Legal News

Eccentric Brewmaster Takes Distribution Fight to Court

By Ashby Jones

Chicago-based WSJ reporter David Kesmodel kindly sent us the following dispatch on trouble, uh, brewing between a small beer-maker and its distributor.

The U.S. is home to more than 1,500 beer producers, but two of them-Anheuser-Busch InBev and MillerCoors-control 80% of all sales. In a market like that, small brewers need to be dogged to survive. And few fight for their interests as aggressively as Larry Bell, founder of Michigan's Bell's Brewery Inc.

In his latest clash with Big Beer, the eccentric former home brewer has sued one of his distributors in a Michigan state court to try to block it from selling the rights to market his products to an Anheuser-Busch InBev distributor. The move comes about three years after Bell made headlines by yanking his beers out of Chicago-one of his largest markets-rather than see the rights to market them there sold to a big Miller distributor. (Click here for a fun story from the Kalamazoo Gazette on Bell’s “Eccentric Day Friday.”)

Bell, who is in his early fifties, brews small-batch "craft" beers such as Bell's Oberon Ale and Third Coast Old Ale. His concern is that distributors that primarily make a living hawking mass-market brews aren't well-suited to peddle his specialty brands. Bell's Brewery essentially made that argument in its lawsuit filed last week against distributor Classic Wines Ltd. in Kalamazoo County Circuit Court.

The suit is the latest in a string of recent legal spats around the U.S. between beer suppliers and distributors, including several in which smaller brewers, emboldened by healthy consumer demand for specialty beers, have tried to assert greater control over their destinies. Complicating such legal tussles, each state has its own set of beer laws-part of a complex regulatory architecture erected after the repeal of Prohibition.

Bell's, ranked as the 13th largest U.S. craft brewer by sales volume, seeks to block the sale of the distribution rights to its brands for part or all of eight Michigan counties on the grounds that the buyer, Anheuser distributor M&M Distributors Inc., doesn't meet its standards. According to the suit, Classic Wines contends Bell's must agree to the transfer under Michigan's liquor laws. Nick Pavona, a Classic Wines principal, couldn't be reached for comment. A message left for an M&M executive wasn't immediately returned.

The lawsuit claims that M&M lacks experience selling craft beers and didn't articulate to Bell's a "coherent" marketing strategy for its brands. The suit asks the court to award Bell's a declaratory judgment that it acted properly under Michigan's liquor code in refusing to agree to the transfer of its brands.

Craft brewers have been gaining in clout in the U.S., but they still account for only about 5% of all industry volume. They must balance their desire to filch market share from the big brewers with their need to form allies among the nation's beer distributors. Under U.S. law, beer producers generally must sell their products to distributors, who then sell to stores and bars that serve consumers. In many states, distributors enjoy the protection of franchise laws that keep brewers from arbitrarily dropping them. At the same time, distributors generally have the power to sell distribution rights whether brewers like it or not.

Bell, who calls his Kalamazoo brewpub Bell's Eccentric Café, has experience taking on distributors. He re-entered the Chicago market in 2007, about a year after his departure, although he sidestepped the Miller distributor that had expected to take on his brands and signed up with other distributors. He anticipated that he would be sued for that move, but it never happened. Now the Chicago Cubs fanatic, who grew up in the city's suburbs, can buy his own beer in the Windy City.

Photo: Kalamazoo Gazette

Full post as published by Law Blog - WSJ.com on April 28, 2009 (boomark / email).