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Red Brick Reworks Portfolio, Sharpens On-Premise Focus

Source: Brewbound

By: Justin Kendall

Jan. 11, 2018

Twenty-five years after Greg Kelly started Red Brick Brewing Company — then known as Atlanta Brewing Company — the company is looking re-establish its position in metro Atlanta by revamping its portfolio to include new core products and more taproom exclusive beers.

Speaking to Brewbound, Red Brick director of brewing operations Gavin McKenna said the company is approaching 2018 as an opportunity for the company to “re-stake” its claim in a home market that’s become increasingly crowded.

“We get one chance to get someone to try our beer again, and so every can that goes out we have that in mind,” he said.

“We’re the oldest craft brewery in Atlanta,” he continued, “and we feel like there’s a really cool story to tell there.The cool kid breweries are not forever going to be new breweries, and at some point people are going to have to rediscover breweries along the road. And we want to be in that conversation about what’s happening in the city that’s interesting and vital to beer culture.”

In an effort to insert itself into that conversation, McKenna said Red Brick is refocusing its off-premise business around flagship Hoplanta IPA — which accounts for about 50 percent of the company’s sales — along with two new core offerings, Soul of the City pale ale and Homestand dry-hopped pilsner. He added that the company will also retire year-round release Casual session IPA while putting seasonals Hibiscuwit and Zest in Show Citrus Farmhouse ale on hiatus.

According to McKenna, the three core products will be part of a more focused approach to its chain retail business in accounts such as Kroger and Publix, among others. Chain sales made up 45 percent of the company’s sales and 76 percent of its off-premise business in 2017.

“We want to build those chain retail commitments around a core three of beers that we think are on-trend and what people are looking for,” he said. “And we’re scaled to be able to maintain demand.”

If successful, McKenna believes Red Brick will sell about 10,000 barrels of beer in 2018. The company also has the ability to scale capacity to about 14,000 barrels without additional capital investments, he added.

Red Brick is also taking advantage of a new law enacted last September that allows direct-to-consumer taproom sales for the first time in Georgia. Previously, the state only allowed breweries to sell tours and offer “free” samples — a system that many brewers found confusing and unnecessarily burdensome.

In an effort to capitalize on the extended sales privileges, and prepare for an influx of visitors, Red Brick spent about $50,000 retrofitting its taproom. As part of that investment, the company installed 20 draft lines, and implemented a strategy of primarily serving small-batch, taproom-only releases. And, in the coming months, Red Brick will initiate brewery-only 16 oz. can releases, McKenna said.

“It still feels a little bit like we’re throwing things against a wall and see what sticks,” he said. “It’s not as controlled as it was from us. We have a lot more freedom to do what we want and to try things.”

According to McKenna, taproom sales have been strong, but the company is hoping to double its direct-to-consumer business in 2018 as more consumers become aware of the changes to the law and turnout for Red Brick’s exclusive releases.

“As the word spreads that we’re trying to be a little more distinctive and small-batch focused in our taproom, I think people will be really receptive to that,” he said. “But we still have a lot of room to grow.”

Some of the company’s small-batch releases may trickle out to independent retailers in the Atlanta metro area, McKenna added, noting that Red Brick’s sales team will renew its focus on securing on-premise placements in those accounts.

On-premise sales made up 41 percent of Red Brick’s business last year and, to support the continued growth within that channel, the company will be adding two additional sales reps to help bolster sales within Atlanta and the surrounding neighborhoods.

“We’re putting a lot of effort to make sure we’re well represented there,” McKenna said.

Brewers Association’s 2017 Year in Review

Source: Brewer’s Association

Dec. 13, 2017

Strong brewery growth, increased beer tourism and the launch of the independent craft brewer seal—with more than 2,700 craft brewers signed on—were all part of a watershed year for craft beer in 2017. The Brewers Association (BA) —the not-for-profit trade association dedicated to small and independent American brewers—looks back on the defining beer moments of the year.

“Craft brewers continue to thrive, if at a slower pace, fueled by a passionate community dedicated to bringing innovation, jobs and beer across America—on Main Street and beyond,” said Bart Watson, chief economist, Brewers Association. “Today, 83 percent of the population lives within 10 miles of a local brewery, meaning that the positive impact of breweries is being felt in communities all over the country.”

