Mar 272018

The beer industry has transformed dramatically in the past 80 years, but one constant has remained, and that is the number one selling beers have evolved generationally every 15 to 20 years.  A more recent change is the method in which the industry now measures success in terms of the number one selling brands.  On might say, this measure of success is like putting lipstick on a pig?

For 16 years, Pearl was the number one selling beer in Texas.  Pearl’s run came to an end in 1969 when Schlitz becoming the top seller in the state.  Texas, like other states at that time, had a popular local brand which maintained its sales lead for years.  Beginning in 1966, Coors expanded into North Texas and became the leading brand in that region of the state, Schlitz, however, maintained the overall volume in Texas. Schlitz retained the lead until the early 1980s when Miller Lite became the front-runner.  A generation later, it was Bud Light, a brand which is currently losing its position after holding the lead for years.

IRI data for the 52 week period ending February 24th shows Bud Light down -8.8% while Miller Lite, the number two brand, is down -3.6% for the same period. These measurements are in dollars, NOT volume!  Total dollar sales in Texas are also down by -1.3%.  On the plus side, Ultra is now the number three best-selling by dollars at a +19.7%, surpassing Coors light.  If Ultra’s trends continue, it will be in the number two position by the end of the year.

Modelo is also flying high and will soon pass both Budweiser (down) and Corona (flat) by the end of the year.  Again, these statistics are all reflective of the dollar amount.  Such measurements hide the industry’s overall decline in volume, but also show how this generation of beer buyers is buying up.  In other words, the current age group of consumers is willing to spend more for their beer.

Similar to the other changes discussed, Pearl, a regionally priced beer, lost its ranking to Schlitz, a nationally priced beer, who lost it’s ranking to Miller Lite, a slightly more expensive beer.  It should be noted that when introduced, Lite was a slightly higher price for the retailer.  Now we are seeing the growth of Ultra, an even steeper priced beer.

This increase in dollar volume is great for the industry but the question arises:  Is the industry trading volume for dollars?  Each generation of beer drinkers has raised the price of the product, and for years the industry continued to successfully grow.  Recently, however, or since InBev bought AB, industry volume has decreased as prices have increase.  A case in point is MolsonCoors and other domestic brands.

Now market share is all about dollars, not volume. Does that really measure the brand or does it simply measure the consumer?  Globally, ABI is at 57% of dollar share, where their volume share is only 33%.  These numbers alone make it simple to understand why dollars are now used to explain share. Currently, dollars are over half the market whereas volume is only a third of the market.

Both measurement for ABI and MolsonCoors are down, yet the opposite is true for Constellation Brands.  In ten years or so another generation of buyers will be defining the direction of the beer industry. Based on the past history, the only thing we can be certain of is that the newest buyers’ choice of segment will be at a higher price point.  Who cares about volume!!

Brands are born, not created…


 Posted by at 6:00 am
Mar 202018

The history of Heineken’s expansion and growth after WWII has been previously documented in past blogs.  The importer, Van Munching, predominantly appointed liquor houses to distribute the beer. This was, at the time, a logical way to distribute beer, as the trade channels that sold the most volume were liquor stores, upscale bars and restaurants.

The rise of Corona, however, in the 1980s motivated Heineken to acquire the importing rights, which then began the movement from liquor houses to beer houses.  Heineken had no choice as the brand was falling behind Corona, especially in terms of distribution.

The early 90s saw multiple liquor companies interested in future growth; expand into the beer segment of the industry by creating beer departments.  Glazers took the lead in purchasing beer distributorships, a strategy which at the time proved to be successful.  Many of the liquor houses, however, Glazers included, have in recent years, sold off their beer portfolios to local MC or AB houses.  The reason for these reversals in the purchase of beer distributorships is delineated below.

Initially, many of the liquor companies believed that by expanding into beer sales they could be a one-stop vendor for the retail market.   There was also the belief that the liquor companies could leverage their combined portfolios and gain an advantage over their competitors and, to some extent, the retailers.

Beer vendors saw the above mentioned model as the first option in a market in which AB, at the time, exclusively held an almost three-fourths exclusivity of their wholesalers.  With the passage of time, however, many breweries came to the same conclusion as Heineken had years earlier:  that liquor houses are not going to service the retail industry as well as beer wholesalers.  Being in one of these liquor houses limited the growth of a brand.

Now, 25 years later, Constellation Brands, is hoping to capitalize on their liquor and wine portfolios with their powerhouse beer brands through the leverage of their chain teams and sharing data.  Needless to say, if Constellation Brands is able to create an effective model (Total Beverage Solutions) to take advantage of their portfolios in the chains, Constellation Brands would have a tremendous advantage over their competition.

History has shown that on paper, these models appear to provide an overall advantage; however, the actuality is that such a version has yet to be successful.  The culture of the three industries: spirits, wine, and beer, is totally different.  Selling beer differs from selling liquor, which differs from selling wine.  Of course, warehousing and delivery work, but that is on the wholesale side, not on the supplier side.

In the end, management in both the liquor and wine side has, and will continue to focus on their respective portfolios.  The liquor and wine industries have little interest in selling beer.  Constellation Brands, to be successful in the Total Beverage Solutions strategic plan, will need to understand these challenges.  If there is any company with the means to be able to take advantage of this model, however, it will be Constellation Brands.  Their portfolio gives them a great advantage going forward.

