Feb 282017

beer wallIt was 41 years ago this March that Coors opened S. Texas.  This rollout was much anticipated by both retailers and consumers as Coors was only available in 10 states and half of Texas. Despite the limited availability, Coors was by far the largest selling beer in all markets, with market share ranging from a low of around 35% to a high of around 70% in parts of Kansas and Oklahoma.

The largest trade channel in San Antonio was the c-store, however, the largest grocery chain was Handy-Andy, as HEB did not sell beer in 1976.  The morning of the initial rollout all of the stores were anticipating delivery and had already provide shelf space in their respective cold boxes.  The consumers were lined up to waiting to purchase Coors.  Since we delivered the beer cold, it went directly into the empty spaces, which, at Handy-Andy, were right in the middle of Schlitz and Budweiser.

The premium section consisted of three beers: Coors, Schlitz, Miller Lite and Budweiser.  The regional section was composed of: Lone Star, Pearl, Falstaff, Jax, and Busch.  There were a few price beers, including Texas Pride and Buckhorn.  Imports were limited, mostly Heineken, Becks, Carta Blanca, and Tecate.  The line-up was simple, but that was the ways things were in 1976.

The spring resets for most grocery and c-store chains are now underway.  As has been the norm in recent years, the number of new products available continues to overwhelm buyers.  Buyers have their own criteria in which they reset their space, and because there is no industry standard, each chain is different.

At one time, boxes were set based on traffic flow.  The number one beer got the first spot, followed by the number two beer, and so forth.  Price beers occupied the final place.  Over time, however, buyers learned to up-sell the consumer and some chains reversed the sets enabling the higher priced imports, the first spot. This sales tactic did prove to be beneficial.

Today, we see sets with a domestic section, an import section, a craft section, and a FMB section.  These sections can also be split.  This spring, a large chain had over 450 new SKUs submitted.  Even the best chains cannot handle all these new products.

So the question is, can there be a more effective approach to setting space?  The internet provided the initial boast to crafts by providing the consumer with the knowledge that these types of styles existed.  What would happen if a hierarchy existed in cold box setting?  A craft or beer might have to earn or qualify for a place?

Perhaps a highly awarded product with high ratings could get the prime space as earned at the GABF or another international competition.  This way, all the pressure would fall on the brewery to prove they deserved the spot.  A retailer could have a gold section, a silver section, and a bronze section, along with a current local section.  The consumer could than decide how to buy based on industry hierarchy.  This could prove to be an interesting concept.

Total Wine, with their thousands of SKUs, identifies beers with ratings, but not by a section.  What would it look like if Total Wine created their sets by ratings, starting with the highest rating and decreasing down the shelf to the lowest rating.  How many consumers would go to the end?  How fast would those lower rated beers disappear off the shelves?

What is there to lose?  Hierarchy works well in a stable environment…..

 Posted by at 6:00 am
Feb 212017

JN Few Good MenThe proliferation of Fake News, has, up until this year, left the beer industry untouched.  Sure, there was once the infamous Corona liquid fake news, which began out west and spread like wild fire.  Fortunately, however, the distributor who started the vicious rumor was quickly determined and Barton/Gambrinus immediately doused the horrible story.  Some damage was done, but the after effects quickly dissipated and the rest was history.

This blog once told the story of Coors Brewing Company’s accusation that AB and Schlitz had fusel oil as a byproduct of their brewing process.  Once again, a few well-placed phone calls and the issue quickly disappeared.  It was, however, not a good look for the industry.

Social media has been the godsend of the craft industry to date.  One might agree that the industry would not be what it is today without this relatively new form of communication.  Social media has allowed local crafts to talk directly to their consumer and potential consumers, telling their story without any obstructions, and better yet, without the major costs associated with the traditional above-the-line advertising.  Everyone uses social media, including the big boys, albeit, by looking at the numbers, not quite as well.

In the 2016 presidential election, it was clear that social media played a significant role for both parties.  That single election will change how campaigns will be run in the future.  The losing party, and those who supported it, are now using social media to attack the winning party, using the term fake news, or simply making up negative stories about the other side and sending said stories out on the internet.

Fake news is also being used to galvanize voters and raise money.  It seems to be working if you believe the reports on TV.  Just look at all the protests being held on campuses, the rallies, speeches, and marches.

As more and more breweries struggle to get established and grow, the question becomes, when and how will fake news be used in the beer industry?  A craft could spread a vicious rumor about another brewer’s product using fake news.  One might even start a fake news story about a successful brewer selling out to AB or MC!  This could certainly create opportunities for the fake news brewer.  Fake news could announce a pending major price increase, or start a personal campaign against an owner.  All types of fake news could be started and would accomplish nothing but hurt the overall industry.

We have just seen a number of key retail outlets discontinue product lines associated with the President or his family.  Companies are taking a political stance regardless of the possible consumer response.  This type of political involvement has not yet been fully played out to see just how this will affect said retailers’ overall sales.  This could, however, be a direction any number of crafts will soon take.

The beer industry has been, and always will be, highly visible to the consumer given that beer is such a personal product.  Let’s hope that political stances and fake news stay away from our industry.

The thing about the truth is, not a lot of people can handle it….

