Sep 292015
 

Love of beerMost segments of the beer industry, domestics, crafts, imports and all others are in the mist of 2016 sales planning and forecasting.  During the years working and managing Modelo brands with Gambrinus our sales forecasts were aggressive.  At least, that is what we all thought however as each year unfolded sales trends exceeded forecasted growth.  Every year numbers went up, marketing budgets increased along with our sales promotion calendars.  In August we recapped our budgets and returned any dollars we knew we would not spend as it was almost like putting gas on a fire.

The dramatic growth in crafts seemed to have created an environment where we see unrealistic forecasts coming from these craft breweries who are into me too brands.  In recent conversations with some craft breweries, forecasts out of headquarters were ridiculous.  One brewery in particular, with great growth, senior management gave initial goals of +300% to the field sales team.  Needless to say these projections created a negative environment with employees.  After weeks of meetings, sales regions reluctantly submitted numbers of +55%.

In further discussions with senior management, who do not have the experience of managing a successful brewery, they finally realized that submitting numbers of this nature to their distributors would be harmful to their relationships.  Now, instead of a top down forced number, field staff is submitting more realistic numbers which tie into trends and budgets that distributors will work against.

In both Texas and Florida, the second and third largest volume states, the number of craft breweries have exceeded 100 with more coming.  A number of these make good, well brewed beer however more and more are brewing beer that is not up to the quality it should be.  Wholesalers are concerned and should be about the damage these beers do to the craft segment.

These breweries are producing “me too” beers which now has been written about.  Beers and flavors similar to all others in the market.  Nothing outstanding, nothing new, and beers with no story, no face, no marketing, no plan, and ultimately, no future.  Why would any wholesaler take these beers on?  Even if these beers are self-distributed they will not help the craft segment, only damage it.

There will be no future for these breweries.  We can only guess why the owners of these breweries decided to get into this business and brew these beers.  Most will fail and soon but in the meantime it will be tough on wholesalers, retailers and the industry in general.

Those successful craft breweries, still experiencing great growth, must learn to manage with realistic expectations and long term planning.  Those fly by night crafts will eventually disappear but not without some negative impact to the industry.  Remember, give a man a beer, waste an hour.  Teach a man to brew, waste a lifetime!

 Posted by at 6:00 am
Sep 222015
 

ABIMOSABMillerABInBev, the beer industries corporate raider, has finally made its intentions known, not that this is unexpected.  On these pages over the years, we have discussed just this turn of events. It really was not a question of if; but a question of when ABI was going to make its move.  Now we know.

As this procurement will be a week old when you read this blog, all the various scenarios necessary to make this acquisition a reality will have been written, published and discussed.  As occurred when InBev was able to take over AB, the entire beer industry was changed almost overnight.  Expect the same thing to happen once again, just more of the same.

While it is unclear as to just how all the details will unfold in the ensuing months, we do know that MillerCoors will no longer exist in its current form.  MolsonCoors will once again be in play for the US market.  Will this be a good thing or not such a good thing?  Consider that just before this announcement of ABInBev and SABMiller, MillerCoors announced the closing of the Eden Brewery.  The brewery announced that this closing was due to the huge loss of volume MC had experience over the last several years.  Expect that this brewery will ultimately be dismantled and sold in part.  This brewery equipment in today’s craft environment will bring many interested buyers.  Laid off employees at this brewery will land at many craft breweries albeit making much less in salary and benefits, but none the less, still producing high quality beers.  Again, adding to further losses for ABI, Miller and Coors.

What will be most interesting is just how this will play into the middle tier of the US beer industry?  We already have blurred lines with distributors in their abilities to represent their brand lines.  How many MC houses currently have ABI brands like Stella, Becks or Spaten?  Now how is this going to work in conjunction with Miller brands?  At least for a few years, will Miller be spun out as a standalone operation?  Will ABI, when acquiring crafts as they have recently, roll these into Miller or ABI?  Where will they be assigned for distribution?

One question that comes to me most often is just how big will crafts become in the US market?  Up until this past week, one could look at the Pacific Northwest as a template for crafts and use those states as an indicator of how big crafts might grow.  With this consolidation of ABI and MC, it just might be the best overall scenario for crafts.

There is no indication that sales losses for both ABI and MC will abate anytime soon.  Line extensions or new products for either one have not worked to any great degree.  Expect these trends for both to continue.

