Consolidation has grown among US beer distributors due to rising costs, the need for well-balanced portfolios and broader reach, according to an industry report.

The Rabobank report: The Future of Consolidation in the Beer Distribution Sector, said yesterday (15 April) that increased operational costs have put pressure on smaller distributors to sell their franchises to larger distributors.

In 1933, the US government mandated a three-tier system in which alcohol producers had to sell their products to distributors who then sold to retailers. The aim was to limit competition by making sure that producers could not own retailers, however, the numbers of distributors have dropped since the 1970s. Smaller distributors cannot negotiate costs in the same way that larger companies can, nor do they have the means to acquire a broad portfolio of attractive brands, said the report.

Food & Agribusiness research and advisory vice president Stephen Rannekleiv said:  "In many ways, 2007 was a watershed year in terms of the number and magnitude of changes in the beer distribution playing field."

Rannekleiv added: "As consumers demand a wider variety of - particularly higher-end -products, developing a strong portfolio of brands has taken on critical importance, perhaps even more important than the strength of any one individual brand in the portfolio."

"Over the years, domestic premium brands (Budweiser, Miller, Coors) have dominated the market, but sales have been relatively flat. In 2007, dollar sales of imports grew by 4.4% and micro-brands grew by 16.8%. However, this growth is likely to slow due to growing concerns about the economy and a tightening credit market," the report added.

Rannekleiv went on to explain that "an economic slowdown can be expected to create greater price-sensitivity in the market, creating a more challenging environment for flagship brands to take price increases. Recent numbers show that sub-premium brands may be regaining ground as consumers seek lower-priced alternatives to domestic premium brands".