(Dallas, TX) – A very insightful post from John Conlin of Conlin Beverage Consulting popped up in my RSS reader on Tuesday morning. Is this the same guy that compared the position of Anheuser-Busch President, Dave Peacock, to that of a goat that calms cattle as they’re taken into the slaughterhouse?
That aside, he paints a fascinating picture on the future of beer distribution after sitting in on last week’s AB InBev wholesalers meetup in Dallas. His post is titled, “Bitch Slapped in Dallas.”
For those who are unaware, ABI doesn’t believe it is getting adequate focus on their brands from their wholesaler network… I guess in their view the reason Bud and Bud Light are down is because their wholesalers aren’t performing… they’re losing focus as they chase other brands and suppliers. Sorry corporate guys, you’re barking up the wrong tree if you believe that. Look at Coors Light… it is sold and distributed by wholesalers with MANY other brands but somehow it is growing. Therefore ABI wants to head back to the “100% share of mind” ranch for their distribs.
The plan of action, as a result of that viewpoint, is to push toward “exclusivity” meaning more focus on selling ABI-owned brands. The landscape consists of wholly-owned AB distributors, partially-owned AB distributors and completely independent AB distributors. As you go down that line, distributors are likely to have a different view on independent brands, some of which are in the craft beer segment.
The desperation move stems from at least a few factors given today’s fast-changing alcoholic beverage environment.
And it’s not all about craft beer either.
As an intern for an independent Bud distributor years ago, I occasionally sat in on sales meetings where they’d be providing incentives for Seagram’s, Jim Beam, Shipyard and who knows what else. Bud Light sold itself and so did Bud to some extent. The landscape today is very different obviously. Some or many of these independent brands are selling themselves now without much need for incentives. ABI brands, on the other hand…we all know what’s happening there.
Craft, while growing rapidly, is still likely of less concern to ABI management than growth in spirits. Spirits are an easier short-term sell to the mainstream drinker. The Jersey Shore Generation, so to speak, is much more likely to go for a screwdriver than Budweiser. ABI is also contending with the push from malt beverages to “malternatives.” Make it taste like candy and young people will drink it. Just look at Four Loko, Mike’s Hard Lemonade, Smirnoff and so on. Masculinity-driven marketing has still worked to some extent and it is why sports sponsorships like the NFL are very important in the big picture for ABI. Miller’s “Man Up” campaign shows that it isn’t foolproof though.
All of these patterns are what is driving “product innovation” like Bud Light Platinum. It has little to do with craft beer (or it may though it shouldn’t) and everything to do with the drinker looking at Smirnoff or a vodka and tonic.
So how does this relate to craft beer? Let’s turn back to Conlin…
How about Yuengling? Whether corporate likes it or not, Yuengling gets AT LEAST 50% of their volume out of ABI’s hide. Now if that’s going to happen regardless, the ABI distrib is MUCH better off with it in their house rather than MC – sorry all my MC clients, just talking strategy. If it’s in the ABI house they will trade 50% of the Yuengling volume from their other brands and gain 50% from their competition. If Yuengling “only” gains 5 share, the ABI house gains 2.5 share… not too shabby. But if it goes to the MC guy, the ABI distributor losses 2.5 share… a 5 share difference in the two outcomes. What if Yuengling gains 8 share? And guess what… the Bud handle is generally the most vulnerable handle out there (if you work the streets you know this to be true)… I know the wholesaler’s sales reps would much rather be able to keep that handle in their house rather than losing it to the competition. But from ABI’s perspective maybe this will make the distributor work that much harder in an attempt to regain this lost share.
This is what drives AB wholesaler reps nuts and why one rep I talked to called AB’s move “ridiculous.” Brooklyn Brewery President, Steve Hindy, recently said that full-flavored (note: not necessarily “craft”) beer will be 30% of the market in the future. Yuengling is one of the leaders in the movement. The wholesaler network gives ABI a huge competitive advantage and it’s why a lot of craft brewers have chosen to go with them. They’re willing to give up that advantage to save some declining brands. And they’re going to destroy some relationships with independent companies in the process.
So what happens with craft breweries that are currently working with AB wholesalers? (Especially those in franchise states where they’re locked in with those wholesalers). How does this impact new craft breweries who are currently planning to building 15, 30, 60-barrel brewhouses? Existing breweries planning mega expansions? Those looking at new markets and shopping wholesalers? Here’s Conlin again…
My gosh, think of markets where craft beers have a 30 share. Under the new ABI push, the ABI distributor will get what, maybe 5 share?! Maybe. That leaves 25 share for their MillerCoors competitor! 25 share of VERY high margin product. That is a HUGE profit pool. But I guess it will force the ABI distributor to focus on ABI products… what other choice will they have?
What about Yuengling as they continue their expansion? Are they going to be comfortable going with ABI distribs when they know the strong feelings of their major supplier… and if push comes to shove, is the wholesaler going to go with a supplier who is perhaps 5% of their business… or the supplier who is 95% of their business? Not a tough call.
The same is true with all new brands as they examine their distribution choices… it just got A LOT harder for ABI distributors to make their case for new brands and suppliers.
If ABI is truly taking a hard line on exclusivity, it has to be very aggressive about growing Shock Top, and to a lesser extent, aggressive about growing Goose Island. That’s where Baldswinville, New York, comes in and you’re going to hear a bit more about Baldswinville very soon. Then there is the revival of Bass and perhaps some others. Can ABI have success with Bass as it has with Stella Artois? We’ll see but this appears to be the extent to which ABI plans on addressing the full-flavored beer segment.
There is always the possibility of acquisitions. Though MillerCoors’ intentions with craft seem very pure when compared to ABI, ABI is the bigger of the two banks. When it comes time for a craft business owner to cash in their chips, which bank do you think they’re more likely with which to do business? MillerCoors holds a wild card with Tenth and Blake though and the company seems to have a better grasp on ‘craft.’ A couple years ago, who would’ve predicted that MillerCoors would own a minority stake in a craft property like Terrapin?
Back on the wholesaler front, buzz has already swept across the AB wholesaler network. One rep says…
Things have started getting interesting very quickly. We haven’t heard of any loss of brands… yet. But I could easily see some fat being trimmed and brands that don’t sell very well being eliminated and sold off. I suspect you’ll see ABI houses that were previously poaching on each others territories quickly combining their craft portfolios to keep ABI happy.
This is all great news for the indie wholesalers out there, too.
Looking forward to seeing how things shake out in 2012…