Good Beer Hunting

SweetWater Wins Supreme Court Case in Alabama Over Distribution Rights

Alabama’s Supreme Court last week ruled in favor of SweetWater Brewing in a legal battle over whether the brewery committed wrongdoing in leaving a wholesale partner in the state. The scuffle started in 2012 when SweetWater informed its then-partner, AlaBev, of its plans to sign with Supreme Beverage. AlaBev subsequently sued SweetWater and Supreme for conspiracy and breach of contract, setting in motion a four-year conflict that made its way to the state’s highest court, which ultimately upheld an earlier decision in the Georgia brewery’s favor.

This particular fight is emblematic of the most pertinent, contentious, and rife conflict throughout the beer industry, and it revolves around one central question: who has the right to sell beer?
Here’s how it played out in Alabama, per “a beer producer can only have one wholesaler for a given territory, usually counties. The law requires a producer and a wholesaler have a territorial agreement in writing and on file with the state Alcohol Beverage Control Board.” The story also adds that “brewers and wholesalers can’t decide exit conditions for their own contracts.”

Despite that, neither side, nor the alcohol control board, could produce that territorial agreement in writing for the court. That led a circuit court judge to write in 2015 that, “without a valid territorial agreement, [AlaBev] has no basis for asserting any illegality in this action.” The Supreme Court upheld that ruling on appeal.
Although it took four years, in the scheme of things, this is a small fight for SweetWater, one of the nation’s largest craft breweries. So the paramount takeaway here is this would’ve been a much harder fight for a smaller brewery without the same resources SweetWater has at its disposal.
Simply put, this brewery could afford to not only pump some money into a good fight, but could also withstand a bit of a volume loss if need be (the brewery had been slowly reducing shipments to AlaBev during the transition). Had a smaller brewery—for instance, every brewery in Alabama by a significant margin—sought to change wholesalers this way, it could’ve been catastrophic for their business. Absent a similarly large pre-existing distribution footprint and litigious force, a small brewery would have ultimately been left with one route from which to escape an under-performing wholesaler, and that would be to cut distribution altogether. For a small business living off those sales, that’s just not possible. This isn’t just happening in the South, either, but in a number of states all over the country.
To be fair, distributors argue these types of regulations are necessary to prevent breweries from fleeing without just cause, thereby putting a catastrophic dent in their own business. In Massachusetts, the fear was that Boston Beer, maker of Sam Adams, might decide to skip out in the night, taking immense volume with them. And indeed, the three-tier system was devised in the first place at a time when distributors needed protection from a small handful of large manufacturers that controlled all the volume.

But the beer landscape is very obviously much different today, and of the 4,000 plus craft breweries operating, most are very small. This SweetWater case was essentially won on a technicality over some misplaced paper. But it’s beyond time a broader conversation about the rules governing the game took place.
—Dave Eisenberg
Supreme Court rules on SweetWater beer dispute []