Mar 262019

A recent article in the Wall Street Journal entitled, “How Sears Lost the American Shopper,” was written not by the retail investors but by ex-employees who were dealing with the decisions made by senior management.  This article was written from the employees’ viewpoint of what went wrong.

In the 1980s, Sears acquired multiple companies in the financial industry including: Discover Card, Allstate, Coldwell Banker, and Dean Whitter.  All of these establishments required capital, which, of course, had to originate from Sears.  The purchases initially resulted in shareholder value but when the time came to divest, time away from the retailer was required.  This was coupled with the fact that Sears was not investing in its own stores during a time when technology was becoming necessary to run a successful business and the retail industry as a whole was changing.

A second area of failure from Sears’ standpoint was seen in the internal arrogance of the company. Initially, competition from companies like Home Depot and Best Buy was not viewed as potentially threatening. It was not until the late 1980s that Sears started to add to their line of retail appliances and began accepting additional credit cards.

By the mid-90s when Walmart was four times the size of Sears and other retail companies were on the uptake, Sears, who was simultaneously declining, decided for the first time to bring in a CEO who had not grown through the internal ranks. The new CEO elected to discontinue the once-famous Sears catalog business. At the same time, the company’s extensive distribution and logistics mechanisms were becoming antiquated.  The elimination of the catalog resulted in the loss of 50,000 jobs.  People from across the county who once had access to everything in the store, now had nothing.

The next failing change came when the CEO decided to place the emphasis on the company’s clothing line instead of on the well-known Sears’ hardware and appliance lines.  Nation-wide Sears retail establishments rearranged their floor displays, placing appliances in the back of the store while clothing was moved to the front.  The ensuing years were witness to more missed opportunities and poor management decisions, including the purchase of the retailer Lands’ End.  Perhaps the final nail in the coffin was the acquisition of Kmart.

One can see that by taking their eye off the core business of retail, and ignoring future opportunities, the inevitable end of one of America’s iconic retails was a foregone conclusion.

What happened to Sears is not much different from what is currently happening, and what has already happened, to a number of breweries.  It all sounds all too familiar.  Part of today’s breweries’ struggles is related to not focusing on their core business.  Many breweries seem to be in desperation mode and are rushing to prop up their businesses with new products, many of which are not malt based liquid.

The exception to this might be The Boston Beer Company who has transitioned from craft beer to teas, seltzers, and a myriad of different products.  One can suggest that Boston Beer was in a better position, or at least a less risky position, in changing their core business.  For other beer companies, the same cannot be said.

Layoffs, cutbacks, reduction in marketing, and resources moved to unproven new and risky products; all the same movements executed by Sears’ management, are now being performed by many beer companies across the industry.  Soon, the beer industry will be experiencing the same unsuccessful results as Sears.

The ultimate goal of the ego is not to see something, but to be something.


 Posted by at 6:00 am
Mar 192019

Thirty-five years ago, establishing a new beer was not a frequent occurrence and so doing resulted in a bit of a stir. That beer was Corona. In a few short short years, the brand had made the move to the clear longneck bottle and the results were immediate.  Sales in South Texas took off. The Corona wholesalers, in fact, ran short of supply as they could not acquire adequate inventory from Mexico.

About that time, a young sales manager from Barton Brands, Bill Hackett, decided to fly to South Texas to find out just what the commotion was all about.  Bill saw a tremendous opportunity in Corona and Barton soon picked up import rights for the Modelo’s beers.  A couple of years later, the importing rights were shared with Gambrinus until Constellation (Barton) reacquired all of the U.S.

When Mike Mazzoni left Barton in the late 1980s, Bill took the reigns as president.  After decades of leadership under Bill, it was recently announced that he has retired from Constellation, thus closing the book on one of the most highly thought of supplier executives in the beer industry.

Bill’s legacy is one of respect…. respect within all three industry tiers of the beer industry.  Bill’s contemporary suppliers admired his leadership and success. While he was leading Corona, the brand’s growth was unprecedented.  Retailers loved the marketing support Bill provided behind the Modelo brands and the higher-ring the brands produced.  It was, however, with the middle tier that Bill was most respected.

Bill believed in the wholesaler and the wholesaler believed in Bill.  Bill felt that wholesalers were the key to Corona’s success and he built the Modelo brands on this philosophy.  Bill instilled that culture of the wholesalers’ importance into the employees of Barton/Constellation and the result was a win-win for all.

Earlier this decade a California wholesaler, who had sold their Modelo distribution rights to the AB network, filed a lawsuit against Constellation Brands.  The wholesaler asked for compensation for being denied the opportunity to purchase existing Modelo rights from another wholesaler. The reason the wholesaler had been denied was due to poor performance with their Modelo brands.  Instead of beginning termination proceedings, Constellation sent in a sales team to help the wholesaler turn around their performance.  Within a year, that wholesaler, with Constellation’s help, won the best wholesaler award for the given time period.  This example of Bill’s leadership speaks volumes as to his view of wholesaler relationships.

Baron Beers’ annual wholesaler meeting, traditionally held late winter/early spring in Palm Springs, was the talk of the industry.  Wholesalers never missed that convention.

Bill’s legacy is well documented and he will be considered, by all three industry tiers, to be one of the very best beer executives of all time.  Bill will be missed.

When I see the annual Christmas ad for Corona on the island with the lights on the palm tree, I will always remember Bill.

