Apr 252017

logo@craft brewers conThis year’s Craft Brewers Conference has just concluded, and once again, the event was well attended with over 12,000 industry people. While the attendance was impressive, the initial feedback from a number of attendees was not positive.  From those who attended, many mentioned that the overall excitement from previous years’ conventions was missing.

The early first quarter numbers continue to show a dramatic slowdown in crafts’ volume and dollars.  Longtime established crafts, including Sierra and Boston, have negative trends.  Only New Belgium seems to be ahead of the trends, predominantly due to their 15-pack cans of Dayblazer.  The downward trend was one of the main topics of conversation at the CBC.

Given the crafts’ downward trend, along with the recent announcement or more than 7,000+ active breweries, one can see why the conversations at the CBC centered on the future of the industry.  The two most talked about topics were consolidation and fallout.  Taking a page from Charles Dickens, it was the best of time, it was the worst of times.

Even those brewers that are currently successful are concerned about the industry and its direction.  Many have commented, though not publicly, that if given the opportunity to build again, they probably would not, knowing the standings of today’s industry. Soon the industry could see more brewery closings than openings. Not unlike what happened to golf courses after the 2008 real estate crash.

The question is: will 2017 be remembered as the year that marked the end of the craft growth?  Perhaps, 2017 will be the year that ends the wannabe craft brewers or more aptly stated: will this be the beginning of the amateurs vs. the pros?

Two additional issues always seem to surface: first, finding quality people; and, second, finding distributors for the craft beers.  Regardless of what happens, both of these issues will continue to play key roles in the industry.

In the future, three craft models will continue to be functional.  One is simply the corner brewpub with a restaurant; the second is the small distributor who self distributes; and third is the fully integrated brewery. The corner brewpub has obviously been a successful venture for years.  The small distributor model works given certain guidelines and expectations, as is noted by the many successful brewers around the country. Finally, there are those who have the means, ability, and willingness to achieve a fully integrated brewery. These are the industry pros.  The point that good people are hard to find, should be more in line with good people are hard to find for what I am willing to pay!  From brewers to top beer executives, good people are available; brewers just have to be willing to pay for top hires.

To find distributors, brewers have to understand that there is more to creating and building a brewery, and that hiring good staff requires good compensation.  A successful brewery must build branding, marketing, a sales teams, pricing, promotions, and on and on.  Those who will, and can, will have no issue in finding distributors.  If you build it, the distributors will come.

The craft segment is not dying, nor is it making the shift to consolidate. What the craft industry is doing, is changing to accommodate those who have a clear vision of what is needed in the industry to be successful.

An investment in knowledge pays the best interest….



 Posted by at 6:00 am
Apr 182017

i-see-beer-2When Coors Brewery expanded their Texas footprint in the mid 1960s, the brewery approached each major market looking only for one distributor.  Prior to the 1960s expansion, Coors was only sold in El Paso and Amarillo.  Coors appointed a few distributors in small markets, Mineral Wells being one of them, but the company had only one distributor in Ft. Worth and one in Dallas.  Within 10 years, however, Coors was the number one volume beer in all these markets.

Ten years later, Coor’s second expansion in Texas, saw the Dallas distributor, Willowbrook, now close to five percent of Coors Brewing Cos. total volume.   Willowbrook’s large Coors volume made the brewer uncomfortable in that one distributor could represent such a high percentage of volume.  Given Coors plan not to have large distributors again, Coors appointed four distributors in San Antonio and four in Houston.

This plan was diametrically opposite of AB’s plan, which operated under the belief that larger wholesalers were better equipped to dominate their market, which was a strategy that worked for AB.  Four Coors wholesalers were too small to compete against the larger AB and Schlitz houses and Coors paid the price, as none of the four operations survived.

The AB model helped Budweiser grow, as both the brewery and their wholesalers dominated the US market.  In one sense, their size simply wore down AB’s competition.  In Texas alone, Silver Eagle in Houston and San Antonio; and Ben E. Keith and L&F in Dallas, were in the top five volume AB wholesalers in the U.S.  All of these AB distributors now have brands outside of the AB offering which have taken advantage of their market domination too.

When InBev took over AB, in reality the big asset was not just the brands, but also the AB wholesale network, which is considered the best in the country.  InBev quickly learned that they needed to work with their wholesalers, however, InBev had another agenda.  After 10 years, it is safe to assume that ABI is changing their tune.

The industry is watching how ABI handles the proposed merger of the three large mult-state AB houses in North Carolina, South Carolina and Georgia.  Just in the past several days. AB announced it will not approve this merger citing a number of concerns.

So the real question is: are AB’s concerns legitimate or is there another reason?  If the merger is approved, a real concern for AB could be what would happen if this new super AB house joined several other large AB houses, (perhaps BEK, Silver Eagle or L&F) and created an AB wholesaler group!  The volume these wholesalers would represent for AB would put AB on the defensive and give this proposed new group enough power to negotiate from true position of strength.

Many of the current AB houses were already in place when InBev took over AB, however, some houses, with ABI’s approval, have been created. This scenario, however, now seems now to be coming to an end.  These JV’s could be a serious threat to ABI, especially if current sales trends continue.

We are all born ignorant, but one must work hard to remain stupid….



