To the general public, the middle tier of the alcohol business has historically been the least visible (and least interesting) layer of the industry. But the nationwide reality of distributor consolidation in recent years has enormous implications for how breweries get their products to consumers.
There is no more drastic example of this than in California.
Industry insiders have set their sights on the Golden State, where Reyes Beverage Group, the nation’s largest beer distributor, has bought up numerous distribution companies and extended its reach across significant portions of the state over the last two years. As it scoops up Molson Coors-aligned distributors (so-called “blue houses,” in contrast to Anheuser-Busch InBev-aligned “red houses”), Reyes is impacting the balance of power in a state that represents the world’s 13th-largest beer market. With California as its Risk board, Reyes is on the march.
Its latest acquisition is Claypool Distributing, which Reyes subsidiary Crest Beverage purchased in January. The transaction adds a reported 650,000 cases of product and 400 accounts to Reyes’ fold, and helps the company shore up its holdings in the southern portion of the state. That volume is equivalent to about 47,000 barrels, roughly the size of Massachusetts’ Lord Hobo Brewing Company.
Reyes/Crest’s deal for Claypool came about six months after Reyes bought DBI Beverage Inc., adding 28 million cases (about 2 million BBLs, the size of Samuel Adams) to a beer portfolio already responsible for moving 60 million cases across the state. Reyes now controls major distribution points from north in Chico to south in San Diego, and is expected to continue pursuing companies that represent opportunities to consolidate geographically and/or who handle distribution of crucial brands.
Reyes has also swelled alongside rising fortunes for Constellation Brands, acquiring houses that carry the multinational’s import-heavy portfolio. Constellation boasts Modelo Especial, the top-selling beer in California—as well as Modelo’s growing Michelada brands—plus Pacifico and Corona. In 2019, those brands accounted for 7,561,547 BBLs of sales in grocery, convenience, and other retailers (as tracked by market research firm IRI) in California alone, as much as Miller Lite sold nationally. Reyes has also positioned itself well with distributors that carry Mark Anthony Brands, parent company of White Claw and Mike’s Hard Lemonade. A recent Molson Coors investment in PRESS Premium Alcohol Seltzer gives Reyes even more strength in the surging seltzer segment.
The company enters 2020 with the wind at its back, eyeing the potential to make more deals in California and neighboring states. Reyes didn’t respond to requests for GBH for an interview, instead sharing a press release used to announce the acquisition of Claypool.
Other California distributors—including those owned by or aligned with AB InBev, as well as independent distributors—now face something more complicated than just a growing competitor. Antitrust laws means AB InBev can wholly own only 5% of its distribution; Reyes doesn’t have such a limitation. So while the biggest beer producer in the world is held back, the largest distribution company in the country (and the ninth-largest privately held company in the U.S.) can grow as far and wide as it would like with no hurdles in front of it.
“Reyes could theoretically buy the entire contiguous U.S. of blue houses,” says Collin McDonnell, CEO of HenHouse Brewing Company in Santa Rosa, California, which self-distributes its beer in the Bay Area and sells its beer through Mussetter Distributing in the Sacramento area. “You’re not talking about seltzer versus ABI or Constellation versus ABI, you’re talking about wholesalers—this invisible part of the market—and Reyes versus a bunch of independent Bud houses.”
Reyes’ holdings aren’t limited to California, of course, and its plays there are only a piece of a larger national strategy. But given that the state occupies such a large segment of the country’s beer market, it proves to be a dynamic Petri dish of shifting money and control.
“Southern California is the proverbial shitshow,” says Kimberly Clements, managing partner of Pints LLC, a beverage advisory firm. She points to a chain of events that will make things harder for breweries seeking independent distribution routes because of how fast the landscape is changing.
First, Reyes acquired Constellation and its portfolio of imports and flavored malt beverages (FMBs) from independent AB InBev distributors, which Clements says led to some layoffs at those competing distributors and better positioning for Reyes.
That then made breweries “gun shy” of signing any of their new brands with an AB InBev-focused distributor, she says, for fear of the wholesaler eventually being bought up by ABI.
This has created a situation where not all routes work seamlessly for all brewers—where ABI and Reyes hold tremendous influence over distribution in California, but Reyes can piece together the biggest contiguous territories because the privately owned company has no political/legal limitations like ABI does.
“Distributors don’t want to give up distribution territory to other distributors,” Clements says. “Since there’s overlap, it creates difficulty for brands to piece a solid network together.”
All this does not make it a lock that any distributors will sell to AB InBev, but there's a catch: if a business partners with AB InBev as a "red house" and decides to sell at any time, ABI has the right of first refusal as to whether they want to scoop it up.
“Therefore, there aren’t a lot of independent distribution routes to market in Southern California,” Clements says.
Thanks to Reyes’ recent moves, Southern California’s distribution landscape is now home to the following players:
Reyes
Unconsolidated Molson Coors distributors
Unconsolidated ABI distributors who often can’t match territory footprints because of ABI’s wholly owned distributors
Stone Distributing Company
Wine Warehouse
Craft Beer Guild Distributing
Scout Distribution, a newcomer launched by Saint Archer Brewing Company co-founder Josh Landan in 2018
"As [Reyes] expands, it’s able to gain synergies and put pressure on neighboring competitive distributors," Clements says. "Distributors want scale and those with scale reset the playing field for everyone else."
"Reyes has scale," she adds, and it's constantly growing.
"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," Clements says.
In part two of this series, we’ll look at what these changes mean for breweries.
Stuck in The Middle With Who?, Pt. 1 — What Reyes’ Massive California Footprint Means For The Golden State’s Beer Landscape
Words by Kate Bernot