February, 2019 | Beer Business Unplugged

Written reports stifle creativity

Feb 262019

In the early 1970s, the senior executives at Lone Star Brewing Co. came from Schlitz. Harry Jersig, who was the owner of Lone Star, had retained these executives in an attempt to turn the brewery around while simultaneously upgrading the execution of the company.

The required administrative work required of these senior executives was similar to what had been required during their time at Schlitz. Looking back, the Market Activity Report was simple. A two-page report; the first page consisting of a review of sales, product inventory, orders, and p-o-s inventory; and the second page consisting of a follow-up from the last visit, the result of any programs the distributor had agreed to, a recap of the program, and the agreed-to-program(s) to be executed during the next time period.

Since most of the distributors were one-brand wholesalers, brewery reps had their undivided attention and program execution was a given. The entire process was simple to manage for both the wholesaler and the vendor.

During the 1990s, Gambrinus required all field employees to follow-up with their respective wholesaler through a performance letter. The letters, which were predominantly negative in nature and non-productive, were graded internally and posted.

Over the years the Market Activity Reports gradually evolved into annual business planning meetings with both the wholesaler and brewer agreeing upon certain goals. During the calendar year, both parties conducted monthly review meetings to ensure stated goals were being met, and if needed, adjustments were made.

In today’s market, wholesalers have a plethora of vendors, some with more than 30. In a good size market, the vendors will have market/retail specialists on the street. Today’s wholesaler might also have a brand manager for the vendors, with many managers having five or more vendors to manage. If a brand manager has over five vendors, this results in not enough time to devote to even a single day to one brand. Someone falls through the cracks. And thus we see the need for market reps.

Wholesalers began asking for weekly recaps from the vendors, the obvious reason being that while the wholesaler works with multiple vendors, the wholesaler needs to know what is being accomplished. The ideal model would have the wholesaler follow-up with the vendor when necessary and execute as needed.

The wholesaler’s requests could result in vendors asking the wholesaler, “What are you doing each week with my brands?” This is certainly a fair question. Vendors often have software to programs, like VIP, that enable the vendor to see real-time sales, inventory, and distribution. Such programs, however, do not give the vendor a complete and updated picture.

The numbers of vendors have exploded in recent years and the number of wholesalers has shrunk. This situation has created challenges in today’s market. The old adage, however, may still be in play: the wholesaler’s job is to put the dog food on the shelf, the brewers’ job is to get the dogs to pick it up.

Written reports stifle creativity.

Success and failure are both part of life. Both are not permanent.

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Feb 192019

Pierre Celis sold his successful, but under-insured Belgium Brewery, located in Hoegaarden, Belgium, to InterBrew. Pierre then decided to build a brewery in Austin and bring his Belgium White Ale to Texas. While visiting Pierre in 1991, just before the brewery was finished, Pierre told me that he initially looked at both Austin and Portland, Oregon as potential locations in which to build his brewery. At the time, Portland’s craft beer scene was well underway, but the same was certainly not true for Texas.

To Pierre, Austin was a no brainer and he selected the capital city of Texas as the sight of his brewery. A few short years after opening, he sold the brewery to Miller Brewing. One has to wonder what would have happened to Celis had Pierre chosen Portland instead of Austin.

Miller invested in the Celis brands, but had a little success and eventually closed the brewery in 2000 and sold the brand. The craft beer market was still years from developing in Austin or even in the state of Texas. Eventfully, the Celis brands were purchased by the Michigan Brewing Co., but it, too, closed in 2012.

Christine Celis, Pierre’s daughter, gained the rights to Celis Brewery in 2017 and opened a new brewery in Austin, rapidly expanding throughout the state with both cans and kegs. Now, two years later, and after replacing all of the Celis sales staff two weeks ago Celis employees walked without being paid. If Celis sells again, the next owner(s) will be the fifth since 1991.

In recent weeks, the beer industry has seen multiple long-established craft breweries close. Just this week alone, after more than 35 years in business, Bridgeport Brewing of Portland, which is owned by Gambrinus, announced it was closing and would be laying off approximately 87 employees. Just a week earlier, Burnside Brewing of Portland also closed its doors after nine years in business. Other brewers, including Widmer Brothers and Portland Brewing, have closed their taprooms. Last year 22-year-old Almenda Brewing and Lompac, both in business for 20 years, also closed.

It might be easy to explain why Celis is having trouble or Big Bend closed, but longtime brewers like Bridgeport, present a more challenging explanation. Compare Bridgeport’s 2011 volume of over 50K bbls. to last year’s volume of just over 10K bbls. Monetizing all those GABF medals is becoming meaningless!

Pundits have long cited that the taproom and restaurant business model offers a better chance for success versus the go-to classic market model. The recent closing across the country of long-time successfully established breweries and brewpubs of both models, however, illustrates that these models, too, are also struggling. The strong will survive as the industry finally shrinks and those breweries who can find products which innovate and resonate with consumers will continue to grow.

If Celis does find a new owner, perhaps the fifth owner will make it work. Or maybe it will be the sixth owner? Pierre Celis never thought it would be this difficult to establish his beer in the U.S. as the closing of Bridgeport Brewery was not even a consideration a mere seven years ago. But then again, neither did Schlitz, Pabst, Old Style, Hamm’s, Jax, Lucky Lager, and on and on and on.

