Aug 252015

CoronaAs previously stated , Corona was once shipped to The States in a squatty, brown bottle with a neck label consisting of the colors red, white and green; the colors of the Mexican flag.  This was during a period when the Mexican imported market was dominated by Carta Blanca and Tecate.  All that started to change when Corona went to the clear bottle.

Even after the change, Corona was having difficulty finding wholesalers. Statewide distribution rights were initially offered to Glazers when Corona came to Texas, but the distributor refused the offer.  Glazers did, however, accept the rights for their West Texas markets.  Glazers later got Corona for central Texas, when they bought the Coors operation in Waco, and soon another distributor in east Texas out of Longview.  When the AB wholesalers wanted to purchase the Modelo brands, they balked at the price Glazers was willing to sell.

If the AB guys could get a mulligan, it is a good bet they would have purchased the brands after all. Those wholesalers who turned down Modelo regret that decision to this day. This, in itself, has been one of the reasons the industry is in its current state.  Wholesalers, when approached by a new or up-and-coming craft beer, are now looking harder at accepting the brands.  No one wants to turn down what might be the next Corona.

A recent article from Beer Business Daily ran a comment from a distributor, which the author of the article believed; retailers were focusing too much on brands that did not matter. The distributor commented: “We have too many key retail buyers absolutely giddy about ‘what’s hot!!’ with little bitty ‘hot’ brands instead of any balanced conversation, including how major brand VOLUME drives their overall beer category.  I cannot believe that in this day and age, retailers continue to dominate their conversations with BRANDS THAT DO NOT MATTER!”

The author of the article goes on to state that it does not make sense to cut a facing off a brand such as Blue Moon, or a display for an unproven craft product.  Similar comments are mirrored from other major vendors.  Taking a keg-a-week brand off tap for a keg-a-month brand makes no sense for the retailer, brewer, wholesaler and or the consumer.

Than the question is: how fair is it to make these comments when distributors are working hard to acquire any new in-coming brand?  Distributors have a process in which they review all potentially new breweries.  Eliminating those breweries which do not meet THEIR requirements, but often taking those breweries that meet THEIR requirements, even if said brand has little, to no track record.

These brands have to get to market.  Distributors have to find space so another beer has to be eliminated.  Ideally it is the competitor’s brand that is eliminated, but that might not be what the retailer has in mind.  Something has to give.

All levels of the industry are frustrated, whether it is the established breweries that are losing sales, focus and shelf space, or the imports.  Crafts are fighting to get to market, either by self-distributing or through the established system.  Wholesalers are caught in the middle with franchise laws.  Do I bet on this brand or do I let it go?

What it really boils down to is: you deserve the life you tolerate.

 Posted by at 6:00 am
Aug 182015

NYFRB-1Not long ago as the industry began to experience a slowdown in shipments and sales, the industry pundits focused on the lack of creativity and exciting new products.  When beer was compared to spirits, one could argue that this might just be the case.  The beer industry did not make an effort to bring any new products that really moved the beer needle until the craft renaissance, and then it all changed.

Beer has always seemed to overcome handicaps which slowed down the industries continued growth.  Crafts and their creativity came to beers rescue at the right time.  We have all seen the results which continue even today however two key models continue on regardless of all the issues.

One is ABIs continued and unrelenting model, which has resulted in ABI losing over 10 million bbls.  Industry rags have written once again about this and now more pressure is on AB wholesalers for volume.  ABs volume loss is being blamed on the wholesalers.  If that was the case, maybe InBev should consider who, originally, built AB into the leader in our industry?  My money is on the wholesalers.

Secondly, applications for new breweries seem to have slowed somewhat but label approval is increasing.  This trend is not changing continuing the pressure on wholesalers and retailers.  Chain real estate has been a premium for some time and continues to be so.  Wholesalers are pushing back on venders as new products and packages present logistic and warehousing problems plus the issue of out of date product which is killing brands.

ABI is not going to change their business model any more than the craft industry will reduce the new number of new products and packages.  So the question is what is next for the industry?

Local is the new model.  Even the chains focus now on quality local products first if they have a flavor or brand that is popular.  The on premise is even more local.  This is a recent trend that also seems to have staying power and should continue to be that way.

Just when it looks like the industry has hit a wall, along comes something unusual and very unique.  Walking into a Portland sports bar this past weekend, hanging on the wall was a sign, now serving Not Your Father’s Root beer.  This new product is the talk of the industry and is on fire.  The beer, at 5.9% ABV, tastes just like old fashioned root beer; in fact the bartender said some customers like this beer over ice cream for an adult root beer float.  Now did anyone see this coming?

It will be interesting to watch how this brand and flavor does in the coming year.  With a caloric count of 371 per 12 ounce bottle and 31 carbs, it is a sweet tasting product.  Will it become a category on its own?  Regardless, it is new, it is different, it is exciting and it is creating new customers.  It is also a product with nice margins.

With products like NYFRB it makes business models like ABIs and the wave of new SKUs, manageable.  Remember that the term status quo is Latin for “the mess we are in!”

 Posted by at 6:00 am
Aug 112015

total employmentLong before the state of Oregon became famous for its craft beer, the state was known for being one of the first to put in place a container deposit.  During the 1980s, container deposit laws and recycling were top of the list of most conversations in Washington and state capitals.

