Constellation Takes the Gloves Off

FILED FEBRUARY 24, 2016

Dear Client:

Are we seeing the new face of Constellation Brands? In a switch in tone (which may or may not be related to the semi-retirement of Bill Hackett), Constellation is definitely flexing its muscles based on its margins and momentum with its distributors in presenting bold new changes to its distributor standards.

In a brief memo to distributors from newly promoted CCO Bruce Jacobson and CSO Bill Renspie obtained by BBD, Constellation is putting forth new distributor standards "to better reflect changes to our beer portfolio as it has evolved over the years and to adapt to changing market conditions." Titled "Building Stronger Distributor Relationship" and saying that many of these changes came from distributors.

MARKETING CO-OP BECOMES PART OF FOB. One such change is that the 34 cent per case marketing contribution that distributors had been paying back to Constellation will now be folded into the laid-in cost of the beer (the FOB) thereby making it a permanent part of the FOB. This will be a "net neutral change in landed price for our brand, no PTR changes are anticipated." In other words, don't raise prices to retail.

[Ed Note: Some states don't allow itemized invoice lines for marketing spends, so there is no change in AL, AR, CO, FL, LA, ME, MI, TX, and TN]

GOLD NETWORK STANDARDS. But the new Gold Network Standards program makes some Big Asks. Although some details are not fully fleshed out in this memo, it looks as though Constellation wants to take more control of their brands in transactions, and require more accountability in how distributors invest in their brands in-market.

Here are some of the highlights Constellation is asking of its distributors, effective June 1:

-M&A. Constellation wants to be notified of any intent of a distributor or brand transaction at least 30 days prior to notifying the distributor or at least at the same time as written notice to any other supplier, whichever is first. The new Standards will make some clarifications for the process when selling Constellation brands and the contractual right of exclusive negotiation (where legal, of course).

-SPOC. Harking back to the Star Trek era, distributors are to appoint a single SPOC, and much like Spock, this person is to be the single pointman or woman who deals with Constellation's and the distributor's data flow. This SPOC (Single Point of Contact), will oversee all access to Constellation's stuff (business plans, product ordering, POS ordering, etc.). Constellation also wants direct access to distributors' route accounting systems.

-GOLD NETWORK STANDARDS. Distributors will be "required to invest local tactical funds invested in-market on an annual basis." Any variances from the agreed-upon spend will "trigger a formal resolution process" and Constellation reserves the right to look three years back (the IRS looks back 7 years so I guess this is better). If there's a shortfall, the distributors "shall cure" by giving back 103% of the variance.

-AWARDS PROGRAM. Constellation will be creating a new awards program to distributors based on "being on good standing with CBBD policies/procedures."

-LEARNING AND DEVELOPMENT. Constellation is creating a learning development platform for distributors and their salesforce. "Distributors will commit to participation."

-NEW PRODUCT DEVELOPMENT. Distributors will commit to "tactical funding requirements" for new product introductions.

-DEDICATED DISTRIBUTOR RESOURCES. Distributors will "contribute dedicated resources commensurate with their scale; specific requirements will be developed and communicated based on market needs."

The early take from Gold Network distributors we spoke with were a little taken by surprise by the more formal tone and degree of additional spending they see. "They're becoming that which they hate, Anheuser-Busch," wrote one. But another wrote, "Not a big deal for us. I think it's there to get their AB distributors to spend more."

OUR TAKE. I don't think it's a coincidence that Constellation is taking a harder and more aggressive stand with their distributors on the eve of the date when Anheuser-Busch can legally get more aggressive with their own distributors who carry Constellation Brands. It seems to me that Constellation is using their offense as their best defense. It's no secret A-B has their plans on the Mexican beer market as they seek to "disrupt it" in any way they can.

Your thoughts as always in confidence. hs@beernet.com

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BEER BRIEFS:

GUINNESS UNEARTHS CENTURIES-OLD PORTERS. For the first time in the U.S., Guinness will offer consumers "a chance to taste a bit of the brewery's history" with the launch of "Dublin Porter" and "West Indies Porter." These two porters clocking in at 3.8% ABV and 6% ABV, respectively, are based on recipes found in Guinness brewing books from more than 200 years ago. The beers were unearthed by The Brewers Project, a small group of Guinness brewers in Dublin "charged with exploring and creating new recipes, reinterpreting old ones, and bringing exciting new beers to life." Both beers will be available nationwide this month in 11.2-oz. bottles as part of The Brewers Project Pack, a variety pack consisting of: Dublin Porter, West Indies Porter, and their Extra Stout.

Until tomorrow, Harry

"Egotist: a person more interested in himself than in me."
- Ambrose Bierce

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