Of note in 2017:

  • Steady Growth: 6,000 breweries were in operation during 2017—with 98 percent of them small and independent craft brewers.
  • Jobs and Economic ImpactThe BA’s Economic Impact Report, a biennial analysis featuring economic data of craft brewing for all 50 states and the District of Columbia, showed that craft brewers contributed $67.8 billion to the U.S. economy in 2016, a 21.7 percent increase from 2014. Craft brewers were responsible for more than 456,373 full-time equivalent jobs, a 7.5 percent increase from 2014, with 128,768 of those jobs directly at breweries and brewpubs.
  • Independent Craft Brewer Seal: To help educate beer lovers about which beers are independently produced, in June the BA launched a seal touting independent craft brewers. Featuring an iconic beer bottle shape flipped upside down, the seal captures the spirit with which craft brewers have upended beer, while informing beer lovers they are choosing a beer from a brewery that is independently owned. To date, more than 2,700 small and independent craft brewing companies, representing more than 75 percent of domestic volume, have signed on to use the seal.
  • Can’t Beat ’Em? Buy ’Em: Take Craft Back, a tongue-in-cheek crowdfunding campaign to raise $213 billion to purchase Anheuser-Busch InBev, was launched to draw attention to the lack of transparency and growing disparity in marketplace influence between small and independent brewers and Big Beer. Nearly 12,000 craft beer lovers have pledged their support.
  • Bipartisan Beer Support: The Craft Beverage Modernization and Tax Reform Act (CBMTRA), championed by Reps. Erik Paulsen (R-MN) and Ron Kind (D-WI) and Sen. Bob Portman (R-OH), was reintroduced in the 115th Congress and has reached a majority of support in both houses. If passed, the bill—which was added as an amendment to the larger Senate Tax Reform Bill in November—would significantly reduce the federal excise tax on the first 60,000 barrels of any domestic brewery that produces fewer than 2 million barrels a year and would lower the federal excise tax on barrelage up to 6 million barrels.
  • Homebrewing Heats Up: There are currently an estimated 1.1 million homebrewers in the U.S., and in 2017 homebrewers produced more than 1.4 million barrels of beer—equaling one percent of total U.S. beer production. The National Homebrew Competition, hosted by the American Homebrewers Association, continues to be the world’s largest beer competition with 8,618 entries from 3,530 homebrewers worldwide.
  • Beercations and Tap Rooms Are Boomin’: Beer tourism is growing, with the average craft drinker visiting 3.5 breweries near their homes and 2.5 breweries within two hours’ driving distance. Plus 64 percent surveyed said visiting a brewery/tap room was a new or different beer drinking occasion, indicating brewery visits have created a new sales channel for beer.
  • #GivingBack: American craft brewers are not just great at making flavorful beer—they are also a force for good. Craft brewers donated an estimated $73.4 million to charitable causes in 2016, up from $71 million in 2014.

“This has been an incredible year for the craft beer community with both challenges and successes. Emphasized more than ever before is the need to advocate for and educate beer drinkers on the importance and value of craft brewers to our nation and our culture,” said Julia Herz, craft beer program director, Brewers Association. “What is especially gratifying is watching the positive impacts beer tourism and independent breweries are having on local communities.”

Left Hand Brewing Files Lawsuit Against White Labs for Contaminated Yeast

Source: Brewbound

By: Justin Kendall

Nov. 20, 2017

Colorado-based Left Hand Brewing Company has filed a lawsuit against yeast supplier White Labs alleging that the San Diego-based fermentation specialists sold the brewery contaminated brewers yeast, which led to a $2 million recall in 2016.

In the lawsuit, filed last week in Boulder County district court and first reported on by Courthouse News Service, Left Hand alleges negligence and breach of contract by White Labs, which makes, markets and sells brewers yeast via outposts in California (San Diego and Davis), Colorado, North Carolina, Copenhagen and Hong Kong.

“It is unfortunate we had to file a lawsuit, but we didn’t have a choice,” Left Hand co-founder Eric Wallace said in statement released to media outlets. “As an employee-owned brewery, the fate of our brand and employee livelihood was compromised, and we are asking White Labs to take responsibility for the quality of their product and stand behind their guarantee.”

For its part, White Labs is denying Left Hand’s claims.

“There is no specific proof on where the contamination originated from, as each White Labs culture undergoes a rigorous testing process from start to finish, which includes 61 quality checkpoints throughout the propagation cycle,” the yeast supplier said via a statement. “Additionally, every batch of yeast is tested to confirm it is contamination free prior to shipping. We cannot provide further comment due to the ongoing litigation.”

According to the lawsuit, Left Hand had exclusively used White Labs’ yeast to brew several beers — including Milk Stout Nitro, Extrovert IPA and Warrior Fresh Hop IPA — until early 2017. The craft brewer said it first received a consumer complaint of abnormally high pressure in bottles of its Milk Stout Nitro products in early July 2016 and later discovered off flavors in its Extrovert IPA.

That forced Left Hand to recall affected product in 37 states. The company said it destroyed $2 million worth of Milk Stout Nitro, Extrovert IPA and Warrior Fresh Hop IPA as well as “several thousand more barrels of unpackaged inventory.”

In order to root out the source of the contamination, Left Hand said it ceased production and shut down its brewery for more than two weeks between September and October 2016, the lawsuit states. After several rounds of lab analysis, Left Hand claims in its lawsuit that it discovered saccharomyces cerevisiae variant diastaticus, which is known to cause secondary fermentation in beer production, contamination in White Labs’ yeast.

