Jan 312017

Red BullThe numbers for 2016 are now being released.  In 2016, we once again saw the industry produce similar results very similar to the last 10 years.  Since 2010, domestics have lost 16.5 million bbls. or 9% in volume, crafts have gained +13.2 million bbls., and imports +5.9 million bbls.  Therein lies the issue with wholesalers.  AB, MC, and even established crafts such as Boston are losing ground   As a wholesaler do you stay or expand?

In recent years, many wholesalers have expanded into non-beer products.  Even importers have done the same.  In the late 1980s, Warsteiner took on Nestles, albeit for a short time as this experiment did not work.  A number of these expansions do not work, but there are some that are very good, such as the energy drinks Red Bull and Monster.

Monster is now leaving the beer network, predominantly AB houses, by exercising provisions in their agreement with the wholesalers to buy out their rights.  Monster, like Red Bull, is a very profitable product and a key part of anyone’s business, and because of this, many of AB wholesalers are fighting back. Yet, at the first of January, Andrews Distributing, which has MC houses in both north and south Texas, and is a long time Red Bull distributor, announced that they were getting out of the Red Bull business in Texas.  Andrews’ annual volume is around 1.5 million cases of Red Bull. “This was a tough and thorough decision-making process, but the decision allows us to move forward with 100 percent focus on our core beer business,” per notes from Mike McGuire.  He states they will continue adding “new and powerful brands, territories, and customers to the company’s portfolio.”

So the question is, why would Andrews go this direction when most other wholesalers are doing just the opposite?  Could this decision be based on retiring debt?  Andrews has bought both the Miller and the Coors distributor in Ft. Worth in recent years with the goal to consolidate both in a new super facility which is under construction.  Makes sense?

Maybe there is another reason why Andrews is making this move.  Andrews’ markets, DFW and Corpus Christi, are connected by Interstate 35, which goes through San Antonio, Austin and Waco.  Two of these markets, San Antonio and Waco, are owned by Glazer’s.  Now that Glazer’s has merged with Southern with their wine and spirits business, and spun off their beer division, the question arises: will Glazer’s continue to retain just the beer operations?  No doubt Andrews would love to have Waco and San Antonio in their operations. Add in the Rio Grande Valley, which also is Glazer’s, and you pretty much have it covered, omitting only Austin.  Divesting Red Bull should put Andrews in a much better position should they become available.

2017 will be the year when we learn more behind this decision to get rid of 1.5 million cases of Red Bull.   Maybe there is another reason why Andrews is making this business decision.

A tree is a tree.  How many more do you need to look at?

Beer Fodder; https://www.youtube.com/watch?v=vQusMl8aNmg

 Posted by at 6:00 am
Jan 242017

Fredericksburg breweryMany years ago, Diageo requested that all their U.S. beer distributors for Guinness sign a distributor contract.  At the time, less than half Diageo’s U.S. distributors had signed any document with Diageo.  With the promise from their Distributor Advisory Committee, Diageo set out to construct a contract which could, and would, be agreeable with both parties.  It took two years for both sides to come to acceptable language, but the document was completed and sent to every distributor for execution. Once again, only half agreed to sign the document as written!  This is not news, as we all know.

Recently a large wholesaler, in negotiating a beer agreement, changed the brewer’s QA standards to the wholesaler’s internal standards!  Now just where does a wholesaler start to determine what a brewer’s QA standards should be?  I can see a wholesaler telling a brewer, like AB, MC, Constellation, Boston or Heineken, that the wholesalers QA standards are in play, not theirs.  I am sure the brewers would all go for that.

While there are multiple points of contention in the contract, one major issue is pricing.  In 2007, the U.S. Supreme Court made the following ruling which was the subject of a post in September of 2012:

In the mid 70’s, Coors Brewing Company was reprimanded and placed under a two-year moratorium regarding price discussions when a conversation between the brewery and a wholesaler was recorded by the later. From that point forward, the talks on pricing between wholesalers and vendors always included the words “recommended” or “suggested” in the discussions, and all price letters to wholesalers had the language “we recognize your right as an independent wholesaler” and “businesses to set your prices accordingly.”

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007), is a U.S. antitrust case in which the United States Supreme Court reversed the 96-year-old doctrine that vertical price restraints were illegal per se under Section 1 of the Sherman Act.  The afore mentioned case replaced the older doctrine with the rule of reason. Resale price maintenance (RPM) is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer’s product at certain prices: at or above a price floor, or, at or below a price ceiling. If a reseller (distributor) refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with said wholesaler. This marked a dramatic shift on how attorneys and enforcement agencies addressed the legality of contractual minimum pricing, and essentially allowed the reestablishment of resale price maintenance in the US in most commercial situations.

