Consumers are recalibrating their beverage spending to adjust to economic and consumption trends as we move farther away from the COVID boom period. Those changes further fuel the long-term consolidation trend in beer distribution, which shows no signs of easing—in fact, it’s intensifying.
Here are six factors spurring the accelerated consolidation across the industry.
1. Broader portfolios reduce risk and expand revenue.
Distributors learned valuable lessons from Bud Light’s marketing challenges. The brand’s sales haven’t fully rebounded in 2024, and many of the customers who fled may never return. Anheuser Busch (AB) distributors with smaller portfolios lost as much as 30% of their business—coming on the heels of years of declining sales.
Distributors with limited brand diversification were the hardest hit. Whether they were severely affected by the Bud Light decline, or just watched and learned, distributors have been wary of over-concentration on a single brand. AB distributors hope broadening their portfolios will help them recover the one-time loss as well as the long-term downward slide in sales. Those who weren’t directly affected are also counting on greater diversification to expand their revenue sources and mitigate the risk of a similar event re-occurring.
2. Scaling allows for greater efficiency and cost savings.
The pursuit of economies of scale drives both organic and acquisitional growth. Distributors can improve operational efficiency by acquiring a business that covers territory that’s geographically contiguous with their own.
Distributors can then run the combined territory as a hub-and-spoke network with more efficient, fully scaled operations. Consolidating the old and new businesses boosts profit margins by driving down costs for staffing, systems, and overhead. Increasing profitability of businesses in today’s world reflects operating scale, operating efficiencies and operating leverage to yield better profitability. EBITDA/CE (case equivalent) of $2.00/CE—once the holy grail of profitability—is regularly achieved or exceeded by top operators, with consolidation and ongoing premiumization allowing some to reach $3.00/CE and higher.
3. Beer brand behemoths align with larger distributors.
Global mega-beer companies—no strangers to competing using scale—see consolidation in their distribution channels as a step along the path to maximum efficiency. In the past, large producers often favored exclusive distribution agreements. As this practice has become less common, they’ve shifted toward favoring a smaller number of larger distributors to carry out their strategies.
These beer behemoths can’t change the purchase price of a smaller distributorship, but they can influence who acquires it. By encouraging distributors with whom they have an established relationship to make targeted acquisitions, the major beer companies can reshape the ownership landscape. The net effect is a distribution map that, over time, increasingly aligns with their preference for having a handful of substantially sized distributors.
4. Acquisitions help distributors meet shifting consumer preferences.
Recent trends show consumers moving away from beer. Gen Z consumes less alcohol in general while non-alcoholic drinks are on the rise, and health concerns are reducing consumption across generations. CBD, THC, and hemp-derived drinks remain a leading-edge phenomenon with opaque legality and enforceability questions, but over the long term this gray space could have a major impact on beer consumption. The ready-to-drink (RTD) beverage market is growing too, but, like THC and CBD products, RTDs often require expanded licensing.
Distributors are looking for brand additions that let them expand into non-alcoholic, energy, CBD, and THC products—along with wine and spirit products that aren’t sold in their territory. Acquiring or establishing sub-entities with strength in these emerging beverages adds separation to protect existing licenses, while helping distributors build a more resilient portfolio that can adapt to consumers’ evolving tastes.
5. Family-owned distributors consider transition options.
As owners of family-run distributorships reach retirement age, multi-generational businesses don’t always have family members ready to step into an ownership role. Current leaders have seen the industry grow far more complex than it was when they took the reins, and advances in technology and competitive pressure, combined with the required investment of managerial energy and funds, are unlikely to slow in the coming years.
Owners are considering what’s best for themselves and their families, not to mention the business they’ve nurtured for so many years. Truist has observed average EBITDA multiples for selling distributors of 14x over the last several years. Exiting now, while legacy seller valuations remain relatively high, can be an attractive option, particularly for businesses that offer their buyers targeted synergies. While the impact of the rise in market rates (and the course of their easing) on future valuations is yet to be determined, businesses considering a sale should be well positioned.
