Well now, that did not take long, did it? On May 9th, this post wrote about the future of the beer industry in conjunction with the major retailer, Amazon. Now, less than two months later, the industry is on alert as Amazon has announced its purchase of Whole Foods for an incredible $13.7 billion dollars! In the May 9th blog, the questions were: How would Amazon secure a foot hold on the alcoholic side of the retail business. And if Amazon was successful, when would the acquisition occur? Those two questions have been answered, so we are now aware of at the least the first step of the equation.
As expected, industry pundits have pontificated about their views of the future once Amazon jumped into the mix. Nobody really knows for sure how Amazon will approach our industry, but one has to believe craft brewers are jumping for joy with the news. Whole Foods specializes in crafts and imports, they do not sell domestics, so perhaps the ABI and MC might not be concerned. That being said, a couple of possibilities seem feasible.
First, the craft industry’s on going issues with the middle tier distribution system, and their inability to access markets and the resulting lack of focus on said markets. We know that. I hear that concern every day. With Amazon taking over Whole Foods, the possibility of a craft brewer self-distributing and eliminating the wholesaler entirely is now more attractive in states where legal, quality discounts come into play. Pallet drops to Whole Foods, at prices no other retailer can obtain (e.g., Costco), will enhance the craft brewer’s ability to gain sampling, volume and consumers, thus eliminating the wholesaler.
If, in fact, this model becomes a sizable part of the retail business, which it could over time, the self-distributing craft may focus solely on this model that enables elimination of the middle-tier for off premise volume. Again, where legal, the craft brewer could appoint a wholesaler for only on-premise distribution, and keep the off-premise in house! Perhaps, where legal, craft brewers could crave out Whole Foods as a “house account.” A wholesaler could even benefit as Whole Foods and Amazon become the primary means of driving a craft brands’ consumer demand.
In a more traditional model, the wholesaler and vendor have to revisit their contracts. A number of contracts address a wholesaler selling beer to a retailer, they know will ship their beer out of the wholesalers assigned footprint. How will that be addressed?
A second model possibility would include when an importer, for example, owned by a European brewer could make a statewide agreement with Whole Foods using Amazon and ship their product directly to their warehouse. The wholesaler of record could receive a $1.00 per case commission for simply allowing the paper to hit their dock. No warehousing, no delivery costs and no commissions paid. Do you not think a wholesaler might find this model attractive? And even if they did not use this model, the wholesaler’s competitor might use this method, thus giving way to further pressure to adopt said model.
No doubt, it will be awhile before it becomes clear how Amazon will operate. As stated on May 9th, however, Amazon will figure it out. It is only a matter of when….not if. We just did not realize Amazon would act so quickly.
Compromise works well in this world when you have shared goals.