Blog Entries in Category: General Blogs

Becoming a small fish

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Category: General Blogs

It’s an issue that a good many beverage companies have faced over the years, some with success, some with failure. And for those who haven’t yet faced it, somewhere deep down they probably have at least a passing wish that they will one day. The issue I am talking about is how to maintain your company’s culture when being swallowed up by a much larger company. What do you do when you find yourself suddenly a small fish in a much bigger pond?

The beverage world is notorious for putting companies in this position. Like a minor league ball player hoping to one day make it to the big time majors, many smaller beverage companies—especially in the non-alcohol space—hope to one day be bought out by a Coke or Pepsi. 

Our Disruptors ranking, which begins on page 27 of this issue, refers to several instances where this has happened. Mergers and acquisitions is a constant part of the beverage industry as many of the categories face maturity.

But how does a smaller company maintain its carefully crafted culture when suddenly being bought? One of the Disruptors on the list—in fact, our No. 1 Disruptor, Seth Goldman—has much experience in the matter. Honest Tea, which he cofounded with his partner Barry Nalebuff, was bought by Coca-Cola in March of 2011 after an initial 40% investment in 2008. At first, there were many concerns all around about what the joining would mean to Honest Tea. The company received its share of critical comments from consumers right off the bat, concerns that it had sold out, for instance.

While the relationship continues to be a work in program four years later—Honest Tea just this past year graduated from Coke’s Venturing and Emerging Brands (VEB) portfolio to its water, tea and coffee group, and as a result is now being included in plannograms with other products in Coke’s portfolio—Goldman did share with me some words of advice for other beverage entrepreneurs.

“First of all, I think it’s great that Coke has had the Venturing and Emerging Brands model,” Goldman says. “You often see companies that get bought where there is not really an infrastructure to support the brand or to help steward the brand.” By this he means VEB colleagues are able to deal with a lot of the bureaucracy of the vast organization that is Coke that otherwise he and his people would have to spend time focusing on.  “One good way to kill an entrepreneurial organization is to make them sit through meetings all day,” Goldman says with a laugh. 

The way Coke began as a minority investor in Honest Tea, and maintained that for the first three years, also wins high praise from Goldman. “It meant that we still ran the business with our own team in place and Coke was a supporter and followed the conversations and was an advisor, but they weren’t dictating how we did things,” he says. “Call it a dating period.” 

During this time, both organizations got to know each other closely and were able to scale the Honest Tea business as well. “So when it came time for Coke to exercise the option and to buy the company, we realized what we wanted the organization to look like was what it looked like. We didn’t try to change what was already working. This was a much more gradual exchange of DNA and I would say a healthier one, too.”  

Semper fidelis

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

A couple of months ago I noted that the breadth of available choices is what makes the U.S. beverage market—especially beer and spirits—the envy of the rest of the world. I witness this as a consumer, as much as I do as an industry observer. I frequent a lot of bars that boast, 25, 50, even 100 tap handles. Their whiskey lists are intimidatingly robust; I don’t think I’ll get to try half of the items on the menu in this lifetime. 

But is such on-premise abundance always a good thing? 

At many of my local haunts, it’s not uncommon for Monday’s chalkboard list of what’s on tap to look nothing like the one on Thursday. There’s a complete turnover. If you happened to like something you tried Monday night, you’re out of luck if you want to drink it again later in the week. And I’m as guilty of enabling this as anyone. My M.O., more often than not, is to try something new rather than default to the familiar. When there’s wait service, the server returns to my table and usually asks, “Could I get you another X?” My response tends to be, “No, this time I’ll have Y.” 

More than a few distributor reps with whom I’ve spoken have admitted that while it’s great that their on-premise accounts are eager to buy so many small, up-and-coming brands, it stresses their entire system to fulfill such variable demands so frequently. It’s not just a huge order of a handful of high-velocity SKUs anymore. It’s an epic series of micro-orders of much lower-volume products. 

Distributors, to their credit, have adapted fairly well to this new normal. 

The real potential casualty in all this, however, is brand loyalty. I know, I know, marketers always tell me “On-premise is where consumers experiment and off-premise is where they’ll buy the six-pack of the beer or a bottle of the bourbon they discovered during the course of their experimentation.” 

But shouldn’t we be worried that, essentially, on-premise is completely ceding any notion of brand allegiance to the off-premise? 

The craft beer world and now, to some extent, the craft spirits talk about the “wine-ification” of their products. The dark side of that dynamic is that when menus turn over so quickly to keep up with consumers’ brand A.D.D. (again, guilty as charged), bar and restaurant patrons are just going to order by style, not brand, as is often the case with wine. I.P.A. will be the new Cabernet. And don’t think that this behavior won’t spill over into the off-premise as well. It already happens off-premise with wine and I have witnessed it on occasion with beer and spirits. Consumer: “Do you have Russian River Pliny the Elder?” Retailer: “No, but we just got a couple of bomber bottles of this double IPA from a new brewery that just opened in Virginia.” Consumer: “Great, what brewery?” Retailer: “I don’t remember.” Consumer: “Whatever, I’ll take it.” 

And with that brief commercial exchange, another tiny nail is driven in the coffin of brand loyalty.  

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.