What I like to drink most is beer that belongs to others!!
Much of my second summer working through college was spent on the draft trucks at Coors in Dallas. Tapping those kegs took a skill set which today seems crazy. To tap a keg, you had to insert a rod thru a wing nut into a cork on top of the keg, squeeze the wing nut, then ram the rod into the keg while tightening the wing nut. If the wing nut was too loose, you got sprayed with beer; and if you did not get the wing nut just right, the rod could easily fly out of the keg. I’ve seen several rods stuck into the roof of an account I was servicing. Actually tapping kegs was a dangerous job.
Soon both Schlitz and Budweiser started using Golden Gate kegs. The CO2 line was attached to the top of the keg and the beer line extended out of the bottom of the keg. The CO2 forced the beer thru the line. This was easy to connect, but when the keg was close to empty, you had to tilt the keg forward to ensure all the beer came out. If you did not tilt the keg to drain it, you could potentially lose up to a pitcher of beer.
Next in line was a system called Hoff-Stevens. One connection on top of the keg operated both the CO2 and beer lines. The rod was self-contained inside the keg, was very easy to use, and worked quite well.
Most of the regional breweries used the Golden Gate system, but some did convert to Hoff-Stevens. The slow demised of the regional beers which started in the on-premise accounts, quickly spread to the off-premise accounts and eventually led to these regional beers going out of business or selling out, at which time the market became saturated with cooperage. Distributors had all these empty kegs, but no place to return them to. Hard to believe!
Having all this empty cooperage available made it easy for the early craft brewers. It was simple for them to find the empties, refurbish them, and then reuse them. While at Glazer’s, I had a large inventory of 1/4 bbls with no place to send them. I found a company in Ohio which bought the empty kegs, refurbished them and sold them back to the small crafts. This proved to be a much better use of the cooperage then barbecue pits or gas tanks for hot rods. It has been many years since the large inventory of unclaimed cooperage existed.
New craft breweries are struggling to find cooperage to use and unless they buy them, using Microstar or other companies, the purchase can be very expensive. In most cases, the brewery pays a huge up-charge, which drives the PTR outside their pricing strategy, thus forcing the brewery to take a haircut.
Several large distributors are seeing this as an opportunity to not only make some money, but to help their local suppliers get established. By purchasing large inventories of cooperage, then leasing them back to their suppliers, both the distributor and the brewery win. One distributor, who bought 500 kegs, in the hopes of recovering their investment in two and a half years, was able to price the kegs at a level that afforded the supplier the opportunity to establish themselves in the market.
Once again the lines between the three tiers are blurred, but in this case, it is clear that both tiers are helping each other to be successful. And really, when you look at the industry, isn’t that what life is all about? Remember, what I like to drink most is beer that belongs to others!
An apple a day keeps the doctor away…….
In an attempt to reduce injuries and workman’s compensation costs during my first year at Coast Distributors in Oregon, we instigated a program run by the Oregon State University athletic department’s physical therapists. The program started every work day with a series of 10 to 15 minutes stretching exercises. We implemented this practice and made it available, not only to warehousing, delivery and sales employees, but also to the administration. Almost immediately we saw a substantial reduction in injuries. In fact, after the first year, our premiums dropped over $250,000 and our experience rating dropped to reflect the positive results of the program.
All beer companies do, and will continue, to review internal cost structures. Sometimes these reviews come at the expense of revenue. The forward thinking companies look for ways to increase revenue. Foremost on the minds of many companies in this day and age is the Affordable Health Care Act (Obamacare) scheduled to begin in the fall. The concern from all levels of the industry is finding skilled and qualified talent. Once found, some companies, including Boston Brewing, have the new employees sign time bound non-competes. If the employee leaves, he/she cannot work for another beer company for a year. This is one way to retain employees, however, this procedure could also be considered negative in the eyes of many employees.
One of these forward thinking companies I recently visited was Monarch in Indiana. This organization created a unique way to not only control the Health Care issue, but also, reduce injuries and employee turn-over to almost zero. After crunching the numbers, Monarch took a leap and hired a full-time MD for their employees and their immediate families. Along with the physician, Monarch hired two RNs, and modified their offices to include a small medical center. Each employee and their family members are required to have a two-hour annual physical. The cost benefits have been nothing short of amazing and turnover, insurance premiums and workers comp claims have dropped to almost nothing.
Physical therapy, and a well-equipped weight room and gym are provided for employees. The company removed all vending machines and replaced the unhealthy snacks with fresh fruit. These changes have provided the Monarch employees with improved health and nutritional options.
Monarch’s forward thinking does not end here. The company is converting their entire fleet of vehicles to propane gas with guaranteed pricing for three years, thus allowing gas to become a fixed cost instead of a variable one.
The future success for companies like Monarch is not simply tied to their great portfolio or cost controls; it comes down to the quality of their people. Remember, an apple a day keeps the doctor away.
Don’t blame the marketing department. The buck stops with the chief executive.
