Falco16 Fanpost: Hearing Footsteps… Drink Distrubution.

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This is a fanpost by Falco16 that didn’t post properly – SportingChiefs

Here’s a draft about drafts… The first part of this post was featured on Thirsty Thursdays, but I included it with the lost second part. Enjoy.

I was asked to write a little about how beer gets into your thirsty little hands. Beer like any alcohol is heavily regulated. A lot of the regulations still stem from the end of Prohibition.

The laws made in 1933 still effect sales today. This is written with general inside knowledge from working for a distributor, but as graphics guy, not a “beer guy.” So it will be fairly high level. Also it is from the perspective of beer. Wine and spirits are regulated differently, and also are distributed similarly, but all the rules and specifics are not one to one.

The most prominent of those laws is the Three-Tier System set up to regulate and control alcohol sales. The fear of corruption was still very real following 13 years of Prohibition and the rise of Capone.

So what this means is the Producer (Brewery) must sale to an independent Distributor (Wholesaler) who sales to a Retailer (Bar or Package store). The retailer is who you actually buy YOUR beer from. Now the term independent above is used loosely.

A distributor generally is either an Anheuser-Busch or a Miller/Coors distributor. It’s a game of follow the money. Although the distributor is independently owned (AB does own like three) they are beholding to the Brewery and it’s wishes. It is a partnership. The brewery only succeeds if the wholesaler succeeds, but we know who wears the pants. Even the local crafts have power over their distributor to an extent. Just lesser due to size and dollars.

This is where it gets interesting, and what I think Tony was wanting more of when he asked me to pontificate here. The craft breweries and where they fit.

I can only assume that the goal of most craft breweries is to be bought out by a larger corporation. At least that would be my goal if I started one. Now not everyone can be Goose Island or Blue Moon and be bought by AB or Miller/Coors. Shoot, not everyone can be Sam Adams or Boulevard and get bought out by non local breweries not named AB or Miller/Coors.

So that leaves us with “true” local craft breweries. Some grow and could be considered regional. These small craft breweries still need a distributor if they are going to sell outside there little tap house, and they create enough barrels of beer. (I’m sure there are other specifications) What do they do? They have to sign an agreement with a licensed distributor (yes government regulation).

Each distributor has a territory they are allowed to sell in. A company could control six counties in SW Missouri. Also the same company could have a branch that has six counties in SE Missouri, and a branch that controls one county in KS. (Can’t cross state lines) So where the distributor can sell might help a brewery decide which distributor to go with. Each branch is treated as it’s own independent wholesaler, but the company uses its extended “territories” as leverage to woo potential craft brands.

The distributor makes a pitch about what they see for how to best distribute and market the brand. They must show they have the ability to gain market share. Now part of the Brewery-Wholesaler partnership means the wholesaler does a lot of sign making, and other things “free” for the maker of the beer.

For example a lot of small crafts rely on their distributor to come pick up the beer from the brewery not ship it themselves. I’m sure all that cost gets figured in things, but a distributor has to be willing to make pick ups for not just take deliveries from the breweries.

Once the brewery chooses a distributor they sign a contract. This agreement is permanent. Like it takes a lot of money and time to get out of it. So if Brewery A decides it wants a new wholesaler the new wholesaler and the brewery will have to pay the old distributor pretty much whatever they ask.

This is true if AB (or Miller/Coors) acquires a small brand. If a brewery such as AB acquires a smaller brand and that brand is distributed by a “Miller/Coors distributor” then the “AB distributor” in that territory has to buy the rights to the brand from the rival distributor. AB owning the brand does not mean the “AB distributor” automatically gains rights. Vise-versa for a Miller/Coors acquisition and “their” distributors.

These rights are territory by territory. Not all “AB distributors” have the rights to the same non-AB brands as other “AB distributors” in another territory. A craft brand can go with the “AB distributor” in one territory and the “Miller/Coors” one in another. It’s free enterprise.

Also some states have state wide alliances where the alliance handles the rights acquisitions, and the individual member distributors then pay their share of that buy out. States like that would mean there is less divination between the portfolios of the various individual “AB” and “Miller/Coors” distributors.

What all this means for the little guys is they depend on the distributor to leverage their existing portfolio to push their brand. A distributor controls the shelf sets in stores, and will leverage their “main brand” to convince stores to allow them control of what goes in a set. If a distributor has control they can push product up or down. In a bar it allows the distributor to tell the bar if you want “X Major Brand” cheaper you need to carry “Local ABC.” They want “Local ABC” because people love the local. So portfolios matter.

The distributor is the one that mainly negotiates with the bar or package store to push product in. (The breweries do some deal makings) A lot of it is built on relationships. My city has five local craft breweries that are currently distributed. My company distributes four of those. Another distributor distributes the fifth. Your favorite craft depends on the distributor, and that distributor’s alignment with which ever “major” brewery allows them to better position Non-Major brands in the market.

I work in the sign shop. 99% of signage for beer sales in the market is made by the distributor. Not provided by the brewery. Some POCM stuff is purchased by the distributor from the brewery, but most is made in-house. The local breweries can lean on the distributor for art work and just about any printing needs. The distributor uses these “perks” when they pitch to carry a brand.

On the same token the retailers (bars and package) lean on the distributor for signage and as much free stuff as possible. The salesmen work on commissions so there’s not a lot of “no” going on. The distributor leans on the retailer leveraging their portfolio of beers, and the retailer pushes back and can favor the competitor distributor so there is a lot of back in forth. Retailers have been known to get mad at a distributor and those riffs cause major shifts in what product is sold at that bar/store.

One observation I’ve made since entering the beer business is a lot of people give AB tons of heat for being bought out by In-Bev, but they were the last of the major American breweries to be bought by a foreign entity. Coors sold to Molson, and Miller sold to South African Beverage prior to AB selling. Now Molson owns both Miller and Coors. (At least in America) Now I wish all three were still American owned, but it shows that all three are international conglomerates, and not entirey unlike the other.

Hope that helps give insight into how you get your beer. Laws dictate a lot of it and laws very from state to state. Anyone living on the Missouri-Kansas border can attest to that. Missouri has some of the loosest blue laws in the country, and it’s not a coincidence that Missouri had a large German immigrant population when the laws were formed and that the largest brewery in America was located here.

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