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.
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.”
An article in Beer Business Daily last week focused on the Mark Anthony Group and their hot brand, White Claw. As a company, the Mark Anthony Group could be considered the personification of what it means to move from insignificance to viable vendor, for yet the second time.
In the 1990’s, Mike’s Hard Lemonade, a front runner among FMBs, was one the hottest brands of their time. Not only was their product selling at record pace, the company’s culture was envied by many. But in 2000, that all changed and Mike’s sales started to slip. New management was brought in, many of whom were from Gallo, and immediately the culture changed, key employees left, and the company began to struggle.
A year or so later, Mike’s annual sales meeting was held in Las Vegas. What was typically an easy location at which to entice distributors to attend turned into a challenge to get distributors to show up. In some cases, distributors were so reluctant to attend the convention that field reps even had to persuade them to do so. And once at the convention, many distributors walked out just 10 minutes into the opening session as they were so disgusted with the comments.
Eventually, Mark Anthony made changes, however, it was not until Phil Rosse took the lead role did Mike’s begin to move in a positive direction. Phil stated, “Businesses today need purpose, and the next generation of employees is looking for so much more than just a job. You need a reason to feel deeply connected to companies, businesses, and brands. So for many years now, we have been working hard to make Mike’s a different type of place to work. And by different, we mean something that attracts folks that want to be part of something special that we’re trying to build, and a place where every employee plays a critical role.”
Phil goes on to say, “We have been trying for many years now to create an environment where everybody wins. Obviously, there’s ownership, there’s management, but winning must be felt by all employees and all our partners. We want everyone associated with this business to feel like they are a part of the success. That, in our mind, is the Mike’s culture and we believe organizational culture can be as much a disruptor in today’s world as a new product can.”
The article in Beer Business Daily is extensive, but there were two other comments which provide additional insight on how Mike’s goes to market. Sanjiv Gajiwala, the marketing chief commented on consumer targeting: “We have not in our marketing been trying to identify or associate who, or what, a White Claw drinker looks like.” Phil added, “My perspective on category management, shelf sets, and space at retail is that it has always been our number one opportunity as a company. I think it (category management) is truer now than ever, is our number one opportunity as a company.”
There is no discounting the fact that superior products such as Mike’s and White Claw speak volumes in the success of any company, but in Mark Anthony’s case, Phil and his leadership team have implemented a winning culture.
It is apparent that Mike’s learned from their past, the question is: why is it others cannot see that, too?
Culture eats strategy for breakfast.
When Jerry Jones bought the Dallas Cowboys in the early 1990s, Texas Stadium was not owned by the football franchise; therefore, the venue was not subject to the rules of the NFL corporate sponsorships. After Coors passed on the offer, Jones sold the beer-pouring rights to Miller. Today, Miller Lite remains the beer sponsor of AT&T Stadium and finding another beer at AT&T is difficult at best.
Selling the pouring rights to sporting events is embedded in the beer industry and has been an issue for decades. In recent years, college stadiums and basketball arenas have sold their pouring rights. While one can find other brands to purchase at these venues, it is typically difficult as other brands are sold in out-of-the-way locations
The state fair of Texas hosts an open-air concert stage called, The Dos Equis Pavilion. At the pavilion, one can buy a plethora of beers brands, however, the name Dos Equis is liberally splashed throughout the pavilion. The amount of money spent by breweries on these venues is enormous, but this is part of the business and has been for many years.
The industry appears to be oblivious to the growing number of vendors who have been fined for illegal payments. Constellation Brands is the latest brewer to find themselves in a less-than-favorable position, having recently agreed to a $420,000 dollar fine for buying draft placements. This comes on the heels of Heineken’s agreement to a $2.5 million fine in April. Prior to these fines, Eagle Brands was hit for $1.5 million in fines and, of course, Warsteiner paid $900,000 in fines just last year. Remember, some distributors have also been fined. Brewers Distributing paid $350,000 and Elgin Beverages paid $325,000 in fines, both for illegal activity.
