Sonoma County brewery in major legal battle with wholesaler amid competition concerns in $9 billion California beer market
A major battle in California’s more than $9 billion beer market is playing out in a San Francisco court with a Sonoma County brewery at center stage.
On one side is Reyes Holdings, the largest beer wholesaler in the country and the eighth-largest private company in the United States with $35 billion in revenue, according to Forbes.
The family-owned, Illinois-based company has gone on a rapid buying spree since 2018. In California, 17 different deals involving Reyes and its subsidiaries have resulted in Reyes having a 55% market share of all beer sold in the state, according to one count. The company’s astounding growth and its implications has been topic No. 1 among beer industry insiders in the state, though it is largely unknown to consumers.
On the other side is Seismic Brewing of Santa Rosa, which is being sued for allegedly breaching a contract that the brewery entered with a distributor that Reyes later bought. Seismic, which is owned by Christopher Jackson, contends that it exited its contract properly after Reyes sought to impose onerous restrictions not covered by the original deal.
Jackson, a second-generation member of the family that runs Jackson Family Wines, has set out on his own to be a pioneer in the craft beer market since founding the local brewery in 2015. He contends Reyes and its subsidiaries are engaging in anti-competitive practices that have unfairly forced out family distributors, placed onerous terms on small craft brewers and limited availability for consumers in the most populous regions in the state.
The case at its core is a dispute between Reyes and Seismic over termination of a wholesaling contract to sell the brewery’s beer in stores and restaurants in some Northern California markets. But it also has shined a spotlight on massive changes taking place in beer distribution in the state and nationally, changes that some say will hamper the ability for beer lovers in the Golden State to buy their favorite craft beer locally.
“Distributors are the gatekeepers of the beer business,” said Kevin Luckey, executive director of the California Family Beer Distributors, a trade group that has tangled with Reyes. “Beer is as much about access. You got to get beer to a grocery store. You got to get beer to a bar.”
The legal case has taken on heightened importance, coming as the Biden administration is examining anti-competitive practices across the entire economy, including in the wine, beer and spirits industry. Commentators have cited Reyes specifically for criticism in the federal probe, arguing for the need to place more constraints on consolidating beer wholesalers to promote greater competition in the $94 billion U.S. market.
On the state level, there is even more significant movement with Seismic saying in a filing Tuesday that state Attorney General Rob Bonta is conducting his own antitrust investigation of the industry. In its filing, Seismic said the state has subpoenaed the brewery regarding an investigation into “anti-competitive activity in relation to beer distribution and pricing in California.”
Bonta’s office said in a statement it could not comment on the probe, or even acknowledge whether it exists because its subpoenas are confidential.
The issue has stayed under the radar so far, given the complex aftermath of Prohibition, when each state was allowed to regulate alcohol under a three-tier system to avoid monopolization. Producers sell their inventory to wholesalers, who in turn market and sell beer, wine and spirits to retailers.
California carves out some exceptions, allowing breweries to sell on site as well as self-distribute or operate their own distribution arms. Stone Brewing Co. of Escondido, for example, has its own wholesaling arm that serves southern California.
The dispute between Reyes and Seismic was sparked when a Reyes subsidiary named Harbor Distributing in 2019 bought DBI Beverage, which operates key distribution companies in areas such as Sacramento, San Francisco and San Jose. DBI formerly served Seismic under wholesaling contracts.
Jackson claims it eventually backed out of those contracts after Reyes would not continue the same terms as originally agreed to by DBI and wanted to impose more onerous policies that would make it “virtually impossible” to switch distributors, according to a Seismic legal filing. In return, DBI — now controlled by Reyes — last year sued Seismic alleging breach of contract.