Mar 262013
 

Lone Star ret

 

 

By the early 1970’s, small regional brands across the US were struggling to survive against the on-sought of the big boys, AB, Schlitz, Pabst, and Coors. Soon Miller, recently acquired by Philip Morris, was also included in this group of key players.  To make matters worse, the small breweries had made a number of mistakes, mostly in the area of marketing, adding to their problems.  In other words, the small breweries had lost their loyal customer base to the nationals.

At about the same time in Austin, the progressive country music scene had just begun.  Known as “redneck rock,” it was led by Willie Nelson, Waylon Jennings, Michael Murphy, B J Stevenson, Leon Russell and others.  Because the music scene was local, it took off in South Texas, and then spread to Houston and Dallas, and finally up to Nashville.  But Austin remained the base, where on almost any night; one could hear these musicians live.  This group of entertainers got behind Lone Star beer, since it was from San Antonio, and supported the brand in a big way.  The brand took off behind the revised longneck returnable bottle, and even the neck label was revised to say, “Longneck.”  The brand came up with the tagline “The National Beer of Texas.”  It gave some life to the brewery, but ultimately it was short lived.  Later that decade, Olympia brewery bought the company.

Much of today’s crafts’ success is based on the local community getting behind their local beers.  How many times has an expert on the industry stated “that to be successful, you have to develop your home market?”  As an example, in Warstein, Germany, you can’t find an on premise account that sells anything other than a Warsteiner product.  The same goes for Krombach, Germany (Krombacher), as is true in many other towns that have a brewery.  Of course, they have tied houses in Germany, but both Warsteiner and Krombacher are two products available all over the country.  Not many other brands have this same coverage.

A recent article in The Wall Street Journal, “What would Jesus Brew,” highlights how churches, in an attempt to reverse declining congregations, or reach younger members, have started brewing crafts with members of the church.  In some cases, the churches even have contests with neighboring churches to determine the best tasting beer.  One team is named “Brew unto Others” with a slogan, “God’s peace. Happy yeast!”  The article goes on to highlight the history of church and beer, which as we know, has existed for centuries.  Again, bringing to light how a local community can support a brand to which they are emotionally tied.

The growth of craft beers can be attributed to a number of things. Not unlike the little towns in Germany that support their own local breweries, we are seeing the same community support in the US.  Look at the Northwest and the support given to local crafts beers.  The crafts dominate that region of the country and now the phenomenon is spreading to other states and other markets

Today’s crafts have replaced the strong regional brands of 50 years ago, but what made those regionals so strong is exactly what is making today’s crafts such a hot ticket.  Just as one can’t make an omelet without breaking some eggs, a brand cannot be successful without community support!

 

 

 Posted by at 7:06 am
Mar 192013
 

flavors

 

Back in the mid 1970’s when Coors entered South Texas, San Antonio was awarded four distributorships.  They as a group, had to compete against one Budweiser house, one Schlitz house, one Pearl house, one Lone Star house and one Falstaff house (true, still around then).  Because Coors had divided up the market into the four houses, individually they were all smaller than their competitors making it difficult for them to compete.  Obviously, it didn’t take many years to force the consolidation of the four into one house.  Remember they were exclusive, too.

At that time, most competing houses were exclusive, too.  A Schlitz house might have an import or two, but no other domestics.  In Texas, Pearl houses usually had Miller, or they had Falstaff, especially in small towns.  Some distributors had Lone Star/Pearl/Jax, but that was in markets where sales weren’t great.  Consolidation wasn’t an issue then and the “big” boys usually made things difficult if you were taking on additional brands.  In fact, a number of established distributors sold their line when Coors came in as a condition of appointment.  Sometimes it worked out, and sometimes it didn’t.  In fact, Barry Andrews of Andrews Distributing benefited when the Miller wholesaler in Corpus Christi sold the brand when he received the Coors brand.  Coors never took off, but Barry was able to buy the Miller operation about the time the brand exploded.  Timing is everything.

