If resilience was the theme of 2021 for the National Beer Wholesalers Association (NBWA) and its members, adaptability was the theme for 2022, CEO and president Craig Purser and chairman of the board Peter Heimark said today, kicking off the NBWA’s 85th Annual Convention in Chicago.
In 2022, beer distributors battled inflation, fuel costs, supply chain issues and worker recruitment and retention problems, along with the continued effects of the COVID-19 pandemic. Additionally, major beverage producers such as PepsiCo have begun to enter the distribution and bev-alc sector.
“All these issues that required distributors to adapt to new and changing market dynamics and be mindful about potential changes coming down the line,” Heimark said.
Heimark championed some of the NBWA’s advocacy victories, including the exclusion of the Net Investment Income Tax from President Joe Biden’s 2022 Inflation Reduction Act, and the exclusion of allowances for the U.S. Postal Service to ship beverage alcohol in this year’s Postal Service Reform Act.
Heimark also acknowledged the association’s fight against direct-to-consumer shipping law changes, which was proposed to the American Legislative Exchange Council last year, with the support of the Distilled Spirits Council of the United States (DISCUS). The measure was defeated with a 30 to 15 vote.
“But it’s almost Halloween folks and like the boogeyman in a bad horror movie, we know that this issue will be back,” Heimark said. “The battle to allow direct shipping of liquor or beer by out-of-state retailers, brewers or liquor makers will continue to be a test for state-based alcohol regulation. But this exercise shows that policymakers are responsive to the sensible protections provided by the current system.”
“We recognize the role NBWA has played in strengthening the independent beer and beverage distribution industry,” Purser said. “And we will certainly celebrate the fact that despite the efforts of some that would like to tear down this wildly successful industry, the system remains strong.”
A potential threat to the system recently has been PepsiCo’s entrance into the bev-alc marketplace with the creation of its distribution subsidiary Blue Cloud Distributing. The arm was formed to distribute Hard MTN Dew, a flavored malt beverage (FMB) produced by the Boston Beer Company.
The rollout of Hard MTN Dew has been slower than Boston Beer originally forecast as Blue Cloud has faced roadblocks in getting a license from several states. And last week, Blue Ridge Beverage Company and Premium Distributors – a Reyes Beer Division subsidiary – filed a complaint in Virginia against Boston Beer over the distribution agreement with Blue Cloud.
“Most states have a specific prohibition on large manufacturers owning alcohol distribution,” Purser said. “Put simply, if Molson Coors or [Anheuser-Busch InBev] can’t own distribution, how can Pepsi?”
Pepsi’s entrance has also raised concern for competition, as the soda producer has existing relationships with retailers, which they pay for shelf space – a “slotting fees” practice that is prohibited in bev-alc. While the company may not specifically be paying for shelf space for Hard MTN Dew, “when the bigs jump, the whole ground shakes for everyone else,” and there may be incidents where “the alcohol product seems to be catching a free ride for placement and promotion as it is merchandised on the same aisle as paid for shelf space for the soft drink,” Purser said.
Purser showed photo examples of Hard MTN Dew being displayed next to non-alc products, including products marketed towards children, such as Kool-Aid and Hot Wheels, adding additional concerns of consumer confusion.
Blue Cloud plans to expand its portfolio with Lipton Hard Iced Tea, another bev-alc product that will license a brand from PepsiCo. The company will team up with FIFCO USA to launch it next year.
An additional focus for the NBWA going forward is tackling distributor labor shortages. The industry is facing a “truly unprecedented” shortage of workers, as competitive wages and benefits have changed the way employees seek out and stay loyal to work.
“I really believe that people – quality employees – are going to be the currency that measures successful organizations going forward,” Purser said. “Culture will be king as employees seek a greater purpose and greater flexibility. And we must balance that flexibility with accountability.
“In short, gone are the days when ‘free beer’ brings them in the door,” he continued.
To help address hiring issues, the NBWA has created a recruitment video campaign for distributors to attract potential employees, which has been used by more than 300 distributors so far, according to Heimark. The newest video – which debuted at the conference general session – addresses prospective truck drivers and highlights benefits such as diverse work days and a consistent schedule to allow time with family.
A-B CEO Brendan Whitworth on Divesting Branches, Innovation & 4th Category
Anheuser-Busch CEO and North American zone president Brendan Whitworth, hit on a few top-of-mind industry issues facing the world’s largest beer manufacturer in a one-on-one conversation with Heimark, including soda giants’ entry into bev-alc, selling off wholly owned distribution branches (WODs) and the company’s digital ordering platform BEES. Here are excerpts of his talk.
On alcoholic versions of traditionally non-alcoholic beverage brands … Whitworth, who previously worked for PepsiCo as a senior director of sales for Frito Lay, described those products as being viewed through a “lens of confusion” on the retail side, by both chains and independent liquor stores, as hard or spiked versions of beverages are merchandised next to either their non-alcoholic versions of those products or even children’s products such as Hot Wheels cars and Kool-Aid. The retailers’ confusion then can lead to confusion among consumers.
