12 Mar 2010 @ 8:00 AM 
 

The Peculiar Possibility of Too Many Breweries.

 

A little news item just flitted across my desktop that really caught my eye. It was an item titled, “Less is More? Are There Too Many Breweries?” Since I’m working on starting my own brewery, this article gave me a pause. I had to read it.

It was a little article about a topic that’s apparently been cropping up at the 2010 Beer Industry Summit: Are there too many breweries? The argument runs that there are so many breweries that distributors cannot possibly represent them all well. It seems like a fair cop:

…no one really believes that any single distributor can properly handle 100, 75 or even 50 breweries. Even the best salesperson doesn’t have the time or opportunity with their retail customers to make proper presentations for that many breweries. For a distributor with such a large portfolio of brands, the larger volume brands are going to get a lot of attention, but the rest will suffer. In theory, the top 10 breweries out of 50 may flourish and the remaining 40 will get neglected.

Of course, the argument that you’re going to see around most of the internet for this one is something about how the three-tier system is flawed. I can’t really get behind that argument, either. The three-tier system is exactly why craft beer has been able to grow so well. Plain and simple, if there weren’t laws keeping distributors separate from breweries, everything would be owned by BMC, and craft wouldn’t be distributed at all. But, look – there’s more:

One brewer I spoke to this week worries that his brand doesn’t get enough attention and becomes “clutter.” That means he’s concerned that his beer gets stale on the shelf and that shipping and logistics become troublesome and expensive due to small volumes. Yet another brewer has suggested that distributors should focus only on their top 10 (or so) craft brands, thus streamlining their operation and making it possible for them to make more frequent and more in depth presentations for those remaining brands.

I don’t know who these guys are, but I’m kinda glad, because I have very, very little sympathy.

Part of me really wants to call horseshit on this entire argument. I hate making the comparison between wine and beer because it’s loaded. People get all bent out of shape about it for all of the wrong reasons. But let me just throw a comparison out there. Here’s a quote from the article:

Right now, the Brewer’s Association will tell you that there are almost 600 breweries in the United States that bottle, can, keg or otherwise distribute beer. That number doesn’t count the many hundreds of brewpubs that brew beer for sale in their restaurants. In most markets, there are only 2 or 3 beer distributors that will carry and sell craft beer, which leaves a theoretical total of 200 to 300 brewers per distributor in any particular area, not including the wide array of import brands that are currently available.

Okay. Fair. 200-300 breweries per distributor? That’s a LOT!

There are 5218 wineries in the U.S. (2307 in California, alone). By the same math that’s 1700 – 2600 wineries per distributor. What a scale difference! It’s almost a factor of 10!

Good heavens! There must be too many wineries!

I mean.. fair. There are too many wineries.

The other day, I went down to the beer store closest to my house and noticed that they had expanded their beer inventory to two full aisles. One section is ONLY sixpacks, one is ONLY bombers, and one is single 12 oz. bottles (that sell for like $1.50/ea. – yikes). It’s all split by country and state (though no split on style).

Clutter? You bet! How is a consumer supposed to make sense of all that?

Then I realized that what I was looking at is just two aisles of the store. Out of 10 aisles. The rest of the store was filled with wine.

I like to give wine people a hard time by saying that there are only two types of wine. Yeah, you can tell me that they go by all of these different names, and there are all these different flavors made from different grapes, soil conditions, weather patterns, aging techniques, and the color of the t-shirt that the vintner was wearing on the day they bottled. But in the end your wine is more or less going to taste like a red wine or a white wine. They might be sweet or dry, but they’re still going to taste red or white.

There are thousands of bottles of wine at my local package store. It dwarfs the beer selection. And it’s just two types of wine.

There are too many breweries? What an incredibly selfish accusation! Wahh! I don’t want competition, that means I have to make a quality product! That way lies industrial light lager, my friend.

This all said, there are big differences between the wine market and the beer market that are worth considering:

1) The wine market is not dominated by a handful of players.

Are there huge wineries? Absolutely. I can’t speak as to whether or not they make a “premium” product that smaller.. er.. craft wineries look upon with disdain, but I don’t see a clear analog in the wine market to ABI or the other big players. You don’t have 3 companies that take up 90% of the market and, correspondingly, 90% of the shelf space.

