by Tom McCormick

Distribution and access to market has been a consistent theme over the past five years at the annual conference of the Brewers Association of America. The message hasn't changed much - it's going to get worse before it gets better. There are a few positive signs emerging, as pointed out in a talk by Marc Sorini, legal counsel for the BAA, but most of the forward progress was in wine and spirits - not beer. Sorini called 2002 "a good year for proponents of direct shipping." North Carolina, Texas and Virginia have passed laws in the last year making it easier for wineries to ship product direct to the consumer. Florida, Michigan and New York each have legislation pending. Also according to Sorini, the last two years have seen a "rollback in franchise laws for wine and spirits." This year, Arizona and Illinois repealed the franchise law protections for wine and spirits, leaving beer the same. And in Washington, a lower court declared the wine franchise law unconstitutional. These cases may predicate an eventual change in the franchise law regime that now dictates the brewery/distributor relationship in many states; however, it will be a long, slow process. But when the climate is as difficult as it is now for many small breweries, these small nudges are encouraging.

A distributor panel, moderated by Martin Kelly, CEO of Pyramid Breweries was also telling in the remarks by two of the panelists, Chris Caffrey, president of I.H. Caffrey Distributing Co., and Ron Fowler, CEO of Liquid Investments - both large brand distributors. Asked what the growth assessment of the category was, both felt it was a "zero-sum game," but opportunities are strong with certain brands. When asked what do distributors expect from small suppliers, Caffrey responded by saying that his expectations "are the same with big brands versus small brands." Fowler agreed, saying he "doesn't differentiate between categories" and that brands must "align their expectations with their execution."

Tom Potter of the Brooklyn Brewing Co. and the Craft Brewers Guild was the third panelist. Potter pointed out a key issue that he refers to as the "hassle factor." If a brand is "hard to order, has too many SKU's, minimal or no resources - these are all hassle factors." All three panelists had sound advice for small-brand suppliers in today's distribution environment. Potter suggested that breweries should "maximize legitimate market potential" and work with distributors fairly in identifying realistic potential and achieving the goals.

When asked what the three most important things a small brewer should think about, the panelists covered some common themes. Fowler said number one is the importance of a "top-to-top" relationship, making sure the owner of the brewery has a working and on-going relationship with the owner of the distributorship. Secondly, to develop a plan for the specific market, communicate and discuss that plan with the distributor, and make mid-course adjustments as needed. Thirdly, the brewery reps need to "lead by example" and bring passion and energy to the table. Other ideas from the panelists included communication with your distributor, having realistic expectations and patience to realize goals, professionalism and understanding of the distribution tier. An interesting question for the large distributor panelists concerned what small brands bring to the table. Caffrey answered by saying "passion, local knowledge and excitement." Fowler suggested that small brewers be "entrepreneurial and take advantage of the ability to move quickly" to changes in market needs.

The distribution network is getting fewer and bigger - no surprise there - but also much healthier, as laid out in a luncheon talk by Harry Schuhmacher, editor and publisher of Beer Business Daily. According to Schuhmacher, the average geographic coverage of a distributor ten years ago was 1250 square miles, and that figure is now double. "Distributors are getting younger, because of the generational hand-down" noted Schuhmacher. "With technology also increasing, hand-helds are now going wireless, enabling distributors to load trucks earlier, especially bulk loads. Warehouses are doing away with the third shift" of warehouse loaders. As distributors have become bigger and more efficient, margins have increased over the last 10 years. Schumacher had some positive insight for small suppliers. "The best way to gain mind-share? Take the owner out drinking," he said. Not in jest. "Mind share can be out of whack because of the human interest" element, he explained, citing again the importance that small brewers communicate and build a relationship with distributors, enabling greater mind-share than their brand may warrant.

Unfortunately for many small suppliers of specialty beer, bigger distributors tend to be less craft friendly. Not all small brewers are affected the same. The high growth brands with sales support and an understanding of distributor management are surviving the consolidation with less impact. And so are some smaller breweries, either through virtue of aligning their brands more with wine and spirit wholesalers, dodging the consolidation through using small, craft-only distributors, or just being fortuitous. But for many, struggling with being bumped out of post-consolidated, larger distributors, broken networks, holes in chain store distribution and minimal mind-share, there appears to be little relief in the near future.