Nov 242020

By the mid-1980s, as the Coors Brewery continued their territorial expansion plans, they were no longer appointing non-beer distributors to become new wholesalers. Non-beer potential wholesalers, however, continued to apply for distributorships with the company. Coors Brewery had learned that it was more beneficial to have an established distributor than to take a chance on a new start-up distributor who had no critical beer mass.

When Coors announced it was expanding into Oregon, Coast Distributors (now Columbia), applied to Coors for their multiple operations. Initially, Coast was offered Coors for all markets, apart from the Salem market. Stuart Durkheimer, Coast’s owner, told Coors that the appointment had to include Salem, or he would not take any of the markets. Coors relented and gave Coast the brand for all their markets. What would have happened to Coast had Coors gone with another network? Stuart sold out in the early 1990s but might have sold out much sooner had he not acquired Coors.

By the early 1990s, it became apparent that Corona was destined to be a major player. Wholesalers who had previously turned down the brand in the 1980s were now making attempts to purchase it and many were successful because sellers did not understand Corona’s future potential. By acquiring Corona through acquisitions in central and east Texas, Glazer’s was able to add the brand to their West Texas markets previously awarded. The AB houses in those markets combined and approached Glazers with an offer to purchase the Modelo rights for $25 per case. This was the reported amount that the AB San Antonio wholesaler had paid for the Modelo rights. Glazer’s countered with a price of $50 per case and AB wholesalers refused. Now, almost 30 years later, it is a good bet that if the AB wholesalers could go back in time, they would have agreed to that price. Glazer’s did eventually sell Modelo to some AB houses in west Texas where the Glazer’s did not have a MillerCoors operation.

While there are many examples of wholesalers who, in hindsight, regretted not signing up for a brand that later became a heavy-weight, there are many more examples of wholesalers getting burned with brands they acquired, and later those same brands failed.  Key retailers are telling vendors to appoint established AB or MC wholesalers who have the critical mass for needed service and merchandising; both of which are imperative for start-ups and new vendors. This means there are only two options available for these vendors. If both refuse, then there may not be any remaining options for the vendor.

Vendors will tell you that not all AB or MC wholesalers are equal. Even those wholesalers with multiple houses are not always the same. Many times, it becomes a chopped-up territory that causes issues where one house might be offered the brand and another house loses because of an overlapping footprint. A wholesaler will be offered a brand in one of their markets but not in another. Wholesalers are saying all or nothing. The question is now: if that brand were Corona or Yuengling, would that wholesaler turn it down?

With only two major wholesalers in most markets, the opportunity is slim to buy or trade down the road for a brand they once refused. There are, of course, instances where a brand may not be in the wholesaler’s future, therefore, it is preferrable that they refuse the brand or just trade it to a wholesaler who does want the brand.

Just as there are many vendors who regret appointing a certain wholesaler, there are wholesalers who regret acquiring a certain vendor. If the industry structure remains as is, this situation will continue.

Good judgement comes from experience, and a lot of that comes from bad judgement.

 Posted by at 7:00 am
Nov 172020

This month, the Coca-Cola Company announced that it will eliminate almost half of its 500 brands to ensure room for future offerings. This includes the elimination of Tab, the industry’s first diet cola which now occupies less than a one percent share of the soft drink market. Why has it taken Coke so long to make this move considering the successes of Diet Coke and Coke Zero?

The irony of Coke’s decision to trim its portfolio is the opposite of what is currently happening within the beer industry. Not a day goes by without an announcement of a joint venture between a major beer supplier and another non-beer beverage company. It seems there is a rush-to-market by many suppliers within the beer industry to expand and develop new products. Even more unique about these deals is that the JVs are frequently with a major vendor, where in the past, many non-ALCs simply worked a deal with the beer network. Typically, many of those arrangements ended poorly with the vendor leaving the beer network hanging. Now that arrangements are executed directly with the breweries, the wholesalers have an added sense of security and contract protection tied to the breweries. Such arrangements are a game-changer for wholesalers.

In addition to the various JVs, the industry should take a step back and look at what more the breweries are doing. The breweries themselves are creating teams of professionals who are executing the expansion of new products, many, though not all of which are line extensions. Something will have to give in the middle tier. How will wholesalers structure their companies to handle this volume expansion? Can, or will, wholesalers create departments, divisions, or teams to market and develop all the new products? Will it hurt their core business?

Reyes, Columbia, Glazer’s, BEK, L&F, and others have the funding and structure in place to go to market with the new products. Other medium and smaller wholesalers, however, might not, or cannot structure their companies to accommodate the increased volume. Some major brewers, once lagging in new products, are now offering a slew of new or JV products and pundits are asking if it is too much.

Before Covid-19, the industry had started a slow and methodical move from beer to beverage companies. While that transition had been evolving over time, the virus expediated the shift. It is no secret that many wholesalers have reduced or eliminated suppliers, brands, and SKUs during this time, and many crafts have simply gone out of business or been reduced to strictly brew pub status to remain in business.

It is impossible to project how the beer industry will look in the future, but one thing is certain, it will certainly not be your father’s beer business!

We really cannot forecast that well, and yet we pretend that we can.  But we really cannot.

 Posted by at 5:00 am