distribution, supply chain, and the future of beer

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let's talk about Beer. Let's talk about good beer. challenges, opportunities, and yes...a few predictions as well.

 

I work in beer. I write about beer. I take pictures of beer. I read Beer Business Daily, Brewbound, and all my favorite blogs religiously to stay current and savvy to the dynamics of the industry. I listen to the thought leaders, and listen to their podcasts, and try to add my own insight when it makes sense. I visit local breweries, drink their beer, talk to their teams, and laugh away an afternoon in a sunny taproom, sipping kellerbier until it doesn't matter what I'm sipping. It's great and it's full of great people.

But it's never that easy when you look at the business itself, and the people, politics, money, and consumer trends that dictate the direction of the current beer industry are stronger than ever, so let's highlight a few forces that you may not be aware of, and a few more you may have forgotten about altogether.

The invisible tier

Our Country's wholesalers have a PR problem. They have a beer problem as well.

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Beer has to be delivered in trucks. These trucks are, for the most part, owned and managed by distributors. Distributors (also called "wholesalers") are BIG business in the united states and most of you know nothing about them. this is a problem for you and for them.

 

 

The Beginning

Good Beer Hunting recently covered a nice portion of this information in phenomenal detail (Part 1, Part 2, Part 3). All About Beer has a great article as well, but let's quickly set the scene. Beer distributors form the "middle tier" of the three tier system, helping to move your beer from the supplier (brewery or importer),  to the retailer (bar, restaurant, grocery store, etc). Simple in theory. This system was federally established around 1933 when the 21st amendment was signed into law, ending the Great and Noble Experiment of Prohibition. Each state was allowed to regulate the details, including legislation around franchise laws, self-distribution, etc. I won't get into the full history here, and you can read about the background in any of the links above and you'll quickly become an expert. I would highly suggest you do if you're at all interested in that sort of thing.

 

The Business Model

Most (not all) traditional beer distributors exclusively make money by selling cases of beer to the retailer tier of the industry (bars, restaurants, stores, etc). For the most part, they don't really care what sort of liquid is in the cases. I don't say that to imply that wholesalers don't care about their supplier partners, but a margin is a margin, so if it comes from a case of Bud Light or Brooklyn Lager, it amounts to a chunk of revenue for the wholesaler at the end of the day. The margin might be a little (or noticeably) better on the case of Brooklyn Lager, as it commands craft pricing, but they sell 100x that amount of Bud Light, so in terms of priorities, you can see where they're focused. The suppliers that make them the most money retain the most mindshare, get access to the best distribution channels, and generally command their attention far more effectively than a smaller supplier does. If you want to hear a hilarious and very real anecdote on this topic, listen to this podcast with the famously outspoken founder of Magic Hat Brewing Company Alan Newman...it's really worth listening to the whole thing, as he puts all his cards on the table. 

None of this information is revolutionary. This is called "selling beer", and it's been this way for a long time in the United States. Small breweries have dealt with this reality for a long time, and large breweries (the two or three biggest suppliers anyway) like it this way. 

 

Consolidation, expansion, proliferation...

 

Number of Beer Distributors in:

1980

_ 4600 Distributors -logo.png

2018

 

35% Decrease over 38 years. Source.


Number of U.S Breweries in:

 

1980

_ 92 Breweries -logo.png

2018

_ 6100 Breweries -logo.png
 

6,600% Increase over 38 years. Source.


# of SKUs (beers, mostly) sold by a wholesaler in:

 

1996

2016

_ 1,025 SKUs -logo.png
 

540% increase over 20 years. Source.

 

It's all over the news. Columbia Distributing is gobbling up every distributor in Washington and Oregon. Origlio buys Bella Vista. Manhattan Beer, the country's largest independent wholesaler based here in NYC, buys Phoenix-Beehive. I could rifle off 10 even more recent articles highlighting the increasing pace of wholesaler consolidation across the country.

We're also seeing a growing number of breweries spin off new distribution companies that can more adequately represent their brands in a crowded marketplace. This isn't a new strategy by the way...Brooklyn Brewery did it in the 90's. Nightshift Brewing did it in Massachusetts in 2017. But it's always a factor when you look at the needs of these brands, their level of current representation, and the mindshare they can realistically retain in the traditional, and enormous, red (ABI) and blue (MillerCoors) houses across the country.

Couple this with the exponential growth of the supplier tier and you start to see the challenge here. Huge wholesalers are up to their necks in SKUs they aren't capable of selling, so they shed them. They might shed them because of operational issues, supplier issues, brand stagnation, or a host of other reasons. This consolidation of SKUs at the distributor level effectively cordons off a large chunk of the market to a growing number of smaller suppliers (breweries). Most beer is sold on grocery store shelves (in the business we call this "off-premise" because the beer isn't consumed in the same building it's purchased), and distributors have access to these shelves. The wholesaler can focus on the brands/breweries that make them the most money, leaving a lot of the suppliers out in the cold.

 

Legislative Influence

The National Beer Wholesalers Association (NBWA) is a powerful lobby in D.C, and they fight for the interests of their constituency very effectively. Most wholesalers are family-owned business full of great, hard-working people. I work with wholesalers on a weekly basis and I can tell you that they're some of my favorite folks out there. They know their business and most of them care deeply about doing it the right way.

But taken out of context, it seems altogether more nefarious. Distributors make money because of a certain set of rules and regulations currently in place. They don't like the laws changing too quickly, and they'll fight to keep the status quo in place. A very recent example of this was the nonsense happening in Maryland. Naptown Pint covered it perfectly