Olympics, Elephants and Beverage Distribution
Last week’s women's 200 meter run final heat at the 2020 Tokyo Olympics is a really effective metaphor for what’s happening in today’s beverage distribution tier. To set the scene, the two front runners from Jamaica and the US are cruising along thinking they will easily take Gold and Silver, respectively. When out of nowhere, a runner from Namibia, silently works her way to the front and surges ahead to win the Silver medal. Live sports announcers were stunned with her strategic victory, overtaking race favorites and literally entering viewers’ tv screens out of thin air. You could see the panic on the faces of the other runners just prior to crossing the finish line. They were nervous. They didn’t see her coming.
Just like the runners in this race, if you’re not paying attention to what’s happening in the beverage industry’s middle tier right now, you’re going to be caught off guard and stunned by the results.
So what does this have to do with elephants? Distributor consolidation is the giant elephant in the room that many people in our industry are either ignoring or just not acknowledging because they don’t understand the full gravity of the situation. Beer, wine, spirits...category doesn't matter, it’s rampant across the board. Silently playing out in the background of our three tier system, distributor consolidation is just one of the biggest challenges that members of the craft beverage industry are facing these days.
As if we need any more challenges right now.
Years ago, it was hard enough to garner the attention of traditional beverage distributors in the first place, but now that representing craft brands in your wholesale portfolio is par for the course, we get to deal with the new battle of distributor consolidation. This is a big fish, small pond to small fish, big pond type of situation.
Let me set the scene - large, macro-brand affiliated distributorships are buying up smaller regional distributors and gaining all their craft brands. Why is this a problem? Not only does this force craft brands to patchwork their distribution network together like an unfinished puzzle, but craft brands are being sent to the back of the bus again.
Mind share for your craft beverage brand is key in maintaining a profitable partnership with your distributor, so when you have to compete in house with larger brands that have bigger checkbooks and ample resources, mind share becomes more difficult to maintain. The balance of competition is thrown off kilter and macro brands move to the front of the line. And don’t even get me started on planograms for chain resets.
If you need an example, look to California. Reyes Beverage Group, the nation’s largest beer distributor, is collecting distributor houses like beer nerds collect stickers. There’s a whole mess of things wrong with these acquisitions, ranging from antitrust law violations to competition control to exerting their influence on the chain market. Kate Bernot wrote about this for Good Beer Hunting - I won't run you through all the specifics, so just read it here, it’s shocking to say the least, and very well researched. Make sure you read both Part 1 and Part 2.
So how can you fight the good fight? It will take some elbow grease, but here are some best practices that could help you weather the storm.
Have solid brand plans in place - distributors are more likely to give your brand the cold shoulder in the absence of strategic annual brand planning
Be persistent and actively present in the market - just because you’re aligned with a wholesaler, doesn’t mean sales with just magically increase, you still have to support your brand out in the field
Communicate often and regularly with key personnel - be persistent with the right players to get what you want, but also be ready to compromise
Be the least pain in the ass - stop throwing distributor personnel under the bus, even if something is their fault, but also make sure you’re holding them accountable for performance
Review your contractual agreements - make sure you are clear about sales capabilities, when you can exit a contract, who’s paying for marketing expenses, etc.