Nov 272018

Last week it was announced that Scott Metzger, the founder of Freetail Brewing Co. of San Antonio, had, after 10 years, left the company he created.  Despite Freetail’s success, Metzger brought in the Turner family two years ago to provide support in growing the business.  It is hard to know if this was part of Scott’s initial exit plan, but either way, Freetail will benefit from the increased support provided by the Turner family.

Freetail, like other breweries that have sold to a major brewery or capitalist, will grow in the short term. The question is, how do distributors see these somewhat successful, local breweries as continued players in their portfolios?  Which would be of more interest to a distributor: a start-up local craft brewer or an established, successful, imported brand that had never attempted to develop the U.S. beer market?

Even if the local craft has the financial support, experienced team, lab, brewpub, and commitment, the distributor might look at the local brewery with some skepticism.  Will that craft sell or will it fold?  How much time, effort, and money should be invested in this brewery?  If the brewery succeeds and sells out, will it sell out to one of my current suppliers?  Remember what happened to Goose Island, Ballast Point, Lagunitas, Revolver, Karbach, Golden Road, and others who became a key part of their buyers’ companies, a move which made their wholesalers happy.

There are other crafts that employees purchased.  Full Sail was acquired by their employees, who in turn sold the brewery to an investment firm, thereby maintaining their jobs.  New Belgium employees still own their brewery.  These breweries and others continue to do well.  But at what point does the distributor take a risk and at what point are they forced to draw the line?

This summer, after almost 100 years in business, Great Western Brewing Co. of Saskatoon, SK, Canada brought their beer into the U.S.  On the surface, a distributor might look at Great Western as a local craft.  Great Western is the predominate brewery in that part of Canada with outstanding products and a top brewmaster.  Its brewing capacity is well over 300K HL. Unlike a number of crafts, the Great Western strategy is to grow and build their volume while maintaining their long-term ownership.  They know building a U.S. market will take time, and they are committed to doing so with a strategy.

The odds are that Scott Metzger will return to the industry in some capacity and, of course, Freetail will continue to be a viable brand for its wholesalers.  Great Western will expand in the U.S. as planned.  The success of either brewery, like other breweries, will be tied to their commitment.  In the end, that is the distributor’s dilemma.

Get out, stay out, and don’t come back!

 Posted by at 7:00 am
Nov 202018

Thanksgiving posts in the past have been a myriad of topics within the beer industry, the majority of them; however, have focused on subjects for which we are all thankful.  The most popular Thanksgiving story was the 2014 post on Lone Star Beer.

Many of the posts have highlighted past events for which we were thankful.  We are currently witnessing how these occurrences, for which we were once thankful, have shaped the future of the beer industry.  Let’s now project what the industry might be thankful for in the coming years:

  • Continued growth of the craft segment and the excitement that craft brings to the industry,
  • Premiumization of all beer,
  • The size of the millennial generation, the largest segment of the population in history,
  • Seltzers, FMBs, and spiked water which appear to be the beer industries’ next major growth segment and the best weapon against the onslaught of wine and spirits,
  • Taprooms and local breweries which signal a return to neighborhood connections,
  • Lower taxes and more jobs,
  • Higher incomes,
  • Lower gas prices,
  • Continued lower taxes on beer (all beer!),
  • Favorable legislation on both the Federal and State levels thereby fueling growth in the beer industry,
  • A growing export business for all makes and sizes of U.S. brewers,
  • Continued technological advancements which thereby enhance efficiencies and profitabilities,
  • Michelob Ultra,
  • Constellation Brands,
  • Boston Beer,
  • Higher quality in craft brewing.

These are just a few of the items the beer industry can be thankful for in the coming years.  If you know of additional future trends, please let me know.

By the time this is posted, perhaps there will be an end to the Pabst Brewing Co.’s suit against MillerCoors; a suit which is currently being litigated in Milwaukee.  There is much at stake for both breweries in this suit, but the outcome will also affect many wholesalers and consumers.   More on this after the suit ends.

I would like to take this time to wish all of those in the beer industry an enjoyable Thanksgiving holiday, and especially recognize all who make, deliver and service beer!  Happy Thanksgiving!


 Posted by at 7:00 am
Nov 132018

During the 60s and 70s, wholesalers represented only one brewery and the future of that wholesaler depended on the success of that one brewery.  Partnering was critical, and if the marketing did not connect with the consumer, both the brewery and the wholesaler felt the negative consequences.  The wholesaler had little choice but to support the breweries’ plans.

