Photo by Sean McEmerson
Chicago has seen two weeks of distributor deals that spell major consolidation for the city’s beer wholesalers and reflect the shrinking options provided to breweries nationally. In Chicago and around the country, more breweries than ever are relying on fewer wholesale partners than ever.
On Aug. 7, Reyes announced one of its MolsonCoors- and Constellation-aligned wholesalers, Chicago Beverage System, would subsume the formerly independent craft distributing arm of its business, Windy City Distribution. Then, on Aug. 12, news broke that Breakthru Beverage Illinois (formerly Wirtz Beverage) would sell its beer and cider portfolio to the Anheuser-Busch InBev-aligned (ABI) Chicago distributor Lakeshore Beverage. The deal is expected to close in late October.
Already one of the country's most competitive markets for craft beer, this adds another layer of competition for the Chicagoland area that will force small breweries to either jockey for attention in larger wholesaler portfolios, or seek out new ways to get their beer to market.
Breakthru Illinois, primarily a wine and spirits wholesaler, started in 2013 to distribute craft beer brands across the state, which now include Deschutes Brewery, 4 Hands Brewing, Odell Brewing, Epic, and others. Despite its portfolio of about 25 breweries, the company’s reputation was one that focused on wine and spirits and struggled with its beer portfolio. Lakeshore distributes the ABI portfolio (including Goose Island, 10 Barrel, Elysian, etc.) as well as brands like Founders Brewery, SweetWater Brewery, and Bell’s Brewing. Lakeshore distributes only in the Chicagoland area.
Financial terms of the deal have not been disclosed. JR Hand, president and CEO of Hand Family Companies, which owns Lakeshore Beverage, says that pending breweries’ approvals of the transfer, the deal should add 200,000-250,000 cases of beer to Lakeshore’s books, the equivalent of about 18,000 barrels, the size of a regional brewery.
Under the Illinois Beer Industry Fair Dealings Act, a brewery in Breakthru’s portfolio has 60 days’ from the date it was given notice of the transfer to terminate the transferral of its contract. This presents a rare opportunity for a brewery to leave its distribution partner, but creates a difficult position when there are now fewer Chicago wholesalers to which they can move.
This consolidation is in line with national trends. Between 1990 and 2020, the number of wholesalers in the U.S. shrunk 60.2%, from 3,523 to 1,401, according to data from Beverage Marketing Corporation, a beverage marketing company. That consolidation is especially challenging for craft breweries, whose numbers have grown in recent years to a historic high of 8,275 in 2019, per Brewers Association data.
Chicago, a market whose beer sales are just shy of 100 million cases annually, per JR Hand’s estimates, is now serviced by just six beer distributors. And in reality, breweries aiming for sales at grocery stores or other chains have only two or three distributor choices with the infrastructure necessary to execute that:
Mainstream Distributors (aligned with major beer producers)
Molson Coors-aligned Chicago Beverage Systems, which also distributes Constellation’s portfolio.
ABI-aligned Lakeshore Beverage.
Louis Glunz Beer, which has Pabst in its portfolio, but whose portfolio has been declining in relevance in recent years as it’s lost major brands.
Boutique Distributors (craft and imports)
Heartland Beverage, a boutique, craft-focused distributor.
Do Right Distribution, a year-old, boutique distributor mostly focused on Belgian beers.
AJ Maka Distributing, a boutique distributor whose small number of specialized brands include Casey Brewing & Blending, Logsdon Farmhouse Ales, and Ale Apothecary.
Glunz, a generational business that started in 1888, remains the only distributor with any major brands outside the wholesalers led by AB InBev (commonly known as a “red house”) and Molson Coors (known as a “blue house”)—and it’s lost craft brands like 3 Floyds Brewing Co. and Dogfish Head Brewery in recent years.
Do Right, AJ Maka, and Heartland might seem the obvious choices for craft breweries, but all are run with small staffs and don’t have the capacity or infrastructure to move the amount of beer a medium-sized craft brewery would want to sell. Adam Vavrick, owner of Do Right, says those three businesses have the goal of defining what the next generation of craft beer distribution looks like in Chicago—a business he wants to see become more cooperative and fair.
