Mar 242015

NFL teamsIn the NFL there are 32 franchised teams.  The value of each team is not the same, but if one were to be for sale, it is safe to assume the final price would be in the billions. There is no competition for the NFL, or as they say, they are the only game in town.  If the teams win, their value goes up.  In today’s market, it is safe to say that the New England Patriots are more valuable than the Jacksonville Jaguars.

NFL teams win based upon the talent of their players, who are under time-bound contracts.  Once the contract runs its course, the player becomes a free agent and can then sell their services to the highest bidder.  Teams add and delete players every year, but the owners have protected themselves by instituting a salary cap.  The cap protects the owners from over spending.  Sometimes the cap works and the team owner has a good run, sometimes the opposite happens.  In the end, the NFL is all about the players, and the owners simply enjoy the benefits of the franchise.

Once again, the topic has arisen as to just how much the franchise laws have added to the value of a beer distributorship.  John O’Conner believes the added values could be as much as five times.  It is unquestionable that the laws have added greatly to the value of a distributorship, however, the question is: Are franchise laws in today’s beer industry causing distributors to lose value?

O’Conner states that the average margin for beer wholesalers is around 7.2%.  He also notes that Wine & Spirit houses, those not under franchised states, are around five percentage points less than beer.

Consider that W&S suppliers have contracts which are performance based and time bound. This results in W&S houses with thousands of SKUs verses only hundreds of SKUs at beer houses.  In addition, many suppliers have their own sales teams, especially the larger suppliers such as Gallo, Diageo, and Brown Forman.  Even the mid to small size suppliers will be on sales pads that make their products exclusive to that sales team.

All of this adds to additional costs for these W&S houses, which adversely affects the margin percent.  Next to franchise protection, craft brewers’ number one compliant is the lack of focus in beer houses, conversely, one rarely hears of a W&S vendor complain of lack of focus.  Because commitments outlined in each vendor’s contract, there is no misunderstanding as to the focus.

The craft beer segment is now 11% of the total US business and growing. Should it continue to grow to a 30% share, it is safe to say that the growth will come from current domestics, ABI and MC, which have already lost millions of bbls.

With the crafts’ overall frustration with franchise laws and lack of focus from distributors, more and more craft breweries are going to self-distribution.  Many of these breweries have been successful, some getting hundreds of handles, all coming from competition. Distributors, like NFL owners are attempting to protect their interests by lowering the self-distribution volumes in a number of states.

If the current ABI and MC distributors loose an additional 20% in volume to crafts brands not in their houses, perhaps it does not matter what the franchise multiple is, as five times zero is still zero.

Franchise laws have protected and enhanced distributors for years, but perhaps the tables are turning.  Franchise laws are the major obstruction to crafts.  Just look at the number of wineries or spirit manufactures that self-distribute.  Not many do.

Like the NFL teams without the right players, distributors could be losing those brands that are responsible for their mere value.  Without those brands, distributors may be soon quoting Jon Bon Jovi: “I want to own an NFL franchise; I understand the business of football.”

Beer Fodder; Take a look at the new 10 Barrel Brewery

 Posted by at 6:00 am

 Leave a Reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>