Deep Diving California’s Distribution Shakeup and the RNDC Fallout

[00:00:00] Justin Kendall: Heading to CBC? Kick things off the day before at Brewbound's meetup at Love City Brewing in Philly, Sunday, April 19th from 5 to 7 p.m. Connect with beer industry leaders, grab a drink, and catch up with the Brewbound team. It's free to attend and walking distance from the convention center. Head to Brewbound.com slash lovecity.rsvp. And don't forget to catch the Brewbound team at booth 956 during CBC. Next on the Prove Out Podcast, we go inside RNDC's California exit and the fallout. Hello and welcome to the Brewbound Podcast. I'm Justin Kendall.

[00:00:49] Zoe Licata: And I'm Zoe Licata.

[00:00:50] Justin Kendall: And we are going to be joined by Justin Fonte. And this week's featured interview, we've got two guests here to talk about what's going on in California and the reshaping of Sunset Distributing landscape there. We'll have Dave Infante from Fingers and Ferron Salniker, BevNET's spirits editor to join us. So stay tuned for that because we've got a lengthy conversation there. But first, you're back. Welcome back. How are you doing?

[00:01:21] Zoe Licata: I am indeed back. I'm good. I enjoyed, I had a very good vacation. I wish I was still in Bermuda, but don't we all. So it's good to be back. It's good to, a lot to catch up on, but it was very enjoyable to be in the sun for seven days.

[00:01:38] Justin Kendall: That's a very nice time to be in the sun. Right now is not a nice time to be in the heat of Boston, though.

[00:01:45] Zoe Licata: No, no. We left and it was cold and miserable and there was no sight of summer whatsoever in Boston. Had a wonderful, perfect, basically sunny and 75, 24 hours a day for seven days and then come back and Boston is now a sauna of 95 degree weather with the most humid weather I've felt in a while. It is heavy and sweaty and gross. But I feel like we can't really complain because we all beg so much for sunshine. And now we have it.

[00:02:18] Justin Kendall: That's true. Yeah, I know the feeling there and I know the feeling here and the feeling here is just scorching heat as well. That's what it was all weekend. Now it's all rain. But you know what temperature is delightful?

[00:02:31] Zoe Licata: What?

[00:02:32] Justin Kendall: California in December.

[00:02:34] Zoe Licata: This is true. California in December is magnificent.

[00:02:39] Justin Kendall: It is. It's a nice getaway if you're in the Midwest like me or Boston, because it can get a little dreary in December. We've got Brewdown Live coming back December 10th and 11th in Marina Del Rey, California. We've got our room block open now, I believe, and tickets are available now. Why don't we do a speaker announcement while we're at it?

[00:03:03] Zoe Licata: Oh, very exciting.

[00:03:05] Justin Kendall: We haven't done this yet. We have done this before though, and they're always great. It's Kaylee Theriault from NIQ and Mary Mills from Three Tier Beverages. They'll be back to discuss the current BevAlc landscape that we're in. We'll drill down on a lot of topics before we get there, so you'll know what they're going to talk about. I have a feeling that you all have a pretty good idea that they'll break down what's happened in the beer category and beyond and much more. So they always come up with something great for the conference.

[00:03:37] Zoe Licata: They both presented last year as well. Last time they kind of dove into some generational trends that are happening this year. They're really just giving us an overview of what is going down and they always have really great insights that dive into some bits and pieces that we don't always look at. Sometimes they always bring something new, even though we're constantly talking about data, we're constantly talking to NIQ and to three tier and to CGA, which is the on-premise arm there. they somehow still find new stuff for us to talk about. So it's definitely worthwhile to go there and listen to them.

[00:04:11] Justin Kendall: Absolutely. We'll have more speaker announcements in the coming weeks, so stay tuned for that. But you can get your tickets now at brewboundlive.com. So check it out. Let's talk a little bit of news before we jump into the featured interview. And why don't we just talk about a feature that you did recently. It's your breakdown of what's going on with hard refreshers. And this is a trend that we've seen sort of pop up in the last two years or so, and it's worked for some, it's not worked as well for others. So tell us a little bit about what's going on.

[00:04:47] Zoe Licata: Yeah, so this is a fun story I got to do that originally went in the BevNET magazine and always provides a fun opportunity to dive into some things in the beyond beer space. So Refreshers was the choice for this latest one. And it stemmed off of we've just had tons of conversations of we're seeing these from a lot of folks. What even are they? Is there a definition of what a refresher is? And it seems like there isn't necessarily one that everyone is adhering to. There's not really a, okay, this is a refresher, this isn't. It's just kind of the general idea that it is a fruit forward, flavor forward beverage that typically is very colorful and the targeted consumer is those younger legal drinking age Gen Z consumers. The main one I thought of us first having conversations about was when Molson Coors came out with Happy Thursday, and that was one that promoted itself as a bubble-free product that was really big at the time too. There's no carbonation, it was very colorful liquid, and it was supposed to be this just refreshing happy beverage for people to enjoy as an alternative to a seltzer or maybe an RTD and drawing some inspiration from what they coined at the time as coffeehouse beverages. They've leaned away from that a little bit. They're not necessarily using that in their marketing now, but that was the original idea. So think like Starbucks or Dunkin, who had these like teas or refreshers that you could get. Now they're offering people a spiked version of that.

