Branding is such a dirty word

I get Daryl Rosen's e-letter on beer sales. Not about what beers are selling; it's about selling beer. Rosen comes from the Sam's beverage retail chain in Chicago -- it was his family's business -- and when the family sold 80% of the business in 2007 (the chain would later be bought by Binny's, their Chicago rival (and an excellent booze supplier, love to see something like that in PA post-privatization!)), Rosen set up shop as a lecturer and sales consultant. And he's good. Not only does Rosen give me an insight on how beer sales works, his advice -- listen, focus on finding needs and filling them, help the customer even when it doesn't directly benefit you or your product -- works for me, and potentially for anyone. I've never met Rosen, but I owe him.

Anyway, I wanted to share something I read today at his Beverage Professionals site: "Split Personality." It's about how the beer industry looks at branding. A lot of craft beer drinkers -- the hardcore -- look on branding, marketing, promotion, and advertising as pretty much tools of the Devil...because that's what the big brewers use. When craft brewers use them, it confuses these people; witness the way some of them trash Samuel Adams, a beer brand that has done amazing things to establish craft's credibility across the country, and one that produces excellent beers, exceptional and experimental beers.

However, as Rosen's colleague Michael Browne points out, it's not so much the branding the bigs use that should be disturbing; it's how they do it. Here's how he starts the piece:

'So a bunch of states that have this 3.2 ABW law. You have to sell a watered down (‘non-intoxicating') beer to distribute in many channels.'

‘Okay, I get it,’ says the newcomer to the beer industry.

So we take our biggest brands -- the ones we spend hundreds of millions of dollars marketing - and water down the product by 25% so we can sell it in these channels.’

‘Use the same brand name for this watery version of your product?’

Yup’

And you know it's true. Just that example alone is completely true; you'll see 3.2 versions of well-known brands -- like Budweiser -- in states like Oklahoma, and it won't say "Bud 3.2", it just says "Budweiser." (I'm not picking on Budweiser in particular, it's just an example.) 

What do you care? Well, Browne does, and for reasons that might intrigue you.

...the beer industry has convinced itself that playing fast and loose is okay, as long as there is a lot of volume at stake. And consumers are keenly aware of this. They know that craft brewers and specialty imports do not have compromised versions in these markets. They are able to draw a bright line between the mass producers and the small brewers that don't compromise… more evidence of the split personality in the beer industry. There are a bunch of large brewers who will put one brand on 2 very different beers; and there are craft Brewers that won’t.

Just one more chapter in a larger narrative that crafts are all about the beer; mass brewers are all about money.

Branding doesn't have to be a dirty word if you play it straight. After all, when I see "Deschutes," or "Victory," or "Bell's," or "Sierra Nevada" on a label, I know I'm getting a good beer. It may not be exactly to my taste, but the solid experience and integrity going into it makes it an easy decision to give it a try. Brand integrity is important, and it's been one of craft brewing's best practices (even through re-branding and the occasional slip -- Rogue's multi-labeling experiments come to mind). 

When craft is seen to have clear lessons for big brewers on basics like this, it's another sign that the whole industry might be changing. It's slow, but if the sales pros are chiding big brewers about this kind of, well, this kind of deception, that's a good sign.

 

MGD 64 Lemonade: I'm not kidding

"MillerCoors Plans Lemonade Beer"

That's an actual headline from the Wall Street Journal. I'm not making this up. Let's get a couple relevant quotes, and then shred this. Here's a  beauty from the Chicago Tribune:

The company expects the brew to attract new consumers to the beer category and to capitalize “on the growing consumer interest in flavored beers,” Andy England, chief marketing officer for Chicago-based MillerCoors, said in a memo to employees Friday.

They better hope something works, because:

Miller Genuine Draft 64, named for the number of calories it contains, got off to an auspicious start after its national rollout in 2008. But sales have cooled. The brand’s unit sales to retailers fell by a double-digit rate in the third quarter, the company said in November, while MillerCoors’s overall sales to retailers declined 4 percent. 

Does that sound familiar? Chillingly familiar? That's right!

