July, 2012 | Beer Business Unplugged

Don’t tell me it’s raining down my back when I know it’s not rain.

Jul 302012

I hope you have been following the dispute between Alliance Beverage and Four Peaks Brewing which has lately been the topic of many publications . This issue is much larger than whether or not a “commercial agreement” existed between the two companies, it does however, demonstrates just what can happen when two companies are between a rock and a hard place. I have an interest in following this as Glazer’s is an owner of Alliance so I had contact with them when I was at Glazer’s.

This issue reminds me of two recent situations in which I was directly involved that personify how many vendors view wholesalers. First, I had a large distributor who told his vendors, myself included, that he would never hold any vendor hostage if they wanted to leave if the business agreement wasn’t working out for them. Just inform him where the brands would go, and he would try to make it happen. When I had the opportunity, and it was appropriate, I requested that we be allowed to find a new distribution network. He leaned back and responded to me, “you really think I meant that?”

Secondly, another large distributor (same summer) with performance issues, was asked to sell our brand. He agreed, but the corporate office did not. They did however, sign a performance based agreement stating that if any metrics (the distributor submitted the goals) were not accomplished over the year, they would sell the brand to the proposed buyer. After 11 months the review took place, none of the metrics were made, and the corporate office said they would not honor the signed agreement and would not sell the brand.

Two separate distributors, on two separate occasions, had no intention to honor their statements and or agreements. Understand that the volume of the combined distributors was over 25% of my US business. Two examples of how distributors “hide” behind state franchise laws.

Many of you are saying that it’s a “two-way street” and you’re right! I can also recall numerous times when the vendor came in and either “forced” or tried to force a distributor out, even going so far as to send a team in to do a 90 “blitz” in the market looking for any deficiency they could find. One which I will discuss at a later post as an example of this is G.Heileman vs. Maletis Beverage in 1991. You might be thinking that these are “isolated instances” but they are not.

Say what you will, franchise laws weren’t designed with this in mind. If a vendor has a performance issue with a distributor, you’d better listen, however, if the distributor wants to DQ a vendor, there isn’t any legal issue, is there? So, a distributor can DQ a vendor, but a vendor can’t DQ a distributor without at least some compensation! Think about it.

The Alliance and Four Peaks conflict is just the tip of the iceberg. With hundreds more craft breweries coming they will need wholesalers and vice a verse. So the question then becomes, how do they get along and what is the role of franchise laws in the future?

Just don’t tell me it’s raining down my back when I know it’s not rain……

“You are what you are!”

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Jul 242012

Bill Parcells, the head coach of the Dallas Cowboys, was asked about the mid-season record of the team, which was at 500, said, “you are what you are!”. In this case, an average team.

In the last 50 years our industry has seen a number of dramatic mergers and acquisitions, some good, some bad but none as dramatic and game changing as the coming of InBev. Since its creation less than 10 years ago InBev has altered the landscape of the global beer industry and specifically in the US. In 2008 we saw InBev take over AB in a well thought out and strategic plan. Now we see that they, ABI now known, have acquired Modelo. Their portfolio consists of #1 Bud Light, #1 import Corona, Stella, Modelo Especial, Beck’s, etc…… on and on. They hold the dominate position in the US – period. Now let’s think about the “what if’s” and “what’s it really mean?”

Only the three-tier system now stands in ABI’s way now of more control over the industry as they continue to acquire the brands that hold share. As we know there are many blue/silver distributors that have the Modelo brands. This is beginning to mirror the old Russ Cleary G. Heileman business model of acquiring brands (regional) and then pitting Heileman wholesaler against Heileman wholesaler, however those brands, for the most part, had very small market share. ABI has the dominate position, now approaching 60% of the US market.

So now what? Can they buy more share? Probably not, at least in the short-term. Can they get to the wholesaler middle tier? Probably not, at least in the short-term. So what can they do? First start with pricing. By controlling AB and Modelo ABI can control more of the pricing, which in turn, can control the middle tier. They can’t get at the wholesaler GP due to the franchise laws but now they can get a larger piece of the wholesaler GP through controlling pricing. This won’t happen immediately but understand it will happen quicker then you think. We are all hearing that the upcoming increases could be substantial in some markets. Consider that, craft beers, for the most part, will support the initial increases as many already do, European imports, as their business models are not revenue or share focused but cost and margin focused, will also be open to this. The winners? Spirits and some wines. The losers? Well, it’s not ABI. From 11 million hects to now over 331 million hects since 2000 is remarkable and they won’t stop now. They are like a shark, devouring everything in that gets in its way.

So what is the answer as ABI isn’t going away? The model may exist in the Northwest. Crafts are over 30 share of the market and growing so as an industry we need to support and do whatever we can to ensure that we create an environment where they have a chance to establish themselves. That would cover all segments of our industry and the sooner the better. Can we really say that the environment exists for these crafts to grow today? We need this to happen or our business will mirror countries like Brazil where ABI controls over 90% share.

Remember, “You are what you are!” so are you listening or still drinking the koolaid?

