Whether it’s the repeal of Prohibition, legalization of cannabis and its impact on the alcohol industry, or the ways in which eCommerce is impacting the sale and distribution of beer, the National Beer Wholesalers Association (NBWA) has been on the pulse of many hot-button topics during the past 81 years.
Founded in 1938 in the aftermath of Prohibition, known as “the noble experiment” by 31st President Herbert Hoover, the Alexandria, Va.-based NBWA hosted its first convention in New York with seven founders in attendance.
Today, on the heels of its 81st annual convention taking place Sept. 23-26 in San Diego, the NBWA provides networking opportunities and fosters the sharing of best practices. The association also educates, advocates and provides leadership while celebrating the accomplishments of its wholesaler network of 3,000 distributors.
Eight decades strong, the NBWA’s primary mission remains advocacy, says Craig Purser, NBWA’s president and chief executive officer for the past 12 years, who also has worked for the organization for more than 20 years. “We are responsible for representing the interest of all our distributors,” he explains. “We also want to provide leadership which enhances the independent wholesale beer industry.
“We advocate before the government and the public on beer industry issues. Really everything we do falls under the advocacy umbrella,” he continues. “[This is true] whether we’re dealing with a federal legislative or regulatory challenge or supporting our state association partners at the state capitol with an issue related to legal or tax policies in the policy arena.”
A clear mission
To more clearly define its mission, a purpose statement reads: “The purpose of the National Beer Wholesalers Association is to provide leadership which enhances the independent beer distribution industry; to advocate before government and the public; to encourage the responsible consumption of alcohol; and to provide programs and services that will benefit its members.”
Beer distributors are a strong and mighty group, operating out of 3,135 distribution facilities across the United States, employing 135,329 employees, adding $70 billion to the gross domestic product, and $178 million in economic impacts through philanthropic and charitable activities in communities large and small, Purser says.
“NBWA’s core purpose, as identified by our board and leadership, is to grow and protect our member’s investment in the independent beer distribution industry,” Purser says. “Part of the reason many of these distribution companies have been around so long is because they have an effective advocacy organization looking out for their best interests.”
He notes that buying and selling beer has become more complex, particularly because Section 2 of the 18th Amendment gives each state the power to regulate alcohol. In fact, today no two states have the same laws, Purser notes.
Competition in the beer industry also has intensified through the years. Keeping things orderly remains a goal. “When states were putting our regulatory structure in place 80-plus years ago, the idea was to have competition balanced with an orderly market,” Purser explains. “It is through this vast distribution network you can make a beer in New York and sell it as far away as Florida.
“The market is competitive and dynamic, but it’s also very orderly,” he continues. “You can walk through the beer aisle on a weekend and see intense inter-brand competition, but that’s balanced with the public’s objective of responsible drinking.”
In fact, the reason for the orderliness of the vast, all-encompassing wholesaler network is due to the three-tier network for buying, selling and distributing beer and alcohol, Purser says. Tier 1 consists of the manufacturer, brewer and importer who are the people taking risk in the marketplace by providing new products and figuring out what will resonate. Tier 2 is the distributors, the wholesalers who purchase the product in bulk, also taking risk that retailers and consumers will buy it, which offers an economic benefit to the brewery.
“And when I say bulk, that can mean as small as a couple of cases to as big as a trailer truck load,” Purser explains. “The distributor is putting together a portfolio of brands that will sell well in the grocery stores and mom and pop stores where he/she distributes,” he explains. “One thing we’ve researched is what consumers want and we’ve learned that consumers want variety, so distributors are giving them unprecedented access to beers they’ve never even heard of.” Tier 3 is the retailer, who buys beer from the distributor based on what the consumer wants.
Today, there are approximately 6,372 breweries encompassing 3,812 microbreweries; 2,252 brewpubs; 202 regional craft breweries; and 106 large, non-craft breweries, according to the Boulder, Colo.-based Brewers Association (BA).
Although the overall beer industry is flat or declining at a rate of 1 percent, BA statistics note that craft beer sales rose 5 percent by volume in 2017, comprising nearly 13 percent of the U.S. beer market by volume. Small and independent craft breweries account for 98 percent of the breweries in operation, it states.
