Beer Business Unplugged

My first supervisory job was in the beer division of Julius Schepps.  This was in the early 1970s and Schepps, a wine and spirit house, also represented a number of regional beers including:  Lone Star, Jax, Hamm’s, Colt 45, Champale, Right Time, and Lowenbrau.  Given the tremendous growth of the national beers, Schepps started to downsize their beer division, but still continued in the industry.

By the time I had joined Gambrinus in the mid 1990s, Schepps was representing Corona, Shiner, Guinness, Moosehead, and other fine imports.  Still, Schepps was a big wine and spirit house and their business model did not include servicing certain parts of the retail industry including c-stores.  While Modelo and Shiner were growing, the Schepps business model was holding back the potential of these brands.  By 1997, Lee Schepps, who ran the company, decided to sell.  The beer division was sold to Barry Andrews, who, at that time, only had Miller and a few other brands.

At closing, I told Lee Schepps that he did not know what he just sold and turned to Barry and told him, he did not know what he just bought!  In the first three weeks Barry had Corona, his sales team made 247 new placements in c-stores alone.  Sales flew in the first year and when we reviewed his performance, Barry had hired 33 new people to simply handle the volume and growth.  When asked if he would buy these brands all over again and he said, “Yes, without a doubt!”  Obviously, any concerns about adding additional staff were not relevant.

At the start of 2013, we learned that Reyes had purchased Windy City, an independent beer house specializing in crafts and a few imports.  In their 10 years in business, Windy City had grown from a 50,000 case operation to just under 1 million cases.  Reyes paid in excess of 70 million for this company. This shows just how much Reyes was willing to pay to gain access to these crafts.  While Windy City had done an outstanding job of building and growing the company over a 10 year period, they were still limited in resources.

In spite of the political and supplier issues in the greater Chicago market, Reyes was able to make this acquisition and kept Windy City a separate operation.  Reyes, with its army of people and almost unlimited resources, was able to apply all of their skills to Windy City.  In the first year, Windy City’s sales were 1.3 million cases, an increase of +400,000 cases!

The Reyes/Windy City success is the personification of the frustration crafts are having with wholesalers today.  Crafts are begging for focus, most know or suspect that their brand would fly if only they could get to the market.  In many cases, that is true, but state franchise laws, combined with the growing performance requirements of AB and MC, continue to handicap these vendors.

The success of Reyes, and that of other wholesales in the craft industry, has wholesalers investing more and more into this segment of the industry.  For the craft vendors, it is not fast enough.  The beer industry was been taken aback by the amount Reyes spent for Windy City; however one can look at this purchase by Reyes and say: fortune favors the bold!

Beer Marketer’s Insights just published the annual list of the nine beers Americans no longer drink. What makes this year’s list so interesting is that it has three new brands that were not on the list in 2012.

Of the three new brands, the new number one brand is Michelob Light, which has lost almost 70% of its volume since 2007.  This translates to a loss of 700,000 bbls. in overall volume.  Obviously, the great success of Michelob Ultra explains why Michelob Light is where it is today.

Labatt Blue is also new to this year’s list. Blue comes in holding the number nine spot down 28.8% since 2007.  Blue is also having trouble in Canada, losing half its market share from 2007, down from 10% to 5%.  The future of Labatt Blue in the US will depend on what happens at North American Breweries which will be under new management later this year.

Coming in at the number eight position is Budweiser.  Bud, which is down 28.8% since 2007, was once the largest selling beer in the US.  In fact, Budweiser still sold almost 17 million barrels of beer in 2012.

In the January 2013 post “All We are Doing is Rearranging the Chairs on the Titanic,” I highlighted the various reasons the nine beers have declined in volume.  These reasons included, line extensions, lack of marketing support or ineffective positioning, pricing, and other ongoing issues.  However, in the case of high volume brands, such as Budweiser, the product life cycle curve should be considered.

Historically, the beer industry has seen hundreds of brands and breweries come and go.  Even now a number of brands, which at one time were viable and good sellers, are being resurrected and called retro brands.  That being the case, and considering the product life cycle curve, the list of beers that Americans no longer drink in 2025 might include the following:  Bud light, Coors light, Miller Lite, Budweiser, Heineken, and Corona!

Moving forward another 10 years, the “no longer drinking” list might look like this:  Sierra Nevada, Yuengling, Fat Tire, Sam Adams Boston Lager, Blue Moon, and Dog Fish Head.  Consider by this time the list of top 10 best sellers. It is possible that those beers may not even exist today.

While as crazy as this may seem, consider how many of the top breweries of 1970 are still in business today?  How many of those brands are still around and which ones are still considered viable enough to sell and support?

When Miller Lite was first introduced in the early 1970s, how many industry people believed it would be as big as it eventually became?  How many industry people in 1980 believed that the Jos. Schlitz Brewing Co. would sell and eventually die with fifteen million bbls. in sales?  Finally, how many industry people believed that AB would be acquired by an international company, or in fact, any company?

The beer industry is, has been, and will always be an industry that consistently changes. So, if something cannot go on forever, it will stop!