The coming tsunami

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Jul 162012

In 1969, my first summer working on a Coors delivery truck in Dallas, the entire portfolio of the company consisted of: 4/6 NRs, 24/12 bottles (same as the 4/6 bottle), 12/32 quarts, 1/4 bbls., 1/2 bbls. These 5 packages of Coors Banquet is all we had, think about it, only 5 SKU’s of one brand! Of course in those days, the state of Texas only allowed beer packages in 288 ounce eq. except for quarts and kegs. One of the first creative package changes of that time came from Schlitz when they, in response to the 288 ounce law, came out with “Tall Boys,” 12/24 ounce cans which was also 288 ounces. By the mid 70’s the race was on with the introduction of 12/12 cans/NRs and the new “light beers” first from Miller and the rest is history.

During my years as the Corporate Director of Malt Beverages at Glazers, our system had over 12,000 SKU’s listed. This included beer, wine, spirits, N/As, waters, mixes etc. but like most W/S operations they had figured out how to logistically manage this number. While traveling the country over the years, I watched with interest the explosion of products, packages, flavors and styles hit the industry to the point every wholesaler I visited had some type of internal system to manage the increase number of products. Most had a “review committee” and had a system in place to monitor velocity based on internal targets. As an example, a standard might be the sale or depletion of at least a pallet a month. This assumes the product had the proper support by the vendor and the wholesaler executed as planned.

It was just reported that since 2008, the number of SKU’s in stores have increased +1,764 with craft beers representing +1,101 of that number. Think about how this has affected the retailer? HEB in San Antonio does two “resets” a year called “round tables” where wholesalers work together with HEB to add and eliminate various brands and packages. The buyer “ranks” the new products by importance and store type. This past spring the HEB buyer was presented with 300 new products and packages on top of over 200 last fall. Now how do you manage that? In the past, you had about 6 months to create a velocity rate justifying either package expansion or just being able to remain in the sets. Now you’re lucky to have 8 weeks to prove the rate, if not, out you go. One and done!!

Right now there have been 88,040 COLA’s submitted to the TTB for approval. That’s in the first half of the year! Now if that doesn’t get you, think about this, there are estimated to be hundreds of applications for new breweries at the TTB today!!! Many are brew pubs, but let’s assume 100 get permits, 50 get built, assume (conservative) 4 brands with 3 SKU’s or 12 new ones to sell, that’s at least 600 more coming and as we all know, that is the minimum.

Now comes the big question, where do they all go??? I call it “the coming tsunami!” Are there wholesalers who will take on these new products? Are the retailers going to support them? A vendor told me this week that in his state, ABI has rolled out 13 new SKU’s this year! We are being flood! Is it the way to grow the industry or are we kidding ourselves? You tell me then stay tuned for that editorial…….coming soon!

There is no such thing as “just one beer!”

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Jul 092012

May 26, 1969, on that day I sold my first case of beer (Coors) in Dallas at Willowbrook Distributing as a summer college job. Now, 43 years later, selling beer I decided to blog on today’s beer industry. So just who am I and why am I now starting this beer blog?

Today there exists a number of fine publications within our industry such as Beer Marketeer’s Insights and Beer Business Daily. I have read these for years while admiring their articles and information, however our industry today is in what is best described as an evolution (some may describe it as a revolution). I feel it’s time to really talk about the underlying issues that we are facing today. These issues have defined our industry for decades yet many continue to fester from both the inside and outside. I intend to bring these topics out in the open, “unplugged,” where there can be honest discussion and opinions without serving any “special industry interests.” It is not my intent to make anyone angry or upset, although I assume this will happen, it is, however, my intent to “call it like it is” and give you something to really to think about.

You may be thinking just what qualifies someone like me to write this and future editorials. Of my years in the beer business I have held almost every possible position and done almost every job in the industry. Let’s take a walk. I started as a route helper, then salesman, to route supervisor, sales manager, VP Sales, Ex. VP and General Manager and finally owner and President. That was in the first 20 years, and all with wholesalers, except for a short time with Lone Star Brewing Co. as a district manager. Since then I worked as an industry consultant, VP of a contract brewery, in sales and wholesaler management with the Gambrinus company, Corporate Director of Malt beverages with a large Wine and Spirits Co. and finally President of Warsteiner importers agency. During this time I also worked at Coors in Distributor Development and just finished establishing Krombacher in the US.

So what have I seen and done? I was a test market for the first Coors Light, I lived through and lost my Schlitz distributorship as the brewery was sold and then died, I helped build and operate the 5th largest Coors distributorship the US, I saw a brown bottle Corona explode due to a simple package change, I was on the ground floor of the Oregon craft revolution, I was part of some of the key lawsuits of the 90’s, I won almost every major supplier award as a wholesaler, I introduced and rolled out many products, some nationally, and I was on many state industry associations and boards. Obviously I can’t document everything I’ve been involved with in this column however I will be discussing many of these in future editorials.

The content of the future editorials will be based on fact, what I’ve actually seen and lived through and experienced. I bring a perceptive that very few can bring. In fact, my friends at New Belgium brewery have encourged me to write a book and I may do so someday, but for now I’ll write the book on these pages. I also intend to write about the people I have met and worked with over the years. People you probably haven’t heard about, but were key contributors to the industry who were never in the spot light. I think you may find that interesting.

I hope these editorials are thought provoking and provide you with another view. I’d like to hear from you on each column and future topics. Finally remember “There is no such thing as just one beer!”