THE GIST
Increased business costs and competition have slowed craft beer’s growth nationally in recent years, and these challenges are now intensifying in New England. But it’s not only breweries feeling the pinch; recent staff cuts and operational changes are taking place among distribution companies.
Craft Collective, a Massachusetts-based craft beer distributor in the region, is in the process of ceasing operations in Maine and Vermont, resulting in four layoffs. The business also cut 10 positions across its Rhode Island and Massachusetts territories as well as its corporate headquarters, citing the need to reduce overhead.
Sarene Craft Beer Distributors, a craft beer distributor that now services New York, Pennsylvania, New Jersey, and Connecticut, ceased operations in Rhode Island early this summer.
Massachusetts-based Atlantic Beverage Distributors this summer stopped distributing at least 10 out-of-state craft brands. Atlantic did not respond to a request for comment.
“The reality is we have not seen the profit growth needed in order to sustain our current structure, and needed to take aggressive action in order to right-size our expenses to our revenue,” Craft Collective president Bryan Ferguson stated via email. “Sales are up these last few months and overall this year, but not enough to justify current expenses. Increased cost of doing business, declining interest in craft beer, increased competition are all major factors.”
WHY IT MATTERS
Most of the issues Ferguson describes aren’t specific to the Northeast. The volume of craft beer sold nationally in chain retail stores was down -8.2% in the most recent 52-week sales period tracked by market research firm IRI. That’s worse than the total beer category’s decline of -5.6%.
But the region—made up of small states with consumers who champion in-state breweries—is also regarded as especially competitive for small companies, increasing pressure on the distribution of craft brands. And by one metric, selling craft beer hasn’t been easy in stores: IRI's measurement of beer sales in Massachusetts liquor stores shows total beer sales up +5.8% in that 52-week timeframe, but craft is the worst-performing category at just +0.5%.
“It’s been a super competitive market for as long as we’ve been in it,” Ferguson stated. “This isn’t a new thing, but as markets slow a bit or day-to-day costs go up, it certainly gets a little tougher.”
These aren’t brand-new difficulties for craft distribution in the region. When Everett, Massachusetts-based Night Shift Distributing (NSD) sold the rights to 35 of its brands to Sheehan Family Companies—one of the largest distributors in the country—in September 2021, it was an indication that the Northeast’s most powerful wholesalers still enjoy many advantages over smaller, craft-focused distributors.
“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?” Rob Burns, co-founder and president of Night Shift Brewing and NSD, told Good Beer Hunting at the time.
In this case, “outcompete” means keeping up with larger, legacy distributors that sell a much higher volume of beer, employ more staff, and whose products—often led by some of the largest domestic and craft brands in the country—take up more shelf space and generate a larger proportional share of a store’s revenue. A boutique distributor can’t match that scale.
The question of scale and reach continues to be a huge factor for distributors, as it is for breweries. Beer companies including Colorado’s Ska Brewing Company and California’s Anderson Valley Brewing Company have in recent years scaled back their distribution footprints to focus financial and human resources on states where they can achieve higher market share. Research by Seventh Point Analytic’s chief economist and founder Michael Uhrich has shown this to be a wise strategy: A brewery’s share of a market’s craft beer volume generally declines the farther that market is, geographically, from the brewery.
Craft distributors in the Northeast are making the same calculation. Matt Schulman, owner of Sarene, says the company’s decision to pull out of Rhode Island after two years of business there was based on a return-on-investment calculation. The small state of Rhode Island is serviced by a handful of other craft distributors, he says, and represented less than 1% of Sarene’s overall business.
“There are multiple craft wholesalers there and we were late to the party,” Schulman says. “We thought we could make a dent but it wound up being too crowded for too small a state.”
It was a similar story for Craft Collective in Maine and Vermont. Ferguson said that even as Craft Collective courted the brands that NSD didn’t sell to Sheehan (including Ten Bends Beer, Redemption Rock Brewing Co., Magnify Brewing, and Torch & Crown Brewing Company) they didn’t offer enough market share to justify a major presence in states outside of Rhode Island and Massachusetts. It’s almost ironic, he says, that while Craft Collective is larger in terms of staff than it’s ever been, and is increasing top-line revenue, it’s having to pull out of two markets.
“When NSD shut it down about a year ago, we made aggressive moves to staff up and try to take as much of that market share as we could. We did manage to grow our market share and our sales, but not enough,” Ferguson stated.
He says smaller markets drained resources from Craft Collective’s main focus: Massachusetts and Rhode Island. Maine made up less than 5% of the company’s revenue, and Vermont less than 0.5%, according to Ferguson. “But these markets took a ton of time and energy, and weren’t consistently profitable,” he said.