 Posted by at 6:00 am
Apr 112017

GilletteI acquired Texas Beers in May 1981 and Schlitz immediately announced a general market price increase.  As a new owner, this decision on the part of Schlitz, put me in an awkward position. Retailers would be pushing back at the idea of a new owner raising prices on their product. So, despite having a more than 40% market share, the increase caused me to be unsettled about the immediate future of Texas Beers.

Fortunately, AB, Miller, Coors and multiple other beers increased their price at the same time.  Despite this small respite, I took steps to increase the Schlitz inventory in Texas Beers warehouses, while at the same time holding the current price.  My competition however raised their prices.  Remember, in 1981, retailers only changed prices when the product changed prices, so Schlitz was now one price point under AB, Coors and Miller.

Upon depletion of the current Schlitz inventory at the old price, I was forced to match AB, now, however, my sales had been soaring, and for the month of June I was the number one volume wholesaler in the state of Texas.  Needless to say, all of those increases disappeared after the price increased.

Well after Stroh took over the Schlitz Brewery, and Stroh had terminated most of Schlitz support programs, including electronic media, the negative trends for Schlitz began accelerating.  To change the Schlitz trends, Stroh repositioned the Schlitz brand by lowering the price, thereby making the brand price-point more regional than national.  The consumer, unfortunately, did not buy into this new pricing and the rest is history.

A recent WSJ article entitled, Gillette, Bleeding Market Share, Cuts the Price of Razors, tells the story of P&G, who had purchased Gillette for $57 Billion in 2005.  After 12 years of raising prices on their blades, Gillette decided to lower blade prices by 20%.  Gillette razors had been losing market share for the last six years going from a 70% share in 2010 to 54% last year. Gillette’s market decline was attributed to their price increases along with the competition from Harry’s and the Dollar Shave Club both which cost much less per blade than Gillette.  According to the WSJ, this price reduction would translate to a lowering their PTC to about 12% less than today.  A question might be, where is the other eight percent going?

Both Harry’s and Dollar Shave Club now have a blade share of 12.2%, up from only 7.2% in 2015.  This includes both in-store sales and on-line sales.  One Barclay’s analyst believes it will be very difficult for former Gillette users to switch back from Harry’s or the Dollar Shave Club now.

To some degree the ongoing story of the Gillette blades parallels the last 10 years of AB’s model in the US.  AB’s rapid price increases in all segments have driven their drinkers elsewhere.  So the question is, should AB, unlike Schlitz or Gillette, continue to maintain their pricing strategy or slow down their price increases or even lower their prices?  AB seems to be doing that with their price beers to generate summer volume.  With these brands, they probably will have some success.

Looking back, Schlitz should have just maintained their premium price points and had all brewery, wholesalers and retailers make full margins instead of trying to save the brand by lowering pricing.  At least all would have made more dollars.

Cutting prices or putting things on sale is not a sustainable strategy. On the other side, one cannot cut costs to save one’s way to prosperity…..








 Posted by at 6:00 am
Apr 042017

Scoot InnSix years ago while in New York City, I decide to visit one of New York’s oldest bars, McSorley’s Old Ale House, established 1854.  While not the oldest bar in New York City, it is one of the five bars featured in the YouTube below.  Even today, McSorley’s serves only two beers: one dark and one light. Neither of these two beers have a name, nor do the customers know at which brewery they are brewed the bar claims the beers are the original brew from Ireland.

Today, the beer industry continues to fight declining on premise sales, either from competition or from the consumer who is not frequenting bars or casual dining as in the past. The question is, why is this behavior occurring, or what can be done to reverse the trend?

Many of the craft-centric casual dining bars, including Yard House, feature a number of HD TVs broadcast of sporting events.  In recent years, even the powerhouse station, ESPN, has lost over five million subscribers, yet it appears those people who dropped ESPN do not support bars to see live sports. Then there are the craft/import bars like The Ginger Man or The Flying Saucers who have a niche and continue to do well and hang in.

There is one segment in the on premise market that continues to be viable year in and year out, regardless of industry conditions.  It is bars such as these that have been around, not only for decades, but in the case of McSorley’s, over a hundred years.  Every town has one or two classic bars like McSorley’s.

The interior of these on premise establishments, rarely if ever changes, the beer offerings almost never change, and yet these bars continue to do well, often because of their unique culture.  Consider many of the towns that host large colleges, including Austin, Columbus, Stillwater, College Station, all these towns have an old classic bar that has been in business for generations.  When there is a home sporting event, many of the student body, along with alums who are returning to relive their college memories, populate these well know and well loved establishments.

Major cities, too, have their iconic bars that never change.   Many of these timeless businesses have had the same beer on tap since opening.  When Club Schmidt’s celebrated their 50th anniversary, Budweiser had been on draft there for 50 years!  Rarely do such classic bars install the newest or most popular beers, rather they stick with the beers that helped propel them to fame. Needless to say, such business models have worked.

Upscale bars and chains will continue to come and go, they will continue to change with the times, providing the consumer with the latest and greatest beers.  Some will make it, and some will not, but those bars where memories have been made, and have a unique culture will continue to thrive.  Hipps Bubble Room, Scoots Inn, Time Out Tavern, Adair’s Bar and Grill, Greenville Ave Bar, are just a few that will continue to thrive.

Where everyone knows your name…

Beer Fodder;  

 Posted by at 6:00 am