Craft beer… the prettiest girl at the dance. Harry, Benj, Modern Brewery Age, Beverage World, Beverage Industry and everyone else and his dog have written extensively about where it is and where it is going. As usual, let me help clarify why. ;-)
First we need to understand that words are abstractions, they don’t necessarily exist in the real world. Thus the craft beer industry doesn’t really exist. Craft brewers yes… an “industry” not so much. So all this concern about where the industry is going is somewhat off the mark.
Each and every one of these craft brewers will do what they perceive is in their self-interest. That’s exactly what they should do. So for example when folks are wringing their hands over the explosion of craft brewing capacity they are talking about something over which no one has any control.As a mental exercise, let’s take a stroll and see what the Tragedy of the Commons can teach us. Haven’t heard of that phrase before? It comes from an article titled "The Tragedy of the Commons" by ecologist Garrett Hardin.
Hardin used an example involving medieval land use in Europe. The Commons was a “public” area where herder’s could graze their livestock. Since it was “owned” by all, no individual or group existed to look out for the best interests of the Commons. Thus it was in each herder's individual interest to let as many of their livestock as possible graze there.
Of course this will ensure the Commons is sooner or later overgrazed and damaged for all. But for the individual herders, for at least a while they receive all of the benefits from the additional livestock grazing, while the damage to the Commons is shared by the entire group. If all herders make this individually rational economic decision, the Commons will be depleted or even destroyed, to the detriment of all.
Now the craft beer business is not a limited resource like the Commons but the realities they face are similar in many ways. One can look at the landscape of craft brewers and see a very likely train-wreck regarding over-capacity. But who is going to pull back their expansion plans for the good of the “industry”? I can answer that… no one.
Much has been written about the issue of old craft beer and the damage it might do to the “industry”. Guess what, folks have discovered the wonders of pipe-line fill. It can make a business look incredibly successful (for at least a while), whether this is reality or not. All those warehouses and all that retail space adds up to quite a bit of beer… this is something the big boys discovered long ago. And if the beer gets old?... perhaps that’s not a worry of an individual craft brewer. And the damage it does to the “industry”… what “industry” is that? ;-)
KNOW WHO YOU ARE
Long ago in my MBA finance class we had a case study on a quickly expanding grocery/mass merchandise chain, a hypermarket. The case study was to analyze the financial-driven growth of this company… and the solution/discovery was that their growth was the only thing funding their operations… and once the growth slowed or ended, the company was not financially sustainable and would fail. Obviously rapid growth sooner or later hits a wall and down the company fell.
So my prediction on the craft capacity front is that a number of things will most likely happen to individual craft brewers…
· Some will hit the wall at high speed and meet an unfortunate end....fail to plan then plan to fail.
· Some will hit the wall at slow speed and will survive the experience if they get some well needed strategic and tactical help.
· Some will power through the whole episode and come out stronger and more profitable – these will be considered the smartest guys in the room – but remember as I’ve noted before, nothing wrong with a little luck to go along with their skill. However, if you can only have one, give me luck any day!
· Some might be able to cash out before the wall and possibly laugh all the way to the bank if they have value and brand equity.
And of course too many trade publication view things from a static perspective, but the tsunami is inevitable. Keeping up with change and paradigms shifts are critical… so the entire issue of what is a craft brewer is an ever changing one. Consumers don’t care if this or that company fits into this or that category. That’s not the way they think – and why should they?
Most importantly, one has to contend with a wide range of strategic and tactical options. Perhaps Company A wants to some day become the biggest brewer in the land. Perhaps Company B wants to ramp up as quickly as is possible (can you say fill that pipe-line) and get out while the getting’s good. Either choice is acceptable (as are hundreds in between) but your success is more likely when you know the exact path you hope to travel. Not that there won’t be surprises and adjustments as you walk that path, you just have to have the knowledge and flexibility to deal these too.
All you craft brewers out there… need some business development support? We can link where you want to go with how you will get there! Steve and I are now working with craft brewers to explore their options based on their unique situations. Give us a call and let’s talk about diving a little deeper.
ABOUT RETAILING
Perhaps one perceives themselves as a brewer, not a retailer. The next sees the craft beer-thing simply as the draw to fill their on-premise establishment (kind of like the strippers at a “gentleman’s club”). Note this doesn’t imply the retail-vision will produce lower quality craft beers, just that their strategic vision is different than those with a desire to be a brewer first and foremost.
And it can be quite a retail draw. A retail-focused craft brewer just opened up in my neck-of-the-woods and their business is incredible. They are only open limited days and times… but every time they are open, they seem to be packed. Anyone in this business knows that you can make a heck of a lot of money in a short period of time with a hot on-premise establishment.
In fact in many places in the country a push-back is starting from regular on-premise accounts from what they consider the unfair advantage the craft brewers enjoy via their tap rooms. The craft brewers (being the prettiest girl at the dance) often get special treatment for their tap rooms… most to their advantage. And of course since they make everything they sell, their retail profitability is dang high!
How long will it last? How high will it go? Heck if I know. But there is no indication it is slowing nor do I think things will ever go back to “normal”. This is a permanent change in the landscape. Lots of moving pieces and I’d guess there will be surprising winners and losers.
Some pricing changes are already occurring… in several places in the country major craft brewers are priced at parity with Bud/MC 6 pack bottles. Perhaps those $12 four-packs are going to find some pricing pressure? And of course volumes remain soft for the big boys (and quite a few others)… everyone is asking themselves if this will be the summer when serious price competition fires up.
What’s going to happen to those high prices and sweet margins the craft brewers (and their distributors) presently enjoy? From a distributor perspective, in MANY situations, those craft beer gross profit dollars are what is keeping you healthy. You might want to take an objective look at your business exposure. Our valuation services do just that and much more.
Just some things to think about as we go about our Commons and our everyday business.There was an interesting article in the 4/17/13 edition of the Wall Street Journal. If you subscribe, you can find the article here. The headline was “New Coke: Bottlers Are Back”
Basically the article was about Coca-Cola’s recent change in direction where it is now gradually getting out of the distribution business, again. Some quotes from the article explain this: (underlining and highlights are mine)
“Coca-Cola Co. likes to have its cake and eat it too.
That is why it sold its bottlers and then bought them back again. That is why it is now going back to the franchise model for distribution.