El Rey – The King…



 Posted by at 6:00 am
Mar 122019

Last week the Wall Street Journal reported that the chairman of AB InBev, Olivier Goudet, resigned to allow more focus on his role at JAB Holding Co.  This resignation creates a vacancy at the top of the world’s biggest brewer, a brewer with heavy debt load and falling beer volumes, especially in the U.S.

Goudet had served on the ABI Board of Directors for eight years and as the chairman for the last four.  The usual reasons for his resignation were outlined in the press releases including the announcement that Gourdet’s replacement has been identified and will be announced next month.

A great deal has been written about the problems Kraft Heinz has experienced since their merger in 2015, including the 25% decrease in stock values.  Poor cash flow along with a change in accounting rules has resulted in Kraft Heinz altering the first reported operating earnings of $24 billion down to $6 billion.  Kraft Heinz has been following a Zero Based Budget (ZBB) program since the merger, a budgeting process which is similar to ABI’s.

ABI, and now KHC, understand that ZBB can only take a corporation so far.  These companies are acknowledging that brand-building, not cost-cutting, is the key to long-term viability and ROI.  As previously reported on numerous occasions, ABI has lost millions of barrels in sales since InBev bought them in 2008.

Carlos Brito, the CEO of ABI, has followed the InBev cost-cutting model effectively since acquiring SABMiller.  One can only cut so much. Sooner or later something has to be sold to ensure the bottom line is being met.

Brito was not the first to apply these cost-cutting principles to the beer industry.  In fact, one might say that Paul Kalmanovitz was the original cost-cutter in the beer industry.  Long before Brito showed up, Kalmanovitz viewed the acquisition of breweries and brands as a great cash flow vehicle which could be enhanced by massive slashes in marketing, sales, administration, and other cut-backs.

Paul acquired Pabst, Schlitz, Falstaff, Lone Star, Pearl, Jax, Old Style, and other outstanding brands.   He established the companies’ structures with minimal sales and marketing organization and very little field support.  Simply put, he squeezed out all he could.  In Kalmanovitz’s model, the bottom line was the real estate he acquired when he bought the breweries. He seemed to view the brands as disposable, but the real estate, however, would continue to increase in value with little to no downside.

Both Paul and Carlos focused primarily on acquiring breweries that struggled to maintain growth and ROI for their investors.  Both have been very successful.  Although Carlos’s final evaluation is not yet in and based on the last 10 years, something must give.

ABI has attempted to market new and exciting products, and while many of those new products may have legs, the current and past cost-cutting models have devastated AB’s volume.  Next month’s announcement on the new chairman of AB InBev will tell the industry if there are any changes in the future or if ZBB will continue.

Right now I am having amnesia and deja vu at the same time.  I think I have forgotten this before.


 Posted by at 6:00 am
Mar 052019

Many decades ago when Albert Cramer took the reins for Warsteiner he had two goals in mind.  The first was to become the first German beer to be sold throughout the country of Germany.  A nationwide distribution for any German beer was unheard of at that time, and Albert did soon accomplish that goal which made Warsteiner the largest selling beer in Germany for many years.

Albert’s second goal was to become a global brand.  Part of his strategy was to not only open the U.S. market by starting an importing company, but he also wanted to build three breweries: two in Africa and one in Argentina.

By the early 2000s, however, Warsteiner had lost its dominance in Germany and was struggling worldwide.  Albert possessed an unusual insight into the future in the industry.  He had worked to created alcoholic flavored drinks made of orange, red, and colas flavors.  These products were low ABV but never took off in the U.S.  Albert also created a light beer on the tails of Heineken Light.  The Warsteiner light came in a clear bottle with a decent ABV, but as with the flavors, that beer did not sell well.

The Warsteiner agency in Vancouver, Canada, however, was a successful importer.  The head of the agency had seen the great success of Corona but, he had no product to compete with Corona. In addition to brewing Warsteiner, the plant in Argentina also brewed Patagonia, a beer named after the mountain regions of the country.

Since Patagonia was bottled in a clear bottle, the agency in Canada decided to import Patagonia with the intent that it would compete with Corona.  The first container of Patagonia sent to Canada did very well and sold out quickly.  It looked as though Warsteiner might have a winner.  With the second container, however, there was a QA issue with the bottle caps.  Somehow the bottle caps on the second container rusted causing an off-putting taste.  The beer was quickly returned to the agency and replaced with a new container; however, the bottle caps had again rusted thereby ending any chance Patagonia had of being a viable product.  In the U.S. we were watching Patagonia sales closely. The intent was to bring the beer to the U.S. market had the brand been a success, however, given the poor quality of the crowns, the attempt was thwarted.

In the summer of 2008, Albert with failing health and serious management issues in Africa and Argentina sold all the breweries.  He sold the Argentina brewery in 2010 to SAB Miller who in turn sold out to ABI.  The Patagonia brand remains with ABI.

On a recent trip to Florida, we learned that ABI will soon be importing Patagonia into that state.  The bottle and label have changed, as have the caps!  The quality from ABI will be excellent as will the packaging and, of course, the necessary support will be made available.  More importantly, however, the brand will have the support of the AB distributor network.

Once again, along with national wide distribution, global expansion, alcoholic flavors, and Patagonia, Albert Cramer was decades ahead of the industry.

Whatever happened to…Patagonia.

 Posted by at 7:00 am