Jan 162018
 

The Julius Schepps Co. of Dallas, a very successful and large wine and spirit house, made the decision to sell in early 1997.  Although Schepps was predominately a wine and spirits house, they did have a very impressive beer portfolio, including the Modelo brands: Shiner, Guinness, Moosehead and other fine imports and specialties.

The wine and spirit company, now known as Republic National, bought the majority of Schepps W&S brands. Schepps offered the entire beer portfolio to the Miller network.  Miller at the time, and still today, is headed by Andrews of Dallas and the Cranes of Ft. Worth.  The other network, Coors, is was at the time headed by Willow of Dallas and Coors of Ft. Worth. The AB house, Ben E. Keith, was exclusive AB at the time so they were out of contention for the brands.

As a buyer, this portfolio was a slam-dunk. Corona and Shiner were on fire. But the main reason this was such a good buy was because Schepps operated as the personification of a wine and spirits house.  Schepps’ service, outside of the package stores, was at best, spotty, especially in the c-store channel.  Both Miller and Coors could literally pay for the brands in a very short time by simply servicing the market, something which Schepps had not previously done.  The demand for these beers was there, the retailers and consumers did not have access to the brands.

For reasons never explained, the Coors distributors dropped out of the negotiating process, allowing the Miller network to buy the Schepps portfolio.  As a result of this action, the Coors wholesalers sold out to the Miller wholesalers within just a few short years.  Today, Andrews is the MC distributor in much of north Texas.

In 1997, Corona was the real prize in the deal.  All the other Modelo brands, Corona Light, Pacficio, Negra Modelo, and Modelo Especial, were no more than bolt-ons.  The marketing strategy was to deeply discount the Corona 2/12 bottles in an effort to drive distribution and sales.  This two-year marketing program was highly successful.  Andrews, excited about Corona, put all the distributor’s efforts behind that brand, and their secondary focus was Shiner Bock, another brand which was also on fire at the time.  Low hanging fruit.

Soon, Gambrinus began to make Modelo Especial a focus brand. Initially, however, Andrews, was pushing back, but they, too, eventually began to also focus on Modelo.  Within two years of the acquisition, Andrews experienced some success with Especial in the Hispanic grocery accounts and independent c-stores. These stores were predominantly supported by Mexican Nationals, consumers who drank Especial in cans in Mexico and wanted the same in the US.  Modelo bottles could be found only in Mexican restaurants.

In spite of the wholesaler’s reluctance to focus on Especial, and with very little marketing support from Gambrinus, it was not long before Modelo took off.  As 2017 came to an end, Andrews set multiple new-volume records with Modelo.  After 20 years, Especial now sells four million cases a year!  Especial, which is much bigger than Corona, is still growing

Especial was just another brand, once thought to be no more than a bolt-on brand. But it became a gold mine for the distributor.  Had the Coors network been successful in buying this portfolio instead of the Miller network, it is certain that the shoe would have been on the other foot.

If you never try, you’ll never know what you’re capable of.

 

 Posted by at 7:00 am
Jan 092018
 

George H. W. Bush was elected President, in part, due to his famous line: “Read my lips.  No new taxes!”  The U.S. economy was on fire during the Reagan years, due in part to the fact that President Reagan lowered taxes and removed the price controls put into effect during the Carter era.  The 80s were a time of great economic growth for the country, which drove beer sales to new highs.

Soon after Bush Senior was elected into office, however, he walked back his pledge to the U.S. voters, and raised taxes on a number of items, including taxes on beer.  Bush doubled the U.S. federal excise tax on beer.  His broken tax promise was one of the major points in his failure to gain reelection for a second term. Needless to say, overall beer sales slumped, and remained that way for some time.

In a major strategic marketing move, both the U.S. importers of the Modelo brands, The Gambrinus Co., and Barton Beers, decided not to pass along the tax increase to their consumers, with both companies absorbing the increase in their own margins.  Corona, which had been on a roll since introducing the clear, longneck bottle, was still struggling to regain their momentum due to a previous vicious rumor spread about the beer.  The great majority of all the other beers in the market, however, passed on the tax increase to the American consumer.  Corona did not raise prices, and soon the brand’s sales regained its lost momentum and took off again.  The rest is history.