In a deal that would allow it to keep vast amounts of control over its business, Coke said it reached an agreement in principle to expand territorial distribution rights to five independent bottling partners. That would reduce Coke's direct control over its U.S. distribution only to about 75% from 80% currently. The company said more such deals are on the way as it backs out of the delivery business.
"You need to walk before you run,'' said Muhtar Kent, Coke's chief executive, in an interview, of the step-by-step approach.
In 2010, Coca-Cola Co. paid $12.3 billion to buy its biggest U.S. bottler in order to secure control of most production and distribution in its home market. Now, this latest approach will allow it to keep production of popular brands including Sprite, Powerade, Minute Maid and Coke in-house but gradually parcel out distribution once again.
The move is a delicate balancing act by Coke, which is trying to keep a tight grip on how its drinks are made and sold while shedding the capital-intensive business of maintaining delivery trucks, routes and warehouses. Coke also is seeking to boost sagging profit margins in the U.S., where soda consumption has fallen eight straight years.
Coke's share price surged 5.7% Tuesday to close at $42.37 on the New York Stock Exchange as Wall Street applauded the model even as the company reported a decline in first-quarter profit and revenue.
The Atlanta-based company's move could prompt PepsiCo Inc., PEP +4.13% its main beverage rival, to speed up its own review of its operations. PepsiCo paid $7.8 billion in 2010 to acquire two large independent bottlers, also giving it direct control of most of its U.S. beverage manufacturing and distribution.
Coke currently has about 70 small bottling partners manufacturing and delivering about 20% of its drinks in the U.S. Tuesday's announced deal would increase the scale of five of them…
But unlike past distribution deals, some of which stretch back generations, Coke isn't giving the bottlers perpetual rights to the new territories. Instead, bottlers would be given 10-year licenses for any new real estate, which then need to be renewed. The initial deals with the five bottlers aren't expected to close until 2014.
Mr. Kent said a lot has changed since Coke began striking U.S. distribution deals for its famous cola roughly a century ago. At the time, territories were determined by how far horse-driven carriages could travel in a single day. The new distribution deals are "moving us into the 21st century,'' he added.
Selling off distribution rights could earn Coke a lot of cash. Consumer Edge Research estimates that the 80% share of U.S. distribution rights currently owned outright by Coke to be worth around $9.5 billion.
Coke isn't ready to surrender control over manufacturing, though, planning instead to further integrate bottling operations around the country. Manufacturing of Coke products currently is spread over hundreds of facilities.
Mr. Swartzberg said he wouldn't be surprised if Coke eventually also sells majority stakes in the manufacturing part of the business a few years down the road.”
My first reaction is to notice that same old big business trend… new management has to do “new” things. Team X comes in and decides outsourcing is the key… after they leave Team Y comes in and decides insourcing is obviously the right call. Can’t just stand there, you’ve got to do something!
But this change is pretty big news. Coke has found (and it seems Pepsi might be following) that the distribution end of their business is better done by others. I completely understand their desire to control the production (it is after all THEIR product) but they have found the “capital-intensive business of maintaining delivery trucks, routes, and distribution” is perhaps not their strongest suit.
Soft drinks are like beer, they require a lot of feet on the street and a smaller, more local private company driving this effort seems to be a superior choice. I hope some of those craft brewers think about this… are they craft brewers or are they distribution companies who happen to brew beer? Strategically these are WAY different beasts. Et tu Brito?
In fact in other parts of the world, Coke has already divested itself of both distribution AND manufacturing… they let other specialists take care of that. They want to retain control and make money. Pretty simple.
Also interesting that these franchises aren’t perpetual but rather with a fixed time frame. Coke wants to ensure IT ultimately controls them, regardless of who actually owns the thing. Again, I understand their desires. Might we see something like this taking hold in the beer business? I’d be surprised if we didn’t.
Of course there are many differences between soft drinks and beer but as many organizations have found, specialization often leads to better performance. Let the local guys deal with the warehousing, delivery, and merchandising needs (by definition these are local activities, they must be) while the big dogs focus on getting a great product produced and marketed. Then pass the ball to the local guy and let them take it to the street.
Sure makes sense to me… and obviously to Coke and Pepsi too.
By Stephen Cook, CMC
Great Lakes Consulting Associates, LLC
www.BeverageGuru.com
The nature of consumer goods and the dynamics of the supply-chain continue to tax our abilities to effectively manage and concisely communicate. For the beverage industry consultant, using numerics to identify opportunities by developing illustrations is a must have for our “chief” kit. How better way to get your point across then by “painting with numbers.” Don’t believe it? Consider this.
A long time ago while at home in NYC, I was watching John Gnagy, America’s pioneering television art instructor. I remember thinking how creative and impactful Gnagy’s visualization process and comments were. His audio-visual process was incredibly effective in translating his vision into a reality that was easily understood by viewers. Just how good was it? He was chosen as the first performer, on the first show on the day the TV broadcast antenna was completed atop the Empire State Building in NYC. This self-taught “blacksmith” of art went on to become one of the country’s greatest audio-visual educators by teaching drawing art, yes drawing and art, to millions of viewers. Gnagy’s success focused on breaking down the drawing process into fundamental elements and developing a quick, easy and proven method to learn through visualization and communication.
Our valuation methods and process are very similar to Gnagy’s approach. The process addresses the fundamentals, namely, the business components that drive cash flow and the overall value of the enterprise. We keep it simple yet effective and compare our clients operating financials to a pro-forma template that is organized, easily understood and presents a clear of picture of the business. Just like Gnagy our “painting with numbers” methods are proven and provide high value by visually translating and clearly communicating the current and longer-term financial realities of your business based on size, region, product mix and financial performance.
As the pressures of consolidation continue to diminish (estimate over 80% domestic volume consolidated), we are finding more clients interested in a less formal valuation process and an updated financial review. Our high value-added strategic planning approach to company valuation aligns well with the ever-changing market needs for many of our wholesaler clients by identifying areas of financial strength and weakness; providing a clear picture of what the business looks like; and ensures our clients are focusing on the right priorities and business drivers which convert into increased value of the enterprise.
A valuation process of this nature is about more than just providing “a number”. It is about enhancing your planning process by providing expert insights into sales and operational areas of improvement throughout the company. Deliverables include financial-based analyses of your entire company AND an industry performance comparison AND projections of sales revenues and operating expenses based on current activities and trends. This is a battle-tested executive management tool which could be a vital part of your strategic planning session.
