Beer Business Unplugged

I moved to Kansas in 1978 as the executive vice president of Coors of Kansas.  Although this was not my first exposure to 3.2 beer, it would be my first exposure to selling the liquid.  So-called “strong” beer was sold only in liquor stores and private clubs, whereas 3.2 beer was sold everywhere.  As I recall, 80% of the Coors sold was 3.2 liquid.

I quickly learned that the state addressed strong beer in a much stricter manner than the method used for handing 3.2 beer.  Our trucks would deliver 3.2 beer to a grocery store, while next door sat a liquor store.  Coors of Kansas had separate routes for strong beer and 3.2 beer.  I had the routing changed so routes could service both accounts.  This was done by loading one side of the truck with 3.2 beer and the other side was loaded with strong beer.

Of course, to help this system I had changed the fleet, going from eight bay bobtails to 16 bay tractors.  The employees thought I had lost my mind in so doing, but the change resulted in no issues and by the end of the year, our delivery cost had dropped dramatically.  This reduction in expenses resulted in a 45% increase in operating income.  Obviously the owners were very pleased with the results.

Ten years later, while working at Coors Brewing Co., I was sent to Utah to run a newly acquired distributorship.  Once again, I was in a state where 3.2 beer the dominated ABW.  Of course, working and living in Colorado presented the same issue, 3.2 beer in groceries and c-stores, while strong beer was sold only in liquor stores.

Fast forward 25 years and we are seeing states such as Colorado, Oklahoma, and soon Kansas, changing their laws to allow strong beer to be sold in all trade channels.  Like many industry laws and restrictions, the 3.2 issues were antiquated and should have been changed years ago.  But, by changing these laws now, it creates a new set of problems.

From the breweries’ perspective, consider how a brewery would handle producing 3.2 beer for only one state where it is still legally sold?  For brands such as Michelob Ultra, it is no big deal.  The same situation would hold true for other light beers whose ABV is 4.0% or less.  The consumer would have a limited choice.

The bigger issues, however, are in states where a brewery has duel distributors, such as in Kansas.  A liquor house has the rights to Corona in a strong beer, but the AB network has rights for 3.2 beers.  You eliminate the 3.2 beer issue, and now what happens?  Grandfather both?

The reality is that AB already delivers to the liquor stores, whereas the W&S company does not have the capabilities to deliver to locations that would have been the former 3.2 accounts.  That being said, if strong Corona was available everywhere, the volume in the liquor stores would drop dramatically.  The W&S company will be more likely to sell their rights.

This then becomes a question of value.  If Crown allows for dueling to continue, than it might be in AB’s best interest not to buy when you sell the same beer?  Obviously, this makes no sense.

Crown, and other vendors in this position, have some major decisions to make as these 3.2 beer laws are eliminated.  Prohibition makes you want to cry into your beer and denies you the beer in which to cry….

One winter night while working at Coors Brewing Co., a co-worker and I decided to visit a local bar and play some pool while enjoying a couple of cold ones.  The bar was a Coors draft exclusive, and after we introduced ourselves to the owner, we were interrupted by another individual who was drinking a Budweiser and he immediately proceeded to bash Coors.

It turns out the Bud drinker was an electrician who once worked at the Coors brewery many years prior.  Coors, for years, had made efforts to decertify all unions and in 1957, decertified the electrical workers union who subsequently went on strike.  This gentlemen had lost his job and been on strike ever since.  It was 1987 and he had been on strike against Coors for 30 years!

In 1975, when Coors expanded into South Texas and other states, they were the number one selling beer in all 10 states in which they sold, and in every market in Texas.  Some states/markets had Coors’ shares in excess of 60%+.  Coors was able to expand, not because of additional capacity at the brewery, but because they were losing share in California, their largest volume state.

With the passage of the Civil Rights Act, Mexican Americans charged Coors with discriminatory hiring practices and launched a boycott of Coors products beginning in the late 1960s.  Labor unions and gay rights activists joined the boycott, which lasted into the 1980s.  The EEOC sued Coors in 1975 and settled with the brewery when they agreed not to discriminate against blacks, Hispanics and women.  In 1977, however, Coors was accused of firing gay and lesbian employees.  By 1993, Coors encouraged the organization of its gay and lesbian employees into the Lesbian and Gay Employee Resource.  Coors became the 21st publicly traded corporation in the US to extend employee benefits to same-sex partners.

These boycotts, strikes, and political stances by Coors damaged their image and destroyed their sales, especially in California.  Even longtime advocate for Coors, actor Paul Newman, boycotted Coors at the pinnacle of his popularity due to discrimination issues.  Soon afterward, however, a Budweiser logo appeared on Newman’s racing car and racing cloths. Funny how that happened!

ABI, in the last 12 months, has pushed the enveloped in their marketing of Budweiser, first by creating the Brewed the Hard Way campaign which is aimed at the craft segment.  And secondly, ABI just announced their strategy for removing the Budweiser name from its packaging and replacing it with America.  AB plans on running this program all summer, highlighting both the 4th of July and the Olympic Games.  Finally, in the last two weeks, ABI released new TV ads on gay marriages including rainbow colored out door signs.  All in support of gay rights.

This tactic by ABI has been the topic of many industry pubs and business articles.  The big question is just how this will affect Budweiser and their sales?  There are some statistics which indicate that millennials support gay marriages by as much as 70%.

So far the numbers have not materially changed for AB, as Budweiser continues to lose volume, although not quite as fast.  It remains to be seen if their support of gay marriages has any effect on Budweiser sales.  What we do know is what kind of affects boycotts had on Coors many decades ago.  Just ask any of the Coors California distributors who are still around today about the boycotts.

The entrance strategy is actually more important than the exit strategy…