A Few Thoughts on Distribution

Eno Sarris, November 26, 2013

Buried in a deep piece about how great the In-Bev merger is going, a little newsitem caught my eye:

With more than 500 wholesalers and 11,000 trucks delivering beer each day, A-B InBev officials contend they have the best route-to-market processes in the country. A-B InBev was able to reach 95 percent distribution for Bud Light Platinum in four weeks. For Bud Light Lime Cran-Brrr-Rita, a malt beverage introduced this fall, A-B InBev reached 80 percent distribution in a mere four days.

And now the rumors are that InBev would like to buy SABMiller, making one big behemoth of a brewer making all the beers that 30% of the beer-drinking population would prefer never to soiffe. But even that behemoth couldn't do much better than four days. Four days!

In contrast, a well-known craft brewer recently hit a milestone. Green Flash is now in 48 states. Oh good, it only took 11 years.

This isn't to denigrate Green Flash or hold InBev up in a grand light. This isn't even to lament the state of the market -- our analysis to date has been that the smaller brewers should probably grow slowly and organically to avoid the pitfalls of the last beer bubble. But this *also* isn't to say that Green Flash hasn't wanted to be in 48 states for some time now and just chose to grow this slowly. It's not that simple.

What's more likely is that beer laws are very complicated, and that distribution suffers because of it. The same prohibition laws that have kept brewers from vertically integrating their distribution are probably holding some 'big small' craft brewers from making the leap into top sales brackets. InBev is so big that it spawns distribution companies in every market -- exclusive distributors that might as well be owned by InBev, since that's all they stock. The 'leftovers,' aka the craft market, are forced to try and make deals with smaller distributors in a patchwork that covers different markets to varying degrees.

Boulevard Brewing made a smart decision once to expand by signing up with wine distributors in late 2012, and that's the only reason Boulevard made it all the way to California on the regular, while many places in the northeast have never seen the Smokestack series. The reward for smart distribution, of course, was being gobbled up by another 'big small' in Duvel Moortgat. The owner was looking for a way out, perhaps, but on some level, the deal was about distribution:

Boulevard, the 12th-largest craft brewer in the United States, has distribution approaching 180,000 barrels this year. The acquisition will give it access to wider distribution in the domestic market and an avenue into international markets using Duvel’s worldwide system.

If you want to vote in the craft-dominated Brewers Association, you need to produce less than six million barrels a year. So, on some level, the definition of craft brewing includes this smaller distribution. You can't be craft and be big. But so many great craft beers are starting to become 'big smalls' and they're running into decade-old distribution laws that serve as an obstacle to their growth, perhaps best overcome by cannibalism.

It's not clear if these laws actually hinder Green Flash greatly. Could they have their own nationwide distribution chain right now? On the other hand, it's not that hard to imagine how craft beer could benefit from some vertical integration. Imagine if Sam Adams, perhaps the 'biggest small,' created a distribution network, buoyed slightly by deals with smaller craft companies to be distributed right along side Sammy. Is this impossible? Does competition mean that other beers wouldn't want to do this? Or does the collaborative feeling in the craft brewery scene right now mean that there absolutely would be breweries signing up for this sort of thing?

Beer trading is fun. It's also expensive. Unique distribution patterns make beer tourism fun. Beer tourism is also expensive. This craft beer drinker wouldn't mind being able to go to the local store and find some Shlafly, Founders or Bell's, in the end. And, judging from the speed from the 'brewer' to the table for Bud Light's Cran-Brr-Rita, it's not like the distribution laws are an obstacle for the biggest companies. Perhaps relaxing those distribution laws would be a boon to the craft industry.