[00:06:28] Justin Kendall: I was at the distributor meeting when they announced this, and they played a video of Gen Zers trying to decarbonize, uncarbonate their beverages. It was wild to see, because it was just these TikToks, and Molson Coors has a Gen Z panel that they tap into for some of their ideas, and they really leaned into this one.

[00:06:53] Zoe Licata: Yeah, and then flash forward to a couple years later, recently, New Belgium came out with light strike hard refreshers, which is almost entirely different beverage. It's inspired by like hydration beverages. It has coconut water in it, sea salt, it's also non-carbonated, and it also targets those Gen Z consumers. And they specifically talked about when they launched that, their Gen Z panels and talking to those consumers about how they really wanted something like this that was entirely new, something they hadn't seen before, but they were somewhat familiar with its inspiration product. It's such a weird spectrum of what I, even after spending all this time writing this story, I couldn't really tell you what a refresher is. It just seems to be something that consumers are looking for that flavor, which we talk about all the time of like flavor is really a driving point for any sort of innovation right now. And Gen Z doesn't like carbonation.

[00:07:50] Justin Kendall: Is that true?

[00:07:51] Zoe Licata: I think it is true to say that most Gen Z's don't like heavy carbonation. I think that's fair to say, at least in alcoholic beverages. We also know they love these different kinds of sodas that are out there that are very carbonated now, like Olipop or Poppy. So it's not like it's an across the board thing for every beverage, but it seems like within alcoholic beverages, probably stemming from them all having drink, hard seltzers, White Claw, truly everything when they started drinking that you start to shift your palate a little bit. But yeah, it's a really fun story to dive into. I spoke with some other folks about what's happening there. People from beer side, people from the spirit side, it seems to be a segment that is attracting people from across the industry. So definitely check it out and see why the people who are participating think it's worthwhile to participate in.

[00:08:45] Justin Kendall: That story is available to Brewbound Insiders. We've also got coverage beginning just about now from our Summer Pulse Check with retailers and wholesalers. You'll be able to check out the thoughts from leadership at Total Wine, Whole Foods Market, Columbia Distributing, and Highmark Distributing. They'll share what they're seeing as summer really gets into full swing here. You'll also be able to read about Texas governor Greg Abbott vetoing the hemp ban and what comes next there. You'll get beer distributors thoughts on what happens with Alani new, the energy drink that was acquired by Celsius and whether they're still investing behind the brand or not. There's just a whole lot of stuff that we've got up on the site right now.

[00:09:32] Zoe Licata: Yeah.

[00:09:33] Justin Kendall: Especially by the time people are listening to this.

[00:09:35] Zoe Licata: Yeah, and we're putting out more content all the time. We're trying to put even more content up on the site than usual to get more and more to you folks. So make sure you're staying up to date in the newsletter and on the website because there is a lot going on. This is definitely not a subdued summer. It is definitely a busy, busy summer for the industry and there's lots of news coming out every single day. So we're trying to keep it up to date for you all.

[00:10:00] Justin Kendall: Absolutely.

[00:10:01] Justin Fonte: With that, let's get to our featured interview with Dave Infante and Farron Solnecker.

[00:10:28] With Republic: this week's guests are our esteemed colleagues in the world of beverage alcohol journalism, but also I like to think good friends. So excited to have with us today, our coworker, Ferron Salniker, Bev Nett's spirits editor. Farron, how are you? I'm good. How are you guys doing? I'm good. I don't think you and I have ever brew Brewbound Podcast together.

[00:10:48] Sunset Distributing: I don't think so either.

[00:10:50] With Republic: All your appearances have happened during my maternity leaves. So true. Yeah. Yeah. We also have with us the editor of the Fingers Boozletter and contributing editor of VinePear, my dear friend, not cousin, but maybe Dave Infante. Dave, welcome back.

[00:11:11] Brewbound Podcast: Hi, thanks so much. I was busy writing my congressmen, asking them to harass the USDA about the dietary guidelines to actually make them recommend drinking more alcohol, but I'm glad I was able to join today.

[00:11:24] With Republic: Well, I'm really glad you could fit us into your very busy schedule.

[00:11:28] Brewbound Podcast: Why aren't they answering my letters?

[00:11:30] With Republic: I don't know. How many do you send? Three a day?

[00:11:35] Brewbound Podcast: We can do more.

[00:11:35] With Republic: I'm sure we will get into that, but that news this week was kind of wild. I feel like I've talked about that with all of you that we are potentially going from the science saying drinking is bad for you, do less to maybe getting some guidelines that say, oh, just do what you feel.

[00:11:55] Brewbound Podcast: We're in a vibe economy. We're in a vibe public health economy. I think it's beautiful. I think people should be able to make whatever decisions they want and find the science that supports them.

[00:12:05] With Republic: Science is definitely, definitely optional in that way. So the reason we've brought you both here, and this is gonna spill into many other different things, but to start, both of you have been covering the fallout of Republic Sunset Distributing Company, henceforth RNDC for the purposes of this conversation, but their announced exit from California, which will be coming in a couple months. We've been detailing the news on the pod as it comes out, but since you're both here, I really want us to tell the story in whole, because that's not really something we've done for the podcast audience. So in your minds, where did the events that led to this start?