It is no secret that brewers, importers, and distributors are pushing hard for volume and market share regardless of the cost. But the question is: how do buying rights to a stadium or venue differ from the buying rights of a draft handle in an account? Is this another gray area? The industry sees the blurring of lines across all three tiers as brewers, distributers, and wholesalers brew and sell beer at the brewery and act as a retailer.
Any way you look at the current situation; it seems the industry has become oblivious to announcements that another fine has been levied for some type of illegal activity or payments. As the size of the pie continues to constrict downward, expect to see more fines.
Gradually, many of the previous restrictions in the industry have either been eliminated or loosened. An example of such is the fact that professional athletes are now able to represent a brewery or beer. So where does this end? Or perhaps a more appropriate question is: in what direction will these actions lead and how will the consequences affect the future of the beer industry?
Not listening results in misunderstandings and conflicts.
Jim Koch celebrated his 70th birthday yesterday, May 27th, and as a tradition with these pages warrants, we annually revisit Jim and Boston Beers on this date. Because this is Jim’s 70th, this year is most relevant in the future of Boston Beers.
The company has evolved into one that is perhaps more in-tune-with the consumers’ wants than any other current beer company. Boston’s portfolio is extensive, but their brands, like Twisted Tea, Truly, and Angry Orchard, have transformed the company. Where Boston’s great beers once led the charge, they are now secondary in volume sales; and their alternative products are primary in volume sales.
Several years ago, Boston Beers’ future was being discussed by many industry and Wall Street pundits. The company’s recent successes in alternative beers now has Boston’s stock price at or near all-time records! Their short term future outlook has changed dramatically.
Recently, the on-going question for Jim has been: what will the future hold for the company as Jim aged. That seems to have been answered with Boston’s recent announcement regarding the purchase of Dogfish Head and subsequently, Sam Calagione will be joining Boston’s team.
As structured, the deal was certainly a win-win for both companies with both portfolios’ merging. Even their individual distributor networks are workable as over 50% of distributors have both brands in their houses. The key to this acquisition is that Jim and Boston now have a 50-year-old, passionate, and motivated craft beer leader who can assist Boston and Dogfish going forward. On the surface, it looks like a perfect fit for both companies, but only time will tell. In the past, the industry has seen similar ventures which initially appeared to be a good fit, but then things changed, and ultimately the the merger did not work out according to plan. This one, however, looks to be different.
So the question going forward is: now that Boston and Dogfish are together, will there be more acquisitions by Boston? Jim has commented recently that he has been offered over 50 such deals, but passed on all until Dogfish presented itself. Of course, when your company continues to grow, its stock remains at or near highs, and you lead in new products and categories, it puts the company in a position to be very selective as opportunities present themselves.
It appears that Jim’s wait-and-see approach is working. Given the current craft trends, that wait-and-see approach is the right hand to play.
No doubt this next decade for Jim will be very interesting. Happy 70th Jim!
May 27th, 2019
As the title of this blog states, the subject matter for my writings is truly limitless! The inspirations come from my real life experiences of more than 50 years in the beer industry, providing fodder for the inspiring topics covered over the past seven years. Frequently when asked about my knowledge of the industry, I share stories concerning the companies I have managed, the brands I have represented, and recently, about my teaching assignments, and consulting jobs.
Though questions often center on what involvement I have had in the industry, some inquiries are less focused on the mundane and more so on the exciting and less talked about aspects of this business. Like the dead bodies I have seen in bars, the outlines of human remains on bar floors, the beer stolen from my truck, the retailer who pulled a gun on me, and even the retailed who pulled a pistol from his pocket and began shooting at a rat running across the floor of his establishment. I have also seen brewery executives fired for stealing, taking bribes and kickbacks, wholesalers trans-shipping beer, selling beer outside of their territory, altering the liquid in the kegs, falsifying bill-backs, and even hiding out-of-date products.
