A new Silicon Valley-based alcohol distribution company is hoping to disrupt the three-tier system by offering small-batch beer, wine and spirits producers a more cost-effective route to market and contracts void of strict franchise provisions.
Liberation Distribution, which is based in in San Jose, California and was founded by Cheryl Durzy, a 20-year wine industry veteran, officially launched earlier this month when it made its first sale to a Willow Glen sports bar called Over Under.
Calling itself a “web-based distribution platform,” Liberation Distribution helps alcohol beverage makers secure placements at on- and off-premise retail locations, promises to accept lower margins, and guarantees that it will not enforce franchise laws that would ordinarily lock producers into nearly unbreakable lifetime contracts.
So how are they doing it?
For starters, the company, which Durzy said is already licensed to sell and distribute alcoholic beverages in California and New York, does not warehouse any inventory, own any trucks or make any deliveries.
Dubbed LibDib, Durzy claims her company is the first officially licensed “alcohol distributor and technology company to offer a three-tier compliant web-based platform,” connecting retailers directly to craft beer, wine and spirits producers.
The catch? Alcohol producers are responsible for delivering the product themselves or securing warehousing and delivery services through a third party.
That piece of the distribution puzzle is, of course, one of the most difficult components of alcohol distribution and a major reason why most brewers, winemakers and distillers opt for higher-cost and more restrictive agreements with transportation-minded distributors.
Nevertheless, Durzy — who points to years of consolidation within the middle tier and an increasing number of craft breweries and distilleries flooding the marketplace — feels the current three-tier system is prime for disruption.
“Traditional distribution is failing the small suppliers,” she told Brewbound. “Consolidation is hurting the industry at the small and mid-size level, and that is the growing side of the business — people want products from smaller craft producers.”
She’s betting that a consumer desire for more niche, small-batch offerings, coupled with dwindling opportunities for brewers and distillers, will enable LibDib to ink agreements with all types of alcohol makers.
“Retailers I have been talking to are really excited about LibDib because traditional wholesalers are pushing commoditized items,” she said.
First conceived in mid-2016, LibDib has raised more than $1 million from family and friends and expects to have enough operating capital, even without generating profits, to remain active through the end of 2017.
The company is also planning to launch its services in eight additional markets, including Massachusetts and the Pacific Northwest, before the end of the year. Durzy said she would consider embarking on a Series A funding round as a way to scale the business more quickly.
In theory, here’s how LibDib will work:
- Beverage producers sign at-will contracts with LibDib and are not subjected to traditional franchise laws.
- A variety of beer, wine and spirits are listed on LibDib’s online portal.
- Retailers access LibDib’s product portal and place orders.
- LibDib adds an average 15 percent markup (margin) on most transactions.
- Brewers, distillers and winemakers arrange to have products delivered to retailers (delivery fees are built into the cost of each product).
- LibDib processes all payments in 30 days or less, manages invoicing, collections and taxes.
- LibDib’s software learns ordering patterns and automated re-order reminders are sent to retailers.
- As more retailers turn to LibDib as a vendor, beverage producers are able to scale distribution of their products without the need for in-market sales reps, costly advertising programs or distributor incentive plans.
“The alcohol distribution market hasn’t changed for more than 80 years and is ripe for innovation,” LibDib CTO Richard Brashears said via a press release. “Just as the hotel and transportation industries have evolved with two-sided web and mobile platforms, LibDib has used technology to change the distribution process and make it easier, more cost effective and more efficient than ever before.”
The big question, however, is whether LibDib will be able to generate enough awareness and become a viable distribution solution for alcohol beverage producers.
When asked how the company plans to promote its platform to retailers, especially without sales reps who are tasked with visiting accounts on a daily basis, Durzy said she plans to establish partnerships with retail and restaurant associations and launch “traditional marketing” like other tech companies.
“Push marketing will be happening on a daily basis,” she said.
LibDib has yet to sign a contract with a brewery, but a spokesperson told Brewbound that it hopes to “on board” one in the coming days.