What You Need to Know About Getting Started as a Beer Distributor
Answer these significant questions before you begin as a beer distributor.
Getting started as a beer distributor in the U.S. marketplace requires at least a general knowledge of the classic three-tier distribution system, which consists of suppliers (i.e. brewers), wholesalers and retailers. Since the beer industry is a very tightly regulated marketplace, it also requires an understanding of your state’s alcohol laws, because your state can impose caps or limits on how much you can distribute, where you can distribute, and to whom you can distribute. With that in mind, here’s a brief overview of the types of business and legal issues that you will likely encounter as you build your distribution business.
What type of product focus should you have?
Here, you have two main choices. You can choose to become a “craft-focused” wholesaler, in which case you will only work with local craft breweries. Or you could become a traditional distributor, in which you have a mix of both national brands and smaller craft brands. A lot really depends on your home region: if there is a strong craft brewing movement in this area, you might be able to find enough volume by focusing only on smaller craft brewers.
Obviously, there are pros and cons to both approaches. For example, being perceived in the marketplace as a small, craft-focused wholesaler could be a huge advantage in picking up your first few accounts and ensuring that you are paying the proper amount of attention to each new account. However, on the flip side, your relatively small size could work against you if you are planning on selling beers in your portfolio to large regional or national chains (such as large supermarkets or convenience stores).
What type of business entity should you choose?
The first step is to understand the main types of business operations that are possible. The two main types of businesses that people typically choose include “importer” and “wholesaler,” but even here, there is a lot of variety. You need to think about both your principal office location (e.g. San Francisco) as well as the territory that you will cover. Will you only sell beer within the Bay Area, will you sell to a certain geographic region of the state (i.e. Northern California) or will you try to sell regionally or nationwide?
From there, you will need to think about entity formation. Each entity type comes with its own legal structure, which will have an impact on everything from ownership of the entity to the taxation of the entity. Within the beer industry, the two most popular types of entities are corporations and limited liability corporations (LLCs).
How will you finance your distribution business?
The next major step is to come up with a financing plan for the entity. You will need to consider your capital needs, your potential source of funds, and any documentation required for those funding sources. In the beginning, you won’t be generating a profit immediately, so you will need to have a steady source of financing that can get your operation off the ground.
With these first three steps in place, it’s now time to get into the details of how the business will operate. This usually means picking up the right permits at both the federal and state/local level. For example, if you plan on becoming a beer importer, you will need to pick up an alcohol dealer registered with the Alcohol and Tobacco Tax & Trade Bureau (TTB).
How many employees do you need to hire for a certain size of the company?
One starting point for thinking about how to answer this question is considering the size of the territory that you would like to cover. Here, you have a plethora of options. Some distributors choose to cover just a few cities or counties, while others want to cover an entire state, or perhaps even multiple states. Of course, when you are out negotiating deals with beer suppliers, you will be in a much more advantageous position if you can offer extensive coverage. This should make intuitive sense: what beer maker wouldn’t want the peace of mind of knowing that their beers were being distributed across an entire state?
Thus, whenever a supplier signs a distribution contract with you, they will usually expect to know the size of the territory that you cover, as well as the extent of any overlap that you have with other distributors. They will also want to know in which part of your coverage area they are allowed to self-distribute.
How will you maintain compliance with applicable laws?
Of course, since the U.S. beer industry is so tightly regulated, you will also need to consider all the compliance steps that you need to follow at both the federal and state label. Even something as simple as developing a label for a beer you plan to import needs to receive approval, known as the Certificate of Label Approval (COLA).
How will you track and monitor new trends?
And, finally, you will need to keep up-to-date with important industry news and developments. There are a number of valuable sites for keeping up with industry news, including the Beverage Trade Network site, industry blogs, and the official TTB website. In the beer distribution business, it’s all about competitive advantage, and being able to spot new trends before they develop.
For that reason, having someone on your team responsible for data analytics and quantitative analysis can be a huge boost to your business. You’ll be generating reports not only for your own management team but also for your supplier partners. In the best of all possible worlds, these suppliers will want to know how their beers are performing in the marketplace. They will also expect you to generate proprietary data of your own that you can then use to plot an effective long-term market strategy to optimize beer sales.
By answering each of these questions, you will be well on your way to running a successful wholesaler and distribution business. You’ll be working on a daily basis with your favourite craft brewers and sharing in their success as they reach an expanding audience of fellow beer lovers.