The Consolidation Conundrum

There’s a consolidation juggernaut building up speed in our industry at the moment. No longer just a stealthy trend at the margins of the drinks industry, we’re all hopping into bed together – independent brands and global heavy hitters, e-comms platforms with spirits leaders and wholesalers.

I’m still making up my mind. Whilst I don’t think this is necessarily a negative thing – neither an opportunity or a challenge as yet, I can see a lot of logic in the movement. But, I’m wary that a restriction in consumer choice and a further reduction in already tight margins lies down that road. Ultimately, will we crush creativity and cause independent drinks producers give up before they’ve even started?

Coming out the back of pandemic, a number of the big global players are snapping up brands opportunistically, as part of their R&D as an alternative to developing liquids in-house from scratch. Perhaps, it will be just the lifeline that smaller, independent brands need to keep going (or the perfect time to get out of the industry), but can smaller, independent brands really flourish in the portfolio of a global company?

Global players such as Diageo or Pernod Ricard have liquids in every spirits category and are global leaders in most. And, for the record, let’s state here that some of these liquids are amazing. Will they have time, energy and focus to grow your brand or is it sometimes a tactical purchase to remove the competition? If you’re a brand that’s sold out completely, perhaps it doesn’t matter. Global portfolios are now becoming so large and diverse that it makes selling their whole portfolio very challenging, especially where there’s a need to invest time and effort to seed smaller brands in the on-trade initially – I’m not sure the risk and reward stacks up; that’s why specialists like Mangrove exist, to support the education, hand selling and targeting that help quality independent brands carve out a niche and grow market share.

The traditional on trade – off trade model is under fire, not least because of the recent shut down of the on trade which forced brands to go direct; this at a time when the on trade is arguably more important than ever as choice and investment per placement in the off trade is so expensive. For my money, the on trade is still where we find risk taking, beacons of experimentation doing interesting, different work that adds value and is great for consumers.

We’re also witnessing vertical integration in the industry and a broadening of company interest: AB InBev bought Master of Malt and Maverick Drinks; Pernod Ricard acquired The Whisky Exchange – and it’s a smart move, integrating direct-to-consumer distribution networks with access to vast target customer databases. Brands are setting up their own distribution, in the light of massive consolidation in the wholesaler network. For my money, wholesalers are a particularly badly squeezed part of the supply chain, and this is only getting worse as costs spiral and it becomes more difficult to realise economies of scale – let’s not forget it takes 33 pallets of stock to fill a container – that’s quite a lot!

Whilst the UK is seeing limited moves to consolidation currently, with the increase in distribution costs and the greater rewards for economies of scale this will surely increase.?If we look to the USA this has resulted in true Behemoths who have such a vast portfolio it is impossible to give every brand lip service.

There’s an echo here of a retail trend we’ve already seen in the supermarket sector, where the focus is now on margin and reducing ranges dramatically, as happened at ASDA and Tesco last year. As someone with too many years in the industry to mention, it’s clear that the pressures on supermarket buyers have shifted the metrics on their buying decisions: ?

It’s no longer all about the product - this is what my customers want, this is where I’ll grow brands, be different and be proud to be a retailer; rather buyers are challenged to get a return per square metre of shelf, and with the opportunity of substantial listing fees, the choice on which brands are stocked is a pure commercial choice. Buyers might still love new liquids, or local listings, but there’s less bandwidth to take a gamble, and where they do then there’s less time afforded for it to pay off. So, again for consumers, there’s less opportunity for quality and choice, and long-term investment isn’t encouraged.

So, let’s find the positives about the consolidation juggernaut. For sure, it might help keep prices down and be more efficient, and it certainly has the potential to accelerate some brands as they have serious money put behind them: If you’re one of the lucky ones, you might enjoy overnight success and be listed in 50 global markets. Happy days. There are always winners and losers.

Personally, I love the element of competition; I love conversations that are more about product, liquid quality and provenance, and less about financial resource; I love a level playing field. I love that we can be large enough to be relevant to our brands and our suppliers, but small enough to really add value for brand owners that we know personally.?