Distribs Cite Technology, Data Analytics As Change Agents Driving Modern Distrib

FILED SEPTEMBER 8, 2016

Dear Client:

The Beer Institute's Jim McGreevy moderated a panel of distinguished distributors at their annual convention this week in Portland, each of whom is on a major suppliers' distributor councils (ED NOTE: Significantly, we note that Tim Mitchell of Suncoast Beverage in FL replaced Philip Mullin of Adams Beverage as A-B's Wholesaler Panel Chairman Emeritus. You'll recall that Adams was passed over last week in purchasing a distributorship in Mississippi).

ON THE FUTURE. Interestingly, there was a lot of talk about how technology has and will affect distribution. There's an inherent challenge, first of all, in finding qualified CDL drivers without criminal records (really). Tim Mitchell said the pool of qualified drivers who are also savvy enough to have facetime with customers and use a table, etc, is very tight. A few years ago he "never would've considered" a candid with a criminal records. Today, if they have their CDL and were maybe "busted for a bag of pot", if their qualified, "we'll consider him."

Mark Walen of Columbia Distributing joked that "depending on how big that bag of pot is, he may be in business in Washington." Mark also pointed out that drivers aren't just drivers -- they're salespeople and customer service reps. They drive maybe 20% of the time but are interacting with accounts 80% of the time.

ADAPTING TO TABLETS. The other challenge distributors face is finding drivers and pre-salesmen who are qualified to use a tablet/handheld for logistics, inventory control, order taking, account presentations, and payment. Finding young people who are willing to do the physical work while also using a tablet is tough, but equally challenging is teaching the older experienced salespeople to properly use the tablet, added Mark.

And technology is not just changing on the front end. Tim pointed out that when you have a thousand SKUs, the days of picking beer in the warehouse from a pick sheet are over.

COMPLEXITY. Technology is also an important tool for dealing with complexity within distributorships. More SKUs, more suppliers, more sophisticated chain accounts -- it's a shitshow out there.

Mike Barnes, Executive vp & GM of Andrews Distributing in Dallas, said that in the past most distributors "went to market in a static way, but investments are so much more dynamic today." He explained how Andrews has moved to having ever-more segmented selling teams focusing on many more channels of accounts -- not just on and off-premise anymore. Selling by geography is out, tailoring by channel is in. "We're really becoming more of a marketing and technology company now…. Investments today are so much different than the past," particularly in mining the huge amounts of data available and presenting that data to the right accounts.

ADAPTING TO A CHANGING CONSUMER. Mark Doll of Doll Distributing in Iowa made an excellent point that we hadn't considered before: He cited the example of his daughter who buys everything on online. With the Amazons and the Instacarts and the Drizly's of the world, Mark sees a world where they'll be building displays in stores "that many young consumers won't ever see." He said we need to think about how to maneuver with a new generation of drinkers.

BEER INSTITUTE'S UHRICH: CRAFT OPENINGS SLOWING, INDUSTRY LIKELY UP THIS YEAR (BARELY)

Chief economist for the Beer Institute, Michael Uhrich, took the stage to share his outlook for the future of beer.

SLOWDOWN IN BREWERY OPENINGS. Most surprisingly, Michael pointed to a graph indicating that the TTB's rate of increase of brewery permits has fallen by 66%. That's a new metric we haven't heard in a long time.

"Production has kept up with demand," Michael said, therefore it "looks like there's decreasing pressure to up aggregate capacity." This tidbit of information may lead you to believe there will be more brewery closures, but that's not the case Michael said. He instead predicts it will ramp up M&A activity. As Michael puts it, "the majority will stick around, but the majority will become targets." I agree. Look for more deals.

OVERALL BEER HEALTH. Recall beer volume was flat last year and the category lost about half a point of share within total alcohol, mostly to hard liquor. Right now overall beer volume is up 0.3% YTD through July. You'll recall July was a tough month due to the placement of holidays, but Michael expects a nice recovery in August noting that YTD volume through August is up 1%. He expects beer to cap the year off up slightly at either 0.25% or 0.50%. Hey, at least it's not down.

"BIG CHANGES ARE SLOW" Michael noted that big changes in the beer industry don't happen overnight. To prove his point, Michael displayed a graph that showed how the below premium segment lost share for 20 years before it was unseated by premium regulars. Coincidentally, it took 20 years of share growth by premium regulars to grab the number one spot. And guess what? Premium light's share grew two decades before it became the number one segment.

RURAL MARKETS SLOWLY MOVING TO HIGH-END. It's no surprise that high-end segments are most developed in populated areas. The high-end brands need a target rich environment to succeed, said Michael. The segment is growing faster in rural areas but it takes a really long time (like two decades) to catch up to where the urbanized markets sit today.

A LOOK AT DEMOGRAPHICS IN 2036. Non-Hispanic Whites currently account for nearly two thirds of the legal drinking population (64.8%), but that figure will drop close to ten percentage points by 2036 to 55.7%. Hispanics will grab the majority of that share growing from 15.5% in 2016 to 21.3% in two decades. Non-Hispanic Other will steal a chunk too jumping from 7.8% to 10.6% in 2036. While non-Hispanic Blacks will grow slightly from 11.9% to 12.4% over the 20-year timeframe.

MILLENNIALS VS. BABY BOOMERS. Michael noted that there's quite a discrepancy when it comes to segment preference between millennials and baby boomers. For example, the economy segment has less than half the share with millennials (14%) than baby boomers (36%). When it comes to craft millennials comprise 24% of craft while baby boomers hold a mere 9%.

CHEAP GAS PRICES TO CONTINUE. Michael then walked through some of the more medium term issues affecting the industry. One such issue is the cost of gas prices. Michael expects the cost of gas to stay low, which will benefit distributor's bottom line when filling up the tanks in their trucks. Not to mention "beer drinkers' demand for variety means more need to produce smaller runs," Michael said. Adding, Drinkers interest in "local" and suppliers ability to cut transportation costs have pulled production closer to drinkers.

FORMER PUBLISHER JERRY STEINMAN HONORED WITH BEER INSTITUTE SERVICE AWARD

Congratulations to longtime former publisher Jerry Steinman, 91, founder of Beer Marketer's INSIGHTS, for winning the Jeff Becker Industry Service Award from the Beer Institute. After heartfelt remarks remembering the late BI chief Jeff Becker, Mr. Steinman noted that when he started BMI in 1970, A-B only had 20 share, followed by Schlitz, Pabst, and Falstaff. Miller was number eight. Amazing how much things have changed in this industry under his eye.

He also playfully created an industry lexicon which one distributor astutely called "brewbonics". As a young buck, I ate up his bi-weekly "orange sheet" as a primer to learn about the industry, carried on by his son Benj. He is truly an amazing visionary in beer industry trade journalism and we at Beer Business Daily honor his legacy which has paved the way for the rest of us. Here's to you, prexy.

BEER BRIEFS:

CORRECTION: Yesterday we erroneously reported on the local A-B wholesaler in College Station, TX. The A-B wholesaler for the area is Jack Hilliard Distributing, (not Ben E. Keith), which worked hard to secure the A&M promotion package. We apologize for the error.

Until tomorrow, Harry

"If you treat people right they will treat you right - ninety percent of the time." - Franklin D. Roosevelt


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