When Sazerac Co revised its distribution arrangement in two US states last year, replacing Republic National Distributing Co with a brace of beer specialists in Colorado and Washington, eyebrows were raised. Fast forward to this month, when the Buffalo Trace owner took the approach to a further 28 states, and the eyebrows were joined by arms and legs.
What is it about the brand owner’s decision to revise its distribution model that has led the spirits industry to lose its mind?
One of the biggest mistakes many brand owners have made about the US is approaching the country as one big market. The presence of the three-tier system, a legacy approach to distribution that dates back to Prohibition, and – more importantly – a state-by-state approach to the system’s implementation, means the US can best be described as ‘fragmented’.
By no means is this new news. What is more recent, however, is the increased consolidation – relatively speaking – of the distribution landscape for wine and spirits. RNDC, for example, has done well in realising its ambition “to be the national distributor of choice of beverage alcohol producers who value the three-tier system“. Elsewhere, Southern Glazer’s Wine & Spirits claims to be “the world’s preeminent distributor of beverage alcohol“. Such claims are scant when it comes to the distribution of beer, in part because, in many states, beer is available to purchase in convenience outlets – of which there are plenty – as well as multiple retailers, but not in liquor specialists, which are the exclusive domain for spirits.
What Sazerac has done – and, remember, the group has a history of canny business decisions [remember when it bought Southern Comfort from Brown-Forman?] – is to take a call on its future growth engines, and placed its chips squarely on ‘convenience’. As one seasoned industry observer put it to Global Drinks Intel last week: “There is a third way.”
In stepping away from one distributor for a swathe of markets, Sazerac is playing into the lessons learned by beer distributors from craft beer: Much as the established brands keep the lights on for distributors and retailers alike, the craft trend of recent years has opened everybody’s eyes not only to the more attractive price points and margins, but also to the consumer interest for ‘something new’. Crossing this stream with the trend towards convenience in the US trains the spotlight firmly on the namesake sales channel.
Then, add a sprinkling of ‘category blurring’ and things really start to hot up. Whether brewers getting into spirits-based RTDs, or soft drinks brand owners adding alcoholic extensions, have been consumer- or industry-led may be a tempting debate. What’s more important, though, is recognising the staying power of this blur – and that’s something Sazerac has taken on board here.
Granted, the move is not without risk, given the multiplication of moving parts brought on by ditching a big distributor for many small ones. There’s also a case to answer on the ‘premiumisation’ front [though, Sazerac, who declined to comment further on the change when approached by Global Drinks Intel, would likely argue it has that base covered with in-demand high-end brands such as Van Winkle Bourbon]. But, in reading the tea leaves for alcohol in the US, the group is more likely to lead where others follow.
Where are your eyebrows now?
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