Craft Beer Pipeline Opens As
Wholesalers Scramble To Add Brands

by Jack Curtin
jUNE/jULY 2007

"You know what it's like? It's like somebody slipped them all a love potion and now, where they used to see scullery maids and poverty, they see princesses and profits." Thus spake a brewing industry insider of my acquaintance recently, making a point even if his simile was a bit whacky.

We were discussing the current scramble among mainstream wholesalers to add craft brands to their portfolios. Big Brand houses which stopped just short of an open sneer when approached by a craft brewer not all that long ago are now actively courting them, trading and moving brands or gobbling up smaller competitors to clinch the deal. The frenzy is a result of the numbers without a doubt (that 12% growth in 2006 thing and the four-year pattern it represents), but it's also a reaction to last year's Anheuser-Busch acquisition of the InBev brands (Stella Artois, Beck's, Bass Ale, Hoegaarden, Leffe et al) and A-B's relentless effort to consolidate all of them into its own distribution network as rapidly as possible (see "InBev: What A-B Wants, A-B Gets").

Delaware's Dogfish Head is an obvious prime target in all this, given its reputation and eye-popping growth. Founder Sam Calagione acknowledges that "we have been over-run with inquiries--not from the Bud guys so much since I've been pretty vocal about where we stand there--but definitely from the Miller/Coors/wine houses. I flew to RI to visit the big house that bought our little house a few weeks ago. We had a Florida group fly in last week and another Indiana one flying in this week. Claus (Claus Hagelman, DFH National Sales Director) is flying to Michigan for a meeting there in a couple weeks. It's nuts--but a great sign for the mounting excitement for the craft segment."

"What spurred all this was definitely the A-B/InBev alliance," Hagelman contends. "The amount of money they're spending to pull InBev brands out of where they'd been, mostly Miller and Coors houses, and into the A-B network is staggering. The other distributorships can see the writing on the wall, especially with Corona also owned by A-B so that it too will also eventually fall off their portfolios. So they're looking at our end of the business to the point where, nationally, we've seen something like one-sixth of our distributors change hands the past year. We're being approached by several bigger wholesalers asking `if we acquire your brands/current wholesaler, how are you going to feel? What do we need to put into place to make a deal go smoothly?' It's impressive that they would jump on a plane and come to see us."

If things are shaking up along the shores of the Atlantic Ocean, they're equally jumping by the Pacific. Major brand behemoth Harbor Distributing, part of the Reyes Holdings empire which covers the most of the lucrative Los Angeles/Ocean County beach area, took on Rogue recently and is adding Leinenkugel to its portfolio. In San Diego, Tom Nickel of O'Brien's Pub says that "Mesa, the local Miller distributor, lost all of the InBev business to the A-B house recently. They didn't have a single local beer a year ago; now they have two, Ballast Point and Coronado (Ballast Point had been turned down by them back when they still had the InBev products). They also picked up Rogue to try and help plug the holes. There is even talk of creating a craft beer manager at Mesa."

In this region, at least two major wholesalers have taken just that approach, a move endorsed by DFH's Hagelman. "Once you've invested in buying these brands, have to continue to invest the time and money to make it work, to go long term," he says. "You need specialty people and you need to reward them."

Lon Lauterio, who founded Mountain Valley Brewpub in Suffern, NY way back in 1992 and created quite a stir with a run of medal-winning beers under the Ruffian label, (the site became Rampo Valley Brewing under new ownership in 2001), was hired by Nash Distributors in North Jersey last November for the newly created post of Craft Beer Manager. Nash is a Miller house covering Passaic, Hudson, Bergen, Union and Essex counties and has brands such as Victory, Otter Creek, Wolaver's, Flying Fish, Saranac, Anchor Steam, Long Trail and the recently added Stoudt's. "My job is to manage and develop the craft beer selection for the company," he says. "I work not only with our own sales people to help them service these products in the proper way, but also with our on-premise and retail accounts."

A bit further south, Origlio Beverage, a Coors house which is the largest wholesaler in the five-county Philadelphia region, recently added local micro Sly Fox Brewing and national powerhouse Sierra Nevada, as well as the Vanberg & DeWulf (Saison Dupont, Boon, Scaldis Prestige, Boon Lambics, Witkap Triple) brands to its portfolio. All of this was part of a flurry of brand trading and realignment resulting from Origlio's purchase of Bound Beverage, a Bucks County house was had served as a distribution platform for several wholesalers. Tim Donnelly, Vice President Sales & Marketing, explains that Origlio "feels that the long-term opportunity in the malt beverage industry is moving toward craft and specialty brands. Our domestic and import portfolio is still the core of our business and very important, but we want to be the full service distributor for all categories. And we will continue to look to add other craft brands have potential or are already proven. We want to be fair to anyone we take on and also to our existing brands and suppliers." In April, Jim Meiers, who began his career in sales for Origlio before moving on to InBev for eight years, was hired as Craft Beer Manager. "My focus right now is educating and training the staff," he says. "We just had Don Feinberg in to do a sampling of all the V&D beers and it was terrific."

While the big guys are maneuvering, the landscape is increasingly unclear for the smaller, specialty wholesalers who either don't want, or haven't been asked, to be bought out. Bill and Laura Lodge, a brother and sister team, run High Point Brewing/Distribution in Gypsum, Colorado, 30 miles west of Vail, and service 100-125 stores and 350-400 on-premises outlets in the northwestern and central portion of the state. They started as a contract brewer in 1994 evolved to the distribution side, mostly crafts and imports, and have added mainstream products to solidify cash flow and gain access for smaller accounts. "We've been approached many times, and if price were right, I would consider it," says Bill Lodge. "So far, though, I feel like those who approached me have insulted me. Just getting rid of me as competition would be worth more than I've been offered. It's a tough game right now. With all the consolidation, and if Costco happens, craft beers with major houses may be the only ones left standing."

Understand, this is merely a snapshot, a moment in time on the front lines of an evolving situation. And let's be clear that not everyone is sanguine about where it all will lead. With that in mind, and since we began with an anonymous quote, we'll end the same way, with this from a big name West Coast brewer: "What I think we're seeing is the beginning of the official `Let's Throw It Against The Wall And See If It'll Stick' Period. This will benefit no one in the end."

Copyright (c) 2007 Jack Curtin

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