The New Distribution Landscape- Part 1

By Gerry Khermouch

At a time when so many Americans make their livelihoods by moving electrons around, dragging heavy cases of liquid from a warehouse to store shelves might seem to be an anachronism. Certainly, it’s not an easy way to make a living, especially since some of us consider a trip from our desk to the coffee machine to be exerting. After decades of wholesale and retail consolidation, the odds of failure are high, too. Yet in the past couple of years, the direct-store delivery options available to new beverage brands seem to have been growing again, albeit in halting steps and with occasional reversals. If you believe – as I do – that DSD remains crucial to building early-stage brands, this would have to rank as a heartening development.

Certainly for those who aren’t that close to the innovation side of the business, the trend would seem to be going in one direction only. The moves by Coca-Cola and PepsiCo to acquire their biggest independent bottling operations in North America, coupled with Dr Pepper Snapple Group’s continued expansion of the footprint of its company-owned bottlers, would seem to leave no question about that.  But increasingly those systems are highly tuned machines for getting mass brands to retail chains and major foodservice accounts. In that sense they’re irrelevant to the task of getting low-velocity brands started.

At the more granular level, however, where nascent brands are trying to get their first foothold in “influencer” accounts like delis, independent grocers, natural food stores and cafes, the number of new entrants on the non-alcoholic side has been growing. Just as I preach to entrepreneurs that the range of strategic partners they should consider extends well beyond Coke and Pepsi, so should they take a broad view of the available DSD options.

How broad? How about broad enough that we’re going to have to split our survey into two columns, this month looking at some of the more mainstream options who have garnered momentum, and next month checking out a few of the more esoteric choices out there. Ready? Here we go:

Startups. It’s so astonishing, given the stiff odds, that anyone would even want to give running a startup direct store delivery option a go. But they’re out there and they’re actually showing promising signs. In Pittsburgh, long starved for good DSD options for NAs, Jones Soda vet Mark Slepak has teamed with local copacker Castle to open Full Circle. In San Diego, an entrepreneur from the technology sector, Satwant Gill, launched a standalone NA operation, added specialty beer and now has pooled resources with venerable LA shop Haralambos. In the costly and complicated New York market, there have been a flurry of new entrants. Several years ago Exclusive Beverage was launched by former Big Geyser employees, and they were joined more recently by the likes of High Five, launched as a self-distribution effort by the marketer of Powerball energy drinks, and Harney, similarly launched to move that company’s bottled teas. In a class of its own is Green Shoots, formed by Nat Noone and former Odwalla colleagues who’re determined to build a national DSD network – one truck at a time.  They’re in half a dozen metros by now and early reviews are encouraging.

Beer wholesalers. Sure, some beer houses have played successfully in NAs for years, helping build the Snapple, SoBe and Vitaminwater brands. Most – particularly the insular Budweiser network – haven’t. They’ve had good reasons for their reticence: different retail dynamics, novelties such as slotting fees, and the need to call on non-licensed accounts that do nothing to build their beer business. Most of all, beer houses accustomed to receiving fair market value at the rare times that a brand leaves their house find it galling to see NA brands skip off into the arms of a Coke or Nestle for a pittance. But those negatives began to fade in the face of an unnerving notion: that premium beer brands may be entering the twilight of their life cycles. While specialty imports, craft beers and malternatives are picking up some of the slack, NAs are starting to look more enticing. Some, like Coors house Crescent in New Jersey and Bud houses Hensley and Spike in Arizona, seem to be really running with NAs. A few – Hensley and Spike included – are even taking their NA show statewide, facing off against each other. It’s confusing all right – but makes for more doors.

Refrigerated players. Another intriguing development has been the foray of refrigerated distribution operations – dairies and ice cream vendors – into shelf-stable beverages. After all, they call on the same accounts and, facing saturation in their core businesses, have been looking for other items to carry. In New York, for instance, dairy distributors Dora’s Naturals and Tuscan Farms have both thrown their hat into the shelf-stable ring.  Ice cream distributor Jack & Jill likewise is in the game, picking up brands like Jones Soda in mid-Atlantic markets.

That’s a pretty good mix of new options, right? But wait – there’s more! as the hucksters say on late-night TV. In next month’s column, I’ll run down a few less-conventional options.

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