Critiques of PepsiCo’s Blue Cloud Distribution (BCD) arm were plentiful during the National Beer Wholesalers Association’s (NBWA) annual convention earlier this month in Chicago.
NBWA leaders criticized the way Hard MTN Dew – which Boston Beer has licensed to produce and is distributed through Blue Cloud – has been merchandised and cross-promoted in some accounts, stocked near Kool Aid Jammers and Hot Wheels toy cars. They also suggested the alcoholic beverage could be “catching a free ride for placement and promotion as it is merchandised on the same aisle as paid for shelf space for the soft drink.”
Makers of consumer product goods such as PepsiCo and Coca-Cola are able to pay for shelf space through a “slotting fees,” a practice that is outlawed in the heavily regulated beverage-alcohol space.
NBWA president and CEO Craig Purser also noted that “most states have a specific prohibition on large manufacturers owning alcohol distribution.”
During a press briefing at the NBWA convention, Purser said he expects additional scrutiny from regulatory agencies at the state level as well as with the federal Department of Treasury in regards to slotting fees.
Blue Cloud recently offered a rebuttal to four claims made during the NBWA convention, claiming key facts were “misrepresented.” The fledgling wholesaler also stated that its operations were “established to operate at the wholesale tier within the parameters of the three-tier system” and affirmed its commitment to “following all government regulations for licensing and business operations, while providing expanded choices for consumers in this growing market.”
For starters, Blue Cloud took issue with Purser saying “several” states have denied the company a license to operate.
“BCD has secured licenses in nearly a dozen states and only received two denials,” Blue Cloud stated. “In the states where we have been denied, we continue to speak with local government officials to clarify any questions they may have.”
A mid-September Beverage Digest report stated that Blue Cloud has received federal alcohol permits to operate in 31 states and now distributes Hard MTN Dew in nine states (Florida, Tennessee, Iowa, Oklahoma, Arkansas, Minnesota, Missouri, Nevada and Virginia).
In regards to Hard MTN Dew’s placement on shelves, the company said it provides “specific guidance that alcoholic and non-alcoholic beverages should not be merchandised or advertised together.” The company added that it “maintains very strict policies on placement to ensure there is no consumer confusion between alcoholic and non-alcoholic products.” Additionally, the company noted that “alcoholic and non-alcoholic products have different graphics and 21+ is noted in red on any alcoholic can.”
Blue Cloud also took exception to allusions to slotting fees for PepsiCo’s non-alcoholic beverages giving a “free ride” to Hard MTN Dew’s path to retail shelves. The company said it “does not pay slotting fees and competes to distribute and place Hard MTN Dew based on the merits of Boston Beer’s product and that company’s expertise.” It also noted that it “operates with its own staff, equipment, warehouse space, invoices, and systems.”
Additionally, Blue Cloud, who does not carry non-alcoholic products, appeared to take a shot at beer distributors who also carry non-alcoholic beverages, such as energy drinks.
“[U]nlike BCD, there are beer wholesalers that sell both alcoholic and non-alcoholic beverages, particularly in the energy category,” the company said. “Wholesaler regulatory standards should apply equally to all companies operating in the wholesaler tier.
Finally, Blue Cloud rejected the assertion that it is in a “co-manufacturing relationship” with Boston Beer for Hard MTN Dew and FIFCO USA for the upcoming Lipton Hard Iced Tea licensed product. Boston Beer and FIFCO USA are the manufacturers and suppliers of those respective products, the company said.
“These companies developed the formulas, own all of the IP and control the marketing of the products,” Blue Cloud added. “BCD is only the distributor. “
Hard MTN Dew was one of only two brands driving both depletions and shipment growth for Boston Beer in Q3 (Samuel Adams also increased shipments). The roll out of the brand, though, hasn’t been as fast as Boston Beer would have hoped due to the crawl of regulatory approval.
Nevertheless, Boston Beer CEO Dave Burwick said Hard MTN Dew has shown “good promise” in those nine states and has claimed “a 12 share of FMBs in measured off-premise channels” where distributed in those markets.