Distributors Under Siege

FILED APRIL 6, 2011

Dear Client:

It seems that wherever you look these days, somebody is slamming on wholesalers. Not the least of which is the New York Times editorial page, where an op-ed by a wine blogger begins with, "Imagine if Texas lawmakers, in a bid to protect mom-and-pop bookstores, barred Amazon.com from shipping into the state," comparing books to wine shipping. "It is estimated that because of wholesalers, consumers pay 18 percent to 25 percent more at retail than they otherwise would," says the Times, ignoring the fact that shipping direct would make it infeasible for wholesalers to sell at such prices to smaller indie accounts. The Times says that, rather than pass the Care Act, " lawmakers should free the market and expand consumer choice by scrapping this bill and letting wholesalers know that it won't be considered again, as the commerce clause reigns supreme.....The wholesaling industry is right to be nervous.....But that's no reason to save an antiquated system that gives Americans fewer choices and makes them pay more."

There's that word again. Antiquated. But then again, we can expect that from the NY Times. They have never been a friend of wholesalers, joining the Wall Street Journal in calling the three-tier system "antiquated" in almost every article concerning the industry.

But wholesaler bashing has become de riguer not just in the mainstream press, where we expect it, but within our own industry. This writer is starting to hear complaints about wholesalers almost on a daily basis from suppliers and industry observers. It's not just about the Care Act, but perhaps that was the catalyst that sparked the more recent outbursts. One industry segment that we're hearing the most from lately are craft brewers. Here it's franchise reform, or the lack of it, that's driving increasing frustrations. "Craft brewers are pissed," says one brewer exec who did not wish to be named. "Our distributor partners continue to give us lip service. But it's all words and zero action. We've been hearing for too long how important we are to their business, how "we need each other" and how they "want to work with us." But they continue to avoid working in good faith with us.....We will find an alternate way to get to market if distributors don't work with us."

Another major craft brewer exec told BBD that he is looking at alternative ways to go to market when he opens up his next state. This type of talk was unheard of two years ago. Another source tells BBD: "I asked 20 craft brewers at CBC whether their distributors are earning their margin. Zero said yes." And yet another source said, "Distributors are cutting costs along with the big brewers, who can blame them..... [but] they're not considered brand builders anymore.....but more logistics providers."

Folks, this type of talk is frightening, and it's something I've been hearing more and more of in the last few months -- really starting last summer. But wholesalers I spoken to point to a changed world where they have to react to remain viable businesses as the two largest suppliers are casting ever-widening nets to cut costs. "I didn't replace three employees last year who left [the company].....Costs continue to rise while volumes are soft and [the big suppliers] are cutting into my margins more and more every day," one distributor told BBD yesterday.

I debated another prominent industry source at length last week about whether it's better to give the distributor a larger margin and let them build brands (like they did with Red Bull and many craft brands), or a smaller margin and put more supplier people into the market to support the brands. One large craft supplier is moving toward the latter. This type of talk was unheard of three years ago.

But while franchise law and Care Act have ruffled supplier feathers, I maintain it remains true that the independent DSD beer distributor is still by far the best route to market for beer brands looking to build equity. Most suppliers still agree. But it's alarming to this editor that it's being debated more frequently today.

What say the Truth Squad? hs@beernet.com or http://www.beernet.com/hotline.php

ANOTHER HUSA EXEC DEFECTS FOR PABST

Heineken USA's Mark Beatty, National Accounts Director for Heineken USA's Texoma Region, resigned yesterday to go work for Chris Steffanci at Pabst. He will be the new VP of National Accounts. "Mark made many valuable contributions to our organization during his tenure and we wish him well. We will begin a search for his replacement immediately and have every confidence that the team in Texas will not miss a beat," said Tara Carraro, Senior Director, Corporate Communications at HUSA to BBD.

TTB SAYS ADVERTISING RULES APPLY TO LIVE COMMERCIALS

The TTB had ruled that live commercials during television and radio broadcasts must include the mandatory required for all alcohol advertisements under the FAA Act and TTB regulations. Furthermore, "the TTB regulations that prohibit certain practices and statements in advertisements also apply to the media personality advertising statements, regardless of whether they are scripted or non-scripted, and industry members are ultimately responsible for the content of such statements ." Recently, national radio host Howard Stern has been conducting casual live ads on behalf of Bud Light. To read the circular, click here.

Until tomorrow, Harry

"True eloquence consists in saying all that is necessary, and nothing but what is necessary."
- Heinrich Heine

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