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McClatchy-Tribune  08/22/2014 1:47 PM ET
Startup craft brew distributor touts unprecedented model in taking on Big Beer [Bangor Daily News, Maine :: ]

Aug. 22--PORTLAND, Maine -- Maine's craft beer surge is changing more than tastes.

Maine distributors that have for years carried only the big names in beer are hoping to tap into the upswing in small breweries. And one Yarmouth-based startup is building a niche business on that market alone.

"All we're trying to do is offer an alternative," said Jim O'Brien, president of the Yarmouth-based Vacationland Distributors. "It's not going to be the best fit for everyone."

His company has so far signed deals to bring beer from two Massachusetts breweries -- Blue Hills and Element Brewing -- and the Rhode Island brewery Newport Storm to retail customers from Kennebunk to Orono.

The now one-van distributor claims to be the first in the country to offer fixed-length distribution contracts to brewers, pushing an issue that's been lurking in the background of the growing craft beer industry: franchise law. And it could pop up in the next legislative session.

Maine is one of many states that allow breweries to distribute their own products, if they produce less than 50,000 gallons per year. That allowance has helped small breweries grow. But at a certain point, self-distribution can be impractical for a small brewer. Beyond 50,000 gallons, there's a hard stop, where the law requires breweries to partner with distributors to truck their beer to bars and retailers.

Those partnerships are governed ultimately by a state's franchise law, which leaders in the craft beer industry say can sometimes put small brewers at a disadvantage.

Paul Gatza, president of the national craft beer trade group the Brewers Association, said Maine's franchise law makes it "very difficult" for a brewer to get out of a contract with a distributor, which requires showing good cause that the distributor failed to meet the terms of the contract.

Those franchise laws were created to protect small distributors that invest in building a local market from abuses by large brewers. Those in the craft industry say the laws are better suited to the beer industry of the late 1970s, when the country had fewer than 50 brewing companies. There's closer to 4,500 breweries with active permits today.

"It's a huge concern because a lot of the brewers who are out there now are entrepreneurs but they don't have control of their destinies and they are locked into these relationships," Gatza said.

Those smaller brewers could decide it's not working out for a number of reasons: not enough attention to their brand, inability to change quickly with the needs of a young craft brewery, etc.

"A lot of state brewers guilds are interested in the ability for a company to leave a wholesaler for fair market value and I would think that that's something that the Maine brewers guild would want to look at," Gatza said.

As brewers in Maine continue to grow, more are approaching or hitting the production limit requiring distribution deals.

Eight Maine breweries produced more than 50,000 gallons last year, according to state figures. That's out of a pool of about 59 breweries. Another eight brewers put out more than 20,000 gallons last year and the 35 breweries in operation for most of 2013 projected in a Maine Brewers' Guild survey that they would triple their collective production in five years.

O'Brien's company is seeking a niche, based mostly on small brewers seeking distribution deals with fixed terms that could end up being a long-term arrangement or a bridge to bigger things for a brewery entering the 50,000-and-up club.

"We've got small breweries that are not growing because they don't want to exceed that 50,000-gallon cap," O'Brien said.

While the same franchise law applies to agreements with his company, O'Brien said the company's reputation depends on abiding by that contract.

"If we chose to take the agreement that we have and throw that out the window and hide behind the current state law... I'd have to take these people that I met and I'd have to basically throw all of that trust out the window," O'Brien said.

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