The state of middle-tier operations was among the focus areas of Beer Business Daily’s 2023 Beer Industry Summit this week in West Palm Beach, Florida.
Leaders from five wholesalers – Chris Steffanci, CEO of Columbia Distributing (Oregon and Washington); Kit Wanty-Lambert, president of O&W (Michigan); Laura Markstein, president of Markstein Sales (California); Evan Athanas, president and CEO of Chesapeake Beverage (Maryland); and Deacon Nauslar, VP of sales at Breakthru Beverage (Nevada) – offered insights on taking on non-alcoholic beverages, SKU rationalization, convergence, and trade down. Here are a few takeaways:
Navigating Contracts with Energy Drink and Non-Alcoholic Producers
Asked about taking on energy drinks and non-alcoholic products, Markstein stressed the importance of strong contracts for suppliers making products outside of the beer category. She called it “challenging” and “super disappointing” to take on suppliers and build them to “substantial volumes” only to have them terminate their distribution deal. Nevertheless, those offerings are “really important” to the business, she added.
“You must really maintain the margin and pricing because a lot of these brands are really labor intensive, especially with a single serve and what it takes to get them to market,” Markstein said. “We absolutely want the partnership with these brands and mutual investments and also we’ve got to have feet on the streets for them. It’s very important.”
Keeping Red Bull Happy
Red Bull is a top five supplier for Columbia, which is now the largest single distributor of the energy drink in the U.S., Steffanci said.
“It’s hugely meaningful” to the business, he said, but “we have no contract.”
“The way we look at it is if we’re the top performing distributor in the country … then for us, that’s all we can do as a distributor, right?” Steffanci added.
So far, so good as Columbia has doubled its Red Bull business over the last three-and-a-half years, he said.
“With Red Bull, we’re fully exposed,” Steffanci added. “We love the relationship. We love the brand. We’ve been selling it for going on 11 years and it’s been a really good partnership.”
Balancing Core and New Innovations
Core remains the most important thing to Breakthru Nevada, Nauslar said. New products have to fit a gap that Breakthru is missing, otherwise they’ll pass, he added.
Suppliers often “put too much weight on innovation and forget about the horses that brought us to the dance,” Athanas of Chesapeake Beverage added.
“Suppliers need to understand the opportunity first, and then have the pressure commensurate with the opportunity,” he said.
SKU – and Supplier – Rationalization
Breakthru reviews its SKUs twice a year – in the last week of June and the second to last week of December – and makes decisions on what to cut, Nauslar said. Following the completion of Breakthru’s end-of-year review, the distributor will be trimming 123 SKUs.
“We notify the supplier, we let them know – they know it, because the inventory has been sitting in our warehouse for quite some time,” he said. “You got 340 cases just sitting there … they’re just waiting for the word to come from us, and we do our due diligence.”
Every year, that amounts to around 200 to 300 SKUs cut, which is close to the number of new products the distributor is bringing in, Nauslar added.
“Innovation will eat up whatever we throw out,” he said.
Steffanci praised suppliers who do the work for them in cutting underperforming products, which helps Columbia operate more efficiently.
In addition to “daily” SKU rationalization, Chesapeake Beverage has undergone supplier rationalization, allowing suppliers to go “somewhere that maybe fits them better,” Athanas said.
“You can’t apply the same amount of focus on everything, so we need to focus on those things that definitely drive the return,” he added.
Trade Down Depends on Demographics
Trade down depends on the demographic, Athanas said.
“The younger and the higher-end people are continuing to trade up,” while other demographics and age groups are trading down, he said. That’s manifesting in pack size trade down and a decrease in frequency, as midweek purchasing has slowed.
PepsiCo Will Figure out Bev-Alc Distribution
Asked about PepsiCo’s entry into beverage-alcohol distribution via Blue Cloud Distribution, Steffanci reminded the room that Pepsi is one of the largest beverage companies in the world and has the money to figure out bev-alc distribution.
“I’m not going to bet against Pepsi,” he said.
Steffanci also doesn’t see the company will stop at three or four SKUs or brands for its distributor, which handles Hard MTN Dew, which is produced by Boston Beer Company, and will add Lipton Hard Tea, produced by FIFCO USA.
Athanas viewed the early work by Blue Cloud with Hard MTN Dew as a “test balloon” that created a lot of trial but has since slowed. Nevertheless, “they’re probably coming for sure,” he added.