The beverage purchase obligation is the heart and soul of any brewery contract. It is the central medium of exchange: the hospitality operator gives up part of his commercial freedom, and in exchange he receives the necessary financial or material support from the brewery or liquor dealer.
This obligation may seem like a simple business arrangement at first glance, but it is legally and commercially one of the most intrusive clauses you can sign as a business owner. It is often here that the ‘strangulation mechanism’ of a brewery contract is hidden, through a combination of three purchase colume (the quota) and the price you pay.
Vague wording, an overly optimistic assessment of your sales, or a lack of understanding of the legal qualification of this duty can have disastrous consequences. Below, we dissect the beverage purchase obligation in Belgium so you know exactly what you are signing up for.
The essential ingredient: the ‘cause’ of the contract
In legal terms, the beverage purchase obligation is an essential component of the contract. This means that without this clause, the contract would not exist.
For the brewer, the security of sale is the fundamental reason (the legal ‘cause’) for making the commitment. The loan it makes, the ‘fonds perdu’ it pays, or the premises it leases, are all services that are provided solely because the operator undertakes to purchase beverages.
If the beverage purchase obligation were to be declared null and void for any reason (e.g., because it violates competition law), this could collapse the entire agreement. The brewery could then argue that its own performance (e.g., the loan) was without cause and can recover it.
This obligation usually consists of two components that may occur together or separately:
- An exclusive purchase obligation: A ‘negative’ commitment not to buy beverages from a competitor.
- A minimum purchase requirement: A ‘positive’ commitment to buy a minimum volume.
Pillar 1: the exclusive purchase obligation (“exclusivity”)
The most far-reaching form of the purchase obligation is exclusivity. This clause deprives the hospitality operator of the fundamental freedom to choose his own suppliers. The devil is in the details of the wording here.
The scope: what exactly is covered by exclusivity?
A common mistake is to assume that ‘exclusivity’ refers only to the brewery's lager. In practice, breweries try to formulate this obligation as broadly as possible. You should analyze the product list in the contract extremely carefully:
- Lager beers: This is the logical basis.
- Special beers: Does this include all specialty beers? Also the beers that the brewery only distributes (and does not brew itself)? What about third-party beers, such as Trappists, that are not in the brewer's portfolio? Are you allowed to purchase those freely?
- Soft drinks, waters and fruit juices: This is a critical concern. Many breweries are also distributors of major soft drink brands (e.g., Coca-Cola or PepsiCo). The contract may require you to purchase all soft drinks exclusively as well, leaving you tied to one brand.
- Wines and spirits: Some contracts extend to all beverages, including wines and spirits. This limits your ability to create a unique wine list or capitalize on trends with spirits.
- Other products: In rare cases, exclusivity may even involve coffee or other commodities.
The “totality clause” versus the “category clause”
Legally, there is a distinction:
- The totality clause: Require you to purchase all beverages (or a very wide range) exclusively from the contracting party. This is most commercially stifling.
- The category clause: Limit exclusivity to specific, delineated categories (e.g. only lagers and soft drinks). This gives you as an operator much more commercial breathing space to look for the best supplier with the best margins for your wines, specialty beers or coffee yourself.
The ‘obligation to supplement’ and freedom of enterprise
What if a product not is in the brewery's lineup? Suppose a new, trendy craft beer becomes immensely popular, but your brewer does not supply it. Can you then purchase it yourself from someone else?
Many contracts stipulate otherwise. The exclusivity is then worded so that you may only sell the products offered by the brewery. This is a very severe restriction on your freedom of enterprise. You can no longer respond to market demand, which directly costs you revenue. These clauses are legally questionable and, depending on the context, may violate competition law or the rules on unlawful B2B clauses.
Pillar 2: the minimum quantity to be purchased (“the quota”)
In addition to or instead of exclusivity, brewery contracts almost always include an obligation to purchase a minimum number of hectoliters (hl) per year.
The justification: the calculated ‘return on investment’
For the brewery, this is a logical and calculated requirement. When it makes an investment (e.g., a €50,000 loan, a €20,000 ‘fonds perdu’ or remodeling a property), it makes a calculation.
Example: “I am investing €50,000 over a 10-year contract. To recoup this, I need to achieve a profit margin that justifies this investment. I calculate that to do this I need sales of at least 80 hl per year at the agreed margin.”
So the minimum volume is not an arbitrary number, but the commercial lower limit that makes the brewery's investment profitable.
Crucial legal difference: result vs. effort obligation
This is the main legal focus of the quota. The obligation to reach a minimum volume is almost always formulated as an obligation of result.
- An effort commitment would mean that you only need to promise to do your best to achieve the volume (e.g., “the operator will make every effort to...”). If you don't make it, the brewery has to prove that you didn't try hard enough (e.g., by not opening enough).
