Beer Distribution 101: Self Distribution vs Distributor
Traditionally, there has been a three-tier system when it comes to beer distribution. In this system, a brewery sells beer to a distributor, who in turn sells it to the customer. Often, smaller but growing breweries do not have the necessary volume to turn a decent profit while working with distributors, so many are turning to self-distribution to sell their product.
But when do you know what distribution model is the right decision for your brewery? Utilizing distributors and self-distributing both have their advantages and disadvantages depending on your brewery’s size and strategy.
For many breweries, self-distribution offers the advantage of better margins on their product, being able to get feedback directly from retailers and their consumers and they have more control of their product and where it is sold.
Self-Distribution Allows Your Brewery to:
1.) Improve Margins by Cutting Out the Middleman
When your brewery sells product to distributors, those distributors are advertising your products as well as shipping them to other regions. They are also a business trying to make a profit, and that time taken on your products costs them money, which they ask from you as a percentage of your profit. When your brewery can distribute your beer locally through hiring salespeople, your brewery withholds more profit compared to working with distributors because your brewery retains all the profit from sales.
2.) Have Complete Control of Your Beer
When your brewery self-distributes, you have a lot more control of how and where it is sold since your salespeople work for you. If you want to make a change of process or want your beer to be sold at a specific location, your salespeople can make that change quick. With distributors, once you sell them your product, the distributors determine how and where your beer is sold.
3.) Get Feedback Directly from your Customers
With your salespeople going door-to-door, they get 1-on-1 time with your customers. They are able to get feedback directly from the source, which is something your brewery could potentially miss out on if you distribute with a distributor.
Limitations of Self-Distributing:
1.) Self-Distribution Requires a High Capital Investment Upfront
To self-distribute, you need the following resources to start:
- Salespeople to push your product
- Vehicles & gas to get your product from place-to-place
- Equipment like forklifts and pallet jacks
- Warehouse space
Many of these resources can add up to hundreds of thousands of dollars to start. And even if you take a loan out on this equipment, there’s not a guarantee your brewery will make up the capital costs if retailers don’t buy your product. Your brewery must do thorough research to ensure that you can pay off the capital costs associated with self-distributing.
2. Self-Distribution Maybe Illegal in your State
Currently, self-distribution of alcoholic beverages is legal in 36 states, but if you are in the following 14 states, it is still illegal to self-distribute:
- Rhode Island
- South Carolina
In these states, utilizing a distributor to sell your beer is the only option to expand your business.
The traditional three-tiered distribution system still has many advantages compared to self-distribution depending on your brewery’s size and sales strategy. Utilizing distributors puts the responsibility of distributing and expanding your sales to them, leaving your brewery to spend time on growing the business.
Utilizing Distributors Allows your Brewery to:
1.) Rely on your Distributors’ Expert Knowledge of the Market
When you partner with a distributor to sell your beer in a different region or state than your headquarters, they know the ins-and-outs of the local market and have important connections. You can rely on them to find the businesses where your beer can create and fulfill market demand.
2.) Focus on the Core of Your Business
With your distributors focused on distributing your beer, your brewery can get time back in order to focus on crafting your brewery’s business strategies. You can focus on what your brewery does best: creating innovative products and experiences for your customers.
3.) Quickly Grow Your Business
If you have the right distributors in strategic regions, your brewery can grow more quickly than if you self-distributed. Due to your distributors’ long-lasting relationships, they can get your beer in retail locations your brewery would have a hard time getting in on your own. And the more locations your beer is sold, your brewery has a better chance building a customer-base nationwide.
Limitations of Utilizing Distributors
1.) Utilizing Distributors Cuts into your Margins
Distributors are still a business and will need to take a cut of your own profits to make a profit themselves. Due to this, your earnings potentials lessen by utilizing a distributor compared if you self-distributed your own beer. According to Matt Robinson from Shelf Life, distributors usually require 20-30% of your beer’s total margin.
2.) Your Brewery Has Less Control
Once your beer is sold to a distributor, they have complete control of where and how your beer is sold in the agreed upon region. If you want to specialize the selling process or sell your beer in a certain retail establishment, that is not up to you; it is the distributor’s choice.
3.) Your Beers Can Get Lost in the Shuffle
Many distributors handle hundreds if not thousands of brands. Just because you have signed a contract with a distributor doesn’t mean that the distributor will prioritize your brands and get them on store shelves. If your brands are not their highest sellers, they may not give your brands a fair chance to sell.
Which Method of Beer Distribution is Right for Your Brewery?
Of course, an increased profit margin sounds great, but there are some drawbacks to choosing to distribute yourself. Startup costs are higher when choosing to do things on your own. You are paying upfront for the labor of delivery, equipment and warehouse space. Breweries may be limited to the local market only, in order to keep the profit margin high.
Another factor for breweries is acquiring shelf and tap space which can be tough in this competitive market. Distributors typically have contracts to secure a certain amount of space, which can be a problem when trying to get your beer some shelf space.
At the same time, distributors often take a higher margin in the range of 20-30%, and just because you partner with a distributor, it doesn’t mean that the distributor will prioritize your brand when it comes to shelf space.
When making the decision to distribute, it’s important to think long term and not just in the immediate future. There is an increased profit margin with self-distribution, but are you looking to distribute out-of-state in the long run? If the answer is yes, it’s important to weigh the future potential benefits of a distributor. It’s also important to know that typically once you sign a distributor contract, you are locked into it, so weigh your options fully before making that decision.
OrchestratedBeer Optimizes Your Distribution, Whether Your Brewery Self-Distributes or Utilizes Distributors
Whether your brewery self-distributes or utilizes distributors, OBeer helps optimize your brewery’s distribution.
For Self-Distributors: The Mobile Sales App
The Orchestrated Mobile Sales App enables your independent sales representatives to focus more on selling your beer and less on manual work.
With the Mobile Sales App, your sales reps can:
- Create, edit and process sales orders on-the-go, in real-time
- Manage their daily tasks/activities in the built-in calendar
- Keep track of your company’s accounts and contacts
- Easily access real-time inventory levels available-to-sell
For Breweries Who Work with Multiple Distributors: The Distributor Portal
The Distributor Portal is customized to fit your brand allowing distributors to:
- Check your available inventory in real-time
- Automatically create new sales orders
- Make payments for any pending sales orders
No matter your choice of distribution, OrchestratedBeer is here to help you succeed and make the distribution process easier with our Mobile Sales App and Distribution Portal. Learn more about the benefits of these two add-ons by downloading How OrchestratedBeer Simplifies Distribution through filling out the forum below:
Revised by Keegan Chamberlin on 10/21/2019