02-04-2010 - Vol. 12 / No. 12Calif AG Drops Huge Hammer on Supplier Contracts This is a doozy and huge distrib victory in biggest beer mkt. Concerned that numerous supplier contracts raise “serious threats” to distrib independence, Calif AG released “industry advisory” yesterday that details provisions he sez violate Calif law and can’t be enforced. These provisions, he wrote, “represent an improper attempt by manufacturers to control licensed wholesalers” in violation of Calif laws/regulations. Suppliers ain’t gonna like this list, to put it mildly. Among common provisions he considers “unenforceable” are suppliers having “control” or “approval” over: 1) distribs’ personnel decisions, including hiring, compensation, allocation of time, termination; 2) distrib biz plan; 3) acquisitions or divestitures and/or change of control, including “right of first refusal to purchase or right to appoint a designee purchaser.” Also verboten: 1) suppliers’ “right to impose, without mutual agreement” any “material or substantive change” to distrib standards, or amendments to agreements; 2) any supplier right to prohibit distrib from carrying competing brands or “otherwise exercising control over a wholesaler’s decision regarding any brands of another” supplier. WOW!!!
This covers most if not all of distribs’ major issues with MillerCoors and other contracts. Indeed, “it’s better than a franchise law,” quipped one Calif distrib. Calif AG didn’t mince words. He will consider “any attempt to enforce provisions” cited above “to be an unlawful, prohibited exercise of control by a manufacturer over an independently licensed wholesaler.” Then too, any conduct “intended to induce” distrib to enter contract with these provisions also “unlawful,” he added. AG “will review” any of these actions by suppliers and “take whatever steps are appropriate” under Calif law. Parting shot: AG office “has a particular concern that the coercive effect” of distrib agreements which give suppliers “high level of control” over distribs, “could ultimately result in a detrimental impact upon competition in this industry, particularly as to small and craft breweries, and we intend to monitor that issue closely.”