What difference does that make? Look – craft beer makes up almost 5% of the beer market. It’s barely a dent. It’s barely a pucker in a divot. The fact that you can walk into a beer/wine retailer and see such a good selection of craft beer on the shelves is actually a pretty good testament to the three-tier system and a decent distribution network.

Unfortunately, because you have these huge players in the market, they have weight to throw around in the distribution channels. If ABI thinks that their distributor isn’t pushing their beer well and they threaten to pull their products, that distributor can and will lose a significant portion of their business (there are a lot of laws about this, too, and many are difficult for craft breweries to navigate because of the scale difference). Add that on top of the fact that there are less-than-scrupulous salesmen out there who aren’t afraid to go the whole “shady business practice” rout (ie – free stuff in exchange for accounts, which is illegal) and you begin to see why craft has to work so hard to carve its niche. I don’t believe that wineries have this same kind of battle.

2) Wine is ahead of beer in point-of-sale education.

Simply put: If you walk into a wine store without knowledge of what you’re buying, you have no way of telling if the product you are about to buy is decent or not. Just because it’s $15 doesn’t mean you’re going to like what’s inside the bottle. Actually, that doesn’t sound that different from beer, does it?

Luckily, most wine stores employ someone who is more educated about wine than your average bear. This person’s job is to cut and paste descriptions about wines from Wine Spectator into little leaflet things that they tape to the shelves so that a literate shopper has an easier time making a decision. That person is generally available to ask questions to if you need extra help.

Try finding that person for beer in any store that isn’t explicitly a beer bottleshop. Virtually non-existant. Beer, for the most part, relies on the consumer to be educated. Wine, for the most part, relies on the retailer to be educated. The retailer is the one ordering from the distributor.

I can’t really believe that there’s been a distributor salesperson in doing a specific presentation for each one of the wines that’s being carried in that store. They’d never leave. No, they might do a new brand, or a new vintage from a favorite winery, but certainly not every single one of the hundreds of wineries present in even a small wine shop.

3) A significant portion of the wineries in the U.S. sell local.

I will admit that I’m speculating on this one (heck, I’m speculating on 99% of this), but I bet I’m at least close to right. Out of the five-thousand-some wineries in the U.S., there are only a few hundred, tops, represented at my local wine store (and there are equally as many, if not more, from elsewhere in the world). There’s a whole section of local wine, and then there are selected wineries from certain regions within the U.S. – California, Oregon, New York, etc. A decent representation of each, but certainly not even close to every single one.

At my local package store, I can get beer from all over the U.S. and from countries all over the world, but I’m always surprised if there’s more than a handful of local breweries represented. To be fair, there’s only a handful of breweries in North Carolina that package their beer, but because of that I tend to expect to be able to get ALL of them at a local store, and especially at most local restaurants, and yet locally-made beer is embarrassingly difficult to find.

So what’s my point in all this? There aren’t too many breweries, and the problem isn’t with distribution. Not really. The problem is that the craft market is still small and it is still young, but people insist on treating it as a mature industry with a significant market share.

The average retailer – be it restaurant, bar, or package store – is woefully undereducated about craft beer. Is it so surprising that your average waitstaff can’t tell you what the Sam Adams Seasonal is or that a package store won’t know anything about the beers that a distributor is offering? Most of what they sell is Bud Light with Lime! What’s to know? They know their big sellers. Craft is a luxury purchase, not a money-maker. They have no incentive to learn.

Education, education, education – it needs to be stressed by every brewery and every person in the beer industry to every distributor and retailer they come in contact with. Support the Cicerone program because it will help you in the long run! Once there are Cicerones placed everywhere that you find a sommelier, THEN the only thing you have to do is make great beer (not really, but.. y’know). Until then, educate, educate, educate.

Finally? Sell deep before you sell wide. I keep going back to this quote from the beginning of the post:

One brewer I spoke to this week worries that his brand doesn’t get enough attention and becomes “clutter.” That means he’s concerned that his beer gets stale on the shelf and that shipping and logistics become troublesome and expensive due to small volumes.

There are countless bottles on the shelves of my local package store that I will never pick up because they’re from a small brewery somewhere on the other side of the country that I’ve never heard of. If I’m going to drop $14 on a six-pack, I’m going to make sure I damn well enjoy it. I’ve bought too many beers that were old, light-struck, infected, or just ruined from poor handling and storage on cross-country trips to make a gamble based on novelty alone.

