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March 2014

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What does Ludwig say?

Yesterday The Wall Street Journal ran a great quote from the brilliant economist and philosopher, Ludwig von Mises.

As he noted, "Everyone carries a part of society on his shoulders, no one is relieved of his share of responsibility by others. And no one can find a safe way for himself if society is sweeping towards destruction. Therefore everyone, in his own interest, must thrust himself vigorously into the intellectual battle." 

 

And here is the piece from the WSJ…

Notable & Quotable

Economist Ludwig von Mises on the supremacy of consumer interests over producer interests in a market economy.

March 24, 2014

Ludwig von Mises, "Nation, State, and Economy" (1919):

One of the great ideas of [classical] liberalism is that it lets the consumer interest alone count and disregards the producer interest. No production is worth maintaining if it is not suited to bring about the cheapest and best supply. No producer is recognized as having a right to oppose any change in the conditions of production because it runs counter to his interest as a producer. The highest goal of all economic activity is the achievement of the best and most abundant satisfaction of wants at the smallest cost. . . .

Preferring the producer interest over the consumer interest, which is characteristic of antiliberalism, means nothing other than striving artificially to maintain conditions of production that have been rendered inefficient by continuing progress. Such a system may seem discussible when the special interests of small groups are protected against the great mass of others, since the privileged party then gains more from his privilege as a producer than he loses on the other hand as a consumer; it becomes absurd when it is raised to a general principle, since then every individual loses infinitely more as a consumer than he may be able to gain as a producer. The victory of the producer interest over the consumer interest means turning away from rational economic organization and impeding all economic progress.

 

Wisdom then, wisdom now.

Disruptive change - How will you respond?

I have a friend who owns a small taxi company (he also knows the beer distribution business pretty well).  He’s witnessed firsthand how disruptive technology can quickly transform an entire industry… can you say Uber?  Now the beer distribution industry isn’t facing a disruptive technology but rather a beer renaissance like the world has never seen before.  This is a very good thing but it is also going to be disruptive.  Change by its very nature is disruptive.

This friend sent a great email warning to beer distributors along this line…

… All the legislatures in the country are giving Uber and other ride sharing apps the green light breaking up protectionist laws in place for taxi companies that date back as much as 100 years.  The beer industry should be on notice!

The world is a changin.

He’s got that spot on.  The only question is how each of you responds.  He’s watched with amazement as the large taxi companies spend all their time and effort on using their regulations and protectionist laws (and “purchased” politicians) to try to stop the likes of Uber.  As he notes, perhaps they would be wiser to spend more of that time and energy in actually improving the services they offer… to actually compete rather than fight to keep the other guy out of the game.

Each of you faces the same issue.  Will you fight solely to protect your rice bowl or will you adapt to long overdue change and compete?  If you chose to fight like the taxi companies, you need to ask yourself what type of permanent political damage you are doing to yours and the industry’s reputation.   

Reputations are a lot like virginity, once you lose them they are dang tough to get back.  ;-)

You can (and sadly most likely will) wrap yourself in “good for the children and society BS” but if your sole concern is protecting a very self-serving, protectionist agenda you will be laying the groundwork for your eventual demise.

Fight or adapt and compete.  I know many of you and your organizations.  I hope you take the adapt and compete road … you’ll be doing a dis-service to your legacy and every employee if you attempt to man the protectionist barriers and demand the tide stop rolling in. 

And it’s generally never good news when an industry is in the news… following is an article from the 3/12 edition of National Review Online.  You can find the original here or just continue reading.  I counsel you all to choose your battles carefully.  Win or lose, fighting for the indefensible will do serious damage that will come back to haunt you.

jc

March 12, 2014

Alcohol Battles Brewing in the States

A slew of proposed laws would loosen restrictions on the sale of booze.

 By Katherine Connell

At least six states are taking aim at the country’s byzantine patchwork of state laws governing the sale of alcohol.

As any out-of-towner knows who has attempted to buy wine in a New York City convenience store only to unwittingly purchase the awful “wine product” Chateau Diana, laws governing the sale of alcohol can seem bafflingly arbitrary. In New York, where wine and beer cannot be sold on the same premises, it doesn’t look like Trader Joe’s will be tearing down the wall between its wine shop and grocery store any time soon.

Elsewhere in the nation though, from Maine to Florida, restrictions on alcohol are being challenged in state legislatures this year, driven in part by the burgeoning popularity of the craft-beer movement.

In Florida, Republican state senators have proposed measures this legislative session that aim to ease up on some of the rules currently hampering the state’s small-batch brewers. One bill would legalize the sale of 64-ounce growlers — containers filled straight from the tap, sealed and sold to customers — as is allowed in 47 other states. Florida at the moment permits the sale of 32-ounce bottles, but that’s not the industry standard. Another bill would allow licensed beer retailers to offer free tastings, as is legal for stores selling liquor and wine. The large beer distributors in the state are unhappy to see their market dominance challenged and will put up a fight.

A proposed law that was voted down last week in New Hampshire would have done away with the current requirement that all stores that sell beer also stock at least $3,000 worth of food. “If the bill were to pass, it could open the door for boutique-type beer stores that could cater to our smaller, yet growing, beer industry across the state,” Republican state representative Pamela Tucker said, before the bill was killed on a 163 to 142 vote.

Democratic representative Ed Butler insisted that the law was worth keeping because “the sale of food at stores with beer and wine hopefully encourages consumers to enjoy one with the other.” As the New Hampshire Union Leader editorialized, the assumption seems to be “that people who buy beer in bottles and cans have no food at home with which to enjoy their alcoholic beverages.”

Pennsylvania, which maintains a state monopoly on the sale of all types of alcohol, is infamous for the hoops it makes retailers and consumers jump through. It’s not possible to purchase wine and beer in the same location, and the only way to pick up a six-pack as opposed to an entire case of beer (the only thing typically on offer at the state-run beer distributors), is to swing by a restaurant or deli, which take advantage of “eating place malt licenses” to sell beer to go. Grocery stores in Pennsylvania have taken to attaching sit-down restaurants to their buildings so that they can do the same.

Legislative attempts to move toward privatization, as recently as last summer, have been unsuccessful in large part because the state-run stores are staffed by unionized employees who benefit from the status quo. Nevertheless, Republican governor Tom Corbett called last month in his state-of-the-state address for another go, and some legislators are prepared to take up the challenge.

“Let’s make 2014 ‘last call’ for state-controlled liquor in Pennsylvania,” Corbett said. “We have to reform our antiquated system of state-owned liquor stores. Visitors often wonder about it — unless they’re from Utah.”

In Utah, liquor restrictions are a live issue for different reasons. A majority of residents belong to the Church of Jesus Christ of Latter-Day Saints, which teaches its members not to consume alcohol. Beehive State lawmakers are in the midst of a heated debate about whether to tear down the “Zion curtain.” That’s the barrier, often a frosted-glass panel, behind which bartenders in restaurants are required to go to mix drinks or uncork beer for customers, so as not to expose children to the act of alcohol being dispensed. The 2009 law requiring the barriers exempted restaurants that opened prior to January 2010, so proponents of the bill to undo the law argue that the current rules unfairly disadvantage new businesses, in addition to alienating tourists.