- An result commitment means that you promises to achieve the result. The mere fact of not meeting the quota (no matter how hard you tried) is enough to establish a contractual default.
Obviously, brewery contracts use the second form. You are contractually liable as soon as the counter at December 31 stands at 79 hl instead of the agreed upon 80 hl.
What if you fail to meet the quota? Sanctions and defenses
If you fail to meet the minimum volume, the contract usually provides for severe penalties:
- An liquidated damages clause (a fine) per hectoliter not purchased. This can add up quickly.
- The (partial) immediate claimability of the loan provided.
- In severe or repeated cases: The judicial dissolution of the contract at the expense of the operator, which may mean that you must also vacate the leased premises.
The only way to escape these sanctions is to invoke force majeure (‘circumstances beyond one's control’). This is an unforeseeable and unavoidable event that makes the performance of the commitment impossible.
- COVID-19: The mandatory closure of the hospitality industry during the pandemic was a textbook example of force majeure. This led to a specific addendum to the Code of Conduct to neutralize these periods.
- Roadworks: Long-term road works on your doorstep are not force majeure. Case law considers this a normal, foreseeable commercial risk.
- Hardship: Since the new Civil Code (Book 5) came into force, there is also the doctrine of hardship (change of circumstances). If unforeseen circumstances (other than force majeure) make performance excessively difficult , you can ask the court to renegotiate or modify the contract. However, this is a new and difficult legal route.
The supplier: contract with the brewery or liquor dealer?
An often overlooked aspect is who exactly are you contracting with. This can be the producer/brewery itself (e.g. AB InBev, Alken-Maes) or a liquor dealer (wholesaler) approved by them.
This has practical implications. A liquor retailer often has a broader portfolio and distributes brands from different breweries. An exclusivity contract with a liquor dealer can therefore be more commercially flexible, as you get access to a wider range of products. However, the financial strength (for loans) is often greater with the breweries themselves.
Price: the commercial capstone of the purchase obligation
The purchase obligation is inseparable from the price. This is where the commercial problem lies the most.
Your purchase price: the one-sided pricing mechanism
Because you are exclusively bound, you lose any bargaining power. You cannot request quotes from competitors. The brewery imposes its prices, called ‘hospitalty‘ or ‘brewery prices.’.
Virtually every contract contains a price change clause, which gives the brewery the right to unilaterally adjust its rates. However, since the new rules on unfair B2B clauses, such a clause has been restricted. A clause that gives the brewery the right to change the price “at any time and without valid reason” is on the ‘gray list’ and is presumed to be unlawful. There must be an objective justification (e.g., increased raw material prices).
Your selling price: the strict ban on resale price maintenance
May the brewery also require you to sell a lager at a certain minimum price to your customers? The answer is categorically no.
The imposition of fixed or minimum selling prices (so-called ‘vertical price fixing’) is a serious violation of competition law and is strictly prohibited. This is considered a ‘hardcore’ restriction of competition. The brewery may only suggest recommended sales prices. As a business owner, you must remain free to determine your own commercial strategy and pricing at all times.
The Code of Conduct and the Reconciliation Commission.
In the Belgian sector, there is a “Code of conduct for good relations between brewers, liquor retailers and hospitality industry“. This code contains agreements on pre-contractual information and contract performance.
More importantly, attached to this code is a Reconciliation Committee Beverage Purchasing Contracts. This is an accesible committee to which you can submit a dispute with your brewery.
- It is not a court: the procedure is informal and cheaper.
- The goal is reconciliation: the committee tries to mediate the parties.
- The advice is non-binding: if you do not agree, you can still go to court.
This committee is an excellent means of addressing disputes over, for example, failure to meet volumes in a quick and constructive manner, without having to immediately go through expensive litigation.
Conclusion: a commitment with far-reaching consequences
The beverage tie is a complex web of legal and commercial factors. The scope of the exclusivity determines your commercial freedom, while the minimum volume, as a result commitment, constitutes a permanent financial risk. The price you pay is the direct result of the bargaining power you ceded when you signed the contract.
It is critical to negotiate sharply in the pre-contractual phase to:
- The exact scope of exclusivity: Limit them to the product categories that are essential to the brewery (e.g., lager only).
- The minimum volume: Be realistic, not optimistic. Base yourself on a conservative business plan and try to negotiate a degressive penalty or review clause.
- Transparency in pricing policies: Require clear agreements on how and when purchase prices can change, linked to objective parameters.
These clauses are too important to pass lightly. A thorough legal analysis before signing can save you from years of financial hangover.
Also read our pages on the impact of competition law and the rules on B2B contracts for brewery contracts.
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