[00:12:39] Sunset Distributing: I would say with Sazerac pulling out a couple years ago, Dave, I don't know if you think there's a precursor to that, but if we're talking about a big supplier leaving a distributor and then that supplier basically having to provide the same level of service for hundreds of companies, but with less profit, I think that kicked off then other suppliers. maybe not receiving that same level of service and making plans to exit. What do you think, Dave?

[00:13:10] Brewbound Podcast: Yeah, the Sazerac pullout from RNDC California in 2022 is, I think, a pretty good mile marker, a good place to start without, like, allowing this conversation to sprawl. The only other one I would potentially suggest is the 2019 failed merger between Breakthrough and RNDC, which the DOJ, I believe it was the DOJ, rejected and the merger fell apart. But that situation was basically RNDC trying to achieve scale and find, you know, sort of a way to compete with Southern Glazers, which they, you could argue that they could have done with the 2022 acquisition of Young's Market. You know, they had, I think about 10 states in the West, including California. So RNDC was able to find scale. So I think 2022 is, you know, the Sazerac pullout is maybe the best place to start. But I mean, you could go back obviously to fucking post prohibition if you wanted to, but like, no, I think, I think 2022 is a good place to start. So we don't go insane and drive the Brewbound Podcast listeners up a wall.

[00:14:26] With Republic: Well, so I do want to go up that wall though. 2019 predates me in this role. So real quick. So RNDC was trying to merge or acquire Breakthrough and was it just California?

[00:14:40] Brewbound Podcast: The RNDC breakthrough, I believe, was a full acquisition of breakthrough by RNDC. They framed it, I think, as a merger. I mean, everybody always does. But RNDC was bigger at that time. So I'm looking at the press release right now. This move. hit in 2017 and it was rejected ultimately in 2019. $12 billion company, North American footprint. It was the entire, the two companies together, not just the state of California. But this was a bid to scale up and a bid to find those sweet, sweet synergies that come with consolidation. And it failed, ultimately, again, because of regulatory rejection. But the subtext there, which I think is just the text at this point, now that we've seen this all come to pass, is that the company, for all its woes, was at least able to see around the bend on The consolidation happening in the middle tier, they had watched consolidation sort of reshape the landscape in the beer distribution space. You know, their colleagues across the category in beer. SG Southern bought glaziers and Farron, help me, when did Southern buy glaziers?

[00:15:55] Sunset Distributing: I think it was also before my time in this space. But not so, so long ago.

[00:16:02] Brewbound Podcast: Anyway, the point is that they were trying to get bigger to compete with Southern. Breakthrough was an obvious fit in that regard. A lot of complementary territory, a lot of complementary portfolio matchups. Breakthrough, I think, had Guinness in many states by that point. So that was another, you know, potentially sweet piece of the puzzle. But anyway, like the basic tenets of the, or the basic deal points there were the ones that you guys can probably surmise and that your audience is probably able to surmise as well. better scale, more economies that they can capture from that scale, better leverage over the major suppliers, better leverage over the major retailers, which themselves had gone through a tremendous amount of consolidation at that point. This was pre-push into RTDs, obviously. Spirit space can cocktails existed at that point, but they had yet to really explode like they did, you know sort of Following the the hard seltzer boom and the early year ish of the pandemic That's when the high noons of the world started coming on strong and all of a sudden spirits distributors who had mostly trafficked and you know, full bottle stuff, 750 and liter, as well as, you know, 9L cases of wine, realized like, oh shit, we need a go-to-market strategy for like single-serve C-store stuff that we've never wanted, needed or wanted to deal with in the past. So, I mean, that approach predated, or that merger attempt predated that a bit, but it would have set RNDC up well for that because Breakthrough has, I think, done maybe the best of the big three in Wine and Spirits at making that pivot. But anyway, that's the history, at least as I know it. Farron, please intervene if I missed anything there.

[00:17:58] Sunset Distributing: No, you got it. I was going to add that it was 2016 that Southern and Blazers combined. So there you go.

[00:18:05] Brewbound Podcast: So that was very recent history at that point.

[00:18:08] With Republic: Yeah, exactly.

[00:18:09] Brewbound Podcast: Yeah.

[00:18:10] With Republic: So Sazerac walks away almost three years ago. Farron, you've covered a bunch of the other big brands who have left. Who else is in this club?

[00:18:16] Sunset Distributing: The list is getting quite long, but the ones that left prior to RNDC then was drawing from California, where Brown-Forman was a huge one, Tito's, High Noon. There may have been some others that weren't announced. I don't know, Dave, if you know any, but those were announced pretty quickly in the past few months. Since RNDC has closed operations in California, or is scheduled to, we've now seen Lalo's, Spirits, which is a fast-growing tequila company, and yesterday, Fernet, Bronca, USA, move over to Reyes as well.

[00:18:59] Brewbound Podcast: and Wilson Daniels go to Breakthrough. Cobrand, which is another wine portfolio, is going to Regal, which is weird because that'Justin Kendall Jackson, but best of luck to them.