Maine liquor regulators this year started cracking down on bars for displaying the alcoholic content of different beers, a practice that is prohibited in a post-Prohibition 1937 law that’s still on the books. The idea behind the law was to keep advertisers from making high alcohol content a selling point, but with the rising popularity of craft beers, which include a variety of more potent brews, it’s a common and seemingly commonsense practice to post alcohol content. Democratic state representative Louis Luchini is working on legislation to address the issue, but in the meantime, bar owners and brewers are unsure what the law requires of them.

Alcohol-content levels are at the center of a battle over beer in Tennessee, where there’s a movement being led by the Craft Brewers Guild to “Fix the Beer Cap.” Any beer exceeding 5 percent alcohol content in the state is classified as “high-gravity” beer and is subject to the same sales restrictions as liquor, which can only be sold in state-licensed stores. Even if a measure on the ballot in Tennessee this fall to allow wine to be sold in grocery stores is approved (an idea favored by 66 percent of respondents in a recent Vanderbilt University poll), the cap means that some beers with half the potency of wine would still be verboten in supermarkets.

“I know there are a lot of consumers who want to purchase Chimay, Delirium Tremens, and they want to be able to able to get it with the convenience of a grocery store,” said Republican state senator Brian Kelsey, who favors raising the cap. He and other state legislators have hit on one issue, at least, that can unite Republicans and hipsters.

It's settled... legal pot is headed your way!

It’s settled… legal marijuana will soon be coming to your state.  As you respond with a well-deserved, whaaaaa?... let me explain.  The first reports on legal weed sales in Colorado have arrived and they are amazing… 50% higher than previous predictions.  It looks like the legal weed industry (both “medical” and recreational) will be a $1,000,000,000 (yeah, that’s one billion) industry.  That’s in Colorado.  Can you imagine what it would (will?) be in a state with a large population?

This will bring in a couple hundred million in annual tax revenue for the state.  How many states in the union would like to tap into this free deluge of taxes?  Where else can they find this much easy money? 

Sure, they will wrap it in “good for the children” BS but what they really are eyeing is a mountain of greenbacks… all racing to the state coffers.  Money that the politicians get to spend!  Why do you think so many big-government politicians are vocal supporters of global warming (er, climate change)?  The way they “address” this issue is to tax carbon, thereby giving them a never-ending river of money to spend… and power to grab. 

To help get this initiative passed in Colorado, the first $40 million in taxes must go to school construction… oh, those precious little tykes!  See how that makes everything all right ;-)

Of course here in Colorado our fool governor is already planning new spending on this river of free money.  That’s the reason more taxes never solves any present problem, instead the leviathan simple gets bigger and bigger… but that’s a rant for another day.

These numbers also really bring to light just how large the illicit drug trade is.  Assuming some of these sales are from pot-tourists and perhaps this legalization has slightly increased consumption, these are still amazing numbers.   Each and every day this marketplace is operating in every state in the land.  It seems it can operate above ground or below, but it is going to happen.  With this type of money flowing, it is not surprising that criminal gangs fight so hard to control it.  And now our legal criminal gangs - politicians ;-) are going to be fighting for their take too.

No question I am a cynic but I don’t see many states walking away from this fire-hose of free money.  And as I noted in a previous post, unfortunately the serious potential problems with legal pot most likely won’t be evident for years and years… but that river of tax money can start right away.  And after a couple months of legal sales, the sky hasn’t fallen in Colorado.  So far there really haven’t been any reported downsides… some concerns about stoned driving but no facts that support those claims yet.

If I were a betting man, I’d have to wager legal weed is coming to your state, probably sooner rather than later.  If this is an industry you’re thinking of joining, I recommend you move quickly.  Many states are doing the ol’ marijuana two-step… starting with medical marijuana and then heading towards full legalization… mimicking either alcohol “control” states (where the state runs the stores) or “license” states (where the stores are independently operated under a license from the state).

If you are going to jump in, get moving on the medical side first.  At least here in Colorado, they have a considerable advantage once full legalization hits.

As I’ve always told my clients (mainly because I need them to be 100% honest with me)…

1.      1.    I don’t make moral judgments… things like running the mistress’s expenses through the company ;-)

2.      2.    I’m not the IRS… things like running the mistress’s expenses through the company ;-)

So if you want to talk more about this industry, give me a call.  Unless there is a huge, unforeseen issue, one would have to guess it is here to stay.  And of course once the politicians start spending this additional money, it will be difficult to voluntarily turn off the spigot… for then they would have to find a new source of funds (dang tough to find a politically viable source which will provide this level of coinage) or they would have to cut programs and people (ain’t going to happen).  Therefore once this thing gets going, it takes on a life of its own and most likely won’t ever end.  A ton of money is going to be made by a lot of folks.  That’s just the way it is.

A grand experiment indeed.

 

What is the future for brands?

There was a great article on the decline of brand strength in the most recent The New Yorker magazine.  You can find the original here or just continue reading for the full article.

Beer and beverage brands are different than a car or TV… their strengths are less physical but rather more mental and psychological.  The emotional ties are what drive their successes.  Thus beer and beverage brands face more risk when these psychological bonds begin to fray.  Bud Light, Coors Light, Miller Lite, etc. are what they are.  Unlike the auto or TV, new “gee whiz” technology won’t be able to impact the consumer’s desires.  Thus the challenge.   Or opportunity, depending on how one looks at it.

That said, here is the article…

Twilight of the Brands

 by James Surowiecki February 17, 2014

 Twelve months ago, Lululemon Athletica was one of the hottest brands in the world. Sales of its high-priced yoga gear were exploding; the company was expanding into new markets; experts were in awe of its “cultlike following.” As one observer put it, “They’re more than apparel. They’re a life style.” But then customers started complaining about pilling fabrics, bleeding dyes, and, most memorably, yoga pants so thin that they effectively became transparent when you bent over. Lululemon’s founder made things worse by suggesting that some women were too fat to wear the company’s clothes. And that was the end of Lululemon’s charmed existence: the founder stepped down from his management role, and, a few weeks ago, the company said that it had seen sales “decelerate meaningfully.”

It’s a truism of business-book thinking that a company’s brand is its “most important asset,” more valuable than technology or patents or manufacturing prowess. But brands have never been more fragile. The reason is simple: consumers are supremely well informed and far more likely to investigate the real value of products than to rely on logos. “Absolute Value,” a new book by Itamar Simonson, a marketing professor at Stanford, and Emanuel Rosen, a former software executive, shows that, historically, the rise of brands was a response to an information-poor environment. When consumers had to rely on advertisements and their past experience with a company, brands served as proxies for quality; if a car was made by G.M., or a ketchup by Heinz, you assumed that it was pretty good. It was hard to figure out if a new product from an unfamiliar company was reliable or not, so brand loyalty was a way of reducing risk. As recently as the nineteen-eighties, nearly four-fifths of American car buyers stayed loyal to a brand.

