The year already feels different, doesn't it? Deals have gone
down on the supplier side, and you can bet the wheels are
turning in the second tier. We polled some sources for their
top-line concerns in the craft distribution space in the
coming months. These are the issues that will define the
year:
ALIGNMENT. NBWA's Paul Pisano has flagged the Western Beverage
situation as a particular point of interest. Will this newly A-B
owned WOD in Oregon drop its current craft portfolio in the
segment's Northwest stronghold? If that A-B house were compelled to
get "aligned" and nix Ninkasi, you can bet that would change the
craft distribution landscape real quick.
Some aren't convinced that will happen. "Ninkasi, craft is 30%
of that wholesaler volume, and 45% of its profits," one consultant
estimates. "A-B is overpaying for that house if they eliminate
that." But the fear endures. "This Western Beverage issue is
huge. If they're going to have a branch that's non-exclusive, [that
might look like] hypocrisy," points out another industry leader
(you can guess that many want to stay anonymous on the sensitive
issue). For his part, Ninkasi founder Jamie Floyd says
they're not looking to leave the wholesaler that they just switched
to last year. "I have had some real sky-is-falling type emails from
people all over the place," he says. He doesn't seem overly
concerned. "Make and sell beer is what we do other than create beer
culture and support our community. That is what we want for 2012.
We hope all our distributor partners will join us in this
extraordinary vision."
Of course, it's not just an issue for non-branch A-B
distributors, or craft suppliers whose access to market lies in the
balance. "Anytime the big share market player gets bigger, it
affects the rest of us," says Gary Thompson of Powers Distributing
in Michigan, a MillerCoors house. "A-B alignment, spending on
a national basis will have a direct impact on all of us. They're
tough competitors; we have to compete hard and knowledgeably to
stay with 'em."
THE ROLE OF INDY, CRAFT-ONLY HOUSES. First Beverage's Bill
Anderson said in a conference late last year that indy, craft-only
houses would be important in the craft distribution landscape going
forward. "Even if there's not pressure from St. Louis and Chicago
on distributors, there's just not going to be enough space without
emerging, craft-only distributors in major markets," he says.
Some disagree, citing the indy houses' higher costs of business
as a major roadblock to their growth and efficiency. In a
market the size of, say, Charlotte, a craft-only distributor's
total operating expenses per case would rise by at least 50%, says
Ippolito Christon & Co.'s Andrew Christon, pulling an example
from his files. "This assumes significantly fewer routes and far
less call frequency for the craft-only distributor than is
currently provided by an established distributor." In this
situation, the craft-only distributor likely "would be forced to
operate on razor thin EBITDA profit margins, probably 2-3% of net
sales, or less than 50 cents a case. Typically, that is not
sufficient profitability to compensate a distributor for the risk
of investing time and capital in a non-diversified distribution
business."
But remember Click Wholesale, which is independent and
upscale-focused, if not craft beer-only - and yes, profitable. The
majority of their portfolio is specialty beer and they dominate the
chain business, uncommon for an independent house.
And craft-only distributors are getting craftier logistically,
making alliances with other indy and even Big 2-affiliated houses
in adjacent geographic areas to provide brewers a larger footprint
with more efficiency. One example is Southern California's
Attenuator Group, comprised of Ace Beverage Co., Hangar 24
Craft Distribution, Heimark Distributing, Mission Beverage Co., R
& S Beverage Co. and Triangle Distributing. So clearly
there are many models to be vetted.
FINDING BRANDS THAT ARE "REAL." A simple but enduring point:
Just as bigger craft brewers fret about all the sexy newcomers,
distributors are perplexed about which ones to snatch up.
"What is real?" is the way Jay Martin at Florida's
J.J. Taylor poses the question. "What new breweries should we
represent with so many opening?"
SHARPER PLANNING. It's the "thing that all of us wholesalers
have to get better at," says Powers' Gary Thompson, 2011's NBWA/BA
Craft Beer Distributor of the Year. "Planning and marketing at
the wholesaler level have got to go up a lot. It prevents
winification because you're building brands, and doing a better job
of assisting our retailers and setting our shelves."
He cites Indiana's Monarch as a best-practices example. "They've
taken their own internal marketing division, and are doing a better
job of understanding demographics, and how their marketing division
can help with velocity, putting the right products in the right
places."