Oct 132020
 

In the early 1960s, Coors began its expansion from West Texas into the North Texas area, including the Dallas/Ft. Worth market. As new distributors were appointed, they were expected to exclusively distribute Coors. This required a change of operational plans as many of the new owners had previously been wholesalers for other brands, including Jax and Falstaff. While the new houses were initially successful, they were by no means dominant during the early years. The AB strikes of 1969 and 1970 changed that trajectory, however, and immediately propelled Coors upward. By the mid, to late 1970s, Coors had become the number one brand in all Texas markets. 

The same development pattern was followed when Coors grew into South Texas, but as history has shown, this expansion failed, unlike that in other parts of Texas. The family political issues, of Coors, coupled with the increased marketing of AB, Schlitz, and Miller, had Coors on the ropes. As Coors expanded eastward, they continued their previously used stand-alone distributor plan, but the results were disastrous.  After numerous failures, Coors began to appoint established, successful beer operations.  Fortunately for Coors, under this new plan, sales began to turn upwards.  The venture with Molson, which occurred 12 years ago, coupled with the acquisition of the Miller brands, has ensured a successful future for Coors.

Just last month, Yuengling Brewing, once referred to as the “Coors of the East,” announced a JV with MC. Yuengling, America’s oldest brewery, has historically been available only in eastern states, but recent expansion has enabled the beer to be available in 22 states. Yuengling, a family-owned business, has benefitted from the long growth of crafts. In addition, the company has made some key sales and marketing decisions. Yuengling’s brands, like many crafts, skews heavily to the on-premise accounts which, as we all know, have taken a beating this year.

Again, following crafts’ trends during the past months, Yuengling’s off-premise sales have done well.  Like many other breweries, however, obtaining the right flavors and packaging have resulted in limited growth. Add in the rapid growth of the seltzers’ market, and Yuengling is now looking at a crossroads for their future.  Expanding into new states is always an option but given the infrastructure with which the brewery needs to invest, the JV with MC does make sense. Yuengling can, however, access the MC distributor network and leverage MC’s chain and marketing capacity into states that they have previously not had access to.  MC can provide the brewing capacity enabling westward movement, thus making freight and delivery more efficient and economical.

To MC’s credit, the industry knows that Yuengling will head west, so why not work with Yuengling to make the MC distributors even more competitive in their individual markets? It is fair to believe the Yuengling appointments are the MC distributors’ appointments to lose? This is not to say that some AB houses will be appointed, but one would imagine said appointments will only come if Yuengling has no other choice. One can only wonder how the AB houses in the west took this announcement, most especially those houses situated in states along the current Yuengling distribution area. If truth be told, many AB houses were probably disappointed with the announcement.

This will play out over time, but this seems to be unfolding into a perfect scenario for both companies and might be the future playbook for other viable, but regional strong breweries.

It is going to be hard, but it does not mean it is going to be impossible!

 Posted by at 6:00 am
Sep 142020
 

It took several years after Miller Lite rolled out that it would sell as almost everyone doubted that it would. Once it became apparent that Miller Lite was the real deal, all the other breweries jumped on the bandwagon.

The big nationals went all in, first it was Budweiser Light, which as we all know, struggled to gain traction until the name was shortened to Bud Light. Coors Light, in their test markets, also struggled but only because the can color was similar to Coors and confused the consumer. Coors Light went to a silver can and the brand took off. Finally, Schlitz, had numerous issues with a light beer having to reintroduce it over and over. Schlitz could never gain any traction even though this was in the 1970s, years before Schlitz’s QA problems sunk them.  By now all the national breweries and almost all regional breweries brought out their version of a light beer. Almost all of these lights were line extensions of the brewery’s core beer.

By the end of the 1970s, light beer was flying as retail cold boxes all changed to reflect the category.   In the 1980s, as the imports became a factor, most of those brought out light beers starting with Corona Light. These imported lights had a struggle in getting traction, but it did happen. Even Heineken, years later, finally had a hit with Heineken Light. Many imported lights disappeared as their brewers and imports did not have the resources to compete.

