Reyes Beverage Group’s distributor acquisitions might be the only part of 2020 that’s been predictable. Following a precedent set early in the year, the country’s largest beer distributor has continued to gobble up smaller distributors across the Golden State to create arguably the most powerful network of wholesalers in the country.
That’s especially tough news for rival Anheuser-Busch InBev distributors in California, whose brands lag behind the massive growth of Reyes-aligned Constellation Brands and Mark Anthony products like Modelo and White Claw, respectively. Reyes now sells 1.6 times as much beer in California as ABI-aligned distributors do, and controls 43% of all beer sold in the state, per Beer Marketer’s Insights.
Worst of all for AB InBev: With no end in sight for its distributor buying spree or the popularity of those high-growth brands, Reyes’ grip on the U.S.’s most important beer-buying state will only tighten.
Here’s just the most recent portion of Reyes’ buying spree:
The distributor company acquired Claypool Distributing in early March, adding 650,000 case equivalents to its empire—roughly 47,000 barrels, the size of 2019 production from a regional brewery like Massachusetts’ Lord Hobo Brewing Co. or North Carolina’s Highland Brewing Company.
In May, it acquired Sacramento’s Saccani Distributing, adding 1.5 million cases.
In June, it got another 8 million cases through its purchase of Richmond’s Bay Area Beverage Company.
And this summer, Reyes’ deal to acquire Watsonville’s Elyxir Beverage—another 2.5 million cases—is expected to close.
According to Brewbound, in under two years, Reyes has bought up 10 distributors in California alone. Just the four distributors listed above added 12.65 million case equivalents to Reyes’ portfolio. That’s 918,145 BBLs, nearly as much Coors Banquet as was sold in the entire U.S. in 2019.
Antitrust laws dictate AB InBev can wholly own only 5% of its distribution, but Reyes isn’t bound by that limitation. While regulators have put restrictions on the country’s largest beer maker, Reyes—the country’s ninth-largest privately held company—faces no roadblocks in buying up distributors. It can continue to piece together contiguous territories and expand its geographic reach.
Consumers may not notice its hand, but the middle tier of the beer industry exerts tremendous influence over what ends up on store shelves. Off-premise beer sales typically represent about 80% of beer sales volume in the country, but that’s increased as COVID-19 has shuttered bars and restaurants. In California especially, where Governor Gavin Newsom on July 1 ordered bars and indoor dining to close again in 19 counties, retail beer sales take on outsized importance. Reyes continues to make moves in a space it’s already dominated, with few if any obstacles ahead of it.
As Kimberly Clements, managing partner of Pints LLC, a beverage advisory firm, told GBH in March: “Reyes didn’t become successful because it has just a few brands in a postage-stamp-sized territory in rural areas—it became successful because it has a lot of great high-volume brands in major, high-population territories.”
California is clearly at the forefront of Reyes’ national beer strategy, which includes sales in 44 other states, with a significant cluster of distributor companies in the Mid-Atlantic. (Reyes has repeatedly declined interview requests from Good Beer Hunting to discuss acquisitions and strategy.) The Golden State represents about 11% of the overall U.S. beer market, but size isn’t the only reason it’s so critical.
Beyond the scale of beer sales in California, the state represents a territory Reyes can win, given its portfolio of aligned brands and the ever-growing influence it wields. Reyes’ size and scope in the state have made it easier for beer producers to shift alliances to their corner.
When Diageo swapped distributors in California earlier this summer, two of the three houses it left were connected to ABI. (A year prior, the global chief sales officer and chairman of Diageo's beer division, Tom Day, left the beer maker to become CEO of Reyes' beer division.) Following Constellation’s playbook from years prior, Diageo took its portfolio, including Guinness and Smirnoff’s flavored malt beverages, to Reyes. There’s also talk, cited by Beer Marketer’s Insights, that Boston Beer Company will leave its ABI-aligned distributor in Northern California this summer; Boston Beer did not respond to GBH’s request for comment.
Reyes’ good fortune in California is tied to the popularity of certain brands there, namely Modelo, White Claw, and Corona’s hard seltzers. These products represent the best-selling beer in the state (Modelo), the top-selling hard seltzer synonymous with the entire category (White Claw), and one of the largest debuts in the flavored malt beverage category in 2020 (Corona Hard Seltzer). With these three brands alone, Reyes would be a force to be reckoned with—but they’re just the tip of the iceberg.
AB InBev’s lead brands—Bud Light, Budweiser, and Stella—haven’t enjoyed the same fate in California. According to data from IRI, a market research company, Modelo has sold nearly twice what Bud Light has from Jan. 1 through June 21 in the state’s multi-outlet and convenience stores, which include grocery, drug, and big-box stores. Modelo Especial sales totaled $340 million during that period, versus $160 million for Bud Light.
That’s a reversal of the national picture, where Bud Light’s year-to-date sales are more than double what Modelo’s have been—and it doesn’t count other Modelo products like its successful Chelada line extensions. Modelo is up 17.8% in IRI-tracked dollar sales in California for the 52-week period ending June 14 versus the same period last year, while comparable Bud Light sales are down -1.74%.
The wind will continue to be at Reyes’ back in California. The company’s alignment with Constellation and Mark Anthony ensures it controls some of the fastest-growing brands in the state. Corona Hard Seltzer is up big—Beer Marketer’s Insights says the hard seltzer variety pack has nationally added 90% incremental sales to the Corona family—and that’s before Constellation introduces individual flavors later this year. And White Claw sales in the Golden State are up 795% over the 52-week period ending June 14 versus the same period last year. They’ve generated just shy of $115 million in sales in California so far this year.
Of the top-10 selling beer brands in California by dollars, Reyes has three: Modelo Especial (#1), Corona Extra (#4), and Pacifico Clara (#7). White Claw's variety pack is #8. With numbers like these, Reyes sees no reason not to continue adding more cases of white-hot brands to its roster.
Distributor territories, especially in key geographies, are a zero-sum game. No company wants to cede territory to another.
Yet ABI can’t quite counter Reyes’ scale in California for a few key reasons:
Antitrust laws prevent it from wholly owning more than 5% of its distributors.
But breweries can be reticent to sign with independent ABI distributors for fear the wholesalers could be bought by ABI.
Meanwhile, ABI’s lead brands don’t have anywhere near the same momentum in California as Constellation’s and Mark Anthony’s, which gives Reyes a stronger negotiating position to get more and better placements in stores.
At a time when the off-premise is king, all these factors point to continued dominance by Reyes. Budweiser sales were essentially flat in the state for the 52-week period ending June 14, 2020 compared to the same period a year prior. ABI’s import portfolio—Stella, Hoegaarden, Estrella Jalisco, Bass—was down -2% in dollar sales during that time.
The lone bright spot was ABI’s craft brands, up 20% to roughly $60 million. That growth is largely attributable to strong Golden Road Brewing sales on its home turf, plus increases from Elysian Brewing Company thanks to its fast-growing Space Dust IPA. Constellation import sales totalled $1.2 billion during the same time, for scale.
ABI doesn’t have much to hang its hat on in California, and it’s up against a motivated and well-financed competitor. Because of strategic acquisitions over the past few years that have solidified its alignment with Constellation and Mark Anthony, Reyes has not only scale but sales in its favor. It’s likely to continue leveraging both to sign even more deals across California this year.
Words by Kate Bernot