When speaking about the beer industry, whether to college students or to Wall Street, I almost always start with the analogy that beer is one of, if not the most recognizable, consumer product available. I mention that not everyone can afford to buy a Rolex or a Mercedes-Benz or even a Brooks Brothers suit, however, if one goes into a bar, even a poor, broke college student can purchase the most expensive beer and set it on the counter. Everyone can see the beer the individual is consuming thereby, giving that person the ability to identify themselves with that label and what it represents.
Much has been written this year about the softness or decline of the domestic lights. Current numbers show light beers down over 15 million cases or -3.6%. It even seems, based on the numbers that the decline of lights is accelerating. Some industry publications are suggesting that the decline is coming from the lack of effective marketing, causing consumers to look elsewhere for their beer of choice.
The breweries marketing focus for light beers appears to be directed only to package changes. Recent shifts include new bottles like those of Heineken and Miller Lite. Likewise, graphics changes have also been part of the marketing with ABI leading the way. ABI is also the leader in line extensions with many new flavors, some of which have been rather successful.
Over the years, most of the changes have done little to nothing to jump-start the brand, with the exception of Corona’s change from the brown squatty bottle to the current clear long neck bottle. Coors Light has done well with their cold mountain graphic, but MC has failed with their attempts to turn around Miller Lite. Programs such as the new on-premise bottle, punch hole on the can lid and even the twirl design of the bottle neck have not generated the excitement the brand needs. Now MC is going to introduce a retro-look for their can in January.
Yet one light beer continues to enjoy success, Michelob Ultra, which is showing good growth against light trends. Their marketing is all about the attributes of the brand, low calories and carbs. These are tied into ads which feature an active lifestyle focusing on attractive individuals engaged in mountain climbing, sailing, etc. The good news for Michelob Ultra is that this form of marketing is working.
Other main stream brands with effective marketing include: Corona, with the beach in a bottle theme; Dos Equis’, most interesting man in the world theme; and of course, Stella Artois, focus on the upscale image. These brands have all have established and successful marketing campaigns. One thing they have in common is that they are not changing their marketing, but are remaining with what is working. They might tweak the plan, but the theme is unchanged.
The very first US Warsteiner distributor was Paul Murray in Denver. Paul, a very outgoing and engaging man, had a nice portfolio during the 1980s, including Schlitz-Strohs, Pabst, Modelo, Warsteiner and others which enabled Paul to conduct a very good business. At that time, Pabst was not the brand it is today; in fact, it was struggling to remain viable. A Denver grocery chain decided to run a holiday feature with Pabst. Being a grocery chain meant the Pabst had to be 3.2 ABW beer. The ad generated more sales then either Paul or the chain anticipated and some stores ran short. Paul did not have enough 3.2 inventory in his warehouse and could not get any from the brewery.
Not wanting to upset the chain and to lose sales, Paul, directed his warehouse manager to erase the ink on the Pabst cases that identified the liquid as strong beer, which at the time was sold only to liquor stores in Colorado. He then had the beer shipped to the 3.2 stores. The warehouse manager, sensing an opportunity to profit from Paul’s decision, went to Paul and asked for a raise. Paul turned him down and the warehouse manager decided this was his opportunity to get even. He went to the state ABC agency and turned Paul in for selling strong beer to a 3.2 account. The agency bought a case from the grocery store and had it tested. Unfortunately for Paul, it was strong beer.
The agency suspended Paul’s state license for two weeks, during which time no beer was to be sold. This license suspension caused a number of key vendors to legally terminate Paul and leave for other beer houses. With little options left, Paul sold what remained of his company and was given a job with the new owners. After being a long term owner, working for someone else was not a good fit for Paul, so he resigned, took what money he had left and invested it in a vending machine company. That venture failed and Paul lost everything. By this time, Paul felt he had endured enough and committed suicide. Not long after his death, many industry people got together for a fund raising golf tournament with the proceeds benefiting Paul’s family. To Paul, the value of his distributorship was one pallet of Pabst!
Recent IRI data shows crafts up 18%, while total beer is up only 0.6%. To say that the craft segment is hot is nothing new. A recent conversation with an AB wholesaler just confirmed these numbers and he voiced his concerns within this segment. He noted that while on a fishing/business trip with some US congressmen, at mention of the craft industry, the congressmen brought up the crafts’ constant complaining about existing beer laws and how tired, they, the congressmen are of the complaining. In addition, the AB wholesaler mentioned multiple occasions of crafts and illegal activity in his market. The illegal activity was predominantly the result of giving kegs away for taps, hiding beer production from tax authorities and selling directly to retailers. Given the severity of these activities the wholesaler has serious doubts about the craft business.
While it is easy to get into the craft business, and getting easier with models such as the coming BrewHub, succeeding is not a guarantee. As more and more brands come to fruition, the pressure to succeed will increase. The industry is seeing early indicators of what the future holds at the retail level. Just as Paul did for a pallet of Pabst, sooner or later, we sell out for money!