Consolidation Continues Among Beer Distributors

NEW YORK, April 15 /PRNewswire/ — Rising costs as well as the need for scale and for broad, well-balanced portfolios has driven consolidation among U.S. beer distributors according to a new Rabobank report. The report, “Ag Focus: The Future of Consolidation in the Beer Distribution Sector,” finds that consolidation among beer distributors has been occurring at a steady pace since the 1970s.

“In many ways, 2007 was a watershed year in terms of the number and magnitude of changes in the beer distribution playing field,” said Food & Agribusiness Research and Advisory Vice President Stephen Rannekleiv.

The foundation for this occurrence was created in 1933 when the U.S. government repealed prohibition, it mandated a three-tier system in which alcohol producers were obliged to sell their products to distributors who then sell to retailers. The goal was to assure that producers could not own retailers, which would limit competition. By the late ’70s, there were more than 5,200 distributors, but that number had fallen to slightly more than 2,000 by 2006.

Today, consolidation has been driven, in part, by increased operational costs — particularly health care and insurance costs — which have put pressure on smaller distributors, who do not have the same ability to negotiate with insurance companies that larger distributors have, and cannot allocate their costs across as wide a range of operations as larger distributors. Additionally, smaller companies also face challenges in acquiring a broad portfolio of attractive brands.

“As consumers demand a wider variety of — particularly higher-end — products, developing a strong portfolio of brands has taken on critical importance, perhaps even more important than the strength of any one individual brand in the portfolio,” said Rannekleiv.

Given these and other challenges, smaller distributors have opted to sell their franchises to larger, more efficient distributors that are looking to diversify their portfolios. Originally, distributors were paying a premium for these franchises; however, it appears that prices paid for distributorships are now decreasing.

The trend of increasing prices paid for distribution franchises had been driven mainly by the improved profitability resulting from consumers migrating to premium and craft beers in recent years. Over the years, domestic premium brands (Budweiser, Miller, Coors) have dominated the market, but sales have been relatively flat. In 2007, dollar sales of imports grew by 4.4 percent and micro-brands grew by 16.8 percent. However, this growth is likely to slow due to growing concerns about the economy and a tightening credit market.

“An economic slowdown can be expected to create greater price-sensitivity in the market, creating a more challenging environment for flagship brands to take price increases,” Rannekleiv said. “Recent numbers show that sub-premium brands may be regaining ground as consumers seek lower-priced alternatives to domestic premium brands.”

Source Citation   (MLA 8th Edition) “Consolidation Continues Among Beer Distributors.” PR Newswire, 15 Apr. 2008. Infotrac Newsstand, Accessed 24 Mar. 2019.