Aug 282018

Lone Star Brewing Co., like so many other regional breweries during the late 1940s thru the late 1960s, rode a successful business model by being regional.  Sound familiar?  Of course, regional breweries also had a built-in price advantage during these years.

By the late 1960s, the regionals were under attack by AB, Schlitz, Coors (were sold), and the soon upcoming Miller Lite.  A number of regionals sat back and did little or nothing to advance their business, thereby sealing their fate.  Lone Star, in recognizing these industry trends, however, moved quickly to remain relevant.   Lone Star not only closed their Oklahoma City Brewery, but brought in new and highly experienced leadership from national breweries including Schlitz, Hamm’s, and Miller.  These executives replaced closed-minded officials who had been running the brewery since the end of World War II and brought in more forward-thinking management.

Lone Star tied into the then youth movement of the boomers thru the Texas Red Neck Rock music genre led by Willie Nelson and others.  This marketing platform changed how the young LDA people perceived Lone Star.  The brand quickly grew and remained relevant in Texas until many years after Lone Star sold when the brand’s owners decided to walk away from the Texas music scene as well.

This year there a number of major breweries have announced layoffs and/or restructuring of their companies.  Not surprisingly to those of us in the industry as these breweries’ brands/products have slowed or gone negative.  The question is: Now where do these breweries go?  Should they conduct business as usual or go in a totally different direction?

Pabst Brewing Co., who had major layoffs earlier this year in lieu of how Small Town Brewing’s Not Your Father’s Root Beer sales turned south, has taken a different direction.  Pabst, similar to Lone Star’s experience many years ago, is undergoing a transformation versus an extensive reduction in force.

Pabst is taking bold moves in the method they not only go to market but how they reposition PBR by pricing their 12-ounce packages at 85% of the domestic premiums.  Pabst is also looking at their sales team and building it to mirror the current/future demographics the United States.

The Pabst plan is not only transformational but bold, similar to Lone Star’s strategy.  The success of Pabst’s plan is dependent on, first, the leaderships’ ability to execute, and secondly, the Pabst wholesalers’ ability to get behind the tactic at this level.  Wholesalers know that the industry needs more success stories like Pabst as this proves to be beneficial for the entire industry.  Wholesalers, retailers, and consumers all win when Pabst is successful.

PBR indexes higher than any other domestic, with craft consumers in the neighborhood of 12 xs for craft drinkers.  This puts Pabst in a unique position. Such aforementioned businesses changes could, however, put Pabst’s current position in jeopardy.  Only time will tell.

Winning takes talent; to repeat, takes character.

Editor’s note:  I regret to inform you of the recent passing of Pat McEntee.  Pat, who had previously worked with AB, Coors, Gambrinus, Tiger, and Warsteiner was not only a close friend but an outstanding professional in the beer industry.  He will be missed.








 Posted by at 6:00 am
Aug 212018

The Pabst Brewing Co., the Jos. Schlitz Brewing Co., the G. Heileman Brewing Co., and perhaps ABI all seem to have one key metric in common:  leadership.

Once Paul Kalmanovitz took control of the Pabst Brewing Co. in a hostile takeover, he immediately began slashing overheard from the company, with cuts predominantly made in sales and marketing departments.  Kalmanovitz subsequently made similar cuts with the other brands he acquired and consequently each company experienced massive sales losses.  It was not until after Kalmanovitz passed away and the Pabst holding company, S&F, acquired different leadership, did a sales resurgence occur.

Despite Frank Sellinger’s attempts to revive Schlitz, the company never survived after finance and accounting took control.  Once Stroh acquired Schlitz, the heavy debt and leadership voids sealed the future for both companies.  G. Heileman was so far in debt, there was no way it could survive and they too, soon succumbed.

AB, once the envy of the beer industry, has lost millions of barrels in volume. The company is, however, the darling of Wall Street and shareholders alike as AB continues to build a financial powerhouse.  ABI and its distributors are fortunate because Michelob Ultra remains on fire, something the others brewers never experienced.

Shareholder equity, ROI, ROA, and other financial metrics are the keys to the health of any company, including breweries, but without brand building, the financial measurements will be meaningless if the company dies as referenced by Pabst Brewing Schlitz, G. Heileman, and others.

Craft brewers, many of whom are undercapitalized, cannot take advantage of any growth opportunities because they are cash-strapped.  The beer industry is now experiencing this phenomenon as a number of breweries are either cutting staff, shrinking their footprint, or making other dramatic changes.

A major reason the above mentioned companies are failing is that while they all had, of have had, in-house talent that could overcome challenges and build successful companies; either ownership or senior leadership did not allow them to do so. They have all paid the price.  The question is: why hire this talent if one does not allow them to perform?

What is even worse is when control is turned over to someone internally who has no ability or experience to run the company.  This is typically the worst possible situation as the company’s moral dies and unless ownership quickly addresses that problem, the end result is devastating.

History has shown time and time again that when decisions are in the hands of people who are not qualified to make such decisions, the results are disastrous.  When history looks back on the craft industry, it might well be the personification of such a model.

It does not make sense to hire smart people and then tell them what to do; we hire smart people so that they can tell us what to do.




 Posted by at 6:00 am
Aug 142018

Decades ago, when a major beer distributor sold out, the distributorship was typically composed of only one brand. Likewise, the distributor’s supplier was only focused on two issues: first, how much equity was in the new company and second, how much experience the new owner had in the beer industry.  If the new company had unencumbered equity of 25% or more and the new owner/manager had an executive background in beer, approval was almost certain.