The success of Michelob Ultra also has created a market for low carb beers and with the possible exception of Corona Premier, most low carb beers died. This is especially true with those breweries who choose not to line extension their low carb beer with their core brand but to create a new label. This is true with Coors’s effort along with Heineken. Seltzers, this decade’s light beer, is now going through the same steps as it took several years to see that seltzers were not a fad but here to stay. A recent Labor Day visit to a local Total Wine, showed that seltzers owned all the end caps however unlike last year, the number of different and new seltzers was incredible.

Around 5 years ago, one could shop a Total Wine and be not only amazed at the number of crafts, one could never guess who most of the breweries were or where they came from. Today is the same with the seltzers. Every week there seems to be more and more new seltzers hit the market.

AB, MillerCoors, Constellation, Boston, and Mike’s along with some other large brewers and regionals will survive. As with all the light beers, soon many of the new seltzers will die as their resources are limited and they are not able to separate themselves from the masses. How are these seltzers being able to get through the clutter and to the consumer?

Crafts might take a step back and look at the big picture. If seltzers eventually hit a market share of 15% and as big as that is, that means that 85% of the business is still beer!

In this business you can’t make any plans!

 Posted by at 3:46 pm
Aug 182020
 

Finding and purchasing a beer distributorship forty years ago was not that difficult. Though many of you may find this hard to believe, during the 70s one could frequently find an AB, Schlitz, or a regional distributorship advertised for sale in the Wall Street Journal. In addition, there were brokers, Pohle Partners being one of them, who represented distributorships that were for sale. If one qualified and could be considered a distributor by a brewery, then the broker would assist with locating and purchasing a distributorship. Those days, however, are long gone.

Now, because of the near impossibility of acquiring a distributorship, those who had once dreamed of being in the beer business, have moved their focus to building their own craft breweries. The relatively low cost of entry into the craft brewing business is peanuts compared to that of purchasing a major distributorship.  And, as a brewery grows and expands, it becomes capital intensive. This, combined with the fact you are truly your own boss, and that there are no franchise fees in building and owning one’s own craft brewery, makes ownership in the craft brewery business even more popular.

Many, if not most of the startup craft breweries first go to market with kegs as this is easiest and least expensive way to market. Keg sales require no bottling or canning line, nor is there the need to purchase/lease additional space. Even using mobile canning lines can extract a heavy cost for a small craft brewer.

The question at start up becomes one of deciding to buy or leasing cooperage? Typically, most brewers decide to lease in the beginning as this is most cost effective. Many crafts have signed with MicroStar, the industry leader, only to learn that leaving their contract would then be difficult due to a seven-year commitment. This contract, along with the overall growth of the craft industry, produced opportunities for cooperage companies with shorter terms and lower costs. GlobalKegs was one of these companies.

GlobalKegs’ largest customer outside of the U.S., is AB; and until December 2019, GlobalKegs’ largest U.S. customer was Pabst.  This relationship, however, ended last November. Lagunitas Brewing Company, once a client, sued GlobalKegs last February for not returning over 5,000 kegs.  Over the last couple of years, GlobalKegs started to slow-pay distributors for their keg deposits. Distributors would return the kegs to GlobalKegs yet GlobalKegs would not pay the distributors. After Pabst left GlobalKegs in late 2019, the keg company stopped returning deposits all together.  GlobalKegs reported that their financial troubles were largely attributed to small crafts not paying deposits for the leased kegs. This, coupled with a two-million-dollar internal accounting issue, resulted in the CFO of GlobalKegs being terminated.

