Big A-B Distributor Consolidations in 2008?

“What’s driving it are the fundamentals,” says consultant Joe Thompson.

The biggest Anheuser-Busch distributor in the country was created last year when Silver Eagle Distributors acquired BudCo. The year ended with a bang when south Texas distributor L&F Distrbuting bought Desert Eagle Distributing.

Expect more big -- and little -- A-B wholesaler consolidations in 2008, says consultant Joe Thompson, who handled a number of A-B distributor deals last year.

“What’s driving it are the fundamentals,” he explains. “The problem that the A-B system has is that they are primarily a domestic [beer] system. And the domestics are struggling.”

Thompson estimates that A-B distributors enjoyed an operating profit of $1 a case two or three years ago. As the core domestic business struggles, and health and fuel costs rise, that was shaved to about 55 cents in 2006.

A-B has tried to diversify its portfolio through distribution and marketing deals with InBev and a variety of other imports and crafts. But distributors in states with strong franchise laws can’t necessarily get their hands on those brands.

“As the operating profits decline, the business is getting even tougher,” Thompson says. “I expect to see the A-B system continue to consolidate.”

He also expects to see more non-Bud distributors to combine as well. But deals here will be driven more by scale rather than portfolio issues.

“It’s a little different” than with A-B distributors, Thompson said. “The small guys are selling out to the bigger guys. It becomes a function of the math.”

Another big story of wholesaler consolidation in 2007 was the high price tags. After years of steady growth, prices soared between 2005 and 2007. Thompson attributes this jump to the hot performance of crafts and imports and the fact that more A-B distributors are getting into the acquisition game.

He doesn’t see prices getting too much higher.

“I think prices are pretty high right now,” he said. “I don’t think they’re going much higher.”

The leading beer industry trade magazines are watching for more distributor consolidation this year.

Beer Marketer’s Insights’ orange sheet edition pointed out last month that “pressure is on for AB system to get ready for tomorrow. … AB distribs are consolidating with other AB distribs or adding new non-aligned brands, i.e. jailbreak. These AB distrib moves will change distrib landscape lots in 08 and beyond.”

BMI pointed out that R.H. Barringer, the biggest A-B distributor in North Carolina, became the first A-B distributor in that state to go non-exclusive when it bought a wine and import distributor.

Beer Business Daily made this prediction for the year:

"Distributor profits will be tough to grow this year mainly due to higher fuel and insurance costs and sideways average price mix shift (pricing will be up but mix shift will drag it back down). In addition, the problem of finding quality people and in particular licensed CDL truck drivers will get worse. This will incent more folks to sell out …"

The Beer Marketer's Insights home page is here.

The Beer Business Daily story (subscription required) can be seen here.