SIC 5181 Beer and Ale Distribution

SIC 5181

This industry includes establishments primarily engaged in the wholesale distribution of beer, ale, porter, and other fermented malt beverages.

NAICS CODE(S)

422810

Beer and Ale Wholesalers

INDUSTRY AND SNAPSHOT

Beer and ale wholesale distribution constituted a $29.5 billion industry in 2003, representing a modest contraction from the $35 billion in annual sales in the late 1990s. While much of this downturn was attributed to tapering consumption patterns among an increasingly health-conscious public, the industry also faced a number of challenges inherent to the evolving beer-industry structure. Wholesalers faced continuing pressure from major breweries attempting to streamline their delivery systems by integrating distributing into their businesses, though the nature of the competitive brewery industry opened a window whereby crafty distributors could gain leverage. Consolidation and tough market conditions forced the total number of wholesale distributors from over 3,000 in 1997 to 2,765 in 2003. Total industry employment likewise diminished through the late 1990s and early 2000s, from about 96,000 to 88,000.

ORGANIZATION AND STRUCTURE

Beer and ale wholesaling has always been relatively dispersed, characterized by a large number of independent distributors. The major beer companies have periodically made attempts to purchase some of their independent distributors in an effort to vertically integrate and obtain more control over the channel of distribution. Company-owned distributors can provide an advantage in controlling the pricing and presentation of the product to the final consumer and in maintaining retailer relations to ensure availability of the product. However, for the most part, brewers have been prevented by anti-trust considerations from purchasing their distributors, and efforts to build their own distributorships risked alienating their existing distributors and losing the market penetration they already have. The major breweries still maintained only a small handful of company-owned distributors in the late 1990s.

In order to maintain a modicum of control over distributors, larger breweries have often tried to replace restrictions on the ability of distributors to carry products of other brewers. However, because of Anheuser-Busch's dominating market share, competing brewers, such as Miller Brewing and Coors, have been forced to relax such restrictions, allowing wholesalers to acquire each other's brands, in order to guard their market shares. However, upon the acquisition of competing brands by wholesalers in markets such as Chicago, where Anheuser-Busch's dominance is far less pronounced, brewers complained that wholesalers were taking undue advantage of their greater freedom and forsaking the very logic that led to relaxed restrictions in the first place. Many wholesalers, at any rate, elect to stay with one brewer in order to maintain their positive relations.

In the early 2000s distribution involved several hundred regional independent distributors. Distributors generally remain regional since they are regulated by the state in which they do business. In most states, each distributor is awarded an exclusive sales area by the brewer and is primarily responsible for building relations with the retail and other consumer outlets in order to build the sales of the product. In a few states, such as Indiana, exclusive territories are not allowed, and competition is fierce. In states with exclusive territories, retail customers, including grocery chains, bars, and restaurants, have only one source of supply and are therefore at...