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For Distributors, Craft Beer’s Rise Brings Opportunities And Challenges

September 27, 2013

With its continued double-digit gains, craft beer is popular with U.S. beer wholesalers these days, particularly in light of the struggles faced by mainstream domestic brews. Craft’s higher margins are a welcome addition, helping to offset rising costs and shrinking margins from lower-priced brands. But wholesalers concede that the thriving craft category has its challenges.

Craft beer not only offers growth but also access to new sales channels like bottle shops and beer bars. Robert Mitchell, vice president, craft, wine and spirits, at Manhattan Beer Distributors, says craft has expanded the company’s customer base. Manhattan Beer, which now counts 23 craft beer suppliers, has become “a more balanced partner for our customers,” Mitchell says. Crafts comprise 7% of Manhattan Beer’s beer volume and a higher percentage of its sales revenue. Manhattan Beer, which handles major brands like Coors and Corona Extra, represents craft players Boston Beer Co., Sierra Nevada Brewing and Spoetzl Brewery.

But wholesalers also say that adding craft brews requires significant investment in warehouse space, equipment, inventory and personnel. In addition to expanding its warehouse space, Manhattan Beer has invested in racks and pick lines to accommodate the new SKUs and kegs. Craft beer’s propensity for constantly rotating seasonal expressions and limited-time-only brews adds to the warehouse needs. “When we bring in 15 new pumpkin beers for example, we have to find space for them,” Mitchell says. This year alone, Manhattan Beer has already added about 400 new craft SKUs.

Rick Steckler, president and co-owner of Washington-based Click Wholesale Distributing, agrees that dealing with a rising number of craft SKUs is a big challenge. (In western Washington State, craft beer accounts for as much as 30% of the beer market.) But that variety is “one of the most important elements driving interest in the category,” Steckler adds.

“In the coming years, craft will eclipse a 50% share of our market,” Steckler predicts. Yet he and Manhattan Beer’s Mitchell worry about the rapid-fire release of new brands and SKUs and the prospect of a category shakeout, as well as the possibility that lesser-quality beers might emerge. “Our hope is that all distributors will be brand builders and not brand collectors,” says Mitchell. “Craft beer should not be considered the goose that laid the golden egg. That mindset will create pitfalls.”

With more than 1,000 new craft breweries in the planning stages around the country, the category’s challenges are bound to intensify.

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