E-Malt.com News article: USA: Beer distributors wait for Molson Coors and SABMiller to consolidate distributor channels

As beer-makers Molson Coors and SABMiller await federal approval to combine their U.S. operations, distributors who peddle their products to restaurants, bars and retailers are waiting to see if or how a joint venture could alter the way they do business, The Denver Post reported November 25.

V. Gaines, CEO of Western Beverage in north Denver, sells Miller products, but not Coors.

"We've got no indications from anybody as to how they're going to do things," he said. "The only thing we can do is sit back and wait."

"I'm sure they see some kind of combination as being an economic opportunity," he said. If the brewer asks distributors to combine, he said, "we have to figure out how we're going to merge the operations together."

Already, roughly 60 percent of the volume of Coors and Miller beverages is sold by distributors who carry both companies' brands, according to Coors and Miller officials.

For the remaining 40 percent that carry either Miller or Coors — but not both — some industry experts say a merger will likely encourage the consolidation of distribution houses.

"I would expect in the long term that Miller/Coors would bring its brands together in a single distributor in each market," said Andre R. Jaglom, a partner at the New York firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP.

"It reduces (the brewers') costs and it permits them to prioritize the promotion of their brands in a coordinated fashion," said Jaglom, who represents distributors for Miller, Coors and Anheuser-Busch, the nation's largest brewer.

Molson Coors, based in Denver and Montreal, and SABMiller, with U.S. operations in Milwaukee, last month announced plans to combine their U.S. operations into "MillerCoors."

Company officials say the joint venture would yield more than $500 million in savings by reducing shipping costs, optimizing production and eliminating duplicate corporate and marketing services. They expect the deal to close sometime in mid-2008.

Joe Thompson, president of the Independent Beverage Group, which is based in South Carolina and has offices in Broomfield, works with distributors nationally on mergers and acquisitions. He said historically, when beer companies merge, the consolidation of their distributors follows.

"It's not an automatic, but I would expect over a three- to five-year period of time, probably 80 to 90 percent" of the volume would be carried through shared houses, he said.

He said consolidation reduces costs to the brewers. Having separate houses "means you have two warehouses, two trucks, two sales forces," said Thompson, who works out of Broomfield.

But Coors officials said distributor consolidation is not an assumption of the $500 million in synergies associated with the MillerCoors joint venture.

Pete Marino, spokesman for Miller Brewing Co. in Milwaukee, said the brewers have no control over whether distributors merge with other distributors.

But the brewer can decide whether or not to provide products to a distributor to sell, Marino said.

"The desire of the company is to have strong, healthy distributors," he said. Depending on the market, it may make sense to keep them separate, he said. "It's a total market-by-market decision."

Kabira Hatland, spokeswoman for Molson Coors, said the Molson Coors merger encouraged the companies to move Molson brands into Coors houses, but she said it is "migration," not consolidation.

"The same number of wholesalers exist, they just sell a different portfolio of brands," she said. "The Molson brands that were with another local distributor move over to the Coors distributor, usually in exchange for other brands or for cash."

She said apart from mergers, distributor consolidation has been occurring in the U.S. for 10 years.

Mike Pfalmer, general manager of Colorado Springs-based RMC Distributing Co., which sells Miller and Coors products, in addition to Corona, Heineken and craft beers, expects a joint venture will bring little change.

"For us, it's really going to be pretty invisible," said Pfalmer, whose company sold Coors products for more than 60 years before buying out a Miller house eight years ago.

Operating a shared house has allowed RMC to "combine two good businesses and bring those together to compete against the market leader, Anheuser-Busch," he said.

"It's about your efficiencies of operation," said Pfalmer, who serves southeastern Colorado, from Colorado Springs to the Kansas and New Mexico borders.


28 November, 2007