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Following Spirits And Wine Distributors’ Lead, Beer Wholesalers Increasingly Going Statewide

Shanken’s Impact Newsletter:

by Terry Allan from the October 15, 2015 issue

Driven by ongoing consolidation and the growth and expansion of craft breweries, many beer distributors are beginning to transform into operations similar to their wine and spirits counterparts. Indeed, unlike just a decade or so ago, beer wholesalers with statewide distribution rights are becoming more common—a sign of the changing marketplace and a likely indicator of the malt beverage distributor of the future.

“The big are getting bigger,” explains Joe Thompson, president of Independent Beverage Group, a beverage-industry consultancy, of wholesaler consolidation that is yielding everlarger territories for some beer distributors. Coupled with consolidation, the craft beer boom is providing wholesalers with the opportunity to service entire states. “Craft brewers often want to go with one wholesaler in a state when expanding,” Thompson continues. “It’s easy and makes sense, especially if the brewer doesn’t do enough volume to warrant an entire truck load of product for a small territory.” Moreover, he notes that while some distributors have served as exclusive distributors in remote states like Hawaii and Alaska for some time, major beer suppliers are not as resistant to “mega distributors” as they may have been in the past. “Bigger wholesalers generally mean more sophisticated management,” Thompson notes.

While craft beer only accounts for 11% of beer industry volume, the fast-track category is having a growing influence on how distributors are positioning themselves for the future. “There is demand for additional distribution from the craft beer market,” says Ryan Lake, director at First Beverage Group, which also advises beverage companies. Some craft brewers are looking for alternatives to “being stuck in a house with many craft beers and not getting the share of mind they would like,” he explains, thereby opening the door to larger territories for distributors with fewer competing craft brews. In fact, some expanding craft brewers actively seek out wholesalers who can cover entire states, particularly small-geography, densely populated states, such as on the East Coast.

But the changing retail landscape is also playing a role in the emergence of statewide beer distributors. Chain retailers generally prefer fewer points of contact when it comes to vendors, so many of them likely endorse a movement toward a single distributor in a state for a line of beers. “The future of craft beer is heavily dependent on off-premise chains,” remarks Simon Thorpe, president of Duvel Moortgat USA, a marketer of craft and imported brews. “One wholesaler having complete coverage in a chain’s footprint can be an asset.”

With just a few exceptions, beer distributors with statewide territories are partnering with craft and small imported beer marketers, not the large multinationals. But statewide distributors can run the gamut from large multistate operators like L. Knife & Son and Cavalier Distributing to single-state houses like Ben E. Keith Beverages in Texas. Small, exclusively craft houses with statewide footprints are also emerging, such as Freedom Beverage Co. in North Carolina.

And then there are the large multi-state wine and spirits distributors that have been increasingly expanding into the beer business. Wirtz Beverage, for example, distributes Deschutes beer throughout Illinois and Wisconsin, and recently partnered with Left Hand Brewing Co. for statewide distribution in Nevada. Johnson Brothers boasts statewide footprints for numerous craft beers in several states, and Young’s Market Co. has also been getting active in statewide beer distribution. New Belgium Brewing recently named Young’s Market its distributor in Hawaii, effective February 2016.

Martin Wadley, vice president, beer portfolio operations for Young’s Market’s California branch, says the division has been committed to serving craft brewers statewide for the last three years, and has made a big investment into the beer side of the business. The company currently partners with about 20 craft brewers and cideries, and according to Wadley, “we expect that number to double in the next two to three years as we find products that fill niches.” Wadley adds that while expansion into craft beer has been attractive to the wine and spirits distributor as consumers increasingly show their disloyalty to any particular drinks category, key retailers have also supported the move. “We’ve been receiving requests from our retail partners to have one point of contact,” he notes, “instead of a traditional network, which in California could mean 15 to 20 beer wholesalers. This is important, especially on the national accounts side.” Craft brewers, Wadley continues, find statewide wine and spirits distributors a “strong alternative to the crowded craft beer portfolios of beer-only houses. Small suppliers don’t have the resources to manage 15 distributors in a state. And often at those houses, the portfolios are so large, brewers worry about their share of mind.”

