Mar 282017

Constellation Brands logoWhen the G. Heileman Brewing Co. was riding its crest of success, their business model was simple.  Heileman’s portfolio was predominantly regional brands which the company expanded nationally.  They assigned various brands in in the market to different wholesalers, therefore, if a market had four wholesalers, all four might have a Heileman brand.  The wholesalers would all compete against each other.

Naturally, over time, wholesalers lobbied their respective state legislatures and got this changed to allow a brewery’s brands to be offered to only one wholesaler.  There was a grandfather clause protecting wholesalers currently doing business, but going forward, there would be no more competing against one’s own brewer.  This worked well for Heileman until the brewer collapsed under its own heavy debt, which it incurred through a series of changing owners. The industry has not seen any business model like Heileman’s since the 1980s.

The current market is seeing some uniquely changing business models today.  ABI, in their desire to acquire Modelo, agreed to sell the rights of the Modelo brands to Constellation Brands.  This satisfied the DOJ’s concerns that AB could have more control over the US beer market.  ABI did sell the US market, and did acquire Modelo for the rest of the world.  All is good, right?

Even prior to buying Modelo, AB has, for years, been attempting to find a way to slow Corona’s growth and steal some of their market share.  AB first tried to develop their own Mexican labels, however, this proved to be unsuccessful.  In recent years, AB has started to import other Mexican beers with some success, including Estrella Jalisco and Montejo.  AB also has Presidente from the Dominican Republic, and Oculto, a beer with a hint of tequila.  All of these brands are aimed at Modelo.

Not even AB could have anticipated the success that Constellation brands have had since becoming an owner versus an importer.  It is safe to assume that much of the volume loss experienced by AB has shifted to Constellation.

Now, however, it seems the shoe is on the other foot.  After years of AB’s attempts to stop Corona, Constellation brands will be soon introducing Corona Premier, a brand designed to compete against AB’s powerhouse, Michelob Ultra.  Did AB see this coming?

The shift continues as Modelo brands are now taking over the lead sponsorship in such sporting venues as the Chicago White Sox. These venues, long tied to AB or MolsonCoors, are looking at Modelo brands as their demographics are changing.  Did AB see this coming?

Even as this blog is being posted, Modelo is taking AB’s place as set-captains in a number of major chains.  Retailers can read their own scan data along with SIRI and others to see the consumer continues to move to higher priced premiums, and especially the Modelo brands.  Did AB see this coming?

Modelo continues to expand their own product line, now with Corona, Corona Light, Corona Premier, Modelo Especial, Negra Modelo, Pacficio and others.  Did AB see this coming?

In the beer industry, nothing ever stays the same as the industry leadership is rapidly moving from AB to Constellation brands.

If you want to change things, it requires bravery….




 Posted by at 6:00 am
Mar 212017

Rainier posterColumbia Distributing was formed with the merger of three Northwest beer and wine houses, one of which was Mt. Hood Beverage.  Mt. Hood Beverage was formed when Dick Lytle purchased Coast Distributors in 1990, at which time I was the General Manager for Coast.

Coast, which had existed for over 100 years, was one of the largest U.S. beer distributors at that time.  It was also the largest Pabst distributor, by volume, in the country.  Hamm’s, sold more beer in Oregon than Budweiser or Coors during this time period, in fact, we did close to three million cases of Hamm’s in 1989.  Of course, we also had PBR along with a number of G. Heileman brands across the state.  Maletis Distributing in Portland, however, had Henry’s and Rainer, and Henry’s still enjoyed a market share of 12% in Portland.

In 1991, Heileman, which had already filed for bankruptcy protection, attempted to terminate Maletis.  Heileman had brought in a team to do a 90-day market drive with the express purpose of discovering any out of date product.  They found quite a bit of old beer.  Heileman wanted to move to Coast, however, while running Coast, I cannot recall having any discussions with either Heileman or Maletis regarding the purchase of these brands.

Maletis sued, and I was retained to determine future loss of profit and, in my opinion, to determine if the termination was justified.  Just prior to jury selection in New York City, both parties reached an agreement, thus foregoing trial.  The brands did move to Coast.  Combined, both parties spent several millions of dollars in litigation.

The industry has seen an onslaught of attempts by craft breweries to modify the current franchise laws, targeting terminations without cause.  Many states have changed their franchise laws to allow crafts, which have a small share of the wholesaler’s total business, can now buy out for fair market value.  The percent of the wholesalers business taking advantage of the changes in franchise laws ranges by state, but typically encompasses under 10% of the wholesaler’s volume.

It has taken the craft segment almost two decades to accomplish the current franchise law changes, and it continues today.  The recent events in a couple of states emphasizes the importance of franchise laws.  Recently, Pabst terminated three Washington state wholesalers and moved the Pabst brands to Columbia.  The fair market value is yet to be determined!

It is not unreasonable to believe that conversations between Pabst, Columbia and the three Washington wholesalers took place last year.  Since Pabst is a large part of the overall business in Washington, one might assume all three wholesalers had no interest in selling distribution rights.  Pabst’s termination forces this issue through the court system.

This attempt by Pabst to terminate longtime wholesalers, along with AB’s actions in Mississippi, does nothing to help crafts’ attempts to change franchise laws.  In fact, wholesalers can use these cases to strengthen their position that franchise protection is needed now more than ever.  For crafts, these actions could not have come at a worst time.

There will be a lot of money spent in Washington over these terminations, and in the end, Pabst will be at Columbia, but those wholesalers will be compensated.  Your life works to the degree to which you keep your agreements…

EDITORS NOTE;  I am sorry to report that Fred Schumacher past away last Sunday at 78 years old.  Fred, who was the man responsible for importing Hofbrau into the US, also worked for the Jos. Schlitz Brewing Co.  He will be missed.

