With his trademark enthusiasm, AB global high end mktg veep Andy Goeler laid out ABI ethos on craft and its US High End unit in speech to North Carolina beer distribs. (Note this article just appeared in sister-pub INSIGHTS Express this afternoon.) This is "amazing time for beer," he began, with "new vibrancy" based on beer's "unmatched flavor potential," that is both "more versatile than wine" and "complex as liquor." There are "threats," acknowledged Andy, including continued share loss to wine and spirits and an "amazing amount of wasted time... trying to define what craft is." Now the focus is on independence. But "what we need independence from is definitions. Who cares? What a lot of wasted time," reiterated Andy. "As long as it's amazing beer," added Andy, "98% of consumers" don't care.

AB-owned craft brewers "absolutely maintain independence" and "we love independent," claimed Andy. "There is no way in hell we bought these breweries to turn them into AB subsidiaries." AB "paid a lot of money for the culture and soul of those companies," continued Andy, "for who they are." AB gives them "access to ingredients... to new markets... and the most amazing wholesaler network in the world," plus additional "personnel" as needed. But these craft brewers retain "independence to operate" and "independence to innovate." Andy views his (and AB's role): to "protect the culture, focus on longterm health and growth vs private equity," and "get more craft beer to more people."  

After months of continuances, the Massachusetts Alcoholic Beverages Control Commission (ABCC) finally heard second half of Boston pay-to-play cases today, tho no new revelations or resolutions. (Note this article just appeared in sister-pub INSIGHTS Express this afternoon.) This hearing focused on retailers. In a room packed with lawyers, representing some of city's biggest bar and restaurant groups, ABCC investigators made their case that distrib Craft Brewers Guild (CBG) and its on-premise partners engaged in a "scheme" to violate state laws prohibiting licensees from giving or receiving "money or any other thing of substantial value" in the inducement of purchasing a particular brand. Hearing focused on three of five cases filed so far, with investigators detailing payment of tens of thousands of dollars from CBG to retailers and their reps to secure draft lines for distrib's brands.

For their part, attys for retailers employed a joint defense strategy, asking that their arguments be applied to all five charged licensees. Factual allegations against the retailers are diverse, with some willfully acknowledging having either solicited or received money for draft lines, while others claim their actions were less obviously classified as pay-to-play. Attys for retailers largely conceded facts as found by ABCC's investigators, while also trying to argue their actions were not clearly illegal as regulations and regulatory environment far from plain. In addition to walking this semantic tight rope, atty for retailers also raised several technical challenges to ABCC's governing rules, claiming they were not properly promulgated and that the hospitality groups receiving the checks were not licensees and therefore not prohibited from taking payments. The retailers also argued that the law only prohibits wholesalers and suppliers from making pay-to-play payments but that it is not illegal for retailers to receive such payments.

Counsel for one retailer, Glynn Hospitality Group, said that the payments it received were provided by CBG to assist with marketing services since the distrib's breweries, including Lagunitas, Brooklyn, Oskar Blues, and Magic Hat, were small brands with little name recognition and needed help promoting themselves to the public. (No other brewers not previously named in investigation and no other distribs named at today's hearing.) Atty further observed that alc bev industry is the only trade where pay-to-play actions are illegal. Citing soft drink and cereal markets as other examples where suppliers pay retailers directly for product placements, he said pay-to-play "is not per se an evil practice."

ABCC took all matters under advisement and expects to have a decision in cases within a few months. Two remaining cases not yet scheduled for a hearing. Appeal of the ABCC's decision in the CBG matter remains pending in superior court. This report provided by Boston atty and beer scribe Andy Crouch.  

Picture of current craft scene painted pretty bleakly, featuring imminent "correction," consumer confusion, even indifference, "bad habits" and lack of clarity, by panel of execs at Brewbound Session last week. Plenty of views of craft's long-term success clearly obstructed by short-term difficulties. Notably, these leaders also very much concerned with broader struggles of total beer category to maintain its share of alc bev consumption against wine and spirits, just like other speakers at our recent Spring Conference. Beer volume has been flat, leading to a share gain that small brewers, by and large, have won. Now, "are we ready for a share battle in craft?" CBA CEO Andy Thomas asked during his opening remarks.

