Beer Business Unplugged

The 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

It 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….

During 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….