I acquired Texas Beers in May 1981 and Schlitz immediately announced a general market price increase. As a new owner, this decision on the part of Schlitz, put me in an awkward position. Retailers would be pushing back at the idea of a new owner raising prices on their product. So, despite having a more than 40% market share, the increase caused me to be unsettled about the immediate future of Texas Beers.
Fortunately, AB, Miller, Coors and multiple other beers increased their price at the same time. Despite this small respite, I took steps to increase the Schlitz inventory in Texas Beers warehouses, while at the same time holding the current price. My competition however raised their prices. Remember, in 1981, retailers only changed prices when the product changed prices, so Schlitz was now one price point under AB, Coors and Miller.
Upon depletion of the current Schlitz inventory at the old price, I was forced to match AB, now, however, my sales had been soaring, and for the month of June I was the number one volume wholesaler in the state of Texas. Needless to say, all of those increases disappeared after the price increased.
Well after Stroh took over the Schlitz Brewery, and Stroh had terminated most of Schlitz support programs, including electronic media, the negative trends for Schlitz began accelerating. To change the Schlitz trends, Stroh repositioned the Schlitz brand by lowering the price, thereby making the brand price-point more regional than national. The consumer, unfortunately, did not buy into this new pricing and the rest is history.
A recent WSJ article entitled, Gillette, Bleeding Market Share, Cuts the Price of Razors, tells the story of P&G, who had purchased Gillette for $57 Billion in 2005. After 12 years of raising prices on their blades, Gillette decided to lower blade prices by 20%. Gillette razors had been losing market share for the last six years going from a 70% share in 2010 to 54% last year. Gillette’s market decline was attributed to their price increases along with the competition from Harry’s and the Dollar Shave Club both which cost much less per blade than Gillette. According to the WSJ, this price reduction would translate to a lowering their PTC to about 12% less than today. A question might be, where is the other eight percent going?
Both Harry’s and Dollar Shave Club now have a blade share of 12.2%, up from only 7.2% in 2015. This includes both in-store sales and on-line sales. One Barclay’s analyst believes it will be very difficult for former Gillette users to switch back from Harry’s or the Dollar Shave Club now.
To some degree the ongoing story of the Gillette blades parallels the last 10 years of AB’s model in the US. AB’s rapid price increases in all segments have driven their drinkers elsewhere. So the question is, should AB, unlike Schlitz or Gillette, continue to maintain their pricing strategy or slow down their price increases or even lower their prices? AB seems to be doing that with their price beers to generate summer volume. With these brands, they probably will have some success.
Looking back, Schlitz should have just maintained their premium price points and had all brewery, wholesalers and retailers make full margins instead of trying to save the brand by lowering pricing. At least all would have made more dollars.
Cutting prices or putting things on sale is not a sustainable strategy. On the other side, one cannot cut costs to save one’s way to prosperity…..