May 052020

During college, while working for Willowbrook, the Dallas Coors distributor, some of my time was devoted to keg routes. This somehow “qualified” me to be my fraternity’s official keg buyer for our renowned Ice Cream Socials which entailed 15 kegs of Coors and 10 kegs of Budweiser or Schlitz. Thankfully for me, the pledges were in charge of returning the empty kegs and equipment.

Over the years, kegs have played a large role in the success of the companies I worked with, whether it was running beer distributorships or as an importer. At some companies, the kegs were as much as 40% of a company’s total volume, something that was especially true at Warsteiner. Kegs have always been a profitable item for the three tiers, particularly during the years that wholesalers and brewers did not split handles. Throughout my time at Schlitz in Louisiana, the company enjoyed a 70% draft market share, while in some parts of Kansas, Coors also benefited from a 70% draft market share. Today, one can find accounts with more than 100 different flavors on tap from a variety of wholesalers. Some large on-premise accounts, like the Flying Saucer, honor those customers who work their way through the brands on tap by placing an honoree plaque on the wall of the establishment.  

As important as the keg segment has been in past decades, the current Coronavirus pandemic might change that model. Closing the on-premise killed both that segment and kegs. The cost of closing kegs is now surfacing.  MolsonCoors’ Q1 results show kegs’ aggregate costs in the $50 million range, with an additional $18 million lost in finished keg inventories which are not expected to sell. As bad as MC’s results are, wait until AB reports on their keg losses and write-downs.  The question is: how does the industry evolve the keg segment now assuming the on-premise business will not return to its previous state?  One can assume that in the immediate future, the on-premise keg segment will be much smaller due simply to mandated capacity restrictions.  Expect that both wholesalers and brewers are creating plans to mitigate any future catastrophes. The financial losses are staggering.

Is it reasonable to believe that the PTR for kegs might double? If the current margins increase from 35% – 40% to 70% – 80%, or more for both tiers, any future disasters might not be as expensive. If the overall percentages of keg business drops to five percent or less, will that be considered good or bad? Even with keg cost increases; retail could add an increase of a dollar per glass and still provide a good margin.

Ordering a pint in the future might be getting a pint glass and a 16 ounce can of beer, while some enterprising retailers might create this program with a 19.2 can.  Even pint glasses may disappear and be replaced by 16-ounce plastic cups.  No kegs, no pint glasses, just a 16 ounce can and a plastic cup.  All of which could decrease the retailers’ overall volume, but increase profit and minimize future losses due to closing and the resulting loss of business.

It is fair to say that, at least in the short term, the on-premise business will change, and it may never return to its previous state. For hundreds of years this country has socialized in taverns, now we are socializing over Zoom.

The way prices are increasing, the good old days have passed us by.

Editor’s Note: During the past week, the industry lost two former Coors wholesalers: Willie Davis, the Green Bay Packers Hall of Fame football player and former President of West Coast Beverages, and R.D.Hubbard, the previous owner of Coors of Kansas, owner of Safelite Auto Glass and horse racing tracks across the nation.

I worked for, or with both gentlemen. They were special people and will be missed.

 Posted by at 6:00 am

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