Beer Business Unplugged

Viewership for this season’s NFL games is reportedly down by 10% year-to-date.  Some of this decline has been attributed to the “cutting the cord” on cable TV due to high costs.  ESPN has reportedly lost over four million subscribers. Another cause for the decline in viewership has been the length of the games, both college and pro, which frequently exceed four hours.  Whatever the reasons, this decline must be very concerning to all advertisers, especially the beer companies.

Given the fact that many colleges have recently started selling beer during the games, or even sold concession rights directly to brewers, like ABI and Texas A&M have done, the decline in the number of fans watching the games has continued.

A recent study revealed the intertwining of alcohol and sports for those who watch sports live in the stadium, or at home on their television.  This study broke-out consumption by sport within the following sports: football, basketball, hockey, baseball, car racing, soccer, golf and tennis.  Of the eight sports studied, with the exception of football, increased alcohol consumption occurred at the event versus while watching the event at home.  Only while viewing football at home, was the viewer more likely to consume more alcohol.  The difference as a percentage is not much, four to five percent by sport, but that must translate into a great deal of volume.

So what happened to the 10% of viewers who once watched football and now are no longer watching?  And into how much volume does that 10% translate?  What are the demographics of those who are no longer watching football?

And will this trend be the beginning of declined watching, or just a glitch?  What if the downward spiral continues, signaling a major shift in the way males spend their free time?  If that becomes true, how will the beer industry adjust?

Many pundits in recent years have written and discussed the “woosification” of the American male.  The personification of this term can be seen in the so called “safe zones” now provided by many American colleges.  Much of this was brought to light after the recent election and the way college “snowflakes and cupcakes,” many of whom are males, are handling the election results. To many, these males do fit the demographic of the once typical NFL fan.  It is hard to visualize these snowflakes and cupcakes drinking a Bud, munching on wings and supporting an NFL team!  Perhaps they are more likely drinking white wine and eating brie.

In the future, beer advertising and marketing will be targeted toward specific demographics and more careful attention will be made as to where discretionary marketing dollars will be spent.  The NFL has been the bell-cow for decades, but the changing U.S. culture is causing major upheavals in all types of marketing, not just with beer as we are seeing with the NFL and college viewing.

Three things men always talk about – women, sports and cars…

Beer Fodder; http://adage.com/article/cmo-strategy/miller-high-life-reviving-a-classic-slogan/306869/?utm_source=daily_email&utm_medium=newsletter&utm_campaign=adage&ttl=1480381759?utm_visit=799604

On can certainly attest that for the past 50 years the beer industry has been an industry of consolidation.  Beginning with Philip Morris’ acquisition of the Miller Brewing Co. it seems more breweries are selling.  Once the top tier started, it facilitated consolidation at the middle tier, and the movement continues today.

Philip Morris-Miller notwithstanding, take a look at some of the other consolidations and identify the ones that have been even partly successful.  Stroh/Schlitz?  Nope!  All the G. Heileman breweries under their umbrella?  Nope, that one ended in the US bankruptcy courts.  Pabst? Look what they ended up with and how many times have they been sold?  In all fairness, the Pabst brand has, in recent years, seen some revival, but not enough to place them at the level Pabst enjoyed in the 1960s.

The consolidation at the middle tier has been much more successful in terms of survival.  Even in this tier, the industry is seeing new, small craft distributors becoming a factor, as the consolidation by the wholesalers has opened the door for this model.

We have watched how InBev’s acquisition of AB, and the JV acquisition of SABMiller and Molson Coors affected the sales of those breweries.  With Molson Coors now independent of SABMiller, just how MC does in the future will soon be known.  We all, however, know what ABI’s course of action.

One could say that the recent U.S. election, combined with all of the rhetoric and promises given by the various politicians, may be similar to the rhetoric we see from the ABI leadership.  It is clear that 10 years after InBev’s take-over of AB, share growth and organic volume growth is not a reality.  For ABI to survive, it must continue to acquire more brands and more companies.

