Jul 302019

After years and years of chasing, buying, and stripping companies, InBev announced, prior to the release of their latest earnings report, that the company has sold their Australian business to the Japanese brewer, Asahi, for $11.3 billion. ABI said they sold that business to reduce their massive debt, which was brought on by the recent SABMiller acquisition. Selling this piece of InBev’s Asian business is considered their plan “B.” InBev had originally attempted a public offering of their Asian business, but reneged as it seemed ABI could not get the valuation they desired.  According to the pundits, this sale and reduction in debt puts ABI in a position to acquire more acquisitions in a faster growing market. If that is the case, how do the U.S. AB distributors feel?

The recently released second quarter results for ABI reflect higher revenue and earnings driven by their global market, led by Brazil and other countries.  Once again, though ABI’s global results look good, their U.S. results are not good.  ABI’s market share in the U.S. dropped .55%, in addition to a.1% loss in the first quarter. ABI blamed these results on raising prices, needed as a result of increased costs. ABI also announced that Michelob Ultra is 10% of their U.S. business, and still growing.

Are the pundits correct in saying that ABI’s business model is simply to buy and gut companies, but not sell them?  This seems to hold true concerning ABI’s goal to reduce their $104 billion-dollar debt. Yet, why are they are selling their highly profitable and mature Australian business, something ABI never does, only to reduce debt, then return to  the same debt-laden situation?

While it is hard not to admire what ABI has accomplished globally, the question is, can their business model continue to work while losing substantial market share in the U.S.? And, at the same time, SABMiller’s debt seems to have changed ABI’s operating strategy.

There is no reason that logically indicates any short-term changes for ABI. In fact, there may be a sense of urgency in their offices to get something done, and done quickly. Whatever happens, the industry and the world will soon know.

I never think about the future – it comes soon enough.



 Posted by at 6:00 am
Jul 232019

In the last 35 years, no brand has come close to the growth of Corona. The brand went from being in a position of not even having a hand full of distributors who could sell a layer of the beer, must less a pallet, to the current situation of now selling over 150 million cases of Corona.  The beer industry has never seen anything like Corona, though recently Modelo, Michelob Ultra, and perhaps White Claw have given Corona a little run for their money. 

In the early years of Corona’s growth, the brand was distributed by Barton Beers and Gambrinus, each of which had the western and eastern halves of the United States, respectively.  Years ago, Barton Beers acquired the rights to all Models brands for the U.S. at which time the importer became Constellation Brands. Constellation Brands’ timing could not have been better as ABI soon bought the Modelo Brewery and spun off Modelo’s U.S. business to Constellation Brands.

Modelo’s growth continued under the leadership of Constellation Brands, but success subsequently produced changes. Constellation Brands bought Ballast Point and distributed those beers throughout the country. Constellation Brands then introduced a number of line extensions, some of which were successful, including Corona Familiar, and more recently Corona Premier.  But at what cost did these changes come? Corona Premier, Modelo’s answer to the success of Ultra, has cannibalized Corona Light, and in recently published data, even Premier is slowing in growth.

Of course, there is also Constellation’s investment in Canopy, the Canadian cannabis company which, to date, has not been a profitable investment. With a $245 million loss in the U.S., Canopy may never be profitable. 

With Corona Refresca, Modelo now has a new entry into the spiked water and seltzer segment. The new FMB segment that is on fire are those products low in ABV, calories, and carbs.  Yet Modelo’s Corona Refresca is high in calories at 199, which means high sugar and carb content. Is this type of product what today’s consumer is looking for? It does not seem so.

For decades, Barton Beers and Constellation Brands were the industry leaders.  These companies were leaders, not simply in the fact that they produced top selling beers, but also leaders in their program development, marketing, and media productions. Corona was the envy of the industry. It seemed that they could do no wrong and everything they touched turned to gold.

Not anymore! The question becomes:  how many more investments will Constellation Brands make while the recent products and companies struggle? The first indication is what happened to the recent CEO of Canopy, one of their founders, who was asked to leave the company.

In the not too distant future, Constellation’s brand managers will be removed, agencies will be fired, new agencies will be hired, senior management will leave, and new management will realign the structure to “be more responsive and quicker to react to the changing market.” Constellation will follow AB, MC, Heineken, and others. It is not just a matter of if; it is more a question of how much longer?

Sometimes, very competent people make errors!

 Posted by at 6:00 am
Jul 162019

This post begins the eighth year of Beer Business Unplugged.  As I have done for the past seven years, I will comment on the previous year’s posts and industry issues.
The February 19th post, Success and Failure are Both Part of Life, was the most read post for the year, and it also set an all-time record for the most read post ever! Success and Failure told the story of the reincarnation of Austin’s Celis and the struggles of the brand.  The post brought a multitude of responses from all tiers in the industry, many advocating that Celis was, in fact, a viable brewery. In recent weeks, the industry learned that Celis has gone out of business and two weeks ago, filed for bankruptcy under chapter XI.
The Celis story was one of the many lamenting breweries that had closed or sold over the last year. It seemed that every week there was another blog about another brewery closing. This trend appears to be continuing over the next year.
Another shift which seems to be gathering some steam is the growth of sessionable or light crafts. More and more brewers are adding a low ABV and lighter flavor to their portfolio. Call it the Ultra effect, but it will continue.
Breweries by Population

There are two other key developments which have continued to capture the industries sights during the past year.  The first is the cannabis situation which seems to be losing traction at this time, and the second is the continued and amazing growth of seltzers and spiked waters, led by White Claw.
Once again, I want to thank the readers who have sent comments and thoughts, they are always appreciated and helpful. I look forward to the continuation of this blog throughout the coming year.
This year’s classic Schlitz commercial.