Today, consumers can read reams of research about whatever they want to buy. This started back with Consumer Reports, which did objective studies of products, and with J. D. Power’s quality rankings, which revealed what ordinary customers thought of the cars they’d bought. But what’s really weakened the power of brands is the Internet, which has given ordinary consumers easy access to expert reviews, user reviews, and detailed product data, in an array of categories. A recent PricewaterhouseCoopers study found that eighty per cent of consumers look at online reviews before making major purchases, and a host of studies have logged the strong influence those reviews have on the decisions people make. The rise of social media has accelerated the trend to an astonishing degree: a dud product can become a laughingstock in a matter of hours. In the old days, you might buy a Sony television set because you’d owned one before, or because you trusted the brand. Today, such considerations matter much less than reviews on Amazon and Engadget and CNET. As Simonson told me, “each product now has to prove itself on its own.”

It’s been argued that the welter of information will actually make brands more valuable. As the influential consultancy Interbrand puts it, “In a world where consumers are oftentimes overwhelmed with information, the role a brand plays in people’s lives has become all the more important.” But information overload is largely a myth. “Most consumers learn very quickly how to get a great deal of information efficiently and effectively,” Simonson says. “Most of us figure out how to find what we’re looking for without spending huge amounts of time online.” And this has made customer loyalty pretty much a thing of the past. Only twenty-five per cent of American respondents in a recent Ernst & Young study said that brand loyalty affected how they shopped.

For established brands, this is a nightmare. You can never coast on past performance—the percentage of brand-loyal car buyers has plummeted in the past twenty years—and the price premium that a recognized brand can charge has shrunk. If you’re making a better product, you can still charge more, but, if your product is much like that of your competitors, your price needs to be similar, too. That’s the clearest indication that the economic value of brands—traditionally assessed by the premium a company could charge—is waning. This isn’t true across the board: brands retain value where the brand association is integral to the experience of a product (Coca-Cola, say), or where they confer status, as with luxury goods. But even here the information deluge is transformative; luxury travel, for instance, has been profoundly affected by sites like TripAdvisor.

For consumers this is ideal: they’re making better choices, and heightened competition has raised quality and held down prices. And they’re not the only beneficiaries; upstarts now find it easier to compete with the big boys. If you build a better mousetrap, people will soon know about it. A decade ago, personal-computer companies like Asus and Acer had almost no brand identity outside Taiwan. Now they are major players. Roku, a maker of streaming entertainment devices, has thrived even though its products have to compete with similar ones made by Apple (which is usually cited as the world’s most valuable brand). And Hyundai has gone from being a joke to selling four million cars a year. For much of the twentieth century, consumer markets were stable. Today, they are tumultuous, and you’re only as good as your last product. For brands like Lululemon, there’s only one consolation: make something really great and your past sins will be forgotten. ♦

 

Holy Guacamole… continued

We are 14 days into the biggest social experiment in our lifetimes… the legalization of marijuana in Colorado (and soon Washington).  This is the first place in the modern world where weed is legal for retail sale.

It is a social experiment of immense (and unknown) proportions.  Many liken this episode to the 21st amendment which repealed alcohol prohibition and legalized (once again) its production, sale, and consumption.  I believe this analysis is actually backwards… I think a better comparison is with the 18th amendment, the one that outlawed alcohol.

You see, the 18th amendment was a grand, well intentioned (for now we’ll ignore the anti-Catholic/anti-immigrant aspects) experiment.  That’s what it was, an experiment.  Fed up with the excesses of rampant alcohol abuse, a motivated group convinced the country that the solution was to outlaw the product.  We all know how that experiment worked out.

Legalization of weed is also a grand, well intentioned experiment.  I personally believe it will work out a lot better than prohibition but that’s all that is, a belief.  No matter how one looks at the issue, it is an experiment whose long-term consequences are unknown.  And it sure looks like it is going to be copied throughout the country, years and years before these consequences are truly known.

Why is it going to be copied around the country?  Good ol’ cold, hard cash is going to drive it like a racing freight train across the country.  Not illicit cold, hard cash but cold hard cash as in a tax windfall for states that jump in the pool.

Here are some quotes from a Denver Post article, you can find the full article here… (emphasis added is mine)

Only one week into Colorado’s history-making recreational marijuana industry, one shop has already sold out of pot, others fear they may soon join it and perhaps as many as 100,000 people have legally purchased marijuana at Colorado stores.

Industry advocates estimate Colorado stores have already done more than $5 million in sales — including $1 million on New Year’s Day — though National Cannabis Industry Association executive director Aaron Smith acknowledges those are “back-of-the-envelope” figures. The owner of one store said she expects to make as much in sales in the first 10 days of January as she did all of last year selling medical marijuana.

Many shops have imposed caps on maximum purchase amounts well below the caps required under state law. Numerous store owners say they have sold out of marijuana-infused edible products. Toni Fox, the owner of 3D Cannabis Center in Denver, said she closed her store down on Monday and Tuesday this week, just to restock and give her staff a rest.

Even for stores that reported robust inventory, like High Country Healing in Silverthorne, owners said marijuana could become scarce across the industry if more stores don’t get their licenses approved and open to absorb the flood of interest.

“None of us could really prepare for what was going to hit us,” High Country Healing’s owner, Nick Brown, said on Tuesday. “I think we all thought we would see huge demand and lines. But I don’t think any of us expected what was happened over the last six days.”

More than 10,000 people bought marijuana at Colorado’s recreational pot shops on Jan. 1, according to industry estimates and tallies provided by the stores. And, while that initial surge was expected, the sustained interest was not. Brown and several other store owners said they saw only a slight drop-off in sales in the days after Jan. 1.

Colorado is looking at a flood of weed-related tax revenue flowing into the state.  It sure looks like it will be a windfall bigger than anyone expected… and other states aren’t going to just sit back and watch it happen.  Thus the experiment is taking wings right before our eyes.  Hopefully it turns out a lot better than the 18th Amendment.

It is mind-numbing to watch it happening… and this from a guy whose views lean libertarian.  The Denver Post… the major newspaper in the front range of Colorado has even started a website “exploring the culture of pot” which you can find here or just go to www.thecannabist.co.  This isn’t High Times magazine… in effect this is each of your local newspapers!

Want to know how to make the best weed-infused butter possible?  Want to check out the reviews for the “strain of the day”?  Cooking with cannabis, here’s how!  “Find a store near you”… just enter your zip code.

Want to know what the pricing and product situation is?  You can’t order marijuana on-line but you can be an educated price shopper.  Click here to see prices at one store… on a WHOLE range of products.  Of course there is smoking weed.  But edibles are huge.  Candy, flavored sprays, concentrated oils for use in vaporizers.  It’s all here.

Want the best vaporizer out there?  Check out our reviews!  Elliot, here’s a new market for FIN ;-)  Sorry, I couldn’t pass that one up.

Lots of opportunity here for everyone.  Perhaps a new income stream for Harry and Benj ;-)  Perhaps with a publication name like Wacky Weed Weekly ™?  Or Stoner’s Daily ™ or The Daily Stone™ or ??   Please send me some of your suggestions for a title.

