At the urging of Constellation Brands, California’s Markstein Beverage Co. has sold the beer company’s distribution rights in northern San Diego County to Reyes Beverage Group for an undisclosed sum.
In a memo to employees issued on Wednesday, Markstein Beverage president Travis Markstein announced that Constellation Brands had informed the San Marcos-based wholesaler in late April of plans to terminate their 23-year partnership.
“While Constellation admitted that Markstein Beverage Co. was and continued to be one of their very best performing wholesalers, they insisted a change in distribution was necessary to align with their long-term goals,” he wrote. “This news came as a complete and utter shock and while we believe Constellation did not have a contractual or legal right to terminate our distribution agreement ‘without cause’ as they claimed, we also felt that a prolonged legal dispute was not in our best interest.”
As such, Markstein has sold Constellation Brands’ distribution rights to Reyes, whose Crest Beverage outfit will begin selling the portfolio of Mexican import brands, including Corona Extra, Modelo Especial, Pacifico and others, on June 18.
In the meantime, Markstein will continue selling Constellation Brands’ products through June 15.
“Until that time, please continue to sell and promote these brands with the same dedication and aggressiveness as always,” Markstein wrote in the memo.
The Markstein territory was the only major part of California in which Reyes operated but did not have Constellation Brands as a supplier.
Reyes, the second-largest wholesaler in the United States, will add about 2 million cases of beer to its business as part of the deal. The Chicago-headquartered company already sells Constellation’s portfolio, including Ballast Point, in southern San Diego County. It also carries MillerCoors products, including Coors Light, which is the No. 1 selling beer in San Diego County, as well as Heineken’s Mexican import labels.
Reyes also carries Constellation Brands’ portfolio in a number of other markets, including Chicago, Los Angeles and Orange County, California, as well as parts of Virginia, Maryland, Florida, South Carolina and Washington, D.C.
Speaking to Brewbound, Constellation Brands chief commercial officer Bruce Jacobson said the company’s executives “saw risks developing at a level that we became uncomfortable with in San Diego and decided we had to address that problem.”
Asked to elaborate on those risks — and if they included the possibility of Markstein, an Anheuser-Busch wholesaler, selling its business to a nearby wholly-owned A-B distributor — Jacobson said there is a “long list of them that we haven’t made public simply because we don’t know the outcome of everything.”
Jacobson declined to go into detail about the perceived risks, but added: “We have to make sure the brands are being taken care of and they have the proper support in the marketplace. We saw that as the dynamics of the marketplace changed, our growth at the expense of other players in the market changes that risk dynamic for us.”
Jacobson acknowledged that the timing of the changeup was “not ideal” as the industry heads into an important summer selling season, adding that “there isn’t a point in time during the year that would necessarily be ideal.”
Constellation does not anticipate similar scenarios unfolding in other markets, Jacobson said, but he wouldn’t rule it out either.
“We have evaluated more than one market,” he said. “We’ve looked at a number of different dynamics in different places and the risk levels varied in those places. We will never guarantee that we won’t do a similar move in another market, but at the same time, that’s not anticipated or planned at this point in time to do that.”
Jacobson also admitted that the move would likely “cause some anxiety” for its other U.S. wholesalers.
“We thought long and hard about that,” he said. “But at the same time, I want them to see this as a move by Constellation to make sure that we’re looking out for the long-term best interests of our portfolio, which in essence becomes the long-term best interests of their interest in the portfolio.”
For his part, Travis Markstein told employees that the news is “difficult” due to the company’s workers pouring “years of energy and work into building these brands into what they are today.”
“That being said, I can assure you that Markstein Beverage Co. will adapt and continue as a proud, dedicated distributor of Anheuser-Busch, Sierra Nevada Brewing Co. and our other brewery partner brands,” he wrote.
Nevertheless, Markstein’s Sacramento-based wholesaler will continue to sell Constellation Brands’ portfolio in northern California. Jacobson added that Constellation recently approved Markstein for additional territory in northern California, and that the wholesaler is expected to close on a deal for Foothill Distributing’s business in Chico within the next 30 days.