“Based on its thorough and wide-ranging investigation, and confirmed by multiple test results, Left Hand determined that White Labs’ yeast products were the source of the diastaticuscontamination,” the lawsuit said. “Left Hand has since changed yeast vendors and has not experienced any diastaticus contamination since.”

In the aftermath of the recall, Left Hand claims its company has “incurred significant financial losses and damages,” including a loss of market share. Additionally, sales of flagship Milk Stout Nitro, which the company said accounts for about half of its sales, have “significantly decreased after contaminated yeast product supplied by White Labs caused secondary fermentation in beers brewed using that yeast,” according to the lawsuit.

In a statement released to media outlets, Left Hand claimed that “White Labs has done nothing to address the issue” to date.

Meanwhile, in order to prevent future incidents of contamination, Left Hand said it convenes a sensory panel for every batch of Milk Stout Nitro. The company has also began filtering batches that pass sensory tests prior to packaging.

Porter Keadle Moore discusses upcoming brewery law changes

Great article and overview by Pat Tuley and Josh Jones of Porter Keadle Moore (accounting firm and Allied Trade Member of the Georgia Craft Brewers Guild):

http://www.pkm.com/compliance/sb85september/ 

Consumer Groups Weigh In On $100B InBev, SABMiller Deal

Source: Law360

By Matthew Guarnaccia

June 7, 2017

A pair of consumer advocacy groups on Tuesday asked a District of Columbia federal judge to allow them to weigh in on the $100 billion acquisition of SABMiller by Anheuser-Busch InBev as they seek increased scrutiny of the antitrust fixes required to complete the deal.

The motion by Consumer Action and Consumer Watchdog is part of the lawsuit filed by the U.S. against AB InBev and SABMiller to determine whether the antitrust remedies laid out by the U.S. Department of Justice are adequate to prevent a loss of competition in the beer industry The DOJ entered into a proposed final judgment with AB InBev in July, allowing the world’s largest brewer to complete the deal as long as SABMiller divested its U.S. interest in MillerCoors, among other fixes.

But in their proposed amicus brief on Tuesday, Consumer Action and Consumer Watchdog urged U.S. District Judge Emmet Sullivan to fully consider the proposed final judgment, expressing concerns held by by smaller industry players and others that the deal would not sufficiently alleviate anti-competition concerns. They said that the DOJ admitted in its July 20 complaint that AB InBev has engaged in anti-competitive activities for years, and argued that the beer industry will be harmed if Judge Sullivan approves the proposed final judgment as written.

Specifically, Consumer Action and Consumer Watchdog take issue with the fact that AB InBev is allowed to acquire craft breweries after the merger. The pair said that although new entry from craft breweries increases choice and innovation, the ability of AB InBev to scoop up those smaller entities, and with it their sources of distribution, is clearly anti-competitive.

That is evidenced by the fact that AB InBev has purchased nine “regionally significant” craft breweries since 2011, including Goose Island in Illinois, Devil’s Backbone in Virginia and Karbach Brewing Co. in Texas.

“ABI is at no loss in demonstrating that it intends to continue to grow through acquisitions of high-end brewers to harm rival brewers and potentially replace them on shelves and taps,” the consumer groups said.

The pair also took issue with the ability of AB InBev to purchase additional distributors as well, as the company has implemented a plan to acquire more in various markets around the country. Although the proposed final judgment caps distribution ownership at 10 percent of the volume across the U.S., a number of consumer and industry groups argued that anything short of a full ban on distributor acquisition would be problematic to competition.

Consumer Action and Consumer Watchdog asked Judge Sullivan to hold a public hearing on the matter, urging him to not simply “rubber-stamp” the approval of the proposed final judgment.

To receive antitrust clearance, AB InBev divested SABMiller’s joint venture interest in MillerCoors to its JV partner Molson Coors for $12 billion. It also sold SABMiller’s Central and Eastern Europe interests to Japan’s Asahi Group Holdings Ltd. in December in a deal worth ?7.3 billion ($7.75 billion).

Andre P. Barlow of Doyle Barlow & Mazard PLLC, counsel for Consumer Action and Consumer Watchdog, told Law360 in a statement on Wednesday that simple structural remedies such as divestitures have shown in the past to not be effective at restoring competition.

“The bottom line is the settlement agreement needs to be strengthened to keep beer distribution open and independent to protect consumer choice,” Barlow said.

Counsel for the U.S., SABMiller and AB InBev did not immediately respond to requests for comment on Wednesday.

The U.S. is represented by U.S. Attorneys Michelle R. Seltzer, David C. Kelly and David M. Stoltzfus.

SABMiller is represented by Janet L. McDavid of Hogan Lovells.

AB InBev is represented by Christine A. Varney of Cravath Swaine & Moore LLP.

