Great liquid is only one aspect of making your brand a customer favorite. To become truly brand loyal, people need to find your beverages in places they want to be. As much as taprooms, distilleries and drinking clubs serve as community cornerstones, the path of consistent exposure in the marketplace is traveled in partnership with like-minded distributors.
Oversaturation is a valid concern right now for beer producers. To date, the category has five consecutive years of declining sales—even while craft brews experienced a 4.9 percent increase in 2017. These volume losses indicate there’s a limited number of consumers interested in mainstream brands overall, but greater support of aspects such as locality, taste, innovation and story. While distilled spirits had another year of respectable growth—a sales rise of 4 percent and a volume increase of 2.6 percent in 2017, according to the Distilled Spirits Council—top brands such as Jameson, Hennessey and Tito’s led the way, but experts say premium spirits are what customers want, and they’re willing to pay for them. This includes bourbon, rye, vodka, tequila and gin.
“What’s really increasing in the spirits category is value, and that comes from the continuing trend of premiumization,” said Brad Vassar, chief operating officer of Southern Glazer’s Wine & Spirits, headquartered in Dallas, Texas. The company is considered a legacy beverage alcohol distributor, with roots extending back to the repeal of U.S. Prohibition through the ratification of the 21st Amendment to the U.S. Constitution—eighty-five years ago this December. Southern Glazer’s Wine & Spirits has operations in 44 U.S. states and the District of Columbia, Canada and the Caribbean. Vassar said producers have to evaluate what makes them stand out to discerning customers.
“You have to start with a brand that has a reason for being. There are so many new brands being introduced into the marketplace, and it’s already a very crowded space,” Vassar told Beverage Master Magazine. “You can’t just follow an existing trend—you to have an interesting proposition. That means a great liquid, great packaging and a great story.”
Mark Henderson agreed. As the co-owner of Lazy Magnolia Brewing Co. with Leslie, his wife, the team understands the challenges of unique positioning in a crowded marketplace. “We all have the same goal: sell as much as possible. But there are over 6,000 breweries in the U.S., and that many again in planning. I don’t know the stats internationally, but wouldn’t be a bit surprised that there are that many internationally,” Henderson said. “So let’s say there are about 20,000 breweries to pick from. If each brewery has 20 brands in a typical year, then you have 400,000 beers to choose from.”
That’s a rather heady expectation placed on the average consumer, and one that makes the power of choice through strategic exposure all the more challenging. Nevertheless, Lazy Magnolia, based in Kiln, Mississippi, has impressive demand after 13 years. Known for crafting with ingredients such as pecans, sweet potatoes, spirits, fruits and spices, its beers are available throughout the Southeast, Midwest, Mid-Atlantic and select export markets. Henderson places value on distributor knowledge.
“If you’re outside the direct influence of the brewery, distributors represent access to customers. They’re acutely in-tune with their markets, their customers (retailers) and to some extent, the end drinker,” he said. “We’ve seen this across our distribution footprint—there are beers we make that just don’t resonate with end consumers in that region,” he said. “As such, it’s vital to listen to your distributors—they see what’s selling and can help guide you in directions to support critical needs. During ABPs (annual business plans), we present our yearly roadmap. Not just products, but also packages and experimental items. The feedback lets us know when we’re behind, just right and too far in front of the curve,” he concluded.
Getting Out of Your Backyard
Prior to Prohibition, beer, wine and spirits producers could serve their products often through retail establishments they owned or operated. After the repeal of Prohibition in 1933, the concern was this previous model was too inclusive and potentially constrained.
So the U.S. government created a three-tier system for alcohol sales: a producer/importer sells to a beer or wine and spirits distributor, and that distributor sells to on-premise providers, such as bars or restaurants; or off-premise retailers, like liquor or grocery stores. State regulations governing this system provide a means by which to collect taxes and protect consumers. Regulations frequently vary by state, municipality, type of product and distribution model. Canada has a similar structure through the Canadian Association of Liquor Jurisdictions, which works in cooperation with the country’s 13 territories and provinces to oversee the “control, distribution and sale of beverage alcohol.” Navigating these multiple variables can pose a number of challenges for a producer who wishes to expand.
The producer-distributor partnership, said Craig Purser, president and CEO of the National Beer Wholesalers Association (NBWA), is one of the primary reasons why there are currently 6,000 breweries and more than 1,500 craft distillers in the U.S. “That’s an American success story,” Purser said. “And it’s a story that’s been facilitated by a very successful combination of independent distribution and effective state regulation. The regulation allows those marketplace participants to grow and thrive, and independent distribution allows them the capability to get out of their backyard.”
Regardless of the excitement and interest in a beverage, Purser said, it’s vital for producers to differentiate themselves. “I do think it’s going to be increasingly difficult,” he said. “But it’s an independent distributor that’s going to see what makes a brand different, what attributes are unusual, what the consumer is looking for and what a retail partner is looking for.”
NBWA located in Alexandria, Virginia, reports there are 3,000 independent beer distributors in the U.S. Wine & Spirits Wholesalers of America in Washington, D.C. indicates that its 400 member companies represent approximately 80 percent of all spirits and wines sold in the U.S., with thousands of locations around the country facilitating ease of accessibility.
