Budweiser Pivot More Evidence Of Craft Beer Surge

To improve Budweiser’s appeal to a new younger crowd Anheuser-Busch InBev has decided to drop the famous Clydesdales from their future marketing campaigns. In “Bud Crowded Out by Craft Beer Craze” the Wall Street Journal reports on a growing trend that we have covered on this blog that points to a surge in popularity for smaller, local based, and smaller batch craft beers. This trend is starting to siphon away the popularity of larger brewers. This niche has now grown to the point that the large brewers are changing their game plan.

In 2013 craft beer represented 8% of the market compared with 2.6% in 1998. Massachusetts has seen success with craft beer, including craft beer’s first billionaire, but it may surprise you that Massachusetts is not among the leaders in the industry. Massachusetts’ 57 craft breweries ranks only 16th in the country, and it’s per capita ranking is only 24th. But those numbers are surging, like in all states.

Others Call For Increased Investigation Into Pay-to-Play

In a follow up to the first article regarding the ABCC investigating pay-to-play, Dan Adams of the Boston Globe reports that legislators, including Governor-elect Charle Baker, believe the state should “beef up its oversight of the liquor industry” if the ABCC finds the industry is engaging in illegal trade practices.

Currently, the ABCC’s enforcement budget is less than half of what it was seven years ago.

This issue is a great example of the difference between the alcoholic beverage industry and other food or beverage industries, particularly in Massachusetts. Because of the regulations on alcoholic beverages, some that date back to Prohibition, small local breweries face greater government restrictions to get to end users as compared with other products that may be stocked by bars, restaurants, or retailers. Local and small brewers have fewer options and a higher barrier to entry into the marketplace.

There are a few different Massachusetts regulations that prohibit this practice known as pay-to-play. A regulation against “inducements” states that no licensee “shall give or permit to be given money or any other thing of substantial value in any effort to induce any person to persuade or influence any other person to purchase…a particular brand of…beverage.” This is used to prevent one business in the industry from offering anything outside of the product itself to persuade another to commit to their product.

Massachusetts regulations also prohibit selling or offering to sell any beverage at  price less than invoiced cost. A situation which may occur if a retailer or bar is receiving a discount on products under a pay-to-play scenario.

Suppliers are also prohibited from offering inducements through price discrimination as outlawed by M.G.L. c. 138 s. 25A.

Craft breweries in Massachusetts are still soaring. In a recent article by James Fallows regarding Jim Koch, of Sam Adams beer, some startling facts are used to show the growth of the industry:

  • In 1971 there were less than 150 breweries, of any size, in the country.
  • That number went down by almost 50 breweries by 1984.
  • Now that number is over 3,000 and there are new breweries constantly being born across the country.
In the article Koch says the spread of craft beer is good for America, and Fallows agrees noting a link he has seen between a city’s craft beer scene and a young and entrepreneurial spirit. 

ABCC Investigates Pay-to-Play

According to the Boston Globe the Alcoholic Beverages Control Commission (“ABCC”) has issued subpoenas to breweries, distributors, and retailers as part of an investigation  into whether breweries or distributors have made payments to retailers for shelf and tap space, a practice known as pay-to-play. This practice is illegal under both state and federal law

Examples the Globe gives for what may constitute pay-to-play includes salesman offering a retailer a cut of the commission or marketing budget, a brewer offering to donate additional beer to a restaurant, a bar demanding a rebate for stocking company’s beer, or a distributor giving free equipment.

The Globe article mentions that the ABCC has not sanctioned a a business for pay-to-play in at least 18 years. This coupled with the fact that the number of investigators in the agency is in decline and the number of craft breweries in the state is growing creates an environment where there is more competition for shelf space and less of an opportunity for oversight.


Summary of ABCC Actions – November 2014

The Massachusetts Alcoholic Beverages Control Commission (“ABCC” or “Commission”) recently published five new decisions:

First, the ABCC ruled on an appeal from a Chicopee decision to deny a §15 all alcohol license transfer. In the appeal the appellant, Mormax Corporation d/b/a BJ’s Wholesalers, argued that the town’s decision to deny a license transferred from Winn Liquors, Inc. was arbitrary and capricious.

After a Local Board hearing on May 17, 2012, Chicopee cited two reasons for denying the transfer application: 1) the lack of public need or interest for another liquor license in the immediate area; and 2) an overflow crowd of individuals expressing opposition to the transfer at the public hearing.

The Commission found as the appellant argued that the decision from the local board was inadequate as it lacked legally sufficient ground by not setting forth anything other than insignificant general findings. The Commission noted that at least six residents who spoke in opposition were owners of competing package stores and two others were current or past employees of competing package stores. In doing so the Commission  restated in the decision that competition should not be considered when determining whether a license should be granted or transferred.

Further, the appellant argued, and the Commission agreed, that the Local Board failed to consider the “preferred zone” where the new licensee would be located which is separate from residential areas, close to where the original licensee operated, and in a commercial district with a portion of the residents coming from outside of the community.

The matter was remanded back to the local board with the recommendation that the license transfer be granted.

The Commission also held a hearing regarding a violation of 204 CMR 2.05 at Pier 37 Boathouse in Falmouth. After an investigation it was found that the licensee had failed to complete the fire and building safety checklist as prescribed by the Fire Marshal prior to each opening. The licensee stipulated to the violation and the Commission suspended the license for 16 days of which nine days were held in abeyance for a period of two years.

In April, the Commission held a hearing regarding licensee Ancient Marinere in Foxborough. Investigators allegedly discovered fruit flies in multiple liquor bottles during an investigation on August 23, 2013. Citing a violation of 204 CMR 2.05(2) to wit: M.G.L. c. 94 § 186, the ABCC suspended the license for two days with the full suspension in abeyance for a period of two years.

The Commission heard an appeal from a Grafton decision to revoke a §15 wine and malt beverage license from Village Dairy after a sting operation allegedly caught the licensee selling alcoholic beverages to a person under 21 in violation of M.G.L. c. 138 § 34. The Commission found that the penalty by the board was unreasonable as the Commission has consistently held that the policy behind a sting operation should be the education of licensees in the risks associated with selling alcoholic beverages without requesting proof age.

The Commission remanded to the Local Board with the recommendation the license be suspended for 20 days and that the licensee submit an application for a change of manager.

Finally, the Commission held a hearing regarding an alleged violation at East Side Athletic Assn. of Malden. There investigators found three devices in the club characterized as gambling devices. After finding there was a violation of 204 CMR 2.05(i) the Commission suspended the license for 20 days with 5 days held in abeyance. The devices were removed and the licensee was ordered not to possess any automatic amusement devices or video poker machines.