MillerCoors, a joint venture of U.K. beer giant SABMiller PLC and U.S.-Canadian brewer Molson Coors Brewing Co., has struggled with another fruit-flavored brand: Miller Chill. The lime-infused light lager enjoyed a strong debut in 2007, but its sales slid after larger rival Anheuser-Busch Inc. unveiled Bud Light Lime the next year.

Hey, if ABIB 'steals' lime (i.e., does it better, which Bud Light Lime did: Chill was poorly executed), just go to lemon! They'll never think of copying that! 

The two/three (your call: is "MillerCoors" one big brewer, or two?) big brewers are having a bad time of it. The economy is clobbering their main consumers, and craft beer has apparently reached a tipping point that has consumers across the spectrum interested, despite higher prices. Mainstream beer is taking an ass-whipping, even light beer sales are down (they're actually up over the last two quarters, I believe...but only because the previous year's numbers were so bad), and the mainstream imports are having their damned lunch eaten (and getting kicked around the schoolyard to boot). 

No, wait...Yuengling is pretty much mainstream -- a bit out of it, but it's essentially a light lager made with a substantial amount of corn, and they do have a light beer -- and they're kicking ass and looking for a new production plant. Could it be that it's actually...the big brewers' marketing that sucks? Oh, man, if the marketing fails...

Here's what happens when the marketing fails. ABIB's sales dropped 3.1% last year (MillerCoors fell 3.4% over that period). But things are not unhappy at the big brewers. Why?

The two brewers, which together account for nearly four out of every five beers sold in the U.S., still have managed to record steady profit growth, offsetting their weaker sales volumes by raising prices and cutting costs. 

Sound business practice, leading to expansion...well, no. What this really leads to is retiring debt, and then going to look for other breweries to buy and ravage -- sorry, lead to new heights of world domination. Rumors are rife that Diageo may finally be ready to unload Guinness (there are even some rumors that ABIB might be ready to just eat Diageo whole), and Grupo Modelo is a likely target. Carlsberg and Heineken are probably safe from takeover because of their ownership structure, but analysts are predicting that the final round of consolidation may at last be upon us, as the signs from the Book of Revelations appear. (It's getting tighter in spirits, too: Diageo, Pernod Ricard, Bacardi, LVMH (who seems more interested in buying up more luxury goods than booze lately), United, and Gruppo Campari are circling like wrasslers in a huge cage match, while Brown-Forman and Fortune hang out in the corners. That one's gonna get bloody.)

Who will win? I guarantee it won't be the consumer, and government anti-monopoly agencies seem to be nowhere in sight.

Meanwhile, that "growing consumer interest in flavored beers"? Like the smartass fish used to tell Charlie the Tuna, consumers aren't interested in flavored beer, they're interested in beer with flavor.
 

Pabst finally, almost, probably...sold

After years as the property of a charitable institution, Pabst Brewing looks likely to be sold to C. Dean Metropoulos. The Wall Street Journal reports that Metropoulos will be paying the Kalmanovitz Charitable Foundation about $250 million for the company, a collection of brands and employees that owns no brewing facilities (Pabst's brands are all brewed under contract). Here's the nut of the story for those who are not WSJ subscribers:

Investor C. Dean Metropoulos made a fortune building well-known consumer brands including Bumble Bee Tuna and Vlasic Pickles. Now, he is looking to wash them down with a Pabst Blue Ribbon.
Mr. Metropoulos, a 64-year-old executive known for invigorating brands, has reached an agreement to buy Pabst Brewing Co. from the charitable foundation that owns the company for about $250 million, according to people familiar with the matter. Although little known outside of food circles, he earned a fortune managing brands such as Chef Boyardee, Duncan Hines and Ghirardelli Chocolates. With Pabst, Mr. Metropoulos is showing his deal-making skills.
About 15 other private-equity firms, including Morgan Stanley's private-equity arm, had considered a bid, said people familiar with the matter. The purchase is in its final stages and has the financial backing of General Electric Co.'s lending arm, the people said.
Pabst Brewing is the country's fifth-largest beer supplier, according to industry newsletter Beer Marketers Insights Inc., accounting for 2.7% of industry volume last year. Pabst's blue-collar roots have made the brand-known among beer cognoscenti as PBR-a beer of choice for a generation of irony-loving hipsters from Portland, Ore., to Manhattan's Lower East Side.

