Blog Entries

Producers Great and Small

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Category: General Blogs  |  Tags: beer, alcohol

The beer industry is always trying to figure out how it can better emulate the spirits business. After all, distilled spirits volume has been growing steadily, while beer, overall, has been flat to down in most years. 

Last year, for instance, MillerCoors unveiled Miller Fortune, whose marketing directly targeted spirits drinking occasions by playing up its whiskey-like hue.

It’s true that there’s a great deal that macro beer can learn from the distilling community, but it’s got little to do with consumer usage occasions or image advertising. 

It was at the recent American Craft Spirits Association’s (ACSA) second-annual conference where a key difference between the beer and spirits categories became crystal clear to me: collaboration. 

The sometimes uncomfortable relationship that craft and macro beer share seems to make headlines every month. Industry observers may say that big brewers are finally embracing craft by acquiring small brewers. However, as the peach-pumpkin-flavored advertising misstep I referenced in last month’s column proved, the macros’ attitude toward craft is more a grudging acknowledgment than full-fledged respect and admiration. They’re making acquisitions because they feel they have to, not because they want to. 

But when it comes to spirits, there’s more of a cooperative dynamic beginning to play out between the mega-marketers and the burgeoning craft distilling segment. The Distilled Spirits Council’s (DISCUS) presence at ACSA’s conference in the event’s inaugural two editions has reflected that. But this year, a comment DISCUS VP for government affairs Michele Famiglietti made to the audience of artisanal producers perfectly encapsulated the relationship between big (DISCUS member companies) and small: “You are the face of the industry.”  When the DISCUS team meets with members of Congress, the first thing they usually ask is “Do I have any distilleries in my Congressional district?” The crafts are a huge asset in the talking points of an organization whose membership is largely composed of foreign-owned conglomerates. 

It’s odd that crafts don’t get the same recognition from the macro-brewers, which, after all, are predominantly foreign-owned entities. 

When it comes to public policy, Famiglietti noted that DISCUS “actively and aggressively” supports craft distillers’ efforts to get Congress to roll back the excise tax on small producers. Meanwhile, in the beer world, macros and crafts are competing for Congressional attention on the tax front. Craft brewers, led by the Brewers Association, have been lobbying for the Small BREW Act, while the large companies, represented by the Beer Institute, have been pushing the Fair BEER Act. The latter’s tax cuts apply to all brewers, macro and craft, while the former’s only applies to craft. 

The bigger issue is that the beer industry is not speaking with a single voice on Capitol Hill.  Getting on the same page, as the large and small distillers seem to be, enables the industry to present a unified front—which is more likely to generate results favorable to everyone. 

Small beverage producers have different needs than large ones, so it’s unrealistic to think that they’re going to agree on everything. But, as the spirits world already is demonstrating, there’s always some common ground to be found.

Taking Sides in ‘Tier’ Disputes

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Category: General Blogs  |  Tags: craft beer

Last month, the craft beer industry for the first time claimed a double-digit share of the beer business. That means that now one in every 10 beers sold in the U.S. are not produced by a big brewer.

Volume for craft brewers increased 18 percent last year, while overall beer volume grew by less than 1 percent. The number of craft brewers in operation similarly has grown significantly: 3,418 at the end of last year, according the Brewers Association, a 19 percent increase over 2013.

All of that growth has come to mean some political clout for craft brewers, where none existed just a few years ago. After all, in many states craft brewers are credited with leading a manufacturing renaissance. Craft brewing has equated to jobs and economic salvation in hundreds of communities across the U.S.

That clout also is leading to challenges to laws enacted in the wake of Prohibition, laws that established the three-tier system of producers, distributors and retailers of alcohol. Craft brewers say the laws have not kept up with the rapidly evolving market and need to be changed. On the other side, distributors say the craft brewers are trying to break up a system that has worked well for decades.

The particular local issues are complex and sometimes difficult to follow. Recent activities in two states are representative of the sides being drawn.

In Texas, craft brewers say they want to be able to sell beer to people who visit their breweries, like wineries and distilleries are allowed to do in the state. A legislative measure has been introduced to allow that. At the same time, a group of craft brewers have sued the state to allow more control over distribution, essentially overturning a 2013 law that prohibited brewers from selling distribution rights. Still another legislative measure introduced in the state would roll back the number of barrels that small brewers could self-distribute—from 40,000 to 5,000.

