All That Glitters...GDI Sells to Columbia

After you spend a few years around the beer industry, you get to know people. For me, it somehow came to pass that a lot of people I know and talk to regularly are part of General Distributing. But not for long.

The news that General is being sold to Columbia Distributing came as a bit of a shock. I didn't get word from inside GDI. Nope. A friend alerted me Monday afternoon. I quickly texted Jim Fick (part of the owning family), who verified that the company is, indeed, being sold.

Maybe I shouldn't have been shocked. It's been common knowledge for at least several years that Columbia, which is huge and has a presence in several states, wanted to purchase much smaller General. Until now, the price simply hadn't been right. Finally, it evidently was.

Not that long ago, GDI was a laughing stock in beer circles. A large part of its territory is rural, where it sells loads of yellow beer. Perhaps that explains why ownership was slow to respond to the craft beer wave. When I first met Jim Fick in 2013, GDI had a pathetic craft portfolio of mostly second and third tier brands.

That began to change when Steve "Tiny" Irwin was named General Manager in 2015. Irwin's background in craft beer is strong. He immediately began to build a savvy team of craft aficionados. His relationships around the industry helped GDI sign of a handful of vibrant brands...Sunriver, Melvin, Modern Times, Left Hand, Founders, etc.

The sale to Columbia means all GDI brands are free to go wherever they wish. They are not tied to Columbia. That's the law in Oregon. When a distributor sells, the contracts it has with beer suppliers (breweries) are null and void. Feel free to move on.

The irony is the brands in question chose General for a reason. Irwin may have been part of that reason. But any of those brands could have chosen Maletis or Columbia, the area's biggest players. They chose General because they felt they would get more attention and have a greater chance of success by being part of a smaller book of brands.

With General out of the picture, those brands will have to decide where to go. Consolidation in distribution means limited choices. Will GDI's brands go to Columbia or Maletis, both of which have huge books? Will they roll the dice and go with Point Blank or one of the smaller distributors that have small books, but limited retail penetration?

Of course, this isn't just about brands. Most GDI employees will be out of work when the sale closes at the end of March. It hardly matters that Columbia says it will give these folks a chance to interview for open positions. This is a business and you don't need duplication. A few GDI folks will probably transition to Columbia. Most won't. That's the nature of the buyout beast.

When I spoke to Irwin Tuesday evening, I asked him what was next for him. He nimbly dodged the question, saying his first priority was finding jobs for his people and the right homes for the brands he so diligently signed over the past few years. I honestly hope he succeeds.

If you step back and look at this sale, you may be tempted to believe the Fick family planned for several years to sell the business. They hired Irwin because they figured he would build a respectable craft portfolio that might increase the overall value of the business. If you think that, you aren't alone. Several people who know the industry have suggested it to me.

The alternative narrative, and one I am forced to consider after talking to Irwin and other reliable industry sources, is that the Ficks simply lost faith. They invested heavily in craft when the industry was growing like a weed several years ago. In 2017, growth slowed dramatically. They saw the business changing in crazy ways. They decided it was time to get out.

I don't know which version of the story I believe or want you to believe. But I don't think we're better off with General Distributing out of the picture. All that glitters isn't gold.

Good News and Elephants in the Living Room

These are wild times in the craft beer industry. That's not exactly front page news, but growth and change is happening at such a shocking pace that heads are spinning. The elephant in the living room is the ongoing challenge represented by big beer.

On the plus side, we recently learned the US brewery count surpassed the old record of 4,131. Perhaps most interesting about that revelation is that the old record was set in 1873, and was followed by a period of intense consolidation, then Prohibition, then more intense consolidation. The shift back to growth began roughly 30 years ago and it's been a crazy ride ever since.

There's more. For example, IPA continues to be the dominant craft style. Big surprise. In fact, one could easily argue the popularity of IPA has overflowed into other styles, many of which are hoppier than ever. And despite the ascending brewery count, there are still thousands of communities that are large enough to support a brewery and don't yet have one.

In the midst of all the good news for craft beer is the black hole of consolidation. The billion dollar Ballast Point buyout is the lead in that part of the story, and has more than a few craft brewers wondering what their place might be worth. Breweries that sold earlier, like 10 Barrel, Elysian and Goose Island, look at the Ballast Point deal and wonder where they went wrong.

Of course, the larger story on the consolidation front is the impending buyout of SABMiller by Anheuser-Busch/InBev. The multi-billion dollar deal has the potential to turn the entire beer world upside down. That reality has raised the hackles of regulatory types and a few yet-to-be-bought politicians.

Now there's news that a group of citizens from Oregon, Washington and California has filed suit in US District Court challenging the ABI/SABMiller deal on the grounds that it will hurt consumers by restricting competition and choice. No kidding. The plaintiffs aren't asking for any money. What they want is the merger stopped.

There's about zero chance of that happening in our current political climate. They'd have about as much luck getting assault rifles banned. There's little doubt the AB/SABMiller merger, which is largely a global play, will wind up being bad news for America's independent craft brewers. But there's no feasible way to stop it. All you can realistically hope to do is mitigate the impact.

The primary threat to independent craft brewers is only indirectly related to AB's acquisition of craft breweries. You can't get too excited about that because they will never own more than a small percentage of the total number of breweries. The threat is on the distribution side, where Anheuser-Busch is working to leverage its influence and limit independent craft brewers access to market.

That's not a joke. A Wall Street Journal story outlines an AB incentive plan that rewards distributors who focus primarily on AB brands. A couple of anonymous distributors spilled the beans, telling the WSJ they can receive incentive payouts of as much as $1.5 million annually if 98 percent of their volume is in AB brands. A distributor in St. Louis just dropped Deschutes because it had to choose between the incentive program and craft.

Look, Anheuser-Busch will never own or have influence over every distributor in this country. There will always be independents that go their own way. But AB has the power, via its owned and affiliated distributors, to make things difficult for independent craft brewers. The strategy outed in the WSJ article is just one part of that effort.

Many casual and some serious beer fans have their heads in the sand, more or less refusing to see the danger. Fine. Those who do see the threat can act against it by refusing to spend money on AB products, including acquired brands like 10 Barrel, Elysian, Goose Island, etc. There's nothing personal about this. It's business. Giving good money to Anheuser-Busch helps fuel the effort to undermine independent craft brewers.

Enough already.