hearing has been scheduled for today, Dec. 5, as it happens to be the 90th anniversary of the repeal of prohibition in the United States. We mention this because our friends in the middle tier of alcohol beverage industry will surely insinuate that franchise protections grew directly out of the post-Prohibition era. In truth, Ohio’s successful post-Prohibition regulatory system did not feature a franchise law until 1974, when the threat of one of the few big beer makers pulling out of your distribution house was real and the threat was existential. Today, wholesalers have consolidated while small brewers have proliferated, resulting in the inverse size imbalance to the one that prompted the legislature to first pass the franchise law.

Existing franchise law makes exiting or not renewing a contract nearly impossible. When a brewery agrees to work with a wholesaler to sell their product it is a forever partnership with the legal advantages falling on the wholesaler’s side. There is little recourse for a brewery that wants to work with a different distributor, even if the language of the contract should allow a change. Small brewers must either beg a wholesaler to voluntarily sell the brewer’s distribution rights to another wholesaler or proceed with a time- and capital-consuming litigation that almost no small brewer can afford, at the end of which they may still end up buying the right to their own product back at a price determined solely by the wholesaler. H.B. 306 would level the playing field by giving some negotiating power to small and independent craft brewers.

Things have changed significantly over the course of nearly five decades. There are now more than 9,500 small and independent craft brewers in the United States, with 420 of those making beer in Ohio. Conversely, over the past 10 years the industry has seen massive consolidation in the wholesaler tier, with giant regional and national corporations buying out small houses, leaving small brewers with fewer choices and little bargaining power. Given the size and diversity of today’s wholesalers, a small brewer moving distribution from one wholesaler to another would not threaten the wholesaler losing the brand, as they have dozens of other brands, including those of the big multinationals, to continue selling.

Right here in Ohio, the wholesalers trumpet these acquisitions and consolidations, as encapsulated perfectly in February of this year when Superior Beverage Group purchased Newark, Ohio-based Brown Distributing, creating a 20-million-case wholesaler in the Buckeye State. “Superior Beverage Group turned 100 [in] September [2022], and has made 50 acquisitions in that time.” Fewer wholesalers means fewer trucks, fewer sales reps, fewer opportunities for small and independent craft breweries, locked into their contracts even when a sale like this is made. 

Simply put, H.B. 306 exempts small brewers (under 250,000 barrels of total production annually) from the Ohio beer franchise law. To put this in perspective, Superior Beverage distributes 20 million cases a year in the state, which is about three million more than all of the craft beer produced in Ohio combined. Even the largest craft brewers in Superior’s portfolio make up a small fraction of their overall sales and revenue. H.B. 306 is the single most equitable solution to the issue of outsized wholesaler-tier power in these relationships. Should this important legislation pass, brewers can negotiate enforceable contract provisions that give them some control over the distribution of their products.

Ohio wouldn’t be the first to make these needed reforms. Fourteen other states have already passed franchise laws to give relief to small brewers without jeopardizing the wholesale or retail tiers. New York enacted a law in 2012 that gave relief to brewers making less than 300,000 barrels per year. According to Brewers Association Chief Economist Bart Watson, not only did beer distribution jobs in New York not decline after the legislation passed, they grew.

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