The Corona Bottle Recall: Is ABI Insane or Just Negligent?

FILED MARCH 10, 2016

Dear Client:

I have to ask: Is ABI insane? Don't they know that a second bottle recall from one of the fastest growing competitive brands in the industry that the DOJ is closely watching as they attempt to buy SABMiller, even from a third party glass supplier, appears to be a reckless attack on the growth that Constellation's Corona brand has experienced, even if it's unintentional (which some at Constellation are not convinced of)?

The inevitable lawsuit will be expensive. And it's curious that ABI/Modelo hasn't recalled any of their own Corona bottles. ABI told the Wall Street Journal "the recall doesn't affect Corona sold outside the U.S. or Guam."

Are we to believe that only the bottles produced for Constellation are defective somehow? Or are we to assume that ABI has decided not to recall defective bottles because it's expensive and not in their budget, particularly in countries where there's no three-tier system to retrieve defective bottles within days? (If it's untrue, sue me, but in the U.S. there's a reason it's called the First Amendment and not the second or fifth).

This whole thing smells bad. You would think that after the humiliating U.S. Corona bottle recall 18 months ago, that ABI would put quality control processes with glass suppliers in place to prevent this from happening again. But no.

Really? Trying to cut costs on bottle quality control? Perhaps it will take a U.S. federal court and/or the DOJ to apply some serious damages this time to get them to act on this. In my 20 years in this business dealing with a very cantankerous Bill Hackett who often suffers from low blood sugar when not fed properly, and who quite honestly has never even really liked me, I've never, ever heard him be so angry than I heard him yesterday. He tried to control himself, but he couldn't help but yelp and holler about this unfortunate situation. "I just can't believe it!" he kept saying. Indeed. I can't believe it either.

The Department of Justice and the courts should get involved, (and I know the DOJ subscribes to this publication) because this appears to be an egregious breach of good faith that ABI promised to regulators when they purchased Grupo Modelo. I don't believe it was intentional, but at the same time I do believe it was gross negligence that should go all the way up to Brito.

Why on earth wouldn't he immediately insist on putting basic quality control processes in place at his bottle suppliers to prevent this from happening again? This is the very essence of what CEOs are supposed to make decisions on. I'll tell you why: Because whoever is running those breweries have "cascading KPIs" that are based on cost control, and putting quality control in place costs money. Dream, People, Culture …… Bullshit.

But won't this cost ABI more money in the long term, after the inevitable lawsuit and quite possibly the opening of a federal investigation by the Department of Justice? Of course it will, but the leadership there is myopic. It's the reason Warren Buffett (who also subscribes) spent so much of his annual letter trying to defend 3G and it's culture. He can't. So he tries. But even billionaires can be told they have no clothes.

This isn't Brazil (or even Missouri) where you can just buy your way out of your problems. This is a serious issue where they are damaging the long-term brand equity of a strong and growing competitor, a competitor they have admitted that they intend to "disrupt". They've disrupted it alright. In this country good faith is assumed as a basic operating standard. (That's how Benj and I operate. I compete with him every day, but we respect each other and don't damage each other's brands based on falsities). One bottle recall can be construed as an honest mistake. Two recalls in 18 months? …… pure negligence and possibly criminal behavior. If the antitrust authorities sleep on this issue as they have with the branch acquisitions and the legislative push to allow cheap leases for refrigeration equipment for retailers and the SABMiller deal and the participation of A-B in all three tiers with craft acquisitions, then I'm not sure why we have the DOJ.

BEER BRIEFS:

CLARIFICATION: In yesterday's brief on Saying Goodbye to the Most Interesting Man in the World, we alluded to a lawsuit involving Jonathan Goldsmith and it may have appeared as a causal relationship. We should make it clear that there is no connection between Jonathan's lawsuit and the evolution of the campaign.

ALSO, we forgot to mention in yesterday's Nielsen writeup that this month benefitted from a pre-Super Bowl Saturday, which was not in last years comp. The numbers are still good, but a bit overstated.

Until tomorrow, Harry

"Research is what I'm doing when I don't know what I'm doing."
- Wernher Von Braun

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