A couple of years after the expansion of Coors in south Texas, their market share had settled in to around 13%. Schlitz remained a strong number one. Coors had a difficult time developing the on premise so when I arrived in Wichita in 1978, I felt I had landed in heaven. Coors market share was over 60% and you could go into any bar and every single beer drinker had a Coors in their hand. Coors owned the on premise. In general, whoever controlled the on premise was the market leader in sales.
Since the recession started, beer sales in the on premise have declined at an alarming rate. Total beer volume was down -4%. In 2013, premium lights are down -10.9%, premium regular beers are down -7.4%, followed by imports at -6.1%. Crafts, however, are +3.8% in volume and +7.0% in dollars! In fact, crafts are now at an on premise share of 28.5% verses premium lights share of 26.8%!
I recently visited two small local craft breweries, Peticolas and Grapevine. Peticolas began brewing three years ago and Grapevine just started brewing around Thanksgiving. Both breweries have state-of-the-art equipment, having invested hundreds of thousands of dollars in their operations. Currently, both only sell kegs and no packages, however, they have the square footage to expand when ready to install the equipment. Both Peticolas and Grapevine self-distribute.
In the DFW area, Peticolas now has over 300 draft accounts and Grapevine over 70. Grapevine also self distributes in Austin, where they have 20 draft accounts. Going back to over three years ago, before either of these breweries existed, it is highly likely that these 400 handles were pouring either an AB or MC product and serviced by either Ben. E. Keith or Andrews.
These wholesalers now have to sell against these craft breweries when they used to have this business. Both their brands and this business are gone. Given the current trends in craft sales, unless the distributors can get distribution rights to these brands, these 400+ handles are not coming back to them. Both BEK and Andrews have made presentations to both companies and want to distribute them.
The question becomes, what will happen in the off premise when breweries such as Peticolas and Grapevine start to produce packages? The market share for crafts is much higher on premise than off premise, but is that misleading? What happens if these two breweries decide to merge their distribution function into a JV? What if out of state crafts join them and a business model such as Chicago’s Windy City is created?
The state franchise laws supported by wholesalers, and designed to protect them from vendors, are now prohibiting these wholesalers from adding crafts brands like Peticolas and Grapevine. Craft brewers want options and franchise laws limit or eliminate those options.
These are just two of the many craft breweries now producing beer and a number of these breweries self-distribute. Traditional brands carried by wholesalers are losing share and handles, especially in the on premise. Soon it will happen in the off premise.
The dam is leaking for the AB and MC brands and the hole is getting larger. The traditional wholesalers see it and feel it, but they cannot stop it. In fact, they are in search of the proverbially famous young Dutch boy who heroically put his finger in the hole in the dyke to save his town…Hans Brinker. But is it too late?
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