With the virus closing on-premise accounts in March of this year, the keg business dried up. The early reopening of the bars in many states in June gave GlobalKegs a ray of hope. That, however, ended with the resurgence of the virus and the repeat closure of the on-premise accounts. At that time, Global quit returning all calls and on July 23rd, GlobalKegs filed for liquidation in Florida. Although this is not a surprise given the history of GlobalKegs, it has created issues with cooperage in the U.S. Many distributors who have inventories of GlobalKegs now have no way of recouping their deposits and distributors are viewing their breweries as responsible for returning that deposit money. This now becomes an issue with the bankruptcy court.

Holding the brewers responsible for GlobalKegs’ demise might be considered a stretch, as had the brewers known they would be held liable for the cost of the kegs, they would not have retained them. GlobalKegs’ management is to blame, but the damage has been done. The question now is: can the industry get through this?

A bankruptcy judge can fix your balance sheet, but he cannot fix your company.

 Posted by at 6:00 am
Jul 212020
 

Over the years, many of the articles posted on this site have been designed to illustrate that history does, in fact, repeat itself. Much of what has just taken place in the beer industry has roots in the past. In other words, the industry has “been there and done that!” Recent articles within the industry have interviewed beer veterans, and many have had similar comments: “In all my years, I have never seen the industry in this situation.” This is true based on the fact that most of these individuals were not around in the late 1960s or early 1970s. The Covid-19 crisis has created shortages of brands and packages. Imports, especially Mexican imports, have had shortages created by the shutting down of breweries. The pandemic ramped up so quickly that wholesalers and importers did not have time to build their inventories.

In the summer of 1969, AB brewery workers decided to go on strike, and in just a matter of days, the market was out of Budweiser products, both packages, and draft. Remember, there was no Bud Light at this time. While in college that summer, I worked for a Coors distributorship. Coors, which was not on strike, dominated the market share in the 10 other states where they were selling. Because Budweiser had been depleted of their inventory, and the demand for Coors became greatly heightened, they, too, were running low on inventory and had to allocate beer.   Employees would arrive at the warehouse each morning to find the place empty; similar to what is occurring in today’s warehouses. Trucks filled with Coors, having been loaded the previous night as the train cars were spotted and then unloaded, were ready for delivery. Each retailer received only 10% of their previous year’s order. The amount of product was noted on a computer printout obtained by the driver/salesman. Needless to say, many retailers were upset that they could not get the supply of Coors that they had requested. In protest, some retailers covered their windows with butcher paper while others simply told the D/S to leave, thus making things easier on Coors as that allotment of beer could then be sold to the next retailer.

In 1969, Pearl was the largest selling beer in Texas. It was Schlitz, however, that took advantage of the Budweiser strike and soared to the number one sales position in the state. The subsequent summer, AB brewery workers again went on strike and 1970 became a repeat of the previous year. While the summers of ‘69 and ‘70 were not like today’s pandemic-created environment, both situations created out-of-stocks.  This is especially the case in bars where kegs have virtually disappeared, just as they did 50 years ago when we could sell every case on the truck and not have to rotate stock as the stores were consistently out of beer.

Following the summer of 1970, many regional beers went out of business. The same is happening today in the craft market. Fifty years ago, those breweries that were able to hang on, lost market share to the national brands and when AB’s strike ended, the monster brewery returned aggressively.  In our current environment what is accelerating is the seltzer segment, and like the situation with light beers, which were testing in 1971, once that new segment became a hit, sales skyrocketed. We can see a similar situation in today’s seltzers.

We can make the case that this period in history is not the same as the AB strike in 1969-1970, however, just as happened after 1970, once the virus is conquered, the industry will be changed. Count on it! Maybe we will relive another beer shortage 50 years from now, but I am pretty sure I will miss that one!

Everybody has a plan until they get hit in the mouth.

 Posted by at 6:00 am
Jul 162020
 

This writing begins the ninth year of BeerBusinessUnplugged posts. For the past eight years, the posts were a weekly occurrence, but as of January of this year, they became monthly.

Needless to say, this year has produced more disruption in the industry than in any year past. In 2019, despite the tremendous growth of the seltzer segment, concerns proliferated over whether or not seltzers were simply a seasonal summer beverage, or would the surge in popularity be more of a spike and crash occurrence. Fast forward to 2002 and the seltzer segment continues to grow at a phenomenal pace. It seems there is no ceiling.