Consumer Action and Consumer Watchdog are represented by Andre P. Barlow of Doyle Barlow & Mazard PLLC.

The case is United States of America V. Anheuser-Busch InBev SA/NV et al., case number 1:16-cv-01483, in the U.S. District Court for the District of Columbia.

 

 

AB doles out beer money as regulators’ scrutiny increases

Source: MarketWatch

Jason Notte

May 18, 2017

Anheuser-Busch doles out beer money as regulators’ scrutiny increases (Additional Coverage)

Anheuser-Busch InBev is throwing $4.5 billion at the U.S. beer industry in the span of a decade, and that should worry competitors. But it should make the sprawling global brewer nervous as well.

On May 15, Anheuser-Busch InBev SA BUD, -2.10%  announced that it planned to spend $500 million on U.S. brewing, production and distribution this year and another $2 billion through 2020. As the company points out, it has invested $2.5 billion here since 2011, but we’ll note that it’s also faced a growing amount of regulatory scrutiny with each step.

Craft brewers are concerned

Competing large-scale brewers and smaller regional and craft brewers have expressed concern in recent weeks after ABI purchased Wicked Weed of Asheville, N.C. Those fears were compounded when ABI announced that its South African hop farms wouldn’t be able to export any hops to non-ABI brewers in the U.S. because of low crop yields this season.

However, dating back to its purchase of Mexico’s Grupo Modelo and its Corona and Modelo beer brands in 2013, Anheuser-Busch InBev has been on some shaky ground stateside. The Department of Justice ruled that Anheuser-Busch InBev’s 2013 purchase of Grupo Modelo for $20.1 billion violated U.S. antitrust laws and forced ABI to sell the rights to Grupo Modelo’s most popular brands to Constellation Brands Inc. STZ, +0.09%   for $4.75 billion. When it purchased global brewing giant SABMiller for $108 billion last year, industry groups, including the Brewers Association craft beer industry group and the National Beer Wholesalers Association, testified before Congress about the potential U.S. implication of that sale.

The result was an antitrust decision that forced ABI to sell all of SABMiller’s Miller-branded assets to rival Molson Coors Brewing Co. TAP, -0.55%  for $12 billion. That decision also forbade Anheuser-Busch InBev from acquiring more breweries without federal approval (which it’s still waiting on in the Wicked Weed deal) and from coaxing its distributors to give its beers preferred treatment over those produced by other breweries. The latter caveat has come into increased focus during the past year or so.

In Southern California, ABI wholesalers were fined $400,000 for illegally handing out or subsidizing refrigerators, televisions and draft systems for retailers. In Massachusetts, one of ABI’s wholly owned distributors (WODs) was accused of giving away roughly $1 million worth of similar items to retailers who gave Budweiser preferential treatment.

Whistleblower case

Meanwhile, it turns out that ABI doesn’t particularly like it when employees alert the authorities to such impropriety. It incurred a $6 million fine from the Securities and Exchange Commission (SEC) for not only dishing out bribes to government officials in India to get better placement of its products there, but for attempting to silence a whistleblower through intimidation. However, considering that the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) took $750,000 from an independent distributor after a similar pay-to-play scheme in Massachusetts involving craft brewers, ABI likely isn’t done being slapped around for its distribution missteps.

And now it wants to spend $82 million to beef up its distribution chain nationwide and build new distribution centers in Los Angeles – where it just felt the wrath of California’s alcohol and beverage commission – and Columbus, Ohio.

“The market continues to be very competitive and much more fragmented, and when your market becomes more fragmented, there’s more complexity that comes with the breweries and distribution centers,” says João Castro Neves, Anheuser-Busch InBev’s CEO. “You ship some of the products that are ready into the distribution centers so you don’t lose efficiency within the breweries. We have a larger number of breweries today than we did three years ago with all our craft partners, so the combination of fragmentation, segmentation and those partnerships, we’re making those investments to cope with additional complexity.”

That itself would be significant if it wasn’t couched in a $10 million upgrade to its Baldwinsville, N.Y., brewery to start producing Teavana ready-to-drink teas in conjunction with Starbucks. Then there’s $15 million to help its Fairfield, Calif., brewery make Space Dust IPA for the Elysian brand ABI purchased in 2015, another $28 million to help its Fort Collins, Colo., brewery dry-hop ales for other craft beer acquisitions and $11 million to help its Merrimack, N.H., bulk up craft offerings on the East Coast.

“We continue to look for opportunities where it make sense,” Castro Neves said in response to an e-mailed question. “Right now the focus at Merrimack is on cross-brewing Blue Point and Goose Island beers, and we’re very excited to bring them to more beer lovers.”

