We are all born ignorant, but one must work hard to remain stupid..

When Coors Brewery expanded their Texas footprint in the mid 1960s, the brewery approached each major market looking only for one distributor.  Prior to the 1960s expansion, Coors was only sold in El Paso and Amarillo.  Coors appointed a few distributors in small markets, Mineral Wells being one of them, but the company had only one distributor in Ft. Worth and one in Dallas.  Within 10 years, however, Coors was the number one volume beer in all these markets.

Ten years later, Coor’s second expansion in Texas, saw the Dallas distributor, Willowbrook, now close to five percent of Coors Brewing Cos. total volume.   Willowbrook’s large Coors volume made the brewer uncomfortable in that one distributor could represent such a high percentage of volume.  Given Coors plan not to have large distributors again, Coors appointed four distributors in San Antonio and four in Houston.

This plan was diametrically opposite of AB’s plan, which operated under the belief that larger wholesalers were better equipped to dominate their market, which was a strategy that worked for AB.  Four Coors wholesalers were too small to compete against the larger AB and Schlitz houses and Coors paid the price, as none of the four operations survived.

The AB model helped Budweiser grow, as both the brewery and their wholesalers dominated the US market.  In one sense, their size simply wore down AB’s competition.  In Texas alone, Silver Eagle in Houston and San Antonio; and Ben E. Keith and L&F in Dallas, were in the top five volume AB wholesalers in the U.S.  All of these AB distributors now have brands outside of the AB offering which have taken advantage of their market domination too.

When InBev took over AB, in reality the big asset was not just the brands, but also the AB wholesale network, which is considered the best in the country.  InBev quickly learned that they needed to work with their wholesalers, however, InBev had another agenda.  After 10 years, it is safe to assume that ABI is changing their tune.

The industry is watching how ABI handles the proposed merger of the three large mult-state AB houses in North Carolina, South Carolina and Georgia.  Just in the past several days. AB announced it will not approve this merger citing a number of concerns.

So the real question is: are AB’s concerns legitimate or is there another reason?  If the merger is approved, a real concern for AB could be what would happen if this new super AB house joined several other large AB houses, (perhaps BEK, Silver Eagle or L&F) and created an AB wholesaler group!  The volume these wholesalers would represent for AB would put AB on the defensive and give this proposed new group enough power to negotiate from true position of strength.

Many of the current AB houses were already in place when InBev took over AB, however, some houses, with ABI’s approval, have been created. This scenario, however, now seems now to be coming to an end.  These JV’s could be a serious threat to ABI, especially if current sales trends continue.

We are all born ignorant, but one must work hard to remain stupid….