This will not be a problem if your growth curve is slow. If you’re shipping your beer outside of your local market to an audience that has never heard of you to be sold by a retailer that knows nothing about beer, then I guarantee you that your product will get stale on the shelf and that you will be nothing but clutter.

Sell deep before you sell wide. Is it hard? Hell yeah. It means having YOUR staff beating the street rather than trusting in a distributor’s staff to do the work for you. Nobody knows your product better than you. Get out there and sell it. If you’re indispensable and ubiquitous in your local market, then when you finally move beyond it your product will sell because your reputation has preceded you.

So, again, back to the first question – are there too many breweries? No. In fact, I’d say that the main problem is that there aren’t nearly enough.

Tags Tags: , ,
Categories: distribution, industry, op-ed
Posted By: erik
Last Edit: 12 Mar 2010 @ 07 21 AM

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Responses to this post » (19 Total)

 
  1. Bob Mack says:

    Erik – this is an excellent analysis of this issue! Thanks for getting into so many details and yet being so clear at the same time. Your contrast and comparisons to the wine industry are extremely enlightening.

    I wrote the original blog post that you are referencing here and I’d like to say, for the record, that I am completely in favor of there being more (good!) breweries. I’m also pretty certain that the current distribution system is going to remain in place for some time, so I think the real challenge is how to maintain and even expand the number of brands, skus and breweries being made available to the consumer without bogging the system down so that it doesn’t work for the established brands that are already out there making great beer.

  2. erik says:

    Thanks, Bob.

    Like Greg over in the comments in your column, the concept kind of raised my ire a little. The craft beer industry is still so small, it would be crippling to fall victim to this idea.

    I will say that nothing has made me want to learn more about wine distribution than this. It can’t be that different, can it? They handle thousands more skus than craft beer can even begin to produce, right now.

  3. jim Schembre says:

    Erik great post and hopefully some people will read and try to understand. I think we all basically want the same thing but when you get 4 different groups in the discussion, wholesalers, brewers, retailers, and consumers together it becomes quite a delema. It would be interesting to here some sides of the retailer in these blogs.

    • kristyn says:

      i’m working on gathering my thoughts on the blog entry as both a beer geek and a retailer. it’ll eventually make it onto my blog, but for now it’s a mix of: when it works, it works well, but when it doesn’t work, it REALLY doesn’t work. there are things that don’t need to be changed, but there are alos things that do need to be changed. it’s also a matter of give and take on the consumer side in understanding that some breweries don’t want large distribution, some may want small, and some may want it somewhere in the middle. that needs to be respected, too. also, corruption. it’s there. it shouldn’t be, but it is, and that too needs to be “cleaned up”, and sometimes it’s not just the distributor but the retailer who is just as guilty. i’m looking forward to tackling my thoughts and feelings on this, both personally and professionally, and i have no doubt it’ll be a…lengthy blog entry :D

      kristyn

  4. Bob Mack says:

    Erik,

    One issue that has come up in the craft industry is the so-called “wine-ification” of beer. It’s something the we get blamed for as a distributor and while I can’t say we don’t deserve some blame, I think it’s also a brewer issue as well.

    “Wine-ification” refers to the seeming lack of recognizable brands in the wine industry. Yes, there are many more wines than beers but some craft brewers argue that this has been bad for wine brands who have failed to create an identity of their own. Our argument as a distributor is that branding is more properly the domain of the brewer, while distributors are more directly responsible for logistics and not marketing.

    In the end, I think there’s room for improvement by distributors on this issue. But I do wonder if craft brand proliferation is really heading us towards “wine-ification” or not.

    Many distributors are still concerned about the sheer number of skus because no matter how you cut it, they’re are more and more every day. And there are even some major craft beer brewers out there making the argument that too many skus are a bad thing.

  5. Rob says:

    Erik, I copied some words below from your blog that resonate heavily with me…having seen the opposite and mistaken strategy happen too often. Even Bud, Miller and coors began locally and branched out geographically in a contolled circular fashion….

    This will not be a problem if your growth curve is slow. If you’re shipping your beer outside of your local market to an audience that has never heard of you to be sold by a retailer that knows nothing about beer, then I guarantee you that your product will get stale on the shelf and that you will be nothing but clutter.

