Is A-B Facing Distributor Jailbreak?

More wholesalers dropping exclusivity, WSJ reports.

For years, Anheuser-Busch racked up share gains with a distributor network that was willing to drop imports and crafts to focus exclusively on Budweiser and Bud Light.

But now a growing number of distributors are dropping exclusivity to bring in hot imports and crafts -- and A-B could pay a price.

So reports Wednesday’s Wall Street Journal in a story headlined “Beer Distributors Want More than Just One Best Bud.”

From the story:

“In the past year, distributors in Texas, Tennessee and elsewhere have decided to eschew Anheuser's incentives and begin selling rival beers such as Yuengling Lager, as well as wine and spirits. Recently, R.H. Barringer Co. became the first Anheuser distributor in North Carolina to start selling other brands, acquiring a rival that sells wine and imported beer. Today, about 60% of Anheuser's sales flow through distributors carrying only its brands, down from about 70% at its peak.

“The shift might help competing alcohol brands gain market share, as distributors divert some of their attention from Anheuser, which accounts for about 48% of U.S. beer sales. For consumers, it means greater choice at their local bars and liquor stores. Wall Street analysts say the movement signals a weakening of the St. Louis brewer's clout in the marketplace, as small-batch "craft" beers and imports, as well as wine and spirits, wrest market share from mass-market brews like Budweiser.”

The defection of distributors comes despite A-B offering approved crafts and imports -- including brands from InBev’s European portfolio and Goose Island brews -- to its distributors. A-B embarked on the “funnel strategy” two years ago amid reports that its distributors were looking to pick up non-A-B brands.

But for a variety of reasons, the funnel strategy hasn’t stopped A-B distributors from picking up outside brands, the Journal reports.

The story notes how last fall 11 Tennessee distributors started marketing beers from D.G. Yuengling & Son Inc.

The move may be hurting A-B in Tennessee, based on scanner data. And it appears A-B was not happy about its distributors’ move.

From the story:

“Dave Peacock, Anheuser's vice president of marketing, says Yuengling is having a minimal, if any, effect on its Tennessee sales, noting that other brewers experienced similar declines late last year.

“Still, Anheuser wasn't happy with the way it learned of the Tennessee distributors' decision. ‘We found out later [in their decision-making process] than we would have liked,’ says Mr. Peacock. ‘When we don't get early communication, it rubs us wrong.’”

So is a broader “jailbreak” on the horizon? That remains to be seen.

"It really hasn't been a widespread national jailbreak," Harry Schuhmacher, editor of Beer Business Daily, an industry publication, says in the Journal story. "It will be interesting to see if August continues to hold the party line."

The story ends with a quote from an A-B distributor who is weighing whether to remain exclusive:

"Jim LaRose, a Cleveland-area distributor, says he is among those taking a hard look about whether to remain exclusive. He says his sales growth has flattened. 'I have to have an outlook toward what it's going to take for me to compete in all tiers of the industry,' he says."

The Journal story (subscription required) can be seen here.