Beer Business Unplugged

In previous blogs, one could find a number of stories about beer wholesalers who have violated federal and state beer laws and regulations.  Even some who violated standards by going outside the parameters of their franchise agreements with suppliers.  These narratives ended with the wholesaler being penalized in some form or other, and, in every case, the end result was that the wholesaler lost their company.

It did not matter if the wholesaler was larger or small. Whether it was the Schlitz wholesaler in Pennsylvania who refilled Schlitz kegs with Old Milwaukee beer and then resold them as Schlitz, or the multiple Coors wholesalers who transshipped beer back east or even out of the country during the 70s and 80 and were caught doing so, all who violated the laws paid a price.  Even the sad situation of Murray Brothers in Denver has a similar ending.   Cases of Pabst were sold as 3.2 beer, when in fact, the Pabst was actually strong beer and the owner had instructed the warehouse to erase the strong beer markings and had it resold as 3.2.  The state discovered what Murray Brothers had done and suspended their licenses, resulting in a number of vendors terminating their agreement the wholesaler.  What was left of the wholesaler was sold to a competitor.

Just this past week, the industry has learned that the Sheehan’s company, Craft Brewers Guild of Massachusetts, has been found guilty of paying retail outlets to ensure their brands were on tap.  According to the state, CBG was paying between one and two thousand dollars per handle.  At this time the penalty for Craft Brewers is to suspend their state licenses for 90 days.

If this suspension does come to fruition, what would it mean to the vendors represented by CBG?  The vendors could transfer their business to other wholesalers without paying for their brands due to contractual violations by CBG.  What if the vendor, however, is doing business with the Sheehan’s in other states?  How would that play out for both companies?  In one word:  awkward!  The state of Massachusetts is constantly investigating retailers who are involved in this illegal activity.  The outcome in many scenarios could become very messy.

What has not been determined is the role of the vendors involved.  Should the industry assume that the vendors, whose beer was on tap, did not directly or even indirectly know anything about possible illegal activity?

Buying accounts, or the pay-to-play game in the industry has been going on for years, but recently, with the rise of the craft beers, and the pressure to get volume and customers, an environment has been created at the retail level which makes this pay-to-play game more common.  The vendor’s named, or those involved, need to be held accountable, too.  Maybe they will.

The craft beer industry has, and will, continue to change the laws to fit their business needs and models.  Many of these changes are welcomed and long overdue.  It is safe to say that a number of other regulations also need to be modified or eliminated to meet today’s industry needs in providing access to the market at all levels. But buying the business at retail will only damage the beer industry.

What is happening in Massachusetts with the Craft Brewers Guild is just the beginning.  You cannot lose if you do not play…..

Historically, each case of beer for sale in Texas was required to be 288 ounces.  This applied only to beer which had an ABV of five percent or less.  Any product over five percent ABV was either classified as a malt liquor or ale.  Brewers offered 24/12 ounce packages in bottles or cans, but they only came in six-packs or loose.  It was not until the middle of the 1970s that 12 packs became available.

Schlitz, which was the dominate brand in Texas at the time, saw an opening in the 288 ounce per case regulation.  Instead of 24/12 packages, Schlitz developed a 12/24 ounce can, called the Tall Boy.  The Tall Boy became very popular, not only in the c-stores as a single serve, but it was the bootleggers’ package of choice for years because much of East Texas was still dry.  Thus, the Schlitz Tall Boy became a can unique only to Schlitz.

2015 marked the 80th year of using cans to contain beer.  It was in 1935 that Kruger Brewing Co. introduced the first beer, following soon thereafter by Pabst and Schlitz.  Above you can see the evolution of the beer can in the US.  The chart shows the history, and in recent years, how the can has changed to impact all segments of beer.

Even Boston Beers, which resisted offering Sam Adams in cans, relented and now has that packaging option available.  In the last couple of years, domestics, led by Coors Light and Miller Lite, have promoted the reseal-able 16 ounce with success. So much success, in fact, that there have been shortages of this can thus requiring production postponement in some cases.  Importers, including Warsteiner and others, have offered five liter cans for years.  This is a great package for incremental volume, which can be called a mini-keg.

Many small crafts have moved to the can instead of bottles.  Much of this has to do with the mobile can lines which crafts can hire and use to get into the off premise channels.  While doing this is expensive for the breweries, it is a simple but effective way to get the product to the off premise while adding new consumers.  A good test to see if buying a packaging line makes sense.

Cans have truly helped to grow the craft segment, cans have also helped to grow domestics.  But what is next?  The convince of cans had much to do with moving the beer business from the on premise to the off premise, thus resulting in increased beer sales.  Can this package energize the growth of beer once again?

Below is a picture of a new and very unique can design.  Created by a bar manager in Finland, upon first glance, one cannot help but think, why was this model not thought of earlier? Take a 16 ounce can, split it in half to make an eight ounce half can.  Instead of a round can, it is a semi-circle.  Put the two semi-circles together and you have two eight ounce cans attached to make a 16 ounce can.

The possibilities are seemingly endless.  With two openings on top, a brewery can have two liquids in one package!  Two types of IPA’s in one package!  ABI could have eight ounces of Budweiser and eight ounces of Bud Light, all in one package.  Graphics of each of the two different beers would be on their respective half of the can.  Estimated additional costs of producing this type of can is about 20-30%+.  A higher price point would be needed, but it is not prohibited.  It might even be a better strategy to do this with a larger can, maybe a 24 ounce can or two 12 ounce sides.

As a seasonal focus, a brewery using this can concept could put six to eight different flavors in one 12 pack.  Hard to see any retailer or box store turning that down.  An idea along these same lines might be just what the beer industry needs to jump start greater growth.

Remember, the difficulty lies not so much in developing new ideas as in escaping from old ones.