Amazing to watch this process.  That disconnect between illegal and legal still rattles around my head.  How this all ends?  Will this prove to be a mirror image of the wisdom of the 21st Amendment or the well-intentioned but foolish 18th Amendment?

Is everyone in Colorado going to end up like this?  Seriously, you might enjoy that link and video ;-)  Or is it going to work out alright?

And what about alcohol sales?  It seems the general consensus is that legal weed will have a minimum impact.  I tend to agree but we must remember this is simply a WAG, nothing more.  (don’t know what a WAG is?  You should).

But I can’t help but believe there will be some sort of “lottery effect”.  Was all this money (and there is A LOT) being spent anyway, just in the illicit trade?  If so, this legalization is a good thing.  It also puts into perspective how MASSIVE the illicit drug trade is.

 Or more likely, a portion of this money was being spent in the black market anyway and is now circulating in the legal trade.  But one would think that at least a portion of this money is ADDITIONAL spending, and thus the lottery effect on alcohol sales.  It’s probably the later with the only question being how many additional, new incremental dollars are being spent on the weed-market and where these incremental dollars are coming from.  We’ll know the answer to that sometime down the road.

Strange world where smoking weed is more accepted than smoking cigarettes.  Will kids even bother with cigarettes?  I think weed is probably cheaper.  Or will being loaded become “uncool”?  Again, heck if I know.

And lastly a correction… I wrongly stated that out-of-staters could purchase up to 1 ounce at a time.  That privilege is reserved for in-stater’s.  If you are not from Colorado, you can only purchase ¼ ounce per retail visit.  I guess it will take more stops to fill up that glove box than I first thought ;-)  Oh, and the cops in surrounding states suggest you keep it in the trunk, not upfront with the passengers - really.  Well actually they also recommend you don’t bring it into/through their states… yeah, right.

Let me know what you all think of it.  It is amazing to watch.

Holy guacamole! Legal weed arrives in Colorado

Well in 2 days it will be weed-thirty in Colorado!  Yes that’s right, as of January 1, 2014 legal retail marijuana shops will be opening throughout Colorado.  Screw that medicinal bull; this is weed for those who simply desire it.  This became law via citizen initiative and won with strong support… 55% to 44% with almost 69% voter turnout.

Since this is a topic near and dear to many a beer wholesaler’s heart ;-), I thought I’d give all you non-Coloradoans an update on the Mile High scene.

First, it is interesting to watch and listen to people as they discuss the topic of legal marijuana.  You can hear a disconnect from many as they still think of the product as an illicit drug rather than the legal, state-regulated product that it will be in 2 days.  One would have probably heard the same types of things during the end of Prohibition.  But of course Prohibition lasted only a little over 13 years so for most adults they could remember a time when alcohol was legal.

That’s not the situation for marijuana.  There is no one alive who remembers a time when it wasn’t illegal… and for the Feds it remains a Schedule 1 drug… and for what that means I’ll let the Federal Drug Enforcement Agency’s website tell the tale (which you can find in its entirety here if you choose)

Drug Schedules

Drugs, substances, and certain chemicals used to make drugs are classified into five (5) distinct categories or schedules depending upon the drug’s acceptable medical use and the drug’s abuse or dependency potential. The abuse rate is a determinate factor in the scheduling of the drug; for example, Schedule I drugs are considered the most dangerous class of drugs with a high potential for abuse and potentially severe psychological and/or physical dependence. As the drug schedule changes-- Schedule II, Schedule III, etc., so does the abuse potential-- Schedule V drugs represents the least potential for abuse…

Schedule I

Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse. Schedule I drugs are the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence. Some examples of Schedule I drugs are:

heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), 3,4-methylenedioxymethamphetamine (ecstasy), methaqualone, and peyote

So heroin, acid, ecstasy, Quaaludes, peyote and weed are classified the same by the federal government!  Yikes!  Schedule 2 drugs (by their reasoning not as dangerous as Schedule 1 drugs) include cocaine, meth, oxycodone (OxyContin) to name a few.  Earth to the Feds… coke, meth, and hillbilly heroin are one HECK of a lot more addictive and dangerous than weed. 

As a side note to all you parents out there… the Feds also include Ritalin as a Schedule 2 drug, i.e. in the same category as coke and meth.  Yet Ritalin is handed out like candy to children (generally boys) around the country… sorry, that’s just me temporarily getting on my soap-box again ;-)

Back to legal marijuana… since this product has never been legal in the memory of any living American, it is somewhat understandable that people still think of it as illegal and build their arguments from this perspective.  Denver City Council went round and round arguing that it should be illegal to smoke weed (on private property!) if anyone else could either smell it or see you doing it.  This foolishness was finally voted down but it shows how the illegal/legal mental divide will remain with us… probably for many years.

Of course under-age use is always a concern.  This one is harder to predict but my gut says most younger folks who want weed have no problem finding it right now… from middle school on up.  Some have predicted a rise in older use since they long ago lost their connection ;-) and I’d have to guess this might be the biggest user impact of legal weed. 

And of course there is that old belief that marijuana is a “gate-way” drug that leads to harder drug use.  In a counter-intuitive fashion, I think it might just go the other way.  When marijuana is illegal you must purchase it from someone who in all likelihood has quick and easy connections to those selling (and using) other drugs.  With legal weed this connection is broken.  Someone buying legal weed will no longer be dealing with people who will readily sell them other drugs.  At least that’s my guess right now.

In addition, one comedian was talking about legal weed and teenage use and his take was that legal marijuana will end up LOWERING teenage/youth use… when the kids sit around and watch grandma and granddad passing the bong, it will change the whole ‘illicit’ attraction.  He said it much funnier than that though ;-)

This transitionary period (forward if the experiment works or backwards if it becomes a huge failure) will be one of working out a lot of kinks and contradictions.  Since marijuana is illegal from a federal perspective, the weed industry can’t find any bankers who will accept their business… this is a problem for the “medical” marijuana retailers in every state too.  Financial institutions can’t knowingly do business with any individual/organization who is committing a crime.  Thus out of self-preservation, the banks refuse to do business with the weed industry.  To solve this problem Washington State is proposing the creation of a state-owned bank solely for the weed industry.  Many think this too is destined to fail since from the Feds perspective, it doesn’t matter who owns the bank… knowingly doing business with criminals is still against federal banking and financial law… and every one of these retail establishments, their grow operations, and every consumer is labeled a criminal under federal law.

Employers in Colorado and across the country can still fire you from your job for smoking during off-hours, even though you are using a now legal product... and using it on your time.  I personally don’t think this one will stand but that’s the law right now.  Expect the marijuana lobby to respond to this injustice with alcohol as their foil… “Perhaps we should pass a law where an employer can fire you for consuming a beer or two after work or over the weekend.”  The beverage alcohol industry should be prepared to address this since it most certainly is coming.  It will be interesting to see which side NBWA and state associations take on this one.

Weed might be legal in the state BUT on federal land (think national forests, BLM land, and national monuments)… if you smoke you are breaking the law and can be arrested.