Brewery upgrades

Altogether, there is roughly $200 million going into distribution and brewery improvements this year alone. Just about every one of ABI’s 12 major brewing facilities in the U.S. is undergoing changes that will make it easier for AB to brew new products there and boost the production of the 10 craft beer brands it has acquired throughout the U.S. since 2011. Dave Taylor, vice president of supply for Anheuser-Busch, includes all breweries when he looks at the future of ABI’s 21 (soon to be 22) facilities, with Castro Neves noting that employee counts at both the Blue Point brewery in Patchogue, N.Y., and the 10 Barrel brewery in Bend, Ore., have doubled since ABI purchased them in 2014.

By becoming more “local,” however, Anheuser-Busch InBev has opened itself and its distribution chain to increased local regulation and scrutiny. In Georgia, the stranglehold on beer sales by ABI (which has a plant in Cartersville) and other distributors resulted in the state becoming one of the last in the country to allow brewers to sell beer directly to consumers. In Texas, the presence of Anheuser-Busch InBev distributors and ABI’s recent federally approved purchase of Houston-based Karabach Brewing have placed ABI right in the center of a fight over direct sales and distribution limits. All of that noise eventually drifts upward, and both the SEC and TTB are certainly listening.

Ideally, this latest round of ABI spending would be about strengthening local bonds and improving the freshness of its newly acquired craft products in the marketplace. However, with Kentucky, Illinois and Missouri already banning ABI from owning distributors and other states giving smaller brewers a freer hand in getting their products to market, these latest improvements seem less like a nod to local markets and more like a way to either overpower them or hedge against future headaches.

With 5,300 breweries in the U.S. and competitors including MillerCoors, Duvel, Heineken and Constellation Brands buying up craft brands and securing shelf and tap space, deep pockets remain Anheuser-Busch InBev’s biggest advantage. However, with the eyes of regulators at every level on ABI, the company needs to buy its distributors something more than time and trouble.

Massachusetts Beer Distributors Push Franchise Reform Bill at State House

Source: Brewbound

Justin Kendall

May. 18, 2017

Massachusetts Beer Distributors Push Franchise Reform Bill at State House

More than 80 members of the Beer Distributors of Massachusetts lobbied state lawmakers on Beacon Hill yesterday, rallying behind House Bill 2823, which would allow beer companies making less than 30,000 barrels annually to terminate relationships with wholesalers for no cause.

“In the halls of this building, where they look for consensus, I think rarely in their experience have they seen a bill that delivers a 97 percent solution,” Beer Distributors of Massachusetts president William Kelly told Brewbound. “That is, 97 percent of the breweries that were operating nationally at the end of the 2015 basically get a new choice in House Bill 2823.”

The issue of franchise law reform has been hotly contested in Massachusetts for many years.

Over the past six years, brewery owners have lobbied behind numerous pieces of legislation that would have significantly altered the strict franchise laws that govern relationships between beer manufacturers and wholesalers.

In each of those bills, breweries whose brands accounted for less than 20 percent of a wholesaler’s total annual sales would have been allowed to terminate contracts, without cause, as long as distributors were also compensated “fair market value” for the loss of business.

Massachusetts wholesalers have repeatedly blocked those attempts, however.

“We just think that’s too destructive because, quite frankly, that would let every single brand leave save one – the most prominent one – which is probably at this stage in the game anywhere from 40-to-45 percent [of a wholesaler’s business],” Kelly said. “So I think it’s unfair and unreasonable to believe that any business in this economic climate could take a 55 percent loss to business and continue on at all.”

After numerous failed efforts to move those brewer-friendly bills forward, lawmakers encouraged both parties to come to a compromise.

But in January, after years of playing defense, wholesalers took an offensive-minded approach and introduced their own bill, HB 2823.

Sponsored by Rep. John J. Mahoney (D-Worcester), HB 2823 (the Act to Promote Economic Development and Market Access for Emerging Businesses), which has 76 co-sponsors, would amend chapter 138, section 25E of the Massachusetts General Laws to read:

“Notwithstanding the provisions of section 25E of this chapter, an Emerging Brewery may, without good cause shown, terminate the right to distribute any brands of malt beverages for any licensed wholesaler to whom such Emerging Brewery has made regular sales of such brands of malt beverages, subject to the provisions of this section.”

The legislation would allow a brewery making less than 30,000 barrels annually to sever ties with wholesaler partners under the condition that the departing brewery gives notice to its distributor, pays a fair market value and reimburses the distributor for sales and marketing material.

Three Massachusetts breweries – Boston Beer Company, Harpoon Brewery and Wachusett Brewing Company – wouldn’t be covered under the proposed legislation, according to Kelly.

“Those are three breweries that have been very well established for a very long time,” Kelly said.

Bill Burke, president of Burke Distributing in Randolph, whose craft portfolio includes Boston Beer Company, Wormtown Brewery, Notch, and Castle Island, among others, told Brewbound that the wholesalers see HB 2823 as “a good compromise” to the craft brewers’ bill.

“30,000 barrels takes care of 97 percent of the brewers, so really, it seems to be a fair number,” Burke said.

