Beer Veterans Speak On Big and Small Brands

FILED NOVEMBER 9, 2009

Dear Client:


Beer Business Daily recently hosted a round-table discussion at our World Headquarters del norte in San Antonio (the BeerNet ranch) with a rag-tag mix of industry veterans over some cold beers. The cast of characters included:

-Bump Williams of Bump Williams Consulting
-JB Shireman, formerly of New Belgium, who now owns a tavern in Fort Collins and also consults with industry players.
-John Bryant, an exec with Oskar Blues
-Jeff Nowicki, formerly with Gambrinus and IBU, now also with Bump Williams Consulting.
-John Ray, with Ben E. Keith's craft division

We focused on two main issues: the slide in mega-brands and the growth of crafts. While the conversation went on for great lengths, in the interest of space and propriety we cut it to these two narrow topics. Excerpts of our discussion follow. You, my friends, are a fly on the wall:

BBD: Bump, the mega-brands are struggling, except Coors Light. You are tight with lots of chain retailers. Give us your take from their perspective.

Bump Williams: The mega brands are all down significantly this year -- you've got Budweiser, Lite, Corona, Heineken, and most seriously, Bud Light. But I don't think there's a common answer for all five brands being down. It's different for each one...... poor advertising, advertising that doesn't connect with your LDAs, a mature brand losing shoppers, another brand losing focus at retail, an unknown growth strategy and another brand taking on a completely new competitive set with its line extensions.

Will they bounce back next year? It all depends on a lot of variables: the economy, what companion brands they come out with, advertising, and execution at retail. Honestly Harry, I don't see a miracle turrnaround for these brands in 2010. There are too many other substitute purchases for shoppers these days with new craft brands, hot import brands like Dos Equis and Tecate and Stella Artois, Blue Moon, craft seasonal and variety packs, and the latest is the 750ml craft beers that are high priced, but very much in demand. I'm guessing that the consumer will stay with some of their tried and tested brands like Pabst Blue Ribbon which is gaining in momentum all over the country, and then experiment some with craft and new-on-the-scene imports, too.

BBD: Is A-B's mega-brand strategy a good way to fight this trend?

Bump: I think their mega-brand strategy is a way to hide softness in their core brand. Bud Light Lime will be here five years from now, for sure. But it's a risky strategy. I'm not sure I like it. So goes Bud Light, so goes Anheuser-Busch, and so goes the beer industry. It's such a large brand, that it's so important to get it right. I don't think you want to lose focus on the flagship brand by offering up line extensions that bring a whole new competitive set into play.

The advertising [for Bud Light] hasn't hit a home run in a while, it's confusing and it runs up against the simple, yet highly successful Coors Light campaign of 'refreshment' -- easy to understand and digest and consumers today are looking for less confusion at retail, just keeping it simple is good enough.

The retailers have changed their focus to sub-premium at the request or the urging of the big brewers..... They have also focused on moving consumers up to bigger packages, like 18 packs [in c-stores] to hit magic price points, but I'm not so sure that's a great idea either. Moving shoppers up from 12 packs to 18 packs at a lower per unit price is no good for anyone except the brewers who need to keep running at maximum capacity. But I don't think with the economy being what it is, we are truly increasing aggregate consumption at all with 18 packs, we're simply taking shoppers out of the marketplace for an extended period of time and that means lost trips and lost money for the retailer. Everyone knows that a 12 pack shopper buys once per week across the course of a year. That's 52 shopping trips. Each shopping trip with beer in the basket generates about $65 per market basket. Harry, that's about $3,400 per year, according to my quick math, spent by the shopper in their stores. If we cut the purchase frequency down from 52 times a year to say, 30 or 35 times a year, we've lost a lot of money for the retailer with fewer trips, and that's no good for anyone.

Plus, we're seeing a lot more retail support for featuers and displays of sub-premium like we've never seen before. It's crazy. If you see 30 packs of sub-premium featured at 2 to 4 bucks cheaper than premium suitcases, I'm going to get the extra six pack for a couple of bucks less. Is that really what we want to do for our category, our wholesaler partners, or our retailers? I don't think it is.

BBD: What about Miller Lite?

Bump: Miller Lite is a big problem for MillerCoors. Coors Light's been on a role for five years with a consistent messsage.... But all of the success you have with Coors Light is not enough to compensate for the losses in Miller Lite. I don't think MGD 64 can pick up the slack either, because Miller Lite is just so big. It's a mega-brand. And I wonder if distributor consolidation has hurt Miller Lite. In combined houses, you have to figure that they look at how hot Coors Light is, and so naturally they put their focus and resources behind it. So I think there's some attention deficit on the Miller Lite brand.

