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Brewers say contracts with wholesalers one-sided, captive, constricting

FILE PHOTO/STACY WESCOE Lost Tavern Brewing Co. opened its taproom and brewery on Main Street in Hellertown in July. From left are owners Ken Rampolla, Tony Gangi, Robert Grim and Kenny Rampolla. As a new brewer, Grim said he has just started distribution of his products. Many brewers are distressed about Pennsylvania laws that require brewers to seek legal recourse to get out of their contracts with wholesalers.

As the craft beer business continues to grow, one longstanding issue could thwart further expansion and possibly put small brewers out of business.

As the craft beer business continues to grow, one longstanding issue could thwart further expansion and possibly put small brewers out of business.

Buried in Pennsylvania’s liquor code is a rule that states when brewers and wholesalers enter into a contract, that relationship is considered to be permanent – which is not the case in most other states.

It’s a relationship that, if it goes sour, forces brewers to seek legal recourse to get out of the contract – which can be costly enough to put a brewer out of business, particularly if it’s a new enterprise. Wholesalers, on the other hand, can terminate the relationship without litigation or cause and without giving notice.

“Here in Pennsylvania, when brewers and wholesalers come together to make a contract, there’s no term,” said Bill Covaleski, brew master and president of Victory Brewing Co. in Downingtown and president of the Brewers of Pennsylvania, a trade association based in Harrisburg. “We believe it should be balanced if they recognize they are in the wrong relationship.”

For example, a wholesaler could be promoting and pushing sales of brands other than a particular brewer.

“Essentially, they [brewers] have no options,” Covaleski said. “In litigation, your only conduit to market is your wholesaler. We would like to see the relationship made more manageable.”

Pennsylvania brewers want a way to get out of their wholesaler contracts if they need to, without going through litigation.

Brewers have the right of self-distribution and can sell to a distributor, restaurant, hotel or eating establishment but it is considered to be more expensive than simply delivering to a wholesaler because of additional marketing, promotion and delivery costs.

Breweries want to brew beer, not become truck-delivery companies, said Ted Zeller of Norris, McLaughlin & Marcus in Allentown.

Once a brewer signs with a wholesaler, it surrenders the right to distribute its beer in the designated territory.

Brian Pedersen
Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 4108.

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