Good Beer Hunting

Distress in Delivery, Pt. 2 — Craft Comes for the Middle Tier


Those in the weeds of the beer industry can see things changing on a near-daily basis. Conversations might surround how styles, trends, and economics impact breweries, but not always the other businesses that support the people who make beer.

In part one of this series, quantitative data showed how circumstances are evolving for beer’s middle tier. There are more breweries than ever, but the number of distributors has continually gotten smaller. Even more challenging, costs are rising and volumes aren’t following suit.

With Megabrew brands down (although, not entirely), distributors are seeing "hundreds of thousands of cases out the window" and "need to adjust their selling structures," says Kimberly Clements, former owner and CEO of Arizona’s Golden Eagle Distributors, who now serves as managing partner for PINTS LLC, a consultancy business for craft brewers and wholesalers. These businesses are being asked to invest in more people from supplier partners, she adds, but margins aren't growing fast enough and discount requests are increasing due to consumer price sensitivities, making for difficulty in sustaining the current model.

"Distributors are basically standing by waiting for a price increase because, generally, that is the only way that they are able to make money," Clements says. "No Modern Times, no Lord Hobo, no Firestone Walker is going to come in and save the day. Sorry to say. They are a nice addition, but they are just that—an addition."

In 2017, Collin Castore, founder of Columbus, Ohio's Seventh Son Brewing Co., raised the price of his brewery’s kegs for the first time in about five years, but he says the waiting game may not necessarily be the case everywhere. In the Buckeye State, he notes that regardless of a handshake agreement on price between him and his distributor, they're legally allowed to adjust cost to retailers as they wish. However, economy of scale is what fuels growth, he adds, and more SKUs doesn't have to be a bad thing.

"I'm never super thrilled when our distributor picks up someone new, but on the other hand, if they didn't, somebody else would have," he says. "It can open doors."

Where he'd worry is if distributors added breweries just to add SKUs for the sake of having more. As buying habits localize, it would bother him if a random IPA from Kansas suddenly showed up in Ohio next to Seventh Son's flagship Strong Pale Ale, Humulus Nimbus.

Rather than a never-ending trend line of growth, curation for a time and place can be important for both breweries and distributors. This is one place some are finding opportunity.

“I kept hearing time and time again from fellow brewers that there was a struggle to get access to the market,” says Rob Burns, co-founder of Night Shift Brewing and Night Shift Distributing. “There are lots of breweries that are super hesitant to work with traditional wholesalers. They’ll sign with someone and get promised the world, then realize their beer isn’t going anywhere.”

In October 2016, Burns found himself in a similar spot, which is why he spun success from Night Shift’s production brewery into its own distribution branch, which began selling other brands almost a year ago. Since April 2017, he’s slowly and deliberately built his distribution portfolio, which now includes 15 brands, including Brooklyn's Interboro Spirits & Ales, Raleigh, North Carolina's Trophy Brewing, and Naperville, Illinois' Solemn Oath Brewery. Eventually, he sees it growing to about 30 complementary breweries, but no more than that, since “that’s a number that our sales team can stay educated on and know what kind of accounts will do best by our brands.”

“I’ve seen books with 200, 300, 400 breweries, each selling five to 20 different SKUs, and you’re like, ‘Holy crap, these guys are trying to sell 2,000 beers on any given day?’” he says. “If I’m an account rep, it’s really impossible to move the needle for any one brand unless they’re the biggest and most dominating in the portfolio.”

Burns says that Night Shift’s operation carries some cache with fellow brewers because it’s run by one. He also says he’s very deliberate to build a set of beers that represent different price points and different styles. DESTIHL offers a unique line with its Wild Sour series. Pipeworks’ distinctive branding helps its beer pop on shelves. Devil’s Purse focuses on European styles that are approachable by style and price. It’s not just brewery after brewery making competing IPAs.

One potential change could be coming. Burns said he’s having conversations with one of the country’s “bigger craft breweries.” If they partner with Night Shift Distribution, it would change the business in a “radical sense.” Not in the way that it would alter the way his team does their jobs, but he sees it as an opportunity that has potential to open up new accounts for his overall portfolio because he’ll have a larger, more volume-heavy craft player to lead the way.

“The beers we have today don’t necessarily work in every account based on price point or on geographic demographics,” Burns says. “Some national brands with lower price points and broader appeal would be a great fit to open doors.”

There’s no time frame on signing with that potential partner and, most important, Burns doesn’t see it as disrupting Night Shift’s ethos or long range plan to stay small and curated. And so far, that kind of mindset has proven Burns’ plan is working. To keep up with demand within one year of full operation, he added seven new sales account managers and five delivery drivers to service 15 brands—and counting.

“Every week, every sale feels like we’re chipping away at the establishment,” he says.

Things may be different for a craft-focused distributor solely focusing on craft beer, but that doesn’t mean the “old guard” is staying put. In part three of this series, a 54-year old, family-owned distribution company shows how it’s trying to disrupt the second tier.

—Bryan Roth


Distress in Delivery, Pt. 1 — Why Distributors Need to Adapt
Distress in Delivery, Pt. 2 — Craft Comes for the Middle Tier
Distress in Delivery, Pt. 3 — The Future of Beer Distribution