Molson Coors, Miller Distributors May Consolidate

Published in CSP Daily News

Some could buy competitors as they grapple with rising fuel, materials, labor costs

DENVER -- As two of the world's largest brewers prepare to marry their U.S. operations, the small independent companies that deliver cases and kegs to stores and bars may play their own version of the mating game, said the Associated Press.

Miller Brewing Co. and Molson Coors Inc. have proposed the MillerCoors joint venture to sell more Coors Light, Miller Lite and Miller Genuine Draft in the United States. The operation would target No. 1 Anheuser-Busch Cos., which has nearly 50% of the market with products such as Budweiser, Michelob and Bud Light.[image-nocss]

Now some distributors of just Miller or just Molson Coors products are looking at buying competitors as they grapple with rising costs for fuel, materials and labor.

"If you have competing distributors in the same market that carry brands like Miller and Coors that work well together, it just makes sense to consolidate," said Betty Buck, who heads a family-owned Miller distributor in Maryland.

In this age of global businesses, the beer industry has no nationwide distributors, consisting instead of family-owned and independent companies. The trend is driven by laws imposed after Prohibition giving each state authority over alcohol regulation within its borders, said Craig Purser of the National Beer Wholesalers Association.

The laws established a three-tiered system of distribution: Manufacturers and importers need federal licenses; distributors need federal and state licenses and retailers need state licenses to sell the products, Purser said.

Some states require exclusive territories for distributors by law to provide a level playing field in the marketplace. In others, distributors work with suppliers on contracts to carry a variety of products, according to the association.

With about $70 billion in gross sales, the beer distribution industry has been evolving in response to consolidation and other changes among the nation's breweries as consumer tastes expand to include craft beers, wine and liquor.

Since 1995, the number of distributors has dropped from 5,500 to about 1,600 as smaller companies have been bought out, according to industry statistics. "Now, it's a matter of bigger players getting together," said Harry Schuhmacher of Beer Business Daily.

Owned by London-based SABMiller PLC, Miller Brewing Co. of Milwaukee is the nation's second-largest brewer with about 18% of the market. Denver-based Molson Coors, formed with the 2005 union of Molson Inc. and Adolph Coors Co., has nearly 11%.

The two companies are working on a definitive agreement for the venture, which is expected to be complete by year's end, and hope to close the deal by mid-2008 depending on regulatory approval. Neither company has provided details about how they will handle distribution for the combined operation because it is too early in the process.

If the venture is finalized, about 60% of distributors delivering both Miller and Coors may see some synergies, because they will only be dealing with one company, which could streamline record keeping and other tasks, Purser said.

For the rest, Schuhmacher said, "There will probably be an incentive for those guys to get together and merge or for one to acquire the other. I would imagine that Miller and Coors would put some kind of pressure to get those deals done."

Based in Upper Marlboro, Md., Buck Distributing Co. was founded in 1946 by W. Irwin Buck, who started with one truck delivering Valley Forge and Export beer. His daughter, Betty, took over shortly before her father died in 1986. Today, the 100-employee company delivers a number of products besides Miller, including Samuel Adams.

Buck believes consolidation is key to remaining profitable. Fuel, benefits and health insurance keep rising, she said. "The agreements we have with our breweries, we just can't arbitrarily say, 'OK, my gas is up 50 cents a gallon, I'm going to increase my price.' So you have to eat that cost," she said.

By consolidating, she can deliver more beer without incurring much higher expenses. "The more cases that you drop off at each stop, the more that goes directly to your bottom line," she said.

Across the country in the heart of the Rockies is Western Beverage Distributing Co., which opened for business in 1933 when Guido Mapelli picked up Coors beer in a trailer in Golden, where the brewery was built, and sold it on the streets of downtown Denver. At the time, there were about three-dozen breweries in the Denver area. Most were larger than Coors, said V. Gaines, Mapelli's grandson, who now is the company's CEO.

Coors decided to go into the distribution business in the 1970s, which ended its business relationship with Western Distributors. Today, Molson Coors owns three distributors out of the roughly 500 it has under contract. By volume, about 55% of those distributors deliver both Coors and Miller, Molson Coors spokesperson Kabira Hatland said.

Western Beverage added products to fill the void, Gaines said. With 800 employees, Western Beverage distributes Miller, Samuel Adams and Pabst Blue Ribbon, among other products.

Gaines said MillerCoors likely will lead to more industry consolidation. He is awaiting more details about the venture's operations but has no plans now to acquire another company. "You could worry about the unknown all you want, but all you're going to do is get a stomachache, I think," he said. "[It's] business as usual, and we look and hope the opportunities are great when it happens. We're just looking at trying to stay alive and stay in business."

Hatland said the companies cannot integrate operations until the deal is finalized, so she could not comment about the status of distributors; however, all should benefit with more resources for marketing, research and development, representatives of both companies said.

Miller, which is based in Milwaukee, has 550 distributors, but none of its own. About 60% by volume deliver brands for both companies, Miller spokesperson Julian Green said.