Because I was the General Manager of one of the state’s largest beer distributors, I became involved in the political environment with the state association.   The creation of the state deposit law created a company, CRINC, which was owned by the beer distributors. CRINC was the state’s for-profit entity arm for deposit collection and recycling and was considered successful.

The national movement to create a deposit law, which Oregon supported, gained momentum during these years.  The Oregon beer wholesalers, led by the state association director, Paul Romain, went to Washington to lobby. Their focus was on consistent deposit legislation.  Ron Wyden, now a US Senator, was in the House of Representatives.  As we all know until this point, no federal law had been passed for container deposits.

Beer wholesalers have a long history of political activity.  If it were not for the U.S. brewing industry, led than by AB, the repeal of prohibition might not have happened during the early 1930s.  Wholesales convinced the federal government that thousands of jobs would be created and that the tax revenue would help during the depression era, thus convincing Congress to repel the 18th amendment.

Wholesalers also have a successful history of ensuring favorable legislation is passed on a state level. The franchise protection and cash laws are examples of such success.  It would be fair to say that almost every wholesaler has, in one way or another, supported local politicians through financial means or even by providing free beer for the politician’s rally.

The Beer Institute reports that the industry-supported Craft Modernization Act has 11 co-sponsors in the US Senate along with 73 co-sponsors in the House of Representatives.  Perhaps this act will actually pass, but only time will tell.

“I will likely be the last American owner of the Boston Beer Company,” said company founder Jim Koch at a Senate hearing last week.  In the WSJ editorial on August 5th, the publication states, “The man behind Sam Adams wasn’t saying that the foreign owners who now control nearly 90% of the U.S. beer production are better at running breweries.  Rather, they have an unfair tax advantage.” Koch goes on the state that “The Boston Beer Company is worth 16% more to a foreign owner simply because of the current U.S. corporate tax structure.”

Jim’s comments helped provide focus, not only to the brewing industry, but to the entire U.S. corporate structure.   The WSJ’s final commentary says it best, “The ultimate losers in all of this aren’t so much the owners, but it is the American workers who often lose their jobs when a company moves abroad.  Sometimes layoffs are necessary, no matter who is in charge.  But job losses are greater when the company is run, not by the most competent manager, but by the one most able to exploit a government-created advantage.  It’s well past time for our government to stop creating advantages for foreign competitors.”

Ask all the beer people who have lost jobs to foreign ownership over the last 10 years: In politics, stupidity is not a handicap.



 Posted by at 6:00 am
Aug 042015

varietiesOne of the best definitions of the alcoholic industry is imagining the business as a three legged stool.  Consider the seat of the stool as the entire industry, with each leg representing one segment.  One leg is the spirit business, one leg the wine portion, and the third leg is the beer segment.  All the legs hold up the seat, the industry.

While this simplistic explanation of the alcoholic industry works, especially to outsiders, each leg could not be more different from the other.  While the spirit leg and the wine leg could be siblings in the nature of their operation, the beer leg is a distant cousin, at best.  The difference between the beer industry and the wine and spirit industry is predominately due to the culture of each segment.

There was great push back from the branches at Glazers as they attempted to add craft/import beers to their portfolios.  This seems somewhat odd given that for decades, Glazers distributed Heineken in Louisiana, Arkansas and Texas.  Then in the 80s and 90s, Heineken, having been surpassed by Corona, took issue with Glazers’ market performance and took legal action to ensure their brand was sold through beer houses.  Heineken had some success in changing over.

In the late 1990s, Glazers was awarded statewide distribution for New Belgium products for Texas. This was the base in which the company began to build its beer business.  Over the years, as the craft and import portfolio grew, there continued to be push back from the wine and spirit side of the business.  Simply put, there was very little interest or desire to sell beer, especially from management at the branches.  In my opinion, it this was all due to a cultural difference between the three legs of the stool.

During those years that an individual either joined a brewery team, or even a wholesaler, there were typically only one to three brands of beer to sell.  This made learning about each beer relatively easy.  Even when I joined Coors Brewing Co. in 1987, the initial training was only two days in length.  The training consisted of simply teaching the company’s history and learning the production process for Coors.  This was the beer culture.

Anyone new to the industry quickly learns that everyone is a beer expert.  Even during the days of domination by Budweiser, Schlitz, Coors and Miller everyone was an expert.  If I had a nickel for every time a consumer in a bar started a discussion with me on beers I could retire wealthy.  You learn that consumers know best, and not to disagree with their comments on any beer.  As previously discussed in past blogs, beer is probably the most affordable consumer product available that can create an upscale image.

The craft beer phenomenon spawned the creation of the Cicerone Certification Program.  Wholesalers and brewers are not only encouraging employees to become Cicerones, many are now making it mandatory.  A number of colleges which are providing craft beer programs are embedding the Cicerone programs into their curriculum.  The list of certified Cicerones is extensive and growing.

Recently, The Thrillist posted an article entitled, 19 Types of Beer Snobs, an article that would not have been written even 10 years ago.  Perhaps the cultural differences in each leg of the stool are now gone.  In 2015, beauty is in the eye of the beer holder.

Beer Fodder;

Thursday is National IPA Day

 Posted by at 6:00 am