Beer Business Unplugged

Much of my second summer working through college was spent on the draft trucks at Coors in Dallas.  Tapping those kegs took a skill set which today seems crazy.  To tap a keg, you had to insert a rod thru a wing nut into  a cork on top of the keg, squeeze the wing nut, then ram the rod into the keg while tightening the wing nut.  If the wing nut was too loose, you got sprayed with beer; and if you did not get the wing nut just right, the rod could easily fly out of the keg.  I’ve seen several rods stuck into the roof of an account I was servicing.  Actually tapping kegs was a dangerous job.

Soon both Schlitz and Budweiser started using Golden Gate kegs.  The CO2 line was attached to the top of the keg and the beer line extended out of the bottom of the keg.  The CO2 forced the beer thru the line.  This was easy to connect, but when the keg was close to empty, you had to tilt the keg forward to ensure all the beer came out.  If you did not tilt the keg to drain it, you could potentially lose up to a pitcher of beer.

Next in line was a system called Hoff-Stevens.  One connection on top of the keg operated both the CO2 and beer lines.  The rod was self-contained  inside the keg,  was very easy to use, and worked quite well.

Most of the regional breweries used the Golden Gate system, but some did convert to Hoff-Stevens.  The slow demised of the regional beers which started in the on-premise accounts, quickly spread to the off-premise accounts and eventually led to these regional beers going out of business or selling out, at which time the market became saturated with cooperage.  Distributors had all these empty kegs, but no place to return them to.  Hard to believe!

Having all this empty cooperage available made it easy for the early craft brewers.  It was simple for them to find the empties, refurbish them, and then reuse them.  While at Glazer’s, I had a large inventory of 1/4 bbls with no place to send them.  I found a company in Ohio which bought the empty kegs,  refurbished them and sold them back to the small crafts.  This proved to be a much better use of the cooperage then barbecue pits or gas tanks for hot rods.  It has been many years since the large inventory of unclaimed cooperage existed.

New craft breweries are struggling to find cooperage to use and unless they buy them, using Microstar or other companies, the purchase can be very expensive.   In most cases, the brewery pays a huge up-charge, which drives the PTR outside their pricing strategy, thus forcing the brewery to take a haircut.

Several large distributors are seeing this as an opportunity to not only make some money, but to help their local suppliers get established.   By purchasing large inventories of cooperage, then leasing them back to their suppliers, both the distributor and the brewery win.  One distributor, who bought 500 kegs, in the hopes of recovering their investment in two and a half years, was able to price the kegs at a level that afforded the supplier the opportunity to establish themselves in the market.

Once again the lines between the three tiers are blurred, but in this case, it is clear that both tiers are helping each other to be successful.  And really, when you look at the industry, isn’t that what life is all about?  Remember, what I like to drink most is beer that belongs to others!

When speaking about the beer industry, whether to college students or to Wall Street, I almost always start with the analogy that beer is one of, if not the most recognizable, consumer product available.  I mention that not everyone can afford to buy a Rolex or a Mercedes-Benz or even a Brooks Brothers suit, however, if one goes into a bar, even a poor, broke college student can purchase the most expensive beer and set it on the counter.  Everyone can see the beer the individual is consuming thereby, giving that person the ability to identify themselves with that label and what it represents.

Much has been written this year about the softness or decline of the domestic lights.  Current numbers show light beers down over 15 million cases or -3.6%.  It even seems, based on the numbers that the decline of lights is accelerating.  Some industry publications are suggesting that the decline is coming from the lack of effective marketing, causing consumers to look elsewhere for their beer of choice.

The breweries marketing focus for light beers appears to be directed only to package changes.  Recent shifts include new bottles like those of Heineken and Miller Lite.  Likewise, graphics changes have also been part of the marketing with ABI leading the way.  ABI is also the leader in line extensions with many new flavors, some of which have been rather successful.

Over the years, most of the changes have done little to nothing to jump-start the brand, with the exception of Corona’s change from the brown squatty bottle to the current clear long neck bottle.  Coors Light has done well with their cold mountain graphic, but MC has failed with their attempts to turn around Miller Lite.  Programs such as the new on-premise bottle, punch hole on the can lid and even the twirl design of the bottle neck have not generated the excitement the brand needs.  Now MC is going to introduce a retro-look for their can in January.

Yet one light beer continues to enjoy success, Michelob Ultra, which is showing good growth against light trends.  Their marketing is all about the attributes of the brand, low calories and carbs.  These are tied into ads which feature an active lifestyle focusing on attractive individuals engaged in mountain climbing, sailing, etc.   The good news for Michelob Ultra is that this form of marketing is working.

Other main stream brands with effective marketing include: Corona, with the beach in a bottle theme; Dos Equis’, most interesting man in the world theme; and of course, Stella Artois, focus on the upscale image.  These brands have all have established and successful marketing campaigns.  One thing they have in common is that they are not changing their marketing, but are remaining with what is working.  They might tweak the plan, but the theme is unchanged.

So the question really is: when nothing does work, do we change the graphics or package, and when that does not work, do we  change the agency?  The life cycle of any given marketing department is usually a window of two to three years.  Then the cycle repeats itself.  Throw in a retro can, cold sensitive mountains, or even recycled press tab lids, ultimately it all comes back to what John D. Rockefeller said, “Don’t blame the marketing department.  The buck stops with the chief executive.”