EPISODE # 6 FRANCHISE LAWS AND BEING CONNED IN GEORGIA

Episode #6 describes my initial encounter with the bureaucracy in the wine business. It was when I went to work at William Hill Winery back in 1984 and was introduced to the world of Franchise Laws. 

Franchise Laws come in many shapes and sizes in the country, but essentially, what they are written to do is protect the alcoholic wholesaler distributors in this country. In the case I outline, it is in the state of Georgia, which has far and away the most protective and egregious law in the land. Literally, if a wine producer signs on with a Georgia distributor, that distributor now owns the rights to the brand for life. The only recourse a producer has is to withdraw from the market for three years or have their brand transferred to another distributor in the market, which may or may not be any better. Crazy stuff.

I guess because Georgia was initially established as a Penal Colony, they like the thought of having the wine producer in leg irons, where they are the Judge and Jury. You are not going to believe what you are going to hear in this Episode.

Take a listen.

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Transcript

EPISODE # 6 FRANCHISE LAWS & BEING CONNED IN GEORGIA

 Fred Reno  

Fred, well, hi folks. Welcome back to the Fine Wine Confidential Book Podcast with me, Fred Reno, your host. In my latest episode #6, I share with you the first time I encountered the bureaucracy of the wine business in the form of what is called Franchise Law. Franchise Laws come in all shapes and forms and are enacted to protect the alcoholic distributor in many states in this country. At the time of this podcast, there are currently well over 20 states that have some form of Franchise Law. 

I would first encounter this wholesaler protection racket when I went to work for William Hill Winery in 1984. It was after making numerous market trips to establish sales in the state of Georgia and achieving little success that I explored options. As it turns out, Georgia has the most egregious Franchise Laws in the country. You're not going to believe what you're about to hear.  Take a listen. 

 When I started working for William Hill Winery in 1984, I was introduced to Franchise Laws for the first time. These laws govern the relationship between wholesale distributors in this country and producers in various states. In effect, the law gives the distributor control over your brand. In a case like the state of Georgia, for example, they have you figuratively in leg irons. I guess it's because Georgia was initially settled as a penal colony that they still harbor the notion of you, the producer, being in jail, where they are the judge and jury. 

 Additionally, I discovered that Georgia was a cash state. There are many states with cash-on-delivery laws that are in effect. With this rule the trade account has to pay cash on delivery, so the wholesalers will mark up the wines significantly, 50, 75% and as soon as the sales person walks in the door, he's giving 10, 15% if he gets an order, it may go down to 20 or 30% so it's really kind of crazy what goes on in the market, and I was yet to understand the pricing games the wholesale distributors played. What I would later learn in the area completely floored me. The remarkable aspect of this was the outright deception and tricks being played by the distributor to entice the accounts into believing they were getting a deal. 

 During the next year and a half that I was responsible for the Georgia market, I never spent more money and time to achieve so little. They had a way of dealing with folks from out of town in a very southern, slick but down-home manner. They would openly welcome you, make you feel wanted and comfortable, but would always find some way to avoid being held accountable for the lack of positive results or the mishaps that would inevitably occur during your visit to the market. My frustration with the limited progress in Georgia began to get the best of me, and I started researching the options we had for alternative representation. That's when I got a cold slap in the face by the unique nature of the alcoholic beverage laws and how they applied so differently in each market. Georgia is a textbook case of how the locals protect their own. I uncovered the brutal fact that once you, as a wine producer, assign your brand to a wholesale distributor in Georgia, they own the rights to your brand for life. You heard me correctly. For the life of the brand, you have virtually no recourse if you want to change distributors in the state, other than pulling out of the state for three years and then re-entering. In fact, the distributors in Georgia trade brands from one distributor to another, much as I did with baseball cards when I was young. It was unbelievable the power the distributors had over the state legislators and how they managed to have a law passed, labeled a franchise, to protect their position. More like a monopoly!

 Franchise Laws have increased in the country, with more than half the states now having some form of franchise protection for their alcoholic beverage distributors. While they're not at all as severe as Georgia’s, they are still a catch-22. By the way, beer distributors enjoy far more protection than any other sector of the alcoholic beverage business. 

 Being young, aggressive, and naive, I contacted an attorney whom one of the local retail merchants recommended.  He had no problem taking our check for $1,500 as a retainer. He told me he would look into our case and advise us about possible options.  Many weeks and several invoices totaling $5,000, which we paid in full. He then informed me that there was little they could do short of withdrawing from the market for a full three years. When I stated there must be some way to challenge this law, he offered the following comment. “Well, now these laws were indeed written to protect the hometown boys, weren't they?”. When I pleaded further about the lack of fairness, he blew me away with his following statement: “I’m afraid there's nothing you can do, as I know the law very well. You see, I was the former commissioner at the Georgia ABC and helped write the language of that law”. Talk about being conned. Man, did I feel foolish once I hung up the phone. I vowed someday, someday, I would change these laws. I thought, never again. 

 In the next episode, we'll review what I attempted to do to change them. Thanks for listening