There will be much discussion in the coming weeks and months on this topic, but rest assured, it will happen in one way or another.  When you lose the volume both of these companies have, something must, and will give.  History repeats itself, it always does. Remember the four most beautiful words in our common language are: I told you so!

 

 

 Posted by at 6:00 am
Sep 152015
 

Brands of HeinekenIn Texas, unlike other states, an imported beer assignment to a distributor must come from the brewery, not from the importer.  This is true even if the importing company is owned by the brewery.  Importers may come and go, but in Texas, with the appointment made by the brewery, the distributor will not lose any brands when an importer is changed.

I had acquired distributing rights for Corona when we purchased the Pearl Beer operation in McAllen where I was a Schlitz distributor.  At that time, Corona was sold in a brown bottle and sales were light.   When Coronas became available in a clear bottle, however, things changed.  Out of nowhere the small Lone Star distributor in San Benito started selling Corona on top of me.

I immediately contacted Modelo, in Mexico City, and spoke to their export manager Carlos Alvarez.  True.  Carlos came up to Harlingen, and while having lunch, we discussed appointment letters and the possible devaluation of the Mexican currency, the peso.  If you ever had the opportunity to visit with Carlos, you can imagine the conversation.  Shortly thereafter, I received an appointment letter from Modelo, and that ended the issue of dueling wholesalers.  Contracts during those years were somewhat simple.  In many cases these agreements were composed only of simply an appointment letters.

Negotiating contracts in today’s environment, however, has become much more challenging for both parties.  The larger and more successful the brewery is, the more leverage it has in determining the language in the agreement.  Conversely the same applies to the distributor when the brewery is small.  Regardless, in most contracts, breweries want or demand certain stipulations, one being the right to approve new ownership when a distributor decides to sell all or part of their business.

While President of Warsteiner, it seemed that there was at least one buy-sell a month, so I reviewed multiple contracts during my tenure.  Most were approved, however, some were not.

Last week, Lagunitas announced a JV with Heineken.  Both companies, in their public statements, highlighted the fact that this agreement would in no way affect the U.S. operations of either company.  Right!  Lagunitas wholesalers, who are not currently Heineken wholesalers, are now accessing the future.  While it is important for a brewery to have a say so as to who owns and operates the distributorship, a wholesaler who commits to take, or even buys rights to a brewery, has no say so in the event that the brewery sells out, or in this case, brings in a partner.

Consider the wholesaler who acquires the brand for nothing. One might assume this is not a big deal, however, when one understands that the wholesaler has spent years in developing a market for a particular brand and now the importer has changed, the wholesaler could face some major decisions.  Even though the wholesaler has made money on the brand, the wholesaler, in their mind, could have developed other beers instead.  This JV between Lagunitas and Heineken, in one sense, can be used as an example illustrating why wholesalers should not pay for distribution rights from a brewery.

This year we have seen a number of crafts sell all, or part, of their business for various reasons. And we can expect this to continue in the coming years.  When it comes to contracts, only free men can negotiate.  A prisoner cannot enter into contracts.

 

 Posted by at 6:00 am
Sep 082015
 

Bud girlsHumor has been, and remains, a key part of above-the-line advertising for beer.  In the 1950s, many beer commercials used cartoon characters for humor.  Later, Miller Lite successfully used the now famous “Great Taste, Less Filling” tag line with former professional athletes.  And, for a while, Lite was the largest selling light beer in the world.

AB soon jumped on the humor bandwagon and scored big wins with ads using wit.  The Budweiser frogs, of course, being a predominate campaign that comes to mind. Soon, a fire storm of sorts occurred because of these ads.  AB was accused of targeting under aged young people using the Spuds McKenzie commercials and the company soon dropped the campaign.

At one time or another, most of the major brewers have used humor in their ad campaigns.  Some were successful, some failed miserably.  Think Old Milwaukee’s Swedish Bikini team or the infamous Miller Lite Dick commercials.

This past summer saw changes made at the top of both MC and ABI.  New leadership at these breweries, along with Heineken, resulted in the expected review of current ads and the agencies that created them.  As usual, these new leaders changed agencies citing a new direction, notwithstanding the fact that some of these agencies had done some really good work.  Michelob Ultra and Coors are two who benefited from their current theme.

Industry publications and pundits have weighed in on these changes.  Either way, results for Bud Light have been trending downwards for a number of years.  We have all seen the sales losses and the negative trends for Bud Light continue, while the theme for Bud Light persists in using humor as a basis.

Given the current impact from social media in today’s society, the question should be: Does the beer industry have a social responsibility in marketing their products?

