Donaghy/Delta Sierra Tie Up in CA Makes for 14 MM Case Distrib

Dear Client:

Earlier this week, Fresno-based A-B house, Donaghy Sales, LLC, announced a deal to acquire the distribution rights and assets of Delta Sierra Beverage of Modesto. Donaghy is about a 7 million case operation; brands include Heineken USA, Firestone Walker, The Boston Beer Company and “other local craft brewers.” Delta did about 7.3 million cases last year as well. Both families are generational businesses.

The deal is of course subject to supplier approval and expected to close this spring. Donaghy said it will continue to operate out of the Modesto warehouse in addition to its existing warehouse in Fresno. The acquisition is subject to supplier approvals and is expected to close later this spring.

IN OTHER DONAGHY NEWS: AMAZON ANGLE? In other Donaghy news, we came across this article about the company apparently leasing a Fresno warehouse to Amazon, who is using it as a delivery station. That would make it “one of more than 75 the online giant operates around the country, most fairly close to their fulfillment centers as one of the many methods used to get goods ordered from those centers to homes and businesses.”

“A company official said hundreds of full-time, part-time and contracted people work at the leased Fresno facility but declined to offer a specific number,” per story in The Business Journal, which added that “a development permit filed by Donaghy indicates a 373-stall parking lot is being built at the site.”

CANNED WINE… BAD FOR BEER? A BOON FOR BEER DISTRIBUTORS?

The canned wine category has really taken off in recent years. In 2018 canned wine sales were up a whopping 69% and volumes were up 47% in all Nielsen-measured channels. (It’s still growing off a relatively small base.)

So why do we care? A: Canned wine is growing into traditional beer occasions. B: Beer distributors know canned product, and likely will thus get into the space.

A panel at our annual Wine & Spirits Daily Summit in San Diego last week explored the canned wine craze and the challenges and opportunities the category presents.

THE OPPORTUNITY. What’s the run room here? Free Flow Wines chief Jordan Kivelstadt says he sees cans as an opportunity to expand wine consumption “to a whole host of places where it just didn’t really exist effectively before,” he said. So where beer is talking about picking off wine and spirits drinkers — rest assured, the other side is, too.

To wit: Jordan shared that E&J Gallo’s VP of marketing, Stephanie Gallo, said a few years ago that one third of the consumers that purchased Barefoot Refresh (a canned wine spritzer) had never purchased a wine product before. “Is there a whole consumer audience that we as a wine industry aren’t tapping into because the format, the bottle, doesn’t transport well certain places?” he asked, rhetorically. I think we know the answer to that.

BANKING OFF CRAFT. But if you had any doubt that canned wine is piggybacking off of beer, just listen to giant can manufacturer, Ball.

Melanie Edwards Virreira, director strategy & marketing Ball Corp., said she thinks the canned wine trend has “a lot of runway”: “once we started to see wine had an opportunity similar to craft beer and certain large wineries were getting into 250ml cans, it really started to take root,” she said.

Jordan agreed: Craft beer has groomed people to pay more for cans. “We’re the beneficiaries of the craft beer movement,” he said. “The consumer is willing to pay a lot of money for product in a can now. … In fact, the sweet spot is about $5-$6 a can or the bottle equivalent of $10-$15.”

ENTER BEER DISTRIBUTORS. But: Handling can distribution is different from handling bottles, which is not something wine and spirits wholesalers are used to.

So canned wine producers like Free Flow Wines’ Jordan are already thinking of turning to the can experts: “Do cans finally provide the opportunity for beer distributors to get into the wine game?” he mused for the audience: He understands that “they’re not selling a wine,” per se: “they’re selling a packaging they understand.”

Moreover: Who is the king of the c-store channel? Beer cans, and beer distributors.

Indeed, Jordan believes: “Cans will blow up the convenience channel for wine.” But “if you’re not one of the top five [wine and spirits distributors] you don’t even touch c-stores,” he said. “If you’re a brand with a fine wine house, that’s a channel that may not be open for you.”