Smoking in public is also against the law as is in public establishments, i.e. bars and restaurants, concert venues, etc.  But I think any analysis of reality will tell you this will rarely be enforced.  I find it difficult to believe cops are going to be on the prowl outside (or inside) of bars looking for folks who are lighting up a quick one.

And a quick one it will probably be… A letter writer to the local paper noted that the image of people standing around smoking joint after joint is based on the past.  This legal weed packs a punch. 

As a side note, a number of years ago I heard an agricultural geneticist talk about the incredible advances in the potency of marijuana that was achieved by a bunch of backyard geneticists.  To put it in perspective he noted that if similar advances were made with vegetables, one would be growing tomatoes that were four feet in diameter and watermelons twenty feet long!  I’d have to guess this trend will only continue.

Back to the letter writer… this writer explained it is far too expensive and far too powerful for this type of use… this is the infamous one or two-toke material.  Folks will grab a quick hit or two and then go about their business… or so this letter writer’s prediction.

In fact there are products called vaporizers (and others) that allow smokers to capitalize on this feature.  The magazine High Times did a review of some, which you can find here.  Here’s their lead paragraph…

Since our first vaporizer buyer's guide in 2011, a plethora of new pen-sized vapes have hit the market – offering cannabis consumers a stealthy, convenient way to get high in almost any location or situation. But with so many options, how can John Q. Stoner know which ones are worthy of their cash and stash, and which ones are worthy of the trash? Well, fear not, loyal readers – that’s where we come in. Our diligent staff has reviewed and rated (on a scale of 1 to 5) 15 top vapor pens so that you can get ripped without getting ripped off. We’ve provided vital specs on each of the following devices and judged them based on seven criteria: affordability, durability, versatility, high, stealth, health, and ease of refill. But first, some general info ...

This whole legal world should be an interesting experiment, eh?  Weed-based tours are already set up for January 1… think craft beer tours… and this could be a pretty big out-of-state attraction.  I’m certain in the very near-term we will see combined tours… weed and craft brewers.  I’d also have to guess car-based trips to our fair state will be going up substantially in the near term… with many going home with a glove-box full of high quality weed.  It is only legal to purchase (and possess) up to one ounce… but there are a lot of stores and it is not illegal to go back to the same store multiple times… so going home with a 6-month supply probably won’t be too tough… or if you want to sell back home, you can probably pay for your entire vacation with the proceeds.

Law enforcement around the country is already complaining that Colorado (and Washington State) are flooding their states with marijuana.  Assuming this experiment doesn’t go badly, I’d have to guess legal marijuana will quickly be adopted by many more states.  As the beer, wine, and spirits industries know so well… even folks who don’t like the product LOVE the tax revenue.  I can easily see state legislatures complaining that they are getting all of the impact of semi-legal marijuana without any of the tax dollars that come along with it.  Call me a cynic but I’d bet the dollars will win every time ;-)

From the beverage alcohol industry’s perspective… what does legal weed mean for beer, wine, and spirits sales?  Heck if I know!  If anything I’d guess perhaps a slight downward push but it is hard to say.  Are stoners more likely to stay home and drink or simply stay home or head to the local on-premise establishment?  We’ll know in a year or two.

Is there opportunity for distributors here?  From your present business model I’d have to guess not.  I simply don’t see a need for warehousing and distribution of this product.  There is though A LOT of money to be made… whether it’s grow operations or retail (or perhaps retail chain?) I’d guess folks are going to make a ton of money.  Probably be a little Wild West aspect to it for a while.  Do you jump in or not?  I think this will first be decided by your feelings on the Prohibition-aspect… is this an illicit drug or a legal, state-regulated product?  Your call.  In a week or two, the view from retail.

The 3-tier system needs more beer distributors

Although I don’t necessarily try to be a contrarian, I do try to follow where the facts lead… regardless of whether I like the path or not.  And for the 3-tier system I believe the pendulum has swung too far regarding the number of beer distributors in the country.  Yeah that’s right; I think the conventional wisdom on the “need” for continued wholesaler consolidation is wrong headed and actually counter-productive for Brand Beer… and all the players along the way.

Anyone in this industry has heard it time and time again.  It is a mantra repeated over and over again until no one even thinks to question the foundation of the belief.  Exactly WHY is continued wholesaler consolidation “required”?

 The tried and true response is for cost savings… to remain competitive.  Really?  Margins, both % and $$, are generally at all-time highs.  What has happened to all those folks preaching about how wholesalers MUST learn to operate on razor-thin margins?

Although folks only whisper it, many (most?) wholesalers are making record profits… all while unit sales are down!... all this in some of the toughest economic times the country has faced in decades.  My gosh, how would things look if the industry volumes were up?!  I look all around and I don’t see any economic pain in the beer distribution business. 

I hear how ABI and then MC are going to rape beer distributors… heck I’ve even written things in this vein… but I sure don’t see it happening. 

If ABI and MC (and others) are trying to do this they must be incredibly incompetent.  I mean record wholesale percent margins… record wholesale dollar margins… and record wholesale profits.  If that is being raped by your primary suppliers then I know of a lot of industries that would gladly take some of that.

But still the mantra… consolidation WILL happen.  Consolidation MUST happen.  It is pre-ordained that consolidation is the way of the future.  Why?  Based on what facts?

From my observations, as beer distributors become larger and larger they become more wholesale logistics entities and less wholesale sales entities.  They can be very efficient on the distribution logistics… the nuts-and-bolts of receiving, warehousing, and delivery but they seem to be less and less sales entities.

 In fact some of the best known management and M&A consultants in the industry have preached for years that this is the preferred path for beer distributors.  Forget that “sales stuff”, let the suppliers take care of that and you can simply be a warehousing and distribution business.  Sadly, the industry followed their advice and now the vast majority of the beer a wholesaler distributes is already sold for them; they are simply replenishing the stock at retail.  I question whether putting up shelf strips, static stickers and building pre-sold displays are really the marks of a “brand building” industry.

Is some of the softness in Brand Beer (especially the national stuff) simply the logical consequence of losing the local market feel that a smaller distributor had?  Is Brand Beer getting its butt kicked by the spirits folks in part because beer distributors are becoming more and more like the large wine and spirits distributors?  Especially in their relationship with retail?  The special sauce that helped make beer such a powerhouse at both retail and consumer was (is?) perhaps based on their close relationship to retail.  A relationship which is weakened each time a distributor gets larger and larger.

I’ve heard this many times from beer folks.  I was just talking to one of the best beer guys I know and he noted he was far more intimately aware of his market when he was one million cases versus the six million he now is… and he’s still the beer guy he always was… he didn’t put in the clutch, it’s just that it is next to impossible to match local market knowledge and execution with a smaller distributor versus a mega-distributor.  That’s just the way it is. 

I don’t think it is good for Brand Beer in general or brewers and beer distributors in specific to continue to chase this supposed necessity to consolidate.  Craft brewers, craft distillers, consumer product manufacturers of all stripes are seeing a mad rush to local.  Brand Beer and big brewers and distributors ignore and/or fight this trend at their own peril.