Success and failure are both parts of life. Neither is permanent.

Editors note; This post has been notified that Celis is currently still brewing beer.

Advertising doesn’t create a product advantage. It can only convey it.

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Feb 122019

These pages have often referenced the historic struggles experienced by the Jos. Schlitz Brewing Co. In its efforts to remain not only relevant and to enhance the stock prices, a corporate decision was made around 40 years ago to quicken the brewing fermentation process. The unfortunate result negatively altered both the taste and clarity of the liquid. Frank Sellinger, the new President of Schlitz who had come from AB, and was a brew master by education, quickly changed the formula back to its original recipe. He subsequently delivered that message to the public.

Frank’s initial message to ensure the public of the beer quality, unfortunately, did not affect the negative sales trends. Consequently, Schlitz went after Budweiser and Miller by conducting televised taste tests. These ads did not attack the quality of Budweiser or Miller they did, however, focus on the taste of Schlitz verses the taste of Bud and Miller. History has shown the ineffectiveness of these commercials.

It was not long after the Schlitz ads ran that Coors Brewing Co., in an effort to get more traction with their eastern expansion, ran newspaper ads citing fusil oil as a by-product of the brewing process of both Schlitz and Budweiser. August Busch III called Pete Coors in an attempt to have these ads pulled for the sake of the industry. Pete complied and ended that campaign.

In recent years, the industry has seen ads declaring products with fewer calories and fewer carbs than competitors. With the advent of the seltzers, where their labels/ads promote low ABV, carbs, calories, and in some products, no carbonation, the highlight attributes of their products are self-promotion and do not lambast the competition.

AB’s much-discussed Super Bowl ads highlighted both Coors Light’s and Miller Lite’s use of corn oil in the brewing process. While AB claims it does not use corn oil in its brewing process, controversy has none-the-less started anew in the industry. MC has fired back by taking the high road and not attacking AB but instead explaining how corn oil is used and which AB brands use the oil.

The controversial ads had other responses: Boston Beers distanced itself by tweeting, “No corn syrup AND no rice. #barley#hops#water#yeast.” Adam Collins, vice president of communications and community affairs for MC, reflects what some in the industry believe: “The Bud Light ad says more about their market position than it does about any @MillerCoors products.” Collins added, “When was the last time ABI used their Super Bowl ad to attack a competing brand? Miller Lite has been gaining share for 17 straight quarters and someone’s feeling the heat!”

If it was ABI’s intent to drive the social media mentions, they succeeded. By half time AB social-mention spikes were close to 47K. The follow-up continues thus leading one to believe at least from that aspect, that ABI must be pleased.

It could be possible that unless ABI’s trends change to the positive, we could see additional ads with similar messaging. The fall out could extend well past ABI and MC. Craft brands that cut corners on their ingredients will have to address their consumer’s questions, “What’s in your beers?”

Advertising does not create a product advantage. It can only convey it.

Prohibition has made nothing but trouble.

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Feb 052019

It was January 16, 1919, just over 100 years ago, that the 18th Amendment was ratified. Prohibition began 100 years ago. Then on December 5, 1933, the 21st amendment repealed the 18th amendment and Prohibition ended. Or did it really?

Sure, the 21st amendment made it legal to buy and consume alcoholic beverages, but now that 100 years have come and gone, did prohibition really end? When the 18th amendment passed in 1919, there were approximately 669 breweries operating in the U.S. By the end of 2017, that same number had increased to 6,266 (8,863 TTB permitted). Some estimate that there could be almost 7,000 operating breweries by the end of 2018. Granted the current number includes a myriad of different types of breweries, but either way, growth has been incredible when one considers that in 1978 there were only 89 breweries, according to the BA!

With the repeal of the 18th amendment, we saw the creation of the three-tier-system. The purpose of which was to ensure there would be no tied houses between breweries and retailers. And for the most part, the three-tier-system has worked. Now, however, with the advent of brewery-based on-site taprooms; and where legal, brewery-off-site taprooms exist, we have a blurring of the tied-house issue.

While the number of breweries has exploded in recent years, the number of wholesalers has decreased from 4,595 in 1980 to less than 3,000 today. The number of breweries continues to grow while the number of wholesalers continues to retract.

The growth of the breweries can be traced to certain states that, from the end of prohibition, did not create laws which prohibited the start-up of small or craft breweries. The majority of these states were on the east or west coasts. Even with laws favorable to crafts, however, these states still limited consumers’ access to buying beer.

Las Vegas could be considered the only city that truly eliminated prohibition. If a consumer wants a beer in Las Vegas, that beer is available 24/7. One can even walk down the Vegas strip at any time of the day or night with an alcoholic beverage in hand and not be in violation of the law. If Vegas can deal with this environment, other states should also be able to follow the same laws.

All states today restrict, in some form or fashion, the time and day of the week an establishment can open and/or sell alcoholic beverages. In Texas, there is a movement to allow liquor sales on Sunday, a situation which has been unlawful in the past. As with many states, this change in the Texas law is ultimately about increasing revenue to the state more than ensuring the consumer has the freedom to purchase alcohol when desired.

The United States is changing rapidly, just note the spread of legalized cannabis across the country. Pundits believe that we will legalize cannabis within the next three to four years! If that is the case, why cannot prohibition in all forms end?

Prohibition has made nothing but trouble.