Franchise laws – like Ohio’s – restrict beer business, federal report says

(COLUMBUS BUSINESS FIRST) — The Biden Administration wants to make making and selling beer, wine, and spirits easier for smaller operators.

Among its targets: state-level franchise laws, which beermakers say can be a hindrance to their ability to do business, mainly by restricting the ability to change distributors if they’re unhappy with their partner. Ohio has one of those laws, as Columbus Business First detailed in a cover story late last year.

Laws like Ohio’s are among several items singled out by the US Treasury Department in a report on competitive issues in the alcohol industry. The report and potential actions from it are a result of a July 2021 executive order aimed at promoting competition and innovation in a number of industries.

“American consumers, small business owners, entrepreneurs and workers should not have to suffer under the thumb of a highly concentrated industry,” Jonathan Kanter, assistant attorney general with the Department of Justice’s Antitrust Division, said in a release. “Enforcement and regulatory authorities should have the courage to learn and the fortitude necessary to enforce the law and protect competition.”

The report identifies multiple competitive issues in the beer, wine, and spirits worlds and ways some of those issues could be improved or resolved that could level the playing field between small producers and large companies.

The 64-page report is an informative trip through alcohol law history post-Prohibition. While the industry has changed and grown, the report suggests, regulations have not always kept up.

Take those franchise laws, which yoke breweries to a distributor with little ability to break their contract.

“In a competitive market, distributors would vie with each other to secure and maintain producers’ business, competing on price, the range of services they offer and the quality and consistency of their services,” the report says. “If a distributor’s bid or performance was unsatisfactory, a producer could choose a competing offer. But state franchise laws often restrict this competition.”

The report also notes that while the distribution industry continues to consolidate, franchise laws discourage the launch of new distributors. That’s also a big issue for wineries, according to the report.

The report highlights a handful of other suggestions for the industry, such as:

  • Improving enforcement on “pay to play” and other trade practice violations.
  • Taking a closer look at how acquisition and consolidation impact the entire industry.
  • Opening up direct shipping sales channels. This is fairly common with wine. Ohio actually is one of only 11 states that permit it for beer. Direct shipping of spirits is still widely restricted, including in Ohio.
  • Implementing more labeling rules, including nutritional content, while also working to streamline the label approval process for manufacturers.

Still, the report’s recommendations are just that: recommendations. There’s no guarantee anything will come from them.

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