Retailers Call Self-Distribution a Hassle; Ask for Parameters on Taprooms

FILED APRIL 13, 2017

Dear Client:

Bump Williams' annual CBC retailer panel focused on a few key themes: taprooms, category management and self-distribution.

It was largely grocery dominated. In that channel, craft is still driving the beer category. It was 40-plus share of the category for some panelists, and lots of the growth.

"Beer in total at Meijer is doing well," said Meijer's Rich O'Keefe, though the last half of last year saw a slowdown; craft was a big part of that. This is the first year of the last five they haven't had double-digit increases in craft.

But the segment is still a growth category and "very important." (Total alcohol is one of their three banner categories; they're focused on expanding the space and experience.)

Morgan Matthews of Sam's Club plans to not only grow craft, "but [also] to add space to it": It's a "huge part of my space," he said, and they're "only going to dig deeper." Beer at Sam's is winning among bev alc; it's "driving traffic, bringing innovation."

For North Carolina's Lowes, total beer is up close to double digits -- and craft, too, which is nearly 40 share of their beer category. (Wine is still doing well for them but "not as good as beer.")

Harris Teeter (also in North Carolina) sells 50% more wine than beer, but craft "certainly drives the growth." Domestics are a commodity business; in their footprint, many retailers sell below cost in his territory, so craft "certainly provides the profit."

And at Ohio's on-premise Winking Lizard Tavern chain, they're growing craft, but it's not making up for their domestics volume losses.

"We're a sports bar," WLT's John Lane said. And they still haven't figured out how to get that sports consumer to drink craft beer through an entire sports performance. Still: his customers are generally drinking better, but less.

Meanwhile, John says local is becoming "more and more important" for them.



BUT HOW DO YOU DEFINE LOCAL? This is a sticking point: Most retailers want local, but have a hard time defining it. That can be dangerous when trying to expand brands: "You just don't know how many stores wide - 10 miles, 20 miles? Can you go into the next city? There's just no way to tell," one off-premise retailer said (we'll stick to relative anonymity from here, due to grocers' competitive nature).

As for national craft brands: They "just aren't paying rent on the shelf," said another. And by the way, some are defining national as anyone outside the state.

MANY RETAILERS NOT CRAZY ABOUT SELF DISTRIBUTION. "If you're self-distributed, it's very difficult for me to move forward," said one of the largest retailers. "You're not set up with the system; it's a huge process. No offense, but often it's not worth the time."

Said another: "I don't get it. That's not what you do," he basically said of self-distributors. "You're suppliers." This guy had more than 260 different distributors across six states. Imagine if every supplier self-distributed.

...NOR DIRECT SALES. Asked about the retailers' thoughts on brewery-owned taproom expansions, panelists generally agreed there's a fine line: It can build a brand. But it's edging into bona fide competition.

"We've gotta set some parameters," said John Lane. "Every brewer should have their mecca, where people come, and celebrate … I think that's fantastic. I think when they're allowed to open more than one ... opening other brewpubs, now you're in the restaurant business. You're competing with me."

Retailers will eventually say, we're not building your brand anymore; you are. So we're not carrying your product, he said.

Another off-premise retailer said they wondered whether on-site sales had taken one of their occasions. He described the relationship as "love-hate" in nature, though more "love" on the balance. This one thought it'd be good form (at least in retail partner's eyes) for brewers to maybe charge an extra $2 for takeaway sales (for the experiential upcharge).

"WHO DRIVES THE SET DOESN'T MATTER IF…" Bump asked about category captainship. With the big guys controlling the mouse, what chance does craft have?

If you have a specific list of items and priorities, "who drives the set doesn't matter," one retailer said. "They're not trying to take advantage." They've got a few priorities, but they generally gel with those of the retailer.

Most retailers have sales, margin, and market share evaluations they benchmark their captains to, so there's accountability. And one said they're looking to bring a craft captain on, too.

DOGFISH HEAD VP OF SALES: "WE HAVE TO BE AWARE OF THE AMAZON THREAT"

Amazon may only have a toe in the beer business right now, but its toe is enough to strike fear into the heart of industry folks.

A couple wholesalers told us earlier this week that the beer industry needs to hurry up and "figure this out before it gets out of hand," [see BBD 04-10-2017]. And Dogfish Head's VP of sales, Todd Bollig, echoed a similar sentiment at Brewbound's Brew Talks this week.

"I do think we have to be aware of the Amazon threat," Todd said when asked about emerging technology in the middle-tier. He noted that there are about seven Amazon warehouses within 100 miles of his house in Delaware.

"If we don't figure out how to operate more efficiently and get the beer our consumers are demanding… Then they [Amazon] will," Todd said. "That's probably the call in the industry, we have to get better because we can't hide behind the laws forever.

"If we don't figure it out they will get enough political power to say 'hey we can get the consumer what they want.' I'm not sure they can do it better, but they can convince people that they can."

"Look at Washington," Todd said, referring to Costco's successful efforts to privatize liquor sales in the state.

Another panelist on stage -- Chris Lennert, COO of Left Hand Brewing Company - said he's "intrigued" by Amazon's moves, but doesn't know "how it's going to work."

Chris said he's talked to their field quality manager about it and what he heard back was "I have a hard enough time getting in some of our distributor's warehouses - how am I going to get into all the Amazon warehouses to see what the cooler looks like, what's the temperature, what's the code, etc.

"He's trying to wrap his head around it and he's one person," Chris said, "So I'm intrigued by it, I'm curious to see if it plays out."

Brian Murphy, GM at Massachusetts Beverage Alliance, believes Amazon has their work cut out for them if they do decide to dive deeper in the biz.

"If they have back of the house support that can spend the amount of time it requires to set up a new item, then maybe they can turnkey all that," Brian said of SKU proliferation. "But we had to hire somebody specifically just to set up new items."

That person they hired has done about 1,000 new items since she started in December (Mass. Bev Alliance only has 32 breweries in its portfolio).

"Every time that you have a new item to set up, you have to get the pricing, the UPCs, the dimensions, all of that, and a lot of times breweries don't have that easily accessible. You have to chase these people, email them constantly... I know how much of a challenge it is for us, and we have people that are experienced. They're going to need to hire someone with real experience to be able to handle all that."

Until tomorrow,

Harry, Jenn, and Jordan

"I like the dreams of the future better than the history of the past."
- Thomas Jefferson

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