Because there's "no question" craft is "starting to slow down," Brooklyn Brewery prexy Robin Ottaway said, citing retail scan data. Also "no question that there's a correction" already starting, agreed Alan Newman, head of Boston Beer subsidiary Alchemy & Science. For years, "the amount of volume that the big brewers were shedding fueled craft," Andy said. But "now we're starting to source from within."

Defining Harder and Consumers Indifferent About "Craft," Ownership; PE Bigger Than We Think? At same time, measuring segment growth requires drawing lines around it. Yet it "is getting harder to define and it's getting harder for consumers," Robin said. And definition often depends on context. Ask any major craft brewer "who's in their analytical competitive set," New Belgium CEO Christine Perich said, and "Blue Moon's going to be in there," for example. "Increasingly," looking across wide variety of global markets Brooklyn plays in, Robin sees that "what defines the different categories is strictly price." For instance, "to a Chinese consumer," they don't see segment differences between Brooklyn Lager and Corona. "They just know that I'm 9 bucks and they're 9 bucks," he said.

Further, "I don't think the consumer cares" about what's deemed "craft" or not, Alan asserted. "There's 1%, maybe, that cares," he added. That's as, "we're overcrowded" at retail, and have "demonstrated the ability to confuse the $#*t out of the consumer," he said. Watching consumers try to choose a beer in stores is "painful," Christine contended after Robin said "I don't think consumers care about private equity." He cited "your darling coffee companies," owned by PE that hip consumers still flock to. "How could beer consumers possibly care?" Christine asked before agreeing that "I don't think they really care, and I don't think they know," because "who has time to do their homework" about ownership of each company?

So PE ownership is "one of those dirty little secrets" about craft beer biz, Andy said, something not quite transparent for a segment full of players presenting themselves as more authentic choices. And "I don't think we have a clue" exactly how many breweries have taken PE investment, Alan asserted, suggesting "private equity in as many as 400 breweries today." Howzzat? "We're only seeing the tip of the iceberg," he thinks, looking at the "level of expansion" and seeing "only one place that money can be coming from." Due to nature of PE investments, that could mean "less thinking long-term strategically," another concern to him.

Speaking Of: PE-Sourced Capital Similarly, Christine has "concerns around the influx of capital" with a "lack of strategy." She reminds that "if you don't have money, you have to make really good decisions." But "if you have endless funds you can keep throwing stuff against the wall and hope something sticks." Finally, "what happens when they want their money out?" Alan answered her question: "we know exactly what that looks like," affirming Christine's concern that "its going to be ugly."

Speaking Of: What Happens Next Coming "correction" simply "had to happen," Alan thinks. He sees "a lot of bad habits going on because of the growth." Therefore, "it's a really good thing to happen," in his view. But it also means that brewers without their ducks in a row could fall victim to that correction. Craft is "still an immature segment of the industry," Robin said, asking if "any industry in the world" has an individual biz success rate as high as small US brewers. Think that'll continue? "It ain't happenin'," he said. Look at capacity built up over last few years for possible pinch-point, these execs noted. On an individual level, "it's a matter of not getting out over your skis," Christine said, because otherwise "you start drowning in your own P&L" (profit & loss). Across the industry, capacity is "highly fragmented" and "dislocated," Andy noted, so trick will be figuring out "the right capacity in the right market with the right scale and demand." And Alan sees brewers moving from territory to territory, working on "30, 60, 90-day customers" then just moving on. So his concern rises from capacity "not being built on owned customers. It's being built on rented customers."

Speaking Of: Bad Habits Another call-out from Alan: code-dating. It's "heresy" for a brewer not to put code-dating on packaging, in his view. Ongoing pay-to-play investigations got a little attention from these execs too. The problem with attempts to clean up markets, as in Mass and more recently Wash: "six weeks later it's back to business as usual," Alan said. Robin agreed that "the crime is that nothing changed," speaking of Mass in particular. There's "not one wholesaler in that market that's lily white," he alleged. But any change that would clear way for legal slotting fees would "turn the industry on its head," Christine said. She pointed to "inflection point" and tough competition within craft as possible reason for more questionable trade practices: "get a little panicky and you start making bad decisions."