The Proposition, from both a strategic and tactical standpoint to wholesalers:
Can you afford NOT having an updated valuation profiling of the enterprise and NOT use the results in your planning process? KNOWING MORE, ABOUT YOUR COMPANY, THAN POTENTIAL BUYERS, SUPPLIERS, COMPETITORS OR CUSTOMERS IS JUST GOOD BUSINESS PRACTICE!
Give us a call if you would like to discuss further. Looking forward to everyone having a great and prosperous year.
Had quite a few responses to the last post on brand and line-extensions. So I thought I’d talk a little more about this explosion of brands and the operational realities this creates. The constant evolution of the beverage scene will continue to put stress on strategic planning and proper resource allocation. There is no room for complacency. The game is from here on out.
AN ENVIRONMENT OF CONSTANT CHANGE
I admit I’m getting old but I well remember driver-sell days. Can you imagine trying to sell today’s product line via driver-sell?! I would pity the poor driver who had to try to come up with that day’s load. Yikes indeed.
We live in a world with an explosion of suppliers and brands and packages.
As some of my responses noted, this is simply the new normal so you might as well get over it and get out there and sell. Never forget the advice from that old guy (104 years old) “Was ain’t is”.
THE NEED FOR ORGANIZATIONAL FLEXIBILITY & PLANNING
Many companies have responded to these changes by adding a few of these over here… and modifying some of those over there. Over time, these individual responses to a rapidly changing market often become inefficient and less effective than desired.
Why? Well, remember your company is an integrated complex system. It is a living, breathing organism whose performance is directly affected by the relationship and ability of the parts to communicate and work to a common goal. It is not the sum of a bunch of different parts. The better all aspects of the system work together, the better the system will perform. Having parts which are not in harmony is not only inefficient; it can be very frustrating too. Think of an engine whose timing if off, the system will not perform well no matter how hard one tries. And it will most likely take even more effort (and $$) to obtain this sub-par performance. A Lose-Lose situation.
These market-based organizational modifications are well and good if part of a larger strategic and tactical planning process. Otherwise it can cause a lot of organizational stress. Occasionally, one needs to step back from this and with the management team look at the company completely anew… the roads are where the roads are. The bridges are where the bridges are. The retailers are where the retailers are. Other than that, everything can be changed.
The answers to these questions should drive the planning process: Who are you? Who do you want to be? What market realities do you confront? What are your organizational strengths and weaknesses? What threats and opportunities present themselves? What are your options? Where is the company going? Is that where you want to go? How will you get there?
A HIGH RETURN ON YOUR INVESTMENT
Now I’m biased in this but I firmly believe my or Steve’s presence in this process greatly helps ensure a better, more effective and efficient solution. You and your management team know each other very well. Sometimes that’s good but sometimes it is a hindrance to creativity. You all are well aware of the other’s thoughts, biases, and BS. Often important issues aren’t even discussed since everyone already knows everyone else’s opinion. Necessary and vital discussions don’t occur since they lead to the same dead-end… why go there for an unproductive exercise in frustration?
Perhaps you need someone with new BS ;-) That’s me.
Although you and your management team are the experts in your specific marketplace (and if you aren’t there is little I can do to help you), Steve or I perform a critical leadership role in the strategic planning process while providing the organizational design expertise (based on hundreds of wholesaler and supplier engagements) to meet your ever-changing needs. Together we create a better, stronger team. I’m the agitator who changes the dynamics of this mental process. And when we’re done, I leave as does my cost.
I firmly believe there is tremendous value (and team building) in the planning process. Most management teams learn to love me right away. I’m about identifying problems and SOLVING them. In addition, I generally can give the boss more grief than they can comfortably do ;-)
My attitude is you are paying me for my advice and insights; therefore I am obligated to provide them. This type of true unbounded communication rarely occurs without the presence of an outside agent of change.
As an additional benefit, I help owners better understand their team and I help managers become better at the art of management. This last point is not a minor one. Your managers and supervisors are the tactical players who guide the battle… the better they are at managing, the better your performance on the street and on the income statement.
Not to brag ;-) but your entire organization will be better because of this process.
The best time to do things is the present. Take good and make it better. Take great and drive it to a higher level. But don’t wait for pain to force this mindset. Instead embrace it as a positive and rewarding constant. Let us work with you, your management and staff to design and implement a continuous improvement process.
Take a week or two and re-imagine your company with our assistance. You won’t regret it… but then again, I’m biased. ;-)
Give me a call or email if you would like to discuss this opportunity.
When I speak to state associations I often stray off into the weeds and find the Simpson’s cartoon character, Krusty the Clown. Krusty is a shameless shill who will put his name on any product… and I mean ANY product. All of them being of rather dubious quality.
A tale of two strategies
I use this amusing – hopefully ;-) illustration to make the point on the difference in strategy between MillerCoors and ABI as they roll out new products. MillerCoors has historically been hesitant to do line extensions, especially on major brands. ABI has no such qualms. First a disclaimer… I use Krusty as a humorous example, not a reflection of quality. ABI and MillerCoors produce GREAT products of the highest quality. They all may not be your cup of tea, but the quality is always world-class.
But whose strategy is “better”? That is easy… the one that works the best. Although Brito never did seek my advice prior to the acquisition – his loss ;-) I’ve always thought they saw more value in the brand names than did others (both for the US and world-wide markets). Yes of course they saw a shockingly corpulent cash cow but I think they also felt the value of the brand names was not completely reflected in the stock price. My gosh, it wasn’t that long ago that one in four beers consumed in this country was a single brand, Budweiser. THAT is a mega-brand. And this fact was reflected throughout the marketplace. How many distributors are named “Budweiser Distributing" or "Bud of …” rather than “Anheuser Busch Distributing”?
Therefore that they have proceeded with a line-extension strategy (ala Krusty) is not really too surprising. In the past many producers have been wary of line-extensions (especially for major, important brands) and feared the potential risk of losing total market share based on several factors including:
In the past these may have been true (and of course anything taken to excess will have negative repercussions) but I think they are less true today.
Today’s beverage consumer is used to (expects?) a lot of brands. And these brands often come and go. The negative impact of a “failed” brand extension is more often than not, simply not noticed by the vast majority of consumers. And let us not forget the long and twisted path that got us to Bud Light (and others).