Purser maintains disruption is part of the market dynamic.
“Legacy brands, brands that are more than 20, 25 years old, have been disrupted by new and upcoming brands,” he says. “There’s also been an explosion of interest in local breweries. We’ve seen many small communities start a brewing company, which is great because it generates interest by the consumer in the beer category. There are a lot of success stories; however, there are quite a number of breweries that fail. Some may be undercapitalized, while others may have expanded too rapidly.
“There have been several well-publicized closings this year that could have resulted from bad growth plans, debt or they’re selling in an oversaturated market,” he continues. “There’s a whole host of reasons for success, and likewise, for the failure of a brewery. In the end, it’s up to the consumer, and I think the consumer likes new and variety but they also like familiar.”
Stoking the fires of innovation
Despite relatively flat overall beers sales, the NBWA’s beer purchasers’ index shows promise for the beer category. With 50 as the baseline, the July 2018 index for total beer was 63, up from the 50 recorded in July 2017. At 68, flavored malt beverages/progressive adult beverages (FMBs/PABs), with hard seltzers leading the way, posted the highest ever rating for the segment, an increase from the 52 index reported in 2017, the NBWA reports. Craft beer’s index is slightly higher at 66 compared with last year’s index of 65.
Premium lights, premium regulars and below premiums all posted higher readings compared with the same month last year; however, these segments are not showing significant signs of recovery in volumes, the NBWA reports. After posting progressively higher monthly readings in 2018, hard cider matched last month’s 46 score, up from the 19 index posted last July, it adds.
Imported beer and FMBs like hard seltzers and hard ciders are providing “pockets of opportunity and innovation,” Purser says.
Although innovation in the beer market regularly occurs, Purser points to the recent explosion of hard seltzers within the category. “Some have referred to the summer of 2018 as the summer of seltzers, and that has been great because some brewers have been making non-traditional malt-based seltzers for consumers who don’t like the taste of traditional beer and want another kind of alcoholic beverage.
“…We’ve seen a lot of positive responses from key demographics when it comes to non-sweet seltzer malt beverages,” he continues. “Plus, they’re lower calorie. Take Mike’s Hard Lemonade’s White Claw seltzer, for example. It’s selling very well and on top of that, it provides distributors a drink that will complement the rest of their portfolio.”
Purser also points out the innovation in IPAs. “There’s a big distinction between West Coast and East Coast IPAs. It’s almost like hip-hop back in the day. It’s stylistic to the aficionado who can tell the difference,” Purser says. “When we look at the growth of sours, which isn’t everybody’s cup of tea, it’s been terrific for people who want a unique taste. It’s kept some consumers in the category and brought some new consumers in.”
The eCommerce effect
Among the regulatory issues the NBWA is shepherding with wholesalers relates to eCommerce, Amazon and Drizly and their impact on the delivery of alcohol.
“The rules of the analog world have to be applied to the online world, which isn’t always an easy task. I think that the first thing that should be looked at is the law at the state level about the delivery of alcohol. If a beer or wine outlet isn’t allowed to make deliveries, that needs to be considered,” he stresses. “When you’re crafting rules, you have to make sure that the law or regulation is applied evenly and that includes emerging eCommerce stores like Amazon as well as service providers like Drizly who are being very innovative in providing beverages to thirsty consumers.
“As you’re looking at regulatory structure, there needs to be an even application,” he continues. “The NBWA has spent a lot of time this year providing guidance to the states as to how to make buying alcohol in an even-handed and safe fashion online, particularly since alcohol is an age-restricted product.”
Several retailers are offering click-and-collect grocery shopping where consumers order online or call ahead and then pick up their completed orders in-store.
Although difficult to police, Purser stresses “there has to be a mechanism where we can check the age of a person as they try to buy an alcoholic beverage, whether it is being picked up or delivered. We’ve had too much success as an industry at reducing underage drinking and drunk driving to put forward a proposal that removes reasonable restrictions.”
