Reader Survey Results

FILED MARCH 18, 2013

Dear Client:

Just prior to the Beer Summit we surveyed our readers about several issues of the day, and we received over 500 responses of all shapes and sizes .... distributors and brewers. We thought you'd be interested in some of the responses.

Question: What is the biggest challenge facing the U.S. beer industry today?

The highest response was fragmentation of SKUs. This continues to be top of mind with distributors in particular, and if the distributor conventions over the last few weeks are any clue, it's only going to get worse, much worse. We're already seeing the early signs of fall-out with Stephen Busch's Krey Distributing in Missouri dropping some smaller craft brands while keeping others. Portfolio management is an important part of a distributor's job, and there is a point of diminishing returns. The question is: Will the onslaught of new SKUs from the large brewers and importers serve to crowd out fledgling craft brewers? Or will the high demand for fledgling craft brewers carry the day? We can debate whether we have too many SKUs until we're red in the face, but one thing's for sure: There's the perception that there are too many. It's like musical chairs, and when the music stops, somebody is going to be left off the shelf.

(As a side note, the BA's Charlie Papazian tweeted last week that two of the four presidents on Mount Rushmore were craft brewers, so therefore "50% of the self won't be enough.")

The other areas of concern to readers are the erosion of the three-tier system and the continued loss of share of the top three domestic premium brands. Areas of much less concern among readers are pricing holding up and A-B's anchor wholesale program.

BRAND LIFECYCLE. Related to the loss of share of our top brands, a full 70% of readers believe that brands have lifecycles, while only 7% believe they don't. The rest believe that "maybe" they do.

PRICING. On pricing, most respondents (62%) believe that the price increase in 2013 will be on par with last year's price increase, while 21% believe that we'll have even higher price increases than last year.

VOLUME. On volumes, the industry seems pretty bullish. It's true this survey was taken in January, so perhaps folks' are less bullish now. But at least back then a full 76% of respondents believe that volumes will equal or be better than last year. That's pretty good. We need to see continued improvement in unemployment particularly among blue-collar jobs, better weather, and continued innovation.

VALUE MULTIPLES. Predictably, 55% of respondents believe value multiples for distributor and brand acquisitions are either too high or way too high. 44% believe they are fair and 1% believe they are too low. I think this question is loaded because really it depends on which side of the fence you're on: buyer or seller.

OTHER. CDL labor shortages used to be a big issue but it looks as though the slow economy has mitigated it, as most respondents don't see a shortage, although 21% still do. However, most respondents do see costs continuing to go up faster than in previous years.

IN 20 YEARS. We also asked respondents to give their predictions for the beer industry in 20 years. Most respondents said 1. the three-tier system will be alive and well but dominated by more consolidated brewers and wholesalers; 2. domestic mainstream beer will have lost 15 - 20 share points, and 3. craft will be at 20 - 35 market share. Those are some surprising numbers, particularly from distributors. We'll see.

Here is a link to the survey results: https://docs.google.com/file/d/0B_AxpKotj17vdlYycnFqQWZtU3c/edit?usp=sharing

BEER BRIEFS:

GREAT ARTICLE in the New York Times over the weekend about how beer was a great catalyst for civilization. My favorite part: "In long ago Germany and Persia, collective decisions of state were made after a few warm ones, then double-checked when sober." Sounds like our Congress could use a few cold ones. Check it out here: http://www.nytimes.com/2013/03/17/opinion/sunday/how-beer-gave-us-civilization.html?src=rechp&_r=1&

IT IS WITH REGRET that we report that A-B marketing legend Mike Roarty has died over the weekend. Mike was vp marketing for A-B from 1977 to 1990 and he retired in 1994. During his tenure, sales doubled. He was 84 years old.

Until tomorrow, Harry

"Man is ready to die for an idea, provided that idea is not quite clear to him."
-Paul Eldridge

--------- Sell Day Calendar ----------
Today's Sell Day: 13
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Fri
This month last year ended on a: Fri
YTD sell days Over/Under: 0

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