Of course, I have witnessed many employees partaking in the same tricks and once even knew of an individual who worked in the field for two different breweries at the same time! And, he was a full-time employee for both companies. The special considerations asked for by retailers have ranged the gamut from legal to illegal and everything in between. Unfortunately, I have seen many breweries accommodate those requests.
On the flip side, I have witnessed a tremendous amount of good in the beer industry. For example, many wholesalers and breweries have provided help to victims of natural disasters; countless in the industry have hosted charity events for veterans’ organizations; and many have provided opportunities for fund-raising events to support local needs. I am happy to report that the good that is being done in the industry far out weights anything shady.
Perhaps, when asked: “What have you done in the beer industry,” rather than answer with the historical overview of my previous positions, I should respond: “I have done and seen just about everything one can imagine in an industry that has a far-reaching impact on many.”
The subject material for these blogs is unending.
Editors note: There have been some technical difficulties with this site, we are trying to resolve these soon. Thanks.
Cinco de Mayo was celebrated last week and though the numbers for the weekend have yet to be released, the industry expects to see the continued success of Corona, Modelo, Dos Equis, and other Mexican beers. This growth did not happen overnight. It took these brands many years and hundreds of thousands of dollars to become major selling volume beers in the U.S.
Other imported beers have tried to penetrate the U.S. market, and while some have created a nice business, most have been unsuccessful. Those that were not as profitable have either left the country or have maintained a small, yet viable business concentrating on the CDI/BDI indexes where they have a fair chance to create volume.
On the other hand, American crafts that have attempted to launch markets overseas have also struggled to establish themselves as viable companies. Some brands have been successful, and some, like Stone, have not flourished and consequently have left Germany.
With the exception of the Modelo brands, no other imported brand has become a disrupter in the U.S. market. To date, other imports lacked the knowledge, resources, and/or the desire to build their brands. That, however, may soon change.
In a major announcement last week, Lion published that Simon Thorpe, the former CEO of Pabst, has been named CEO of Lion for their U.S. market. Kirin, which owns Lion, is also the owner of a number of Australian and New Zeeland breweries and beverages, some of which have been imported into the U.S. The company brings with it years of leadership experience in operating U.S. companies. Other major American investments made by Kirin include Coke a Cola bottling of Northern New England and the partial ownership of Brooklyn Brewery and Four Roses Distillery.
With more than 7,000 employees, Lion could easily be considered a disrupter. The question going forward is will Lion be the disrupter or will Lion become more like Sapporo. This brewery moved into North America with their purchase of Sleeman in Canada and have since purchased Anchor in San Francisco. Sapporo has a major presence in both the U.S. and Canadian markets, but has yet to move the needle in either. The reason could be that Sapporo is taking the long road and not pushing for immediate results.
Lion could well employ the same strategy, but with Simon as CEO, coupled and the current beer environment in the U.S., Lion’s timing puts them in the perfect position to play the disrupter.
No doubt that Lion has the key parts to become a disrupter: resources; leadership; partnerships; investments in the U.S.; and worldwide success. The industry will know Lion’s ultimate goals by the end of 2020 and they could be interesting.
This is the age of disruption.
MillerCoors released their first quarter numbers last week, and once again, the results were worrisome. Depletions were down -3.8% and shipments were off -2.7%. In the fourth quarter, depletions were off -5.1% and shipments were off -8.9%. Perhaps a more telling stat is that MC’s first quarter negative numbers were up against 2018 negative numbers, depletions down -3.8% while shipments were down -6.7%. This trend in negative numbers continues not only MC but also for AB.
While recently visiting with employees of a large AB distributor, a former, long-time employee put the negative trends into perspective. In the almost 30 years this individual had worked at AB, Budweiser had lost volume every year, yet even today, Budweiser remains the fourth largest volume brand in the U.S.! This is remarkable.
