Guest Commentary: A craft brewer weighs in on the news of a distributor paying retail establishments for dedicated tap lines.
As a homebrewer with aspirations of one day opening a brewery, the pay to play news coming from Massachusetts hit me like a bus in a nightmare. Where I was once excited about creating a brand straight from my soul, being my own boss, and competing with fellow craft brewers by making the best craft beer possible, now I’m not so sure.
The news, as told by the Boston Globe, implicates a distributor, Craft Brewer’s Guild of Everett for paying retail establishments around $120,000 in kickbacks for dedicated tap lines. This could mean even if my future customers asked for my beer and I was willing to sell to that bar, I would have to pay in order to play.
I knew competition was fierce, but I didn’t realize I may have to compete with illegal practices in order to survive. I may have to DO illegal things to get my beer in drinker’s glasses. On the other side of the coin, bars and restaurants were willing to accept money illegally, and will soon meet in court for their side of the hearing.
The hearings, which happened September 2015, are full of juicy tidbits how the pay to play activities worked. Page 6.26 provides a shocking overview: “Craft negotiated a payment structure with each third party in exchange for the retailers placing Craft Brands in its on-premises retail establishments. Typically, the negotiated prices ranged from $1,000 to $1500 per draft line keg.” Invoices were itemized with services such as “marketing support,” Printing of menus,” “and “menu programming.” “Often a Craft employee would hand deliver the payments to an employee at the Retailer’s licensed premises.” Maybe it’s the elegant Alcoholic Beverages Control Commission script letterhead or the thought of hand-delivered envelopes that has me thinking, “is Nucky Thompson is running the show?”
Showing this is far from over, the Law Offices of John P. Connell, P.C. reported, “At the federal level, the U.S. Department of Justice may investigate alleged violations of the Federal Trade Commission Act, which in general broadly prohibits “unfair methods of competition and unfair or deceptive acts or practices.”...“The antitrust laws, including the Sherman Act, also provide for criminal penalties where the offender has acted with the knowledge that his or her acts would in all probability hurt competition,” the blog continued.
In California, where over 600 breweries do battle for tap handles and shelf space, I asked local industry colleagues about pay to play, and was even more shocked. A brewer, a salesperson and brewery owner from different establishments told me the same, jaw-dropping story: “We were offered a permanent handle at a new (or expanding) restaurant by helping to pay for a new draft system.” After informing the retail establishment(s) of the legalities of paying and walking away, seeing who ended up on the rail changed my opinion of a few big craft breweries. “This happens everywhere,” is the other quote I heard from breweries and distributors alike, all wishing to remain anonymous.
As Craft Brewers Guild opted to pay the fine of “millions of dollars” and file a counter-suit, I can’t help but question what they must do to remain a vibrant business. Do they have millions of dollars sitting around, and if they do, what does that say about the three-tier system? If they don’t have the money, what corners will be cut in the day to day business that may potentially hurt my business as a CBG distributed brewery? If they did hurt me, how quickly could I switch gears? Should I have a distribution contingency plan?
It’s often been asked when the craft beer bubble is going to burst. Although this pay to play case has left a black eye on craft beer, it seems like the bubble analogy has shifted to that of a dam slowly breaking. The situation in Boston put a sizable crack in the concrete wall and is starting to rumble. When it breaks, we can all hope for a level playing field.
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