Distributor Merger Poses Threat

At the end of a long day, I was greeted by this post on The New School announcing the sale of General Distributors, Inc. (GDI) to Columbia Distributing. Columbia is one of the largest distributors in the country, and serves major areas in Washington and Oregon, as well as northern California. GDI serves the greater Portland area, as far south as Corvallis (I believe). As my recent past life involved a lot of interaction with distributors, and my way past life involved a wariness of businesses that grow too big and swallow or destroy others, this sale piqued my interest.

Of the three main Eugene-area distributors, Columbia has the largest catalog. But let’s back up a second:

Distributors are the “middle” tier of the three-tier system of beer distribution. The system was formed after Prohibition to prevent tied houses, which is when a brewery has an exclusive agreement with an independently owned retail establishment. Inserting a middle man and requiring all beer (some exceptions, state-by-state) to go through that process removes the possibility of a tied house and encourages fair business practices. In real life, pay-to-play is still alive but doesn’t have the same anti-competitive impact.

The three-tier system has gone through the evolution of beer in the U.S., from the consolidation of breweries that led to the “big three,” Bud-Miller-Coors, to the first and second waves of the craft beer movement that essentially ruined the Mad Men fantasy world of beer distributors. Now, distributors are partly responsible for representing all of the brands in their catalogs. The relationship between a brewery and its distributor is crucial to maintaining that representation; if a brewery doesn’t have a plan and communicate it effectively, it will likely flounder. It’s like any other business. Back to the main plot–

columbia warehouse
Columbia Distributing’s Portland warehouse is enormous.

Columbia has the largest catalog in town. Bigfoot Beverages in Eugene is much smaller, and has a concentrated, high quality catalog of craft beer and other beverages. Bigfoot also works with GDI to distribute certain brands in its territory, which covers the central coast to Bend, and south to Roseburg. In Oregon, distributors cannot overlap distribution of a brand. This is what’s troubling. The merger has the potential to take away business, by default, from another distributor. It also poses a threat to breweries in GDI’s catalog that have built relationships with retailers through the distributor.

The merger may or may not have anything to do with a strike in late 2015. The two week lapse upset the production and distribution schedules of numerous breweries, and resulted in many thousands of dollars lost for some, as they lost valuable shelf space during one of the busiest times of the year. Though the union was decertified and pushed out of GDI, damage had been done. It took months for breweries to recover from the upset.

Consolidation brings more concern, as a strike at Columbia could deal a blow to even more breweries. In addition, Oregon laws favor distributors; it is nearly impossible for a brewery to switch distributors without paying large sums of money, even if the brewery is dissatisfied with the service.

With so many breweries in Columbia’s catalog, it will be even harder for smaller brands to be recognized and properly represented; the distributor will act in its own interest by focusing on brands that perform well, and breweries with deeper pockets will have a louder voice in the crowd as they can offer incentives to sell. And while the goal will not be to squash anybody, it will happen. At that point, the onus is not just on the brewery to push hard to represent itself; retailers who care about variety will have to work harder to find unique offerings and support the underdog.

Has Columbia grown too big? What are the options for the affected breweries, which have no say in the matter? This is a complicated issue, to say the least.

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