No doubt that beer prices, led by crafts, could be more aggressive in the coming year.  Vendors do have a right to discuss partners’ pricing with their wholesaler.  Even though it has been 10 years since the above Supreme Court ruling, there have been no further rulings which clarify this case.

The industry is changing, but both wholesalers and their attorneys need to be aware that their contractual demands will not work for vendors, or even the courts.  The fact that wholesalers are awarded distribution rights for free, and that they are protected with federal and state statues, written with input from wholesalers, yet the wholesalers still slants contracts.

Unfortunately, there are no mulligans when it comes to beer contracts…..

 Posted by at 6:00 am
Jan 172017

swinckelsIt will be a couple of months before the final 2016 numbers on both shipments and depletions are announced, however, we do have the 11 months of import shipments to review.  While the industry buzz is about the slow-down in the grow rate for crafts, the numbers indicate that imports are surging at an increasing rate.

No doubt, we all are aware of the remarkable growth of the Mexican beers.  In fact, both Constellation Brands and the Heineken Mexican beers are accelerating in sales.  The growth we are seeing in a number of European countries is quite interesting.

Thru November, German beers are up +30%, followed by the Irish up +20%.  Several countries are still negative, including the Netherlands down -7%; Belgium down -8%; and at the bottom, the UK down -27%.  Canada is also slow at -19%.

Part of this trend must be attributed to the growth of the high end, but, why all of sudden, is there a surge in imports?  With the exception of Stella, imports from Europe have not had much success in decades. So why now?

Past posts have discussed decisions made by successful European brewers who, mostly due to the exchange rate, reduced or eliminated their U.S. business model during the early 2000s.  Now with a change of administrations and a different U.S. monetary policy, the exchange rate with the Euro is almost one to one.  The breweries that left, now want to come back.

The personification might be Bavaria.  Bavaria, just over 10 years ago, was a very successful importer.  They had their own importing agency and shipped over 100K HLs. per year.  Their three largest states were New Jersey, Florida and Texas. Considering that Bavaria might have been the first popular priced import, with a pricing model $2.00 per six-pack under Heineken.  Bavaria had set their standards to be placed in the well next to Heineken.  It worked.

Because of this model, Bavaria’s sales skewed to 99% off-premise.  They basically had almost no on- premise business.  They shipped no kegs.  As the Euro grew stronger, because of their pricing, Bavaria had to increase front-line pricing to offset the exchange rates.  The consumer no longer saw any value in buying Bavaria as the beer’s price edged closer to that of Heineken.

With declining sales, Bavaria closed their U.S. importer and assigned rights to a California importer.  For all practical purposes, Bavaria disappeared…until now.

The owner of Bavaria, Swinckel’s, has recently purchased the U.S. importer Latis Imports.  Obviously this purchase is to reestablish Swinckel’s beer sales and grow them in the U.S.  You can almost be assured that someday Bavaria will be part of Latis Imports, along with Swinckel’s and Holandia.

If the exchange rate drops lower than one to one in favor of the dollar, expect a return to the 1980s when European and Canadian imports invested heavily in the U.S.  This time, however, with the high-end segment growing and expanding, the importers will not back out.  This expansion could put a damper on the craft segment with the millennials.  Only time will tell.

It makes one wonder where a brand like Bavaria would be today had the Swinkel’s not pulled out years ago?  Experience is simple, it is the name we give our mistakes….


 Posted by at 6:00 am
Jan 102017

bud-bottlesDuring the year that I was the sales manager for Schlitz at Mid-State in Alexandria, LA, we were the beer sponsor for the minor league baseball team in the city.  Because this was a small-town minor league team, Mid-State did not sell much volume at the baseball park, but we did have an advantage as Schlitz was the only beer available. Sponsorship included an outdoor board on the fence, an ad in the game day program and radio ads when the game was broadcast.

During my time at various distributorships we have always sponsored minor league local teams, mostly baseball teams, and sometimes we even sponsored golf tournaments, including the Coors Kansas Open.  Many rural wholesalers are involved in their local or regional county fairs; frequently buying the grand champion steer or hog, with the sponsorship money frequently going toward the college fund of the boy or girl who raised the animal.  Of course, the wholesaler’s beer is featured and a long article in the local paper highlighted the wholesalers’ support. The question is: can the above sponsorships be defined as pay to play or, are they defined as community involvement and support?