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And now, of course, we are dealing with the Coronavirus. Though each state is handling business openings differently, several large beer-consuming states, including Texas, Florida, Arizona, California, and Illinois are either pushing back their openings or totally closing bars and restaurants. As we saw this spring, such action causes massive issues with kegs and on-premise accounts. Although the industry is attempting to get a handle on the future of beer sales, the rules are constantly changing, thus making it almost impossible to develop such plans.

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The most-read post to date, Success and Failure are Both Part of Life. Neither are Permanent, was written on February 19, 2019. Despite moving from weekly to monthly posts, the number of reads is now close to 170K. Your comments and thoughts are greatly appreciated. I will write and post when a topic is of importance.

Thank you for reading and stay well.

Following is this year’s nostalgic Schlitz commercial.

 Posted by at 6:00 am
Jun 162020
 

Decades ago, the term partnership in the beer industry meant something.  There were a number of national exclusive houses that were single brand wholesalers, predominantly AB, Schlitz, and Coors.  The same was true for regional beers. For example, many Pabst-only and Hamm’s-only houses were located in the mid-west and exclusively carried those brands.  Chicago had Old Style distributors and both the east and west coasts had their own key houses.  At one time, a partnership existed between both the brewer and the distributor. This relationship was critical as the success of one was dependent on the success of the other. There was nothing else to fall back on for support.

We all know, however, what happened:  the onslaught of AB, the rise of Miller, and the expansion of Coors, coupled with multiple mistakes by regional breweries caused a massive consolidation, first with the wholesalers, and then later with the brewers. Along came the rise of key imports, and soon crafts started to become a factor. Wholesalers quickly represented 20, 30, or more vendors. The industry had changed.

AB, with close to 50% share of the market, used an incentive to keep its wholesalers exclusive, a move which was successful. By 2008, when InBev took over AB, more than 70% of the AB wholesalers were exclusive in the U.S. This program benefited both tiers of the industry. Many AB distributors’ owners were loyal to Augie Busch III, as he had made them rich; while the brewery also benefited from the fact that these wholesalers were exclusive. Obviously, there were exceptions to this exclusivity, predominantly in rural parts of the country where a wholesaler had to have multiple brands to survive. But this was frequently the exception rather than the rule. Soon after InBev took over ABI, the wholesaler incentive program ended, which basically opened the door for all AB houses to begin adding new beers. This continues even today.

These changes over the decades have altered the meaning of the word partnership and the definition of a partnership between a brewer and a wholesaler in the 1960s is much different than the meaning in the 2020s.  A longtime beer industry executive said many years ago that there is no longer a partnership between wholesalers and brewers, that the relationship now is purely business.

Multi-brand distributors, protected by self-induced state franchised laws, are in the position to squeeze out many of their vendors. The beer wholesalers today are diversified and are not as dependent on only one brewery as they were in the past. If a brewery developed a strategy that conflicted with that of the main supplier, the wholesaler might not execute the breweries’ strategy. This could aptly apply to a supplier’s pricing strategy.

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007), is a U.S. antitrust case in which the United States Supreme Court reversed the 96-year-old doctrine that vertical price restraints were illegal per se under Section 1 of the Sherman Act.  The aforementioned case replaced the older doctrine with the rule of reason. Resale price maintenance (RPM) is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer’s product at certain prices: at or above a price floor, or, at or below a price ceiling. If a reseller (distributor) refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with the said wholesaler. This marked a dramatic shift in how attorneys and enforcement agencies addressed the legality of contractual minimum pricing and essentially allowed the reestablishment of resale price maintenance in the U.S. in most commercial situations.

As the economy slowly returns to a new normal, many of the surviving breweries will be aggressively ramping up their marketing and sales efforts. The continued existence of these breweries will depend on the success of the aforementioned efforts, but breweries that put their trust in wholesalers will also put their survival in those wholesalers’ hands.

