The four major professional sports: football, basketball, baseball and hockey all have some form of salary cap. The public idea behind a cap is to ensure all the leagues are on a level playing field. In essence, the cap provides a team in New York, with potentially has more opportunity to create larger revenue streams, and would not have an advantage over a smaller-market team with less opportunity to generate large revenue.
The cap also has another purpose. It keeps team owners from over spending, or better yet, the cap keeps the team owners under control. In return, the players share in the revenue. The owners put up the investment to start the leagues, but the players, whose skills the fans come to see, are getting paid well. To this point it is a win/win for both sides.
Knowing what distributors look when acquiring a new brewery, we created a very compelling and complete model for Krombacher in 2010. All the parts were in place: a family owned brewery for over 200 years, the largest selling brand in its home country, great quality, a growing global presence, and most importantly, a major financial commitment to develop the US market.
Add in a highly experienced sales and marketing team and all the parts were in place for a successful brand development in the US. As we presented our five year marketing plan to distributors in targeted states, the distributor response was extremely positive, as was indicated by the fact that only two distributors rejected the brand in about 200 plus presentations. Even though there was no history for this brand in the US, with this type of commitment and support, why not take on the brand? After all, the appointment was free.
Carve-out provisions allow crafts (or others) to buy their way out of a distributors’ house. The price is usually set by a pre-determined multiple, coming from the state franchise regulations. The distributor was awarded the brand for free, made money on selling the brand, and then sold the brand for the multiple, based on sales the distributor built.
Like most states, the craft business in Texas is on fire. Millions have been invested to build small, but growing breweries. Many of these crafts decided to self-distribute, either because they could not find a distributor to take their brands, or because they believed self-distribution gave them the best chance to succeed. Either way, a number of the craft brands have been highly successful at self-distribution at the expense of existing distributors.
MC and ABI distributors, having watched many such small crafts get handles and grow, and are now chasing these brands. Such established distributors are presenting attractive business plans in hopes of partnering up. Some of these small brands have hundreds of handles, creating instant and profitable cash flow for the MC and ABI distributors. The initial work has been done, harvest the fruit!
Three craft breweries have sued the state of Texas over a recent law which prohibits crafts from selling their distribution rights. Distributors did not want to buy the rights from the breweries but still wanted to retain and have the right to sell said rights. The state legislator who sponsored the bill lost his reelection bid, in part due to the craft brewers’ effort to get him out. The crafts will now seek to have this law revoked.
So the question is: should distributors who lose brands due to carve-out laws and did not pay for them be compensated? Just like brewers who build their brands while self distributing and do not get paid for their distribution rights? How would distributors react to such a platform? They would probably react like the craft brewers who cannot get paid for their efforts and business. Distributors might be thinking we are afraid of the enormity of the possible…
Beer Fodder; http://www.npr.org/blogs/
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