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Craft Distribution In 2012

Craft Business Daily:

The year already feels different, doesn’t it? Deals have gone down on the supplier side, and you can bet the wheels are turning in the second tier. We polled some sources for their top-line concerns in the craft distribution space in the coming months. These are the issues that will define the year:

ALIGNMENT. NBWA’s Paul Pisano has flagged the Western Beverage situation as a particular point of interest. Will this newly A-B owned WOD in Oregon drop its current craft portfolio in the segment’s Northwest stronghold? If that A-B house were compelled to get “aligned” and nix Ninkasi, you can bet that would change the craft distribution landscape real quick.

Some aren’t convinced that will happen. “Ninkasi, craft is 30% of that wholesaler volume, and 45% of its profits,” one consultant estimates. “A-B is overpaying for that house if they eliminate that.” But the fear endures. “This Western Beverage issue is huge. If they’re going to have a branch that’s non-exclusive, [that might look like] hypocrisy,” points out another industry leader (you can guess that many want to stay anonymous on the sensitive issue).  For his part, Ninkasi founder Jamie Floyd says they’re not looking to leave the wholesaler that they just switched to last year. “I have had some real sky-is-falling type emails from people all over the place,” he says. He doesn’t seem overly concerned. “Make and sell beer is what we do other than create beer culture and support our community. That is what we want for 2012. We hope all our distributor partners will join us in this extraordinary vision.”

Of course, it’s not just an issue for non-branch A-B distributors, or craft suppliers whose access to market lies in the balance. “Anytime the big share market player gets bigger, it affects the rest of us,” says Gary Thompson of Powers Distributing in Michigan, a MillerCoors house. “A-B alignment, spending on a national basis will have a direct impact on all of us. They’re tough competitors; we have to compete hard and knowledgeably to stay with ’em.”

THE ROLE OF INDY, CRAFT-ONLY HOUSES. First Beverage’s Bill Anderson said in a conference late last year that indy, craft-only houses would be important in the craft distribution landscape going forward. “Even if there’s not pressure from St. Louis and Chicago on distributors, there’s just not going to be enough space without emerging, craft-only distributors in major markets,” he says.

Some disagree, citing the indy houses’ higher costs of business as a major roadblock to their growth and efficiency. In  a market the size of, say, Charlotte, a craft-only distributor’s total operating expenses per case would rise by at least 50%, says Ippolito Christon & Co.’s Andrew Christon, pulling an example from his files. “This assumes significantly fewer routes and far less call frequency for the craft-only distributor than is currently provided by an established distributor.” In this situation, the craft-only distributor likely “would be forced to operate on razor thin EBITDA profit margins, probably 2-3% of net sales, or less than 50 cents a case. Typically, that is not sufficient profitability to compensate a distributor for the risk of investing time and capital in a non-diversified distribution business.”

But remember Click Wholesale, which is independent and upscale-focused, if not craft beer-only – and yes, profitable. The majority of their portfolio is specialty beer and they dominate the chain business, uncommon for an independent house.

And craft-only distributors are getting craftier logistically, making alliances with other indy and even Big 2-affiliated houses in adjacent geographic areas to provide brewers a larger footprint with more efficiency. One example is Southern California’s Attenuator Group, comprised of Ace Beverage Co., Hangar 24 Craft Distribution, Heimark Distributing, Mission Beverage Co., R & S Beverage Co. and Triangle Distributing. So clearly there are many models to be vetted.

FINDING BRANDS THAT ARE “REAL.” A simple but enduring point: Just as bigger craft brewers fret about all the sexy newcomers, distributors are perplexed about which ones to snatch up. “What is real?” is the way Jay Martin at Florida’s J.J. Taylor poses the question. “What new breweries should we represent with so many opening?”

SHARPER PLANNING. It’s the “thing that all of us wholesalers have to get better at,” says Powers’ Gary Thompson, 2011’s NBWA/BA Craft Beer Distributor of the Year. “Planning and marketing at the wholesaler level have got to go up a lot. It prevents winification because you’re building brands, and doing a better job of assisting our retailers and setting our shelves.”

He cites Indiana’s Monarch as a best-practices example. “They’ve taken their own internal marketing division, and are doing a better job of understanding demographics, and how their marketing division can help with velocity, putting the right products in the right places.”