    Sell deep before you sell wide. Is it hard? Hell yeah. It means having YOUR staff beating the street rather than trusting in a distributor’s staff to do the work for you. Nobody knows your product better than you. Get out there and sell it. If you’re indispensable and ubiquitous in your local market, then when you finally move beyond it your product will sell because your reputation has preceded you.

  6. Jim says:

    It’s fortunate that your wine friends don’t realize that there are only two types of beer. Ales and Lagers.

  7. [...] Really interesting given that we were just celebrating how well craft beer has done in 2009 and now the question is asked . . . is the industry doing too well? Greg Koch from Stone Brewing chimed in as both a brewery owner and a distributor. Lots of talk about this over at RateBeer as well. Finally, some great insight from Erik at Top Fermented. [...]

  8. Joseph says:

    I run a small gas station in the small town of Flower Mound, near Dallas. We sell over 500 different types of beers. I have a few ideas that I would like to share with all brewers. POS available on your website I would think is a must, but its a rarity to find any. Brew Dog has some. Something we at the store can print out and put on the shelf. Commercials, interviews, some video we can post for our customers to see. This doesn’t have to cost anything. Just informative and fun. Sell your own beer. Nothing gets people buying a beer better than someone from the brewery giving them a free taste before they spend money. 22oz before a 6 pack. People seem more likely to spend $5 on a bopper than $10 on a 6 pack they never had. I am more likely to order a new beer if I don’t have to worry about a shelf life. I got a case of Victory that was good at least 5 years. Don’t let Wal-Mart or the big grocery stores get it. Until you become Shiner, make people look for it so they know it is special.

  9. Daniel says:

    I really enjoyed reading this article, Eric. As you said, I think it comes down to education. Hell, I’m a beer geek, and sometimes I’m a bit intimidated by the many beers on the market — but that certainly doesn’t mean I’d like to see the selection cut down for the sake of shopping convenience.

    Bob talking about the “wine-ification” of craft beer is also appropriate. I enjoy wine, but I have no clue what to buy when I go into my local grocery store. The only thing I have to go by are those little tags affixed by the resident expert, if they are even available.

    I think Joseph (above me) also brought up some good points as far as educating consumers. Can you imagine someone new to craft beer going into a beer store or even a grocery store with a nice craft selection? What if that person took a chance on an IPA, only to find it way too hoppy? They could be turned off from craft beer forever. Yes, the consumer owes it to themselves to do a bit of research, but the retailers could do a better job as well.

    Daniel

  10. erik says:

    Daniel – part of your last sentence kind of strikes me:

    … the consumer owes it to themselves to do a bit of research …

    While the consumer might do themselves a service by doing a little bit of research before shopping (and many will – y’know.. beer geeks), I think that everybody in the chain prior to them has to assume that they won’t, from brewery to distributor to retailer.

    I would bet that retailers already know this, which is why you’ve got people saying things like, “More POS info, please.” But I’m guessing that many distributors just assume that retailers will do the work to sell the beer and that most breweries don’t even think about providing info that far down the sale chain.

    To me, the burden of consumer education really belongs to the brewery – they may not have a direct link to the consumer or even the retailer due to the three-tier system, but both of those entities can seek the brewery out independently and it is in a brewery’s best interest to make as much information as possible available.

    That is exactly why having a strong website and social media presence is so important for breweries (just to tie this in to a certain presentation at the Craft Brewers Conference next month).

  11. Daniel says:

    I agree with you about the onus being on the brewery, but I just wanted to make the point that if someone is becoming interested in craft beer, they should at the very least do a little research to find out what they might like. The brewery, distributors or retailers should, of course, do everything they can to guide the consumer to a product they’ll enjoy, but it’s none of their faults if a consumer buys a beer they’re not happy with (unless the product is of poor quality).

    Craft beer is a (growing) niche market, but as with all thing, the consumer must take a little responsibility in the buying process.

  12. erik says:

    Well, maybe.

    I mean.. what other market segment really expects the consumer to educate themselves before buying?

    It’s a good idea for the consumer to educate themselves before buying (I mean… Consumer Reports exists for a reason), but what product manufacturer would just assume that the consumer will educate themselves prior to purchase?

