Aug 202019

In the early 1970s, when Miller Lite hit the market and started to gain drinkers, Coors, and subsequently AB, jumped on board with their own versions of light beers. Both breweries’ first editions of light failed.  Coors Light redesigned their can color, changing it from a buff to silver; while AB changed their name from Budweiser Light to Bud Light. The rest is history.

At the time, Miller Lite was on fire, so both AB and Coors stayed the course. The light segment was viable but other breweries including Schlitz, Pabst, and regionals joined the trend with their respective versions of light beer. These beers, however, did not stick. When Corona caught fire and the industry realized that Corona was not a one-night stand, AB and Coors introduced Mexican-named beers in an effort to be competitive, both of which had little, if any success. 

Think about all the unique beers that have been tired over the decades, dry beers, ice beers, LA beers, even NA beers just to name a few.  None, however, have been successful. The beer industry has historically been nothing more than a copycat trade.  For example, Michelob Ultra, one of, if not thehottest brand around, has had multiple breweries attempt to copy Ultra’s success with their own low carb beers. MC, Heineken, Pabst, Modelo, and a slew of crafts have all introduced an Ultra knock-off. With the possible exception of Corona Premier, all the copy-cats have fallen by the wayside.

The talk of the beer industry is the unbelievable growth of the seltzer segment led by White Claw and Truly. White Claw is the hottest brand the industry has seen, while Truly currently represents approximately 40% of Boston Beers volume! This is remarkable. The growth of the seltzer segment has not gone unnoticed by the other players.  AB, MC, Pabst, and others have all introduced their own seltzer labels. To date, these brands have not even dented the growth of White Claw or Truly consequently these breweries are now moving to round two.

Pabst has introduced a higher ABV seltzer anticipating that this will drive sampling.  White Claw is now moving to a lower ABV with a higher price point. The real disruptor could be AB with Natural Light Seltzer. Natural Light is a long-established successful brand which is very popular with college students and millennials. With Natural Light’s Seltzer at a slightly higher ABV and with a price point much lower and in line with Bud Light, anticipate these younger drinkers to try the brand. A higher ABV and higher price point may play into the hands of White Claws and Truly with little to no success, but the Natural Lights Seltzer could be the label needed to crash their party.

Will the seltzer segment eventually pass the craft segment? Only time will tell, however, look for the major breweries to continue to bring new seltzers to market, all hoping to gain some traction. What is certain are the headaches and problems wholesalers and retailers will have with these new brands.

You should learn from your competitor but never copy. Copy and you die.

 Posted by at 6:00 am
Aug 132019

Over the years many books have been written about the beer industry.  The majority of which have dealt with the industry’s history by focusing on brands, breweries, individuals, and historic cities including  Chicago, Milwaukee, St. Louis, and Cincinnati. One such historical piece was written by Maureen Ogle, Ambitious Brew.  Other books have centered on brands and importers from a more personal perspective, including Bitter Brew, by William Knoedelseder, which told the story of the rise and fall of AB. The Beer Monopoly, written by Ina Verstl and Ernst Faltermeier delineated the history of Interbrew’s transformation into InBev and the subsequent takeover of AB and the evolution of AB-InBev. All these books dealt with historic events which have shaped the beer industry and made it what it is today.

But why are there no books written on the history of beer distributors? Outside the NBWA, which represents the middle tier, not much has been written or acknowledgement given to beer distributors. One can glean the number of employees, tax dollars, community involvement, and other key metrics that wholesalers contribute to America through the NBWA site. 

The industry has been built on the backbone of beer distributors since the repeal of prohibition. There is very little, however, on the wholesalers’ history.  The consolidation of the middle tier means much of this valuable part of the beer industry has lost something. . Wholesalers, as with breweries and brands, are losing a segment of their history. 

GLI, a successful distributor created in 1982 with the purchase of the second largest Schlitz distributor in San Antonio, just announced it was selling out to Glazer’s Beer and Beverage. GLI survived all these years without MC or AB in their house. Another longtime wholesaler in Chicago, Skokie Valley, owned by the same family for four generations, sold out last year. Skokie Valley, like GLI, did not have MC or AB brands. They survived with Modelo, Old Style and other high-end crafts and NA’s. GLI, became successful through the distribution of Shiner, Dox Equis, Boston Beers, and other high-end crafts, but the distributor was also was one of Pabst largest distributors with Lone Star. Both these distributors, along with others still around like Skokie Valley and GLI, were successful growing their business, but have at some point decided the time was right to move on.

