For over 50 years, Hensley Beverage Company didn’t carry any non-alcoholic beverages in its portfolio and managed to get by just fine.
The Arizona-based distribution house, founded in 1955, built its operations — which currently extend to six facilities across the state totaling over 800,000 sq. ft. of combined space and over 1,000 full-time workers — largely on the back of a longstanding agreement with Anheuser-Busch InBev (AB) to carry its products exclusively. That exclusive partnership ended, however, in 2008, when a combination of factors — a decrease in construction and real estate development caused by the national economic downturn, along with strong anti-immigration sentiment within the state that caused some recent foreign arrivals to move elsewhere — began to negatively affect beer sales, according to the distributor, and compelled it to make a change. Recalling the business climate at the time, Hensley President and COO Andrew McCain told BevNET, “Every possible red flag that could be raised was raised.”
At the same time as Hensley’s core portfolio of AB products was taking a hit, the company began to recognize the growing opportunity in craft beer, wine and spirits, not expecting the interest it would soon receive from non-alcoholic brands.
“During that time, when people found out we were no longer exclusive, there was a lot of interest in Hensley because of our size and scale and what we could bring to delivery solutions in Arizona,” said McCain, who has served as president since 2007. “A byproduct of this was that a lot of non-alcoholic companies reached out to us. That wasn’t part of our original path— we were going to focus on craft beer, maybe then wine and spirits. Once people approached us, we thought ‘Why are we not considering this?’”
(If McCain’s last name sounds familiar, it should: the executive was adopted by former U.S. Senator from Arizona John McCain after the congressman married his mother, Carol Shepp, in 1965. The pair divorced in 1980 and John McCain subsequently wed Cindy Hensley, the daughter of Hensley Beverage Company founder Jim Hensley and the current chair of the company, the same year.)
McCain added, “When you are getting products that are well received, considered premium and are higher margin in these emerging categories, I think it’s a sweet spot for us.”
In its first decade distributing non-alcoholic beverages, Hensley has, like many others, leaned towards premium and better-for-you offerings to build out its portfolio. In bottled water, function-forward brands like Essentia and AQUAhydrate stand alongside regional spring water products from Nestlé Waters and premium imports like Icelandic Glacial and Voss. The distributor’s catalog favors legacy brands such as Arizona, Jones, Redline and Nesquik, while also allowing room for younger names like Tea of a Kind and High Brew Coffee. According to McCain, Hensley is approaching 3 million cases of volume shipped for its non-alcoholic portfolio this year, with annual growth expected to land between 15 and 20 percent for the next few years.
Even as Hensley has made a commitment to growing its non-alcoholic business, the path it takes toward growth will be conditioned by smaller choices made along the way. The distributor currently has 100 refrigerated trucks and trailers (from a fleet of 500 vehicles) on the road. For now, those trucks carry only one cold chain non-alcoholic beverage: Brew Dr. Kombucha. But as beverage innovation and trends continue to emerge out of the cold case, McCain said Hensley is continuing to evaluate potential upgrades in equipment or transportation.
“For me, ultimately, doing cold chain is a business decision,” he said, noting that Hensley worked closely with Brew Dr. to determine how long the product could be outside of cold storage while maintaining integrity, for occasions when it is not transported on a refrigerated truck. “Is there enough opportunity that by making these investments that it will provide the necessary return? The reality is that very well may be where we get to because of consumer preferences and demand. Right now it’s still emerging, so it’s hard to handicap.”
He continued, “One thing you may see distributors do is provide a subset solution of their truck fleet that can provide a modest cold to cold solution for those products. If the business makes sense, that’s something we could provide today — it’s really a matter of if the demand there.”
Serving Arizona, a state with an economy driven by construction and real estate development, presents a unique set of challenges and opportunities. As Chad Marston, head of off premise sales, described it, Hensley is tasked with building a portfolio that mirrors the state’s balance of traditional blue collar jobs and more recent influx of higher income, white collar workers. He said the diversity in both consumers and the retailers in which they shop has colored the company’s decisions about how to approach the non-alcoholic market.
“I think the dynamic is for us to stay in tune to that diversity,” said Marston. “In our portfolio, we have a large list of brand families, but in our top 20, which makes up a high volume of overall business, seven are non-alcoholic products, and they range from a value-based water to a high end energy drink to a very regionally focused Hispanic-focused drink,” Chad said. “Walmart is a huge retail partner for us, which fits a very different consumer base to high-end Fry’s Marketplace. We have products that play in all those areas — that’s important for us as we look at a brand’s profile, what it’s position is within our retailer landscape and who does it speak to?”
Moving forward, McCain said Hensley is “always looking” at its warehouse configuration and how it can be adjusted and upgraded to service more and different types of products. With plenty of real estate to work with, the challenge lies in correctly identifying emerging brands that can carry Hensley’s non-alc portfolio forward and elevate its standing within that market. Those decisions will be based on input from a variety of places, such as chain stores advocating for products that have succeeded in other markets or from partners like AB, which McCain praised for “putting their stake in the ground and saying that this category is important and we need to be playing in it.” Wherever the ideas come from, Hensley will be proactive about finding them.
“We need to be more sophisticated on how we approach what’s coming to the market and where we find ourselves participating in it,” McCain said. “There are layers to complexity that you don’t appreciate until you have to start doing it.”