Article of Concern: Beer Consolidation cometh.. - One Vine Wines

Article of Concern: Beer Consolidation cometh.. - One Vine Wines

Gold Network or Chosen Network?

Source: Beer Business Daily

June 28, 2018

Wholesaler relations don't seem to be at the top of Constellation Beer's priorities these days. They famously call their beer distributors the Gold Network, and yet they apparently feel this network should be smaller.

Let me explain. I was having supper last week with a Texas distributor (not a Constellation distributor) who casually mentioned a curious thing he heard at an earlier meeting of the Wholesale Beer Distributors of Texas, in that a "wine guy" said that "there are too many beer distributors" and that there needed to be just one per state.


(Ed. Note: As I was researching this, my alert friend Benj at Insights Express broke the story yesterday. Well done, sir).

Two more sources who were there at that event indeed confirmed it was CBBD chief Paul Hetterich, who said, in response to a question about the Markstein de facto termination, that there are simply too many beer distributors, and that beer distributors need larger territories to compete.

You know, like wine and spirits wholesalers do.

One source who was there said it amounted to his: "He wants us to be like wine and spirits distributors," who lack franchise laws in most states, (and also lack, in my opinion, the ability to deal with high velocity selling and delivery, and thus market penetration, just like huge distributors CCE and PepsiAmericas lacked those skills once they took out local indie bottlers. History repeats itself, IMHO). As one Texas Constellation beer distributor said dryly, "Let them come to [his city] and see how that turns out for them."

HISTORY SIDEBAR: Indeed, the history shows that there's a long history of fast-growing breweries who use their momentum as a cudgel to attempt to "align" their distributors. (G. Heileman, Stroh, Schlitz, Labatt USA - Ohio, MillerCoors in Florida, Ohio, Cali, A-B/Maris, Pabst, etc... All asses handed to the supplier)

While the suppliers' lawyers thought they had great legal arguments, in the meantime during the inevitable public legal brawls, their other distributors lost faith.

A common theme amongst distributors today: As soon as Constellation Beer's trends start to soften, distributors who previously ran through walls for them when their sales softened the last time will somehow drift into the walls.

Here's the thing: Constellation is the largest premium wine company in the world, a major spirits player in the U.S., and is used to dealing with very few huge distributors. So these pesky 600 or so beer distributors seem to be a logistical nuisance.

GOLD NETWORK DRIVING CONSOLIDATION. So it begs the question: Are they attempting to drive distributor consolidation on the beer side now that they are the belle of the ball, much like Diageo did in the late 1990s and 2000s with wine and spirits distributors? It certainly seems so.

Be careful out there. Markstein was a good distributor in the wrong place. And it's not necessarily only because they were next to an A-B branch. It could be because they were next to somebody else, who perhaps has wine and spirits ambitions. And it makes sense, as Constellation is at a disadvantage to Diageo, Bacardi, Pernod, Gallo. EXCEPT when it comes to beer. And beer could be their secret weapon to take those giants on.. if they can get distribution consolidated.

But as one distributor noted: "Nobody destroys fortunes like wine people." And as Bill Hackett said two years ago to beer distributors, the lack of brand building "will be the death knell of this industry. We have to focus on building brands. It can't be about focusing on styles. I've lived with that with my counterparts in the wine industry." He also said, "we don't take anything for granted. We tell all our employees, you need to fight like you're losing." Are STZ leaders today acting like they are losing?

I'll leave you with one major Constellation Beer distributor's comments: "They better hope their brands do not fall on hard times. That is when smaller hometown distributors can save sales and market share with personal relationships while some new beer knight fixes a cocky brewery mistakes."