However, a spokesperson for the Massachusetts Brewers Guild – a non-profit organization that works to promote and protect the interests of the state’s craft brewers – told Brewbound that a version of what would become HB 2823 was pitched to guild members during a closed door meeting last winter. Those guild members who attended the meeting rejected the offer, the spokesperson said.

“Our assertion is that the wholesalers shouldn’t be deciding what works for craft brewers to grow their business,” added Michelle Sullivan, the head of marketing for Boston Beer Company’s flavored malt beverage division and a leader of the guild’s government affairs committee.

“There are very few industries where the state says you pick a partner and it’s almost impossible to leave,” she added.

Nevertheless, Burke claimed that Massachusetts wholesalers would be open to working with in-state brewers to alter some of the language included in the bill.

“I don’t think you ever draw a line in the sand,” he said. “Not now. We’re trying to make something happen. But as a group, we’d have to talk about it.”

HB 2823 has been assigned to the Joint Committee on Consumer Protection and Professional Licensure.

The wholesalers’ state house lobbying effort came one day before the first meeting of a seven-person task force, assembled by Treasurer Deborah B. Goldberg, to examine Massachusetts’ decades-old alcohol laws. The task force is set to hold six public meetings, the first on May 18 in Waltham, Mass.

Kelly added that members of the Beer Distributors of Massachusetts had not yet been contacted by the task force.

“I’m waiting to see what comes of these public hearings, and what exactly the task force is looking to do,” he said.

The final task force meeting is slated for June 18 in Lawrence, Mass.

 

 

Breweries sue N.C. over distribution laws

Source:  Brewbound

By:  Justin Kendall

As expected, two North Carolina breweries have filed a constitutional challenge to a state law that requires breweries producing more than 25,000 barrels annually to contract with a wholesaler.

Olde Mecklenburg and NoDa breweries, acting under the Craft Freedom LLC corporate banner, followed up their pledge last month to pursue legal action by filing a lawsuit today accusing the state of North Carolina of engaging in “economic protectionism.”

The plaintiffs’ attorneys, Bob Orr and Drew Erteschik, released a joint statement today echoing those sentiments: “Today, we filed a lawsuit challenging a set of unconstitutional laws that punish our State’s craft breweries for their hard work and success. Our clients are small craft breweries that are subject to arbitrary laws forcing them to hand over their self-distribution businesses, distribution rights, brand control, and future profits to private distributors. These laws violate multiple provisions of the North Carolina Constitution, including those that prohibit the government from taking private property from one person and giving it to another. Our lawsuit asks the courts to hold that these laws cannot be enforced against our clients, and we look forward to vindicating their constitutional rights in court.”

The lawsuit argues that “franchise laws leave the breweries powerless in an oppressive and illusory ‘contractual’ relationship with no recourse. Craft brewers who question their distributors’ efforts face the real and legitimate prospect of the distributor intentionally ignoring that craft brewery’s brand and promoting competing brands — effectively extinguishing the craft brewery’s business. The craft brewery, meanwhile, has no remedy. Craft brewers have no choice but to submit to their distributors’ will, or else face financial ruin.”

The complaint seeks a permanent injunction of the laws.

Read the full story here.

 

Report alleges that AB gave out bar equipment as incentives

 

Source: WSJ

By Jennifer Levitz

May 16, 2017

A battle is brewing in Massachusetts between state regulators and Anheuser-Busch InBev NV over allegations the beer giant has provided nearly $1 million in unlawful giveaways to entice retailers and bars to push Budweiser over rivals.

The state’s Alcoholic Beverages Control Commission has issued a report detailing investigators’ findings and set a June hearing in Boston on the matter. The report alleges a subsidiary of AB InBev gave out bar equipment as incentives to hundreds of Massachusetts businesses in violation of a state law meant to keep beer companies from squeezing out competitors.

Sales representatives “offered the refrigeration equipment to the retailers at no cost, provided the equipment was only utilized for Budweiser products,” investigators said in the report.

While financial arrangements for visibility are common in some industries, such as the grocery business, they are forbidden in the alcohol sector in most states. That ban harkens to post-Prohibition laws aimed at preventing any one large beverage maker from controlling the chain of manufacturing and sales.

AB InBev said in a statement that it has been working with the alcohol commission since Massachusetts first raised questions. “We believe that we lawfully provided branded point-of-sale items to retailers and plan to contest these allegations,” the company said.

The scrutiny comes at the same time that mainstream beer manufacturers and the exploding craft-beer segment are increasingly jostling for customers, creating unprecedented tension in the industry nationwide, said beer consultant Bump Williams.

“Shelf space is limited; display space is limited; cooler space is limited,” said Mr. Williams. “Getting that share of mind and getting that share of wallets is intense as I’ve ever seen it.”