 Posted by at 6:00 am
Feb 142017

David vs GolithA number of years ago, Hofbrau, one of the six original German Munich breweries who can produce and sell Oktoberfest beer in that country, developed a unique business model.  Once they established an importing agency in the U.S., focusing on their Munich heritage, Hofbrau decided to franchise its name while using their famous Munich beer hall.

Today in the U.S. there are seven Hofbrau franchised beer halls.  There are several models one can invest in, depending on what the buyer would like to purchase, including a full-blown brewery.  Obviously these halls are German themed, with authentic outfits, glassware, banners etc., including the original Hofbrau from Munich.  Hofbrau is not trying to be something they are not; they are building on what they already are.

Even though these Hofbrau houses are franchised, and not part of Hofbrau, it is only from a legal view that the average observer would know these houses are not part of Hofbrau.  The laws have either been changed or modified by states to allow craft brewers to sell their beers in-house or to-go.  Some crafts, where it is legal to do so, are building brew pubs in other markets, not unlike Hofbrau, only they are not franchised.

Some crafts, Anchor, Boston, New Belgium, Yuengling, and even Rogue, have themed bars in locations like airports.  In such bars, their beers are served along with food.  It is called the blurring of the three tier system, but is this not really the melting together of the current system?

Two weeks ago, Diageo, the owner of Guinness, announced that Diageo would build a version of Guinness’s Dublin Open Gate Brewery in Maryland.  Their goal is to open the brewery in October in celebration of the 200th anniversary of its first importation. In addition to the brewery, Guinness will have a tasting room, retail store, packaging and warehouse.  The total investment is reported to be around $50 million dollars.  While the iconic Guinness will not be brewed there, Guinness Blonde will be, along with other special brews. A number of Maryland beer laws need to be modified or changed to allow Diageo to build this facility, but considering the economic impact of what this brewery means to Maryland, one can count on those laws being changed.

So the bigger question is now: will this new business model of the major breweries continue in the future?  We all are aware of AB’s expansion of craft brew pubs of the beers they currently own.  Now we see this model unveiled with Guinness.  Will the major breweries start building these eclectic breweries in major cities or tourist areas?  Why not?

Even if these models by-pass the middle tier, the local wholesaler should benefit from the money the brewery invests in their market.  Will the locals support those brands?  It is working for those who have made the investment, like Hofbrau!  It is working for all the crafts!  It will work for Guinness.

The melting of the tiers continues and, in fact, seems to be accelerating today.  Look for others to follow Guinness and Hofbrau in the not too distant future.  The new definition of this centuries “tied house.”

I love challenging the status quo….



 Posted by at 6:00 am
Feb 072017

beer glassesThe Rio Grande Valley area of Texas is considered an isolated part of the U.S. because of its location, surround on the southeast by the Gulf of Mexico, the county of Mexico to the south, and the vast expansion of the King Ranch to the north, coupled with the fact that a majority of Valley’s population is confined to just three counties.  Because of this, in 1980, there were multiple beer wholesalers located in the valley:   one Schlitz wholesale, run by me; one AB, one Miller (Falstaff), two Coors; two Lone Star; one Pearl/Imports; and believe it or not, one Hamm’s (Femsa).  Heineken, was delivered into the valley by Glazer’s, based in Corpus Christi.  Altogether, nine different houses not counting Glazer’s.

By 1982, however, the beer industry was affected by the following a multitude of uncontrollable factors:  a massive peso devaluation; a 100-year freeze which destroyed 95% of the citrus trees; and the oil embargo.  These events created an unemployment rate of near 50% and a decline in population as people moved to locations where they could find work.  All of these factors created a major reduction in the beer volume.  The economy, unfortunately, was supported by the seasonal visits of the upper mid-west winter Texans, who at this time, were mostly retired WWII vets.

Fast forward to today.  Since the early 1980s, the Valley has more than tripled in population, but today there are only two beer distributors; three if you include BEK who maintains a small operation in the area.  Of the original nine wholesalers, only the AB house L&F remain, all the others have consolidated into a Glazer’s operation.  In other words, the breweries who survived, along with the financially committed wholesalers, weathered the storm and are today making money.

Recently, while visiting a small brewer in their sixth year of business, I learned that in 2016 this brewer experienced his first decline in sales.  He self-distributes and because of that, his tap handles have become a target for the other beer distributors.  He told me that the wholesalers have a $300 bounty for his handles!  Unfortunately for this brewer, he cannot compete with such a practice and has lost a lot of business.

With over 7,000 breweries of all sizes, another 1,900+ with permits, but not yet brewing, and a couple of thousand more in various stages of planning, the industry has reached a saturation point.  It is yet to be determined how many of those will get the funding to build, but rest assured, many will not get the funding they need.  Still, it is obvious that those in the business today are hitting the proverbial wall, not growing as the category slows.  Those breweries without the sales structure, programing, pricing, money, and most importantly, the will and focus to continue on, will surely risk failure in the future.

Just as what happened in the Valley over 30 years ago, economic conditions and top tier consolidation were the reason that seven of those distributors sold out.  The two that stayed the course are now benefiting from their tenacity.  This same determination applies to those craft breweries today.  If the liquid is quality, and one can withstand changing conditions, then the sky will be the limit.

If you want to see the sunshine, then you have to weather the storm.


 Posted by at 6:00 am