Partnership is the way. Dictatorial win-lose is so old school.

 Posted by at 6:00 am
May 262020
 

Tomorrow is Jim Koch’s 71st birthday, and as is tradition with these posts, we will visit Jim and Boston Brewing.

The transformation of the Boston Brewing Company in recent years has been truly remarkable. Not long ago, industry pundits questioned the success of the company, and rumors circulated within the industry regarding who would lead the establishment. That was then and this is now. In 2019, Jim acquired DogFish Head, the highly successful Delaware Brewery.  The acquisition enhanced Boston’s high-end beer portfolio, a transaction that, even within a short period of time, was positive for both corporations. Boston Beers’ continued success, however, is best explained in a recent video posted on the Wall Street Journal entitled From Beer to Hard Seltzer, A Culture Pivot Finds a New Market, by Dave Burwick, President, and CEO of Boston Beers. According to Dave, in 2016, the company jumped into the hard seltzer business and targeted predominantly females.  By 2017, however, the strategy had changed to gender-neutral marketing and encompassed the well-educated, upscale consumer. As of this year, the seltzer market has grown from a one percent market share in 2016 to a potential 10% share of the market.  

According to Dave, until recently, Sam Adams had been the favorite child of the Boston Beers; but with the growth of Angry Orchard, Twisted Tea, and Truly, the hard seltzer; Boston Beers needed a culture change.  The company’s stated goal was to be number one in the seltzer category, but to achieve the said objective; it had to be the number one priority of the company. The dollar amount to achieve this goal was not an issue with management, but given the increased competition from both Bud Light Seltzer and Corona Seltzer; it became necessary for Boston to reformulate their liquid and thereby improve the overall taste.

The seltzer category is dominated by two brands, White Claw made by Mike’s, and Truly, brewed by Boston. Both brands have continued their meteoric growth within the category despite the Coronavirus and the multitude of closed trade channels. As seltzers continue to expand, expect additional competitors to jump in the mix, including MillerCoors’ Coors Seltzer, which will arrive later this summer.

In his Wall Street Journal post, Dave goes on to highlight the importance of understanding a company’s culture and one’s commitment to that culture. Boston Beers has certainly been able to make the necessary transitions, while continuing to be a leader in the industry.

It is doubtful that Jim envisioned the success of Boston Beers when he first began the adventure in the early 1980s, but it is easy to see that Jim’s greatest strength is his vision and his ability to recognize change when needed. Let’s wait to see what Boston Beers looks like when Jim turns 80!

Happy 71st, Jim.

May 27th, 2020

 Posted by at 6:00 am
May 122020
 

Philip Morris’ purchase of the Miller Brewing Company in 1970 changed the fabric of beer operations.  The purchase also marked the beginning-of-the-end for WWII and Korean War veterans who were, at that time, running the industry. The purchase simultaneously launched the takeover of the Baby Boomers within the beer industry. AB was hit right between the eyes by Miller’s aggressive marketing and immediately ramped up their efforts by initially hiring young, college-educated individuals, many with MBAs. Beer professionals of the Greatest Generation were not prepared for such a change in the industry. Many retired, while others moved to distributors before wholesalers changed to the pre-sell concept. Numerous distributorships were available to buy, often marketed for sale in the Wall Street Journal.

By the mid-1980s, the Greatest Generation had disappeared from an industry that was now run by Boomers. History, however, does repeat itself as we witness the last of the Boomers nearing retirement. Boomers born in the late 1950s and early 1960s are currently in their early 60s and late 50s; while older Boomers, those born immediately following WWII, have already left the industry, many due to InBev initiated cutbacks following the purchase of AB.

