Blog Entries

Three-Tier System: Keep the Baby in the Bathwater

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Category: General Blogs  |  Tags: beer, spirits

It always amazes me how quickly people are so ready to throw the baby out with the bathwater when something doesn’t quite work in a manner entirely favorable to them. I’ve been hearing/reading a lot of chatter, particularly in the blogosphere, where folks are taking to task the three-tier system, going so far as to say it should be eliminated. Excuse me?

Look, I am a strong proponent of franchise law reform. In some states it’s next to impossible for a craft brewer or other small alcohol beverage producer to get out of a draconian contract when the supplier/distributor relationship isn’t working out. Now that there are more than 3,100 U.S. small brewers, whose influence continues to grow, I’d like to see them effect real change at the state and federal levels.

But too many people—particular badly informed, one-sided bloggers—equate franchise law reform with dismantling the three-tier system. The two are mutually exclusive.

Ask most successful craft brewers (or distillers and wine makers for that matter) and many likely would admit—albeit sometimes grudgingly—that they would not have grown to the level they’ve achieved without the three-tier system and the work of distributors. Does that mean they shouldn’t be allowed to self distribute? Of course the should. Small producers that operate in states that permit self-distribution have been able to bootstrap themselves to a point where they got on the radar of wholesalers that have been able to help them expand to the next level. Most self-distribution has been out of necessity and once someone else is willing to take it over, the majority of small beverage alcohol suppliers are happy to be out of the distribution business. (Having said that, the three-tier system is far from perfect—at best a necessary evil.)

And about that 3,100 figure. There would only be a fraction of those brewers thriving in the market if there was no three-tier system in place. One need only look overseas for what could have become of the modern U.S. market (and actually had before Prohibition). Walk into an average bar in many European cities and your choices are limited, for the most part, to the products from one brewery. That’s the tied-house system still at work in those countries. The 21st amendment forbids that in the U.S.. And I think we’ve started to take for granted the diversity that our system has allowed us.

Our system is the envy of the rest of the world, by the way. And the U.S. craft movement has sparked revolutions around the world where small brewers are starting to squeeze their way into the market. It’s a little tougher for them to get into existing tied-house bars, so specialty pubs have started to pop up showcasing those small European brands. But those are still the exception and not the rule and still have a long way to go to achieve broader market exposure.

I’ll leave you with this thought. Just imagine an America where an AB InBev or SABMiller got into the pub and retail business and started buying up local watering holes. Then imagine what the array of tap handles would look like. Where’s that diversity now? 

When a HIT is a hit

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Category: General Blogs

Back in 2005 the multi-category beverage world was in full-throttle-development-mode, churning out products to satisfy rapidly changing consumer tastes. Which to say the industry looked a lot like it does today. 

In the midst of that hive of activity our editors were challenged by attempting to sum up the one or two—or even handful—of important trends that were shaping the beverage business. That’ when they came up with the idea of reviewing all things Hot, Innovative and Trendsetting—and the HIT List was born in our December 2005 issue. Besides wanting to be as comprehensive as possible, our editors set out to review the products and concepts that came along that year that were truly innovative, that weren’t just extensions of core concepts that came before.

Looking at that first HIT List today in some ways seems as though we’re looking in a mirror. Some of what we identified then were big ideas like: “The CSD redefined...As traditional carbonated soft drinks struggle to maintain their go-to status when it comes to refreshment, waters and juice marketers are adding some spark to their product offerings.” Sound familiar? The analysis continued that sparkling-based juice drinks were positioning as “upscale and healthful alternatives to the traditional carbonates. Now, a move toward sparkling offerings is poised to position bottle water as a direct CSD substitute.” That’s a line of copy that could be written to describe a dynamic of today’s beverage world.

Ten years ago we seemed to be prescient about some specific brands, too. When we identified “Modelo’s other brands” as a HIT we wrote, “It’s no news that Corona has been a powerhouse player as the No. 1 import in the U.S….that has spelled an opportunity for lesser-known siblings Model Especial, Negra Modelo and, to a more moderate extent, Pacifico.”  Today, after a very public change in ownership and distribution status, those very brands are among the fastest growing imports in the U.S.

Sometimes in the beverage world ideas fly so far under the radar, they never register as a HIT but they go on to become an unabashed hit in the marketplace. Anheuser-Busch InBev’s Rita franchise is one such example.

A-B began producing Bud Light Lime-a-Rita as a promotion for Cinco de Mayo 2012, with a production run to match the expectation of an in-and-out seasonal. That initial production run sold out before the holiday and after catching notice of Wal-Mart, well, the rest is history. Today, the brand is ubiquitous in advertising around sporting events like the World Series and the NFL. It’s given A-B a bone fide way to attract millennials more enamored with cocktails than beer, and a way to attract the elusive female beer drinker into the A-B fold.

The thing is, as sophisticated as A-B is, Lime-a-Rita wasn’t one of the company’s big bets, not a concept that they put their full marketing muscle behind at first. But today, the Rita brand is poised to surpass $1 billion in sales, the 17th billion-dollar brand for A-B worldwide.