Each time one of these distributors sells out, the industry loses a little piece of itself. These companies were family-owned and their employees were part of their family. One could say it was the “little guys” against the “big guys.”  Such a culture is not evident in today’s mega wholesalers. Someday a book will be written about the importance and history of beer distributors. It is the least the industry can do to remember how it once was.

He who refuses to learn deserves extinction. 

 Posted by at 6:00 am
Aug 062019

The term “disruptor” or “disruption” is the current go-to expression for many industries that want to use the vernacular to describe new products or key employees. One might even consider the word “disruptor” the business model de jour!  The key question is: how does this label, “disruptor” apply to the beer industry? From a distance one might think the industry is nothing but disruptions, while in reality, it is just the opposite.

When thinking of major product launches that created a new segment, one would certainly think of the impact the light beer introductions had in the 1970s.   Driven by the boomer generation, the introduction of lights to the market would be considered a disruptor to the status quo. In just a few years, light beers became the largest selling segment in the industry as beer drinkers left regular beers in droves. The rise of Corona, and what Modelo accomplished, could also be considered a disruptor.  And of course, the growth of crafts has definitely disrupted the industry.  What might be the biggest disruptor in years is the seltzer segment.  Seltzers could be the latest example of a disruptor in the beer industry.  Or is it too early to make such a declaration?

Both companies and individuals can be considered disruptors.  When Philip Morris bought Miller Brewing, and brought the concept of marketing to the industry, Philip Morris was a disruptor. Russell Cleary of G. Heileman had what might be considered a disruptor model by acquiring a number of breweries and assigning brands to different distributors in the same market. This business model of pitting distributor against distributor was disruptive, but the distributors ended this by changing their state franchise laws and eliminating the brewery practice. Was Paul Kalmanovitz a disruptor as he acquired many regional and national breweries and brands? Probably not. Perhaps one would think that Jim Koch of Boston Beers is a disruptor? If not, Koch’s influence on the industry has helped create the craft or better-beer segment.

In recent years, the beer industry has been faced with what could be the greatest disruptor in its history, cannabis. As the cannabis industry expands, it will have an effect on beer sales and the distribution to the consumer will be a disruptor. What is an unknown is just how much of a disruption cannabis will be. Only time will tell.

Either way, when one looks at the beer industry one could either say the industry has been in a disrupted state for decades based on the changes in brands/segments. Or one could say that the beer business is not a disruptive industry due to the structure, laws, and state franchise protections. Simply put, the structure of the industry, in itself, is the disruptor. If that is the case, we will not know for decades to come.  

This is the age of disruption.

 Posted by at 6:00 am
Jul 302019

After years and years of chasing, buying, and stripping companies, InBev announced, prior to the release of their latest earnings report, that the company has sold their Australian business to the Japanese brewer, Asahi, for $11.3 billion. ABI said they sold that business to reduce their massive debt, which was brought on by the recent SABMiller acquisition. Selling this piece of InBev’s Asian business is considered their plan “B.” InBev had originally attempted a public offering of their Asian business, but reneged as it seemed ABI could not get the valuation they desired.  According to the pundits, this sale and reduction in debt puts ABI in a position to acquire more acquisitions in a faster growing market. If that is the case, how do the U.S. AB distributors feel?

The recently released second quarter results for ABI reflect higher revenue and earnings driven by their global market, led by Brazil and other countries.  Once again, though ABI’s global results look good, their U.S. results are not good.  ABI’s market share in the U.S. dropped .55%, in addition to a.1% loss in the first quarter. ABI blamed these results on raising prices, needed as a result of increased costs. ABI also announced that Michelob Ultra is 10% of their U.S. business, and still growing.

Are the pundits correct in saying that ABI’s business model is simply to buy and gut companies, but not sell them?  This seems to hold true concerning ABI’s goal to reduce their $104 billion-dollar debt. Yet, why are they are selling their highly profitable and mature Australian business, something ABI never does, only to reduce debt, then return to  the same debt-laden situation?

While it is hard not to admire what ABI has accomplished globally, the question is, can their business model continue to work while losing substantial market share in the U.S.? And, at the same time, SABMiller’s debt seems to have changed ABI’s operating strategy.

There is no reason that logically indicates any short-term changes for ABI. In fact, there may be a sense of urgency in their offices to get something done, and done quickly. Whatever happens, the industry and the world will soon know.

I never think about the future – it comes soon enough.