Speaking Of: Law Changes Small brewers may thrive on taprooms, but "the tied house laws were put in place for a reason," Alan reminds, and industry now "single-handedly tearing them apart." Of course, small brewers owned by A&S helped out by taprooms too, because "I lose money when I go out into the market." But "do away with tied house laws" at peril of small brewers. Further, "how much longer can taprooms continue to be the draw that they are?" And if they're not always such a draw, what then?  

Mismatched Memorial Day comparison did indeed put damper on short-term beer trends we reported last week. Craft cases now up 3.3% for 4 wks thru June 4 in Nielsen all outlet + convenience data, a couple points better than total beer volume, +1.3%. Recall, both overall beer and craft volume -3.7% for 4-wks thru May 28 in this data. So moving a week ahead (beyond 1 week in early May, likely slow; including full holiday weekend in both 4-wk periods) meant a 5-pt positive swing for beer and a 7-pt swing for craft. Talk about short-term calendar effects. Craft volume now up just over 4% yr-to-date. Dollar trends each about 3 pts higher, as average price per case up over a buck to $35.74 YTD.

These reports don't show a ton of brand or brewer-level detail for craft, only providing share/trends for 5 big brand families: Yuengling, Blue Moon, Sam Adams, Leinenkugel and Shock Top. Same story here as it's been all year: slow growth and declines of these brands dragging down overall craft trend. These 5 represent about 45% of craft volume and by our math collectively down about 4% YTD. So rest of craft still up double-digits, gaining share of segment. Note too that Nielsen's "Remaining Domestic Brewers" (all those outside of top 9 beer suppliers overall) up 11% YTD, gaining 0.6 share of total beer volume to 6.4.  

 Even while craft is slowing markedly in US, it seems to be taking off globally. For example, the first-ever Craft Brewers Conference and Exhibition in Shanghai a couple of weeks back drew a crowd of 700-800, Brooklyn Brewery co-founder Steve Hindy told CBN, considerably more than 600-expected. Steve's speech there had title above in our headline. Conference put on by BeerLink, mag owned by German co that puts on Brau in Nuremberg, perhaps biggest exhibition of suppliers. Attendees included many young Chinese entrepreneurs who are wannabe craft brewers. Even tho craft scene still miniscule in China, quite a few on-premise establishments in both Beijing and Shanghai advertise that they offer craft beer. Steve also went to Seoul, where Brooklyn is launching project called Jeju Brewing, a 100,000-bbl brewery on Jeju Island in Korea. Brooklyn partnering with local entrepreneurs there.

Slow move towards full privatization of alc bev sales in Pennsylvania took largest step in years this week. A bill that makes some significant changes to where wine is sold in the state but also includes many other tweaks quickly passed the House this week after languishing there for months after the Senate approved it. Governor Wolf quickly signed it. Changes go into effect in a couple months. Biggest beer change is clarification that will ease gas stations into beer sales: law allows for limited beer sales at gas stations as long as point of sale separate from sale of fuel. Other changes more directly affecting brewers in PA still somewhat modest. They'll be able to pick up special permits to organize/host beer and food festivals and to sell beer at farmers markets. It also includes provision for formation of a beer promotional board with a $1-mil budget, assisted by state dept of agriculture. Handful of other tweaks too, including a couple of new oppys for wholesalers in the state. New law will allow them to have up to 4 storage facilities, not necessarily in their current territory. And tho previously, distribs could not be appointed for non-contiguous territory, new law adds option for brewers to appoint wholesalers in "counties contiguous to each other."

Adding to list of states making it easier for brewers to complete limited direct sales to beer drinkers, Oklahoma opened up on- and off-premise sales of full-strength beer at their breweries, starting Aug 25. Previously, in-state brewers limited to offering 12oz or less of beer under 3.2% alc by weight. Now brewers can sell any of their beers to brewery visitors for on- or off-site consumption. At same time, limits on who can visit breweries in the first place lifted in Idaho. Law previously barred anyone under age 21 from entering breweries, though they could enter wineries. New law, in effect July 1, opens up possibility for families with underage members to visit breweries too.  