So I think the downside of well-executed brand-extensions is much less than many think. It seems to me as if ABI is building the Bud Light brand into a mega-brand name under which various other products are grouped. Obviously you have the various beer line-extensions but you also have Bud Light Lime-a-Rita, Bud Light Lime Straw-Ber-Rita. Some might ask what does a ready to drink margarita-in-a-can have to do with Bud Light… but this is an extension of Bud Light Lime.
They are doing the same with the brand Budweiser but for now are keeping the extensions down the beer lane. I’d have to guess this might also change. These names give instant recognition to these brands. At some point do these extensions begin to take a toll on the strength of the brand name? Perhaps. But if enough are hits, I think they will over-shadow the losers… and as noted above, today’s consumer doesn’t seem to really care about (or keep track of) of disappearing brands.
In addition, I believe another factor in the ABI brand strategy is control of “their” distribution network. There is only so much time in the sales day (and only so much room in the warehouse) so these brands have the added benefit of forcing these wholesalers to spend limited time focusing on ABI brands rather than chasing the next hot craft beer. Brito and the guys are pretty good at strategy and this must be one aspect of it. I sure haven’t seen any ABI distributors dumping brands to grab that golden ring of Anchor Wholesaler. So this achieves the same distributor network goal…control; whether the distributors want to play along or not.
Now MillerCoors has been much more careful with their brand names. Sure they do things with Genuine Draft… but let’s get real. That’s not much of a risk for them. For them the big dogs would be Coors Light and Miller Lite. They (or Miller) have put the Miller name on various products (and might be planning to do it again soon) but the Miller brand name is not remotely the Budweiser brand name. Or at least that’s my read of the marketplace.
MillerCoors is rather attempting to build completely new brand identities based on differentiation within the portfolio. In some ways this makes sense especially when we are seeing an explosion of new craft - and crafty ;-) brands. People are trying new things… looking for new tastes, new emotional bonds… so customer trials should be pretty high. And perhaps those hapless consumers will be fans of the product before they discover it is really brewed by MillerCoors. And of course once a few of these brands are successful, they provide new avenues for THEIR own line extensions. Over the course of a decade or so, this “multiplier affect” could prove to be substantial. So one could go with a new brand building strategy and then roll into a line/brand extension strategy to capitalize on these successes – assuming there are any successes ;-)
And of course there is that old saying, “don’t put all your eggs in one basket”, so there is perhaps some strategic protection from these multiple new brand platforms.But ultimately I think the different strategies reflect the different realties ABI and MillerCoors face. The strength, breadth and reach of their brand names are as diverse as their brand strategies. Their power (and space) at retail is simply not the same. Just think of the strategic impact of space at retail. In many high market share markets, one could argue ABI has too much space for various brands. These line extensions allow them to keep this space/handles (and from their perspective, hopefully grab more) rather than allowing the competition to make the argument to cut their space. MillerCoors on the other hand generally losses the space battle (this is the definition of a zero-sum game). So if they do a line extension, is the retailer more likely to demand that they squeeze it into their present space? Or if they come with a new brand, are they more likely to take some of that “extra” space from ABI? There are a lot of moving parts in these analyses.
MillerCoors long ago accepted the wisdom (or is it the reality, whether they liked it or not?) that they are best served in a multi-brand distributor. AB and then ABI have never accepted this (nor do I expect them to do so in the near future).
The importance of supplier/distributor alignment
The best strategy always is based on the realities one faces. These two face different facts on the ground (and different goals via distribution) and thus their individual strategies for brands (and many other things) will by necessity be different. Only time will tell which is the “best” strategy. My guess is that both will be successful. This isn’t an “either/or” situation.
Work hard my friends, stay the course....THE BEST STRATEGY WILL ULTIMATELY BE THE ONE THAT GAINS THE BEST ALIGNMENT OF THE THREE TIERS TO MEET CONSUMER NEEDS. Don’t forget who is driving the bus!
As a side note, I’ve heard from many ABI distributors that they do like some aspects of ABI’s brand creation. In the past AB would study the hell out of some new product idea before they even considered taking it to market. This created a lumbering process where new brand introductions were very slow (and costly). Under Brito and company they do a quick study and if the results look good, they roll. Saves money, gets the product out there for the consumers to decide, and keeps “their” distributors hopping on THEIR products. Pretty good strategy indeed.
Would Krusty approve? I think he would give it a hearty, “HEY HEY!”.
I had planned to use this post to discuss the strategies and risks behind line-extensions... but the following was just published at National Review Online and it is a must read. I couldn't agree more!
You can find the original link here,
http://www.nationalreview.com/articles/343680/cheers-drinking-reform-charles-c-w-cooke?pg=1
And here is the wisdom of Mr. Charles Cooke...
Cheers for Drinking ReformAlcohol occupies a peculiar position in the culture of the United States. Like so much else besides, it is subject to the ongoing brawl between puritanism and libertarianism, two philosophies that have long jockeyed for dominance here. Americans have made many contributions to the bar — including the perfection and popularization of the cocktail. But puritanism has survived, enjoying a rich history of its own. Benjamin Rush’s inquiries into alcoholism spawned a variety of anti-alcohol movements at the outset of the new republic; in the 1850s, “temperance” overlapped uncomfortably with the Know Nothing movement’s distaste for secular principles; and in the 1920s the 18th Amendment was passed, in part on the back of widespread mistrust of immigrants and the drinks they brought with them. The role of alcohol in society, remember, is the only such question ever to have been placed within the U.S. Constitution. Nowadays, the folly of Prohibition is widely known. But in practice it still obtains for some, as a deviant exception to the rule of adulthood.