U.S. shipments of craft beer have soared in the last decade, hitting 23.4 million barrels in 2016, up from more than 7.7 million barrels shipped in 2006,  according to industry tracker Beer Marketer’s Insights. During the same period, domestic shipments of mainstream beer-including brands like Budweiser-fell nearly 13% to 151 million barrels, from 173 million barrels.

California leveled similar charges against AB InBev, alleging that the company fully or partly paid for refrigeration units, televisions and draft systems at Southern California retailers. In March, the state announced AB InBev agreed to pay $200,000 and further train staff to settle the case.

“We have fully cooperated with the California Department of Alcohol and Beverage Control and have addressed issues in a timely manner,” AB InBev said in a statement, adding that its increased training goes beyond what is required in the agreement with the state.

According to Massachusetts investigators, AB InBev’s exclusive distribution subsidiary in the state handed out free equipment, ranging from coolers worth up to $5,700 each to “Budweiser signature draft towers”-flashy red and chrome stand-alone brew dispensers-valued at up to $3,500 each, to 441 retail outlets in 2014 and 2015.

Massachusetts law prohibits alcohol companies operating in the state from providing stores with “money or any other thing of substantial value” to induce retailers to buy certain alcoholic beverages.

Nonetheless, the practice “definitely still affects a lot of people” and hurts access to the market, said Rob Burns, the co-founder of Night Shift Brewing in Everett, Mass., and president of the Massachusetts Brewers Guild, an industry advocacy group.

For example, if a bar has only 10 draft lines, and a distributor buys half of those, a brewer trying to win over that retailer has a smaller chance of getting its beer to customers, he said. “Right away your ability to sell into that account is gone because someone bought lines,” he said.

In Massachusetts, such concerns caught the public’s attention in 2014 after a local brewer took to Twitter to denounce Boston as a pay-to-play city where distributors paid retailers to push certain beers.

Following an investigation spurred by that complaint, the state in 2016 slapped a $2.6 million fine on Craft Brewers Guild, the largest distributor of craft-beer brands in the state, for “kickbacks” to certain Boston-area retailers. Craft Brewers Guild is contesting that fine in state court and didn’t respond to a request for comment.

AB accused of pay-to-play

Source: Brewbound

Justin Kendall

May. 9, 2017:

New allegations of illegal pay-to-play activities within the beer industry have resurfaced in Boston.

A 14-month investigation by the Massachusetts Alcoholic Beverages Control Commission (ABCC) into a wholly owned Anheuser-Busch wholesaler has resulted in charges that the beer distribution company illegally provided nearly $1 million in free equipment to retailers, according to the Boston Globe, who first reported the story.

https://www.bostonglobe.com/business/2017/05/09/budweiser-owner-accused-stifling-competition-with-giveaways-hundreds-bars-and-stores-massachusetts/ZK4GlD6BTUTSkpQwMuP4uN/story.html

On Tuesday, the ABCC accused A-B’s Medford-based wholesaler, August A. Busch & Co. of Massachusetts, with providing free Budweiser-branded coolers and draft equipment to bars and liquor stores – a prohibited practice known as inducement – between 2014 and early 2015 for use specifically with the beer company’s products.

The ABCC said giving the coolers and draft equipment to retailers violated section 204 CMR 2.08 of Massachusetts General Laws, which states:

“No licensee shall give or permit to be given money or any other thing of substantial value in any effort to induce any person to persuade or influence any other person to purchase, or contract for the purchase of any particular brand or kind of alcoholic beverages, or to persuade or influence any person to refrain from purchasing, or contracting for the purchase of any particular brand or kind of alcoholic beverages.”

A hearing with the ABCC has been set for June 20.

Anheuser-Busch vice president of communications Gemma Hart told Brewbound that the company would contest the charges and issued the following statement:

“We have been working with the Massachusetts ABC[C] since they first raised questions about permissible trade practices by wholesalers within the state. We believe that we lawfully provided branded point-of-sale items to retailers and plan to contest these allegations. We take trade practice compliance seriously and are committed to following the law.”

According to the ABCC’s investigative report, wholesaler records revealed that Anheuser-Busch had provided retailers with 70 Budweiser-branded signature draught towers each valued between $3,000 and $3,500 and 520 refrigerated coolers valued at between $500 and $5,700 to hundreds of retailers.

An itemized spreadsheet documented the type, cost and number of units given to each retailer, included the following:

70 Budweiser signature draught towers valued at $3,000 to $3,500 each

103 coolers valued at $500 to $700 each

358 coolers valued at $850 to $1,250 each

12 coolers valued at $1,560 each

47 coolers valued at $5,700 each

In total, investigators said the wholesaler provided $245,000 in draught equipment to 70 retailers and $697,200 in refrigerated coolers to 371 retailers between the first quarter of 2014 and the first quarter of 2015.

Anheuser-Busch claims to have ceased the marketing program after the ABCC first began questioning the wholesaler in 2015.

