July 29, 2011
The repeal of prohibition in 1933 by adopting of the 21st amendment to the constitution laid the foundation
for the modern day beer business. In order to repeal prohibition congress had to vote in favor of the repeal resolution,
and did so 63-23 in the Senate and 289-121 in the House. In addition to the vote in congress it still required that
the states approve, through state conventions called for this specific purpose. The first state to vote in favor of
the repeal of prohibition was Michigan with Utah being the thirty-sixth and last state needed to approve the amendment.
Thus on December 5, 1933 and after 13 years, 10 months and nineteen days prohibition was dead.
I have started this month’s blog with a review of history in an effort to reflect and
appreciate what we enjoy today. It is amazing to think that we are able to work in an industry that legally did not
exist for over 13 years and is around today because of an amendment to the U.S. Constitution. The history behind establishing
today’s alcoholic beverage industry is unique. Despite the challenges in establishing the modern day beer industry
I feel some take for granted what we have today. It is an industry rich in heritage, deep in tradition, and overrun
by unique individuals. Maybe because of all three characteristics we seem to spend much of our time battling one another
instead of pulling in the same direction. Each of the three tiers seem at times so consumed in protecting their own
agendas that we risk endangering what we all have been able to enjoy. While some currently employed in the industry
may consider their time here only a pause in their plans for more glamorous opportunities, I cannot think of a better place
to be than in the beer industry. In order for future generations to enjoy what many of us have for years, I believe
we need to change how we approach certain aspects of the industry. While I have no desire to engage in the debate over
what role each tier should play I do think it is worth addressing some perceptions and in my view misconceptions that exist
regarding distributor consolidation.
When did we decide how many distributors should
be in any one market and what each should handle? I know the history of the eighties and nineties when many of the Miller
and or Coors distributors grew through acquisitions of import and craft brands, while the AB distributors were single focused
on their brands. I also fully understand the economics of scale. So who says this has to be this way today?
Recent consolidation and new brand introductions have indicated that this may not be the case in every situation. The
creation of a more open market for who carries what brands would create healthier competition between all of the parties and
result in better service to the retailer and a more vibrant industry. Making decisions in a vacuum because that is the
way it has been done in the past is not a progressive approach to the wholesale tier. Brewers who look for and appoint the
best distributor in the market, based on service and organizational structure, should be applauded for not being locked into
one line of thinking. I know this may sound like blasphemy to some of my wholesaler friends but I think it is time to
look differently at who is awarded brands in consolidation and raise the bar in regards to retail service standards and the
management of brands within the wholesale tier. The distributors who have targeted growth through consolidation have
recognized this for years and have made changes in the way they approach the market. Contrary to those who are more
forward thinking, there are still distributors who continue to lean on what they did 20 years ago and are benefiting from
being in the right place at the right time in regards to brand acquisitions. The thought of a wholesaler amassing a portfolio
by hording brands to keep them away from their competitor is not healthy and does a disservice to all brewers and retailers.
In order to operate in today’s environment, where crafts and imports continue to grow, you have to specialize in beer
and not just delivery. Building and maintaining a portfolio at the wholesale level should be about what you do to grow
the business not who you know at the brewery. If distributor consolidation changed and did not follow the traditional
rules it historically has, would there be room for a third distributor in some markets? I say yes if the third distributor
can amass the scale. This is done today without the presence of a leading premium portfolio in markets around the country.
I believe there is an opportunity for either new distributors in a market or existing distributors to develop operations where
they would compete against those who have premium portfolios. This could be a situation where a larger craft or import
brand may be the dominant brand in these operations and not have to live in the shadow of larger portfolios.
There are pundits today that will say the three tier system is either outdated or will continue to evolve to the
point of fewer and fewer distributors. While I am a staunch believer in the current system as it serves the brewer,
wholesaler and retailer well, I question how fast the number of distributors will diminish. We see today that consolidation
as we have known it in the last several years has slowed. I believe this is directly attributed to growing wholesaler
profitability and the inability of the brewers to advance their consolidation strategies. I believe future consolidation
will be driven by the lack of a legacy to pass the business along to, a decaying infrastructure within certain networks, the
ability and desire of the larger wholesalers to pay above market pricing and a fresher view of how the smaller brewers view
their distribution network. Consolidation will change as the entire beer industry has changed over the last 78 years, slowly.
Why could you not see an increase in craft and import focused distributorships just as you have seen the boom in craft brewers?
It seems impractical that the number of independent distributors would grow but with the future expansion of Yuengling, New
Belgium and various other crafts along with the availability of brands as distributors consolidate, who knows for sure. What
I do know is that those of us who are blessed to be in this business should appreciate our heritage and always strive to make
“Your chances of success are directly
proportional to the
Degree of pleasure you derive from what you do.”