In Texas, it was CR Goodman; in Florida, it was Fresh; in Arizona, it was Little Guy Distributing; in Washington, it was Click; and in Illinois, it was Windy City. All of these companies became, for different reasons, specialty beer distributors/importers. None of these companies represented either AB or MC.
Each of these distributors sold out in one way or another. Windy City sold out to Reyes, but continues today. Fresh and Little Guy sold out to other beer distributors. Click and Goodman are still in business today, however, Goodman sold all of their statewide brands predominantly to Ben E. Keith. Click is still in business and doing well in Seattle.
Recently, a startup craft distributor in Maine was offering brewers a fixed length agreement that could be nullified at any time. They were offering contracts of three to five years, stipulating that at the date of expiration, the brewer could leave without owing the operation any money. These small independent operations are popping up all over the country as more and more craft brewers come on line.
A recent column in BMI by an unknown author stated that with the continued decline of the major brands and the rise of all the crafts, along with the increased costs of distribution, the distributors might be driven to look at exit strategies. If this happens, it could create and issue for crafts trying to get into the market.
An AB distributor recently shared some interesting numbers that he had pulled on his draft business some 18 years ago. At that point there were fewer than 1,500 tap handles in his territory. He had 70% of them, which meant 100K kegs per year, serviced with three full-time techs.
This year, the number of taps in the same territory accounts for over 5,100. He currently has 69.8% of the handles, which today translates into 100K kegs per year, serviced by nine full-time kegs. This is the result of the rapid increase in crafts. It cost him $400k to add more cold space in the warehouse, and while his gross dollars have increased per keg, his percent margin remains the same. Same volume, more handles, greater gross dollars, but huge increases in expense to service the market. These are just top line numbers, too.
The question now is: Will distributors continue to add all of this overhead to build the craft segment, or will they look at other strategies? During the 70s, 80s, and 90s, wholesalers consolidated. The collapse of Schlitz, Pabst, and regionals, along with the expansion of Coors, presented opportunist wholesalers a way to add established brands, yet reduce overhead. This also helped to add dollars to each point of distribution.
As more and more of these start-up distributors add brands and grow, the established distributors will use their resources to add to their own operations by doing what operations like Windy City, Fresh, Little Guy and Goodman did. Distributors will buy them out and pay top dollar for established business that these little operations developed.
In earlier years, distributors would buy the business that someone else developed and bear the costs. As long as franchise laws remain and brands are restricted from moving at will, this model will continue to exist. Successful people do what it takes to be successful; other people do whatever they want.