As previously discussed, today’s wholesalers spread their exposure across many suppliers and brands.  If one supplier hits a bump, the wholesaler might feel a slight repercussion, but the negative experience will not adversely affect the wholesaler.  Today’s model also allows wholesalers to take a more aggressive stance against a vendor when the vendor’s marketing or programs are questioned by the wholesaler.  Partnerships are strained and tenuous at best.  One really must question whether the relationship between the wholesalers and the brewery could truly even be considered a partnership.

During the summer months, majority of vendors develop their annual budget and marketing plans for the upcoming year.  Once approved internally, the vendor presents the upcoming years’ plans to the wholesaler.   These plans, which are created by the vendor, are based on the goals and strategies of the vendor.  The vendor has built their future around certain platforms and has invested their dollars against that strategy. In the business meetings, the wholesaler has input and many times these plans are modified, but typically the core plan remains.  Only when the strategy totally fails are the business plans changed.

Recently, a major AB distributor notified their beer vendors of a wholesaler–initialed price increase. The increase included price points and margins that the wholesaler was not only taking for themselves but, also what they were allowing their vendors to take!  This even included the date the beer price was to increase.

There was no discussion with any of the vendors as what effect this increase would have on their 2019 market planning, goals, or strategies.  The increases, which were deemed final, were focused on all keg sizes.  One wonders if ALL their vendors were affected or just a targeted few?  When a vendor has questioned the wholesaler in the past, the wholesaler’s continued response is “this is the policy.”

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007), is a U.S. 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 for most commercial situations in the U.S.

Simply put, if the wholesalers’ pricing has a negative effect on the vendors’ products, the vendor may have the ability to take legal action against the wholesaler.  If that happens, then who wins?

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


 Posted by at 6:00 am
Nov 062018

Recently announced third-quarter results for ABI showed that; once again, the company’s depletions are down -1.5%.   ABI’s market share also continued to decline this quarter -.5%. This all equates to a year-to-date market share loss of -.45%.  Even with all the cutting and consolidations that ABI has done in recent years, their debt exceeds $100 billion!

ABI also announced that they will be cutting their dividends by 50%, thus saving four billion dollars per quarter to pay down the aforementioned debt.  The markets’ response to ABI’s announcement was a 40% drop in the beer giant’s stock value.

Is the clock ticking on Carlos Brito?  Regardless of the fact that under Brito’s leadership, AB has lost millions of barrels in volume and market share, it is the financial results that have afforded Brito the ability to be the darling of Wall Street and his shareholders.  The industry knows all too well that Brito’s cost-cutting measures and aggressively price increases have produced great financial results and returns for the company.  The question is, now what?

Brito has accomplished this position by buying large beer companies and applying ABI’s cost-cutting measures and pricing tactics.  In recent years, AB, Modelo, and SAB Miller have all gone down Brito’s path.  Perhaps Brito has run out of beer companies to buy and costs to cut.

Diageo is not going to sell Guinness. And for generations, Carlsberg and Heineken have been tied into a family and will not sell.  While nothing is certain, it is safe to say that these companies have no interest in selling to ABI.  What else is there?  There are still some nice breweries out there, including the six million Hectoliter Krombacher, but that, too, is family owned.  Unless ABI jumps deeply into China’s breweries, there is nothing with significant volume remaining to be purchased.

What about Pabst?  Since Pabst is a virtual brewery, adding that volume to the declining volume of AB would certainly help with the latter’s excess brewing capacity.  Pabst’s portfolio, however, does not fit ABI’s strategy.  ABI, not known for effective brand marketing, would up-selling Pabst’s products resulting in accelerating ABI’s declining volume even more.  In addition, ABI might violate their DOJ agreement regarding the purchase of more U.S. companies.

How does Brito increase shareholder equity, make his board happy, and reduce ABI’s debt for future expansion?  What if Brito sells all or part of AB in the U.S.?  Why not?  When ABI acquired Modelo, brand rights were sold to Constellation Brands in the U.S., similar to the situation in which Miller was sold to MolsonCoors when they bought SAB.  By selling the U.S. market, ABI could retire the debt, AB stock would soar, and ABI would be in a much stronger position to buy Coke or Pepsi!

In the end, Brito is not going to continue doing what he is doing now. His make-up will not let him.  He will, however, do something to move the needle for his board and selling AB in the U.S. might just be the icing on the cake!  Sound crazy, well nobody thought AB would ever sell either!

Egotism is the anesthetic that dulls the pain of stupidity.


 Posted by at 5:00 am