Overarching theme for several brewers presenting at Brewbound session was "nimble pivots," highlighting the various ways brewers have adapted their biz to survive and succeed over the yrs. Whether it's Shmaltz opening up its first production facility 16 yrs in, now used mostly to contract brew other brands, Atwater opening a brewery in Austin TX to extend local relevance, or Bronx Brewery tweaking portfolio to stay true to Pale Ale mantra; each brewer adapted, or altogether shifted plans in several ways to get where they are today.

Rhinegeist Expects 50K Bbls This Yr; "Looking for Long Term Growth" And then there's Rhinegeist. In just its 4th year, Rhinegeist expects to grow another 20K bbls or so to 50K plus bbls, co-founders Bob Bonder and Bryant Goulding shared. That's reminiscent of explosive growth from young cos like Revolution, Devils Backbone, Karbach and Cigar City in recent yrs, more like blasting out of cannon than a nimble pivot. Indeed, Rhinegeist essentially "burned" its original business plan before it "immediately started buying up tanks," and eventually purchased rest of its building to quickly expand capacity. Recall, Rhinegeist nearly tripled biz to 31,470 bbls last yr, with over 25K bbls self-distributed in home state and just shy of 100,000 CEs in KY now thru Heidelberg (see Feb 9 issue). Co's experience opening KY distrib that quickly needed to sell after laws changed "probably [will] get in our way of opening up other distributorships," Bob admitted. Either way, it'll double biz in KY to around 200,000 CEs this yr and rest of its growth will be in OH. And co took an interesting approach to new cider launch, Cidergeist. Instead of building from ground up in OH only, they sent Cidergeist straight to MA and NYC areas this yr "to learn," said Bryant.

Tho co is rapidly growin', it's constantly making sure to grow "intelligently" with "right balance" because if you "push a little bit too far," it can be "stressful," said Bob. And Rhinegeist "culture" is "single most important thing to make this work." For example, just last yr Rhinegeist planned to open up NYC mkt in midst of rapid growth but two of their youngest employees "delivered message" that co was "losing sight" of what's most important and "need to dial it back" and "refocus." Its "pretty open source that way," Bryant added. Rhinegeist has 27 sales people and 30 delivery guys that're "proud of what they do" - often you "don't see that same value to the person in other organizations." (For another look at Rhinegeist "culture," check out this hilarious employee-made rap music video). All in, Rhinegeist "looking for long term growth" and at 35 yrs old each, both Bryant and Bob lookin' to do this "for the next 20 years," Bryant said.

Atwater Goal to Be Natl Long Term, "Be More Realistic"; 20% of Sales Overseas in 5 Yrs; Still "Plenty of Room to Grow" Atwater's "goal is to be national," owner Mark Reith shared, tho "you don't need to be in every space." These days, it's "very important" to pick "craft savvy market[s]" that aren't as "crowded," and Mark believes there's still "plenty of room to grow" in those spaces. But Atwater not racing for natl reach either. It's currently in 24 states and 3 countries after adding 3 new mkts this year, plans to add 2 mkts in 2017 and "maybe 1" in 2018. After growth rate shot up 68% to 40K bbls in 2014 it slowed to +25% last yr, he acknowledged. So co had to re-evaluate and "be more realistic" about where "we want to go in the next couple years." Biz is "changing every month" so "sure, [plans] have to change." But there's "still opportunity" he insisted, including overseas. Currently in just Canada, Peru and Germany, Mark expects 20% of Atwater sales to be overseas in 5 yrs.

More recently, Atwater is "pivoting" by changing its logo and building Austin, TX brewery. Co changed its logo last yr, teaming up with local Detroit caricature artist to make a "very Detroit centric" logo. It's "time consuming and expensive" but ultimately worth it to stay "relevant" and "true to our consumer." And Atwater is "getting closer to our customer" with new brewery in Austin, TX by Mar 2017. Atwater "decided not to do that on our own," Mark reminded, collaborating with Flemish Fox Brewery & Craftworks. They're "not trying to be a Texas brewery" but rather a "Detroit brewery brewing in Austin," cause "you want to be transparent to your customers," he said. Recall, previously Mark also stated intention to build a brewery in NC, tho that seems to have taken a back seat for time being while co gets all other ducks in a row.

