Startup craft brew distributor touts unprecedented model in taking on Big Beer

Posted Aug. 22, 2014, at 8:39 a.m.
Last modified Aug. 22, 2014, at 10:05 a.m.

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Jim O'Brien of Vacationland Distributors sits in the rear of his delivery van on Wednesday in Portland. O'Brien's startup beer distribution business is aimed squarely at small craft brewers.
Jim O'Brien of Vacationland Distributors sits in the rear of his delivery van on Wednesday in Portland. O'Brien's startup beer distribution business is aimed squarely at small craft brewers. Buy Photo
Vacationland Distrubutors' Jim O'Brien (left) is accompanied by account executive Shane Saunders as he makes a beer delivery in Portland on Wednesday. The startup company is aimed at craft brewers.
Vacationland Distrubutors' Jim O'Brien (left) is accompanied by account executive Shane Saunders as he makes a beer delivery in Portland on Wednesday. The startup company is aimed at craft brewers. Buy Photo
Vacationland Distrubutors' Jim O'Brien makes a beer delivery in Portland on Wednesday. The startup company is aimed at craft brewers.
Vacationland Distrubutors' Jim O'Brien makes a beer delivery in Portland on Wednesday. The startup company is aimed at craft brewers. Buy Photo

PORTLAND, Maine — Maine’s craft beer surge is changing more than tastes.

Maine distributors that have for years carried only the big names in beer are hoping to tap into the upswing in small breweries. And one Yarmouth-based startup is building a niche business on that market alone.

“All we’re trying to do is offer an alternative,” said Jim O’Brien, president of the Yarmouth-based Vacationland Distributors. “It’s not going to be the best fit for everyone.”

His company has so far signed deals to bring beer from two Massachusetts breweries — Blue Hills and Element Brewing — and the Rhode Island brewery Newport Storm to retail customers from Kennebunk to Orono.

The now one-van distributor claims to be the first in the country to offer fixed-length distribution contracts to brewers, pushing an issue that’s been lurking in the background of the growing craft beer industry: franchise law. And it could pop up in the next legislative session.

Maine is one of many states that allow breweries to distribute their own products, if they produce less than 50,000 gallons per year. That allowance has helped small breweries grow. But at a certain point, self-distribution can be impractical for a small brewer. Beyond 50,000 gallons, there’s a hard stop, where the law requires breweries to partner with distributors to truck their beer to bars and retailers.

Those partnerships are governed ultimately by a state’s franchise law, which leaders in the craft beer industry say can sometimes put small brewers at a disadvantage.

Paul Gatza, president of the national craft beer trade group the Brewers Association, said Maine’s franchise law makes it “very difficult” for a brewer to get out of a contract with a distributor, which requires showing good cause that the distributor failed to meet the terms of the contract.

Those franchise laws were created to protect small distributors that invest in building a local market from abuses by large brewers. Those in the craft industry say the laws are better suited to the beer industry of the late 1970s, when the country had fewer than 50 brewing companies. There’s closer to 4,500 breweries with active permits today.

“It’s a huge concern because a lot of the brewers who are out there now are entrepreneurs but they don’t have control of their destinies and they are locked into these relationships,” Gatza said.

Those smaller brewers could decide it’s not working out for a number of reasons: not enough attention to their brand, inability to change quickly with the needs of a young craft brewery, etc.

“A lot of state brewers guilds are interested in the ability for a company to leave a wholesaler for fair market value and I would think that that’s something that the Maine brewers guild would want to look at,” Gatza said.

As brewers in Maine continue to grow, more are approaching or hitting the production limit requiring distribution deals.

Eight Maine breweries produced more than 50,000 gallons last year, according to state figures. That’s out of a pool of about 59 breweries. Another eight brewers put out more than 20,000 gallons last year and the 35 breweries in operation for most of 2013 projected in a Maine Brewers’ Guild survey that they would triple their collective production in five years.

O’Brien’s company is seeking a niche, based mostly on small brewers seeking distribution deals with fixed terms that could end up being a long-term arrangement or a bridge to bigger things for a brewery entering the 50,000-and-up club.

“We’ve got small breweries that are not growing because they don’t want to exceed that 50,000-gallon cap,” O’Brien said.

While the same franchise law applies to agreements with his company, O’Brien said the company’s reputation depends on abiding by that contract.

“If we chose to take the agreement that we have and throw that out the window and hide behind the current state law… I’d have to take these people that I met and I’d have to basically throw all of that trust out the window,” O’Brien said.

Sean Sullivan, executive director of the Maine Brewers’ Guild, said it’s difficult to make a broad statement about how franchise law affects the industry in Maine, as each new brewery has different goals for just how big they want to get. Some don’t plan on going past 50,000 gallons.

Sullivan, hired as the Maine guild’s first full-time director last fall, declined to comment on whether franchise law will be a focus of lobbying from his organization this year.

“We’re happy new distributors are opening and we’re happy there are new businesses that are able to start and grow around craft beer,” Sullivan said.

Gatza, with the national Brewers’ Association, said he’s seen some interest in a similar distribution approach in other parts of the country, but “it’s hard to find specific examples.”

O’Brien said he and his partners in Vacationland couldn’t find any.

In competing for the attention of craft breweries, Vacationland is up against the state’s larger distributors, who are also turning more attention to that market.

Scott Solman, owner of Maine Distributors in Bangor, said he and the seven other members of the Maine Beer and Wine Distributors Association are all “actively pursuing craft beers.” The trend is changing his business, too.

“When you try to place Bud Light, nobody says, ‘tell me the attributes of this beer,’ — it’s not about flavor profile,” Solman said. “With craft beer, it’s like fine wine. You need a different selling approach.”

His company recently signed a deal with Geaghan Brothers Brewing and previously signed a deal with Black Bear Brewing in Orono.

Just like O’Brien’s business, out-of-state craft beers are also coming onto the scene for distributors in Maine. Solman’s company and others delivering Anheuser-Busch InBev beers across the state recently brought on the California brewery, 21st Amendment.

“It helps us fill a void in our portfolio,” said Solman, whose company distributes Budweiser and other Anheuser-Busch InBev beers to the state’s five northernmost counties. “The consumer is rapidly changing. They want a variety of different flavor profiles and they want a variety of products.”

Just like the changing beer industry, competition among distributors is relatively new. The L. Knife & Son Companies, a national distributor of Anheuser-Busch InBev beers, in 2012 started the distributor Craft Beer Guild of Maine, to focus on that segment of the industry.

In the last two decades, the general trend in the industry in Maine has been consolidation, according to Cheryl Timberlake, executive vice president of the Maine Beer and Wine Distributors Association. There were more than 24 distributors about 20 years ago, she said. There are about 18 now, according to state records.

Both Solman and O’Brien said they think as the beer market becomes more diverse, there’s room for distributors to follow suit.

“Our advantage depends on the brewer that you’re talking to,” O’Brien said. “I don’t think we’d have a competitive advantage for AB-InBev or even Sebago, Gritty’s or Geary’s — we don’t have the scale.”

He maintains the distribution options for craft beer are lacking.

“It’s high time for more craft beer and for someone who’s willing to distribute on more even terms,” O’Brien said.

Solman, too, acknowledges that with growth in the craft beer industry, “there’s definitely some pressure on franchise laws.”

And companies at both levels are trying to negotiate that shift.

“What we’re trying to do is figure out where the market is going to go, head up the road a couple miles and wait for it to come to us,” O’Brien said. “Maybe it works and maybe it doesn’t.”

 

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