 Posted by at 6:00 am
Mar 142017

Corona PremierMiller Lite was the first line extension introduced in the early 1970s.  Lite’s success was soon followed in the mid-1970s by Coors Light and Bud Light.  These three brands created an entirely new category, and as successful as they were, these three brands not only replaced their mother-brands, they surpassed them.  The term “cannibalized the mother- brand” can be over used, but when you take the combined volume of both the regular and light brews of each brand, the decision to create a light beer was never second guessed.

Today, we see Miller, Budweiser, and Coors, all once the flag ships of their respected breweries, in different places.  Miller has moved toward retro marketing and is positioned as a price beer; Budweiser is still in a free fall, looking for a parachute; and Coors, who years ago went back to a retro marketing strategy, has been growing for over 10 years.

Perhaps the ultimate line extension the industry has seen is Michelob Ultra. This is certainly the hottest domestic brand, with only Modelo Especial coming close to Ultra’s growth trends.  When AB dropped the tear-drop shaped Michelob bottle, the brand became a memory to older drinkers.  Ultra today is Michelob, and its success has become the target of several major importers.

Heineken and Modelo are now offering brands aimed directly at the Ultra consumer, however, their marketing strategies are dramatically different. Heineken is introducing Amstel XLight, using their long-dormant brand, Amstel as the vehicle to capture the Ultra consumer.   Modelo, on the other hand, is using the long established, and highly successful, Corona brand as their strategy to capture the Ultra consumer with Corona Premier.  These are interesting tactics and dramatically different.

How will a buyer for a major chain view these two new brands?  Heineken will be asking for shelf space for a brand, long disappeared from the consumer’s point, yet Corona will introduce their Premier tied to the Corona name.  Obviously, the buyer will be much more supportive of the Premier as it will have stronger name recognition over Amstel.  It seems to be a lock that Corona’s attempt will be successful and Amstel’s will not.

The question really is: why did Heineken use the Amstel label for the XLight instead of the Heineken label?  Perhaps Heineken should have used their Dos Equis label.  It seems that Heineken is testing the temperature of the water, where Modelo is jumping directly into the deep end.

It will not be surprising if the XLight disappears from the shelves by the end of the year, or at best, the brand will have limited distribution. Nor will it be a surprise that Premier will be the hot new beer of the year.  If so and Ultra’s trends continue as is, Heineken may be using their labels and go with something like a Heineken Superior or Dos Equis Grande.  The chance that those products will succeed is much better than Amstel XLight, so why bother with the Amstel name?

Perhaps this is an example of the difference between a European managed importer verses an American managed company?

A fool can throw a stone in a pond that 100 wise men cannot get out…..

 Posted by at 6:00 am
Mar 072017

Clint EastwoodThe basic premise as to what drives volume in the beer industry is twofold:  it is either through media or through price discounting, with a combination of both being the ideal situation.  That being said, over the last 10 years, both AB and MC have lost millions of barrels and substantial market share.  The reason, ineffective marketing and aggressive pricing. The numbers do not lie.

Over the last five decades there have been an endless number of media campaigns by AB, Miller, and Coors.  Many have been very effective, however, some have been a total disaster.  There was the Schlitz, Don’t Take Away My Beer ad, made by actor James Colburn that was in your face and very offensive.  Then, Miller produced the infamous Dick ads, enough said.  Then there are the classics like Miller Lite’s Tastes Great, Less Filling, which started a new category that still dominates the industry today.  AB ran with This Buds For You!, along with some other variations that really drove the brand.  These are two examples of classic ads which spoke to the consumer.

The question today is, why have the current messages failed to drive volume for these brands?  Maybe the better question, is why have ads for AB and MC been ineffective, while some ads for other brands been very successful?  Michelob Ultra, Coors, Corona, and Dos Equis have all seen great growth for years, but perhaps the personification of success is Modelo Especial!

What do these brands have in common, and what are they saying to the consumer that the others are not?  Could there be an underlying theme that is resonating, not only with older consumers, but also with the millennials?  A message that hits home to the cupcakes and buttercups that society has earmarked?

Coors has used the actor Sam Elliot, long known as a rough cowboy with a gruff voice, since 2007 as the voice for their retro Rocky Mountain ads.  Coors has experienced single digit growth for years.  Corona, has relied on the beach-in-the-bottle theme for decades, showing couples enjoying life on the beach.  Michelob Ultra has illustrated a lifestyle with successful, chiseled bodies, that hits its intended mark, and the numbers are nothing short of incredible.  Dos Equis and the Most Interesting Man in the World has been so successful that Heineken recently rebooted this ad with a younger man. The result has been that the numbers continue to grow, indicating the younger MIMW, resonates with younger men.

But, perhaps it is Modelo Especial that is the bell weather of just why these brands are so successful.  Using music from the macho movie, The Good, The Bad, and The Ugly, which emphasizes the macho theme, while the ad highlights the brewing of Modelo Especial.  These ads are definitely speaking to males.

Ads from Coors, Michelob Ultra, Corona, Dos Equis, and Modelo Especial speak to the quality of the beer, however, they all have the underlying macho theme that hits home for males of all ages.  Men are saying, I cannot be like them, but I can drink their beer.

What is clear is that fraternity-style ads and ads-sharing-with-friends are not working.  Masculine focused ads are hitting home and the numbers reflect that.

The Good, The Bad, and The Ugly…..

Beer Fodder; 


Beer Fodder #2; 

 Posted by at 6:00 am