The final numbers have been published from this seasons’ beer sales at the University of Texas.  Alcohol sales jumped more than 70% in 2016.  Longhorn fans bought $701,234 in beer and wine during the double overtime UT win against Notre Dame.  The University of Texas athletic department netted $1.3 million in 2016 from gross beer sales of $2.8 million, with only $128,321 from wine sales and $141,632 from liquor sales.  These sales were generated over six home games; all played under good weather conditions.  This was not the case in 2015, when some games were played in pouring rain.  Interesting though, the final numbers on alcohol-related incidents in 2016 have not been finalized, preliminary results show a reduction in alcohol-related incidents when compared to 2015.

Miller Lite was number one in volume, selling 98,535 cans compared to 62,275 cans the previous year.  Miller Lite dollars were $788,280. Slightly behind Lite, was Coors Light at 95,096 cans, generating $761,168 in revenue.  Bud Light, the number one selling beer in Texas, sold only 34,257 cans!  Really!

The rest of the numbers are very telling, Budweiser sold only 89 cans!  Shiner Bock sold only 1,411 cans and the country’s fastest growing beer, Michelob Ultra came in at 741 cans…. and finally, Lone Star had sales of 952 cans.

Across the street from Royal Memorial stadium, literally about 20 steps from the stadium, is the alumni center which has, for years, served beer to alums prior to and during all home games.  Miller Lite, Coors Light, Bud Light, and Shiner are the beers served.  Every beer station has all four beers available.  It would be interesting to see the sales of these beers at the alumni center and how they might be different from across the street at the football stadium.

Given the final sales results by brand, it is hard not to see that there is a legal pay to play here where coaches’ TV or radio shows, sponsorships, ads, etc. all come into play.  Just look again at the NFL and other college programs.  The industry has accepted this type of pay for play for decades, if not longer, at ballparks around the country.

A final question might be considered: how does buying rights at a football stadium differ from buying rights at a retail-on premise account?  Legal verses illegal….

There are two times a year for me: football season and waiting for football season….

Beer Fodder;     https://politicalcalculations.blogspot.com/


 Posted by at 6:00 am
Jan 032017

1963-texas-beer-rankingsDuring our lives we remember events which standout and affect us either directly or indirectly.  Events like the Kennedy assignation, the first moon landing or 9/11 which we will never forget, and in fact, were so dramatic they seem like they took place just yesterday.  Most of us can remember where we were and what we were doing when these momentous events occurred.

Other events which directly affect our lives include high school/college graduation, marriage/divorce, family death, or birth of a child, which also leave an impact on our lives.

The same applies professionally as well, especially to those of us in the beer industry.  1969 was an unforgettable year in that Philip Morris bought Miller Brewing, ushering in modern-day marketing and leading to light beers, which consequentially changing the industry forever.  Another defining year which altered our industry occurred in 1983 when Corona went from their short brown stubby bottle to the tall clear longneck of today.  And the argument can be made that in 1984 when Jim Koch started Boston Beer Company, this had more to do with the creation of crafts than any other single event.  Then, as we all know, in 2008, InBev bought AB and the industry’s dynamics were changed forever.

This brings us to 2016.  Will 2016 be another of those defining years in the beer industry?  In many ways, it not only has to, but it will bring about changes we cannot anticipate going forward.  Simply put, 2016 might just be the defining year of the first 50 years in this century.  This may be hard to believe considering that 2008 had been that defining year of the decade, but 2016 has the look of even more dramatic changes to come.

At some point, probably sooner rather than later, the financial impact of ABI’s acquisition of SABMiller will start appearing in the US.  Just how, is yet to be determined, but rest assured it is coming. What you can most likely count on is ABI doing what they have been doing, just more so.  This includes buying more craft breweries, regardless of their restrictions as agreed upon by ABI and the government.

But another impact of 2016 is the creation of MolsonCoors with the SABMiller buyout.  Some pundits are saying now that MolsonCoors is free of SABMiller, Heineken will come suiting MolsonCoors.  On paper this acquisition makes a great deal of sense, and given the status of ABI now, there should not be any anti-trust issues or push-backs on the government level.

A merger or partnership with MolsonCoors and Heineken will definitely have a long-term impact on the beer industry, not only in the US, but also all over the world given Heineken’s global presence.  Finally, it is difficult to forecast just how the numerous buyouts, JV’s, and partnerships with crafts will play out in the industry, but one aspect of the changes is that many more crafts will follow along with these multiple options.  Regardless, crafts will get much bigger and impact the industry even more.  Time will tell.

2016, just like 2008, 1984,1983, and 1969 will be remembered as a defining year for the industry and will affect all of us in many ways, hopefully in a positive way!

Damage done in one year can sometimes take ten or twenty years to repair….


 Posted by at 6:00 am