In Alabama, a bill recently was introduced that would allow brewers that account for 20 percent or less of a wholesaler’s total sales to amend, modify or terminate its territorial agreement based on the terms of a mutually agreed upon contract. The brewers say that the state franchise law effectively trumps written agreements between the between the brewer and the distributor.

Craft brewers in Alabama are also backing two other pieces of legislation that would create a license that would allow them to sell their products for on- and off-premise consumption and allow other rights.

In Texas and Alabama—and in many other states—the issues are real and the emotions are high. Have the franchise laws set in the post-Prohibition era kept up with the modern craft-beer era? Many have not.

Has the system establishing the distribution tier and franchise laws for alcohol served the vast majority of producers predominantly well for decades? Undoubtedly, yes.

As in all political disputes, compromise is what’s needed to untangle the issues. The phenomenal growth of the craft beer business is a truly positive development for the brewers and distributors alike. Let’s hope that politics doesn’t screw it up.

Dreaming in La-La Land

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Category: General Blogs  |  Tags: beverage

There was one quote that impacted me more than any other in the profile of Coke CEO Muhtar Kent that The Wall Street Journal ran on March 18th. It occurred during a section about a planned meeting Coke was supposed to have in Silicon Valley with the likes of Google, Facebook and other high-tech companies.

Of course, it piqued my interest when I read that sentence to begin with. Such meetings, after all, don’t happen very frequently in the beverage industry. While this industry is—slowly—changing, I think most observers would agree that it won’t win many awards for being on the cutting edge of technology. Sure, there are examples here and there of beverage companies that are embracing the latest technology—whether it comes to production, marketing, packaging what have you—but rarely these days are we being blown away by a technological breakthrough that we watched first emerge from the beverage industry. Usually, it tends to be the other way around. We in beverage borrow a lot from other industries.

Anyway, back to the quote. During the section on the meeting we learn that it ended up being canceled because Kent thought it more important that his people focus “on quarterly results instead.”  The article then continues, “In an interview, Mr. Kent explained his logic. Coke needs to equip itself with the “right technology,” he said. “But we can’t, you know, go and dream in La-La land.” 

If Coke fails to turn itself around, I think such, what I’ll label, short-term thinking, may have a lot to do with it. 

I read the Journal article having recently come back from what I guess could also be considered La-La Land—Los Angeles, after having attended the Natural Products Expo West. Yes, I will admit, some of the things I saw at the Expo were a bit ‘out there,’  but the immensity and excitement of this trade show is simply without compare in the beverage industry today. Heck, it even had mega-movie-stars pitching beverages! 

There is just no doubt that the beverages at Expo West, and there were plenty of them, are trendsetting and positioned where many of the younger, up-and-coming consumers are today: natural, transparent, healthy—and young. In fact many of the beverages at Expo West were either founded by young entrepreneurs or are brand new inventions of industry veterans who can see which way the wind is blowing.

Does Muhtar Kent see which way the wind is blowing? Well, he scores points for in 2011 going ahead and finishing the purchase of all of Honest Tea, a company I consider one of the most forward thinking in the beverage business today. But the “La-La Land” comment is reason to be concerned, especially when placed into context about focusing on next quarter’s sales possibly at the risk of losing sight of the bigger picture, as the Journal article so correctly suggests.

Less pump, more pop

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Category: General Blogs  |  Tags: retailing

