A sale of distribution rights from a small, craft-focused company to one of the nation’s largest provides another example of how the shipping and placement of alcohol brands continues to favor distributors with the most power and money.
It’s another shakeup in the middle tier, as Everett, Massachusetts’ Night Shift Distributing (NSD) has announced it will sell distribution rights to some of the “35-plus” beer, wine, and spirits brands in its portfolio to the Sheehan Family Companies. This includes Night Shift Brewing beer, which it currently self-distributes. Brewbound first reported the sale, which includes an unknown number of brands that will not transfer to Sheehan, leaving several producers without distribution unless they sign on with another wholesaler. Sheehan will acquire NSD’s distribution rights in Massachusetts and Connecticut beginning Oct. 18, bringing them into. a network that includes 19 distributorships across 13 states. Night Shift declined to disclose financial terms of the deal.
NSD distributed roughly 700,000 cases last year, and says it has seen double-digit year-over-year revenue growth for 15 straight quarters. While the decision to sell assets to Sheehan might make financial sense for those two companies, it’s evidence of how difficult craft-focused independent distribution is in a contemporary beer marketplace dominated by the largest wholesalers.
NSD has, since its founding in 2016, been a vocal champion of independent, craft-focused distributors and a critic of what it calls “antiquated wholesaler approaches.” Now, Night Shift Brewing will cede control of its distribution to a powerful, traditional wholesaler of the sort it once opposed. The move showcases how scale continues to be the most critical piece of wholesalers’ businesses, both in terms of their operations and the volume of beer they’re able to move.
NSD’s choice to sell many of its assets to a company as large as Sheehan—which competes against Reyes Beverage Group to be one of the largest distributors in the country—is a sign of how much size matters to long-term success in this tier. Distributor consolidation, of which the NSD-Sheehan deal is just the latest example, has been occurring for decades because of the increased power wholesalers have when they expand their territories and add huge case volumes. For example, in California (America’s largest beer market), Reyes controls 43% of all beer sold after acquiring more than 10 other distributors between 2018 and 2020.
“My closest competition as a distributor is five times bigger than I am. How do I outcompete those folks, especially as the landscape does get even more competitive?” says Rob Burns, cofounder and president of Night Shift Brewing and NSD.
Meanwhile, small breweries who were formerly in NSD’s portfolio say the decision leaves them in the lurch.
“I’m beside myself with the short notice and feeling like there’s no way our business won’t suffer because of this,” says Drew Starkweather, founder of Progression Brewing in Northampton, Massachusetts, which was previously distributed by NSD. Progression is small, brewing 1,400 barrels of beer last year.
Starkweather was told this week that as of Oct. 15, NSD will no longer distribute his product. That gives him just two weeks to find a new distributor in Western Massachusetts or be forced to try to self-distribute his own beer on the side of the state opposite his brewery. So far, Sheehan hasn’t expressed interest in carrying Progression’s beer, despite what Starkweather says have been at least two years of sales growth for Progression.
“Transferring to a new distributor in two weeks is next to impossible,” Starkweather says. “We have two weeks or we’ll lose all our chain placements.”
Starkweather laments that the power in the business relationship between distributor and brewery is weighted heavily toward the distributor thanks to franchise laws, which vary from state to state but generally make it difficult for breweries to exit distribution agreements without financially compensating their distributors for the “fair market value” of their brand.
“I get it, [Night Shift] sold, but giving a brewery just two weeks? If I tried to leave them, they’d say ‘You’re giving us X amount of money to leave.’”
Other breweries formerly in NSD’s portfolio won’t be so significantly affected.
New York City’s Torch & Crown Brewing Company, one of the brands in NSD’s portfolio, also operates its own small distribution arm in New York State. Leadership there says the end of NSD’s distributorship is disheartening, but that’s not because of the lost sales volume from doing quarterly, small events-based distribution drops in Massachusetts. John Dantzler, CEO and co-founder of Torch & Crown, laments the sale because it speaks to the difficulty of operating independent distributor businesses.
“As far as implications for our own distribution operation, it’s maybe a small amount discouraging that there wasn’t a clear path to keeping everything in-house forever,” he says. “But this is a victory for Night Shift Brewing. They’re reaching a point where they’ve built up a lot of value in their own distribution rights, and now they can turn and put it into the hands of someone much larger that’s going to double their available points of delivery overnight.”
But Dantzler also says NSD’s sale of assets to Sheehan should be a reminder to breweries that distribution contracts can change, end, or be transferred unexpectedly without a brewery's consent—unless a no-assignment clause is written into the contract from the outset. While Massachusetts breweries have made some progress on franchise law reform in recent years, the reality is that wholesalers still hold most of the bargaining chips.
“The supplier-wholesaler relationship is an intimate arrangement and this illustrates the possibility of it ending, or of it being transferred to somewhere that you maybe didn’t expect,” he says. “The laws say what they say, and wholesalers have the right to extract value from their distribution rights, and that’s a fact.”
Ultimately, NSD chose to sell its valuable distribution assets. Burns calls Night Shift’s brewery and distributorship “one company with one bank account,” and that growing both would have required either taking on more debt or selling distribution assets.
He chose the latter at a time when the brewery’s growth has slowed. Night Shift Brewing’s production declined last year, according to Brewers Association data. The company’s volume fell from 37,151 barrels in 2019 to 36,483 in 2020, despite the company having its own distribution arm to more easily control placement of its beers and the pandemic-related boon to packaging breweries with chain retail placements.
After a record 2020 in which it sold more than $23 million in grocery stores and other chain retail tracked by IRI, a market research company, Night Shift is on pace this year to fall just short of the $16.2 million it sold in those stores in 2019. Even in its home market of Massachusetts, Night Shift is projected to sell about $2.5 million less beer in Massachusetts’ liquor stores than it did in 2019. Meanwhile, there's growth in the non-beer business for Night Shift. Its Hoot line of hard seltzers already sold $2.5 million year-to-date through Sept. 12 after tallying $2.7 million in all of 2020. The brewery has also developed a line of hard teas.
It’s easy to see why the NSD transaction is attractive to Sheehan, a company valued at $1.5 billion and has acquired distribution rights to high-volume craft breweries this year. In November, Massachusetts-based independent distributor Craft Collective sold the Rhode Island and Massachusetts rights for Fiddlehead Brewing Company, a popular Vermont brewery known for its IPAs and Double IPAs, to Sheehan.
“If you're at the top of the Sheehan portfolio and you've made it to that level, their ability to put their machine to work on behalf of those brands will turn into some really good results for those guys,” says Adam Oliveri, founder and CEO of Craft Collective.
The results may be less positive for smaller breweries formerly distributed by NSD that are looking to enter Sheehan’s portfolio—if Sheehan even has interest in them. Smaller brands, Oliveri says, tend not to get the attention they’d prefer from large wholesalers. As distributors’ portfolios contain more brands than ever, priority is given to the largest volume movers.
“There’s certainly some folks who kind of get stuck in the middle—too big for Sheehan to let them leave, but too small to garner enough of Sheehan’s attention,” Oliveri says.
Words by Kate Bernot