Lake from First Beverage remarks that beer wholesalers are slightly concerned by the emergence of wine and spirits distributors into the craft beer category. “It’s another competitor in their market snagging brands,” he says. Thompson, meanwhile, believes that the statewide involvement of wine and spirits houses into the beer segment is “forcing beer wholesalers to respond, and they’ve decided that their own statewide distribution is the answer.”

Statewide Networks Emerge

Still another emerging model for statewide beer distribution is a network of wholesalers—largely MillerCoors houses—that provides instant statewide penetration for an expanding brewer, such as the Massachusetts Beverage Alliance (MBA), Great Artisan Beverage in the Northwest and OneIllinois. MBA is comprised of five MillerCoors distributorships—Atlas Distributing, Burke Distributing, Colonial Wholesale Beverage, Commercial Distributing and Merrimack Valley Distributing—and serves 24 craft beer suppliers, including Boulevard Brewing Co. According to Brian Murphy, director of sales and marketing for MBA, the alliance was created four years ago as the wholesalers saw an increasing interest from craft brewers in having “one central contact and a streamlined network of distributors that could provide statewide distribution.” Each of the five companies has an equal share in MBA, which had volume of 320,000 cases last year and is projecting a 25% increase to 400,000 cases this year.

Murphy says the alliances are ideal for small brewers looking for expansion and growth into new states because the distributors can combine to purchase enough volume to, for example, fill a truck. In the case of MBA, Burke Distributing acts as the drop point, Murphy explains, and trucks from the other distributorships arrive at Burke’s to pick up their orders. Beer ordered through the alliance is then distributed to retail accounts via regular deliveries, along with other beers carried by each of the five members. According to Murphy, the network provides craft brewers with a “clear path to market, efficiency with inventory and freight, consistent promotional and pricing support and a staff that is dedicated to craft beer.” While Murphy says the network has been successful in Massachusetts, he notes that such an alliance may be difficult to manage in larger states, requiring more member partners.

Value in Going Big

Whether it’s a network of distributors, a wine and spirits house or a mega wholesaler, statewide distribution clearly has its advantages. “With the exception of craft beer, the beer market isn’t growing,” notes Lake. “By aligning with a craft supplier on a statewide basis, distributors can find areas of growth.” Thorpe also sees value. “If a wholesaler is already managing a complicated book, statewide distribution can provide better efficiencies,” he says.

The beer marketer adds that with ongoing beer wholesaler consolidation, statewide distributors can be a boon for expanding craft brewers. He points to his company’s statewide experience with Brown Distributing in Florida. “They have scale and the ability to distribute well in key areas. They understand craft beer, and they take a long-term view in the development of breweries,” Thorpe reports. But a statewide distributor may not be the right fit in some cases, he continues, noting that Duvel Moortgat also works with multiple distributors in some markets. “We like to have the right wholesaler for the right brand in the right market,” the beer executive says.

“With the right distributor, a supplier can get the right type of attention,” Lake says of a statewide strategy. “There’s one point of contact and no need for a network of five to 25 distributors.” He also points to “more consistency. It’s easier to roll out a marketing program, for example.”

But there can also be risks, the consultant notes. The challenge with some statewide distributors, including wine and spirits and emerging craft-only houses, is “how much market coverage are they providing? Are they in deep with all accounts or just high-spotting for, say, bottle shops?” Lake asks. “You can only get so much volume if you don’t have relationships with national accounts and chain sales.” Wine and spirits distributors, he adds, are “great with wine and spirits accounts,” but may not be calling on some bottle shops, groceries and convenience stores.

As for which model—a network of traditional beer wholesalers or a statewide option—is preferred by expanding beer marketers, Lake says, “it’s all over the board.” Some suppliers are “OK with just getting their beers in all the bottles shops in a state,” while others become frustrated that a statewide distributor is only servicing accounts a “mile wide and inch thick,” he notes.

Both Lake and Thompson expect statewide beer distributors to become increasingly common. But Lake cautions that there will be challenges. “As craft brands grow and become more viable, they’ll get to a point where they must reach all retailers,” he says, which would put pressure on wholesalers who are not servicing all accounts and secondary markets in a state. “The growth of craft will be a big factor in how it all plays out.”