In the United States, we treat 18-year-olds as full citizens. At this age, a man may vote and he may serve as a juror — or he may search for excuses as to why he should do neither. He may smoke cigarettes and fly an airplane. He may get married, or he may eschew that road in favor of pornography and promiscuity. He may enter into contracts, max out his credit cards, and run a business into the ground. He may join the military, putting his life in danger. In some jurisdictions, he may run for public office. Less welcome but no less real are the opportunities to be executed by the state for capital crimes and to sign up for the Selective Service. But what he may not do — in any of the fifty states — is walk to a bar and buy an alcoholic drink. This is nonsense — an aberration from the usual rules. What sense does it make to deprive an adult of just one feature of adulthood, and why are the arguments in favor of doing so taken seriously?Lobbying the federal government in the 1980s, Mothers Against Drunk Driving claimed that there was a connection between young-adult drinkers and the worrying number of deaths caused by drunk driving. Their evidence is by no means indisputable. Traffic fatalities in the 1980s decreased considerably less after the drinking was raised than they did during the same period in Europe, where drinking is common at 18 and below; and, as the research of Harvard’s Jeffrey Miron shows, the “drinking age does not produce its main claimed benefit.” But, arguendo, let’s presume that MADD was correct. A bigger question would still remain: If practicality wins out in that arena, why is it alone? Why is William Pitt’s “Necessity” justifiable as the “plea for every infringement” in this domain but not in others?
Should we perhaps raise the marriage age or age of consent to 21? And if not, why not? After all, young people often think they are in love when they are not, and young lust can lead to inordinately bad decisions. (Just ask Romeo and Juliet.) Should we make home ownership illegal until one has 20 years and 12 months under one’s belt? Again: If not, why not? Perhaps our young people need a little time to rehearse in the marketplace before they make the biggest financial decisions of their lives? In fact, given that purchasing a house is top of almost all common stressors, one might classify being forced to navigate the mortgage market while sober as cruel and unusual punishment.
The answer to these questions is that there already exists a cutoff point beyond which your personal choices are deemed to be nobody else’s business. The rapper and producer Dr. Dre had, he said, “a house, a Mercedes, a Corvette and a million dollars in the bank before [he] could buy alcohol legally.” This inconsistency is grotesque. Are we to indulge an arrangement by which a father might say, “I’m really proud of you for joining the military, son. But don’t you dare have a drink”? In Personal Reminiscences, Robert E. Lee quotes Stonewall Jackson as having claimed to be “more afraid of alcohol than of all the bullets of the enemy.” That was certainly Jackson’s prerogative; alcohol, like so many things, can be terribly destructive. But recognition of this is neither basis for wise law nor sufficient reason to deprive young adults of their choices. Guns are destructive, too. Smoking is destructive. Paint thinner is destructive — I would buy a round for the first politician who defended the notion that the state should insist on age limits for the patrons of Home Depot.The 26th Amendment lowered the minimum voting age from 21 to 18 and, in doing so, corrected the untenable incongruity of 18-year olds’ being drafted into the military and sent to fight in the jungles of Vietnam but asked to wait three years before they might cast a ballot. In the wake of the change, with 18 set as the new yardstick, a majority of states saw fit to lower their drinking ages. Between 1970 and 1976, 30 did so. This logical trend was cut short by federal overreach. And what an overreach! Under the provisions of the Federal Underage Drinking Act, any state that holds out and allows its resident adults to enjoy a drink before they reach the age of 21 will be punished with a 10 percent decrease in its annual federal highway funds. This is no less than legalized bribery, one of many means by which the federal government circumvents the restrictions imposed on it by the Constitution and buys off the states. That since 1988 not a single state has told the feds to bugger off and mind their own business is a testament to the craven, upside-down nature of modern American federalism. (Also to the tyranny of self-interested majorities: Whatever demographic changes are visited on the United States in the years to come, we will likely not see an electorate that cares that much that people 18 to 20 years of age are deprived of the opportunity to go drinking
The law is an ass, and it is faithfully treated as such. Winston Churchill, who, having “taken more out of alcohol than alcohol [took] out of [him],” would no doubt have opposed the status quo on libationary grounds. But Churchill also wisely counseled against contriving a legal framework that undermines respect for the law. “If you have ten thousand regulations,” he enjoined, “you destroy all respect for the law.” Quite so. With the exception of the equally asinine laws against marijuana, it is difficult to think of another law that has become such an open joke among those at whom it is aimed. It’s not just the drinking bit: We introduce our citizens to the responsibilities of adulthood by encouraging them to get their hands on — and casually and routinely use — false identification documents. This in turn causes the purveyors of fake documents to proliferate and pushes them into the mainstream.
Drinking Reform has few public champions, which is a shame, because the issue presents those who habitually exalt limited government, individual liberty, and the rule of law with a golden opportunity to prove them congruous. Truth be told, it should be a libertarian’s dream issue. Why haven’t prominent figures picked it up? Benjamin Franklin said that beer was “proof that God loves us and wants us to be happy”; he also warned that the United States would remain a republic “if you can keep it.” Federalism’s advocates are missing an opportunity to demonstrate what happens to republican principles when the federal government gets too powerful. What better way than a call for the repeal of the Federal Underage Drinking Act to introduce to the young people of America both of Franklin’s principles at the same time?
— Charles C. W. Cooke is an editorial associate at National Review.
News flash… it have been scientifically proven that Conlin is NOT watering down his rants! Whoever starts rumors such as this should be horse whipped, and I know just the horse to do it.
So let’s start with that class action lawsuit against ABI.
A classic: the cart before the horse
First, who was the judge who approved the class action status? An attorney doesn’t make that decision… they can ask for it but a judge has to grant it… why on earth would a judge grant class action status to such a flimsy action? Why not let the plaintiffs first provide the hard evidence that this nefarious “watering down” was actually occurring? Why let the damage to ABI happen (and which they all know will happen) before, SHOCKINGLY finding that the claim doesn’t hold up to testing?
That is of course a rhetorical question… that a judge makes a stupid decision is like a “dog bites man” story. Sadly very common.
But in the Sunday March 3rd Denver Post, ABI felt they had to respond to this dubious charge with a full page ad touting all the water they have canned/bottled for disaster relief… with the tag line “they must have tested the wrong product”… above a picture of their canned water. The ads ran in the Houston Chronicle and the New York Times among others too. You can see the graphics and a short story here, http://blog.chron.com/beertx/2013/03/anheuser-busch-punches-back-with-ad-campaign
A couple things on this story… The Popular Science website ran a story titled, BeerSci: Is That Water In Your Pint Glass? Anheuser-Busch is being sued for watering down their beer, but there's a way to test for that.
Which you can find here, http://www.popsci.com/science/article/2013-03/beersci-water-your-pint-glass. As they note, for $100 this claim could have been tested before a class-action lawsuit was started.