Shmaltz Acquires Alphabet City as it Evolves Biz, Revamps Go-To-Mkt Strategy Shmaltz most recent pivot is acquisition of local NYC-based Alphabet City Brewing, founder Jeremy Cowan announced toward the very end of his presentation at Brewbound Brooklyn Session yesterday. Alphabet City grew to 1K bbls last yr before realizing they couldn't continue to grow brand with current capacity and personnel. Jeremy has known founders Jason and Jeff since "before they started," selling beer at the Frying Pan. Recall, Shmaltz contract facility recently doubled capacity to 40K sq-ft and 30K bbls/yr and expects to brew about 28K bbls in 2016, 65% contract, 35% Shmaltz (see May 10 issue). Original concept was for 80% Shmaltz production, 20% contract, Jeremy noted, another pivot.

So in just a few short years, Shmaltz biz has drastically morphed after selling Coney Island brand, building first production facility, partnering with brands to contract brew, launching new locally focused 518 brand, and now acquiring brands. Amid all of this, Shmaltz go-to-mkt strategy is changing too. While Jeremy is notorious for go wide strategy with nearly natl footprint at just 8K bbls (as of last yr), that's quickly changed to "going deep in NY" strategy with new home in in Clifton Park. Indeed, 50% of total sales are now in NY state and Shmaltz shifted to AB network in NY to help delve deeper. Yet Jeremy intends to "keep Shmaltz and He'Brew national as long as possible." And in other states he's "switching" into smaller distribs, due to "questions of focus and brand."

"Do One Thing and Do it Right": Bronx Brewery Stays True to Pale Ale Vision; Expects 12-13K Bbls Only five yrs in, Bronx Brewery already expects to reach 12-13K bbls, but it's not without lack of "pivots" within that short stint. Bronx succeeds most when it stays true to its brand identity, "being in the Bronx" and "approachable pale ales," shared founder Chris Gallant, but "where we haven't been successful" is "every time we stray" from that identity. For instance, it launched a session IPA and black pale ale that both "haven't been successful." Black pale ale was "too esoteric" for its core consumers, Chris thought. Learning from that, Bronx will "double down" on Summer ale this yr and keep about 90-95% of production for pale ale styles, staying true to his mantra: "do one thing and do it right." Tho it's also launching an IPA next week and has developed B-Side series of specialty brews to "have a line of communication" with more craft savvy consumers too.

Recall, Bronx Brewery did a deal with PE family office, Tenth Avenue Holdings last yr. "For us it's been great," said Chris, similarly praising "long term vision" of family offices. Originally Bronx started out with 50 different investors made up of family and friends. Then it "took on some bank debt." But at "a certain point, banks stop lending to you." One thing PE allowed Bronx to do is spend money on a mktg team. Several times, Chris referenced the increased capabilities of his mktg team and messaging, which is "communicated effectively," made "simple and clear." Indeed, "a lot of craft breweries really need to improve" on mktg, he thought, "as space gets more and more crowded." All in, "aspirations are to be a larger regional craft brewery" said Chris. "Don't really have our sights set yet" on anything beyond that since it seems difficult to expand nationally.  

Vast majority of regular craft beer consumers think of themselves as health conscious, and that's driving their decisions to drink less frequently, according to interesting survey co-developed by Nielsen and Brewbound teams. Nielsen surveyed 1,384 respondents (21+) who drink alc bevs at least several times per year, and of those, 405 drank craft beer "at least once a month," shared Nielsen vp of beverage alc practice, Danelle Kosmal during Brewbound presentation. Tho keep in mind, survey intentionally didn't define health conscious, so numbers may be a little inflated based on "aspirations" of respondents. Survey found that "drinking less" was deemed #1 way to "manage alcohol habits" to "maintain health" by far among all bev alc consumers, 50% of respondents agreed, followed by "take time off from drinking," "drink spirits or wine instead of beer," and "only drink weekends" among others. And craft drinkers were "more likely to take breaks from drinking" than others: 44% of craft drinkers are "taking time off sometimes from drinking." Then too, nearly half (47%) of monthly craft drinkers only drink alcohol on weekends, well ahead of regular bev alc drinkers (39%). And a whopping 60% of millennials said they only drink on weekends. Again, "maybe it's not that high," Danelle noted, "but that's the way people are associating most of their" occasions. So all in, craft drinkers, and particularly millennials, are "drinking less, taking breaks, prioritizing weekend for drinking."

