General Distributors to close, sell stock to Columbia Distributing
Startup brewers and cidermakers might soon face more difficulty partnering with a distributor to get their product to market.
Last week, Oregon City-based General Distributors (GDI) announced its permanent closure, and sale of its entire stock to competitor Columbia Distributors, which will handle most of GDI's former business when it stops operating as an independent business.
"This was a difficult decision for GDI to make; however, the competitive nature of their business and other related factors required this decision to be made," read the layoff notice written by Fisher Phillips labor law firm.
The permanent closure takes effect March 31 and will include the termination of all 165 GDI employees.
"We cannot promise that Columbia will hire GDI employees, but Columbia has indicated that Columbia may hire some GDI employees," read the notice. "Before the closing date, Columbia has the right, but not an obligation, to identify and designate employees it would like to employ after the Closing Date."
GDI is not part of a union. It is a fourth-generation family-owned beverage distributor established in 1921 by brothers Charles A. Fick, Sr. and George Fick, Sr.
GDI's major suppliers include MillerCoors, Constellation and Mike's Hard Lemonade, and it had an extensive portfolio including craft breweries, ciders, wine and non-alcoholic beverages.
As for Columbia, it merged with Mt. Hood Beverage and Gold River Distributing in 2008. Following the acquisition of California's Mesa Beverage Co. in 2015, Columbia is now one of the country's largest malt beverage distributors with major suppliers as well.
"Our family has enjoyed many years of success in the beverage distribution business and developed strong and lasting relationships with many of our retail and supplier partners. We would like to thank all of our employees for their hard work and commitment to the Fick Family," said Charles Fick III, president of GDI. "We are pleased to have found such a great partner in Columbia to continue providing quality beverages to Portland and surrounding communities."
Local craft voices
Grant Ritchie is the general manager of Cascade Brewing Barrel House located along Belmont Street.
"Generally speaking, the consolidation of the market is usually bad as it may give the remaining distributors an upper hand through less competition," Ritchie told the Tribune. "For the Barrel House, since we are essentially a brew pub and supply the majority of our own beer from our brewery, this is less of a concern."
But other small libations producers without their own pub do have concerns.
"At the end of the day for a place like Portland and Oregon where we want to encourage micro brewing, fewer distributors just means it's harder to get out there and to get known," said Scott Gallagher, president of Ulee's Light Cider. "The biggest impact I think about is there's only three-tier distribution."
Three-tier distribution was designed after prohibition by the federal government, because brewers were creating monopolies. At that time, the producers of the alcohol would also distribute it and own the establishment where it was poured, preventing other beers from being served at that bar.
The three-tier system mandated the separation of producers, distributors and retailers with the goal of helping entrepreneurs create more competition and evolve growth.
Gallagher's cidery is a brand-new business, just opening last July.
"The problem with the three-tier system — I'm a producer, I'll speak for myself — a distributor such as GDI becomes bottlenecked from getting product out there," Gallagher said. "In the state of Oregon, you can have a brewpub where you make and sell product to yourself, and you can sell to distribute, which is kind of like it was prior to pre-prohibition — it's really hard and expensive to do. Brewpubs all around town just make enough product for themselves."
The benefit of that is cutting out the distributor middle-man to make more money.
"It has done wonders for creating all these craft breweries and craft cideries," Gallagher said. "However, if you want to grow beyond a certain point, eventually you'll need to have a distributor help you distribute product beyond your neighborhood and town because it's just too expensive — no craft brewery is going to create their own fleet."
The challenge of partnering with a distributor is that there are only a few major distributors in Oregon now, after the GDI sale.
"It really becomes a limiting factor in microbrewery and micro-cidery to expand when there's fewer distributors to go to," Gallagher said. "Fewer distributors means they have more monopoly on what beers and ciders they select — in other words, what beer and cider is distributed."
Ulee's is distributed by Maletis Beverage, which bought Portland Bottling Co. in November 2016. Other smaller distributors in the state are limited by a much tighter geographical range. A beverage maker's distributor also takes care of shipping, sales and marketing, which is very important for an emerging small business, although they do their own branding.
"As a startup, if neither of them nor Columbia would take us, then frankly I wouldn't be in business right now because I don't have a pub or a tasting room," Gallagher said. "I can't sell to myself, I can't afford as a startup to buy my own truck and ship product myself."
Distributors chose to work with craft breweries when they think the product will sell, and pick up an average margin profit of around 30 percent on every case they distribute.
"The real challenge for guys like me and companies like mine who are just getting started and trying to break in to get distributed, it's really, really hard," Gallagher said. "Not just hard in Portland, Oregon, but hard in every state because every state you go to, you have to find a distributor that will support you. If you don't have that, it's incredibly limiting in terms of growth — I wouldn't have been able to do it without a distributor."
Ulee's distributes in Oregon and Washington — so far. Since Maletis distributes Ulee's, it's available in chains including Fred Meyer, New Seasons and Whole Foods.
"The chain accounts...are where you really start to get a lot of sales," Gallagher said. "At the end of the day we all want to create great product and get it out there for people to taste and enjoy, and we want to grow. Without the distributor partnership, that makes it very difficult. So, when there's one less distributor, it's not hard to do the math — it makes it more challenging."
Gallagher is in talks to come to Albertsons, QFC and Safeway in March.
Effects on the industry
Bart Watson is the chief economist of the Brewers Association, which promotes and protects small and independent U.S. craft brewers.
"We'll see what this particular deal does in the longer run," Watson told the Tribune. "Generally, we've seen consolidation in the distribution tier for a long time — this has been going on since the 1940s, and while there's probably more consumer choice out there than ever before, it does create a challenge for breweries who are looking for viable distribution options."
Watson said while he's never seen it reach monopoly status, what does occur is two competing networks, one focused on Anheuser-Busch products and the other around MillerCoors.
"We do see some small, independent distributors popping up, but in many markets, brewers are really limited to picking between one of those two options," Watson said. "There are challenges in many places in startup small industry distributors because brands are already locked in with particular houses, but with new breweries, we are seeing distributors popping up focusing on specialty craft or import products — it's a capital-intense business, so there are challenges there in getting access to accounts and building the kind of scale and distribution you need to compete."
Watson has seen a rise in this type of small, specialty distributors. However, Oregon does have a beer franchise law, which makes it very difficult for brewers to change distributors once they've signed a deal.
"One of the challenges for breweries in these kinds of mergers is continuing to get attention in a more crowded portfolio," Watson said. "When pulling a portfolio together, if you were the leading Belgian IPA brand and there's now another Belgian IPA brand in the same distribution house ... you might not be getting the same attention from your distributor as you were in your old house."
The distributors put together portfolios of what they carry to help sell to chains, and this can create an internal competition.
"Columbia is a large and sophisticated distributor and is certainly well-positioned to manage these types of logistical challenges, but it remains to be seen what it will mean for individual brewing brands," Watson said.
By Jules Rogers
Reporter, The Business Tribune
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