Searching for truth and objectivityFor those with an inquisitive mind I have a project… use any search engine and search for articles on this ABI watering down its beer story… use whatever words you think will work. You can skip the articles (and there are MANY) but make certain you read the comments. Read at least a few article’s comments… in a short period of time you can get a pretty good idea where the beer industry is today… and it ain’t pretty for any of the mega-brands.
If anyone thinks the craft beer craze is slowing or is only a short-term aberration, these pages and pages of comments will dissuade you of this foolishness. If ABI and Molson Coors and SABMiller only got their revenues from the US market, one would be wise to short their stock. You will be hard pressed to find ANY commenter supporting these companies or their brands.
Luckily, you all are distributors so continue what you are doing… offering incredible value to every craft brewer out there… and in realty, offering incredible value to every supplier you carry. The future for the light mega-brands is going to be one of tough sledding. And my gut says the odds of some young craft beer drinker switching to Bud Light or Miller Lite or Coors Light AT ANY TIME in their lives is incredibly small. Just ain’t going to happen. Not that these drinkers won’t necessarily drink products from the big suppliers (but many never will)… but that most will likely NEVER drink those products. At least that’s my crystal ball.
Want to save some dollars and get better results in keeping track of this industry?
Did you know that by using the power of the modern search engine you can get free, broader, more objective perspectives than many (all?) subscription industry publications. You can typically get better, more timely, unfiltered information delivered to your inbox as often as you desire. In today’s world why let someone else determine what is news and what isn’t.
For reference, Google has what they call Google Alerts (and many of the search engines have a similar feature). You enter in a key word or two and anytime that word/phrase is in a story you receive an alert with links to the stories. I use a lot of alerts… ABI beer, MillerCoors beer, beer distributor, beer wholesaler, Anheuser Busch, Conlin Beverage Consulting, John Conlin, etc.They all do a great job too… you only get the best results… you’re not inundated by a ton of stuff, just fairly targeted, very timely news on what interests you. With some well-defined alerts, in 15 minutes of reading you can be on top of everything happening in this or any other industry. And if you find you get a bunch of stuff that is not what you are looking for, simply fine-tune your searches.
In effect these search engines allow you to create your own personal, industry-specific newsletter. You can go as deep or as wide as you desire. All with very little effort.
In fact I found that link to the newspaper graphics via an alert… it was the first link in an alert for “Anheuser Busch beer”!
If I were a distributor, in addition to the broader industry-related alerts, I’d probably have alerts for every brand and supplier I carry… in addition to my company name. That way I will always know what is being written about them (and yourself). You can perhaps spot trends before they become well-known. In today’s connected world, why let anyone be a gatekeeper on information? As you are well aware, the Internet is changing business models across the globe… it’s doing the same here. If you desire, you can easily control the flow of information and manage it to your desires. No one else needed. And you don’t have to be an Internet wizard to accomplish it.
And of course if you want opinion and rabid rants, you’ve got little ol’ me ;-) Yesterday is yesterday… or to quote an old geezer from a story I did long ago, which you can find here, was ain’t is. Don’t ever forget that. Whether it’s subscribing to industry publications or projecting brand trends or designing your company for the future… things change… change with them.
More on craft beer and the value of distributorsA few months ago I did a radio interview with a guy who does an Internet radio show and blog called Bite and Booze, http://www.biteandbooze.com (it’s about food and alcohol down in Louisiana). His name is Jay Ducote. So after 15 minutes of my incredible wisdom, this is what he created and put on YouTube… http://youtu.be/txcDK3XGb6c
I think most of you will agree with this. In fact it might be a useful link to send to legislatures who are thinking about writing craft beer carve outs to franchise laws. 15 minutes of genius cut down to one sound bite… such is life ;-) But it IS a good sound bite. Way to go Jay!
Next post I’ll give my 2 cents worth on line extensions versus new brands… or as I note in speeches to state associations, a Krusty the Clown strategy versus a non-Krusty the Clown strategy… and it won’t be watered down either ;-)
Where to begin? I guess let’s start with the news of the day… some disgruntled ex-ABI employees have helped start a class-action lawsuit alleging that ABI waters down some of its beer. You know about class-action lawsuits? The Legal Dictionary subsection of the Free Dictionary notes (underlining and bold mine):
Class action lawsuit - A lawsuit that allows a large number of people with a common interest in a matter to sue or be sued as a group.
Class action lawsuits have become a controversial topic in the 1990s. Once seen as a way of empowering individuals with small claims to have their day in court, class actions are viewed by many lawyers, legislators, and government officials as a vehicle for plaintiffs' lawyers to make millions of dollars on issues of dubious merit.
Critics of class actions remain unconvinced about the social and legal value of group lawsuits. In small claims class actions, critics question the value of supporting litigation in which individual class members have very small stakes. For example, does it make sense to permit a lawyer to initiate a class action where a utility company overcharged two million customers two cents per month? Such filings demonstrate to the critics the lawyer-driven nature of most small claims class actions. The individual claimants, because they have so little at stake, do not exercise any control over the litigation or elect to opt out of the class and pursue individual claims. With the plaintiffs' lawyer in total control, the dynamics of the lawsuit change. The lawyer has the largest economic stake in the outcome, leading to settlements that guarantee high attorney fees and minimal payouts to the class members.
Critics also dispute the value of the private attorney general role. Most class action attorneys, they contend, are seeking lucrative financial awards rather than social justice. Moreover, class actions may interfere with the regulatory and oversight functions of the appropriate government agency. The agency may conclude that the injuries attributed to the defendant are insignificant and do not warrant prosecution. A class action substitutes the judgment of the private attorney for that of the public's elected officials.
Bottom-line, in many class-action lawsuits the end result is the lead attorneys pocket tens of millions and the “injured” parties get a coupon for $1.50 off the next time they purchase the product. As with far too much of our legal system, corporations weigh the costs of fighting the lawsuit (and that includes damage to image, negative PR, etc.) versus the cost of just writing a check to the instigating attorneys to make them go away.
I have no idea of the merits of this lawsuit… although I think it highly unlikely ABI would bother with such a stupid move. And this is from a major ABI-basher. There are still folks around who remember a market-leader call Schlitz… and what happens when accountants start making product decisions.
But let us use other people’s pain for our own learning. What is the source of this lawsuit? Disgruntled employees. Do you have any idea how many companies have been hung out to dry by disgruntled employees?