Collaborations have no meaning if one plus one does not equal much more than two…




 Posted by at 6:00 am
Mar 132018

The upcoming CBC convention is expected to host more than 10,000 people.  This year a participant has the choice of attending an industry convention, seminars, classes or other training sessions most months of the year.  In addition to the CBC, there is the annual NBWA convention, along with similar events hosted by Beer Marketer’s Insights, Beer Business Daily, Beverage Importers Association, and the list goes one.  The aforementioned does not even include all the schools which offer various beer classes or the multitude of online tutorials now available.  Does anyone have any time to actually sell beer anymore?

When Coors expanded into South Texas in the mid-1970s, San Antonio had a local beer wholesaler’s organization.  At this time, the only annual conventions were offered by one’s supplier and the NBWA, the latter of which had a spring and fall meeting.  Remember, this is before the NBWA had exhibition halls full of vendors and new products, all in search of distributors.  The spring event was politically focused, whereas the fall event was industry and supplier focused.  It was that simple.

Local medium-sized and major markets, along with the state, all had beer wholesaler organizations.  All four Coors of San Antonio wholesalers were invited to join the local beer organization.  Attending these monthly meetings was comparable to today’s reality TV.  The meeting consisted of: the local AB wholesaler, Bill Crain, who was seated at one end of the table and John Monfrey, the local Falstaff wholesaler (Falstaff sold over two million cases) who was seated at the other end of the table. In the middle of the table was Jack Williams, the 800 lb. gorilla in the room, and the second largest Schlitz wholesaler in the country with over five million cases. Other attending members included: the Pearl and Lone Star wholesalers, two breweries that were still functioning in the city, and four new Coors wholesalers.

In addition to the fact that John and Bill were typically quite confrontational with each other, the meetings focused on local and state issues, including which political issue and legal issues needed to be supported.  The group also assembled with the intent to aid local charities and events.  As a young sales manager, one could learn a great deal about the industry and one’s competition during such meetings.

I attended the Wichita Beer Wholesalers group while in Kansas as well as the Portland group while in Oregon.  Kansas hosted a state Coors organization and, of course, the state had the Kansas wholesalers’ organization as did the states of Oregon, Utah, Louisiana, and Washington.

As wholesalers began to consolidate throughout the years, the local organizations began to disappear.  Many markets now only have two or three wholesalers, not counting the self-distributing crafts and the independent craft distributors.  Very few, if any, local beer groups exist anymore. Why should they with the myriad of other groups now in existence?  Even at the state level, some states not only have their statewide group of wholesalers; but in addition, they have craft brewers and even state groups of wholesalers with different agendas than the established groups. Many suppliers have wholesaler advisory panels from each state or region.  In reality, a wholesaler could spend all of his or her time just attending meetings.

Those local wholesaler groups have served a purpose for decades and the industry has not been the same without them.

The art of communication is the language of leadership…


 Posted by at 6:00 am
Mar 062018

It goes without saying that the purchase of the Miller Brewing Company by Philip Morris in the early 1970s was a major transformation in the beer industry.  Philip Morris used its marketing muscle, which had been so instrumental in growing their cigarette business, on their newly purchased beer company.  And the rest is, as they say, history.

The lasting effect of Miller’s sellout went far beyond the marketing prowess of Philip Morris.  This moment marked the transformation from breweries being family owned to breweries being owned by corporations and shareholders.  This business model changed the overall picture of how the industry functioned.

Prior to 1970, breweries and wholesalers were family owned.  Both tiers were on the same page with the same interests and same goals.  Philip Morris initiated that shift away from family ownership, but the full effect of corporate/shareholder ownership would take decades to manifest itself.  Even up until 2008, AB was run by the Busch family as a publicly traded company.  While the Busch family today is gone from AB, Pete Coors is still active at MolsonCoors keeping some of the family traditions alive.

These large corporate breweries today have a different agenda than the family-owned distributors of past years.  Even multi-state mega distributorships like Reyes, are still owned by a family.  Only Columbia in the northwest parallels the corporate ownership model.  Publicly held breweries have to answer to their shareholders and Wall Street.  Distributors only need answer to the family.

Executives at these corporate breweries are measured on their ability to increase shareholder value and dividends.  And often, these same executives are receiving their bonuses based upon the value they impart to the brewery.  If the value is not delivered; these executives do not realize their annual bonus, a figure which can be as much or more than their annual salary.

In a distributorship, as long as the family’s lifestyle is maintained, things remain status quo and all move forward.  Sure there is pressure to increase the profitability of the company, but to the family, there is always the next year.

President Trump’s announcement last week regarding his intent to establish tariffs for both steel and aluminum imports, as expected, has created concern in the beer industry.  If these tariffs go into law, then the industry can expect higher costs for cans, kegs, trucks and other equipment used in the beer industry.  This is not good news for the consumer as many of the increases will be passed on to the consumer.  When Bush the elder, broke his “no new taxes” promise and raised taxes on beer, the industry came to an abrupt halt and remained that way for years.

The corporately owned breweries will, without hesitation, raise prices; whereas the craft family-owned brewers must decide whether to raise prices and suffer the pushback, or eat the increased costs, and make less money.   Distributors see the situation differently, but ultimately it will have a negative impact upon their volume as well.  Just ask wholesalers from the early 90s. With the exception of the Modelo wholesalers, all had an increase in price.

Family owned distributors and craft brewers would rather wait, take a step back and see what will happen.   The corporate environment, on the other hand, will most likely rush to ensure their breweries hit their corporate goals.  Welcome to the corporate world!

The beer industry is one big family…


 Posted by at 7:00 am