When gas prices drop, as they have across the U.S. for more than six months beginning last September, convenience store operators brighten. That may seem counterintuitive given that about 84 percent of the 153,000 c-stores in the U.S. sell gas and that 70 percent of their sales are made at the pump, not inside the stores.
But c-store retailers don’t make a lot money selling gas; only about 30 percent of their profits are from the gas pump, according to the National Association of Convenience Stores (NACS). So when gas prices drop, a couple of things typically happen: people tend to travel more (and therefore stop to gas up more often) and, since they’re spending less at the pump, they have more disposable income to spend inside the store.
And what do c-store shoppers tend to buy inside the store after making a gas purchase? Most are likely to purchase beverages, according to a NACS consumer survey. Recent data supports that.
Sales of non-alcoholic beverages were up a strong 5.9% in c-stores in the final three months of 2014, according to a recent “Beverage Buzz” survey of 15,000 c-store locations conducted by Wells Fargo Securities.
Sales volumes for Coke, Pepsi, Dr Pepper Snapple Group and Monster Beverage Corp. all increased in the fourth quarter of 2014.
Beer dollar sales in c-stores were up a solid 4.0% year-to-year in the 12 weeks ending December 20, 2014, according to Wells Fargo in another report.
“It’s all about low gas prices with 100% of our contacts indicating lower gas prices had a favorable impact on sales relative to last year,” the “Beverage Buzz” report noted.
It went on: “The most notable impact of lower gas prices (and steady gains in employment) is consumers ‘treating themselves’ and trading up to higher-priced premium items in categories such as craft/import beer…that lend themselves to trading up.”
The data backs that up: In the same 12-week period ending Dec. 20, 2014, according to Wells Fargo, dollar sales for Constellation Beer were up a stunning 19.2 percent. Heineken and Boston Beer, too, saw double-digit sales growth during that period. Comparatively, sales for AB InBev were up just 1.1% and sales for MillerCoors were up 3.2%.
This “trading up” phenomenon in beverages isn’t limited to c-stores or to the beer category. The general growth and outperformance of premium beverage brands over regular brands across the board is significant.
Shifting consumer dynamics have a lot to do with it, with generally more disposable income as just a part of a much broader picture, as editor-at-large Jeff Cioletti found out in putting together this month’s cover story, “Top shelf  goes mainstream” on page 44.
“Cost is taking a back seat as premium-price-point brands are transcending socioeconomic boarders and connecting with a broader array of mainstream beverage buyers,” he points out.
Higher consumer incomes and employment, of course, can’t hurt. Neither can six months of fantastic weather. Now that’s worth dreaming about. BW

Of Bud and mud (slinging)

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Category: General Blogs  |  Tags: beer, brewing, craft beer

We’re already at least six weeks past the Super Bowl, so I’m probably the last person to weigh in on the brew-ha-ha over Budweiser’s “Brewed the Hard Way” ad—you know the one where Bud proudly owns its “macro-beer” cred and gets in a jab about “pumpkin peach ale.” But the ad’s still in fairly heavy rotation as of this writing and the chatter surrounding it seems to be lingering long after the Patriots’ last victory lap. 
It was the (some say cheap) shot heard ’round the craft beer world, which was predictably, but understandably up in arms.
I completely get where Anheuser-Busch was coming from with the ad’s tone. It was 100 percent in line with the brand’s personality and spoke directly to its target demographic. Bud drinkers are unapologetic about being Bud drinkers even when they’ve got a growing number of friends and acquaintances who make a sport out of bashing the brand and try to get them to drink craft (many brewers of which AB InBev now owns). The ad reinforces their Bud-loyalty and keeps them from straying outside the trademark. In politics, they’d call that “playing to the base,” which is exactly what A-B needs to do for a brand that continues to hemorrhage volume in the low single digits each year. 
The spot does make its share of missteps however—and, to be fair, it’s a tall order for all 60 seconds of any minute-long ad to be perfect. 
The obvious component, and the one that I am by no means the first person to highlight, is the “pumpkin peach ale” slam. While I’m sure it wasn’t the company’s intention, it comes off as a dig at a craft brewer it just acquired barely a week prior to the ad’s debut: Elysian Brewing Co. Elysian is well known for its diverse array of pumpkin beers (sans peach). 
And I’m not even going to get into the subtext embedded in “pumpkin peach ale.” Tonally, it equates such a style with being a “girlie” beer, which does little to reverse the generations-long trend of alienating women from the category.
The spot also does somewhat of a disservice to the brewers and QC staff of Budweiser itself. Saying the brand is not to be “fussed over” is probably news to the production team. The production team fusses over it plenty to make sure it is of consistent quality and flavor, batch after batch, year after year. It also contradicts the “Brewed the Hard Way” mantra. People should make a fuss over the end product of so much hard work. 
Oh, and one more thing about making things the hard way. Get any 100 craft brewers in a room and I’d be willing to bet that not one of them characterizes what they do as “easy”—especially when they’ve got a fraction of the operations staff that the King of Beers has on the payroll.  
To A-B’s credit, it’s a brilliant marketer and knows exactly who’s drinking and whom it expects to drink each product in an increasingly diverse portfolio. The company will do well to continue to play to those bases. However, to use another political analogy, the path without so much mud slung on and around it is the clearer path to victory. BW