Crafts, often interested in designing their own unique business models, ignored experienced professionals and instead choose to employ young, inexperienced workers. The advent of the Coronavirus and its negative effect on the industry has impacted the craft brewers’ industry. Many crafts have gone out of business with more expected to follow suit. Even larger, more successful brewers have been negatively impacted by the virus in largely unanticipated ways. Brewers with employees in their late 50s and 60s are facing questions regarding the future of operations as the on-premise opens up and chains beginning to reset appointments.

Many older employees, who are considered more susceptible to the Corona virus, are not willing to leave their homes, yet brewers who are under pressure to ramp-up production, need these employees in the market. HR departments at the breweries will support older employees, while younger bosses and younger employees are out and making calls. What brewers could be facing is the fact that older employees might not feel safe until a vaccine becomes available; something which might not occur until next year. If such is the case, will HR departments support the older employees?

Employees in their late 60s could be offered attractive severance and retirement packages, similar to actions taken by InBev did in 2008. Such packages could be considered a win/win for both parties. Those in their late 50s, however, could be in a more precarious position. They may not yet be ready to retire; while at the same time may not be comfortable returning to the marketplace. How will brewers and some wholesalers handle such employees? As more accounts open, it might soon be all hands-on deck.

Even with the closing of the on-premise, many brewers and wholesalers have logged record sales days, weeks, and months. Now, however, brewers are experiencing a serious and unforeseen scenario. How companies deal with their employees will speak volumes.   

I don’t worry about a number; I am fine with aging.

 Posted by at 6:00 am
May 052020
 

During college, while working for Willowbrook, the Dallas Coors distributor, some of my time was devoted to keg routes. This somehow “qualified” me to be my fraternity’s official keg buyer for our renowned Ice Cream Socials which entailed 15 kegs of Coors and 10 kegs of Budweiser or Schlitz. Thankfully for me, the pledges were in charge of returning the empty kegs and equipment.

Over the years, kegs have played a large role in the success of the companies I worked with, whether it was running beer distributorships or as an importer. At some companies, the kegs were as much as 40% of a company’s total volume, something that was especially true at Warsteiner. Kegs have always been a profitable item for the three tiers, particularly during the years that wholesalers and brewers did not split handles. Throughout my time at Schlitz in Louisiana, the company enjoyed a 70% draft market share, while in some parts of Kansas, Coors also benefited from a 70% draft market share. Today, one can find accounts with more than 100 different flavors on tap from a variety of wholesalers. Some large on-premise accounts, like the Flying Saucer, honor those customers who work their way through the brands on tap by placing an honoree plaque on the wall of the establishment.  

As important as the keg segment has been in past decades, the current Coronavirus pandemic might change that model. Closing the on-premise killed both that segment and kegs. The cost of closing kegs is now surfacing.  MolsonCoors’ Q1 results show kegs’ aggregate costs in the $50 million range, with an additional $18 million lost in finished keg inventories which are not expected to sell. As bad as MC’s results are, wait until AB reports on their keg losses and write-downs.  The question is: how does the industry evolve the keg segment now assuming the on-premise business will not return to its previous state?  One can assume that in the immediate future, the on-premise keg segment will be much smaller due simply to mandated capacity restrictions.  Expect that both wholesalers and brewers are creating plans to mitigate any future catastrophes. The financial losses are staggering.

Is it reasonable to believe that the PTR for kegs might double? If the current margins increase from 35% – 40% to 70% – 80%, or more for both tiers, any future disasters might not be as expensive. If the overall percentages of keg business drops to five percent or less, will that be considered good or bad? Even with keg cost increases; retail could add an increase of a dollar per glass and still provide a good margin.

Ordering a pint in the future might be getting a pint glass and a 16 ounce can of beer, while some enterprising retailers might create this program with a 19.2 can.  Even pint glasses may disappear and be replaced by 16-ounce plastic cups.  No kegs, no pint glasses, just a 16 ounce can and a plastic cup.  All of which could decrease the retailers’ overall volume, but increase profit and minimize future losses due to closing and the resulting loss of business.