If brewers want/need a larger footprint, then form larger associations of local beer distributors.  Long ago I gave away this wisdom and I’ve yet to see a state really run with it.  Lots of opportunity if distributors can just check their egos and the need to be the boss at the door… and of course get over the need to try to eat all the other distributors in the state ;-)

I understand operational synergies as well as anyone but one would think that at some point, the cost at retail to an ABI or MC of reducing their distributor base will far exceed the benefits of having one less warehouse out there to ship to… of course there’s always the issue of having one less beer wholesaler’s family (and senior management team) to support ;-).  Is consolidation being driven primarily by this fact alone?

Remember that beer isn’t wine or spirits.  The requirements at retail for beer are MUCH different than spirits.  A case of 1.75’s is one heck of a lot more drinks than a case of beer… and it doesn’t have a product-life of only around 3 months.  I won’t even bother bringing up the retail realities of draught product.

Soft drinks are much different too.  Beer distributors aren’t doing the manufacturing on-site.  This leads to different economics when considering warehouses (or plants) required.  This drives one to far fewer plants in any specific area vis-à-vis a beer distributor.  Beer warehouses are operationally cheap by comparison.

And one can only take the operational savings of closing warehouses so far.  You still have a very high retail service frequency and thus miles and additional drivers and trucks very quickly equal lots more dollars.  At some point in time it is cheaper to keep a warehouse open than it is to run the delivery operations from a distant location.  I know, I’ve done that analysis many times.  And with higher fuel prices, this distance shrinks for every fuel $ increase. 

And what about everyone’s favorite darling, social media?  Social media for beer folks is the essence of local.

Throw these all in the mix and it becomes evident that beer operations simply won’t consolidate down to the level of the pop or wine and spirits folks.  Not going to happen.  Include the overall general trend of the strength of local and it becomes evident that this inexorable march to consolidation is based on false pretenses.  Just because it is repeated often does not make it so. 

Obviously in major urban markets more consolidation is possible because of limited distances and high population density… but those same features are what allow for less consolidation in these exact areas! 

Is some of the softness in Brand Beer due to wholesaler consolidation and the corresponding loss of the local relationship?  I’d have to guess yes.  I don’t think one or two mega-distributors per state are good for Brand Beer or the brewers… big, small, or in-between.  And it most certainly isn't good for the foundation of the 3-tier system.  And I don’t think it’s going to happen regardless of what someone keeps repeating.

On a completely different subject… do you know of anyone who sold out in the last 25 years who did so out of financial necessity?  Or who really wanted to leave?  I know of none.  They only left because someone drove a dump truck full of cash to their front porch.  They left because someone was willing to pay them 20 years of after-tax income in one lump sum.  This is the ONLY thing driving consolidation in this industry.  It’s not need… it is someone else’s money.  I think this is rotting this industry from its core.

In addition, think of that… in at least 25 years not a single entity (or very freaking few) faced financial pain that demanded they close up shop.  No one has gone out of business in this industry in decades.  Other than government, I can’t think of a single industry in the entire country that can say the same.  Amazing.  Is this a forever thing or simply a sweet-spot that is going to end sooner or later?  More on this point in future posts and articles.  2014 is going to be an interesting year for the beer distribution business… I guarantee it!  ;-)

 

Advice from Niccolo Machiavelli?

In the spirit of the coming holiday season I offer this Machiavellian little ditty.  I’m hearing this one spreading more and more, like a quiet wildfire, and in my role of providing news, opinion and insights you can’t find anywhere else… here goes.  And please remember I take no stand on either side… as Joe Friday would say, “just the facts ma’am” ;-)  And if you don’t know who Joe Friday is, you should.

But first let’s take a mental field trip with our old friend Niccolo Machiavelli.  Perhaps you have heard the phrase of being Machiavellian?  Machiavelli is famous as the author of a small book, The Prince, published in 1532.  In it he applies the analytic tools of science to politics to determine the best way to rule effectively… remember this is the 1500’s… kings and princes ruled the land.  To be ineffective might mean your head ending up on a spike.

One of the general themes of The Prince is that accepting the aims of princes—such as glory and survival - can justify the use of immoral means to achieve those ends.  Basically Niccolo gives his advice from both thought and observation on how to best achieve one’s princely goals.  People to this day still argue about his thoughts on “right and wrong” versus success. 

He is the source of great quotes.  Some are…

“Everyone sees what you appear to be, few experience what you really are.”

“If an injury has to be done to a man it should be so severe that his vengeance need not be feared.”

“There is no other way to guard yourself against flattery than by making men understand that telling you the truth will not offend you.”   This one every owner and manager needs to understand.

“it is much safer to be feared than loved because ...love is preserved by the link of obligation which, owing to the baseness of men, is broken at every opportunity for their advantage; but fear preserves you by a dread of punishment which never fails.”  This is probably pretty good advice for a prince in 1532 and it kind of captures the essence of what is meant by being Machiavellian.  Perhaps a Who’s Your Daddy culture IS better than a Who’s Your Buddy?  I think Niccolo might think so.

“The first method for estimating the intelligence of a ruler is to look at the men he has around him.”  Look at your management team… how do you stack up? 

“A man who is used to acting in one way never changes; he must come to ruin when the times, in changing, no longer are in harmony with his ways.”  Good advice for today’s beer industry.

“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.”  Talk to your management team and attempt to permanently instill this thought in their minds.

“The promise given was a necessity of the past: the word broken is a necessity of the present.”  We have all probably experienced this from suppliers and retailers of yesterday and today… and perhaps in the backseat of a car in our rambunctious youth ;-)

Anyhow I think you get the gist of Machiavellian.   So what does this have to do with beer wholesalers? 

First a couple more side trips…

Many ABI distributors find themselves in the unenviable position of fearing their primary supplier.  Not only is ABI using the US beer market as a Cash Cow, they are also using “their” distribution system as a significant source of milk.  And one would expect that ain’t going to be changing… I’d bet it will get worse long before it gets better.  Although part of me asks what is the basis for all of this (I know, shocking eh?).  I see ABI distributors making record profits… in lousy economic times… so what’s their beef?  But what do I know?  ;-)

But many ABI distributors are looking for protection nonetheless… from their favorite source of protection, state legislatures.

As I have written about in Who’s Your Daddy, which you can find here and a follow-up piece Who’s Your Buddy, which you can find here… ABI and MillerCoors seem to be taking different paths in this game.  ABI is most definitely an “I’m your daddy”- type corporate culture.  MillerCoors seems to be taking a much more “I’m your buddy”-type culture.

Now this could be simply the result of who is running the companies… and as I have noted, Brito and crowd come from a much different culture than the typical American.  But I think it becomes reality based on a simple fact… power… eh, Niccolo? 

Starting with the Third, A-B has been slowing turning “independent” distributors into franchisees.  Most A-B distributors welcomed this trip and even hastened it along… it was easier (and still is?) to let corporate do all of the thinking.  Ultimately, most hurried down this path because they were making boatloads of money (and most (all?) remain doing so today).  In addition, when a supplier makes up close to 100% of a distributor’s volume, they do have more than a little say in how things are done.