This industry has changed a lot in the past few decades… what might have been ignored years back might be a major problem today. If you are playing fast and loose with things… I’ll leave it to you to fill out the list… you are giving tremendous power to your employees.
And like a lot of things in life, in the good times everybody gets along… but a laid off or terminated employee might get the crazy idea of revenge in their minds… and they might very well act on this goal of revenge. And in today’s world of lawsuits and a media looking for “gotcha” stories, it is not all that difficult for a disgruntled employee to cause you some serious pain. Especially if they truly know where the dirt is.
If you have ever been so foolish to fool around on a spouse, you know the power you give to your “cheat-mate.” With YOUR actions, you hand tremendous power over to them. Which in the good times might not matter… but when you decide to end the affair the other side might not be so magnanimous. One phone call and your life will change forever. Trust me, many a person (generally guys) have cried in their beers over this one. If someone thinks they have been screwed – so to speak ;-) they will very likely seek revenge.
I know of an ex-beer distributor who terminated an employee. This employee was none too happy about this course of events. This same employee knew where many bodies were buried… in this case knowingly selling out-of-code product. This employee took this information to a major supplier of this distributor. This major supplier was just looking for a reason to get rid of this distributor and lo-and-behold, their wish called them up on the phone. This person is no longer a beer distributor.
How many of your employees have knowledge that would cause you great pain if it became public. Here’s a solution… stop the crap. Those days are long gone. If you aren’t absolutely pure as the driven snow, change. EVERY employee who knows of this stuff is a time-bomb waiting to explode. Perhaps they might get the idea that they could use a little extra assistance in their retirement fund. Stranger things have happened.
Changing subjects… much has been recently written on the explosion of SKUs and what retailers, distributors, etc. should do about it. First I think they are phrasing the question wrong.
At its core, this goes back to that age-old question on whether businesses follow demand or create demand. If one believes business can create demand, then they have the power to control SKU expansion. If one believes business follows demand, then retailers and distributors can do little to impact this… it exists and they are simply trying deal with this reality in the most efficient and profitable manner possible. Until you answer this question, any discussion on SKU growth is somewhat meaningless.
In addition, are we talking about an explosion of SKUs (4 packs, 6 packs, 12 packs, 15 packs, 18 packs, 20 packs, 24 packs, 30 packs, 36 packs, and don’t forget the single serves – often in different bottle/can sizes and of the same brand)… or are we talking about an explosion of BRANDS and the associated increase in SKUs driven by this brand growth?
I’d guess reality is a little from A… and a little from B. Sure suppliers try to push for SKU growth IF they can use this to gain incremental space at retail. Walk down the toothpaste or laundry detergent aisles to discover this isn’t a new concept.
As a side note, here is a great idea every distributor in the country should take. Far too often beer-folks walk into retail and blindly go to the beer aisle. There are millions of dollars of marketing being done in every chain grocery out there. Literally take a field trip to your local chains and together with management and employees, walk down every aisle. Observe and LEARN. Make this a regular part of your market calls. You’ll see opportunities for secondary displays but more importantly watch what others are doing. Can you steal their good ideas and make them your own? Remember, this isn’t 3rd grade math class, copying good ideas is very much allowed.
But right now, the market for craft/new beers and products is incredible. Trying to control and throttle this at the distribution level is probably not a great idea. I don’t think it is in your power to control… so why try?
Instead look to manage (not change) the reality you confront. Yes this might mean changes to your sales and merchandising forces, delivery fleet, most definitely your warehouse, and every other aspect of your business. That’s where Steve Cook and I come into play. We can provide a new set of eyes with years of experience to help you and your organization adapt to this new world.
TEACHING DOGS NEW TRICKS
In a lot of our recent organizational design AND operations work, we have found our client’s desires are spread across the entire spectrum of their operations. So Steve and I have created an updated yet flexible consulting project approach for these demands… it’s pretty simple, we’ve added a “Chinese ala-carte menu” option. We come in for anywhere from a couple days to a week or two and focus on whatever is causing you the most problems or the opportunities that have significant upside. It’s all your call and it can evolve as we go.
As part of the process, we will provide objective, fact-based recommendations and high value-added solutions by applying two uniquely different approaches. We can either directly provide the needed leadership and expertise or function in a complimentary project support role and leverage our expertise to assist you in exploring your unique business situation, identifying problems, quantifying the risks and developing practical solutions and plans that work.
You get an industry expert to work on whatever you desire. Not just pointing out the problems, but working with your management team to SOLVE the problems and GAIN competitive advantages. Give Steve or me a call if you want to investigate this high-value service.
GLOBAL BRANDING
Lastly, NPR’s Planet Money had a recent story on SABMiller and ABI and how many brands around the world they own (210)… along with a map showing their respective brand-strongholds.
You can find the story and map here.. http://www.npr.org/blogs/money/2013/02/19/172323211/beer-map-two-giant-brewers-210-brands
It’s kind of interesting. See… no watered down rants here ;-)
I’ve been asked repeatedly my take on the Department of Justice’s decision to fight the ABI – Grupo Modelo deal. None of the reporters who asked wanted to quote my response… it doesn’t fit into the narrative… although they all agreed. They’ve seen enough so that they are cynics too ;-)
Thus let me weigh in and tell you my cynical take on the DOJ’s decision to sue to stop this merger. I believe the decision comes down to a simply thing… ABI must not have greased the right palms and/or didn’t grease them enough.
Brito and crew were there at every Presidential debate......... but they must have been a little slow in reaching for the ol’ checkbook. Welcome to the new world of crony capitalism… well actually when it comes to antitrust enforcement, it seems that has always been a world heavily influenced by politics. Facts? Not so much. Political beliefs and who’s scratching whose back? Oh yeah.
Think I’m a cynic? Well duh. But think this analysis is wrong? Consider this:
As for ABI, I’d guess they thought they would be dealing with a different administration and this deal would have sailed through… which it very likely would have. Same facts but different results.
So as you read the various handwringing’s over what ABI might have to do to get this blessing, don’t necessarily believe for a moment it is about hard facts and cold statistics. Those are only used as window dressing to support decisions that have already been made… and to bolster the power of these political overlords.
Think this rant is just Conlin going off the deep end again? This quote from an article in The National Review Online states how the game is played… “As law professor D. Daniel Sokol told the Wall Street Journal, in antitrust cases “Defining the market is 90% of the game. . . . If you win that battle, the rest is easy.” Every professor in my MBA program felt the same way.
