Beer Business Unplugged

As 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.

Long 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.