Over the years this blog has described the three tier system using an hour glass to illustrate how the beer industry operates. In this description the top part represents the breweries, while the bottom part represents the retail trade. The sand is the beer which must flow thru the middle part, aka the wholesalers, to ultimately reach the retail end.
This hour glass model works well when describing how the industry operates to either those not involved in the industry, to students or to those new to the industry.
An article recently published in Beer Business Daily highlighted how quickly the industry is changing. Historically, as the article stated, the beer industry was slow to change, however, the dramatic growth of crafts forced change. Until recently, the established industry believed that most of the newbies were somewhat oblivious to how and why the industry worked. To some degree, they were right. BBD’s article goes on to state that crafts have, or are becoming, educated on how the process works, and they now have a grasp on industry operation.
Perhaps one of the best ways to explain this change is to again examine the hour glass model. When the industry had only 50 functioning breweries, the sand flowed smoothly through the hourglass from the top to the bottom. The limited number of brands, or SKUs in 1980, expedited the flow of brands thru the middle tier. Currently, with 4,000+ breweries and brew pubs, all trying to get to market, there is more sand in the top and the sheer volume prevents the beer (sand) from reaching the bottom of the hour glass. The consolidation of the middle tier only exacerbates the problem
The increased volume is causing the sand to flow over the top to the bottom, bye-passing the middle tier. More and more craft specific, small, boutique-focused wholesalers are getting into the business, some are even offering statewide distribution, and almost all are focusing on craft-only accounts. Also, the issue of direct sales from brewpubs, where legal, must be considered. In addition, more start up breweries are self-distributing.
While this model works well for distributors, many of breweries are looking at the success of Stone and Windy City. They are interested in acquiring additional partners, whether they be crafts or imports, thus building critical volume and filling a necessary void for others. Similar to the course of Stone and Windy City, suddenly the brewery becomes a formable opponent in the market.
As ABI continues their effort to buy distributors, closing one more option for craft breweries, it also creates additional opportunity for more sand to spill over the top or the hour glass.
While crafts continue their march to 20% of the US overall market, expect a surge in craft/import small boutique distributors in major markets.
The sand is flowing over the top. Resistance is futile!