The Trap of Large Scale Distribution

The Brewers Association recently announced that the US brewery count has surpassed 5,000. That's a new record, topping the previous high of around 4,100, set back in pre-Prohibition 1873. Most breweries were small in those days and we seem to be returning to that general theme.

Nonetheless, the bulk of the craft beer sold today is made by a few large breweries. No need to name names. These are mostly well-known brands that joined the craft movement long ago and have built strong followings via regional and national distribution.

If you've been reading along here, you know some of the larger craft breweries have been struggling of late. The stats are quite clear. It appears that, with a lot of breweries opening in places that never before had local beer, locals are buying local brands instead of national or regional ones. Go figure.

Improved access to local beer is actually a wonderful thing. And we aren't done, yet. Despite significant overcrowding in the retail sector, we haven't reached peak brewery count. There's still room for small breweries that target underserved local clientele. Seriously.

That applies even in Portland, which has (too) many breweries concentrated in and around the city core. My guess is some of those breweries will struggle in coming years. But there are still neighborhoods in the metro area that would proudly support a local brewery or brewpub.

What we don't have room for, I think, is breweries that enter the market with plans to extend their reach and profitability via large scale distribution. Stiff competition for limited retail shelf space and taphandles makes that an increasingly problematic strategy for most, though some have certainly succeeded.

That's why I find it odd that so many breweries, even relatively small ones, try to navigate the distribution angle. Sure, a bit of local distribution is good marketing. Being seen on store shelves can be good for business. But reaching beyond local distribution makes sense for only a few.

Industry sources tell me some Oregon breweries are reconsidering their commitment to extended distribution. These are breweries whose beers are distributed in Oregon and around the Northwest. They're starting to wonder if the strategy is worth the time, effort and investment.

It's a good question because distribution on that kind of scale is a different challenge than selling beer in your pub and in local retail channels. Once you cross the threshold into distribution outside your home market, you're walking into a brutal numbers game where the cost of entry is high and the margins are extremely low. Moving a lot of beer is just one piece of the puzzle.

Most who enter into serious distribution invest heavily in infrastructure. But that strategy also requires an ongoing investment in marketing and support. Besides good beer, you need a solid image and a viable marketing plan. And you need boots on the ground, folks who live in or travel to remote markets to create the buzz that generates brand recognition and sales.

I honestly don't understand why successful brewpubs, in particular, get caught up in the distribution gambit. It seems to me they would be well-advised to stay tightly focused on running their pubs well. That's where they get the greatest margin on their beer. Going deep locally typically offers a much better return than going wide regionally or nationally.

It's fair to wonder why, when faced with the reality of high entry costs, low margins and stiff competition, so many attempt to distribute beer outside their home markets. Possibly it's ego. Possibly owners and brewers experience success at home and assume they can and must duplicate it outside their area.

It often turns out to be a fool's errand and a trap. No offense to the mangled egos.