Windy City, a craft/import house in Chicago, recently sold out to Reyes after some dramatic growth. This is the latest example of a specialty house selling out for a premium.  It wasn’t many years ago, that some of these failed just like the early craft brewers did.  Some were very successful, including CR Goodman, Fresh, and Little Guy Distributing and, of course, Click.  Just as there are many new craft breweries opening, you will see many new distributors opening soon, too.  It’s where the opportunity abounds.

Last week, at the Miller/Coors convention, a comment was made regarding how the craft breweries are taking advantage of the MC distribution system, by using the distribution system to get the these brands delivered.  These comments, along with ABI’s program of Anchor wholesalers, could be the beginning of a push back on new brands and a return to exclusive houses now that both ABI and MC are offering products in hot categories that they did have in the past.

Along with this thinking, is the movement of some crafts to charge wholesalers for the rights for distribution.  This would create a whole new approach.  First, if this happened it would involve more government restrictions. Selling these rights might be subject to franchising laws similar to those of  McDonald’s, Taco Bell, Subway, etc.  In theory, one would think that if the wholesaler paid for the rights said wholesaler would put more effort into selling the product.  When I was running Warsteiner, in almost every case, when a wholesaler acquired the brand, it took years for the new wholesaler to show sales increases.

Heavy investment by the wholesaler in incentives, promotions, truck paints, people, etc. could be considered in some ways as buying a brand, however, the question really is, are we seeing a shift in the distribution model with the beginnings of a return to exclusivity of houses to selling distribution rights?  If we are then, be careful, remember, the buyer always knows better than the seller.

 

 Posted by at 7:16 am
Mar 122013
 

BECK'S SAPPHIRE

Bud malt

 

Over the years, I had the opportunity to address a number of college classes on the beer industry.  At the beginning, my talks were all about marketing, how marketing was used in the industry and how the industry was evolving.  Once Philip Morris bought the Miller Brewing Company, and introduced their idea of marketing from their cigarette division, things ramped up dramatically.  PM’s aggressive approach woke up the 800 pound gorilla, AB, and everything changed. Because of that, the industry became highly visible to the world of marketing.

One of the lessons I taught students and my employees was to visit a large grocery store to learn about the packaging of the number one selling products.  As we walked the isles I asked them, “What is the top selling soup? What is the top selling soft drink?  What is the number one selling cigarette? What is the best selling beer?  What is the number one selling popular priced beer?”  Of course, they always got the answers right, but then I’d ask, “What do all of these top selling products have in common?”  I can’t ever recall that they said, “Their packaging is predominately red.”  Campbell soup was red, Coke Cola was red, Marlboro cigarettes are red, Budweiser (number one then) was red, Old Milwaukee (number one then) was red, and even Coors six pack wraps (cardboard), at the time, were red.  Coors during that time period was number one in all western states.

One of Schlitz’ successes was its malt liquor, “The Bull.”  It was, by far, the number one selling malt for many years.   The ABV was over five percent, which is interesting, in that crafts now have, for the most part, higher ABVs then the old malt liquors!  Regardless, AB came out with a malt liquor in the 70’s to compete with Schlitz.  It was called “Budweiser Malt Liquor” and the tagline was, “It’s the first malt liquor good enough to be called Budweiser!”  It was packaged in a black can.  It failed and did not last long.  The reason given at that time for the failure wasn’t due to lack of support, distribution or pricing; the brand had all these elements, but the failure was because of the black can.  The consumer rejected the packaging, or at least, that was what the brewery blamed on the brand’s failure.

The two colors that seem to predominate in today’s packaging are silver and blue.  The consumer seems to accept these colors, which are on Bud Light, Coors Light, Miller Lite and Bud Light Platinum.

Recently the Wall Street Journal wrote that many CPC were introducing products that were packaged in black, with ABI leading the way with its Beck’s Sapphire, and more recently, Budweiser Black Crown.  Given the history of “black” packaging, it should be interesting to follow how these two highly supported products sell.