[00:19:11] Justin Kendall: AB with Cutwater and Neutral.

[00:19:15] Brewbound Podcast: Yeah, that's the last one pronouncement good call there Thank you for bringing it back to the beer and then a be just to ruffle more feathers in their poor beleaguered independent wholesalers in the Golden State yanked neutral their high noon drink alike from the independent houses in California and handed that to to Reyes as well, so I'm in glazers, right and Sorry, Southern Glazers. Yeah, you're right. They handed Cutwater and Neutral to Southern Glazers, not Reyes. There's too much movement going on right now.

[00:19:54] Sunset Distributing: It's hard to keep track at this point. We need the, like, beautiful mind map.

[00:19:57] Brewbound Podcast: The, like, Charlie from Always Sunny. Yes, that's what I was picturing.

[00:20:02] With Republic: But you went with the Oscar award winning movie instead. Pepe, Sylvia. Yeah. So Farron, you live in California. Like, what are the vibes right now? Do you notice any changes at retail? Anything seem different or weird?

[00:20:14] Sunset Distributing: I haven't seen anything yet. I'm also, you know, I'm not super on the ground going into retailers. I mean, what we've heard for a long time is that, you know, I've heard of complaints from suppliers and then also on-premise operators about the level of service from RNDC. So that I've heard about, otherwise I haven't seen much change on the ground yet.

[00:20:39] Justin Kendall: This feels like a lot of these companies that didn't move ahead of time now have lost a lot of the leverage that they might have had previously. Is that a fair assessment?

[00:20:52] Sunset Distributing: I think that's why we saw these companies jump because as soon as, you know, Sazerac leaves, These other companies then are strategizing around their next moves. I mean, these are decisions that are done over time. We just got the announcements very quickly. But they're then strategizing about where they're going to go next, and they want to jump sooner than other people so they have more leverage when they're jumping to a new distributor, right? I don't think they want to be then fifth hopping over to Reyes or whatever it is if you're a ground foreman. So yeah, it puts, I think, smaller businesses in a tough spot now as they try and move. And there's certainly a lot of regional options, but whether those smaller regional players can then help those smaller companies scale is a question mark for a lot of them.

[00:21:48] Brewbound Podcast: Yeah, I mean the long tail in RNDC's California book is gonna get chopped off, I think. Not to be too doom and gloom here, but I mean you're looking at I think about 2,000 suppliers-ish. The PDF of their California price book is about 100 pages long. Also not searchable, thanks guys. But the PDF is about 100 pages long, obviously that includes SKUs, not just suppliers, double column though. I mean, you're just talking about a tremendous, tremendous number of SKUs and a tremendous number of suppliers that corresponds to it. And there's really nowhere for those suppliers to go. You know, not only do you have a leverage problem, right? Where like you're already struggling to get attention from RNDC in California, which is your wholesaler. I mean, now you're talking about trying to go out and pitch your case to, a Sunset Distributing partner in California during a historically poor growth environment for beverage alcohol and wine in particular. I feel for the small wine suppliers that were in RNDC California's book. I mean, I'm talking to sources in California who are, you know, predicting anywhere from a quarter to a half of that book in terms of rows on the spreadsheet, not in terms of volume, but of those suppliers just not having a route to market through a wholesaler in California. I mean, winemakers in California can self-distribute, but as, you know, again, you guys know, and I'm sure the audience understands, you can't just stand up a self-distribution operation overnight, and two months is essentially overnight in the beverage alcohol business. I mean, there's a lot of suppliers who are looking at not having a off-premise retail footprint in California because of RNDC, right? Like, you have to place the blame where it belongs. Like, RNDC made a decision that presumably is net good for its business or that it hopes is net good for its business, but it left at least hundreds of suppliers in the lurch here. And that sucks. I mean, there's no way around that. Something I don't understand is That game of musical chairs that was happening ever since Sazerac pulled in 2022, right? Where suppliers are kind of taking a look around and there's like the prisoner's dilemma or the sort of game theory type thing where it's like, all right, no one, everyone wants to maximize their outcome here, but everyone also understands that when other suppliers, rivals move, that affects their outcomes as well. So everyone's kind of trying to time it up. What does that do for the brand right costs for these suppliers? I mean, they're not paying it, obviously, but they have to find a distributor on the other side of the deal from RNDC to buy it. I mean, I've heard anything between 30 and 60 million for Cutwater in California that Southern would have paid RNDC. Frankly, both of those estimates sound low to me, but we're talking about a tremendous amount of money regardless of the actual numbers. I mean, it's not less than eight figures for these brands, these big supplier portfolios. At some point... right after RNDC announces withdrawal from California, they effectively set the brand right costs or prices at zero for everyone else in their portfolio, right? Because they're dead, all those suppliers are dead in the water the moment that RNDC announces. So there was all of this deal making for presumably enormous amounts of money, you know, tens of millions, half a billion dollars aggregate probably across some of these big supply, all of the big suppliers that decided to move before the announcement. And then now everyone's just like, it's just a fucking what? No one's paying for brand rights now, right?

[00:25:54] Justin Kendall: It's like the end of Titanic, right? You're, you're just out there and hoping to catch on.