 Posted by at 6:00 am
Jul 232019

In the last 35 years, no brand has come close to the growth of Corona. The brand went from being in a position of not even having a hand full of distributors who could sell a layer of the beer, must less a pallet, to the current situation of now selling over 150 million cases of Corona.  The beer industry has never seen anything like Corona, though recently Modelo, Michelob Ultra, and perhaps White Claw have given Corona a little run for their money. 

In the early years of Corona’s growth, the brand was distributed by Barton Beers and Gambrinus, each of which had the western and eastern halves of the United States, respectively.  Years ago, Barton Beers acquired the rights to all Models brands for the U.S. at which time the importer became Constellation Brands. Constellation Brands’ timing could not have been better as ABI soon bought the Modelo Brewery and spun off Modelo’s U.S. business to Constellation Brands.

Modelo’s growth continued under the leadership of Constellation Brands, but success subsequently produced changes. Constellation Brands bought Ballast Point and distributed those beers throughout the country. Constellation Brands then introduced a number of line extensions, some of which were successful, including Corona Familiar, and more recently Corona Premier.  But at what cost did these changes come? Corona Premier, Modelo’s answer to the success of Ultra, has cannibalized Corona Light, and in recently published data, even Premier is slowing in growth.

Of course, there is also Constellation’s investment in Canopy, the Canadian cannabis company which, to date, has not been a profitable investment. With a $245 million loss in the U.S., Canopy may never be profitable. 

With Corona Refresca, Modelo now has a new entry into the spiked water and seltzer segment. The new FMB segment that is on fire are those products low in ABV, calories, and carbs.  Yet Modelo’s Corona Refresca is high in calories at 199, which means high sugar and carb content. Is this type of product what today’s consumer is looking for? It does not seem so.

For decades, Barton Beers and Constellation Brands were the industry leaders.  These companies were leaders, not simply in the fact that they produced top selling beers, but also leaders in their program development, marketing, and media productions. Corona was the envy of the industry. It seemed that they could do no wrong and everything they touched turned to gold.

Not anymore! The question becomes:  how many more investments will Constellation Brands make while the recent products and companies struggle? The first indication is what happened to the recent CEO of Canopy, one of their founders, who was asked to leave the company.

In the not too distant future, Constellation’s brand managers will be removed, agencies will be fired, new agencies will be hired, senior management will leave, and new management will realign the structure to “be more responsive and quicker to react to the changing market.” Constellation will follow AB, MC, Heineken, and others. It is not just a matter of if; it is more a question of how much longer?

Sometimes, very competent people make errors!

 Posted by at 6:00 am
Jul 162019

This post begins the eighth year of Beer Business Unplugged.  As I have done for the past seven years, I will comment on the previous year’s posts and industry issues.
The February 19th post, Success and Failure are Both Part of Life, was the most read post for the year, and it also set an all-time record for the most read post ever! Success and Failure told the story of the reincarnation of Austin’s Celis and the struggles of the brand.  The post brought a multitude of responses from all tiers in the industry, many advocating that Celis was, in fact, a viable brewery. In recent weeks, the industry learned that Celis has gone out of business and two weeks ago, filed for bankruptcy under chapter XI.
The Celis story was one of the many lamenting breweries that had closed or sold over the last year. It seemed that every week there was another blog about another brewery closing. This trend appears to be continuing over the next year.
Another shift which seems to be gathering some steam is the growth of sessionable or light crafts. More and more brewers are adding a low ABV and lighter flavor to their portfolio. Call it the Ultra effect, but it will continue.
Breweries by Population

There are two other key developments which have continued to capture the industries sights during the past year.  The first is the cannabis situation which seems to be losing traction at this time, and the second is the continued and amazing growth of seltzers and spiked waters, led by White Claw.
Once again, I want to thank the readers who have sent comments and thoughts, they are always appreciated and helpful. I look forward to the continuation of this blog throughout the coming year.
This year’s classic Schlitz commercial.

And now, on to year number eight….

 Posted by at 6:00 am
Jul 092019

In a conversation several years ago with a distributor who had recently sold his large, successful operation, the distributor commented on the challenges he encountered trying to train and maintain company employees. As an illustration, he referred to the tradition of sports teams and the amount of training and preparation, often a full five days, for a mere three-hour game.  The distributor noted the length of practice in regards to a relatively short game and acknowledged a similar training system used by the United States military, noting the importance of superior training techniques in the event soldiers were called to duty.

