Spirit Distribution

Local Lawrence Wholesalers

| 2016 Q4 | story by Anne Brockhoff | photos by Steven Hertzog

Kegs Lined up at O’Malley

Order a cocktail or glass of wine at a restaurant, or pick up a bottle of wine or six-pack at a liquor store, and it’s easy to envision where those products come from. Perhaps the rolling hills of Kentucky, or sunny Napa Valley, or an eclectic mountain town. Less visible is the government-mandated link between producer and consumer: the distributor.

Distributors in Kansas, also called wholesalers, are the middle layer of what’s known as the three-tier system. They purchase alcoholic beverages from their makers, and then supply those products to stores, restaurants and other licensed retailers. Those steps ensure taxes are collected, laws enforced and all players treated fairly—things that didn’t necessarily happen in the nineteenth and early twentieth centuries.
Back then, worries over unsavory business practices helped fuel temperance fervor. The 18th Amendment to the U.S. Constitution was meant to curtail the manufacture, transportation and sale of intoxicating liqueurs when it went into effect in 1920. Instead, it pushed those activities underground and into criminal hands. When passage of the 21st Amendment ended national Prohibition 14 years later, the government largely returned control of beverage alcohol to the states.

Many, including Kansas, now rely on the three-tier system to guarantee transparency and accountability. Distributors must adhere to not only federal and state laws, but also county and city regulations. Add to that differing demographics and tastes, and it means one thing: distributors must know their markets inside and out, says Kevin O’Malley, president of the Lawrence-based O’Malley Beverage of Kansas, which operates in Douglas, Atchison, Leavenworth, Jefferson, Anderson and Franklin counties.

Kevin O’Malley

“They’re all totally separate markets. Their identities are different, and the beers we sell the most of there are different,” O’Malley says.

He and his brother, Pat O’Malley, had a twenty-year track record with the Budweiser distributorship in St. Joseph, Mo., before purchasing the Lawrence business in 2005. They remain equal partners in both. Three of Kevin O’Malley’s sons are involved in the Kansas location, too: Mike Bourneuf is general manager, Joe Bourneuf is a senior sales representative and Dan Bourneuf manages the sign shop, which makes displays, banners and other promotional materials. O’Malley’s fourth son, John Bourneuf, works elsewhere, and his daughter, Murphy O’Malley, is a student at Free State High School.

O’Malley Beverage has 30 employees at its 65,000 square-foot facility on North Iowa Street, and which building is obvious—it’s the one with Budweiser and Bud Light trucks parked at the loading dock. No other distributor can sell those brands here, or any of the other beers or spirits O’Malley represents, because Kansas is a franchise state, or one where distributors negotiate exclusive rights to particular products within a defined territory.

Anheuser-Busch brands currently generate about 92 percent of O’Malley’s sales by volume, and they account for about 55 percent of the overall Kansas beer market, he says. Given A-B’s dominance (it was already the world’s top brewer before this year’s $103 billion takeover of SABMiller), you’d think those figures would be easily maintained. Not so, O’Malley says.

O’Malley’s sales staff is divided among bars and restaurants, retail stores and grocery and convenience stores, which can only sell cereal malt beverages with an alcohol content of 3.2 percent. A handful work in Lawrence, others call on a mix of accounts in a wider geographic area.

O’Malley Warehouse

All take inventory and orders, introduce new products, educate customers and help design promotional displays and marketing strategies. In restaurants and bars, that means constantly appealing to consumers’ eagerness for new flavors and experiences.

“Our guys are always thinking, ‘when I go into this account, what’s my weakest tap handle?’” O’Malley says. “That’s what my competitors will be targeting.”

At the same time, they must devise and manage programs to generate excitement for well-established brands, such as the cross-promotional supermarket campaign that combines the marketing muscle of Budweiser, Kingsford Charcoal, Smithfield and K.C. Masterpiece.

Salesmen (and they’re all currently men, which is not unusual in the industry) use iPads loaded with software and a mobile computing program developed by Anheuser-Busch to manage it all, and then sync the information with O’Malley Beverage’s system.

Once orders are uploaded, workers in O’Malley’s 25,000 square-foot refrigerated warehouse begin pulling inventory. Orders are built on pallets, and then loaded overnight on one of the company’s six trucks. By 7 a.m. the next morning, most drivers, armed with hand-held units using the same A-B software, are out on their delivery routes.

O’Malley Beverage collaborates closely with Anheuser-Busch to ensure good representation, but O’Malley insists distributors are an independent bunch. Big name sales may support his cost structure, but that just enables him more better meet customer demand for brands such as Sierra Nevada Brewing Co. and New Belgium Brewing.

O’Malley Warehouse

“What the Anheuser-Busch portfolio has done is given me a truck to go to the retailer, and if I can take 5, 15 or 20 more cases of craft beer and throw it on top of the load, that just makes that stop exponentially more profitable,” O’Malley says.

That’s essential in a landscape that’s increasingly competitive, in part because of consolidation among distributors. Companies like Crown Distributing, which sells Miller, Coors and other beers in Douglas and 37 other Kansas counties, have grown by acquiring competitors in other markets, and O’Malley is looking to do the same.