[00:26:01] Brewbound Podcast: It doesn't matter how nice your tuxedo is because you're in the fucking water.

[00:26:04] Justin Kendall: Yeah. and it's getting pretty cold.

[00:26:08] Brewbound Podcast: Or hot, or whatever you wanna call it in this now, yeah.

[00:26:14] Justin Kendall: Right, that's what I don't understand because you got the video or the clip of the CEO, Bob Hendrickson, discussing everything that they tried to do, or at least they say that they tried to do, and they tried to find a merger, they tried to find brands, and none of this materialized. But it doesn't make sense to me for the fact of you're essentially zeroing out your business at that point, right? What value is left?

[00:26:45] Brewbound Podcast: That's how I understand it.

[00:26:46] Sunset Distributing: Yeah. Also, why would a company want to merge with RNDC California or acquire if they can just cherry pick suppliers off?

[00:26:56] Brewbound Podcast: Yeah, no, I think you're absolutely right. I mean, there's also the matter of the fact that RNDC does not hold a lot of hard assets in California. I mean, they have inventory, of course, but they don't own the warehouses. The Underwood family, which sold Young's Market Company to RNDC in 2022 after, I don't know, almost a decade of like joint venture activity in California. So this was something that had been happening for a while in the buildup to 2022. But they retain ownership of the warehouses. They lease them to RNDC. RNDC, according to several sources that I have, has a lease agreement for at least a portion of its fleet and the logistics management that goes with fleet operation from Penske. So their rolling stock is not even theirs, or at least is not in whole theirs. What is for sale? from RNDCCA, you know, for, for RNDC in California, excuse me. If those things don't exist, obviously the inventory that's got to change hands at some point, but that's a fixed amount. Right. And like, that's not a turnkey piece of the business. That's just dead. You know, that's just stock. There's no value premium that you can place on liquor in a warehouse. It's there. Someone will sell it to retailers and eventually it won't be there anymore, but they have not added value to that transaction. And if they're not selling the brand rights because they couldn't figure out how to sell whatever the middle of their book, then there's not much more to sell. So Farron, to your point, there's not even that much to buy of R&DC California. They have, of course, retail relationships. They have a sales force. For the right buyer, maybe that looks turnkey, but anyone who has that kind of money, already either has the contours of that infrastructure or is capable of building it, which may speak to the difficulty RNDC had trying to cut a deal.

[00:29:00] With Republic: Dave, one of the things that has kind of popped up here and there with this story really sits like firmly in your reporting wheelhouse is that some people think that RNDC's union contracts were what put the company in bad financial shape. And I think everything we have already discussed points to that's just not true. But can you myth bust that a little bit for us?

[00:29:20] Brewbound Podcast: So if RNDC's executives signed a union contract that put them in a position that was unable to compete in California, That's RNDC's executives fault. That's not... I mean, workers of course are going to try to negotiate the best deal for themselves, and frankly they're always told to, right? Like when people aren't happy with their salary, it's like, well, you shouldn't negotiate it better, right? That's a common refrain, whether it's a union shop or not. Well, they negotiated well. They got a good contract. And then RNDC's bosses shit the bed. Also, none of my reporting indicates that the contract had anything to do with it, and RNDC's bosses really should have been.

[00:30:00] Justin Kendall: Well, I mean, you can scroll through the Reddit thread to see how RNDC's own employees feel about how management handled a lot of these brands. And I don't think any of these brands were jumping because of union labor. Farron, I want to bring you in and get some perspective here on, you've written a few stories recently about large spirits companies laying off staff. We've also heard rumblings about potential job cuts in parts of the country at Southern Glazers. What's your sense on what's going on as far as labor goes within spirits companies and the middle tier right now?

[00:30:46] Sunset Distributing: Yeah, so you and I talked about how we've heard some rumblings about layoffs at RNDC's competitor, former competitor Southern Glazers. I haven't had anything confirmed officially from Southern Glazers, but they're like a black box, so I'm not surprised. And I'm not sure what, totally what parts of the country that's happening in. It's often not done on a wide scale because of unions in various states. And so I don't know much right now, but I do know that I think the Atlantic region suffered layoffs, but Southern has been reorganizing like, I think almost every year for a while now. So there were layoffs last year as well. And then, yes, we also saw layoffs at Brown Forman earlier this year, and then Pernod Ricard this week. There was a report that came out that they're gonna be doing some restructuring as well, and that there will be, quote, departures. And so we are seeing these bigger spirits companies and the middle tier start to reorganize, experience job cuts. I think a lot of it can be attributed to slower sales, We've heard in earnings reports from Brown Forman and Pernod Ricard that sales have been flat or declining. So it's not necessarily a surprise, nor are job cuts at Southern Glazers. But yeah, I don't have confirmed like where those cuts are coming from. Last year I know that there was certainly in like wine divisions and some craft spirit divisions as well, which makes sense, especially on the wine front.

[00:32:25] With Republic: We swim in beer, so we know things are tough, but we've always been told that spirits are doing okay. And obviously that's not the case anymore. When's the last time you remember seeing such kind of like sweeping malaise across the spirits industry?