When one looks at the beer industry, it is quickly evident the amount of time invested into craft beer training. A recent article in the Dallas Morning News, “Jobs Data Helps Track the U.S. Brewery Boom,” highlights the job growth of the brewing industry.  The article stated, “The number of jobs at breweries jumped from 26,380 in 2008 to 77,902 in 2018, according to the Bureau of Labor Statistics.” This parallels the growth in the number of operating breweries.

The article further states that there is also a regional variation to be found. Some regions, or cities, have more breweries than others. To sort this out, an “employment location quotient” provided by the BLS for states, metropolitan areas, and countries was in each industry. The BLS measures an industry’s share of total jobs in an area divided by its share nationwide. In Bend-Redmond, Oregon, population 191,000 in 2018, one is 18 times more likely to run into a brewery worker than in the U.S. as a whole.

This article goes on to state that the BLS will suppress data so as not to reveal employment and wage information that can be traced to a single employer.  For example, in Chico, California, home to Sierra Nevada, and in Pottsville, Pennsylvania, the home of Yuenglng, the data is suppressed. The data translates into salary ranges, thereby illustrating that an AB brewery or a MillerCoors operation would have the highest pay. The metropolitan areas with annual brewery wages of $80,000 are indeed home to major AB breweries. In the craft world, San Diego, which has 128 breweries, has low wages, as would be expected.  Employment, however, has more than doubled since 2014. The annual wages on the low end of the scale are $23,049 in Niles-Benton Harbor, Michigan and the highest in Syracuse, New York, at $89,675. The brewing industry only accounts for 0.05% of total jobs in the U.S. 

Many craft brewers struggle to find quality employees as referenced by the low salaries. These brewers can find bodies, but without the proper, on-going training, how well are they going to perform? Many of the young beer people have some type of Cicerone training, which does aid with the understanding of beer, but may not necessarily translate into sales.

The old adage, “you get what you pay for,” could not be more evident than in today’s beer industry.  It is easy to equate a breweries’ payroll to their success by using the above mentioned statistics. If a brewery wants to be successful, they should pay for talent instead of simply acquiring more employees.  Not only will the brewery benefit, but so will the wholesalers, retailers, and consumers

Money and salary are not particularly good motivators in the long term.

 Posted by at 6:00 am
Jul 022019
Also last Friday, the state of Texas filed a tax lien against Celis Brewery’s parent company, FFBC Operations LLC (which also operates as Flemish Fox Brewery & Craftworks LP).
Christine Celis, who 
resurrected her late father Pierre Celis’ long-shuttered brewery in 2017, did not return requests for comment.
Messages left for representatives from Amplify Credit Union and Streusand, Landan, Ozburn & Lemmon LLP were also unreturned.
Additionally, Celis is facing a trio of liens filed earlier this year against the company for thousands of dollars in unpaid construction and electrical work.
In an “affidavit claiming lien” dated February 1, Hill Morrison of Hill Morrison Construction Services claims that Celis owes “at least $271,872.81” for the construction of a beer garden and remodeling work.
According to a second “affidavit claiming a lien,” dated March 15, R&M Electric owner Rick Hendrick said his company is owed $8,211.85 for electrical work done at Celis in November 2018. Also on March 15, Elliott Electric Supply Inc. filed a “mechanic’s and materialman’s lien affidavit” seeking $5,058.80 from FFBC for materials provided to R&M for work done from October to December 2018.
Brewbound reported in May, rumors of financial struggles, layoffs, and a potential bankruptcy filing dogged Celis throughout the beginning of 2019. At the time, a new investor group was considering acquiring the distressed brewery. Sources told Brewbound then that the Celis operation was in trouble soon after opening in 2017, after overspending on a 50,000-barrel brewery in northwest Austin and relying on financial models that required high double-digit, year-over-year growth in order to service debt.
Last year, Celis’ production increased 320 percent, to 11,339 barrels of beer.
According to a “modification and extension agreement” filed with the Travis County Clerk’s Office this past April, Flemish Fox Brewery & Craftworks reached an agreement with Amplify Credit Union to suspend payments on the principal $5.3 million note it first took out in March 2016, from February 1 through July 1, 2019. The company was to resume payment on August 1, with the total balance to be completely repaid by September 1, 2037.”

The above is from Brewbound, at the time of this posting, Celis has not filed for bankruptcy, however, it is expected to do so soon.

 Posted by at 6:00 am
Jun 252019

Over the years, we have visited various beer industry shifts in consumer preferences. Many changes have been the result of the consumer altering the beer segments and brands. Such swings have included the rise in light beers and the growth of imports, led by the Mexican beers, primarily Corona. In the last 20 years, we have seen craft beers develop, create their own segment, rise rapidly in popularity, and in recent years, we have witnessed a slowing of growth in crafts.