You can read the entire article here, http://www.nationalreview.com/articles/339916/brew-busters-daniel-foster
And this process isn’t restricted to ABI. How many folks out there are either for this or against it based solely on what they think it means to them? Let’s at least drop the charade that this is about “market power” or protecting that helpless little consumer… it’s about winners and losers being decided by some political power. We cheer it when it lines our pockets… we curse it when it empties them.
Nothing less, nothing more. I have no ability to change this but I refuse to act as though this is really about the DOJ “protecting” the poor citizens of this country. It’s about protecting things, just not what they say it is.
Think about the supposed “solutions” that are being offered… selling a brewery is going to change the US beer market? Divesting a brand? That’s just the economic pain the government wants to inflict as payment to get this thing approved.
Since I don’t have the necessary facts to offer ABI a hard suggestion, I’ll instead answer with my gut… I wouldn’t give an inch on anything of importance. This isn’t ultimately about facts so why act as though it is? If I don’t want to piss away a ton of money over the next few years (and waste a lot of management time) I might tell them to screw off. About that penalty? You were foolish to give in and include it in the deal.
Wait 3 more years and restart the deal. You already own 50% of the dang thing… you’re not going nowhere. There will be a new administration and next time either they will be more politically aligned with letting these deals happen or ABI can get better at writing the right checks to the right folks.Isn’t this crony capitalism fun? ;-)
The 21st amendment to the Constitution repealed the 18th Amendment, the failed experiment called Prohibition. But it did something else of equal importance. Rather than attempting to decide and dictate all of the issues related to alcohol laws and regulations, the amendment simply stated that alcohol regulation was to be decided at the state level.
There was genius in this decision. It greatly increased the odds of the amendment actually being ratified. Attempting to dictate every aspect of alcohol regulation for the entire country would simply have insured the amendment would never become law.
The 21st Amendment allowed states and their citizens to craft laws and regulations that fit their unique desires and situations. It built on the reality that an individual’s consumption of alcohol is a local issue. It allowed effective control of beverage alcohol while creating a framework where competition and the marketplace would still flourish. It has been a tremendous success.
I believe a similar model should be used to transform the K-12 public education system. End The Education Plantation, www.EndtheEducationPlantation.org is a single issue, non-partisan organization which has only one goal: Passage of federal legislation requiring any state or school district that accepts any federal education dollars to offer Education Freedom Accounts to every child attending school in that state or district. These Freedom Accounts would have to equal at least 95 percent of the total per pupil spending of that district or state. Other than that, we defer all other decisions to the states on how/where these funds can be used. This only demands that parents control the money spent on the education of their children.
In effect, this legislation would force states to create a state-regulated market for K-12 education (and pre-K and higher education if they desire). Just like the 21st Amendment, we use federal power to force Federalism in the education of this country’s youth.
This will unleash the wisdom of millions and is guaranteed to improve the educational outcomes of rich, poor and middle-class children alike.
Obviously different states will decide different things. Regardless of your political beliefs, some states will make decisions you agree with and others you disagree with. Guess what. That’s happening right now.
The public education system of this country is failing far too many children. Seventy percent of all eighth graders are not proficient in reading. It’s worse for minorities. And, sadly, the future of most kids is somewhat set by the eighth grade.
The vast majority of these non-proficient children will NEVER become good at reading. Think of what this means for their job prospects, their cultural activities, and how they will raise the next generation. Most fourth and eighth graders are also not proficient in math. This does not bode well for any of us.
ACT reports 75 percent of all incoming freshman are not prepared for college. Only four percent of African-American high school graduates are ready for college.
And few students wake up the day before high school graduation and decide to attend college. Most of these students have been preparing for college for years. Yet only 25% are ready?
And what of those who didn’t take the more difficult classes and don’t plan to go to college? Do you think their educations are any better? A recent article talked about a small manufacturer who was looking to fill some entry level positions. Out of 100 applicants with high school diplomas, only three could pass a simple math test! And of those three, none knew how to read a ruler. This is simply wrong.
Yet the country spends more money per pupil than every other country on the planet, save one -- over $12,000 per student per year. In most parts of the country you can attend a pretty good private school for that amount.
Our country is filled with dedicated and loving teachers, administrators, para-pros and volunteers. It is not the people who are failing. It is not that we spend too little money. It is that the top-down, expert-driven system is simply failing. And the only way to fix a failing system is to CHANGE it.
We don’t claim to know the answer to every question. We don’t have to. Rather we know the system that will find the best answers for the lowest cost -- freedom and competition. Our proposed legislation would, in effect, force states to create a marketplace for K-12 public education. Let us unleash the wisdom of millions and let them discover and create better schools for all of our kids.
The future of today’s children and in a very real sense the future of the country depends on it. The genius of the 21st Amendment, which has served the country quite well for 80 years, can be the model for transforming this country’s K-12 public education system. Raise your voice.
Regardless of your wealth or education, no one is immune from these failings. We will either collectively solve this problem or we will collectively watch this problem destroy our country. If not us, who? If not now, when? Please step to the plate. 50 million children and the very soul of this country are pleading for us to do something. Join us.
Here’s what Milton Friedman wrote in 2004…
Government is committed to assuring that all children receive a minimum education. It currently does so by setting up and running schools, assigning students within a designated catchment area to each school. Students are thereby deprived of choice. They go to the designated school or else they do not benefit from the government commitment and their parents must pay twice for their education—once in the form of taxes, again in tuition.
Equally important, government is deprived of the benefits of competition. It is as if the government decided that the automobiles it uses must be built in government factories. What do you think the quality and cost of government cars would be? Or, to take another example, it is as if recipients of food stamps were required to spend them in a specified government-run grocery store.
It is only the tyranny of the status quo that leads us to take it for granted that in schooling, government monopoly is the best way for the government to achieve its objective.
A far more effective and equitable way for government to finance education is to finance students, not schools. Assign a specified sum of money to each child and let him or her and his or her parents choose the school that they believe best, perhaps a government school, perhaps a private school, perhaps homeschooling. Let the schools in turn, whether government or private, set their own tuition rates, and control their own operating procedures. That would provide real competition for all schools, competition powered by the ultimate beneficiaries of the program, the nation’s children.
That’s all we are trying to do. I hope we can count on you. If you agree, please spread the word.