The Consequences of General Distributing's Sale
A week ago, General Distributors announced its sale to Columbia Distributing, the kind of transaction that happens routinely across America without attracting even one-paragraph summaries in the local news. For people who care about beer, this may raise some interesting questions. What happens when a larger distributor buys a smaller one? How does it affect the breweries involved? Does it affect the variety of beer consumers find in bars and grocery stores? We'll get to those questions in a moment. But first, on Thursday I posted a lengthy overview of what distributors do and how they function in preparation for this post--you might want to go read that if you missed it.
In preparing this following piece, I spoke to breweries directly involved as well as ones unaffected (weighted toward the former). The nature of the brewer-distributor relationship does not lend itself to transparency in the first place, but this is a particularly bad time for brewers to offer unvarnished commentary. They are, after all, about to enter negotiations for a new distributor. All the quotes and insights are therefore unattributed. Believe it or not, there were a couple breweries willing to go on the record, but in order to protect everyone's privacy, I'm going to go ahead and make everyone anonymous--there aren't that many breweries in General's portfolio (or "book," as they call it), after all.
Columbia purchased General largely for the mass market brands it owned, most of which are already represented by Columbia in other regions. Or, to put it in the argot of business, it would allow Columbia, according to its press release, to “align its distribution operations in contiguous service areas around the Portland Metro area.” But General did have twenty Oregon and Washington craft breweries in their book, which are the main subject of our inquiry. None are major players; Sunriver and Three Creeks are the largest breweries they represent--but they are Central Oregon breweries. Still, General had done a good job of putting together a group of strong brands that are positioned for growth--Base Camp, Coalition, Culmination, and Flat Tail among others.
Columbia, meanwhile, has a large portfolio of craft breweries, including heavy hitters from around the country (Stone, Sierra Nevada, Russian River, New Belgium) plus some of the stalwarts in Oregon (Deschutes, Hopworks, Pyramid/Portland, Full Sail). Portland also has one more large distributor, Maletis, which has a number of other big Oregon brands, as well as a few smaller distributors, as well as three other smaller companies.
In the short term, this news is not great for the breweries in General's book because they've had to scramble to make sure their beer will still make it to market. (None had any idea this was happening; they read the news on the blogs just like everyone else.) The deal is set to close March 31, which doesn't give breweries much time to make arrangements--and disruptions are never welcomed by businesses. Beyond that, General employed around 165 people, and while Columbia has agreed to let them interview for new positions, there will be job losses. Still, one was philosophical about it.
Interestingly, General's craft brands do no automatically go over to Columbia. As mentioned in the previous post, brewer/distributor relationships are essentially permanent--unless something like this happens. That throws breweries into an interesting position. On the one hand, they've lost a distributor. On the other, they're "free agents"--which means they can renegotiate contracts anew or choose self-distribution instead. This matters for a few reasons.
Each brewery has a different situation. Very small breweries could well worry that going to a giant distributor like Columbia (one of the nation's largest) will mean getting lost in the shuffle. One brewery said flatly, “Yes, it's bad for them for sure.” Another pointed out that even if all the breweries find new distributors, “it looks as it will lead to bloated books where some breweries won't get fair shakes at market.”
But it's not all bad news. In fact, most of the breweries I spoke to were generally pleased with the situation. One said, “This gives us a rare opportunity to step back and decide if we want to overhaul our distribution with a free pass, or go with the flow through the consolidation.” Flat Tail's Dave Marliave told Willamette Week, “This is an opportunity to get our distribution rights back without writing a check [to GDI] for a quarter of a million dollars.” Another was delighted. “We own our brand once again, which is awesome.” Even the brewery that said it was probably bad news acknowledged that “We do have opportunities (and problems) now that we did not have.”
One of the more important factors for smaller, younger breweries is that this represents a fresh opportunity to re-set without huge financial costs. “We've made some mistakes and learned a lot about the distribution game and are much better suited to make wise decisions. We'll be entering into this phase of choice with what is, in my opinion, a very clear and exciting plan for our beers and our brand going forward.” Another told me something very similar, describing it as a “serendipitous” opportunity.
There are a lot of moving pieces in distribution arrangements, and it was hard for anyone to gauge how this would affect availability at the store or pub. Bigger distributors have access to more retail outlets than smaller ones, but that doesn't mean every brewery will benefit. In some cases, going with a bigger company might mean getting lost in the shuffle while a smaller distributor might showcase a small new arrival. Will selection go down as a result of the sale? There are just too many variables to know.
One thing was interesting. Breweries seemed uneasy about the general situation, even though most felt their own situation was good or improved. As one put it, “This particular consolidation is the latest piece of a much larger macro economic trend that is highly concerning. I hope the smaller distributors will grow and new ones will be formed to help small breweries.” Consolidation seems bad, but in practice the sale of General may not be.
One brewer pointed out something I hadn't considered, though. “Suddenly the market is flooded with free agents. To use a baseball analogy, this is like an unexpected offseason with a lot of valuable free agents on the market.” That brewer expected this to drive their contractual leverage down as they sit down with new distributors. As of Monday last week, fifteen Oregon breweries were on the market for a distributors, which makes it a buyer's market. Perhaps this will affect how breweries ultimately evaluate the situation, but it's too early to tell now.
Portland has more robust competition and diversity in the marketplace than most cities. It is so competitive that even the AB InBev distributor, Maletis, has built a book that includes such prizes as Breakside, Gigantic, Ninkasi, and Fort George. Even with General out of the picture, Portland has Columbia, Maletis, Point Blank, Running Man, and Alebriated distributors. Perhaps because of this, one brewery summarized the general mood of the breweries I spoke to:
As always, we'll watch and see what develops.