Beer Business Unplugged

A couple of weeks ago Tiger Woods won his fifth Masters tournament and subsequently his 15th major win.  This was Tiger’s first major win since the U.S. Open in 2008 and his last Master’s victory in 2005, some fourteen years ago.  Just two years ago, however, Tiger’s back pain made walking difficult and returning to competitive golf seemed a distant memory.

Tiger Woods’ golf career has been a roller coaster, to say the least.  The multiple back and knee surgeries coupled with his personal problems had many pundits believing that Tiger would never win again.  His come back is remarkable in lieu of what he has overcome; however, Tiger’s true transformation is his outlook on life. A transformation that is perhaps even more notable than his golf comeback.

it is safe to say that during Tiger’s early years on the tour, he was cold, distant, and aloof.  Now, after multiple physical and personal problems, Tiger is a changed person. It is obvious that he is grateful that he can play again, compete, and win!  Tiger is happy to be in his own skin right now and it shows.  He is a changed man.

A recent article in the Wall Street Journal focused on the changes in Carlos Brito, head of AB in the U.S.  AB has been driven by 10 years of declining sales and market share, coupled with a heavy debt load from the acquisition of other breweries including SABMiller.

But Brito has transformed his management style: once an advocate of zero-based budgeting, cost-cutting, and headcount reduction, Brito is now transformed.  A true numbers cruncher, Brito has reduced the quantity and length of meetings; he has eliminated non-marketing people at the meetings, and he has increased the number of women in the company.

The article goes on to state that Carlos has freed up his time to take crash courses in AI and robotics, while focusing on new ventures like the Keurig machines for cocktails that the company is reviewing. Carlos goes on consumer safaris, shadows millennial shoppers overseas and visits other consumer companies including Starbucks and Harry’s to gather pertinent information, and he has even spent time learning about the coming Blockchain robotics and applications.  Brito has all done this while shuffling his senior leadership team and increasing the number of marketers.  His hope is that these changes will slow the decline of Bud and Bud Light while pushing new brands and products like hard seltzers, cold-brew coffee, and canned cocktails.

Assuming he remains in the leadership role, Brito’s legacy will be chronicled at AB, but that is yet to be determined.  Tiger’s legacy is already written regardless of how he performs going forward.   Tiger’s legacy will not be what he accomplished but what he did not accomplish.  That begs the question: will Carlos Brito’s legacy be similar to Tiger’s? Will Carlos be remembered for what he did versus what he did not do?

The greatest accomplishment is the not fact that one never fails, the greatest accomplishment comes in rising after the fall.

Last week Stone Brewing announced the sale of their Berlin facility to BrewDog of Scotland for an undisclosed amount.  Stone has owned the brewery since 2014, but has now decided to leave the Germany market.

In an August 2014 edition of this blog, (Sound strategy starts with having the right goal.), Greg Koch, Stone’s co-founder, blamed the closure of the brewery on multiple issues, one being building complications and the resulting delay in construction.  Koch claimed that when concerns arose, construction was halted and no solutions were presented.  He added that the delays cost Stone both time and money, stating that the project was “too big and bold” for Germany.  Koch lamented that the brewery should have started smaller, thus giving all involved the opportunity to gain insight into what was necessary for successful growth.

In the same post referenced above, the challenges that Stone Brewing faced in building a facility in Germany were outlined.   And as it turned out, those challenges were real and Stone is, in fact, closing.

Various posts have addressed the topic of foreign ownership and management faced by beer companies hoping to establish in the U.S. market. Such companies continue to fail or fall short of their goals by not adapting to the U.S. beer industry model.  Leaders, who have been successful in other countries, fail to understand the American systems or they try to incorporate their countries’ systems in our country. The result is frequently failure.

ABI, MC, Pabst, Heineken (to some degree) and others breweries are managed by non-American leaders.  But the ongoing theme seems to be: is this working for these companies?

Jeff Alworth, who writes a blog entitled Beervana, criticized Koch when he, Koch, announced the Berlin project by smashing a pile of German beers with a rock. Shortly thereafter, Koch exclaimed that “Berlin is not really a beer city yet.”  That is like saying Augusta, Georgia is not a golf town yet.  That statement surely endeared Koch with many of the Germans.

Simply because a brewery finds success in their home country does not mean that same success will be duplicate in another country.  It does not matter whether you are dealing with the U.S. or another country, the facts are the same.  As we discussed in the 2014 post, Germans have local breweries and support them, just like Americans support our local crafts.  The German’s might have tried one of Stone’s beers, but in the end, they will support their own countries’ beers.

Based on Stone’s approach to the Berlin brewery, the chances of success were slim at best.  The same can be said of other breweries that approach business in a similar fashion.   It is an historical fact.  Having spent many years with German breweries, Stone’s struggles come as no surprise.

Hindsight is a wonderful thing.

In the early 1970s, Texas was by far the largest volume-producing state for the Jos. Schlitz Brewing Company.  Texas itself was a stand-alone division of Schlitz, and the largest division in the company. Many of the Schlitz wholesalers were ranked in the top ten in volume:  Houston, San Antonio, and Dallas were all in the top five, with Austin and the Valley rounding out the top 10.  These large distributors did not need multiple markets to obtain their high rankings, in other words, their footprints were exclusive to their respective cities.

Even the expansion of Coors into South Texas in the mid-1970s did little to dent Schlitz’s market share.  The Coors expansion, coupled with the rapid growth of Miller Lite, however, had raised eyebrows among some of the Schlitz wholesalers who began to look at their own futures.  Coors had gone with exclusive wholesalers and their initial market share was as low as two to three percent, up to 13%. It would, however, be several years before the Coors houses started selling out to other distributors.

By the early 1980s, with their volume in decline and a loss of confidence in Schlitz’s senior management, Schlitz wholesalers began to sell their companies in an effort to maximize their own investments.  The Valley was one of the first to sell, followed by San Antonio. The Alamo City still had Schlitz roots in their GLI make-up and, interestingly, the Schlitz warehouse sign still sits on top of their warehouse.  The sale of Austin, Dallas, and others key markets quickened the death of Schlitz.

So the question is, did these buyers get any return on their investment in Schlitz?  It is probably safe to say that those who sold never regretted their decision to sell. Honestly, some may have wished they had sold years earlier.  It is all about timing when selling.

Recently it was announced that Silver Eagle, the largest AB house in the U.S., had sold its Houston operation.  The selling price was rumored to be close to one billion dollars.  It is no secret that the volume losses of Bud and Bud Light have been dramatic with no turnaround in sight.  John Nau, the owner of Silver Eagle will maintain ownership over the San Antonio branch. Many of the small to medium size AB houses will most certainly be contemplating selling to large AB operations where certain synergies can be realized.  It makes sense given current trends for the AB operations.

The Schlitz operations of 30 years ago were not as diversified as today’s businesses.  Combined with the rapid decline of Schlitz, these wholesalers had no choice but to sell.  I have never had a former Schlitz wholesaler state regret at their decision to sell, while on the contrary, I have had both former Coors and AB wholesalers state their regret in selling.

The next five years will shed some light on the future of many of the AB houses.

Success is a matter of luck and timing.