Rough news for Californians (as if they haven’t had enough of that already)…
America’s second largest alcohol wholesaler, Republic National Distributing, has announced that it’s exiting the state.
This leaves an estimated 2,500 alcohol brands scrambling to figure out how to keep liquor store shelves stocked.
And that’s, unfortunately, just the beginning…
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Most alcohol brands don’t do much of their own distribution.
They leave that to a handful of middlemen – companies who specialize in wholesaling, distribution, and transportation – so they can focus on their craft and on marketing.
Unfortunately, after Republic National Distributing exits California on September 2nd, it’s not like they can just “sign up with someone else” and keep going.
There will be logistical kinks to work out. Negotiations to be had. Contracts to sign.
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If you’re a big brand – think Jack Daniel’s, Tito’s, Absolut, whoever – you likely have a variety of agreements with different wholesalers in different territories based on your specific needs.
So while it will be annoying to switch from Republic National to someone else, chances are good you already have those relationships in place and just need to sign a few addenda.
For smaller players who relied entirely on Republic National in California – it’s going to be a whole different ballgame.
You’ve gotta meet new distributors at the same time that thousands of other brands are trying to do the same thing.
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And let’s face it – the bigger guys who already have the relationships will almost certainly jump to the head of the line…
Followed by whoever is willing to make a deal fastest.
This kills the smaller brands’ leverage, especially if they’re in a place where they need cash soonest.
And the impacts could spread far beyond California. But first…
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I don’t know what’s happening in California, but they’re facing a ton of companies doing layoffs, downsizing, or just flat-out throwing in the towel and saying “we’re done.”
Just a few examples:
– The $1.5 billion sugar beet industry is facing total collapse in California after the closure of its final factory
– Coca-Cola just announced a factory closure and lay-offs
– Frito-Lay did the same
And there’s more…
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– John Paul Mitchell Systems (which owns the Paul Mitchell and tea tree shampoo brands) moved its headquarters from California to Texas earlier this month
– Even Blue Diamond, which is based in California, is letting hundreds of people go as it exits a longtime factory
– All told, hundreds of companies have left California over the last seven years.
That’s…a lot.
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It feels like just about everyone who’s exiting the state or reducing their footprint has said some version of the same story, namely:
It’s a tough market…they can’t afford to compete here…they need to shift operations somewhere that will be more efficient…that sort of thing.
Most don’t say much about California specifically, but you do wonder if there’s something about the state that’s turning businesses off.
So – this was already a big trend.
But Republic National is in a whole different league of impact, and here’s why:
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The alcohol industry in America does somewhere on the order of $260 billion in annual sales.
And California accounts for about 13% of nationwide alcohol consumption.
It’s the #1 state for total alcohol consumption by a mile – which makes sense, because it’s populous and wealthy.
So what happens in California absolutely matters for the rest of the country.
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Of course, these decisions don’t just “happen” one day.
There are always underlying issues and problems.
Here are just a few:
– California’s alcohol consumption has been falling for the last few years, which of course affects any distributor’s interest in continuing to serve the market.
– California’s famed wine industry has been in an oversupply crisis this past year after years of undersupply, so prices have collapsed and many vintners are having to throw away actual tons of wine grapes that they can’t sell.
– There are of course huge economic disruptions from ICE raids in the state.
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Of course, dialing back even further, we’ve got national problems that are directly impacting many distributors and wholesalers.
– Tariffs are a direct threat to international distributors, as tariffs disrupt the very supply chains that distributors try to build up for importing and exporting product.
– Cost inflation continues to squeeze margins as everyone tries to figure out how to sell product at the same price to avoid making consumers mad… even as many input costs have increased.
– And don’t get me started on recession fears…consumer confidence is down, layoffs keep happening, people are getting scared. And when they’re scared, they cut back on spending. (Even on alcohol.)
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Even beyond the decline in overall drinking in California (where consumption of spirits is down 5% in the last six years), there’s also a broader shift in what people are drinking.
Gen-Z drinks on average about 20% less than past generations – and tilts more toward:
– Hard seltzers and other ready-to-drink options (especially low-calorie)
– Craft liquors (think small-batch, sustainable sourcing, that sort of thing)
This, of course, creates a long-term challenge for mass-market brands as Gen-Z’s spending power starts to ramp up.
I just want to highlight something important that gets lost in these discussions, however:
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When a company as big as Republic National Distributing unilaterally exits a huge market like California, it leaves tons of employees in the lurch.
People who did nothing worse than working in the wrong state at the wrong time.
My heart goes out to them as they navigate all the disruptions.
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So there you have it – yet another company unfortunately exiting California, in this case so it can focus on growing markets in Kentucky and Texas.
If you’re one of the affected employees, just know this:
You deserved better. I hope this next chapter is kinder.
And to everyone else reading: If you have helpful ideas or tips – or even just a few words of encouragement! – share them in the comments.
We could all use a little more kindness today, right?
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At The Coconut Mama, we’re passionate about covering important stories in food, beverage, wellness, beauty, and health.
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If you can’t figure out why companies and corporations have been fleeing California left and right by now, I don’t know that I can help you. Taxes, regulations, insane wage and benefit demands…
Opportunity exists and when a company like Republic National Distributing drops out, you need to tell the whole story. Tito’s Vodka and Brown-Forman have switched distributors. This is not a blame California and their liberal politics. The CEO choose to leave California and now he is gone from the company. As such, poor leadership from RNDC is to blame here as they lost their two biggest customres to Reyes Beverage Group. Time to look at the updates from other news sources that seem to show this in a more fair light.
https://vinepair.com/booze-news/rndc-ceo-nick-mehall-steps-down/
I wonder if you are avoiding the elephant in the room. What about all the woke policies, the violence in the cities both from homegrown criminals and illegals. What about your laws that favor criminal activity and handcuff the police. Who would want to do business in that kind of environment?
The reason companies are leaving temperate and naturally beautiful California, is simply because they treat businesses badly and put all kinds of government burdens on them, that other states don’t. CA is ranked in the top 10 for its tax burden, while TX ranks near the bottom. Businesses pass all taxes they pay onto the price of their products, so anything produces in CA is more expensive, and as a result, they lose market share until they go out of business. Better to leave before that happens.