Mar 062018

It goes without saying that the purchase of the Miller Brewing Company by Philip Morris in the early 1970s was a major transformation in the beer industry.  Philip Morris used its marketing muscle, which had been so instrumental in growing their cigarette business, on their newly purchased beer company.  And the rest is, as they say, history.

The lasting effect of Miller’s sellout went far beyond the marketing prowess of Philip Morris.  This moment marked the transformation from breweries being family owned to breweries being owned by corporations and shareholders.  This business model changed the overall picture of how the industry functioned.

Prior to 1970, breweries and wholesalers were family owned.  Both tiers were on the same page with the same interests and same goals.  Philip Morris initiated that shift away from family ownership, but the full effect of corporate/shareholder ownership would take decades to manifest itself.  Even up until 2008, AB was run by the Busch family as a publicly traded company.  While the Busch family today is gone from AB, Pete Coors is still active at MolsonCoors keeping some of the family traditions alive.

These large corporate breweries today have a different agenda than the family-owned distributors of past years.  Even multi-state mega distributorships like Reyes, are still owned by a family.  Only Columbia in the northwest parallels the corporate ownership model.  Publicly held breweries have to answer to their shareholders and Wall Street.  Distributors only need answer to the family.

Executives at these corporate breweries are measured on their ability to increase shareholder value and dividends.  And often, these same executives are receiving their bonuses based upon the value they impart to the brewery.  If the value is not delivered; these executives do not realize their annual bonus, a figure which can be as much or more than their annual salary.

In a distributorship, as long as the family’s lifestyle is maintained, things remain status quo and all move forward.  Sure there is pressure to increase the profitability of the company, but to the family, there is always the next year.

President Trump’s announcement last week regarding his intent to establish tariffs for both steel and aluminum imports, as expected, has created concern in the beer industry.  If these tariffs go into law, then the industry can expect higher costs for cans, kegs, trucks and other equipment used in the beer industry.  This is not good news for the consumer as many of the increases will be passed on to the consumer.  When Bush the elder, broke his “no new taxes” promise and raised taxes on beer, the industry came to an abrupt halt and remained that way for years.

The corporately owned breweries will, without hesitation, raise prices; whereas the craft family-owned brewers must decide whether to raise prices and suffer the pushback, or eat the increased costs, and make less money.   Distributors see the situation differently, but ultimately it will have a negative impact upon their volume as well.  Just ask wholesalers from the early 90s. With the exception of the Modelo wholesalers, all had an increase in price.

Family owned distributors and craft brewers would rather wait, take a step back and see what will happen.   The corporate environment, on the other hand, will most likely rush to ensure their breweries hit their corporate goals.  Welcome to the corporate world!

The beer industry is one big family…


 Posted by at 7:00 am

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