Beer Business Unplugged

By the spring of 1986, it was apparent that Corona, with its clear bottle, introduced a couple of years earlier, was a hit.  Corona sales had increased each year even though it was only available in a 20- bottle loose case.  This package made Corona a predominately on premise package so the brand’s potential was still up in the air.

Spring break of that year gave an indication of Corona’s potential.  During that one week on South Padre Island, five containers of Corona were sold!  We could not keep the accounts stocked with beer.  In fact, we continued to have to pick up extra beer from the San Antonio wholesaler.  It was crazy.

Fast forward ten years, while at Gambrinus, Corona, which was now available in 6-packs, had long established itself as a viable brand.  Wholesalers were trying to get distribution rights for Modelo.  Distribution for Corona was still under indexed, but the 12-pack took care of that with an aggressive price point.  Corona had long moved away from targeting on premise Mexican restaurants and was now into mainstream trade channels.

Gambrinus, the Modelo importer, started putting effort into Modelo Especial cans.  Tecate cans were the dominate package in Hispanic off-premise accounts, so Modelo was targeted at this trade channel.  In a very short period of time in the Hispanic grocery and c-stores, Modelo cans had achieved a space index similar to Tecate.  Sales were zooming and soon Modelo bottles were targeted at upscale on- premise accounts.  Especial started to fly off the shelves

In 2002, as previously noted, AB introduced Michelob Ultra as a test product in Florida.  Ultra-did much better than expected and soon started growing.  AB has continued to market Ultra using the same lifestyle theme with great success.  In less than 20 years, Ultra has become a powerhouse brand and the only the light product that has continued to grow, and grow at double digit number for some years.  Ultra is a classic study in targeting a specific demographic.

None of these products were an overnight success and all of them took years to find traction.   Corona had to change their look from a squatty brown bottle to a longneck clear bottle.  The rest is history.  Modelo launched with the support of the Hispanic community from Mexico.   Ultra, hit a sweet spot in the beer segment while being supported by AB.

There are many brands today that are doing well, but none have the volume base and the growth trends of Corona, Modelo Especial and Ultra.  These three are major players with great market share.

If you are an AB distributor and fortunate enough to also represent the Modelo portfolio, you are a happy camper! Throw in Yuengling, if you are on the east coast, and several other craft brands, and your distributor’s future looks bright.

Corona, Modelo Especial, and Ultra, they are the industries Gold, Silver, and Bronzes medals…..

 The number one question I get about crafts is: “How large will the craft segment become in the US?”  Of course no one knows that answer, however, I do tell those questioning the future of crafts to look at Oregon and Washington to understand what the potential is for crafts.  Maybe the question should instead be: “How much business are AB and MC going to lose in the next 10 years?”

While SIRI, Neilson, and Guestmetrics all indicate a slowing of the craft segment, interest in crafts has never been higher.  We all know there are over 4,000 operating breweries and more than 6,000 brewing licenses in the US.  What is really behind this number is the large amount of micro or brewpub size operations.

These small operations, most frequently started in the back of a garage or in a small warehouse with limited funding, have experienced some degree of success.  All have taken advantage of the expansion of the craft segment and have leveraged their local roots to their advantage.  Smart brewers have grown and even some sold getting multiplies that are crazy.  Good for them.

While there is nothing to indicate a slowing of this model, the industry will soon see a different model which will change the craft segment.  Karbach Brewing Co., located in Houston, was started by the CR Goodman team.  Goodman was a longtime distributor in Texas and an importer who sold part of their great portfolio to Glazers and later sold the remaining brands to Ben E. Keith.  Funded by these sales, Goodman started a brewery in Houston, leveraging their experience and contacts as distributors.  Karbach brought in experienced and highly respected brewer, Eric Warner from Colorado.  Aggressively priced, Karbach is on fire in Texas which is not a surprise.

Wild Acre Brewing, located in Ft. Worth, is headed by a former Ben E. Keith executive, John Pritchett and has as its brewer, former Lagunitas alum, Mike Craft.  Wild Acre plans on shipping over 6,000 bbls. the first year out of a brewery with a 10K bbl. capacity.  Their main packaging will be cans with unique designs.  The DFW market is a 63+million case area, only five percent share, which is highly underdeveloped in the craft segment.

In Fredericksburg, Texas, the Scripps family is leveraging their media expertise in building what will be one of the most unusual breweries in the country.  Headed by highly respected master German brewer, Peter Boettcher, a former MC brewer who has designed and built a state of the art 10,000 bbl. operation.

Altstadt Brewing is targeted entry into the market sometime in October.  It has been built and designed to be a destination brewery, with the brewpub an actual 200+ year old German brewery refurbished and shipped to Fredericksburg.  The production brewery consists of the most technically advanced equipment available today.  The brewery will have a world class restaurant, beer garden, and meeting hall.  Initial brands will be a Kolsch, Lager, Alt and a seasonal Wit beer; all under five percent ABV and highly seasonable.  Branding has been created by Brandwrx, a highly acclaimed agency in Austin.

Breweries that are this well-funded and managed by highly experienced brewers and industry professionals are going to be successful.  As pundits predict when the craft segment consolidates, those built with these key characteristics will survive and prosper.  Those who do not, or will not, invest in the highly experienced brewers and industry professions will be gone.   Perhaps such near-do-wells will experience something similar to what AB, Miller, and Coors did to the regionals brewers between 1970s-1990s.

In Texas, it will be Remember the Alamo….