25 Sep 2009 @ 9:41 AM 

I’ve often had my share of kinda irksome moments about Sam Adams. I go through wide sweeping moments where I feel like Sam Adams is primed so that someday in the future we’ll be talking about them when we say, “The Big 3.” “You know, InBev, MillerCoors, and Sam Adams.” Sometimes I feel like they choke local craft markets with their ever-increasingly-wide distribution channels. Sometimes I feel like they’re a little too eager to trumpet their role in the “craft beer revolution.”

And then sometimes they prove to me exactly how much they’re worth to craft beer.

This week at the National Beer Wholesaler’s Conference, Jim Koch, Founder and CEO of Boston Beer Company, spoke about the future of distribution. (WSJ article here)

I don’t have many direct quotes from the speech, but the gist of it is this: A lot of people are worried that distributors are going to be falling on some hard times, and so they have to look at changing their models to cut costs and increase efficiency to keep up with the changing economy, even to the point of collaborating with your competitors to share delivery vehicles, personnel, and warehouse space.

Even while distributors are a federally mandated part of the three-tier system, and a good chunk of them maintain regional dominance through less than scrupulous business practices, there’s danger in the future for them. Some retailers, especially big-box retailers like CostCo, are pushing to bypass the middleman and buy directly from the brewery.

But! (I hear you say…) how could that be bad? Well, for big box retailers it’s not bad at all, they essentially have their own built-in distribution networks. For the small retailer and the small brewery, this represents a lot more work in terms of negotiating contracts, deliveries, displays, etc., especially as distributors lose business out of their large accounts and no longer have the capital to be able to support small specialty products that won’t be immediate profit vehicles for them like, for instance, craft beer.

Let’s go back through the short history of distribution companies in the 20th Century to see how much things have changed.

When the three-tier system was implemented after Prohibition, there were something along the lines of 40 – 70 breweries nationwide with a couple of giants in the mix. Regional distributors distributed regional beers and everything worked like it was envisioned and that was fine. The whole point of the three-tier system was to protect the consumer by keeping competition in the retail market. Prior to Prohibition, breweries often outright owned saloons and, thus, could control distribution through retail outlets, price fixing against competitors, or not carrying their products altogether.

As the number of breweries dwindled and the number of distributors increased things started to get a little bit wonky. You start to see megabrewery sponsored distribution who, again, are attempting to control distribution channels in order to attempt to smother their competition – this time in the form of other distributors. It probably wasn’t that bad in the 70’s and 80’s when there were only a handful of breweries in operation, so long as everybody was playing the same game.

The past 30 years, however, have seen the rise of roughly 1500 minuscule (by comparison) new breweries and all of a sudden we’re in an entirely different market again. Now, with scads of these small breweries, distributors are more necessary than ever to get beer to market. Plain and simple, a small startup business (with comparatively expensive startup costs), does not have the resources to compete in a distribution market. Certainly, they can self-distribute in a small geographic area, but at a certain point it is not cost effective and they must rely on a distributor to sell and distribute their beer.

So, if you’ve got mega-retailers that are attempting to bypass distribution networks, all of a sudden things get really difficult for the craft brewer, again. Why? Because distributors will suffer. If distributors suffer, small craft breweries suffer. It’s an easy equation.

Enter, Jim Koch.

Koch recognizes that that future of craft beer (even – and maybe especially – his) lies in efficient distribution and that craft breweries do not have the power to create said distribution on their own. We see more and more pressure from mega-retailers to cut the middleman out, coupled with the ever-increasing cost of fuel, refrigeration, and even warehouse space. Eventually, distribution is going to take a major hit and craft breweries are going to feel it more than most.

It’s going to take a lot of work to get to a more efficient model. We’re stuck in a 20th Century model of sales and delivery distribution networks and change is difficult on a corporate level. Koch suggested it was a 10-year-plan, and he noted that it would require some contract changes with the Big 2 – which may not necessarily be in their immediate interests in terms of distribution.

If distributors can get behind the idea (and they should, even though it seems a little radical up front), it could be a great day for craft beer.

Posted By: erik
Last Edit: 25 Sep 2009 @ 09:41 AM

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 20 May 2009 @ 1:30 PM 

At the risk of beating a dead horse, I – along with probably 5,000 other blogs – am looking at this morning’s Washington Post article about Sam Adams, Super Craft Brewer. (Super. Like the prefix meaning “bigger” not the comic book guy. Word geek; see?)
Samuel Adams
Quick summary: In 2008, Sam Adams produced 1.992 million barrels of beer, 8,000 barrels short of the point where they no longer fall under the definition of a craft brewer by the Brewers Association.

I don’t want to get into a “What is Craft Beer” discussion (right now). That’s been covered amply elsewhere. Instead, I wonder at which is better for the other 1,500-ish craft brewers in the country: Having Sam Adams count as a craft brewer or not?

Sam Adams is, without a doubt, the elephant in the room. The closest regional-size brewery to Sam Adams (Sierra Nevada) makes less than half the amount of beer. I haven’t received my fancy New Brewer with 2008 barrelage numbers, yet, but using just some fancy pants math on the numbers from the BA Statistics page and the numbers we’ve been given by the Washington post, I’m going to make the following estimates/assumptions:

2008 Domestic Craft Beer Sales: 8,493,765 barrels.
Sam Adams alone: 1,992,000 barrels.
Sierra Nevada alone: 700,000 barrels.
Remaining for the other 1,543 breweries in the U.S.: 5,801,765 barrels.
Avg. # of barrels/craft brewery (excluding Sam Adams and Sierra Nevada): 3760 (5801765/1543)

So, to recap: In order for Sam Adams to reach the 2 million barrel cap that means that it no longer qualifies as a craft brewery it must produce a little over twice as much as the average American Craft Brewery does every year in addition to the 1.992 million barrels it already produces.

I have a hard time seeing these as the same animal.

It’s really great to have the sheer size and corporate power of Sam Adams on the same side as all of these other craft brewers. It’s great to incorporate the growth numbers of Sam Adams into the craft brewing world (according to the WaPo article, Sam Adams enjoyed larger growth than the entire craft beer segment last year – gotta wonder how much that skewed the numbers at the CBC) for PR purposes about how great the segment is doing. It’s wonderful to have Sam Adams do wonderful things like the hop raffle during the hop shortage last year, but would they stop doing that if the BA said they didn’t fit a definition?

Sam Adams is so far and away different from its craft brewer brethren that it’s almost unfair to all of the others to call it a craft brewer. How much are statistics inflated because Sam Adams is being included in them? How much does Sam Adams gain from the definition, even? Either they or Yuengling now stands as the largest American-owned brewery (not sure without actual barrel/sales numbers). It seems like that should be distinction enough. What does it mean for Jim Koch if he’s no longer considered a craft brewer by the BA? Is it a drop in sales? I doubt it. And if it is, and they dip back below 2 million barrels, do they get to re-join the club?

Finally, to what benefit is it for the smaller craft brewers to have Sam Adams count in the same definition? They are even more difficult to compete with than BMC because they’re actually producing well-made comparable styles of beer. Sam Adams Boston Lager feels almost as ubiquitous as Bud, even though, yes, Sam Adams only makes something like 1% of the amount of beer Bud does. The difference is that someone who is likely to drink an IPA will probably not have a Bud, but they might have that Sam Adams.

I’d love to hear thoughts from others on this: Is it a big deal for Sam Adams to not be a defined as a craft brewer by the BA? Might it actually be a good thing for other brewers?

Posted By: erik
Last Edit: 20 May 2009 @ 02:07 PM

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