The New Distribution Landscape Part 2

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BY GERRY KHERMOUCH

LAST ISSUE I MADE THE PERHAPS counterintuitive case that distribution options for fledgling non-alcoholic beverage brands actually may be on the rise, even in a broader landscape where wholesale and retail consolidation continue unabated. Entrepreneurs, sometimes from outside the beverage industry, are launching new houses. Beer wholesalers, their core beer brands plateauing, are being driven to reconsider participation in NAs, despite the complications these bring to their business models. And the parallel DSD system, that delivers milk, yogurt and other dairy products to retailers, also is beginning to migrate to shelf-stable (they like to say “ambient”) items. But that’s not the entire extent of the trend. Here are a few other options that have been developing:

The Red Bull network.  With Red Bull’s own efforts to diversify its portfolio via line extensions like Red Bull Cola and shots and new brands like Carpe Diem not having panned out, some exclusive Red Bull houses such as Beverage Works in the New York/New Jersey area have set up separate operations to take on a select number of outside brands. At the same time, quite a few exclusive houses that have been terminated by Red Bull – not always for cause – have gotten a new lease on life by building portfolios of other brands, aided by the Red Bull aura of sharp execution. Former Red Bull shops in the Bay Area (Geyser), Ohio (Buckeye) and Florida (Sand Dollar) are among those that seem to be succeeding now as diversified houses.

Soft drink bottlers.  Though Coke and Pepsi now own the vast majority of their bottling systems, the remaining independents are getting more aggressive about plugging portfolio gaps with intriguing new brands. My theory on that is that, with the government having given them a free pass on the big bottler deals, Coke and Pepsi realize it wouldn’t look good for them to start pounding on the little guys, and the little guys know that.  So they’re picking up more outside brands and in many cases doing a good job with them, without neglecting their core brands. I won’t name names here, because that seems to only get them in hot water, but trust me, they’re out there.

All other.  Distributors of snacks, candy, deli meats, tobacco, even charcoal – they all reach the same accounts beverage companies need, often without the distraction of other beverage brands in the portfolio. Ingenuity in cultivating them can pay big dividends.

I should also mention a pair of other trends that are helping strengthen the independent system. One involves efforts by Coke to employ indie shops as incubators of its own early-stage brands. For instance, houses like Big Geyser in New York, Crescent in New Jersey and Haralambos in LA have played an adept hand moving Illycaffe into the right retail accounts. A lot of us figure it’s only a matter of time before Pepsi takes a similar enlightened view. Both, by the way, also have been subbing some of their core brands to indies to reach the small retailers that have dropped off the radar of their bottling systems. For indie houses who’ve long regarded Coke and Pepsi as monolithic enemies, this new era of “co-opetition” is a bracing divergence.

Also bearing notice are attempts to weave independent houses into a more cohesive network that can meet the needs of major chains. The once-informal Northeast Independent Distributors Association has been doing this in a more concerted way, and Abarta’s GTG unit garners a lot of credit for putting fast-growing Calypso lemonade in the right houses. Coast Brands Group has been rolling out its concept eastward from its West Coast base. And Bud and Miller/Coors houses in some states have banded together to offer full coverage to select brands.

Considering that many of us have long regarded independent DSD as a vanishing species, this is all quite a remarkable turn of events. It’s too early to say how sustainable these varied approaches will prove, but the trend should offer hope to beverage entrepreneurs that their brands will be able to find an effective route to retail.

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.