Photo by Matthew Rogers
THE GIST
Reyes Beverage Group, one of the biggest distribution companies in the country, is bringing on a new hire from Diageo to guide a growing collection of wholesalers increasingly focused on the Constellation Brands portfolio of beers.
Reyes announced internally last week that Tom Day, who's worked for Diageo since 2007, will become the company's next CEO of its beer division. He's taking over for David “Duke” Reyes, owner and now former-CEO of the division, and director of Reyes Holdings, LLC. Day joined Diageo in 2007 as a manager for commercial finance and, during his tenure, worked his way up to a top leadership position as global chief sales officer and chairman for the global conglomerate's own U.S. beer division.
In a note to the entire Reyes Beer Division, chairman and CEO of Reyes Beverage Group Ray Guerin wrote that Day "significantly enhanced Diageo's relationships with distributors and overall performance in beer" in the last few years. "Throughout the industry, Tom is known for his extraordinary drive and as one of the most dynamic leaders in the U.S. beer market," Guerin added.
A specific start date wasn't shared in the memo, rather noting that Guerin would announce full details of Day's transition "in the coming weeks."
WHY IT MATTERS
Day’s experience—and the timing of this announcement—looks to be a significant indicator of Reyes’ hopes for its beer brands domestically. Day’s previous track record shows success in the growth of Guinness Draught (+12.5% from 2016–2018, +6.1% from 2017–2018) and Guinness Extra Stout (+12.1%, +5.5%) in IRI-tracked grocery, convenience, and other stores. During the same period, Day helped oversee the construction and opening of Guinness' Baltimore County brewery, a $90 million project.
[Disclosure: Guinness underwrites Good Beer Hunting's Mother of Invention series.]
That alone is a noteworthy point on his resume, but the value of what he’ll bring to Reyes touches on deeper changes in beer. A consolidated focus on both Constellation (Corona, Modelo, Ballast Point, and others) and Diageo (Guinness) along with other strategic moves made by the distributor in the past year could put a so-called “gold network” in a more competitive position against declining volume sales for leading brands in red (Anheuser-Busch InBev) and blue (MillerCoors) houses than ever before.
In the last two years, Reyes has done precisely that, adding to its collection of wholesalers and acquiring companies and consolidating distributors who sell Constellation Brands’ products under the Reyes umbrella. By creating a new collection of middle-tier companies focused on its products, Reyes has created a legitimate third “house” in the distribution space to more directly set up Constellation’s brands for success.
Reyes’ connection to Constellation is of particular note: while Reyes has long been a “blue” house tied to MillerCoors, declining volume for the brands sold by the company (including Miller Lite and Coors Light) mean it has increasingly shifting toward Constellation’s “gold.” This move comes from basic, practical capitalist reasoning. As volume and dollars decline in one area, Reyes has been seeking the most efficient ways to fill those gaps. Thanks to Constellation’s unstoppable collection of import brands, it’s an easy trade: less volume of lower-cost MillerCoors products, and more of higher-priced Constellation ones.
On top of that shift, Reyes highlights Diageo’s portfolio as one of its important nationwide offerings. That means Tom Day’s transition not only comes from a place of familiarity, but comes at a time when his new company may be actively trying to find ways to modernize the collection of beer it sells. And now he’s the guy in charge of Reyes’ beer division.
A big set of consolidation moves started in June 2018, when Reyes made a play in San Diego County and Constellation urged Markstein Beverage Company to sell rights to Reyes. On the other side of the country a few months later, Reyes became the biggest wholesaler in the Mid-Atlantic region when a Reyes-held distributor, Premium Distributors of Virginia, bought assets of Loveland Distributing Company, adding to the already Reyes-owned Chesbay Distributing.