    The only one I can think of is wine, and wine has a big culture of education built around it, anyway – and much of that is driven by wine producers.

  13. Bob Mack says:

    I think that consumer education is critical, but I think it is the brewers, distributors and retailers that have to initiate that and make it available and interesting. As pointed out above, wine is a good example and for years the wine industry did a great job with it. Most people perceive beer as being just Bud, Miller and Coors. There needs to be a significant effort to differentiate the craft and specialty brands. The reward to the brewer, distributor and retailer for making that sort of effort should be increased sales of higher dollar items.

    I think that the consumer who really gets interested in craft beer will educate themselves to some extent, but the industry needs to facilitate that.

  14. Beer distribution, and craft beer in particular, are in a much different category than wine. BMC marketing and distribution is basically done as a commodity. Given that BMC marketing has dominated distribution since the passage of 21st Amendment, the growth of craft brew has been changing and challenging the nature of beer marketing and distribution and appears to be trending towards developing much like the California wine industry did in the past 40 years – a focus on the nature, character and flavor in the bottle. While very different today, craft beer producers should pay attention to the history and development of the distribution issues that the wine industry is going through now because, unless we learn from it and pick our path well, we may find ourselves unnecessarily walking into the same problems the wine industry is now dealing with.

    If any of y’all have a spare half hour to get through this, its a good read on the arguments the wine industry is making for reform of the 3-tier system:

    http://fermentation.typepad.com/fermentation/2010/03/manifesto-for-change-in-the-wine-industry.html

    Kevin

    Healdsburg Beer Co.
    Sonoma County, California

    PS. Erin Go Bragh!

    • Bob Mack says:

      This is a great comment. While I don’t know that I agree completely with some of the conclusions that it might lead to, I think that Kevin should be applauded for putting these comments out there. I think these issues need to be explored openly by both distributors and brewers (or vintners as the case may be).

      I do think that wine concerns are similar in some ways to beer concerns, but markedly different in other ways due to the economics involved. For example, craft beer is unlikely to ever support much of a direct shipment presence because the cost of beer versus the cost to ship it direct is so low. Most consumers are never (or rarely) going to be tempted to direct ship beer because it normally costs $30 or so per case to do so. Wine is more able to support those costs than beer, because wine is often more expensive.

      I would argue that there are definite benefits to the three tiered system as far as the craft beer industry. Obviously I am biased being a wholesaler myself, but I would invite any craft brewer who wishes to join us for a couple of days to spend some time with us to see how hard we try and fight for craft beers in my business. I’d also suggest that turning over craft brands to the control of the big brewers or to the mega box stores would result in less selection and fewer craft brands.

      Craft beer selection isn’t suffering. Selection of craft beers is at an all time high today and many distributors are still scrambling to get more brands.

      In fact some brewers that I am hearing from today support just the opposite opinion and feel that the are too many brands for distributors to support and will even argue to us privately that they’d prefer to see fewer brands in our portfolio.

      Just my initial thoughts. I’d certainly love to see this discussion go forward.

      Bob Mack
      World Class Beverages Indiana

      • I think we probably agree much more than we might disagree. Beer and wine are certainly different animals, and the closest they may come is in certain aspects of the craft segments like The Bruery, Pretty Things, Hair of the Dog and similar producers. Other than that that, I think its pretty unlikely most craft breweries will ever have the exact same experiences as wineries have. With regard to some other issues, however (ie franchise law states) there will be no difference. In the meantime, and at this stage of the craft brew movement’s development, the three tier system provides a lot of opportunity for growing breweries, particularly ones with depth and substance behind both the brewery and the beer. Once a brewery realizes that it’s their responsibility to educate and get the distributors and retailers to believe in them the three tier system can be a real efficient way for a understaffed brewery to multiply themselves and their marketing outreach. The trick is that the breweries need to recognize and then embrace the responsibility, and that is where some outfits appear to be having difficulty.

        Kevin McGee
        Healdsburg Beer Co.

    • Maks says:

      i would like to ask if how much the capital nedeed to become a distributor of san miguel products like beer..i am here in qatar and my wife start a small grocery store in langgam,san pedro laguna this coming early next year..

  15. [...] can we support while the big craft breweries keep getting bigger? I know, I’ve attempted to shoot down the specter of market saturation, and I still think I’m right, but to echo own [...]

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