Jul 252017
 

Regardless of what report one reads today concerning beer shipments or sales of beer to retailers, the numbers all reflect negative trends.  Until last week’s reports, which showed some improvement in STRs, the negative numbers continue to accelerate.  Such a downward pattern has not been since the days of the Schlitz decline, with major brands like Miller Lite, Coors Light, Bud Light and Budweiser presenting large decreases in sales.  In fact, Bud and Bud Light are close to double digit negative numbers.

Not surprisingly, these negative trends have caused pundits to throw darts at the reasons causing said losses.  The most commonly reasons sighted include: ineffective beer advertising, when compared to ads for the spirit vendors; aggressive pricing and the number of SKUs; all of which have negatively impacted and have had consequential results in today’s beer industry.

Much of the blame in last week’s report was directed at insufficient beer ads, aptly noting that the ads proved ineffective in moving the needle in a positive direction.  One article pointed out the number of ad agencies Miller Lite had retained over the past years.  Looking at the number agencies listed, it would appear that Miller’s marketing department changed agencies as frequently as most people change their shirts.  None of which have improved Lite’s trends.

All the responsibility, however, does not fall on the shoulders of the brewers. The middle tier could play a much bigger role in these negative trends than initially thought.  Consider the AB wholesaler who has a draft-handle market share of 70%+.  The wholesaler prices all their craft beers at the same PTR with no programing.  Any new handle must come from competition.

An incentive program does not count if a new handle comes from an in-house brand.  On the surface, this seems logical, but in reality, does it?  Such a wholesaler, who engages this type of business model, only hurts the brands they represent.  If a brewer’s strategy is to employ certain tactics, and their wholesaler refuses to execute such tactics because they do not desire to have issues with other in-house vendors, who really wins? A brand cannot get any traction to build consumer demand or sampling.  In fact, it could be viewed as the wholesaler providing brands that do not match the consumers’ desires or, in other words, telling the consumer what to drink, when in fact they should be listening to the consumer. It is a double edged sword.

Going forward, what will the wholesalers do if their major domestic brands continue to hemorrhage as they have for years?  At what point do wholesalers determine enough is enough and begin to support their in-house brands as their suppliers have positioned them?

While there are many wholesalers that do aggressively pursue any and all programs their vendors have, there are an equal number of wholesalers who do not.  Those that do follow such programs should not criticize their major suppliers, as they too, are part of the overall industries’ problems.  The middle tier is equally as deep in this mess.

When you blame others, you give up the power to change.

 

 

 Posted by at 6:00 am
Jul 182017
 

Much has been written about ABI, MC, Heineken, Constellation Brands and others brands, regarding their recent purchases of craft breweries.  This model of large companies purchasing smaller craft breweries was once very rare, but now it almost seems one craft brewer is purchased monthly.  One of the main concerns is the amount of money, or multiples, being paid for these, mostly regional, breweries.  With the recent slowdown in craft sales, there seems to have been some reduction, or slow down, in the purchase of craft breweries.

It will take years to determine if, or how many, of these acquisitions will turn out to be solid business decisions. One only needs to go back several decades to see the consequences of a purchase that went south.

Gambrinus, based in San Antonio, was created in the mid-1980s for the purpose of importing Modelo brands into the eastern half of the U.S.  Not long after Gambrinus was established, the company purchased Spoetzl Brewing, or Shiner, which was about 24 hours from closing its doors.  It was rumored that Gambrinus paid around $1 million for the brewery and subsequently allocated an additional $1million in working capital.  The rest is history.

This acquisition by Gambrinus is arguably the beer industry’s most successful procurement of a craft beer. Shiner is one of the largest craft selling beers in the U.S.  As successful as the Shiner deal was for Gambrinus, it might also hold the distinction of being one of, if not the worst, acquisition in the late 1990s.

In 1998, Gambrinus paid in the neighborhood of $69 million for Pete’s, a contract brewed beer that was, at the time, the second largest selling craft in the U.S.  The beer was already in its early declining stages, and by 2011 was discontinued.

From an investment view, Gambrinus made a stock purchase for Pete’s, the craft having had a pile of cash in the bank which helped offset the purchase price.  Secondly, Pete’s, at that time, owned a state-of-the-art software system which Gambrinus needed.  Acquiring the cash and the software, along with being able to sell the brand for about 13 years, provided a return on the investment and, of course, Pete’s Wicked Ale could always come back as a retro brand in the future.  Gambrinus could tout to having made the best, and worst, acquisitions ever made in the industry.

Constellation Brands, which paid around $1 billion for Ballast Point, recently announced an $87 million non-cash impairment charge.  Ballast Point, not unlike Lagunitas, Revolver, Karbach, Goose Island and others, benefited by moving their distribution into either the red or gold networks, expanding their footprint, and leveraging extensive resources to rapidly grow their beers.  In the second quarter of this year, Ballast Point dragged Constellations’ depletions trends by 50 base-points.  This is ‘beer-speak’ for ugly!

