Apr 032018
 

As discussed in past articles, when I took over the Schlitz operation in 1981, the territory included a number of counties in far south Texas. Three of these counties did 95% of the volume.  In those counties, I had nine wholesalers competing within the same area: one Budweiser, one Miller, two Coors, two Lone Star, one Pearl/Imports, one Hamm’s/imports, and Glazers, who only had Heineken.

In the early 1980s, Schlitz held a +40% share of the volume which created a great deal of competition for the remaining 60% of the business.  Economic setbacks which occurred during the period made for an even more challenging marketplace.  Mexico had a major peso devaluation, oil embargos devastated the area, a region-wide freeze literally killed the citrus industry, and finally, Stroh’s purchased Schlitz.  The entire South Texas market shrank as unemployment rocked to 50%, all of which combined to drive distributor consolidation at a much-accelerated rate as compared to other U.S. markets.

Fast forward to early 2000, and there were only two distributors left in the South Texas market: the AB house, which now has a number of other brands and the MC house, now owned by Glazer’s beer division.  There is also a small craft distributor operation owned by Ben E. Keith.

Those key brands distributed by nine different wholesalers in the 80s are now housed in only two distributors.  This scenario is similar to other areas of the U.S., as brewery consolidation, along with the need for wholesalers to eliminate costs, has driven the industry in this position of consolidation.

Craft breweries have, for years, been upset at their inability to get to market in addition to the lack of focus by the distributors on their products.  Yet every year the industry continues to lose volume. Pundits target ineffective marketing, changes in demographics and aggressive marketing by the wine and spirit industries as reasons for the decline in beer sales.  In last week’s post, we noted the industry’s use of dollar growth as a major performance measurement versus volume growth as a measurement, which has been the standard in the past.

Pundits purport that for a craft to grow and survive the craft has to remain local and concentrate their resources in their backyard, and not expand into other states. Such pundits site lack of resources by small breweries and their need to concentrate their business locally.  These decisions are controllable by the small breweries.

A case can be made, however, that all of the industry consolidations have created a lack of in- market competition.  Consolations, along with the elimination of a vendor assigning brands to several wholesalers (example: how G. Heileman operated in the 1980s) necessitates that in order for a brewery to grow, said brewery must create a model which forces it to fulfill the role of a wholesaler’s sales team. In reality, this drains resources that could be used for marketing and above-the-line media spending.

For a wine and spirit wholesaler to grow without franchise protection, those companies have to execute against specific goals.  For breweries to grow, the brand building falls on the breweries shoulders’ to survive, something that is easier with a brewery taproom as its anchor.

Consolidation to the point of monopoly has never served the consumer – ever.

 Posted by at 6:00 am

  2 Responses to “Consolidating to the point of monopoly has never served the consumer – ever.”

  1. Geff,

    Lets have lunch soon! I enjoyed the article ..

    All my Best !

    JD

  2. Thank you Geoff, great post as always.

    One of issues here in my opinion, and I motioned this before, is that the brewing industry and all of its associations need to tackle the big elephant in the room:
    The three tiered system!

    One of the questions that come up in this regards is where are all those “craft brewer” associations? They are supposed to be the voice for small and independent craft brewers-right? Although they do a decent job in general, but it seems to me that this is not nearly enough.

    The three-tiered system in itself is completely antiquated and out of date and in need of real reforms. But apparently everybody is afraid to really tackle this issue from the top down. It could be done, it takes a concentrated hard core effort from everybody in this industry including all of those brewers associations and the brewers themselves to get things moving, but apparently its easier said then done.

    Maybe its time for the “craft brewing” industry to come together in new ways as one and address and tackle the big elephant in the room, the three tiered system.

    Just some food for thought.
    Cheers
    Peter Boettcher
    Master Brewer – Six-Sigma Black Belt
    Boettcher Brewery Consultant LLC
    Fort Worth, TX
    Email: peter@boettcherbrewconsult.com

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