12 Mar 2010 @ 8:00 AM 

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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