In 1980, during the purchase of the Schlitz operation in south Texas, acquiring Schlitz’s approval was a simple task of following their internal procedures and interviews.  The other two breweries, Pabst and Pearl, likewise, rubber-stamped the deal based upon Schlitz’s approval.  Thirty years ago, there were rarely issues in ensuring a breweries’ approval.  The procedure was simple.

Fast-forward to today’s beer industry and one will find that a stand-alone independent sale of a beer distributorship is rare.  With the magnitude of consolidations over the decades, suppliers now demand their brands be aligned to certain houses.  The recent sale of Skokie Valley in Chicago is a good example of a supplier moving their brand to a house of their choosing.  In the big picture, the seller leaves that decision to the brewery.  Brand evaluations are made prior to the selling of the company thus ensuring the seller obtains their desired value regardless of whom the brand is eventually sold.

Bonanza Beverage of Las Vegas, a legacy Miller operation, decided to sell to Southern Glazer.  And as also reported, Southern Glazer is not the typical W&S operation in that their beer portfolio includes Constellation Brands and other major imports and crafts.

About 10 years ago, Bonanza was Warsteiner’s distributor in Vegas.  Warsteiner’s volume was not obtained from on-premise accounts and certainly had no distribution in the top casinos.  As an international brand which was sold across Europe and South America, Warsteiner asked Southern to purchase their portfolio from Bonanza.  Bonanza followed through and sold the Warsteiner brands to Southern.  In a very short time, Warsteiner had on-premise distribution in multiple major casinos and bars while still maintaining their distribution status in liquor stores and grocery stores.  In fact, Southern could place Warsteiner almost anywhere on the strip as targeted.  Sales spiked during those years simply from the act of moving into a house where a vendor could take maximum advantage of a distributor’s strengths.

With the growth of the Modelo brands, it was only a matter of time before Southern’s c-store delivery process would increase.  Realistically Southern could not compete with the AB house or Bonanza, even with Modelo in this channel, however, the opposite was true for the casino/hotel business.

Bonanza has now decided to sell its business to Southern Glazers, but MolsonCoors wants the brands to go to Breakthru Beverage who is negotiating to merge with Republic National.  This complicates the sale.  It seems that MC would allow Southern Glazers to buy Bonanza while persuading Breakthru to sell Coors to Southern Glazers, thus taking advantage of SG’s strength, combining Miller and Coors, and not dealing with Republic National.

The 800 lb. elephant is Constellation Brands.  Does MC really want to be in a house that is dominated by Constellation, a brand that is on fire in a highly dynamic on-premise market?  About two-thirds of MC houses have Constellation Brands but here is a chance that MC can avoid Constellation.

In the future, one might expect more beer brands to avoid Constellation houses.  The culmination of the Bonanza and Southern Glazers deal will illustrate the future of buy-sells in the industry.

If we open a quarrel between the past and present, we shall find that we have lost the future.





 Posted by at 6:00 am
Aug 072018


Editor’s note:  This post first ran on September 4, 2012.  Recent discussions merit a re-post.

There is a great deal of talk concerning the upcoming price increases and their effects on the market. I have received e-mails from several of you regarding this round of increases as Nielsen All Channel scans show volumes are flat, but pricing is up 2.7%. In fact, volumes have dropped from +1.2% to flat over the last year. Note too, that the amount of beer sold on promotion is down. A prelude to the upcoming price increases?

In the mid 70’s, Coors Brewing Company was reprimanded and placed under a two-year moratorium regarding price discussions when a conversation between the brewery and a wholesaler was recorded by the later. From that point forward, the talks on pricing between wholesalers and vendors always included the words “recommended” or “suggested” in the discussions, and all price letters to wholesalers had the language “we recognize your right as an independent wholesaler” and “businesses to set your prices accordingly.”

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007), is a US antitrust case in which the United States Supreme Court reversed the 96-year-old doctrine that vertical price restraints were illegal per se under Section 1 of the Sherman Act.  The aforementioned case replaced the older doctrine with the rule of reason. Resale price maintenance (RPM) is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer’s product at certain prices: at or above a price floor, or, at or below a price ceiling. If a reseller (distributor) refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with the said wholesaler. This marked a dramatic shift in how attorneys and enforcement agencies addressed the legality of contractual minimum pricing and essentially allowed the reestablishment of resale price maintenance in the U.S. in most commercial situations.

It is safe to say that the courts will weigh in on this topic in the future. Actually, it is somewhat surprising that this has not been a topic of discussion between all parties given the aggressive pricing in recent years. Perhaps the recession put this on the back burner. Wholesalers, in almost every situation, made sure they communicated their “minimum” GP. From the vendor’s perspective, pricing models today are usually worked backward by working off the markets’ chain leader(s) and their pricing, adding in the wholesalers GP, and then, if there is a profit, that, too, is included. All taxes, freight, etc. are included.  At Warsteiner, we analyzed each wholesaler’s contribution to our overall financial success. If the PTR was non-competitive then our numbers were negative. In all cases, profitability was volume driven.  So is it better to sell 10 cases at 30% or 1,000 cases at 24%? This brings me back to our case.

How the major breweries approach pricing will probably be still considered antitrust, which would still be illegal. With the smaller breweries, however, such discussion could be considered anticompetitive. This changes the dynamics of the discussion. Either way, Leegin Creative Leather Products, Inc. v. PSKS, Inc. has changed the pricing paradigm. Get ready. Remember though, if your price point for beer is so high no one will purchase your product. So what good does it do you?

Alliances and partnerships produce stability when they reflect realities and interests.

 Posted by at 6:00 am