Prior to America’s Dark Age (the Prohibition), it was common practice for bars or pubs to be tied to specified breweries through contractual agreements requiring them to purchase some or all of their beer from that brewery. Bars with these contracts were referred to as “tied” houses. Establishments with no such contractual obligations were referred to as “Free” houses and were able to purchase their beverages from wherever they pleased.
Overtime some issues with tied houses became apparent. It was believed that they used questionable marketing practices that encouraged customers to drink to excess. Tied houses often led to regional monopolies and as a result, so-called “tied house” regulations were enacted. In those days, breweries serviced a smaller geographic area than they do today and they had much more control over the beer market in their region.
“Tied house” regulations required a three-tier distribution system made up of the manufacturer, the wholesaler, and the retailer. By restricting ownership interests between the tiers, the regulations helped to maintain the independence of each tier.
These days nearly every state has some form of tied house law, some more restrictive than others. The question of the relevance of tied house regulation to today’s market condition the subject of controversy; the market conditions of pre-prohibitions days simply do not exist anymore. Beer is now sold at grocery stores and gas stations, not only bars and pubs. Large corporations, who are not easily influenced by the whims of individual breweries, own many of the grocery stores. Breweries are able to reach a growing market and there are more breweries opening their doors every day, increasing competition far beyond pre-Prohibition times.
What do tied house regulations mean for the aspiring brewery operator? It means it is not as simple as brewing up your favorite stout or sour and drafting up a retailer agreement. Virginia’s tied house regulations permit the Alcoholic Beverage Control Board to promulgate ruled intended to “maintain the reasonable separation of retailer interests from those of the manufacturers, bottlers, brokers, importers and wholesalers”; to “prevent undue competitive domination of any person by any other person engaged in the manufacture, distribution and sale at retail or wholesale of alcoholic beverages in the Commonwealth”; and to “promote reasonable accommodation of arm’s length business transactions.“
The aspiring master brewer will need to engage a wholesaler in a franchise agreement which protects the interests of each side while complying with Virginia’s complex alcoholic beverage and franchise laws. These franchise laws are designed to protect the wholesaler, not the brewer, and familiarity with these laws is paramount to a successful brewery.
If turning your brewing hobby into a career is a dream of yours, the experienced and professional attorneys at Winslow & McCurry, PLLC can help make it a reality! Call us at (804) 423.1382 to set up an initial consultation.