“I used to spend a lot of money to buy space to buy displays to do things like that,” Whitworth said of his past life at Frito Lay. “So I think there is some questions around that. I think there’s a lot of requirement for transparency and a lot of accounting that comes along with that.”
On A-B’s philosophy of divesting parts of A-B One, while others, such as Reyes, consolidate … Whitworth said its branches are “always going to be a strategic part of our business.”
“It’s where we find talent. It’s where we send talent to learn different things,” he said. “It’s where we stay close to the realities of what our independent wholesalers deal with on a day-in and day-out basis.”
A-B’s WODs also allow the company to test and fail with new products in A-B One first before bringing those offerings to its independent wholesaler partners.
Nevertheless, Whitworth said decisions on which branches are kept and those that are jettisoned are based “on where it makes sense for us to be versus where it makes sense for qualified independent wholesalers to operate.”
On how he views innovation … Whitworth said A-B seeks products that can premiumize for both the consumer and industry, as well as products that help expand the beer category and attract new consumers.
“If we run them through those two filters, then it makes sense to do something,” he said.
Whitworth added that A-B has to have “a lot of conviction” in those new products coming to market due to the investment the brewer and its network of wholesalers put behind those offerings.
“We have to make sure that it’s sustainable, and it’s going to be around for a while and it’s going to be sort of margin accretive as well, so that it adds to what we do financially as a collective organization,” he said.
Whitworth noted that A-B now has “a lot of flexibility and capability now that we didn’t have five years ago,” including variety packers, to produce different types of products.
On BEES, A-B’s b2b digital ordering platform … Whitworth said the company’s “first priority by 100 miles is our portfolio of brands and growing the category, but then we have to look at how we enable that portfolio, how do we enable our wholesalers.”
“Sometimes if it’s not us doing it, it’s an independent third party that’s only arriving on the scene simply to make money,” he said. “And that’s not how we view it. We view it as a way to make our system better.”
“Consumers, decision makers, a bunch of people are looking to solve their problems technologically versus just pens and papers,” Whitworth said. “For us, BEES is an example to make our service level even higher to retail accounts.
“It’s 2022, and guess what? Next year is going to be 2023,” he continued. “So it’s here to stay.”
Chief Economist Lester Jones on Inflation and Employee Retention
Competition to recruit and retain workers has ramped up across all industries, forcing employers to spend more, NBWA chief economist Lester Jones said.
Increased wages are most concentrated among the second youngest group of workers, those aged 25-34, as they gain more job experience. That bucket of workers stands to earn +20% more in median weekly wages as they age into the next age group, 35-44.
“We’re gonna see 20 to 30 million workers in the next five to 10 years actually mature into our workforce, where they’re worth more money, and they’re going to deserve that more money and you’re going to want to pay them more money,” Jones said.
The 25-34 and 35-44 age groups — which contain members of the Millennial generation – have the largest populations of all working age groups as Baby Boomers begin to retire at a rate of nearly 10,000 per day, Jones said.
Labor market tightness is not expected to let up soon, as the incoming generation of workers is smaller. Last year, there were 193.5 million Americans of eligible working age (21-65), and only 86.5 million Americans younger than 21, who will eventually replace them.
Widespread inflation is complicating workplace issues, as the rate of inflation is outpacing wage increases in some areas, rendering them ineffective. The average weekly wage in constant currency for workers age 25 and older was nearly $430 in 2021, but dropped down to nearly $415 when adjusted for inflation in 2022, according to data Jones shared from the Bureau of Labor Statistics. However, wages for workers aged 16-24 increased from $239 in 2021 to $242 in 2022.
“There’s someone who’s winning in this economy, and that’s younger workers – the hostesses, the dishwashers, the kids working in retail,” Jones said. “Their wages are significantly lower, about $240, but the reality is, in real inflation adjusted terms, these kids are doing better. And that’s why they’re willing to walk away from a job for 50 cents.”
The beer industry lags behind other sectors in inflation, with the cost of beer at home increasing +4.9% in August 2022, nearly half the consumer price index (CPI) for all goods (+8.2%). This could be good news for beer, as other sectors, such as non-durable goods (+12%), durable goods (+7.8%) and services (+6.8%), have also outpaced beer, Jones said.
“Relative to all these other things, it looks relatively cheaper,” he added.
Inflation in the cost of beer at home was more than double (+11.4%) in 1980, during the country’s last bout of significant inflation, than it is now.
Despite inflationary ups and downs, Americans have proven themselves to be consistent consumers of beverage-alcohol, with the rate of consumption holding steady for decades around 2.5 gallons annually per capita.
During the pandemic, when off-premise sales of alcohol shot up to record levels as bars and restaurants closed, bev-alc consumption only increased about one extra drink per person, Jones said.
However, while the amount of alcohol Americans consume remains stable, the kind of alcohol they drink has been changing. Beer has been steadily losing share to spirits for nearly 20 years, and innovations in both categories, such as hard seltzer and spirits-based, ready-to-drink (RTD) canned cocktails have been capturing drinkers’ attention.
Five years from now, wholesalers expect traditional beer’s share of their portfolios to decline to 68% from more than three-quarters today. This would translate to roughly 1.5 billion fewer cases of beer moving through the industry, Jones said.