“It’s not consolidation, it’s not fat cats with pinky rings, it’s not that kind of stuff,” he says, meaning that he’d like to see distributor-brewery relationships become more transparent and specialized.
But right now, Do Right and other distributors like it are too small to handle all the craft producers who would like to partner with an independent distributor.
Even if Vavrick wanted to hire a sales staff, purchase additional warehouse space, and add vehicles to his fleet during the COVID-19 pandemic, banks aren’t lending the millions of dollars that would be required to scale his business quickly. So, if a medium-sized craft brewery formerly in Breakthru’s portfolio wanted to sign with Do Right, it would be difficult for the company to accommodate them, given its current infrastructure.
In another wrinkle for Breakthru’s portfolio breweries, Lakeshore Beverage only services the Chicagoland area. (The Chicago metropolitan area is home to about 9.5 million people.) Hand says Lakeshore will take the lead in spinning off Breakthru’s downstate Illinois territory to other wholesalers. Brands that once enjoyed the simplicity of dealing with one distributor for all of Illinois now face the potential of dealing with multiple distributors and of sales points, creating additional work to achieve the same sales impact.
Multiple industry pros interviewed for this article noted that many such brands may exit downstate territories as a result. John Neurauter, co-founder and CEO of Chicago’s Haymarket Brewing, which Breakthru distributes, notes that Haymarket sells a small fraction of its beer downstate and the company would be happy to pull back from those markets, given the option. The effort it would take to work with a new distributor there isn’t worth the small amount of sales.
Hand says he understands some craft breweries may have anxieties about becoming part of an even larger house’s portfolio, but says Lakeshore “nurtures and supports” even its smallest brands. He says the resources of a larger company like Lakeshore will benefit all brands under its umbrella. Breweries’ own sales teams will be key to ensuring a successful partnership with Lakeshore, he says.
But the brewery's concerns may be valid. In 2018, one of Lakeshore’s local brands, Burnt City, spoke about the challenge of being in the ABI portfolio. Brewery co-founder Steve Soble said it stunted the brewery’s once-ambitious plan to become a regional player.
“AB-InBev won the war,” Soble told The Chicago Tribune, after he closed a brewpub and scaled back distribution plans, which the brewery was pursuing through the ABI-aligned wholesaler.
The Breakthru-Lakeshore transaction not only constricts the distribution options for breweries in Illinois, but it illustrates the challenges a large wine- and spirits-focused house faced in launching a craft beer division. Since its origins as Wirtz Beverage, Breakthru had primarily sold wine and spirits, including Diageo, Brown-Forman, and Gallo Family products. It launched its craft beer division in 2013, with Deschutes as its largest craft brand. Shortly after, it added Ballast Point, which it would later trade for rights to Dogfish Head in 2018.
“When we went with Breakthru in the beginning, we recognized they weren't the strongest ones in the [beer] space because they were so new,” Neurauter says. “But we had a lot of hope and faith that they’d build a good machine because they built such successful liquor distribution.”
By all accounts, the beer division never quite found its footing. Deschutes, its first and most important brand, saw its national sales volume, as tracked by IRI, slip by 4,123 barrels from 2018 to 2019, a 3% decline.
“They wanted to just tack on beer revenue to their wine and spirits thinking they wouldn’t have to change their business, and they thought that beer revenue would be a lot bigger than it was,” says a former Wirtz employee who asked to remain unnamed because they still work in the industry. “They thought it would be 2-3 million cases a year. If they ever did a million cases of beer in a year, I’d be shocked.”
Dave Kahle, Breakthru’s craft beer specialist from 2013-2019, says he’s proud of what the craft beer division built during his tenure at Breakthru, and speculates that perhaps Breakthru was just a few years too late to bring craft beer into its portfolio—most significant national craft brands were already signed into Illinois distribution. He also adds that Breakthru could have selected managerial personnel from the beer side rather than just wine and spirits.
In the end, Kahle says, large corporations often opt for the path of least resistance; in the case of a beer division that’s struggling: “The easy way, in this case, is probably just to unload it to Lakeshore.”
Words by Kate Bernot