In recent years, marketing has been more about mountains that turn color, aluminum bottles, vortex bottle necks, new bottles (Heineken, Miller Lite) and different package sizes.  Consumers want the package to tell a story.   Will black be the story of 2013?  Or will the story be for those who do not remember the past and are condemned to repeat it?

 Posted by at 7:30 am
Mar 052013
 

New Schlitz bottle

 

 

Just recently, Maker’s Mark Whiskey became the latest beverage company to misjudge its customers, or its product, and backpedal to protect its brand.  Thousands of customers told Maker’s Mark that the company had made a huge mistake when it reduced the alcohol content in its signature whiskey from 90 proof to 84 proof.  The company originally stated that their reason for lowering the proof was that the demand for the product outstripped supply, and that by reducing the alcohol content, the company could “stretch” its bourbon supply by six percent.  Within a week, the outpouring elicited a promise to return the alcohol content to 90 proof.  The consumers spoke.  The company listened.

Consumers skewered Coca-Cola in 1985 when Coke introduced a new recipe.  Within three months, the company revived the old formula as Coca-Cola Classic.  “New Coke” eventually disappeared in the US, except as a worst-case marketing study.

Cynics suggest that such moves could be clever marketing ploys to keep product names in the news and foremost in customers’ minds.  Really?

At Harvard, the MBA program has a case study on how to kill a billion dollar company.  It’s called the demise of the Jos. Schlitz Brewing Co.  By the early 1970’s, Schlitz was trying to reduce costs and looked at building new, state-of-the art breweries. The Schlitz shareholders, however, refused to approve the change.  The production department was then forced to create a new cost-cutting scheme: “accelerated-batch fermentation.”  The process added air to stimulate the yeast’s growth, and reduced fermentation from twelve days, to less than four days, and allowed the brewmaster to cut the brewing cycle from 25 days, to two weeks.  Corn syrup replaced corn grits; hop extract replaced hop pellets.  Then the finance department raised prices in a high inflation market.  By the mid 70’s, with sales in a decline, an accountant took charge of running the brewery, and the marketing/sales executive, Fred Haviland, cleaned out his office and left.  Finally, Schlitz ordered their brewmasters to put Chill-garde into the beer.  Chill-garde is a stabilizer and was added to improve shelf-life, but it interfered with the beer’s foam stabilizer.  The chemical reaction spawned a flake-laden haze.  Not dangerous to the taste of the product, but it gave the beer an unattractive look.  Six months elapsed before the brewmasters stopped using Chill-garde, but the damage was done.

Bob Uihlein, who ran the brewery, died in 1976, with no clear leader named.  Schlitz drifted for years.  In the late 70’s, a Coke executive, Alan Proudfoot, was hired to over-see the sales department.  He wasn’t able to make the transition to beer, and was gone in a short time.  Then Frank Sellinger, a brewer from AB, was hired to run the brewery.  Sellinger changed the packaging, cans, bottles, and all the advertising.  Then he went on TV and announced he had come to Schlitz “to make the best,” giving the consumer cause to wonder why the beer had changed!  Almost overnight sales dropped like a rock.

Interestingly, even with all the quality problems across the country, the Longview, Texas brewery never changed its brewing process. Consequently, the beer in Texas and Louisiana never suffered the problems of the other Schlitz breweries in the US.  Sales in these two states, slid slightly, but still remained high.

Unlike Maker’s Mark or Coke, Schlitz didn’t acknowledge the damage it had done causing the iconic brand’s demise.  Nothing changed, so by 1981, the brewery was sold to the Stroh Brewing Co. The rest is history. During this 5-year period, I went from selling 2 million cases of Schlitz to a mere 100K cases of Schlitz.

The CEO’s of Coke and Marker’s Mark should have studied what happened to Schlitz.  Had they done so, they probably would not have made the changes they did.   Until then, the details of their incompetence do not interest me.

 

 

 

 Posted by at 8:16 am