This broad scope of alcohol beverage distribution still requires actionable positioning by a producer—and probably more of a hard look at reality instead of a starry-eyed dream.
“A product clearly needs to be profitable to the wholesaler and the retailer,” said Brad Vassar of Southern Glazer’s Wine & Spirits. “We have an extensive process for reviewing new brand proposals. Our supplier management and business development team vets new brand marketing plans and if we think there’s something viable, we’ll work with our commercial teams to determine if it’s something we want to test in a certain market, or take across our enterprise. We pride ourselves on having our finger on the pulse of what consumers will respond to, and what our customers can sell,” he said.
Henderson of Lazy Magnolia provides a more detailed breakdown of the process. “We typically see distributors with 50-100 suppliers, and they often have limited shelf space and practically no room to back stock. The absence of back stock is a killer for diversity, as distributors can only afford run deliveries just so many times,” he said. “Shelf space then is consumed with stock based on pull-through rates. So on a typical 80-ft. shelf, only 50 percent is dedicated to diversity. If that shelf has five layers, and every brand only gets an end facing, there’s only space for 400 brands maximum—generally nowhere near this much in practice—on the shelf out of 400,000 options. That’s approximately 1 percent.”
“Distributors then absolutely pick winners and losers in the fight for shelf space,” Henderson continued. “The great ones curate that list, making sure they provide brands that reach all consumers where they are right now.”
Purser of NBWA believes the producer-distributor relationship has to be blunt, honest, and direct in order to succeed for both parties. “There’s a lot more scrutiny now. Distributors are giving producers the respect of the truth and saying ‘Hey—you tell me why your product has to be on the store shelf. You tell me why it’s unique and appealing.’ Both sides are looking at these relationships—especially when something is new to the marketplace—and thinking about them in a way that’s mutually beneficial,” he told Beverage Master Magazine. “More candor and clarity of expectations is a good thing for brewers over the long term.”
Henderson also presents another aspect of the producer-distributor partnership. “Sometimes distributors can be too in-tune with their markets. They’re looking at what’s selling right this second and asking for more of that, not realizing that the fad du jour will have changed before they sell out their stock plus inbound inventory,” he said. The example he used demonstrates how the focus on premiumization and individuality of adult beverages matters to consumers.
“We’ve seen this break down in recent times with the extreme focus on IPAs. IPAs aren’t necessarily for everyone. Great distributors curate the experience, broaden the base and attract consumers that might be turned off beer because of IPAs, but can fall in love with brown ales, sours, Belgians and other styles. The IPAs might be selling well, perhaps even better than other styles, but if the market becomes saturated with monoculture, it weakens the broader market for beer.”
Connecting With the Best Distributor for Your Brand
Choosing a distribution partner isn’t an easy or fast decision. You have to gain an understanding of delivery and warehouse needs; establish expectations for distributor support and promotions; develop a growth strategy with a brand development team; and secure a budget, which may range $40,000–$100,000 the first year, depending on certain variables.
From the first inquiries and contract negotiations through initial launch and full execution, the process can take up to two years. And our experts said there’s absolutely nothing wrong with that.
“First, you need to decide if you’re culturally compatible, and if the values of all partners are in synch,” Purser said. “So you want to be interested in the reputation of the companies you’re considering and evaluate each in detail. And take your time with the decision. I can’t emphasize this enough. Slow, reasonable growth helps producers manage expectations.”
Henderson said Lazy Magnolia’s action was forced by Mississippi’s regulations. “We had to focus on distribution earlier than was healthy. Mississippi was the last state to permit a brewery any access to retail channels—we couldn’t even give beer away to a consumer. As such, every drop we made had to go through distribution,” he said. “All the evidence is clear: there’s no better champion for a brewery than the staff in the taproom. In almost all cases, the brewery taproom subsidizes wholesale beer. In our case, we didn’t have access to that, and so we had to focus on being wide rather than deep.”
His primary advice for producers choosing a distribution partner hinges on one factor: relationship. “Good liquid is a prerequisite, as is a good execution team at the distributor,” he said. “But in the end, sales are dictated by how well you work together, how well you communicate and how well you can integrate with their team to drive execution. Andrew’s Distributing in Dallas is a perfect example of a great distributor.”
Vasser noted three key components for making the right choice. “First, if a producer has a viable brand and is really aiming for national distribution, it helps to have a partner with a footprint that covers the vast majority of the markets. Second, you need a distributor with strong capabilities in the on-premise sector. It’s still the channel where brands are built,” he said. “Last but not least, you need a distributor that knows how to use data to identify opportunities. For example, we have the largest and most comprehensive data set in the industry, and use that information to help our suppliers and customers make educated decisions.”
Contracts vary considerably between producers and distributors, but at their core is clarity of best practices. “Both parties need to know their rights, obligations and responsibilities,” Purser said. “It’s often difficult to separate the contract from state laws, but understanding this relationship is key. I think state brewer guilds’ provide good resources for producers to help with this process.”
Henderson’s final thoughts also included transparency of a distributor’s best practices. “Before we engage with a distributor, we go to the market and make sure the distributor’s staff members execute the way the distributor thinks they do,” he said. “A distributor may be able to clearly articulate their passion, their processes, their values and their ability to execute to a supplier. They may not be able to articulate those things to their staff. Trust and verify.”