In general, more folks are becoming more health conscious including all bev alc drinkers: 80% of craft beer drinkers, 75% of non-craft drinkers, 83% of wine drinkers and 79% of spirits drinkers consider themselves "health conscious." Nearly 2/3 of all bev alc drinkers want nutritional labels on alc products, 58% would pay attention to calorie count and just under half (47%) say "it would likely impact my choice of alcohol products." Both craft beer (57%) and wine drinkers (59%) were more likely to exercise than other drinkers. Survey also found craft beer drinkers were far more likely than the avg alc bev consumer to attend sponsored exercise events that include some form of tasting (64% of monthly craft drinkers, and 73% of millennial craft drinkers vs 37% of total bev alc drinkers). No wonder why so many breweries are sponsoring various marathons, bike races etc. So what other ways can beer reach out to these health conscious consumers?  

 Speakeasy Distribution opened in Wichita, KS area just 2 mos ago and quickly started makin' noise in the mkt, reported Wichita Eagle. Ambitious founder Ron Elkouri graduated University of Kansas in 2012 and was working for LDF Sales & Dist before a friend of his put him in touch with WI-based Minhas Brewery this January. "They wanted to come to Kansas, but they were worried about priority," and "they thought why not go with a brand-new distributor and be their number one priority," Ron told paper. So one thing led to another and Ron started Speakeasy Distribution at "an unmarked warehouse" with Minhas as its principal supplier. And in the blink of an eye he's in 106 liquor stores and has to hire 5 more people. Currently he's making all the sales calls and has one driver delivering product. Speakeasy also carries Rhinelander products (previously owned by Minhas), and a handful of other FMB and spirits brands, mostly made or contracted by Minhas.

Interestingly, Speakeasy takin' a "different approach to succeed," as paper puts it, with exceptionally low pricing. "We are infiltrating the market with craft beer that's priced like domestics, and it's working," Ron said. For example, Minhas' Mountain Cress beer is sold for $3.99 a 6pk ("getting a lot of people hooked on this beer") and he's already noticed some larger distribs following him on price after offering "inexpensive" 30 pks. "We're changing the game for sure" and "we've got the eye of some big distributors already." Of course, Speakeasy is still "a little fly on the wall" in comparison, he acknowledged, and needs to "build some capital first" before expanding his biz. "It's going to cost a little more money than I anticipated" but "support from the retailers has been awesome" 'cause "they love a local guy" and "respect the ambition," he sez. Ultimately Ron wants to be "a titan in this industry…and I'm going to make it one way or the other."

Minhas is ranked as 9th largest "craft" brewer by Brewers Assn. Yet is this a warning sign for craft as another form of pricing pressure on segment, or an avenue/oppy for a certain kind of "craft?"

 Instead of pushing for specific changes, legal discussion during Craft Brewers Conference last month explored complex intersection of franchise law as it pertains to traditional franchises and relationships between brewers and distribs. The panel of lawyers "wanted to take a little bit of a different tactic" when discussing evergreen topic of beer franchise laws, as panelist Alva Mather of Pepper Hamilton explained. Marc Sorini of McDermott Will & Emery joined her on the panel as second atty experienced with alc bevs. Third panelist Tom Spadea of Spadea Lignana spoke to traditional franchise law and Bill Covaleski of Victory Brewing moderated. In sum, the panelists sought to "really underscore how different beer is from other types of industries," as Bill commented midway through, highlighting their interest in "just discovering the difference between the two" forms of franchise law. He reminded of the value of the middle tier and sought to keep the discussion positive and not "cast any negativity towards a partnership that's actually working." Indeed, in many ways, the discussion was an "intellectual exercise," Alva concluded, asking how relationships between suppliers and distribs are like traditional franchises and how not.