It's just me, but if Mr. Metropoulos really wants to "invigorate" this brand...he should buy/build a brewery for it. Give Pabst a home, Mr. Metropoulos; give it back its soul. And maybe give it back some hops while you're at it.

Consolidation Beat goes on, says MarketWatch

Following up on yesterday's post on the Heineken-FEMSA deal, an article from MarketWatch sees more brewery consolidation to come at the top. (I let you down; should have had this for you, because it's all stuff I knew. Sorry.)

Currently, the four top players control about 50% of the global market. And in his remarks, Heineken CEO Francois van Boxmeer said it is likely they will soon gobble up another 25% between them.

It's out there, waiting to be had. FEMSA's Mexican compadre, Grupo Modelo, is already half-owned by ABIB, and there's a good-sized chunk right there.

There are bumps in the road. The remaining breweries are often owned (or partially-owned) by families or foundations, which will present challenges to a quick acquisition...but it's hardly a dealbreaker; A-B was partly family-owned, after all, as is FEMSA (and Heineken, far as that goes).

Will we see 75% of the world's beer market controlled by two to five companies? What effect will that have on beer prices, on brewing commodities? Why isn't this an anti-monopoly issue?

Heineken buys FEMSA's beer business

Heineken announced today that they have agreed to purchase FEMSA's beer business in the Americas. FEMSA ("Fomento Económico Mexicano, S.A.B. de C.V.") was founded in 1890, and is Mexico's #2 brewer after Corona-maker Grupo Modelo (the two are pretty much the only brewers in the country, other than a handful of microbrewers).  FEMSA as such is largely unknown among American beer drinkers, but is the brewer of beers like Dos Equis and Tecate, and Heineken USA has been their importer lately.

The purchase was an all-stock deal worth $5.5 billion, and leaves FEMSA owning 20% of Heineken. The only other serious bidder was SABMiller, and their stockholders are breathing a sigh of relief that there wasn't a bidding war. It appears to be a much better fit for Heineken anyway, getting them into the Americas in a big way.

What's this mean for you? Mostly nothing. I think it will have a net negative effect on consumers; prices will go up to pay for these purchases, and the closer we move to an oligopoly of beer -- mainstream beer, of course -- the easier it is to bump up prices. The more mainstream prices go up, the more room there is for craft prices to go up. However, SABMiller head Graham Mackay says it's a net positive, because consumers have more choice (a point I still don't get; more choice because more global brands that taste almost exactly alike have come to their country and are busily crushing the regional brewer?) and better quality (okay, that I can go along with in a strict sense). I'll freely admit that Mackay has much more experience in the biz (HA! Yeah, just a bit...) and is, by all evidence, head and shoulders smarter than I am, so he may have something there...but I suspect it's largely a matter of perspective.

Anyway...again, what's this mean for you? Almost nothing, especially in America. Heineken USA was importing the beers, they'll still be importing them; it's just that they'll also be exporting them at the same time. And, of course, the number of big brewers at the top grows smaller. Which is why I predicted in Ale Street News that within ten years ABIB would be spinning off and breaking up. I wasn't wholly serious about that, but to some extent I am. I don't think these behemoths are going to survive. Government anti-trust units should be poking at them (how much of the U.S. market is controlled by ABIB and MillerCoors?), special brewing units should spin off to run on their own in this new market, and eventually the bankers involved at the top will start acquiring other stuff because there are no more breweries to buy, and the company's identity will be lost -- like Bass -- and they'll start thinking about selling off the beer -- like Bass -- to focus on other operations. At least, that's what I think may happen.

In any case...Heineken USA is now in the import-export business.

Graham Mackay on the global beer industry

SABMiller head Graham Mackay had a major interview in The Times yesterday. This is the man who told us the craft beer surge would fade: "It's inevitable." And after almost every beer blogger and beer website forum denizen had at him, he passed from their consciousness. He's big beer, after all.

Mackay is one of the brightest people in the business, a business that is filled with very bright people, especially at the top. I found the interview -- including a casually tossed-off T.S. Eliot quote -- fascinating.

Especially this, about the global consolidation of the beer market. I've marked the parts I find particularly interesting.