Which brings us to a second point, the concept of robustness.  A measure of how robust a system is is “its ability to effectively perform while its variables or assumptions are altered”.  A robust system can operate without failure under a variety of conditions.  The more robust a system, the better it is equipped to deal with change, both foreseen and unforeseen.

Looking at the ABI versus MillerCoor distribution systems, the typical MillerCoors distributor is far more robust than their ABI competitor.  This is not due to someone’s careful planning, it’s the result of market shares and what distributors have had to do in order to survive and prosper.

A distribution system with only one supplier is pretty much by definition not as robust as a distribution system with 10 different suppliers, none being a big majority of share.

Thus the typical ABI distributor is at far more risk from change than is their MillerCoors competitor… because their distribution system is less robust and thus is less able to “to effectively perform while its variables or assumptions are altered.”

Combine this system reality with an aggressive supplier who looks at you as a Cash Cow and the typical ABI distributor is under tremendous strain… or so they perceive themselves.

Which brings us back to Machiavelli.   What advice would Niccolo give to ABI and MillerCoors distributors?  For the ABI folks… work aggressively to make your distribution system more robust.  As long as they have close to total power over you, they have close to total control over you.  Great goal but that too ain’t going to happen overnight.

Perhaps try to enlist your distribution competitors to help provide some protection for you from the potential ravages of your supplier.

But this is where the Machiavellian part raises its head… from what I hear in the shadows around the country, old Niccolo is finding some willing converts to his way of thinking in the MillerCoors network. 

I think Niccolo would warn the MillerCoors folks from going too fast in the direction of fighting to help your competition.  If your primary competitor… a competitor who has kicked sand in your face for years… a competitor who due to market share has ruled you and the retail scene for years… if this competitor is now being bled and thus weakened by their new master, why would you want to stop it?

If this competitor is being weakened by the actions of their supplier, why wouldn’t you sit back and let them be?  Wouldn’t it make more competitive sense to allow any and all things which weaken your competitor to take place?

Niccolo might ask why should a MillerCoors distributor join the fight for uniform FOBs… this is a weapon which cuts their competitor much more than it does them. 

Niccolo might ask why should a MillerCoors distributor join the legislative fight on any of these fronts which at their core are primarily directed to stop moves by ABI.

Niccolo might ask why should a MillerCoors distributor fight any of these fights FOR their competitor, especially when their competitor has failed to answer their requests for help in the past… sorry, I’ve heard that complaint for many years from many states.  “Just the facts, ma’am”

Of course the answer to these questions is “it might happen to you someday too”.  But the MillerCoors distributor is more robust so the odds of it damaging them are much smaller.

And Niccolo might scoff at the idea of “someday”.  What matters is the here and now, not some hypothetical future which may or may not ever occur.

Niccolo might ask what does the MillerCoors distributor get (because EVERYHING has a price) for supporting legislation that primarily benefits their main competitor.  He might advise to support, but to ensure you are paid handsomely for this support.  Extracting a pound of flesh when the opportunity presents itself… or letting the bleeding continue.

I have preached the importance of unity for beer distributors for some time.  You can read any of my past posts to see this is true.  And I don’t take a position on any of what I’ve discussed… just asking the questions.  But these are interesting questions and I believe a strong case can be made for both sides…

The “we’re in this together” side AND the “let them be bled dry” side.  I know a surprising number of MillerCoor distributors who are beginning to lean to the “let them be bled dry” side.  After almost 500 years,  good ol’ Niccolo’s advice is still perhaps right on the money.

Which side are you on?  It is interesting times in the beer business, eh Niccolo?  And to all you state association execs that herd cats on a daily basis… sorry.  Have a great holiday season ;-)

 

Technology is changing industries AND consumers

The major trade publications continue story after story regarding the softness in the big beer brands.  In fact they note that big brands of all types of beverage alcohol are struggling.  Unfortunately they all also continue to look to the past to explain the present and predict the future.  Wrong!

The following post was first printed in October 17th edition of Modern Brewery Age.  You can find the original at http://www.breweryage.com/tabloid/archive/2013/JohnConlin.pdf

Or you can simply continue reading.  As a side note, if you don’t subscribe to Modern Brewery Age, you should.  It is well worth the price and provides unique news and data you won’t find anywhere else.

 

Technology Has Changed America’s Taste in Beers

By John Conlin

President, Conlin Beverage Consulting, Inc.

First a disclaimer by the author.  I offer analysis, not my desires and wishes.  Only by looking at the facts can we hope to devise a successful strategy for dealing with the realities we face.

That said, is technology killing America’s beer industry?

No. But it’s changed America’s taste in beers, probably forever. The big losers? The mega-brands that have dominated the industry for more than a generation.  It’s not that the consumer no longer desires the likes of Bud Light, Coors Light, Budweiser, and Miller Lite, the top four brands in the country, but rather that the consumer for which these products were developed is rapidly transforming.

It wasn’t that long ago that one of every four beers consumed in this country was a Budweiser.  Even today, one of every five beers is a Bud Light. These mega-brands and their mass produced and mass marketed appeal ruled the beer world.  Similar mega-brands ruled most consumer products, killing off their smaller regional and local competitors over the past few decades.  But many of these mega-brands are seeing falling sales as consumers race to other brands and products. 

Are we seeing the end of the mega-brand?  Yes and the culprit is technology.  Technology is remaking of the very essence of the American consumer.  The impact of this technology skews toward youth but it is impacting all of us, regardless of age.

Technology has brought choice and personal customization to almost every area of our lives.

It is remaking of the very essence of the American consumer.  That in turn has changed what we buy and how we buy it.

Look at TV entertainment. First came the change from three networks to hundreds of channels. And now the Internet has transformed the entire concept of visual entertainment. Today, we can pick the time and source of what we’ll watch -- and the device we’ll use to watch it.

There are very few “mega-brand” TV entertainment shows any longer. As a result, viewers are watching very different things.

And how about the ubiquitous smart phone?  Here is a product which has already become the most important item in many people’s lives.  It is the primary means that they use to interact with the world around them.  And it allows almost complete personalization.  Almost every aspect of it can be changed to fit the user’s desires.  And it can easily be changed tomorrow and the next day and the next.  You can listen to the music you want when you want.  You can watch video entertainment of your choice and time.  Smart phones offer immediacy. The explosion of apps offers people ways to use these powerful computers in their personal and professional lives that was unimaginable only a few years ago.  The iPhone was introduced only 6 years ago! 

Which brings me to my observation; to believe that this consumer, and all who follow, will be drawn to some mass-produced, mass-marketed mega-brand is beyond wishful thinking.  The foundation of a mega-brand is built on a consumer who is becoming rarer each and every day.  From a manufacturer’s perspective, the problem isn’t with the product.  The problem is that the consumer for who the product is designed is becoming more and more scarce.

Not only is this technology changing the expectations and desires of the average consumer, it is also allowing these desires to be met.  Advances in technology and manufacturing now allow small players to produce world-class product, for relatively small investments.  This is true for manufacturing, packaging, labeling… the whole nine yards.  And although there still might be some economy of scale advantages for the mega-manufacturer, and these have historically been quite large, these advantages are shrinking all the time.  And all evidence is that this will only continue.  In addition, in a world where customer choice and personalization is king, being smaller, nimbler, and local is an advantage, not a weakness.  The huge plant built on the concept of very large production runs might be turning into an albatross, not a competitive advantage.