101: Basic Differences Include Fed Vs State Oversight, One-to-Many Vs Many-to-Many Since the beer-biz audience largely knew about franchise law for beer, Tom led off explaining the basics of "traditional franchises." Most franchises are in service industries, of course, often restaurants. In those cases "the government who lays down all these regulations is most worried about people being defrauded," Tom said, referring to the franchisees that are "essentially licensing the name and business format" from the larger franchisors. That government oversight largely on the federal level, Tom explained, and that's mostly in the form of "disclosure." Some states require similar registration/disclosure, but in general there's "a lot lighter touch." Recall that state law drives regulations of franchise relationships in beer.

Other major difference between traditional franchises and brewer/distrib relationships is amount of franchise relationships each party manages. Traditional franchisors, like McDonald's or Subway, are single large corporations with many franchisees. For traditional franchisees, "100% of their livelihood is wrapped up in" and "all of their goodwill tied up into that one brand," Tom noted. If terminated, it's "literally out of business." So in traditional franchise law, there are "a lot of protections built in to avoid that." In beer, brewers (franchisors) typically have many distribs (franchisees), just as distribs have relationships with many brewers.

201: Similar Historical Developments Seeking Franchisee Protection; Changing Climate Before the federal gov't worked to bring "a little bit more uniformity" to traditional franchise law, states stepped in during the 1970s to help protect the small franchisees, Tom said. Similarly, states began enacting beer franchise laws to protect distribs from often larger brewing companies in the 70s and into the 80s and beyond, Marc explained. "Politically," he said, it was an "appealing thing to do," protecting local companies from bigger out-of-state ones to "equalize the bargaining power that had to go beyond traditional contract" law. So beer franchise law grew from similar intent as traditional franchise law, which has a "bedrock foundation in protecting the bargaining power and making sure that people didn't get taken advantage of," as Tom said.

Since then, the middle-tier has maintained its high-level of "feet in the statehouse." At the same time, the growth of small brewers means balance of bargaining power in beer franchise relationships can vary widely. Yet Marc senses that "the political climate is changing a little bit," now that so many small brewing businesses have opened and some very large mega-distribs (sometimes based out of state too) emerged. Asked about growth of small, craft-focused distribs in Q&A, Marc reminded that "franchise laws make it more difficult for that to happen," since the new small wholesalers often "can't afford to pay the fair market value." Interestingly, there hasn't been the same push-and-pull over specifics of traditional franchise law as in the beer world because there are not "two distinct groups of businesses," Tom said. So "you don't really have that stated position on the other side," just "people typically looking out for franchisees."

301: "Control," Franchise Fees Fly in Face of 3-Tier Separation; Exceptions, Dialogue A couple of key requirements in traditional franchises directly oppose basic tenet of independence between each of 3 tiers. First, a traditional franchisor must have a "significant degree of control" over franchisees for relationships to even be deemed franchises, Alva commented. "Control" must relate to "the overall method of operation," covering everything from "site approval, site design" to "providing production techniques, accounting practices" and even "management training." Clearly, "that concept does not fit well" with notion that each tier must operate independently in alc bev biz, where "by law," the "franchisor can not have that kind of say that is mandated on the franchise law side" she noted.

Further, traditional franchisees must pay a fee to the franchisor. That "payment" must go "over and above" costs of buying a business (space, inventory, etc), Alva reminded. So it's a "pure transaction for the intent value" of using the franchisor's trademark, which some states have specifically barred in beer, as Bill commented. Traditional franchise laws also come with certain exemptions, by which parties may not need to meet all of the disclosure or notification requirements made by law. In other words, in these situations, law deems franchisees need less protection. They include a "minimum payment fee exemption" (in which initial fee paid by franchisee relatively low and so risk also low), a "large franchise exemption" (in which the franchisee's net worth is over $5 mil, so its "level of sophistication" overall protects it from significant harm) and a "fractional" exemption (in which sales from this franchise will only represent 20% or less of a franchisee's total sales). Note that at least a couple attempts to reform beer franchise laws have suggested that brewers should be somehow exempted if they represent less than 20% of a distrib's biz. The minutiae of these laws obviously gets much more complex. But this group of lawyers interested in continued exploration here and asking, as Alva did at panel's outset, "how does that help to inform or start a dialogue down the road?"