The transactions were the headlines in 2015, but the real story of the beer industry’s mergers and acquisitions will be told via shelf space in 2016 and beyond. Yes, the beer distribution battle is not new and has been brewing for awhile now, but it has always maintained a kind of “winter is coming” vibe — an ominous future calamity that is out on the horizon and may never come. Well, as we head into 2016, the winter of distribution is upon us. AB-InBev wants to buy more wholesalers and incentivize its distributors to only sell its products. Select craft players are selling stakes of their business to try and ensure their place in this future. And the major industry associations are all finally focusing in on this issue instead of tip-toeing around the outside.
To know where we are going, let’s look back at where we’ve been. Here are the top craft beer distribution headlines in 2015.
Sorry for the alarmist headline, but it feels warranted. While everyone was watching the Beer Voltron form overseas, Anheuser-Busch InBev had a domestic plan ready to boost its declining sales that could have a much bigger impact on shelf space across the country, this from the Wall Street Journal. This plan is a distribution incentive program that would reward distributors for selling a majority of AB InBev products.
In the wake of Anheuser-Busch InBev seeking to buy SABMiller for $100 billion and some change, the middle distribution tier of the American alcohol industry has been under severe scrutiny by the consumer, beverage makers, the U.S. government and CBB. How can you not flip the eff out when you read the world’s largest brewer introduced a new incentive program last month that could offer some independent distributors in the United States annual reimbursements of as much as $1.5 million if 98 percent of the beers they sell are AB InBev brands?
Well, it’s reassuring to hear that the real pros in the industry — the National Beer Wholesalers Association — testified on this very subject to Congress, making some very impressive arguments. The below statement was read by NBWA President and CEO Craig Purser. This is his testimony before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights. It’s super long, but it is actually an amazing diatribe that any beer professional should read, full of great insights. In fact, it’s the most honest thing we’ve read on Big Beer and alcohol distribution in the United States in a long, long time. We thank the NBWA for sharing.
Travis Markstein, president of Markstein Beverage Co. in San Marcos, Calif., assumed the position of 2015-2016 chairman of the Board of Directors for the National Beer Wholesalers Association (NBWA) at the association’s 78th Annual Convention and Trade Show at Caesars Palace in Las Vegas. As chairman, Markstein will help guide the association as it advocates for licensed, independent beer distributors and educates elected officials, regulators, media and the public about the value of beer distributors and America’s effective system of state-based alcohol regulation.
He noted that, today, “The business is more complicated in many ways, but it is also very similar to the business in my grandfather’s time. It’s still about building brands. And not just one brand but a portfolio of brands that give us scale and our customers the variety they demand. And it’s still about partnerships. Solid partnerships with brewers and retailers. And it’s still about our uniquely American system. A system that serves consumers, retailers, wholesalers and brewers extremely well.”
NBWA President and CEO Craig Purser highlighted how distributors can prepare for the future, especially in a dynamic industry operating in a marketplace “evolving right before our eyes.”
Purser pointed to the successes of the open and independent distribution system, citing that, in the 1980s, there were fewer than 50 breweries operating in the United States. And there are now 4,000 breweries in operation across the country.
“This system is giving the consumer choice and adding value to the retailer. And that value is getting the right beer to the right consumer,” he said. “This system is working well, and it’s up to us to protect and strengthen it.”
I just got back from Australia. While exploring the east coast of Oz (Melbourne, Gold Coast and Sydney) I found some great craft beer — brands like Feral Hop Hog and Figjam IPA — along with a healthy brewing community that liked to talk beer. In general, I pretty much got the same sentiment about U.S. beer from brewpub patrons: We thought all Yanks drank Budweiser.
It’s not an uncommon stereotype around the world, and it will be only one of many big hurdles for craft brands looking at international distribution. There’s a solid article on the subject matter from The San Diego Union-Tribune’s business section, using Stone Brewing Co.’s brewing and restaurant operations in Germany (Stone Brewing Berlin) as an example.
While we can’t seem to zero in on whom exactly these brewers are and aren’t (which just adds to the mystery!), reports are floating around the internet that a lawsuit from 19 Oregonians, three Californians and one Washingtonian (some of them craft brewers) is seeking to stop Anheuser-Busch InBev from buying SABMiller (thus forming the dreaded Beer Voltron). The suit argues the acquisition would create an unfair marketplace for other beer companies, which is a pretty solid argument.