It is fair to say that, at least in the short term, the on-premise business will change, and it may never return to its previous state. For hundreds of years this country has socialized in taverns, now we are socializing over Zoom.

The way prices are increasing, the good old days have passed us by.

Editor’s Note: During the past week, the industry lost two former Coors wholesalers: Willie Davis, the Green Bay Packers Hall of Fame football player and former President of West Coast Beverages, and R.D.Hubbard, the previous owner of Coors of Kansas, owner of Safelite Auto Glass and horse racing tracks across the nation.

I worked for, or with both gentlemen. They were special people and will be missed.

 Posted by at 6:00 am
Apr 282020
 

Last week the White House outlined a three-phase process in which the country could reopen after closing due to the worst pandemic of our lives. It is during the second step that bars and restaurants could begin to reopen. There is no set timeline for this reopening, and the White House left the final decisions to the individual state governors.

Some of the states are in a better position to implement the reopening process sooner than others. But given the current status of the virus, it is safe to assume that most of the country is still looking at June before returning to a new normal, a date which is still about six weeks away. Even the PGA tour announced they expect to start their season the week of June 8th in Ft. Worth, although without fans at the games. At least it is a start.

In the recent IRI reports, the off-premise dollars and volume numbers still reflect growth, but not as dramatically as the recent four weeks had shown. Most wholesalers are seeing a slowing of the off-premise volume, but even those increases are not enough to offset the on-premise volume losses. Brewers and wholesalers are now looking into the future and making decisions for the next several months. A number of brewers have either reduced their staff by furloughing or laying off employees. Now, more wholesalers have done, or are considering doing, the same to their teams. Still others have decreased their staff salaries by 25% and implemented a reduced work week. Expect more of these reductions in the coming weeks as the shutdown continues.

The question is: will the real cost of the virus shut-down be the loss of sales or the toll that layoffs, furloughs, and salary reductions have had on those affected employees?  Brewers and wholesalers have worked hard to establish a corporate culture and environment to be able to attract and hold high performing employees. Will those employees who have been impacted by the cost-cutting reductions be as committed as they were prior to the virus? Many employees may be disillusioned and will have lost confidence in their company’s leadership. Expect some employees to transfer to beer companies who supported their employees during this crisis.

In the early 1980s, I was the owner and president of the seventh largest Schlitz Distributorship, geographically located in the southern-most point of Texas (The Valley), bordering Mexico.  During this period, the market was hit with a magnitude of issues: the devaluation of the Mexican peso, an oil embargo, the coldest winter in 100 years which resulted in devastation to the Valley’s citrus industry, and all while facing a 50% unemployment rate in The Valley.  I implemented a 10% across-the-board reduction in pay, and personally took a 20% salary reduction. That one decision, to reduce the pay of our staff, might have been the worst business decision of my career as employees lived from paycheck to paycheck.  There were not necessarily interested in the overall picture of the situation as much as they were in ensuring their ability to put food on their families’ table.  

While President of Warsteiner, the European economy was experiencing a 1.5 to 1 exchange rate with the euro, but Warsteiner itself was riding the largest third quarter in the company’s history from both a profit and volume view.  It was at this time that the owners decided to raise their price by four price points, slashed marketing in half, and laid off one-third of Warsteiner’s employees. This resulted in the Warsteiner U.S.A. losing 39% of its volume. Six months after these changes were instituted, the brewery admitted that it had made a mistake and requested that the prices be revised.  Twelve years later, their business still has not returned to those levels.

Those breweries and wholesalers that are able to keep their staff employed could see that commitment payoff for many years into the future. The companies that have no options, but apply their payroll reduction across the board, might also benefit if the companies apply for and receive support through the PPP government program and make those affected employees whole again.

As with the actions of the federal and state governments, when the virus is eliminated the second guessing game will begin and both breweries and wholesalers will be questioning their decisions. Thousands of people have been affected, but sadly, the worst may be yet to come.

Without loyalty, you won’t accomplish anything.

 Posted by at 6:00 am