What Price Distribution?

Belgium InBev

A new report [PDF] from the National Beer Wholesalers Association pegs the economic impact nationwide of beer distributorship at approximately $50 billion and 320,000 jobs. On a micro level as well the numbers are particularly striking: In Pennsylvania, the impact is estimated at $2.2 billion and in neighboring New Jersey around half that.

Craft beer has had an interesting history with distribution, a kind of love-hate-love-some-more relationship that goes back to at least 1971, when Fritz Maytag‘s Anchor Brewery started distributing in bottles beyond its immediate San Francisco environs.

By the end of the 1970s, other craft brewers were taking furtive distributions steps as well. Jack McAuliffe drove an old Dodge van around the Bay Area to deliver New Albion beers; others took the plunge with niche distributors, only to be rudely awakened. Ken Grossman‘s Sierra Nevada realized early on that these niche distributors were utilizing a throw-it-against-the-wall-and-see-what-sticks approach, making them willing to take on domestic craft brands as well as more exotic foreign ones, though not necessarily willing to push hard for one or the other. Tom de Bakker found that even if he could get the niche distributors to carry his eponymous brand in the Bay Area, baffled retailers often lodged it with the imports (a compliment in a way, sure, but not what he was looking for).

Well into the 1980s, craft brewers were distributing through a mix of self-delivery and contractual headaches with distributors. Jim Koch drove about Greater Boston in a yellow Plymouth Reliant that his kids called the “Beer Mobile” to deliver to the early accounts of the Boston Beer Co. Kim Jordan and Jeff Lebesch thought they’d hit on something with a Denver distributor for their Fort Collins-based New Belgium, only to discover the two palettes they’d delivered still sitting under the original plastic wrapping weeks on, the distributor paying heed to bigger fish than they (luckily, they did not have a contract with the distributor and took the beer back).

By the early 1990s, when craft beer was growing at a torrid pace, distribution seemed, if not conquered, then at least overcome. Capital costs for expansion far outpaced costs for distribution for most craft brewers. This was the era of double-digit percentage growth every year in an industry that was increasingly well-known to major distributors, including those tied or owned outright by Big Beer entities. Then! In March 1996, one of those Big Beer entities, Anheuser-Busch, unleashed what it called “100 percent share of mind,” an imperious campaign to force distributors to focus solely on A-B products to the exclusion of all others. It was a none-too-subtle reaction to that torrid growth in craft beer.

Craft brewers almost immediately started losing distributors. Robert Eilert‘s new Flying Monkey in Merriam, Kan., was an early victim. As he put it to a reporter at the time: “Anheuser-Busch has 58 percent of the market share of Johnson County. In Johnson County, the bread is buttered on one side with Bud and Bud Light on the other.”

In a perverse way, the craft-beer crash of 1999 and 2000 solved the distribution conundrum brought on by 100 percent share of mind. The crash weeded out weaker, iffier craft-beer brands and refocused the entire industry on not only quality and authenticity, but on distribution closer to homeand at a slower, more measured pace. No need to be everywhere as fast as possible anymore. David Geary of D.L. Geary, which by the new century was the oldest craft brewery on the East Coast, explained it this way at the time: “The lesson is: Devote your time, your money and your effort to your core market, and you’ll be fine.” Geary had always distributed solely in the Northeast. With its population of around 55 million, it was bigger than most European countries. Shouldn’t that enough?

Craft beer has, of course, begun to grow at a torrid pace again, and Big Beer’s going through yet another consolidation wave. What will both bring for distribution? Stay tuned.

· Beer’s Economic Impact in the Billions Here [Biz Journal]
· National Beer Wholesalers Association report [PDF]

One thought on “What Price Distribution?

  1. Pingback: Actually, Yes, Big Beer Did Manipulate the Market and Prohibition Did Affect Smaller Breweries | TomAcitelli.com

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