Maine’s regulators recently changed the state’s brand registration process, and Ferguson said it now takes months to register a new beer for distribution there when it previously took days. This made it impractical for Craft Collective to bring desirable one-off and rotational beers to Maine, which had been the company’s model prior to that change: they offered breweries a novel way to create relationships with retailers and stoke consumer interest.
As for Vermont, Craft Collective had only been operational in the state since earlier this year, and had a hard time hiring all the sales and operations staff it needed there. When shutting down Maine operations, it also made sense to close Vermont in order to focus on core markets.
Ferguson said that when he speaks to craft-focused distributors in other states that are of a similar size to Craft Collective, they sometimes imagine that Craft Collective’s multi-state operations make it a larger company. While Craft Collective did previously operate in several states, those states are relatively small in terms of population.
“OK, we’re in four states, but our four states are half the size of their states,” Ferguson said.Scale matters in New England, where drinkers in relatively small states are loyal to local breweries and independent retailers.
“Massachusetts [government] has been keen on protecting its independent retailers,” says Jeff Nedeau, Boston-based director of business development at online alcohol sales platform TapRm.
Beer distributors generally favor high-volume sales to large retailers: It’s logistically easier and more profitable for a driver to drop off 10 pallets of beer at one store than one pallet of beer each at 10 stores. Big distributors like Sheehan that carry major brands such as Budweiser are able to move volume that offsets the effort of smaller craft brands. A wholesaler like Craft Collective only deals in smaller brands to the same number of disparate retailers.
Drinkers’ ongoing preference for local beer also makes the Northeast market especially tough for out-of-state breweries. That includes breweries just a state or two away, to say nothing of breweries located across the country.
“Folks in Maine sure do love beer from Maine. Same for folks in Rhode Island loving beer from Rhode Island,” Ferguson stated. “There are more breweries to call ‘your local’ than ever before.”
This means drinkers buy beer directly from local brewery taprooms, and are generally less attracted to out-of-states breweries within Craft Collective’s portfolio. The wholesaler may find success selling a Maine brewery in Maine, for example, but it’s harder to sell a Massachusetts brewery to drinkers in that same state. That lack of cross-border interest is mirrored by the business decisions these distributors have to make, pulling out of some states because sales volumes haven’t materialized.
This also likely explains why Atlantic parted ways with several of its out-of-state brands this summer. Vista, California- and Nampa, Idaho-based Mother Earth Brewing Co. and Portland, Oregon-based Breakside Brewery were two of these breweries, and both say that their sales volumes through Atlantic had been minor, and declining in recent years.
Breakside, for example, shipped 231 barrels of beer to Atlantic in 2016. By 2022, that number was just 15 BBLs. It never had a dedicated sales representative in the area—indicating sales there weren’t a major focus for Breakside, either—and the brewery doesn’t anticipate shipping beer to Massachusetts in the future. Breakside’s distribution today is entirely concentrated in western half of the U.S.
Mother Earth similarly describes Atlantic as a “minor partner” due to its geographic distance from the brewery. (Separately, Mother Earth is in the process of ceasing its distribution to New York as well, following a test run in 14 counties where sales “don’t merit expansion,” said Mother Earth executive vice president Kevin Hopkins. It will maintain statewide sales in New Jersey and Pennsylvania.)
“We always appreciate being where people desire us, however we also recognize that in these ever-changing times, for a predominantly ‘Western U.S.’-focused brand such as ours, sometimes it is better to flow with the market conditions, rather than try to force them,” Hopkins stated via email. It’s satisfying when a brewery can sell to its fans—even a small number of them—in far-flung markets, but as the logistics of shipping and selling beer there become more costly, the math will cease to work at a certain point.
Given how much scale matters in the beer wholesale business, consolidation in the middle tier has been a running throughline of at least the past decade. Distributor consolidation has become so widespread that it’s likely a focus for the Treasury Department and the Alcohol and Tobacco Tax and Trade Bureau following the executive order on anti-competitive practices President Biden issued last year. “The big-picture consolidation, it’s happening in craft, too,” Ferguson said.
He mentioned NSD selling brand rights to Sheehan, and said he’s heard news that other craft-focused distribution portfolios are for sale in the Northeast. (Without direct knowledge of those deals, Ferguson wouldn’t name them on the record.)
WIth fuel prices and labor costs eating into margins at the same time that craft sales slow, Ferguson said many small wholesalers are feeling the same pinch that small breweries are.
“We all expected 2022 to be about ‘revenge travel’ and ‘YOLO spending.’ But Delta, Omicron, fuel prices, inflation, etc. have really put a damper on things,” he said. “The on-premise [bars and restaurants] has not fully recovered … and the off-premise [grocery and other retail stores] is flat or down relative to those record COVID years.”
Facing myriad pressures, craft distributors in the Northeast—like their brewery suppliers—are left reevaluating their sales territories, focusing on profitability, and making hard decisions.
Words by Kate Bernot