Pennsylvania May Lead the Nation in Liberating Beer (From Prohibition Era “Franchise Laws”)

Pennsylvania May Lead the Nation in Liberating Beer (From Prohibition Era “Franchise Laws”)

Reform to Outdated Three-Tier Beer Distribution System Will Help Small Businesses, Increase Consumer Choice
December 04, 2013

WASHINGTON, Dec. 4 – Pennsylvania could lead the nation in reforming anti-competitive, Prohibition-era restrictions on beer distribution, and the benefits would flow to brewers large and small as well as small businesses and consumers, says CEI consumer policy expert Michelle Minton in a new report, Prohibition Hangover Cure for Keystone State Brewers.

The legislature is considering a plan by State Rep. Mike Tobash (R-Pottsville) to end a longstanding system that locks brewers into contracts for life with their distributors. If approved, brewers in Pennsylvania finally would have a way to change from one distributor to another.

In any other industry it would seem crazy for laws to prevent the producer of a good from being able to switch between the companies that distribute it. Yet, most states have some form of franchise protection law that hinders the ability for brewers to take their business to a new distributor. The laws were enacted after Prohibition’s repeal as a way to protect wholesalers who, at the time, consisted of a large number of small local operations, from the handful of big breweries that then supplied the entire nation with beer. These behemoth brewers could threaten to walk away from contracts—which would put many wholesalers out of business, since most only carried products from one brewery—to bully wholesalers into accepting unfair contractual terms. However, times have changed. These days, the roles are largely reversed, yet archaic franchise protection laws remain.

“The beer industry has changed since the 1930s, but so many of those antiquated laws remain intact,” Minton says. “These days there are thousands of breweries – most of them small local businesses. It’s not just that the laws are old – it’s that they hamper brewers’ ability to grow their business and make it harder and more expensive for consumers to buy their favorite brew. It’s about time someone updated them.”

The ideal policy would be to eliminate all franchise protection laws – all government interference in contractual relationships between private businesses, Tobash’s bill makes great strides toward improving the balance of power between brewers and their wholesalers and puts Pennsylvania on the cutting edge of alcohol and regulatory reform. If passed, the bill will spur expansion in the craft beer market and encourage new small wholesalers to enter the market. Hopefully, other states considering similar reforms will observe the benefits and follow the Keystone State’s example.  

> View the CEI WebMemo

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