The new tax bill recently passed by Congress, and signed in law by President Trump, includes the long attempted reduction in FET taxes which reduces the current tax rate to $3.50 per barrel on the first 60,000 bbls. produced for breweries with production of under two million bbls.  The new tax bill also reduces the FET to $16 per bbl. on beer, up to six million bbls. produced.  The law is under a “sunset rule” of two years, meaning these taxes will be reinstated unless the beer industry can show a positive return from the tax cut.

So the question is: what will happen as a result of these tax rollbacks?  It is no secret to anyone that much of the current negative beer sales trends are a result of high pricing.  Price increases for the craft industry as a whole were postponed last fall, with anticipated increases due this spring. Will these craft brewers see the tax reduction as a price increase?  Because their margins have just been aided by the passage of this tax relief, the brewers will not increase any PTW in an effort to increase sales.

No doubt some brewers will raise prices, but will they increase spending in their marketing or add additional field people?  Some crafts will raise PTW and pocket the margins, and their respective wholesalers will see that immediately.  These craft brewers might use the two-year window, not as a positive, but as a negative.

Both Gambrinus and Barton took a huge chance over 25 years ago with unbelievable results.  The industry will be watching, as will Congress, to see how this tax reduction plays out.  If it fuels the industry’s growth, and brings additional jobs and taxes, then one can count on the lower tax rate remaining.  If, however, the craft industry becomes greedy, then one can expect a return to today’s tax rates.

Read my lips: no new taxes…

 

 

 Posted by at 7:00 am
Jan 022018
 

Editors note;  We are having server problems but should have them fixed soon.  Sorry for all the issues.

The highlight of any annual brewery convention has traditionally been the unveiling of the next year’s new ad campaign.  This was especially true when a brewer had experienced slowing sales in its main brand, typically the result of the brewer having changed either management or ad agencies, or sometimes both.  Effective ads not only meant that the brand would respond, but effective ads aided in building confidence in the brewer’s wholesalers.  That alone was important, if not more important, for the brewery than how the consumer viewed the product.

As we start 2018, this decade has seen a revolution in how breweries, especially crafts, have changed their marketing and media programs.  Social media, not traditional media, has become the main and sometimes only means by which crafts, especially startups, market their beers to the consumer.

If a brewery uses social media as its only form of marketing, it becomes incumbent on the consumer to find the brewery.  Sure, brewery labels, other forms of p-o-s, and other social media outlets (Twitter, Facebook, Instagram, etc.) will have the website address for the product.  But ultimately, the consumer has to find these addresses and look up the brewery.

Traditionally, above the line media functions just the opposite by seeking out the consumer.  If the message from the brewery is on target, the consumer will seek out the brand or information about the brand.  Take, for example, the current, and quite successfully AB Dilly Dilly ads.  It is somewhat doubtful that this tagline would be such a hit if it had been used only through social media forms of marketing.  No doubt, AB has hit on something with Dilly Dill, yet it is a little too early to see if it has a positive effect on sales for Bud Light.  Either way, AB is on to something.

Then there is the question of cord cutting by Millennials.  With ESPN losing millions of subscribers, as has commercial TV, the question of how traditional advertising will function in the coming years is worth of discussion.  There are now a plethora of choices: Netflix, Hulu, Apple TV, YouTube TV, and others. That, combined with Disney’s purchase of Fox’s assets, means that changes are coming.

Much of the blame for the volume losses experienced by AB and MC has been attributed to ineffective ads that do not resonate with consumers.  Miller changes ad agencies almost every year, and AB has recently changed, too. Yet both breweries continue to pump millions into traditional media marketing along with extensive social media platforms.

For those local, and successful crafts, who are experiencing difficulty in expanding their footprint outside of the 300-mile local radius, those breweries’ marketing techniques might be better suited by a traditional campaign instead of solely relying on social media which forces the consumer to find the brand. And why should the consumer go to the trouble of finding another brand if that consumer already supports the areas local brands?

Breweries that have designs on aggressive growth and survival need to support both social and traditional media programs.  Without using both means, breweries limit themselves, somewhat like a brewery that only offers their products in bottles and kegs.  In doing just that, the brewery sells to less than half the market.

Nowadays, social media is the easiest place to go and find something…

 

 

 Posted by at 7:00 am