Consumer shifts in beer products do not happen often, but it seems the industry is now experiencing one such move. Industry pundits have unloaded as to why the industry is contracting and why crafts have slowed. It is, however, becoming crystal clear to all that the Millennials are shifting their consumption from crafts to now preferring low ABV, low carbs, clear liquid, and gluten free FMBs and Seltzers.  This is not a shift characterized by moving into the “better” beer segment, as has been witnessed in the change from domestics to crafts; it is more along the lines of shifting to healthier made products… at least in the eyes of the Millennials.

A post from Labor Day last year highlighted the success that FMBs and Seltzers were having with product placement, usually being positioned in the high-priority end-caps in the liquor stores. In that article, we highlighted the early success of this segment but also questioned if these products were only seasonal or if they truly possessed what it would take to become long-term players. It is clear that FMBs and Seltzers are not the typical one-and-done creations.

It is also clear that the distributors are supporting FMBs and Seltzers. Distributors are chasing many new products in this segment as witnessed by the Mark Anthony group and the fact that White Claw went to distributors outside Mike’s current network. This is taking a page out of the old G. Heileman book which had distributors compete against each other by awarding Heileman products to different distributors.

The focus in which the distributors have been placed on this segment has negatively affected the sales of crafts.  The shift shows that the consumers of such products are coming from the craft segment as verified by the monthly shipment reports.

FMBs and Seltzers are packaged in cans, have great margins, and play in the premium price segment. What more could a distributor ask for?  The products are coming from large vendors, not the typical small, under-financed craft brewer; and the results are across-the-board-marketing, chain support, and field sales support. All the parts are there to make this segment work.

The craft segment, much like the domestic light beers, will not disappear; however, one can expect the craft segment to continue to struggle, even as many crafts shift from hop-bombs to lighter craft liquids.

Where this seltzer segment ends up and where the next new segment comes from will be interesting to see. The next generation will soon tell the beer industry what it needs to be.

If you do not change direction, you may end up where you are heading.

 Posted by at 6:00 am
Jun 182019

Last week’s post highlighted the story of the Mark Anthony Group. The account of Mark Anthony is not as much about their hot product, White Claw, as it is about how the company made a complete turn-around. This is a bit of an anomaly in the industry as most turn-around stories are about the brands themselves, not about the actual beer company.

There have been a myriad of stories about Schlitz in these posts. A brand that could not have been saved despite the fact that multiple leaders tried and millions of dollars were spent. Pabst is another story, albeit one with an asterisk. Notwithstanding a small revival some years ago, and multiple owners, Pabst is now struggling.

Many regional brands, long since departed, have attempted comebacks under different ownership. None have succeeded, although several appear to be riding the proverbial roller coaster. Examples include Rainer and Lone Star, both of which are owned by Pabst, and both of which have managed to become more relevant in their regional markets.

Because crafts, many of which have not been existence for 10 years or more, have a shorter history, they do not fit into this category of come-backs. Older crafts like Sierra Nevada, New Belgium, and Boston have either morphed their portfolio to ensure success, or have simply ridden the ups and downs from year to year. The glaring exception is Yuenglng, which, under the same ownership, continues to excel regardless of how or what the industry is doing.

Wholesaler’ degree of success is not relevant when discussing the topic of turnarounds because success is more directly tied to that of their suppliers. Even wholesalers, whose volume for decades consisted of brands like Schlitz or Pabst, survived if they could capture a brand like Constellations Brands or Heineken in their house.   

Obviously, wholesalers who were not as fortunate to have afore mentioned vendors, have since sold out or closed. A wholesaler who finds themselves in a crisis is most likely in that position due to their portfolio; and in almost all cases it does not matter who is in charge. Without the bullets, you are firing blanks.

Importers are the one segment where a change in leadership can and does make a difference. With the right leadership a restructuring and direction change can turn a small to medium-size importer around.

The beer industry is not one of turn-arounds. This is an industry which needs the right product at the right time; a product that will be supported and enabled to move in the right direction with a clear understanding of who and what that product is.   Victory is never going to happen when a beer attempts to be something that it is not, can never be, and prevents the brewery and the products from ever being successful.

Spending resources in an attempt to be something that will never happen is a waste and a pathway to failure. A crisis in beer is not about leadership, it does not have to be a crisis if the proper leadership is in place.

Careers are made in times of “crisis.” 

 Posted by at 6:00 am