The craft beer industry’s growing pains continue, this time in the form of distribution constraints that are choking potential sales for Sun King Brewing. RTV 6 in Indiana reported on a piece of proposed legislation influenced by Sun King Brewing and 3 Floyds Brewing Co. that would seek to increase the limit on microbrewery sales. RTV6 explains:
A pair of proposals would double the current limit from 30,000 to 60,000 barrels. … Sen. Jim Merritt, R-Indianapolis, is proposing to raise the bar even higher to 90,000 barrels.
Earlier this year, Georgia brewers actually won a small victory by being allowed to sell beer to customers to take home from the brewery. But even this small victory came only via loophole: Brewers still weren’t allowed to sell beers for customers to take home, buuuuut they could charge customers to go on a tour and then — as a souvenir — they could take home some beer. Complicated, but a step forward, and brewers were pumped about it. They started to charge different prices for the tour, depending on which souvenir beer the customer wanted to take home.
But as these local tweaks to distribution seem to go, local distributors became upset and decided to dig their heels into the status quo. This outstanding story in Atlanta Magazine goes in-depth into how the distributor lobby was able to influence the closing of this loophole. Please go read it. It all seems super shady.
Can increasing the amount of locations where craft beer can be sold to the masses actually be detrimental to the success of certain smaller craft breweries? The answer would seem to be, “Uh, no?” but some Colorado craft brewers would argue otherwise.
Colorado is considering giving grocery stores the green light to sell high-gravity alcoholic beverages (right now the cap is 3.2 percent ABV). The state’s current system only allows for grocery chains to sell wine and liquor at one location in the state, leaving most of the market to independent liquor stores. This might be kind of surprising considering Colorado’s prominence in the craft beer scene, but it’s a system that’s obviously working for the state’s craft beer industry. So again, we ask, wouldn’t more locations with shelf space increase opportunities?
Do you remember when Indiana Beverage Alliance President Marc Carmichael called Indiana Senate Bill 415 “my turd in the punch bowl?” Those were classier times. The IBA was sending its turd missile bill toward Monarch Beverage, which was trying to change Indiana law so that it could distribute liquor as well as beer. Both liquor and beer wholesalers feared that it would help create a distribution monopoly, which seemed like a fair assessment.
Just when we almost forgot about this excellent moment, the story recently took a new turn. The Indiana Star reported that the IBA, characterized as “a group of smaller beer distributors that compete with Monarch,” accused Monarch of illegal campaign financing. The accusation alleges that Monarch illegally gave nearly $1.5 million in campaign cash through a limited liability company called Vision Concepts that appears to be owned by Monarch. They have the same address and chief executive, at least.
The Alcoholic Beverages Control Commission in Massachusetts (ABCC) has officially accused distributor Craft Beer Guild LLC of a pay-to-play practice, offering rewards to retailers to get its beers stocked over its competitors’.
These are the first charges to emerge from a six-month probe into so-called pay-to-play practices that limit consumer choices by favoring one company’s products over another’s.
“The alleged wrongdoing in this case is serious,” said state Treasurer Deborah Goldberg, who oversees the ABCC, said in a statement. “As the commission examines this matter, we’ll continue the work to ensure license holders across the state are acting in a proper manner.”
For years now, there has been a battle just to allow 64-ounce growler sales (heaven forbid!), and the latest controversy goes beyond growler sales, to a much more insidious enemy: tasting rooms (grab the vapors!).
So, just what are these dangerous “tasting rooms”? Well, they are places where small businesses allow customers to come inside their doors, sample their product and then, sometimes, buy that product and take it home. Such radical practices have obviously caused groups and associations to file suit and demand clarification of regulations.
The entities looking to curtail the willy nilly licensing of tasting rooms are looking to do so because tasting rooms represent a circumvention the three-tier system, which would will lead to “excesses such as overly aggressive marketing, monopolistic practices and intemperance,” according to one petition. And just who is worried about these monopolies being built at these corner bars?
A little advice
As consumers keep demanding the varied tastes of craft beer, new investment and funding opportunities are opening up for craft brewers. In fact, thanks to the growing consumer interest and buzz about the offerings, more IPOs and M&A deals will likely start cropping up for the industry.