No matter how you list it, that’s a hit.  

Don’t tread on me

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Category: General Blogs  |  Tags: soft drink

The Second Big Battle against the soda industry ended on last month’s election day, November 4, with one win for the industry—and a big loss. First, the loss: In Berkeley, California, 75 percent of voters said yes to a new penny-an-ounce tax on sugary beverages. And then there was the win: just across the Bay, in San Francisco, a similar vote to enact a two-cents an ounce tax on sugary drinks lost because it could not garner the two-thirds of votes needed to pass (though it did get 55 percent of the vote).

Now I call this the “Second Big Battle” because it comes on the heels of failed efforts last year by former New York City Mayor Michael Bloomberg to pass a ban on sales of some sugary drinks larger than 16 ounces. 

The Berkeley loss was greeted by some health advocates as a major victory or even a turning point in their battle against the industry. One of them, Jim Krieger, even called it’s a “breakthrough moment.” I am not so sure he is right. I think advocates may have overestimated this victory and may be in for a surprise in the coming months about how much opposition they,  and not the soft drink industry, end up generating among the American public. 

I feel this way because Berkeley has always been a unique place culturally, or perhaps I should better say, counter-culturally. Walk its streets today and it’s easy to feel like you’ve stepped back in time to the 1960’s—yes, it still even has hippies. It’s not hard to see why they embraced a measure that is so anti- business. 

But much of the country is not like that. They dislike big government telling them what to do even more than they might a big corporation. And restrict their freedom of choice and you have crossed the line. Case in point was the outcry that erupted in Westminster, Mass. in November when the local Board of Health held a hearing over a proposal to ban the sale of tobacco products. A public hearing had to be shut down after just 20 minutes because the crowd was so infuriated by the possibility of the government restricting their personal choice—and we’re talking tobacco here. 

In New York City, the soda industry cloaked its campaign against the sugary drinks ban behind a group that played off those anti-government sentiments. But New Yorkers, ever a cynical bunch, didn’t quite go along with it. But I have a feeling the industry won’t even have to go to that length in other parts of the country—like Westminster, Mass.—to defeat any proposals by government getting between them and their choice of what to drink.  

Some Choice Words

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Category: General Blogs

Full disclosure: I’m a devoted craft beer drinker. (Big shock).

I more than eagerly seize every opportunity to tout how beer consumers live in a time of unprecedented choice. That’s never more apparent than at the Great American Beer Festival (GABF) and this year’s edition was no different.

But it’s not just craft brewers that sample their products, as the likes of Pabst, Anheuser-Busch and MillerCoors tend to have tables and the awards competition features categories like the macro-friendly American Style Light Lager.

Of course, the big guys have been putting out craft-like brands, much to the chagrin of the small brewers.

I’ve tried to be Switzerland on the “craft” versus “crafty” debate, primarily because it’s really just semantics. I know what I like to drink and I know what I don’t like. I also believe that whatever brands I personally choose not to drink have a right to exist so other consumers have a chance to choose whether or not to drink them. (Having said that, I also believe in brands being upfront about their origins, enabling consumers to make informed choices.)

One of my more eye-opening experiences as GABF last month actually involved one of those large brewers playing in the craft sand box (or Sandlot in this case), Blue Moon—the MillerCoors brand that’s been singled out as a macro in craft’s clothing. Blue Moon invited me to its booth for a tasting and meet and greet with brewmaster John Legnard. I sampled some of the brewery’s latest, little-known limited offerings including First Peach Ale, a brown ale with a slightly tart peach note;  White IPA, a hybrid of a Belgian-style wit and an India pale ale; and Cinnamon Horchata Ale, which very closely mimics the taste of the Latin American beverage it emulates. Some of my fellow craft-devout might unfriend me for what I’m about to say, but so be it: They were actually quite flavorful. Blue Moon may not be everyone’s choice, and that’s okay. But it has a right to be a choice. If I had let geeky biases get in the way, I would have missed out on a fairly memorable malt-and-hops moment. Score one for cognitive dissonance.

You know what else has a right to be a choice? Macro-produced, corn-and-rice-filled light lagers. Celeb chef David Chang recently got lambasted by many in the craft community for a GQ blog entry in which he declared, “I love cheap, watery, swill.” Hey, to each his own. Time and place for everything, right? One of my own fond beer memories involves sitting on a rickety plastic stool in Vietnam, eating cockles grilled  on the sidewalk and drinking the local mass-produced adjunct-laden light lager…over ice! I wouldn’t make a habit of it, but, you know, when in Saigon…

Back in the states, the breadth of available choices is what makes the beer market here the envy of the rest of the world (at last!) The argument against the multinational brewing behemoths has been that for decades they’d limited the options available to consumers. I think it’s critical for those of us who champion the underdog (and yes, I include myself among those champions) to not do the same by begrudging someone a selection that might not quite mesh with our own sensibilities.