November 2018 saw more acquisition in California, again on the behalf of Constellation, then a January 2019 move to buy the Heineken and Mike’s Hard Lemonade portfolios in Los Angeles, and another move in February to bring a major Constellation wholesaler from Santa Maria, California into the fold. Reyes currently owns 13 distributors across California, Florida, Illinois, Maryland, South Carolina, Virginia, and Washington D.C.
All these moves reflect broader changes in distribution happening within the industry. So while beer enthusiasts may see competing beer companies as the main fight, there’s still plenty going on with the undercard in the middle tier. According to analysis by The New York Times, around 90% of beer sold is controlled by distributors tied to ABI or MillerCoors, but all these moves by Reyes and Constellation show there’s another company throwing its weight around.
In a November 2018 interview with Brewbound, Constellation spokeswoman Jamie Stein said that Reyes-owned distributor Harbor Beverage offered a chance to “unify this market.” That task is now being asked of Day.
“As the industry evolves and increases complexity, we believe the distributor tier will continue to consolidate — and that in selective markets scale and the resulting efficiency, will drive future growth and more opportunities to invest back into our brands,” she told the outlet.
Details are light on Day’s new position, but one thing he’ll need to work with is Reyes’ "inside sales" efforts, an internal name for call-center and online-customer-relationship-management systems that allow for retailers to place orders with a distributor instead of in-person with a sales rep. As Reyes has brought in a collection of wholesalers—especially in California and the Mid-Atlantic—this kind of centralized effort is meant to streamline the customer-service process, freeing up sales reps to tailor visits with retailers instead of simply taking orders and moving on.
“Traditional, large family distributors talk about wanting to be in front of customers, but that’s not what customers want in some cases,” says longtime industry and distribution vet Kimberly Clements, co-founder of Pints LLC, a consulting company that helps brewers strategize new markets and distribution. “Being able to adjust what your customers’ needs are is really, really important.”
It's all part of a natural progression, Clements says, noting how digitized ordering systems and culled workforces should be expected as the industry matures. The jobs of distributors and their reps are difficult, she notes, and it makes sense to see a workforce change from a large series of specialized roles—different reps and experts on domestic brands, craft brands, merchandisers, draft techs, etc.—into fewer employees taking on multiple areas of expertise.
With consolidation occurring across the middle-tier, plus what Reyes has been signaling, cost-cutting was inevitable.
“At one time, distributors were adding value by beefing up their sales departments and adding specialty craft-only departments in order to court craft suppliers,” Clements says. “That’s really no longer the case because you’re not seeing a lot of action unless it’s a large, major craft brand.”
“The costs have started to add up and independent distributors have cut back on staffing because they recognize those costs and the return on investment isn’t there anymore,” she adds.
As Reyes grows, and these kinds of changes continue to occur, a new CEO who has led Diageo’s own large-scale division could well be an ideal fit. Automating order processes has already taken hold in the retailer-to-customer space, with numerous online stores that deliver to homes and businesses, making the shift for wholesaler-to-retailer a more natural one. With increased attention on streamlining the wholesale process, Day will help guide Reyes into its next step as a company.
In interviews, Day has often touched on the value of relationships as a pivotal part of succeeding in the beverage space. It’s not a surprising answer, given that there’s always a need for large beer manufacturers to rely on others to move and sell their product. That attention is certainly needed for Constellation, which is thriving off an import portfolio led by Corona and Modelo brands, but has watched Ballast Point slide. Elsewhere, Constellation’s more recently-acquired Funky Buddha almost doubled its sales from 2017–2018, selling $6.2 million last year.
Reyes is a MillerCoors house, but given how things have realigned in the past year, the value that Constellation and Diageo bring to its subsidiaries (and, ultimately, what Day will bring to Reyes) seems clear. As someone who oversaw Diageo’s growth in the U.S. and is intimately familiar with that company’s array of products outside of beer, Day’s guidance could prove invaluable for a mega-distribution company that continues to eye bigger—and presumably better—moves against AB InBev and MillerCoors.
Words by Bryan Roth