[00:32:38] Sunset Distributing: Since I've been covering it, I haven't, which hasn't been that many years that I've been covering from a business. perspective, but I think the trajectory of spirits has been on the up since like craft spirits movement. And so I do think that it's happening on such a wider scale is new. Dave, do you have any more historical perspective?

[00:32:59] Brewbound Podcast: I mean, vodka flattened out, like the growth curve for vodka flattened out a ton in the late aughts, early 2010s.

[00:33:09] With Republic: After the, like the flavor explosion.

[00:33:11] Brewbound Podcast: Yeah, the flavor explosion. And then people talk about like the Tito's moment, right? Where like that segment or that chunk of the spirit, the full bottle spirits category sort of regressed to that mean of like Tito's being good enough and really the premiumization that happened. that you saw a ton with Grey Goose, Kettle One. Gosh, what were some of those other big like big spendy premium brands? Belvedere, thank you. Belvedere, yeah. A lot of that just sort of fell apart because the market, the middle of the market had really reached a point where it was doing pretty well. That's the last thing I can really think of that looked like degrowth in spirits before this current turn. I mean, you hear from craft distillers for, I don't know, a fair amount of time. The past 3, 4, 5 years for craft distillers have started to really soften up. That boom almost, you know, bust-ish at least. Towards the beginning of this decade, I guess. you'd already started to hear struggles from craft distillers. And it doesn't help that all the big distillers, especially in whiskey, We're taking advantage of low interest rates to build fucking palatial mega distilleries in Kentucky and thereabouts and adding an astonishing amount of capacity to the overall distilling landscape right at the point where whiskey sales started to flatten out. I mean, they built a glut for themselves.

[00:34:47] Sunset Distributing: Yeah.

[00:34:48] Justin Kendall: I want to bring this back around to beer distributors, because one, These moves are seemingly being driven by companies that want to be in beer houses because they feel like they get more service, better service, more merchandising, better turns through these beer distributors. And beer distributors are more than happy to welcome these companies in because beer's been down. As we know, the mega brewers have struggled for years, losing volume, and here's another opportunity to fill your truck. And I think that there's a trickle down effect that we're gonna see here, where a lot of the craft brewers in these houses are going to, a lot on the tail. We talked about the tail in the RNDC portfolio, but if you're adding into your own house, some of these beer wholesalers, you're not going to be able to give the attention to everything you did before. So what are your expectations for how this plays out moving forward?

[00:35:55] Sunset Distributing: Also, I would add the smaller RTD players in those books as well, right?

[00:36:01] Brewbound Podcast: Smaller anything, I think. Yeah. But I mean, RTDs at least have momentum on a segment level right so if you're calling up a Reyes or you're calling up a California beverage solution or Southern or whoever and saying hey, I've got a new vodka soda. I've got a new whatever probably not vodka soda I bet they won't take your call then but something that seems to maybe fit a underserved niche or one of those white spaces that we're always hearing about. Maybe they take your call. Craft Beer has been struggling for the past three, four, five years, certainly currently struggling. Yeah, you're in bad shape, right? You're not going to get the attention in the portfolio. They'll never say this, of course, but they'll make it clear in terms of their priorities, right? And there's a bunch of ways that distributors do that. So as you see more of these sort of like total beverage-minded abominations, you know, come into being, I would imagine that craft brewers will get even less attention from those firms and get even less hand service from those firms. And those firms are going to be even less interested in anything other than pallet drops at chain retailers, right? They're not going to want to do small keg volume to bars and restaurants. Like, why would they? I mean, there's just so much more business to be had in hotter chunks of the market. So yeah, I think that this bodes poorly for small brewers, certainly small winemakers, who I'm hearing a lot from. Distributors like what's hot and they ignore what's not, and they have a herd mentality, right? Like, they're creatures of habit and of consensus. And that's why they're never out front on stuff. And it's also not what they have to do because of their unique protected position in the marketplace. They can kind of sit back and let the business come to them and pick winners and losers. And I mean, I think based on everything we're seeing, both with RNDC's California collapse and just the general trend in the marketplace over the course of the past five years in the middle tier, I think it's pretty clear that the core of America's beverage alcohol distributors have decided that craft beer is, if not an outright loser, certainly not something they're going to be spending a lot of time on.

[00:38:27] With Republic: These small wineries that you're hearing from, are any of them, like, what are their feelings on like D to C, because that's an option for them?

[00:38:33] Brewbound Podcast: Yeah, people have been talking about DTC with me a bunch, but obviously there's a ton of friction around that, right? Like, it's not as easy as just standing up a DTC business. Also, DTC volumes for wine as a channel are softening tremendously since, I mean, they're, you know, up against pandemic comps, right? So if you look at the five-year trajectory, that's a little misleading because pandemic comps for DTC wine were crazy, went berserk for obvious reasons. But, That field is crowded, there's barriers to entry, and it's not an opportunity to replace volume lost from distributed on- and off-premise sales. Some people are talking about that. Some people are talking about, you know, some of these mid-majors, right, like the Regals of the world, Winebow, which has a pretty solid presence in California. trying to kind of find maybe like less favorable partners in terms of scale and footprint, but a little bit using this as an opportunity to find like a more simpatico alignment in terms of how the distributor sees wine, both in its portfolio and in the marketplace. Because I think a lot of these suppliers, as they've been saying to me, and they've been saying to other outlets, Farron, I'm sure you're hearing this as well, like they understand that The Southerns of the world, the RNDCs of the world are just not going to give them the service that they need and are accustomed to anymore. Their attention is elsewhere, the big distributors.