Representatives from the August A. Busch & Co. distributorship told an ABCC investigator during a March 7, 2017 interview that the equipment was provided to retailers for free.

In a follow-up interview, on March 27, 2017, August A. Busch & Co. employees reportedly told investigators that Anheuser-Busch “purchased, was invoiced and paid for the coolers and signature draught system equipment provided to the retailers.”

Here’s how the deals were struck, according to the ABCC report: August A. Busch & Co. sales reps contacted retailers about the equipment. The wholesaler’s sales managers then authorized and arranged deliveries of the equipment. The distributor delivered and installed the coolers while a third-party draught company, Sutherland Installations, delivered and installed the signature draught systems.

Retailers were never invoiced for the equipment, August A. Busch & Co. employees told investigators.

According to the ABCC report, retailers told investigators that “August representatives offered the refrigeration equipment to the retailer at no cost, provided that the equipment was only utilized for Budweiser products.”

The investigative report did not name any of the retailers who received refrigeration units or draught equipment and it is unclear as of press time whether retailers will face any penalties for their involvement in the illegal pay-to-play scheme.

Out West, a similar investigation was recently conducted by California’s Department of Alcoholic Beverage Control, which reached a $400,000 settlement with Anheuser-Busch LLC wholesalers and a $10,000 settlement with Orange County’s Straub Distributing Company in March for providing Southern California retailers with things of value – refrigeration units, television sets and draft systems – resulting in an unfair marketplace advantage over their competitors. The ABC also sanctioned 34 retail licensees for their parts in the illegal scheme.

Local brewers weigh in

Rob Burns, who co-founded Night Shift Brewing as well as Night Shift Distributing, and is the president of the Massachusetts Brewers Guild, told Brewbound that the case against Anheuser-Busch is “not a surprise” following an investigation into Craft Beer Guild LLC, another Massachusetts beer wholesaler accused of pay-to-play. Craft Beer Guild LLC is owned by Sheehan Family Companies, which distributes Anheuser-Busch products via L. Knife & Son in southeastern Massachusetts and Seaboard Products Co. in northeastern Massachusetts.

“Obviously this is happening,” Burns said. “This one is slightly different than that, but it’s still pretty impactful. That million dollar number is a big number, and you have some big-ticket items on there. Most craft brewers would never think to provide or be able to provide those things.”

Burns speculated that the state will fine the wholesaler rather than suspend or revoke its liquor license given the outcome of past actions.

“A suspension would be way more impactful,” Burns said. “If the only option was a suspended license – even for a week – bars and retailers are not going to go a week without a light beer on tap. They would fill that tap with something else. I imagine it would be like a land grab in the wild, wild West. That would definitely change the landscape in Massachusetts.”

Instead, Burns said he expects “a month of people playing nice and sticking to the laws” and then a return “to business as usual.” The state also needs to hold accountable the retailers involved in these alleged schemes, not just the brewers and distributors, he argued.

“The state either needs to increase staff of the ABCC or increase penalties so the risk-reward doesn’t look so high anymore,” he said.

Notch Brewing founder Chris Lohring told Brewbound that the case is another example of the challenges smaller brewers face when competing with a well-resourced and multi-national corporation such as A-B.

“In all this what concerns me is that Anheuser-Busch – and I’ve lost count of how many craft brands that they’ve purchased – but this just shows the power of A-B to control the marketplace and makes it harder for smaller brands to gain access to distribution channels, and this is one example of it.”

The action against Anheuser-Busch is the latest in the ABCC’s quest to snuff out illegal pay-to-play activities in the Massachusetts marketplace.

In February 2016, following a 15-month investigation, the ABCC slapped Craft Beer Guild LLC with a 90-day license suspension for offering inducements and unfair discounts in exchange for guaranteed retail placements.

However, a month later, Craft Beer Guild agreed to pay a fine of more than $2 million in lieu of a suspension, but has since appealed fine and asked  the Massachusetts Superior Court for relief.

In November 2016, the Alcohol and Tobacco Tax and Trade Bureau (TTB) announced it had accepted a $750,000 payment from Craft Beer Guild following that agency’s investigation into the pay-to-play allegations. The sum was the “largest offer in compromise” that the agency had ever recovered from a single industry member for trade practice violations.

Also that month, Shelton Brothers – known for bringing products like Cantillon, Fantome and Westvleteren into the U.S. – filed a lawsuit against Craft Beer Guild alleging the company’s illegal pay-to-play practices between 2013 and 2014 had cost the import company $1.7 million in potential sales. A month later, Craft Beer Guild has filed a motion to dismiss the lawsuit.

This all comes as the Massachusetts Treasurer’s Office has deployed a task force to conduct a sweeping review of the state’s alcohol laws and provide suggestions for modifying elements of Chapter 138 (Alcoholic Liquors) of the Massachusetts General Laws.

The group is in the process of holding town hall meetings throughout the state this month.