BUD LIGHT HITS BIG IN ACE METRIX SUPER BOWL AD RANKINGS

Yesterday Ace Metrix, the leader in measuring video advertising effectiveness, released its lists of Super Bowl ads that stood out to viewers based on emotional impact. Results are generated from consumer data, where each ad is rated by more than 500 real world viewers all across the country.

Bud Light’s four spots hit in many of the top categories:

Bud Light got three of the top eight spots for “Funniest Super Bowl LIII Ads,” with the 15-second “Medieval Barbers” ad hitting at no. 4 (the other two Bud Light spots on this list included “Special Delivery” and “Trojan Horse Occupants).

The 1-minute “Special Delivery” spot (you know, the one that really needles Miller Lite and Coors Light on corn syrup) ranked in the top five of Ace’s “Most Ingenious” list.

And Bud Light’s “Joust” spot, which kills off the Bud Knight in the name of Game of Thrones, landed at the bottom (no. 6) of the “WTF” list.

COMMENTARY: THE BEER INDUSTRY CAN’T HELP ITSELF, OR CAN IT?

What is it about the beer industry that, even in this age of it being controlled by multinational conglomerates, makes it so publicly catty toward each other? Of course I’m talking about A-B’s bombshell ads attacking Miller Lite and Coors Light for including corn syrup in their beers, even as many A-B beers also use corn syrup (including Michelob Ultra until recently, according to a former brewer at A-B). And yes, MillerCoors started the fire with their comparative calorie and carb counts with Bud Light and Mich Ultra.

The only other CPG rivalries that come close are Coke and Pepsi. Pepsi did take a swipe at Coke at the Super Bowl, but it was as an underdog. Avis used to take swipes at Hertz in the rental car business (We’re number 2, so we work harder).

But I must say, I’ve never seen a big CPG company with the vastly dominate brand go after smaller brands, and at the Super Bowl, with a premise as thin as using corn syrup as a starch for fermentation rather than rice syrup, when the end result is the same: ethanol and CO2. As I said in an AP article, you could just as easily use donuts to ferment the sugars into alcohol, but donuts, alas, are too expensive.

A-B knows this. So the question is: Was A-B trying to conflate high fructose corn syrup, the evil boogeyman of ingredients, with corn dextrose intended for fermentation? [A thought courtesy of Brooklyn brewmaster Garrett Oliver]. For it’s part, A-B says it is only trying to promote transparency.

It remains to be seen if this new Beer War is helpful to the light beer category or not. I spent the day talking, tweeting, texting, and smoke signaling with several leaders in the industry. And the conclusion is there are two theories:

This creates so much discussion that people get interested in light beers again and it reverses the negative trend. I came up with this theory, and almost nobody agrees with me.
ML and CL beer drinkers don’t do their homework, and they flock to Bud Light thinking that MillerCoors brands are pumped full of high fructose corn syrup and they’ll get fat or worse, diabetes.
Consumers throw their hands up in disgust and are like: Damn I had no idea that beer was full of corn and rice and everything not nice. Pass the vodka soda (or White Claw or Truly).

But I don’t wish to end on a depressing note. The beer industry is being lead from behind toward where consumers are going, and I don’t believe hard liquor can match the message of moderation and wellness.

Sierra Nevada’s purchase of Sufferfest is just the latest example of how beer is moving from a “beer belly” image to that of an athlete. You don’t have to be a marathon runner to drink the beer of one. Aspirations, my friends.

ED. NOTE: If Sierra Nevada buys a brewery — Sierra Nevada!, who never acquires anybody — then you know this is an important development. And I think their acquisition will turn out to be brilliant, as it clearly the direction consumers are going, and it is a cultural fit.

BEER BUSINESS SET TO EXPLODE. Yes, I said it. I’m more bullish on beer right now than I’ve been in five years. I think the beer business — broadly defined including FMBs — is set to explode and maybe even reverse the trend of spirits taking share of ethanol. But we gotta keep our big whales from screwing it up.

Do you agree or disagree? Ping me in confidence at hs@beernet.com

“Louis, I think this is the beginning of a beautiful friendship.”

Until tomorrow,

Harry, Jenn, and Jordan

“You live and learn. At any rate, you live.”
– Douglas Adams

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