The obvious answer is yes, but are we doing so?  There have been a number of college campuses reporting male students acting irresponsibly and their resulting actions being quickly posted on social media.  Many of such actions are occurring at parties where alcohol is involved.

Does sophomoric humor that targets LDA men partying like no tomorrow really put the industry in a good position?  There are many brands that do use life styles effectively, including Michelob Ultra and their active sports, and Corona’s beach-in-a-bottle theme.  Both ad campaigns are tastefully done, using a slightly older demographic.  A demographic they are targeting.

The beer industry should step up and realize that all of us have a responsibility to our younger society.  The industry has done an outstanding job in their stance against drinking and driving.  All levels of the industry stand together on this point.  Why does the industry not take a similar stance on their ads? With the creation of products such as hard root beer, ginger ale, pop tarts, and colas there exists a real possibility that the industry is once again putting a target on its back.  One tragic incident involving underage drinkers using one of these beverages might start another fire storm aimed at the beer industry.

Young college men are not going to stop partying; however, having fun should be done in a responsible manner.  The beer industry should step up and take their place as an industry that has a social consensus.

The industry wears two hats:  One is business and increasing shareholder value, the other is social responsibility.

 Posted by at 6:00 am
Sep 012015
 

Warsteiner-Radleralkoholfrei-0-33-l-Alcohol-free-Beer-Limonade-Mix-11-15-fl-oz-_main-1Early in the winter of 2007, Albert Cramer, the owner of Warsteiner Brewery, invited me to spend a weekend with him at his winter home in Florida.  Albert had built an unusual house on the beach near Orlando some years earlier.  The design of the house was similar to a castle with four turrets.  The garage, which occupied the entire lower floor, boosted a German country side scene on the walls and a cobble stone floor.  Every level had a clear view of the ocean.  The bar, located in the upper middle floor had a view overlooking the ocean and was framed overhead by an old cooper kettle from the brewery.  To say the house was unique is an understatement.

Albert invited me to his home to show me some new products he wanted Warsteiner to import into the US market.  I had suggested to him that he should brew a light beer, given that Heineken had recently rolled out their light with great success.

Albert presented three new products, all Warsteiner mixes.  These new products were 60% Warsteiner premium and 40% flavors: cola, orange and lemon/lime.  Because they were a mix, they were low in ABV, registering in around 2.9% each.

Until this time, all flavored beers introduced into the market had failed.  I brought this to Albert’s attention, including the fact that some of these failures had a sizable marketing budget supporting the product.  Albert’s idea was to get ahead of future competition.  He believed that in the coming years, flavors in beer would be the new big thing.

I suggested that we first test market these new products.  He rejected that idea and wanted to roll out all three of these in all markets.  My next suggestion was to do a sampler pack enabling us to pre-sell the pack to a big box store and find out the response from the consumers and retail market.  This too, was rejected after Albert figured out that the brewery would have to manually put the bottles into the cases.

At the winter meetings in Germany, a few months later, and the idea of the flavored new products were on the top of the agenda.  Only this time now the brewery added a Radler along with Warsteiner Light.  The Radler made sense along with the light beer.  What Warsteiner ended up doing was to sample all the US major light beers and from those, the brewery created a liquid based on those flavor profiles.  The light turned out to be a very good light beer.

In the original plan, the brewery agreed to support the mixes with an initial marketing budget of $200K to be used in key markets.  Once the beer was ordered and on the way, this support was changed to an incentive to be paid upon getting sales.  Without the support, these products had no chance even though a number of distributors had done a great job of getting the beer out and to the consumer.  Warsteiner ended up writing off most of the mixes.

Now, in 2015, the industry is seeing such mixes and flavors enter the market with great success.  Not Your Father’s Root Beer and Coney Island, also a root beer, are the hot new flavors.  Word on the street is that we will soon see a Wheaties Beer, Ginger Ale Beer, and just announced a Pop Tart flavored beer!  Maybe we will soon see alcoholic products from coke.  Instead of Coke Zero and Sprite Zero, how about Coke Plus and Sprite Plus?

Ten years later, it is clear Albert Cramer was ahead of the industry with his mixes and flavors.  If Warsteiner had supported the favored beers with marketing, Albert’s products could have easily been the leader in this category.   Business has only two functions: marketing and innovation.

BeerFodder ;

http://www.bizjournals.com/philadelphia/news/2015/08/18/philadelphia-brewing-beer-holy-wooder-pope-francis.html

 

 Posted by at 6:00 am