[00:40:07] Sunset Distributing: Absolutely. And I wonder what's going to happen for a lot of these regional distributors. Are they going to be more bolstered by these smaller spirits companies or wineries going to them? Not that there aren't challenges there, but I think it's going to require all these smaller companies to get really creative about their routes. And like you said, focus more on alignment and like what universe of accounts that they want to be in.

[00:40:35] Justin Kendall: This is all happening to under the backdrop of more consolidation in the state of California, which is nothing new, but you have a major beer distributor move into the state with hand-familied companies, their Sunset Distributing subsidiary, which is a combination of Sunset Distributing and Classic Beverage. And then just this past last week, they acquired Scout in Los Angeles, which Pretty obvious move, given Scout's ties to classic distributing and just the state of the market, but Scout's role was really as an independent craft distributor, much like Stone was at one time. But now three craft distributors become one in Southern California. And Hand, which is a multi-state distributor that is coming into the state, is in those other states, an Anheuser-Busch distributor. And I think that a lot of eyes were on them as a potential landing spot for potentially cut water at one time, especially when the deal went down. And clearly that didn't happen. And Han seems very hungry for more, more M&A. They want to grow. So I guess when we look at this marketplace, it feels like there is even less room for craft as we've talked about. Do you both see an opportunity for another wholesaler to come into this market?

[00:42:15] Brewbound Podcast: California specifically?

[00:42:16] Justin Kendall: Yeah.

[00:42:18] Brewbound Podcast: No man, but five years from now, there's gonna be four distributors in California. No, I'm kidding. But I mean, it's really challenging, right? Like we talked about Johnson Brothers a little while ago, like they're, you know, Meritage is sitting up there with Columbia in the Pacific Northwest. They have a ton of money, but Meritage has signaled in the past that they are ready to part with Columbia for the right price, right? Like, how committed are they to expanding?

[00:42:46] Justin Kendall: And they've already gotten out of California once.

[00:42:48] Brewbound Podcast: Exactly, right? So like even though there's a ton of money with some players, who's over in Texas, the big PE backed? Silver Eagle. Silver Eagle, thank you. Which is owned by Redwood, right? I think we're talking about the same thing. So, but again, like, you know, maybe they're looking at this and they're like, why would we bother? We just watch RNDC trip over its dick on their way into or out of California. And they're another Texas company that it's just, you know, shit the bed over there. We've got a good thing here, right? Like to some extent, maybe this is a set landscape at this point. I mean, you could barge your way into it, but. You have to answer to Reyes in California if you're trying to be a player in the beer space. Reyes has Constellation brands. What's your solution there? Anheuser-Busch wholesalers don't know what their fucking solution is there, and they've been there for the last 80 years, right? Those houses are trying to figure out what to do about Modelo, trying to figure out what to do about that volume.

[00:43:47] Justin Kendall: And that gets back to what, if anything, Anheuser-Busch does in the state with its wholly owned distributors.

[00:43:54] Brewbound Podcast: totally right i mean that's and that's a that's a weird little appendage that they haven't really figured out what to do with yet and they did that swap with peter highmark at triangle they took triangle i think i forget what the deal was but they swapped territories at one point they're kind of trying they're they're moving Pieces around a little bit over there, but it seems like they're kind of paralyzed with those operations They didn't give cut water to and maybe that was because there was a legal Blocker for them to be able to do it to hand it off to their own wholly owned distributors in California I think that's ultimately what I learned as I started poking around in there, but yeah I mean the wholly owned distributors out in California like what is a bi doing those probably gonna sell them right that part of their business is doesn't really make as much sense anymore.

[00:44:44] With Republic: Yeah, and they've been selling off wads for years, but in some rare occasions, they also buy new ones. More often the selling than the buying.

[00:44:52] Brewbound Podcast: It's almost like the strategy is incoherent and not really informed by anything other than vibes, which is where we started.

[00:45:00] With Republic: everything. I mean, you know, like Sunset Distributing is a tough, tough game and there's absolutely like a moral case for it. Like there are these tiny brands who rely on having a middleman to get them to market and without enough attention from said middleman, they will flounder and perish. But the act of taking them to market is so capital intensive that almost nobody can do it, you know?

[00:45:23] Sunset Distributing: Right. I was also going to ask, maybe this is a little bit of a segue, but because you guys follow the beer distributors more than I do, which now I have to follow everyone more, I guess. Sorry, buddy. Is Reyes the one that has most evolved into a total Bev? at this point and now they have even more. I mean, like all of these huge spirit companies have just jumped over.

[00:45:50] With Republic: Yeah. I mean, they even changed their name from the Reyes Beer Division to the Reyes Bevers Group. But I just checked out their California website just to triple check what I thought. And they don't have wine. Right. So I don't know what the fuck that says for wine that nothing good. Yeah.