At the same get-together, it was announced that senior management had decided to add a spirit line to the company’s portfolio with the hopes of bringing in local spirit and wine brands. Obviously, this large AB wholesaler was looking to the future, as are AB and MC by rapidly adding to their product line. The conversation moved to the effectiveness of this AB wholesaler given the fact that they will now compete against W&S houses, including Southern Glazers, Republic, Diageo, Brown-Foreman and other powerhouse companies and brands. Keep in mind that Tito’s is a regional product from Texas and will also be considered a competitor.
Southern Glazers and Republic have both attempted to enter the beer side of the industry with little to no success despite the fact that both distributors have states with competitive beer portfolios. Neither company, regardless of the brand quality, however, can compete against the beer guys in servicing the market. This is because the marketing of beer is so distinctly different from that of wine and spirits.
Unless a beer distributor is fortunate enough to acquire a successful brand like Tito’s, competing against powerhouses Southern Glazers, Republic and other large W&S companies will be difficult. Such an acquisition will take resources from what could otherwise have been spent on their malt business. A more successful model can be seen in the Northwest beer house, Columbia, where both Constellation beer and the W&S segment consolidated under one roof.
Many industry pundits have provided their opinions as to why the industry and brands continue to decline. Some say it is pricing while others tout the decline is due to marketing (above the line). Either way, the negative trends persist.
As the fall-out of craft breweries continues, it will not be long before wholesalers identify which crafts to invest in. Spreading a limited dollar amount among 20 to 30 crafts has little effect, but when that amount of vendors is reduced to 10 to12, a wholesaler might experience the unexpected… greater success.
The key is not to prioritize what’s on your schedule but to schedule your priorities.
A couple of weeks ago Tiger Woods won his fifth Masters tournament and subsequently his 15th major win. This was Tiger’s first major win since the U.S. Open in 2008 and his last Master’s victory in 2005, some fourteen years ago. Just two years ago, however, Tiger’s back pain made walking difficult and returning to competitive golf seemed a distant memory.
Tiger Woods’ golf career has been a roller coaster, to say the least. The multiple back and knee surgeries coupled with his personal problems had many pundits believing that Tiger would never win again. His come back is remarkable in lieu of what he has overcome; however, Tiger’s true transformation is his outlook on life. A transformation that is perhaps even more notable than his golf comeback.
it is safe to say that during Tiger’s early years on the tour, he was cold, distant, and aloof. Now, after multiple physical and personal problems, Tiger is a changed person. It is obvious that he is grateful that he can play again, compete, and win! Tiger is happy to be in his own skin right now and it shows. He is a changed man.
A recent article in the Wall Street Journal focused on the changes in Carlos Brito, head of AB in the U.S. AB has been driven by 10 years of declining sales and market share, coupled with a heavy debt load from the acquisition of other breweries including SABMiller.
But Brito has transformed his management style: once an advocate of zero-based budgeting, cost-cutting, and headcount reduction, Brito is now transformed. A true numbers cruncher, Brito has reduced the quantity and length of meetings; he has eliminated non-marketing people at the meetings, and he has increased the number of women in the company.
The article goes on to state that Carlos has freed up his time to take crash courses in AI and robotics, while focusing on new ventures like the Keurig machines for cocktails that the company is reviewing. Carlos goes on consumer safaris, shadows millennial shoppers overseas and visits other consumer companies including Starbucks and Harry’s to gather pertinent information, and he has even spent time learning about the coming Blockchain robotics and applications. Brito has all done this while shuffling his senior leadership team and increasing the number of marketers. His hope is that these changes will slow the decline of Bud and Bud Light while pushing new brands and products like hard seltzers, cold-brew coffee, and canned cocktails.
Assuming he remains in the leadership role, Brito’s legacy will be chronicled at AB, but that is yet to be determined. Tiger’s legacy is already written regardless of how he performs going forward. Tiger’s legacy will not be what he accomplished but what he did not accomplish. That begs the question: will Carlos Brito’s legacy be similar to Tiger’s? Will Carlos be remembered for what he did versus what he did not do?
The greatest accomplishment is the not fact that one never fails, the greatest accomplishment comes in rising after the fall.