ABI’s recent announcement of their acquisition of the highly successful brewery, Karbach of Houston, has come right on the heels of closing the SABMiller deal. This again brings up this question: how many times does ABI make commitments, but proceeds to do exactly what they want to do?

Does anyone believe that this Karbach deal was just recently made?  This deal had to have been negotiated and agreed upon long before the announcement date.  The agreement, however, was kept quiet so both the industry and the DOJ would not object.  Now with the election over, and the change in government, what better time to announce such a deal?  Anticipate the deal to close before the end of the year, if not sooner. With the Obama administration on the way out, and the Trump administration incoming, there should be no expectation of DOJ objections.

Once again, Brito and his ABI team have played their cards with a winning hand.  Karbach is one of the craft industries incredible success stories.  Karbach might make 80K bbls. this year in only its fifth year in business. Yet they only sell in Texas!  Now, it will be in ABI’s portfolio.

ABI has shown, time and again, it will do what it needs to do to win.  It will not change, no matter what.

“Winning isn’t everything, but wanted it is.”

Arnold Palmer

Consolidation in the middle tier began to kick-up in the early 1980s when Schlitz started the journey, which would ultimately led to the death of this top selling brand. Of course, in non-Stroh markets, Schlitz wholesalers worked to pick up the right to distribute Stroh as the beer expanded across the U.S. into Schlitz –held houses.  This expansion, at least for a short while, gave these Schlitz wholesalers the hope of additional volume.

During same time, the G. Heileman Brewing company was also adding brands and expanding across new markets.  Most states had no provisions for either line extensions or dueling, which worked in favor of Heileman’s business model.  A model which provided for a number of wholesalers in each major market with the idea that by competing against each other, the brewery was the ultimate winner.

One year, Heileman planned to launch their super premium, Special Export, into Texas.  They sent a request for proposal (RFP) to all wholesalers.  These RFPs were much simpler than today’s RFPs.  As it turned out, my Schlitz distributorship was awarded Special Export for our market.  During the winter, our market was home to thousands of mid-western winter Texans, which provided an automatically built-in market for Special Export.  We had some initial success, but the excitement soon died, and so did sales.

Coors also was expanding across the mid-west and heading east, and wholesalers saw Coors as a life-saver, especially if they carried Schlitz. What wholesalers were most interested in was market spending and pricing.  What they were not concerned about was the quality of the product.  Heileman, Stroh, and Coors all made good beers with no QA issues.  Even Schlitz, in an effort to save the brand, reverted back to its original recipe formula, although by that time it was too late to save the doomed beer.

This past week, while addressing the wholesalers in West Virginia at their annual conference, the topic arose concerning the on-going issue of the quality today’s craft breweries.  The troubling part was that these craft brewers, who were making beer of suspicious quality, were some of the most outspoken critics of access to market and franchise laws.

Why would any wholesaler want to represent a craft brewery who was producing a poor quality product?  Such craft brewers either are choosing to ignore this problem or are completely unaware of the problem.  In any case, because of this issue of quality control, many brewers are spending time and money attempting to change state beer statutes in an effort to suit their own needs.

These brewers believe that eliminating franchise statues will provide them with access to markets and more control over the execution of their brands in the middle tier.  This alone has put the beer industry in a bind. No wholesaler wants to represent a brewery that has QA issues.

It goes without question that these craft breweries could eliminate much of their difficulties in getting to market if only they would spend their resources on building a lab and using trained and educated techs to oversee the quality of their liquids.  The QA manager should report only to ownership or the CEO, not to the brew master as this proves to be a conflict of interest.  The brew tech must have authority over all liquid and should be the determining factor as to whether or not the beer goes to market.

Schlitz and Heileman did not make it, one died due to QA issues brought on by management, while the other died because of management.  So, too, will these craft brewers perish, but not before damaging the industry.

If you win the rat race you’re still a rat!

Editor’s note:  A special thanks goes out to the West Virginia Wholesalers for inviting me to speak to them.  I enjoyed visiting with each of these professionals and hope to do so again in the future!