Gerry’s Insights: As Beer Bleeds, How Wholesalers and NAs Can Recalibrate the Relationship

Outside of the large soft drink networks that are largely closed to independent outside brands, beer wholesalers represent the best DSD option for brands seeking to crack nooks and crannies like convenience stores, delis and independent grocers with some degree of hands-on execution.

For many beer wholesalers, though, NAs continue to be a conundrum. NAs represent a hedge against the challenges for alcohol brands these days and a way of garnering greater influence with their retail partners. But they also bring no lack of challenges, from the need to call on non-alcohol accounts to the ever-present flight risk if the brand ignites and becomes coveted by one of the major strategic players. In alcohol, of course, franchise laws make it difficult for brands to flee at the drop of a hat.

Still, at a time that the prospects for alcohol are so challenged, NAs harbor real potential to mitigate those declines. One magic bullet has been cannabis beverages – those Delta-9 drinks that emerged as a vibrant category thanks to a kink in the regs. Since they’re stimulating products that serve similar occasions to beers and canned cocktails, wholesalers seem to have viewed them as a close-in adjacency, and there’s much to be said for the argument that alcohol distribs should be the gatekeeper should the

category be federally legalized. D9s also offer one avenue to retrieving the ranks of alcohol drinkers who’ve strayed into a more abstemious lifestyle, or maybe prefer to toke up rather than raise a pint glass. So it wasn’t surprising to me that, in states where their legality seemed reasonably clear, wholesalers embraced D9s, which have grown. The problem, of course, is that as I write this the odds are that by December the category will be federally outlawed.

That leaves us with the broader range of NAs, from iced teas and gut pops to protein shakes and of course energy drinks – not a small addressable market! As I’ve done over the years, I’m hoping to make a case here for the appeal of NAs, with full awareness of the challenges and frustrations they bring.

For many established distributors, their impression of NAs is that they’re mainly offered by bright but inexperienced and undercapitalized entrepreneurs, some just out of college, who’ll have a steep learning and awareness curve to climb before their brands can become meaningful contributors to distributors whose growth needs are immediate. This is partly a misconception. At any given time in recent years there have been plenty of brands seeking distribution that are established volume generators in other channels than the convenience & gas and foodservice outlets that are bread and butter to many DSD players. And I don’t mean established just in e-commerce, though I wouldn’t snicker too much at a beverage brand that’s doing eight or nine figures on ecomm and can visit a prospective wholesaler with data showing that thousands of those customers live right within their service territory.

What I’m focusing on here are brands that are playing right in retail, often in the most familiar large-format banners, with substantial history and sales behind them. As I noted, it’s a drum I’ve beaten in the past, sometimes at the request of the National Beer Wholesalers’ Association, which wants to see its members diversify more (though not necessarily into D9s). But I feel it bears repeating as a new flock of possibilities emerges.

What prompted this thought was word that BellRing Brands had begun its first-ever DSD push behind its powerhouse shake brand Premier Protein. By now that brand has built a business of well over $1 billion plying large-format retailers and ecomm. After long pooh-poohing the wave of protein newcomers as ephemeral, a new leadership team has concluded it needs to move into those impulse channels where many of the new rivals have been birthed. That initiative was just getting under way as I wrote this column.

Premier Protein is by no means the only such established brand seeking DSD. Brands like the two-decade-old Zevia stevia soda have been patiently exploring that distribution mode. Others that had exited DSD have returned to the fold, as with Yerba Madre (formerly Guayaki) and Fiji Water.

Given the early exits many promising brands have made, it’s completely understandable that beer wholesalers are anxious to protect themselves against the possibility that their efforts to help ignite an NA brand yield some kind of payoff – if not in a stream of increasing sales and gross profit dollars then via a buyout. My concern is that their demands are boxing them out of meaningful conversations. That may have been the case as Hint Water decided to rebuild its once extensive DSD network, ultimately dialing down the effort after concluding that the combination of category economics and wholesalers’ contractual demands made it too difficult
to accomplish.

As for the flight risk, I’ll remind readers that some wholesalers have done exceedingly well taking equity stakes in promising brands under competent leadership so that if an exit does occur, they enjoy the twin benefits of the contracted buyout and the equity jackpot. True, it all makes for a lot of churn (though alcohol hasn’t been immune to churn either), but it does yield an economic return that helps to sustain the business through all the challenges of alcohol declines, regulatory purgatory for D9 bevs and consolidation among retailers and rival wholesalers. On the shelf-stable side, I constantly remind readers of my newsletter Beverage Business Insights that it’s hard to find any brands that successfully ignited without enlisting DSD during their crucial growth stage.

But they’re no longer the only game in town. Both retailers and brand owners increasingly are open to alternatives – say, by layering some contracted merchandising execution onto a broadline distributor – that can get much of the job done with more consistent execution and maybe a bit less of a margin hit. Approaches like that avoid the inconsistent execution that mars the performance of the beer networks on NAs, with a superbly performing house sometimes sitting on the other side of a county line from one that can’t be bothered to show up.

Making a move to DSD work requires a certain amount of adaptation by the brand owner. No doubt, that’s part of the reason for skepticism by beer houses. In the protein space plied by BellRing, for instance, other established endemic brands like Labrada have struggled to get their hands around DSD in a consistent way. In other categories over the years, that’s been true of brands from Campbell’s V8 Energy to Nestle’s Nesquik, seemingly plum additions that faltered because of their owners’ inability to figure out how to manage channel conflicts, promotional and incentive programs, and innovation flow. Too often they try to take the half-pregnant approach of consigning their DSD partners to difficult-to-service channels like C&G and indie grocers while withholding from them larger-format channels where they can make larger, more profitable drops, on both the conventional and natural sides. It’s reassuring when these players recruit a team with deep roots in DSD to manage the push, but all too often they find themselves stymied by other corporate interests, the wholesalers lose interest and the effort fizzles out. Given the heightened pressures both sides are facing these days, I’m hoping they’re better motivated to make it work this go-round.

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