The Ballast Point beers are at the highest price point in the industry, and now that the brand has gone national, the consumer may look at these price points and simply walk away.  If the sales trends continue, repositioning Ballast Point will be an option, but with Constellation behind the brand, Ballast Point is a long way from the next Pete’s.

Stupidity combined with arrogance, and a huge ego, will get you a long way…

Beer Fooder;  And than, there is the Stroh purchase of Schlitz driven by this infamous ad.

 

 

 

 Posted by at 6:00 am
Jul 112017
 

.This post begins the sixth year of Beer Business Unplugged and as usual, I will comment on past posts and the industry in general.  This year’s posts did produce one blog in particular which resulted in an off-the-chart read. The one post that brought in the most responses was, ironically, November 8th’s post, We Live in a World of Denial, and We Don’t Know What the Truth is Anymore.

What is interesting about that post is not that it was the most read blog of the year, but the comparison of the volume lost and sold by ABI/MC and Schlitz, respectively.  Up to that point, the volume lost by ABI and MC, was equivalent to the volume Schlitz had sold at its peak. And still, ABI and MC continued to lose volume with these two breweries soon having lost twice as much volume as Schlitz sold during its best selling years. Schlitz, at its peak, sold 15 million bbls. which were then lost over approximately 20 years.  In 2017, we will see that ABI’s and MC’s total loss of volume will be 27 million bbl. of beer.  And ABI and MC lost that volume in only 10 years!

I always enjoy receiving and reading the responses, as most come directly to me.  Those responses that do not come to me are posted to the blog on which the comment which made.  The number of subscribers, all in the beer industry, continues to increase, now well in the thousands. This year, the blog surpassed 100,000 reads and continues to grow.  I never expect results like this.  Thank you all!

 

What seems like a broken record, never before has the beer industry seen such an uncertain future regarding its direction.  The recent merger of ABI and SABMiller, the return of MolsonCoors, craft beers slow down, the rise of brewery taprooms, the growth of spirits, the on-going legislative fights between craft brewers and wholesalers, Constellation, its growth and changing of its longtime leadership, all of these and other topics continue to create this division.

As always, I will continue to write weekly throughout the year.  Going forward I will cover industry topics based upon your continued interests.  Thank you for all your kind comments and feedback.  They are fun and informative.  And now, year six begins……

 Posted by at 6:00 am
Jul 042017
 

It is appropriate that on Independence Day, July 4th, the beer industry is reviewing the Brewers Association’s recent announcement of their new craft beer logo (see the attachment). This logo is certifying that the craft brewer’s beer you are drinking meets the BA’s definition of an independent craft brewer.

The BA’s current definition, which has been somewhat fluid over the recent years due to the number of acquisitions, focuses on three key areas: small, independent and traditional.  A small craft brewer is defined as any brewery with annual production of less than six million barrels.  This definition seems to be self-serving.  If 25 percent of the craft brewery is owned/controlled (or the equivalent economic interest), by an alcohol industry member, that, in and of itself, is not considered a craft brewer. In such a case, the brewery would be defined as an independent brewer.  Finally, the term traditional is defined as a brewer whose majority beverage alcohol volume, in beers, derives its flavor from traditional or innovative brewing ingredients and their fermentation. Flavored malt beverages (FMBs) are not considered beers.

The Brewers Association continues its definition outlining seven concepts of a true craft brewer, however, these concepts are all tied to the above three categorical definitions.  A brewer can adopt the craft beer logo if they meet these requirements and sign a licensed agreement with the BA.

The question should be does the current Brewers Association’s definition really define what a craft brewer is, or better yet, should be?  If one asked a craft beer consumer, what their definition of a true craft brewer is, does anyone think it would be the current BA definition?

Quality should be the BA’s core value in determining a true craft beer, not the three terms described above. Certain standards must be met to define what a craft beer is to the consumer. Start with the water, where does it come from, how is it treated?  Does the brewer reclaim the water and is it purified?  Where does the equipment originate?  Is it quality equipment?  Then the issue of the brewing process arises.   How does the brewer sterilize their kegs or packages? What products are used for the sterilization?  You get the idea.

But perhaps the most important element might be does the brewery or plant have a lab?  And if so, how is the lab equipped? What process is used by the craft brewer? And most importantly, does the brewery employ qualified lab techs, micro biologists, or quality assurance professionals?  Are all packages and kegs marked with code dating?

Obviously, there are multiple topics delineating how to create a quality product, and those topics should also be included, or at least considered, in the quality assurance process.  You can include the Brewer Association’s main values, but without a more definitive definition, the BA’s definition might be considered hollow.

Certifying brewers as true crafts should be the primary goal of the Brewers Association, yet, for the consumer, the current definition is lacking in real value.  Let us hope that someday the BA will they get it right. To define what a craft beer is to the consumer,

Well done is better than well said…

Happy 4th of July!

Beer Fodder celebrating the 4th: www.youtube.com/embed/uoABty_ zE00?rel=0[youtube.com]

 

 

 Posted by at 6:00 am