Truth Squad Speaks on Craft's Challenges


Dear Client:

Got lots of good feedback regarding our issue yesterday regarding craft beer's challenges (see typo-fixed BBD 03-09-2013 ). Some of you got the Game of Thrones reference, and some of you were left scratching your heads. But regardless of that obscure allusion many of you had some really insightful reactions to some of the topics we discussed. I can't include all of them here but here is a smattering of the best:

ELDER STATESMEN. John Bryant of NoLi in Spokane, an industry veteran of the 90s, says that one benefit the craft industry has today is that there is an older generation who has already been through the trials and tribulations of a market shakeout. We've done it. We know the pitfalls and the path. Says John:

"Harry, Today, you peeled back the beer industry and craft onion a bit. We are an industry that is into the 2nd generation. The benefit of this generation is that we have the 1st craft generation to help guide, coach and direct. It is true. We can learn and grow by observing history. Just as the 1st generation had Heritage Brewers to reference, the 1st generation can provide institutional knowledge to the 2nd. Call it family lore or good common sense. Veterans like Jack Joyce, Ken Grossman, Jim Koch and others paved the way."

SKU PROLIFERATION. Another craft brewer pointed out that craft brewers really don't have a SKU problem per se, but a brand issue:

"I've been thinking a lot about SKUs lately after reading your columns. It occurs to me that with craft, there really isn't a SKU problem. In other words, it is not so much that there's too many SKUs as it is there's too many suppliers, and thus brands. The multiple SKUs per brand come more from the large brewers. For craft, it's about how many brands from so many suppliers are sustainable in a given market, and whether it's good for anybody (except the consumer) to constantly rotate out taps and shelf slots to accommodate so many brands trying to fill too few spots. Harry you will say, 'But the consumer is always right.' Yeah yeah, I guess that's true, although all industries reach a tipping point where it becomes unprofitable to accommodate every whim. It really largely depends in the market. The Pac Nor'west i
s still growing in craft despite 30 plus share so there's still room for overall growth. But there are too many brands chasing too few taps and shelf slots..... and that breeds constant shuffling and rotation as you mentioned.... a terrible way to sell beer. That's not good for brand building or industry health."

FLAGSHIP FATIGUE. And a large prominent distributor dove deeper into the idea of flagship fatigue:

"You got me thinking about flagship fatigue today. I was just looking over some regional IRI numbers and one of the flagships you mentioned [Fat Tire] is seeing mid-single digit declines in nearly every region IRI tracks (food stores, ytd), except newer rollout markets like Great Lake and Southeast. It's even down 12.5 percent in California. Luckily for New Belgium they've got Ranger IPA, Variety Pack, and the new Rampant Imperial IPA among other brands which are picking up the slack as are new rollout markets. It just seems like certain styles are now the mainstream preference (IPA, seasonals, etc.) and back in the 1990s when many flagship brands were created, nobody was drinking IPAs or high ABV super-hopped beers, they were drinking amber lagers/ales or red ales. The challenge is back-filling flagship fatigue with new choices to pick up the baton and keep running."

Editor's Note: Exactly. In fact, perhaps the whole idea of a flagship brand is outdated. I remember moderating a panel with Greg Koch of Stone Brewing three years ago in California and asking him what his flagship beer was, and he looked at me like I had bunny ears on. Whaa? No flagship. Your flagship is whatever sells the best this year. Leinenkugel's Summer Shandy will be 40% of the brewer's volume this year. Summer Shandy, my friends, is their new flagship.

LATE 1990s SLOWDOWN. And finally, we have a craft brewer who has been around a long time giving a slightly alternative history of the 1997 craft slowdown. His take is that consumers' taste in beer style -- after the initial infatuation with craft beer waned -- shifted faster than the players could react. (It's related to what our Truth Squader said in the above paragraph). In his words:

"Back then, before the fall, consumers were so infatuated with the novelty of craft that they were happy to drink whatever was available. So it was that brewers who expanded capacity quickly believed that they were the chosen ones since they could sell everything they could make of whatever it was they had been shipping.

"When industry capacity finally caught up with and exceeded demand, as is always the case eventually with booms, consumer demand (which never stopped growing in a linear way) could direct itself towards what they actually wanted to drink... and the brewers who had added lots of capacity and thought they were the chosen ones (Redhook, Full Sail, Portland Brewing, Gordon Beirsch, Pyramid, Mendocino, etc.) they found themselves outside of the tent once demand finally grew back into the supply after a few years of apparent chaos.

"It is worth noting that during this time the Imports began growing again as consumers gave them a second look, waiting for their beloved local brewers to figure it all out again.

"It wasn't so much the questionable beer or the over supply or the bursting of a bubble that wrought the terror of the mid-nineties (although money from public offerings and from looser bank lending standards facilitated the mess) as it was part of the birthing of consumer control over the future of craft flavor profiles."

Interesting take on that period. And all of these Truth Squaders give hope for this time around.


Last week we quoted a source who implied that Budweiser Black Crown was moving slow, but A-B begs to differ. In a memo to employees obtained by BBD, A-B writes that the brand "is off to a great start, delivering incremental volume above the brand's aggressive targets and budget estimates", citing IRI market share putting the brand "consistently been from 0.5 pts to 0.6 pts the past few weeks. That's already one-third the size of the Heineken brand and larger than Blue Moon and Miller Genuine Draft."

"The brand is resonating -- our 12 oz. and 22 oz. bottle packages have been performing well," said Lori Shambro, director of Budweiser. "This has been a great launch and the brand is exceeding our expectations on a weekly basis."

On May 6 the brand is introducing an 18-pack. A-B is also testing Black Crown on draft in select parts of Ohio and Illinois. A national launch on draft is being planned for later this year.


NOT SURPRISINGLY, the judge overseeing litigation between the DOJ and ABI over its Modelo deal approved a stay in court proceedings on Tuesday to give the two sides more time to reach an accord. Recall the two sides asked for an extension of a stay in order to wrap up an "agreement in principle" that would end litigation.

HE'S LEAVING. My friend Carlos Fernandez, ceo of Modelo, is taking a leave of absence from St. Louis-based Emerson's board of directors to focus on Modelo's pending sale t0 ABI. "Recognizing that over the next seven months, Mr. Carlos Fernandez will be engaged in time-sensitive and time-consuming matters related to his business interests in Grupo Modelo, the Board of Directors granted Mr. Fernandez a leave of absence."

HE'S BACK. Former senior Miller Brewing Co. exec Dick Strup (major player behind MGD launch) and later a Reyes Holdings exec has now joined the Board of North American Breweries.

Until tomorrow, Harry

"No one goes there nowadays, it's too crowded."
-Yogi Berra

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