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December 1, 2011

Craft II

As I finish up a two month focus on Craft brands and how they have and will impact the beer industry, actions are being taken by Anhueser Busch Inbev to change this influence.  During their recent national meeting ABI announced that they were "offended" that AB distributors were taking on Yuengling in some markets and encouraged distributors to become aligned with them in order to be an “anchor wholesaler.”  While Anhueser Busch Inbev (ABI), as well as MillerCoors, has every right to make these requests I see no reason for a wholesaler to blindly follow their brewery down this slippery slope of exclusivity. I believe the Craft brewers will continue to go where they think their brands will be best cared for regardless of what the major brewers demand.

While every distributor consolidation is different the two most influential factors are the number of potential buyers and the efforts of the suppliers to seek out the distributor that best suits their needs.  Because of the exclusivity policies of Anhueser Busch during the 90s many MillerCoors distributors were able to garner massive portfolios in the Craft and Import segments, as the Anhueser Busch distributors were not willing to go against the corporate directive.  While many ABI distributors in recent years have given up on exclusivity in order to gain scale in the market the recent statements by ABI could influence some to pull back on their non ABI expansion plans.  By aligning with ABI and choosing not to add strategically to their portfolio, distributors will reduce the number of purchasers for brands in any given market and, as a result, will lower values of those selling distributors.  Craft Brewers in turn will have a limited number of candidates to choose from and we may see them move to wholesalers who have no major brewer alignment.  Regardless of which direction the craft brewers choose they can still have an impact on distributor consolidation.

Craft beers, by their sheer volume and growth, have been influential and will continue to play a large role in distributor consolidation by shifting the balance of power in the marketplace.  Craft brands that have historically not played a significant part in consolidation plans are now playing a bigger role when a multibrand distributor sells.  Instead of following the herd and automatically going where the primary domestic brand is being sold, craft and import brewers are looking more and more for the distributor that meets their needs.  Because each brewer has their own set of criteria, determining where the brewers move their brands is generally a market-by-market situation.  Historically the consolidation between Miller and Coors distributors had meant the accompanying crafts and imports moved with to acquiring distributor for MillerCoors.  In recent multibrand distributor transactions all brewers are looking at their options, including moving to a competitive distributor.  The shift in market share can be dramatic based on where the leading craft brands move their brands.  A fully consolidated MillerCoors distributor may have as much as 60% of the margin pool, with a full lineup of Craft & Import brands. If by chance the ABI distributor acquires some of the high margin Craft brands the MillerCoors distributor could have less than 40% of the margin pool.  Craft and import suppliers are now determining who the dominant distributor in the market is by where they move their brands.  One major supplier cannot determine where the entire portfolio will go in a distributor transaction as where the Craft and Import brands will move to will be determined by a combination of factors.  These factors include the willingness of the selling distributor to maximize their value, the aggressiveness of any potential buyers, and, finally, the brewers who have brands that are being sold.  If you are an acquiring distributor you can no longer just worry about when the potential seller will put his distributorship on the market. If you are planning on acquiring a distributorship you should be doing your homework now with the suppliers, to build solid relationships, as well as insuring that your current performance is one that any potential brewer would consider the best.

History repeats itself and the actions by ABI this month with their wholesalers is a great example how some distributors will make the same mistake that was made less than 15 years ago.  The demand by ABI that distributors maintain a single focus on just ABI brands is not only self-serving but one that could lead to making the same mistake again.  Maintaining alignment with any brewery is about performance.  Any supplier would be hard pressed not to support a distributor who is performing above his or her peers, and has the management to move the business forward, regardless of their competitive portfolio handled.   MillerCoors distributors have learned this over the years and on numerous occasions have been able to leverage their import/craft portfolio to benefit MillerCoors.  Any ABI distributor that heeds the warning from their brewery and chooses the route of exclusivity will set themselves up for longer term mediocrity and, at best, only matching the market share of the MillerCoors distributor in their market.   While those who make decisions to grow their portfolio by adding suppliers in the fast growing Craft segment will excel.  When it comes to making decisions on what brands or breweries distributors choose to represent I believe distributors will use the correct logic and do what is best for them.   

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