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« Inflation? What it might mean to you. | Main | What's Up With Values? »

The End of Old Beer? The End of Beer Distributors?

The Question:

Would greatly extending the shelf life of beer be a boon for beer distributors or could it profoundly change the beer distribution industry?

Longer shelf life and the end of old beer… or longer shelf life and the end of beer distributors?  Something to celebrate or an unintended dagger pointed at the heart of wholesalers?  We often note that beer is not a can of peas and should not be treated the same.  From a regulatory viewpoint this remains regardless of shelf life… but what if a can of beer becomes just like a can of peas from a shelf life perspective?  What might be the implications?  Let’s take a mental field trip and see what happens… 

  • First the positives… and why the quest for extended shelf life will continue unabated.  I won’t attempt to guesstimate the dollar value of all out-of-code beer in the US but we all know it is a rather large number.  Throw in the gross profit dollar hit taken by discounting aging beer and the number gets even larger.  Think of the system-wide savings if these costs would simply disappear.
  • And the savings wouldn’t end there.  On the production side it would simplify runs by allowing larger, more efficient runs… perhaps specialization?  Perhaps consolidation of breweries since physical location will become less important.  You’d have to balance this against increased distribution costs (just like closing a warehouse) but my gut says it would probably make a lot of $$ sense (just like closing a warehouse).  Operationally the savings would continue at both the supplier and distributor tiers.  Think of all the time and expense distributors incur in your drive to keep fresh product in the marketplace… sales, merchandising, delivery, warehousing, tracking and moving aging product… you all know the facts since you live them every day.

Now let’s magically extend the shelf life… what happens then?  First, I’d have to guess the DSD value to retailers and suppliers would shrink considerably.  I’d also have to guess that chain stores could now make a much stronger case that their centralized warehousing can adequately ensure product quality.  Does the value of basic merchandising shrink since proper product rotation, although still desirable, becomes much less important? 

Does it allow large wine and spirits distributors to aggressively enter this market?  Their once per week service (if that) might be quite adequate for servicing the majority of retailers.  If the shelf life could be extended on draught beer, this “ace in the hole” might quickly evaporate too… thereby greatly impacting the supply-chain value of the full-service beer wholesaler.  If you’re the last beer distributor standing in your state you might like this reality but what about the rest?  It could drive a massive exodus from this industry.

Of course you still have the velocity aspect of beer which would pull in the opposite direction but significantly extending the shelf of life of beer could be a profound game changer for beer distributors.  Remember that the conventional wisdom is always correct right up until the moment it isn’t anymore.  If it happened it would most likely get a lot of pieces in movement in a short period of time. 

And what of the consumer response?  Would there be one?  Would they care if the product attributes remained stable over a longer period of time?  My gut says a few beer snobs might care but if it can be accomplished without those awful “artificial preservatives” most consumers would quickly lose interest… and there are positive’s from a consumer perspective too… next time there’s a major sale why not pick up a 6 month supply?  How would this affect pricing and discounting?

Of course the technological breakthroughs which would extend shelf life to this degree might never happen… but then again they might.  The potential savings ensure the quest will not end.

The answer?

Who knows.

This could conceptually drive us towards a more 4-tier system that you see in a few states… a massive beer distributor servicing an entire state, with centralized distribution through chain stores, perhaps also selling directly from the warehouse to licensed retailers and then a much smaller beer “jobber” who would service the smaller accounts in their specific market.  The future might be pretty good for the massive distributor but no present beer wholesaler would be happy with the profit outlook being the beer “jobber” in your present marketplace.

What can wholesalers do about this?  Probably nothing other than to keep providing superior, value-adding services… and to keep their eyes wide open to a very dynamic landscape where things which might seem peripheral are actually much more than that. 

I’ll continue these thoughts in my next post where we think about values of distributors.

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Comments

If you increase shelf life you increase days of inventory at the warehouse. This ends up still contributing same amount of out of date beer in the market. AB extended shelf life on most packages now we have beer bulging at the seams.

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