BBD: JB, what trends have you been seeing in your tavern?

JB: We're a neighborhood tavern that sees a huge cross section of people. And the trading down you see in the off-premise, we're seeing it too. Bud Light drinkers are definitely trading down to Busch Light [Ed. Note: Yes, JB sells Busch Light in NRs].

Bud Light Lime did very well, and Bud Light Golden Wheat has been on fire. The other day there were six totally different types of customers in the bar, and all were drinking Golden Wheat. I don't know if mega-brand strategy is a good or a bad thing, but if they're trading Bud Light drinkers up to Golden Wheat, at least they're drinking higher priced beers. It's across the board: The young guys who were drinking Bud Light on tap are drinking it, the ladies who normally drink margaritas are trying it, two guys playing darts, even bikers are drinking it, but they're the type of bikers who trailer their bikes to Sturgis and wear Rolexes. So it's getting a wide cross section of people trying it.

At the same time, and I'm just one hole-in-the-wall tavern, but we're seeing our craft business take off, and that's reflective of national trends.

BBD: The success of high priced crafts in this economy seems counter-intuitive. What's your take, John?

John Bryant: Harry, you know Dale Katechis, the founder of Oskar Blues, just opened up a four hundred seat restaurant called Homemade Liquids and Solids in Longmont. We only serve craft beers, 43 of them, he doesn't have a happy hour, and people are waiting two hours to get in. Harry, you've written about trading up and trading down, but don't get freaking caught in the middle. Same with beer. People are paying more for the experience, the value, the emotional connection they get out of a craft beer. When you get a six pack of Dale's Pale Ale or Momma's Pils, it's an event. It's an experience, a sense of place. People are still willing to pay extra for that.

JB: It's been said before, but craft beers are still the most affordable world-class luxury beverage out there. You can go to a liquor store and get two six packs of the best beer in the world for under twenty bucks. You can't do that wine or spirits. It's affordable.

BBD: And JB, I've heard you're consulting with people in the beer business. I'm curious, on what?

JB: Well, I still absolutely love the beer business as you know, notwithstanding the internal bickering of late that we talked about earlier [off-record], and I intend to stay involved. I love my bar and I love spending more time with my son, and I have been fortuante to pick up some really great external work too. I've developed a pretty intensive one day training with wholesalers that delves deeply into the specific craft and high end trends of their area coupled with a deep assessment of their specific portfolio, and helps tease out things they could improve upon or tweak to capitalize on the specific emerging trends of their individual markets....

BBD: Jeff, this isn't your first rodeo. To what reason do you see crafts growing, that hasn't bee said?

Jeff Nowicki: When you're dealing with the 21 plus drinker, the entry level guy, it's like the 1980s and 90s when the wine craze hit, and people were affectionately talking about the smells and flavors of every bottle of wine they opened. Well now you have them doing the same with beer, they're talking about every aspect of the beer, the hoppiness, the maltiness, the higher alcohol contents, if you want some fruitiness you can try a Lambic. These are distinct flavors that you just can't get in other alcohol beverages. It's also more socially acceptable to order nice beer in a white tablecloth restaurant.

You are also seeing it in imports. Corona and Heineken owned the market, but now you have Dos Equis and Stella Artois picking off drinkers. They have more dinstinct flavors and they have a sense of being 'newer' to the young drinker.

John Ray: Even though in this economy, while our on-premise segment is suffering a bit, people are instead picking up a nice expensive six pack of craft beer and drinking it at home. That's been a help to us to help offset the on-premise loss.

Bump: Distributors also have stepped it up on the execution for crafts. They've done a great job of expanding distribution of crafts. That's one point. You can also cut retailers into two buckets: the ones that have increased SKUs and shelf space for crafts, their entire beer category sales, not just craft, are higher than those retailers who are stuck in that old 90s mentality and patterns.

John Bryant: For distributors, when you look at brand mix, gross profits per item, and rate of sale, you're going to win with crafts. The beer industry may be flat, but when you look at the margin pool in the United States, it's growing with crafts.


BEER BRIEFS:

CAN YOU DO MAGIC WITH THE MIGHTY PEN? If you fancy yourself a writer, you ought to try your hand on the Center for Alcohol Policy's second annual national essay contest. The deadline for entries is November 18, next Wednesday. The theme of this year's contest is: "State Regulation of Alcohol is important because..." You can win prizes of 5,000, $2,500 and $1,000 respectively. Check for more info: www.centerforalcoholpolicy.org.


Until tomorrow, Harry

"When you blame others, you give up your power to change."
-Robert Anthony

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