“We are aggressively looking to expand,” Kevin O’Malley says. “As of right now, we haven’t found any willing sellers.”

It’s the same story on the wine and spirits side. A merger this year between two dominant players yielded Southern Glazer’s Wine & Spirits, now North America’s largest wine and spirits distributor with operations in 44 states, the District of Columbia, the Caribbean and Canada.

Southern Glazer’s, which handles the likes of Jack Daniel’s Tennessee whiskey and Franzia wines, is undeniably huge. But market management in places such as Lawrence remains local, says Tim Anderson, the company’s senior vice president and general manager for Kansas.

“Every state’s different,” he says. “They need that local presence.”

Two of Southern Glazer’s Lawrence-area sales representatives specialize in wine and two in distilled spirits. The remaining two call on restaurants and bars, even though those accounts can’t buy directly from distributors. In a quirk of Kansas law, restaurants and other on-premise accounts (so called because customers consume purchases on the premises) must buy wine and spirits from those retail liquor stores (known as off-premise retailers) specially licensed to sell to them.

It in effect creates a fourth tier, but distributors say Lawrence retailers collaborate well with their on-premise accounts. That’s a boon, since Lawrence is seen as a growing market, thanks to the presence of the University of Kansas, consumers who are buying more premium wine, beer and spirits and a supportive restaurant community.

“The trend in Douglas County from a total sales standpoint is continuing to show growth,” says Ryan Thurlow, executive vice president of sales and marketing for Standard Beverage Corp.

Standard Beverage operates only in Kansas, and about 115 of its 280 employees are based in Lawrence, including sales representatives, drivers, warehouse staff and professionals who oversee other operations.

The company’s primary distribution center is here also, and Standard has in recent years invested heavily to improve its materials handling, conveyor and other warehouse systems; integrate iPads into ordering, inventory and education functions; and implement UPS’s Roadnet Transportation logistics software.

“We want to use the best tools to allow us to run our business as effectively and efficiently as possible,” Thurlow says.

The 250,000 square-foot warehouse operates overnight four nights a week, filling the trucks that make deliveries Tuesday through Friday. Volume fluctuates between 7,000 cases and 35,000 cases of beer, wine and spirits a night, depending on the season.

October, November and December account for about 35 percent of Standard’s total sales, Thurlow says, which is par for the industry. Unique to Lawrence is KU’s impact. Although many markets see beer sales spike during the summer months, demand for domestic beer and value-priced spirits here drops between mid-May and August.

“Year-over-year it’s consistent, though, because the students leave every year,” says Thurlow, whose company represents brands ranging from Bacardi and Robert Mondavi to Free State Brewing Co. “We plan for it. It’s an expected window and a short time frame.”

More challenging is tracking trends and shifting drinking patterns. Cocktails are still gaining momentum, as is craft beer, and interest in wine is growing among younger legal-age drinkers, says Bryant Bickel, a sales representative for Olathe-based Handcrafted Wine & Spirits whose territory encompasses Lawrence.

“Wine is definitely a hot area,” he says. “The Millennials are getting into wine so much more.”

But where consumers might once have stuck to their usual order, they’re now in an experimental mood, Bickel says. That offers opportunities for small- to mid-size distributors including Handcrafted, Vintegrity, Ad Astra Selections, Valley Beverage and LDF Sales & Distributing, which often attract boutique or family producers and say they can react more readily to market shifts.

“Somebody can make a phone call and get me, the owner,” says J.P. Gilmore, co-owner of Vintegrity, a wine and spirits distributor with seven employees in Kansas and 30 in Missouri. “A lot of times we can pivot quicker and bring in these hot new brands that the big guys don’t have time to mess with.”

O’Malley Warehouse

Relationships matter, too. Vintegrity opened in Missouri in 2008 and expanded into Kansas last year, capitalizing on Gilmore’s long experience with the retailers, chefs, restaurant owners and other industry pros who routinely jump across the state line, often landing in Lawrence. He focuses just as much on supplier connections, some of which, like J. Rieger & Co. and Tequila Ocho, are new. He’s represented others, such as Truchard Vineyards, for decades.

“I did business with the parents,” Gilmore says of the Napa Valley winery. “Now that I’m in my late 40s, I’m doing business with the kids.”

Distributors regularly extend that relational philosophy to the communities they work in. At least half a dozen will participate in Cork & Barrel’s 2017 Imbibe event (www.imbibelawrence.com) to benefit Family Promise of Lawrence. Standard Beverage’s Salute Winefest (www.salutewinefest.com) is in its 17th year and has raised more than $600,000 for Cottonwood.

Kevin O’Malley serves on the boards of local organizations including the Lawrence & Douglas County Economic Development Council and Lawrence Chamber, and his company supports the Lawrence Arts Center’s Free State Festival, Ballard Community Service’s B3: Blues, Brews & Barbecue fundraiser, the Kansas Food Truck Festival to benefit Just Food and others. It’s simply essential, O’Malley says.

“Community involvement makes you realize the world’s a lot bigger than you are,” he says. “Nobody can do it on their own. We all have to pull together.”