Beer Business Unplugged

We can all agree that the Corona virus has turned the world upside down. But perhaps a more accurate explanation is that the medical and political response to the virus has turned the world upside down. While the effects of the virus are uncertain, one thing is certain: it will be awhile before we know the full impact of the Corona virus… what it has done to our world, our nation, and what will be the repercussions of the decisions made in response to the virus.

We know that many business models developed by other CPG companies failed to perform in the early days of the virus. The highly acclaimed just-in-time business model supported by the made-to-order inventories collapsed under the public’s panic buying. What did work, and what was the most effective delivery model, was beer distribution. With the on-premise accounts closed, most distributors adjusted their off-premise teams by adding merchandising and delivery workers. The results were evident in the number of record sales produced. Many wholesalers had all-time record weeks, not seasonal records, company records.

Going forward, many wholesalers believe their all-time sales highs will slow as consumers begin to realize that grocery, liquor, and c-stores will remain open and well stocked. Once again, wholesalers proved their value to retailers and consumers. If sales begin to slow, however, expect wholesalers to being lay-offs.

While the world and the beer industry are working to get through this crisis, the next question is: what will the world look like when the virus ceases?  What will be the new reality? First, it is almost certain that we will experience a recession during the last half of the year. Unemployment numbers are already massive, with more to come.  The newly passed Congressional bill may convince many workers to stay home, as they may make more money not working than being employed.  This will leave restaurants, bars, and even craft breweries who survived the downturn, scrambling for workers.

Expect to see states with self-imposed shutdowns to become cash-strapped and begin to look for revenue streams. New or increased state taxes may come in the form of income taxes, sales taxes, property taxes, etc. States that have resisted legalized gambling may decide that such a revenue-producing stream might not look so bad after all. Consider how many direct and indirect jobs could be created from casinos. Sports booking could raise its head in every state. And the big one, marijuana sales, could be legalized nationwide. Even raising taxes on beer could become a reality. States will be strapped, and everything is on the table. Expect brewers and distributors to take a long hard look at their go-to market model. A 1990s video made about the Spanish Flu pandemic of 1918, which killed over 30 million people, suggested that those who survived did not even feel comfortable going back to church until 1922.

Consumers, too, will view the on-premise differently, but to what degree? Wholesalers may make the on-premise sales virtual, thereby reducing their sales teams, and putting more pressure on the brewers’ sales teams to become the in-market sales function. Expect brewers of all sizes to ramp up their chain departments. In the future, expect that off-premise will be the major battleground. Of course, online marketing and home delivery will become the big opportunity.

Consumers and retailers now know that the antiqued liquor and beer restrictions are irrelevant. This pandemic has made that fact crystal clear. And consumers will not put up with old laws. Most states have suspended restrictions for on-premise accounts to help them survive the current crisis. Look for the possibility of states permanently changing the laws once the reality of an increased revenue stream from beer sales tax sinks in.

There is a very realistic chance that the worst is yet to come. Regardless of that, the beer industry will adapt, improvise, and overcome. It will never be the same…that is the reality.

Now I am trying to decide:  ponytail or man bun? Barbers are going to be in high demand.

This is the age of disruption.

The long-anticipated expansion of Coors into central and South Texas in 1976 had retailers chopping at the bit. The Coors Brewing Co. appointment process was highly published and hundreds of individuals applied for franchises. As the distributorships were awarded, the media jumped all over those announcements and people were excitedly anticipating the rollout. Coors rolled out in San Antonio in March 1976. The largest chain at the time was Handy Andy, and when the Coors arrived at their stores, space had already been allocated in the box next to Schlitz, the market leader and giant. There was no paperwork, no scanning, no presentations, no spreadsheets, no resets and no round tables. All the retailer expected the driver to do was to price the six packs and stock the beer.  It should be noted that the few chains that existed during the 70s did not participated in the annual reviews and resets which are common today.  Annually, there were few, if any, new products or packages and since all sales were Diver Sales, it was incumbent upon the driver to sell the products. Fortunately, such sales were relatively easy. 

In 2020, the industry is looking at the spring resets for all chains including seltzers, which, of course, are on fire. To put things into historical perspective, one must consider that just HEB alone, one of the larger chains, has approved 509 new SKUs this spring! 509! How does one handle 509 new SKU’s? Did 509 old SKU’s get replaced?

While most vendors and distributors anticipate the upcoming resets, AB and their wholesalers’ rollout of Bud Light Seltzer was nothing short of remarkable. AB, aired a TV spot for the Seltzer during this year’s Super Bowl, used that spot and their wholesaler network to take Bud Light Seltzer to market. This led to obtaining a place in the market where within three weeks and Bud Light Seltzer recorded just over 10% share of the seltzer segment.  This is remarkable and shows the industry how effective the AB system is when all the components come together. It also illustrates the frustration the remainder of the industry, especially the crafts; have in getting their beer to retail. Crafts, historically have not, or will not, invest in experienced chain personnel or financially support chains, thus creating a level of frustration with the execution of the AB and MC networks.

The industry awaits the beginning of the spring resets while AB and their wholesalers benefit from their ability to move and execute. It will be interesting to follow the success/failure this spring and summer of the 509 new SKUs. And it is a safe bet that AB will have something to say about those 509 SKUs and that success.

Execution beats strategy for lunch.