[00:46:09] Brewbound Podcast: I mean, I would also point out, and something I've been hearing from a bunch of sources, and maybe this is sour grapes, no pun intended, from spirits and winemakers who feel a little bit left out of this or feel like they're getting short shrift, which I think is more or less true, is that Reyes does not have a lot of legacy experience, institutional knowledge, logistical expertise, serving full bottle spirit. Yeah, absolutely. just dominates total Beverage and Scout've certainly done a great job up until this point but they've never had as much full bottle spirit business in their house as they have at this point and that's a different ballgame it's not the same thing and yes it's sleepy and and you know there's there's not as much opportunity it's not as hot as RTDs But it has to be a piece of the puzzle, and a big piece of the puzzle, because they're paying for it, right? They're paying for those brand rights to get Tito's in California. That costs, I'm sure, a shitload of money. Now they have to go out and service Tito's. Tito's doesn't even have a fucking RTD. Maybe they will at some point, but Tito's business is 750s, leaders, handles. hip flasks i suppose i mean like you got that's a totally different business yeah i don't think that it's impossible to figure out but it is not turnkey and several sources have pointed out to me like watch to see if reyes can actually handle the volume they're taking on. It's not shaped like a fucking case of beer, you know? It looks different, it sells different.

[00:47:52] Sunset Distributing: It's very different from stocking coolers or fridges. And I also, it'll be interesting to see how they build up that capacity. The brands they have so far do kind of sell themselves in a way. You know, we have Tito's, Brown Forman, now Lalo. But if more spirit companies are going over, Yeah, they are going to have to build up that capacity.

[00:48:16] Brewbound Podcast: It's a culture difference too, right? Like beer distributors are known as sort of hustlers. They're known as kind of like aggressive grinds, you know, and there's a lot of pride in the market area in that corner of the middle tier about being, you know, outworking wine and spirits distributors, right? They refer to them. A source told me that beer distributors think of wine and spirits distributors as feather dusters because of how rarely they go into accounts and turn product, right? You just got to kind of show up and fucking rotate some bottles and, you know, like maybe like restock a couple empties and call it a day. Whereas beer distributors, three times a week are in every C-store in fucking Mendocino or whatever and rolling dollies of Modelo into it, right? And humping that heavy, quick-turning product into those retail accounts, right? But the culture cuts both ways. If you're trying to sell premium wine and spirits in premium accounts that are Nazi stores, right? That are more like the higher end non-chain grocers or specialty liquor stores that are able to defend and command those, defend those price points and command those margins that these brands pencil out on. Well, I don't, you can't send the guy who's running dollies of beer into those accounts. That's a totally different skill set. And. It's not nearly as turnkey as I think some folks, again, including me, I'm guilty of sort of painting with too broad a brush at times, have assumed like, oh, well, Reyes is just going to eat everything. Well, I mean, to this point, that's a good bet. But as I said before, they're in more uncharted territory than they've ever been in, in terms of product mix.

[00:50:04] With Republic: This sounds like a great place to leave it. Great cliffhanger for the people. What will become of the Reyes Beverage Group's recently expanded ambitions? We will find out. I'm going to let you guys tell the people where they can find you. But Faryn, you cover all the spirits news for us and for our teammates over at BevNET, but you've also got your own spirits newsletter. So can you tell the people how they can receive it and what they should expect?

[00:50:27] Sunset Distributing: Oh, yes. You can go to BevNET.com and sign up. It's actually free. So even if you're not a subscriber of BevNET, you can still get the full newsletter. Right now, it's once every two weeks, but we're going to be moving to every week. And it's really just a deep dive into one topic weekly, plus all the, you know, news roundups and industry insights, things like that, hot data. Yeah, otherwise you can catch my stories pretty much every day on BevNET or Brewbound.

[00:50:58] With Republic: It is true. The total beverage landscape has extended to our trade publications. Dave, you've got your fine pair called HopTake. You've also got Fingers. Tell the people where they can find you.

[00:51:09] Brewbound Podcast: Yes, finepear.com. I publish a weekly column called Hop Take. It's about the beer industry, as Jess said. That's weekly on Fridays. Check that when it comes out. And then I publish a independent newsletter about drinking in America about all three categories called Fingers, which is now in its fifth year of publication. Yeah, a little anniversary celebration. And you can find that at fingers.email. I publish that multiple times a week. It's usually Wednesdays and Sundays. And it's about more broadly what's going on in the beer wine spirits industries, the regulatory landscape, the culture wars around these products. And it's a lot of fun. I hope you check it out.

[00:51:52] With Republic: It is never not fascinating. And you do have a free version, but a paid version, which comes with so much more. Highly recommend.

[00:51:58] Brewbound Podcast: Yes. Thank you.

[00:51:59] With Republic: You're welcome. All right. Well, you know where to find me and Justin, and that's at Brewbound.com. That is the show for this week. Thank you so much, Farron, Dave. I always love all of our chats and I appreciate both of you immensely as journalists and as buddies. So thank you for being here with us. Justin, thank you for co-hosting this very long audio adventure. And thank you to the never not awesome audio visual team here at BevNET and Brewbound. Couldn't do it without you guys. Thank you for listening. If you enjoyed this show, please give the Brute Brewbound Podcast a five star review wherever you like to get your podcasts and we will be back with a fresh episode next week.