These investment tools are coming just in time: Craft brewers around the country are working hard to expand brewing capacity, build new breweries, distribute in new regions and increase innovation to meet this consumer demand. But investment tools vary widely so brewers looking to increase their operations must first carefully consider their existing operations and their long-term goals. Here are some important considerations for breweries looking to expand.
Oskar Blues Brewery announced that it continues its strong push into new territories in 2015 with the launch of Mississippi and Utah in November and December. These two states bring the total number of new markets launched in this calendar year to nine new states plus completion of the full footprint in Illinois. The new markets bring the total U.S. distribution to 46 states and put the brewery well on the way to becoming a nationally distributed craft beer brand.
The brewery has partnered with four family-owned distributors in Mississippi that consist of Clark Beverage Group Inc., Stokes Distributing Co., Capital City Beverage Co. and FEB Distributing Inc. Given the brewery’s deep roots in the south of the United States and connection to the blues tradition, the Magnolia State will be a great fit for Oskar Blues and the brands will be right at home in the Mississippi Delta, the brewery stated in a press release.
Boulevard Brewing Co. has grown to become one of the largest specialty brewers in the Midwest, dedicated to the craft of producing fresh, flavorful beers using traditional ingredients and the best of both old and new brewing techniques. They’ve become so big that they need a new home to store everything. This week, Boulevard Brewing entered into a long-term lease for a 182,000-square foot distribution center in Kansas City. Upon completion next spring, the Kansas City brewery will move from its 64,000-square foot location, which has served as the company’s principal warehouse for more than eight years. The new state-of-the-art building will house all of Boulevard’s finished beer, along with a barrel-aging cellar and space for a bottling line for its Smokestack Series beers.
“We’ve been bursting at the seams for quite awhile,” said Jeff Krum, Boulevard’s vice president of Corporate Affairs. “This should give us breathing room for at least the next decade.”
Vermont Beer Shepherd ushered in its first shipment of craft beer into its newly constructed boutique distribution facility on VT Route 100 just outside of Waterbury,Vt. The company explained that it aims to be not just another beer distributor. This family-owned business aims to do things differently than the big-name distributors. By closely tending to each step of the journey, VT Beer Shepherd assures every beer will reach the consumer exactly as the craft brewer intends, which is not always the case in today’s market. They will also be building a direct relationship with their end-users, which has not been traditionally done in the beer distributing world.
“We decided that during this time of mergers and consolidation in the industry, that the time was ripe for us to do something differently,” said Mark and Indy Ewald, owners, Vermont Beer Shepherd. “We are going to give the small producer a viable option that is independent of any influence from the large brewers, importers and distributors that are beholden to their networks.”
The Charmer Sunbelt Group and Wirtz Beverage Group, two of North America’s pre-eminent family-run distributors of wine, spirits and beer, have signed an agreement to combine substantially all of their beverage alcohol operations. The new company, Breakthru Beverage Group, will be one of the largest and most established wholesale distributors in the United States and Canada. The company will initially have operations in 16 markets, employ more than 7,000 people and represent a portfolio of premier wine, spirits and beer brands with $6 billion in annual sales.
Breakthru Beverage will be designed to lead in the evolving total beverage alcohol landscape, bringing together the strongest elements of both companies. Enhanced commercial capabilities and superior market execution will be supported by integrated insights and strong expertise to establish a unified national footprint. Innovative approaches will be the foundation for a new and different kind of company.
The craft brewing industry has its share of distribution strategies for those enterprising breweries looking to share their wares with a wider audience. As mentioned in stories on this site, it pays for a brewery to know who it wants drinking its beer and why, and for that to be a main driver in how/where to bring beers to market. A nice example of this is Blackberry Farm Brewery’s latest distribution news.
The Walland, Tenn.-based Blackberry Farm is going to leverage the relationships it has with high-end restaurants throughout the country and start shipping small-batch beers from its brewery their way.
Well, two of North Carolina’s largest beer distributors, Caffey Distributing and Carolina Premium Beverage, have created Craft Central, a new division dedicated to the sale, distribution and proliferation of craft beer. Since its launch in November 2014, Craft Central has brought craft brewers such as Ballast Point Brewing Co., Epic Brewing Co., DuClaw Brewing Co. and Olde Hickory Brewery to the Triad and Charlotte region of North Carolina. This is in addition to their portfolio of 18 craft brand, including brands from Foothills Brewing, New Belgium Brewing Co. and SweetWater Brewing Co.