The cannabis conundrum
Another hot-button topic the NBWA is closely watching is the rise of companies that are launching alcohol or non-alcohol beverages with cannabis. In June, Heineken-owned Lagunitas released Hi-Fi Hops, a non-alcohol cannabis IPA-inspired sparkling water that is infused with tetrahydrocannabinol (THC). With zero calories, the beverage contains 5 mg of THC.
Chicago-based Euromonitor International estimates the total global market for cannabis, both legal and illegal, around $150 billion, of which the vast majority is in the illegal black market, it reports. The legal value globally is about $10-20 million, it adds.
Currently, the regulatory status differs from state to state and, at the federal level, cannabis still is prohibited and a scheduled drug. Yet, Canada will become a fully legal market for cannabis in October, while the United States is a “wait and see market” because marijuana is unlikely to be fully decriminalized in the next four years, according to the market research firm.
Purser observes that alcohol and cannabis are two different substances with different levels of legality. “I think companies, big and small, are looking at the legalization of cannabis through their own lens,” he says. “They have to make a decision on what’s best for them, whether they’re interested in diversifying or sticking in their own lane and doing what they do best.
“I think we’re going to see distribution companies exploring this emerging trend with different levels of legality,” he continues. “I think there’s a public policy difference between the two, but I also think we should borrow some of the principles of alcohol regulation and consider applying them to this previously prohibited product.”
Although significant research has been done on alcohol and how it affects the body, the same cannot be said for cannabis. Purser proposes more research, for example, on how to gauge whether a person is under the influence of cannabis while driving.
“The whole notion of measuring and detecting impairment [from marijuana] has to be improved,” Purser says. “The companies I represent are members of local and state chambers of commerce, and the issues related to cannabis use and misuse are not being given the full attention I think it deserves. We need to think about what legalization means for workplace liability, for workplace safety, for general liability and general highway safety.
“There are a whole lot of question marks and I think we have an obligation to ensure that research commences and commences quickly,” he continues. “As the product is legalized, proper regulation at both the state and federal level is crucial. For instance, labels have to be approved by the Department of Treasury’s Tax and Trade Bureau (TTB) and be approved by the FDA as to whether the product is generally safe.”
When going green, Purser says revenue, the last “r” in the research, regulation and revenue principle, also should be studied.
“When we talk about the separation of the tiers for alcohol, the historic purpose is still applicable today,” he says. “States adopted a three-tier system because they wanted to put a buffer in the form of a distributor between the manufacturer and the retailer. There is a public policy and a public health function that the alcohol distributor plays by being a buffer between a vertically integrated manufacturer and the retailer.”
In response to beverage companies adopting cannabis, Purser advises to take it slow. “My advice as someone who has represented a [alcohol] product for over 20 years that was prohibited 85 years ago is to go slow and take some time. Don’t be first, be right,” he says. “The cannabis industry has done a good job of being very aggressive, promising big revenue and returns in the form of state taxes and minimizing the policy problems and/or health problems. There are many issues to consider.”
Going forward, the NBWA will continue to advocate for wholesalers’ needs while continuing to harness innovation and changing demographics, and embracing new brewery leadership bringing new ideas and solutions to the industry.
“I consider the opportunity to lead this group a gift,” Purser says. “I totally love the group of folks I get to work for and the folks I get to work with. Our independent beer distributors are the face of beer and we celebrate what makes each distributor unique with his/her own story to tell.
“I don’t have all the answers, but I do know we have a lot of positive things going for us,” he continues. “… Ten years ago we rallied around a statement at our convention, but I don’t think we realized how true it would be. I said, ‘we’re on the cusp of transforming an industry from being brand-dependent beer wholesalers to becoming independent brand-building distribution companies,’” he continues. “That’s exactly what happened 10 years ago. I’m bullish about the future of NBWA and I’m bullish about this vibrant, exciting and innovative industry that continues to evolve.” BI
NBWA at a glance
- > 3,135 distributor facilities
- > 135,329 employees
- > $11.2 billion in wages & salaries
- > $177.9 million in direct philanthropic economic impacts in communities
- > $13 billion paid in federal, state & local taxes
- > $70.2 billion in total economic impact