And now, on to year number eight….

 Posted by at 6:00 am
Jul 092019

In a conversation several years ago with a distributor who had recently sold his large, successful operation, the distributor commented on the challenges he encountered trying to train and maintain company employees. As an illustration, he referred to the tradition of sports teams and the amount of training and preparation, often a full five days, for a mere three-hour game.  The distributor noted the length of practice in regards to a relatively short game and acknowledged a similar training system used by the United States military, noting the importance of superior training techniques in the event soldiers were called to duty.

When one looks at the beer industry, it is quickly evident the amount of time invested into craft beer training. A recent article in the Dallas Morning News, “Jobs Data Helps Track the U.S. Brewery Boom,” highlights the job growth of the brewing industry.  The article stated, “The number of jobs at breweries jumped from 26,380 in 2008 to 77,902 in 2018, according to the Bureau of Labor Statistics.” This parallels the growth in the number of operating breweries.

The article further states that there is also a regional variation to be found. Some regions, or cities, have more breweries than others. To sort this out, an “employment location quotient” provided by the BLS for states, metropolitan areas, and countries was in each industry. The BLS measures an industry’s share of total jobs in an area divided by its share nationwide. In Bend-Redmond, Oregon, population 191,000 in 2018, one is 18 times more likely to run into a brewery worker than in the U.S. as a whole.

This article goes on to state that the BLS will suppress data so as not to reveal employment and wage information that can be traced to a single employer.  For example, in Chico, California, home to Sierra Nevada, and in Pottsville, Pennsylvania, the home of Yuenglng, the data is suppressed. The data translates into salary ranges, thereby illustrating that an AB brewery or a MillerCoors operation would have the highest pay. The metropolitan areas with annual brewery wages of $80,000 are indeed home to major AB breweries. In the craft world, San Diego, which has 128 breweries, has low wages, as would be expected.  Employment, however, has more than doubled since 2014. The annual wages on the low end of the scale are $23,049 in Niles-Benton Harbor, Michigan and the highest in Syracuse, New York, at $89,675. The brewing industry only accounts for 0.05% of total jobs in the U.S. 

Many craft brewers struggle to find quality employees as referenced by the low salaries. These brewers can find bodies, but without the proper, on-going training, how well are they going to perform? Many of the young beer people have some type of Cicerone training, which does aid with the understanding of beer, but may not necessarily translate into sales.

The old adage, “you get what you pay for,” could not be more evident than in today’s beer industry.  It is easy to equate a breweries’ payroll to their success by using the above mentioned statistics. If a brewery wants to be successful, they should pay for talent instead of simply acquiring more employees.  Not only will the brewery benefit, but so will the wholesalers, retailers, and consumers

Money and salary are not particularly good motivators in the long term.

 Posted by at 6:00 am
Jul 022019
Also last Friday, the state of Texas filed a tax lien against Celis Brewery’s parent company, FFBC Operations LLC (which also operates as Flemish Fox Brewery & Craftworks LP).
Christine Celis, who 
resurrected her late father Pierre Celis’ long-shuttered brewery in 2017, did not return requests for comment.
Messages left for representatives from Amplify Credit Union and Streusand, Landan, Ozburn & Lemmon LLP were also unreturned.
Additionally, Celis is facing a trio of liens filed earlier this year against the company for thousands of dollars in unpaid construction and electrical work.
In an “affidavit claiming lien” dated February 1, Hill Morrison of Hill Morrison Construction Services claims that Celis owes “at least $271,872.81” for the construction of a beer garden and remodeling work.
According to a second “affidavit claiming a lien,” dated March 15, R&M Electric owner Rick Hendrick said his company is owed $8,211.85 for electrical work done at Celis in November 2018. Also on March 15, Elliott Electric Supply Inc. filed a “mechanic’s and materialman’s lien affidavit” seeking $5,058.80 from FFBC for materials provided to R&M for work done from October to December 2018.
Brewbound reported in May, rumors of financial struggles, layoffs, and a potential bankruptcy filing dogged Celis throughout the beginning of 2019. At the time, a new investor group was considering acquiring the distressed brewery. Sources told Brewbound then that the Celis operation was in trouble soon after opening in 2017, after overspending on a 50,000-barrel brewery in northwest Austin and relying on financial models that required high double-digit, year-over-year growth in order to service debt.
Last year, Celis’ production increased 320 percent, to 11,339 barrels of beer.
According to a “modification and extension agreement” filed with the Travis County Clerk’s Office this past April, Flemish Fox Brewery & Craftworks reached an agreement with Amplify Credit Union to suspend payments on the principal $5.3 million note it first took out in March 2016, from February 1 through July 1, 2019. The company was to resume payment on August 1, with the total balance to be completely repaid by September 1, 2037.”

The above is from Brewbound, at the time of this posting, Celis has not filed for bankruptcy, however, it is expected to do so soon.

 Posted by at 6:00 am