Two decades later the globalised market now looks like a two-horse race, with Anheuser-Busch Inbev leading SAB Miller, and Heineken and Carlsberg trailing behind. Many have made fortunes - the only real doubt is whether consumers have benefited.
Mackay is adamant they have. "It's resulted in better-quality products and more choice. People talk about the dead hand of globalised brand uniformity, but I don't think that's true in beer. Stonking great global brands haven't worked. Heineken is the most global brand and that's under 25% of its owner's volumes." [Bear in mind: despite having a number of large brands, neither SABMiller nor ABIB have a single dominant brand.]
And now, he predicts, consolidation will slow as the key players circle each other. "What stops the biggest groups consolidating is the desire of their owners. Most are in family hands. We are unusual in having an open share register."

That said, Mackay politely refused significant comment on whether SABMiller was interested in buying FEMSA, which is clearly up for acquisition. A guy's got to keep his hand in, after all.

What's it mean? Is Mackay right, is global consolidation about over? Not quite, with substantial pieces like FEMSA and Grupo Modelo still on the board and likely available, but close. As he says, major players like Carlsberg and Heineken are not very likely to be bought because of their ownership. Where to go from here?

FEMSA Follow-up

Hey, remember we were talking about how well Dos Equis is doing for Heineken USA? Keep in mind that Heineken USA is just the importer; the beer is brewed and owned by Mexican brewer/drinks conglomerate FEMSA (Fomento Económico Mexicano, S.A. de C.V.). But I see in the Financial Times today that they are "in talks" to sell off their beer business, to either SABMiller or Heineken, in order to focus on their profitable Coca-Cola business. Here's why I posted, in light of the previous post:

Heineken USA has distributed Femsa's beer in the US since 2005, after Femsa's decision to extract itself from a distribution deal in 2004 with former partner Interbrew. Femsa and Heineken USA, a unit of the Dutch beermaker, signed a deal in April 2007 to extend their relationship for another 10 years.
But the US partnership with Heineken has underperformed, industry insiders say, as Femsa's beers have struggled to compete against fellow Mexican brewer Modelo and its ubiquitous top beer, Corona.
[...]
But the need for consolidation in the Latin American brewing arena has taken on a new level of urgency in the wake of InBev's $52bn deal to buy Anheuser-Busch. As part of that transaction, InBev, the world's largest brewer, gained a 50 per cent stake in family-run Modelo.

In other words...the strong growth FEMSA's Dos Equis and Tecate have shown in the U.S. isn't enough, because they aren't Corona. They have "underperformed." Sounds to me more like FEMSA doesn't have the stomach for the fight.

What it really sounds to me is that the "need for consolidation" is lemming-like, brewers rushing to buy other brewers so they get big enough to fight for market share, when all they're actually doing is fattening themselves for the kill.

And who gets rich? Bankers. Who gets screwed? Brewers, and you, my friends, because huge brewers can and will throw their weight around and have an effect on the entire beer market, including crafts, just like Wal-Mart does in retail.

And what will happen when there are but three or four mega-monster brewers left? I hope someone's standing by Carlos Brito, ready with a videocamera:

When Alexander saw the breadth of his domain, he wept, for there were no more worlds to conquer.

The World's Largest Brewers: ups and downs

Just saw some interesting numbers: change in stock prices over the last year on the world's largest brewers from a regular e-letter from www.e-malt.com. Rolling down from the year's best performer to the year's biggest loser:

MolsonCoors -- +4.4%
SABMiller -- -15.7%
Heineken -- -48.2%
Carlsberg -- -60.9%
Anheuser-Busch InBev -- -70.7%

MolsonCoors has been tearing up the pea patch lately, running on big margins from Blue Moon and increased volume on Coors Light, enough to offset losses from the Canadian brands side of the business. Coors has put in place a number of things that are appealing directly to their customers: the 'blue mountain' temperature sensing label, the 'air vent' pouring aid on their cans, and they've done away with the goofy "Twins" advertising and have focused on the beer and the fun.

That all seems silly to most craft drinkers, but you know what? We don't drink Coors Light anyway, so they're not aiming at us. They are aiming at us -- or people who are thinking like us -- with the very understated and smart support they're giving Blue Moon. You gotta be some kind of smart to beat the crap out of the average performance of American/European stocks last year: -42%. Hats off to MolsonCoors.