Craft distributors in the Northeast are making the same calculation. Matt Schulman, owner of Sarene, says the company’s decision to pull out of Rhode Island after two years of business there was based on a return-on-investment calculation. The small state of Rhode Island is serviced by a handful of other craft distributors, he says, and represented less than 1% of Sarene’s overall business.
“There are multiple craft wholesalers there and we were late to the party,” Schulman says. “We thought we could make a dent but it wound up being too crowded for too small a state.”
It was a similar story for Craft Collective in Maine and Vermont. Ferguson said that even as Craft Collective courted the brands that NSD didn’t sell to Sheehan (including Ten Bends Beer, Redemption Rock Brewing Co., Magnify Brewing, and Torch & Crown Brewing Company) they didn’t offer enough market share to justify a major presence in states outside of Rhode Island and Massachusetts. It’s almost ironic, he says, that while Craft Collective is larger in terms of staff than it’s ever been, and is increasing top-line revenue, it’s having to pull out of two markets.
“When NSD shut it down about a year ago, we made aggressive moves to staff up and try to take as much of that market share as we could. We did manage to grow our market share and our sales, but not enough,” Ferguson stated.
He says smaller markets drained resources from Craft Collective’s main focus: Massachusetts and Rhode Island. Maine made up less than 5% of the company’s revenue, and Vermont less than 0.5%, according to Ferguson. “But these markets took a ton of time and energy, and weren’t consistently profitable,” he said.
Maine’s regulators recently changed the state’s brand registration process, and Ferguson said it now takes months to register a new beer for distribution there when it previously took days. This made it impractical for Craft Collective to bring desirable one-off and rotational beers to Maine, which had been the company’s model prior to that change: they offered breweries a novel way to create relationships with retailers and stoke consumer interest.
As for Vermont, Craft Collective had only been operational in the state since earlier this year, and had a hard time hiring all the sales and operations staff it needed there. When shutting down Maine operations, it also made sense to close Vermont in order to focus on core markets.
Ferguson said that when he speaks to craft-focused distributors in other states that are of a similar size to Craft Collective, they sometimes imagine that Craft Collective’s multi-state operations make it a larger company. While Craft Collective did previously operate in several states, those states are relatively small in terms of population.
“OK, we’re in four states, but our four states are half the size of their states,” Ferguson said.Scale matters in New England, where drinkers in relatively small states are loyal to local breweries and independent retailers.
“Massachusetts [government] has been keen on protecting its independent retailers,” says Jeff Nedeau, Boston-based director of business development at online alcohol sales platform TapRm.
Beer distributors generally favor high-volume sales to large retailers: It’s logistically easier and more profitable for a driver to drop off 10 pallets of beer at one store than one pallet of beer each at 10 stores. Big distributors like Sheehan that carry major brands such as Budweiser are able to move volume that offsets the effort of smaller craft brands. A wholesaler like Craft Collective only deals in smaller brands to the same number of disparate retailers.