The Internet ties directly into both changes allowing a free flow of information and opinion from both consumers and manufactures.  Put all these together and you have a contradiction.  The present consumer mega-brands and their manufacturing infrastructure simply aren’t built for the world in which they find themselves.  And nothing they can do will change this reality.

In the beer industry, we see it with the explosion of craft brewers and the share declines of the mega-brands.  Of the top 4 brands; Bud Light, Coors Light, Budweiser, and Miller Lite, only Coors Light is eking out a volume increase.

On the other hand, the Brewers Association reports that as of June 2013 there were 2,538 breweries in the United States, more than at any time in our history. Over 400 came on-line in 2012 alone. More are coming.

This craft industry was up 15 percent by volume and 17 percent by retail sales dollars in 2012; this in an industry which was up around 1% in volume in 2012.  And the move to these smaller, more personalized brands is accelerating.

Some mistakenly believe this softness in the mega-brands and the incredible craft beer renaissance is due to changing consumer tastes and that light lagers are dying.  Or that they are finally paying the price for years of sexist advertising.  Or their creative material is lacking.  Or pricing is too aggressive.  Or the foreign ownership of the big two brewers, Anheuser Busch InBev and MillerCoors.  These and many other reasons are being tossed about in an attempt to explain the present situation in the world of beer.

Although there might be some truth to each, the underlying reason is far deeper.  The power of technology has profoundly changed our expectations of the brands we consume.  The one-size-fits-all mega-brand is simply not in sync with this transformed consumer.  This is true in almost every consumer products arena.

Craft distilling is exploding. Artisanal products are taking off. Natural and organic products, almost always from smaller manufacturers are taking share from their larger, national competitors; and these new kids on the block are doing this all with almost no advertising or marketing.

The country is headed back to a time when small local and regional manufacturers command the consumer’s affections. These consumers desire choice and are drawn to authentic, unique, and local products and brands, not mass produced products with ubiquitous national advertising.

This will hit large national/international manufacturers hard with share losses coming primarily from the big national brands that have dominated the market for the past few decades. Ironically, it’s their size and dominance that make them vulnerable.

In the beer world, expect to see continued declines in the mega-brands as they fight what is most likely a long-term losing war. Gimmicks with packaging and less (or more) sexist ads won’t change this reality. The consumers these mega-brands were developed for are quickly changing to become adverse to their value proposition.

Technology that has enabled small manufacturers to succeed in the marketplace has transformed many industries in a very short period of time. And that includes the beer industry.

Will the Big 4 beer mega-brands die overnight? Not likely. But their future is one of tough times. Consumers have changed and are never going back. More and more they expect and demand the ability to personalize all the important brands and products in their lives -- including beer.

------

John Conlin, President of Conlin Beverage Consulting, Inc. has been providing operational, financial, and merger and acquisition consulting services to the beer and beverage distribution industries since 1986.  Conlin is an expert in the operational and financial aspects of mergers and acquisitions, organizational improvement, and driving corporate change.       

Are you a panda or a cockroach?

Robustness.  A measure of a system’s ability to deal with changing inputs while still functioning at a high level.  A robust system continues to function even though inputs change.  A less robust system’s performance is negatively impacted by input changes.

These systems could be anything… software code… a mission to Mars… a company or organization… your family car… even a living organism.

The old Windows operating system was a great example of a piece of software with a low robustness factor.  If a person hit the “wrong” key, you’d confuse the software, get a blue screen and have to re-start the computer.  A robust piece of software would continue to function even though the user made many wrong entries.

If one were designing a flight to Mars, one would want it to be very robust.  Stuff happens and you’d need the systems to continue to function within a wide range of inputs.  No pulling off to the side of the road if you have any problems on this trip.

You family car has become more and more robust through the use of technology.  Ideally it continues to function even in extreme situations (changing the inputs) like full braking or ice-covered roads or evasive, accident-avoidance.

And this type of analysis also works for living systems, i.e. animals.  For this example I take two extremes… our friends the panda and the cockroach.

We’ve all probably heard stories about that tough SOB, the cockroach.  Survive a nuclear war.  Survive dang near anything, anywhere.  THAT is one robust system.  Inputs might change.  Individuals might be wiped out.  But there will be enough survivors to keep the cockroach roaming the planet.  A single female American cockroach will produce around 150 young in her 1,000 day life time… Do the math.  That can add up to A LOT of cockroaches in a very short period of time.  They are omnivorous scavengers who will eat almost anything.  They can go for as long as 6 weeks without food… they are fast, sprinting as fast as 80 centimeters per second (that’s over 31 inches per second) and can turn on a dime at full speed… and yes, the can live without their heads for weeks.  Talk about robust!

On the other end of the spectrum there is our warm and cuddly friend, the panda.  The panda is a very specialized animal.  It basically eats only one thing… 99% of its diet is bamboo.  Which is unfortunate from a robustness-viewpoint.  An omnivorous scavenger who will eat almost anything is WAY more robust than an animal which eats only one thing.

Even worse, bamboo has almost no nutritional value.  Therefore the panda must spend 10 – 16 hours PER DAY foraging for food and eating 20 – 40 pounds PER DAY to keep alive.  And even then the panda has a very low energy level.  It becomes exhausted after only minor exertion.  The female ovulates once per year and can become pregnant for only a period of 2 – 3 days.  Many don’t even have the energy or desire to breed.  From an evolutionary viewpoint this is a useful adaptation since you couldn’t have a lot of pandas wandering around… they’d eat all the bamboo and they all would die.  But from a long-term survivability viewpoint, this all adds up to a very low robustness and thus, an endangered species.  Human activity hasn’t helped them but they are in reality a very specialized animal which is most likely, long-term a temporary visitor on this planet.

Which brings us back to you and your organizations and the title question… are you a panda or a cockroach?  How robust is your organization?  I don’t know about you, but I’d sure rather build a cockroach organization than a panda organization.

From a supplier/risk viewpoint, the MillerCoors distributor is more robust than their ABI counterpart.  Since the typical MillerCoors distributor has their volume spread over more suppliers, they are less vulnerable to “changes in inputs”, i.e. specific brand declines, than their ABI brothers and sisters.

Many ABI distributors are attempting to become more robust through the addition of new suppliers.  Most likely a wise path to walk but in the short- to medium-term, ABI distributors will be VERY reliant on one very significant input.  That’s just the way it is.

But what about other changes in inputs.  How does your company stack up on the robustness scale?  Look at your personnel.  If ol’ Joe gets clipped on the highway some morning does your company continue operating at 100%?  If your ordering person wins the PowerBall and walks out with no notice, do you not skip a beat?

If anything happens to ANY of your folks does the system keep operating at a high level or does it have problems?  Are you a panda or a cockroach?

In your next management meeting spend a little time looking at every aspect of your business… people, technology, energy, equipment, brand/supplier strategy, disaster planning, vision and mission, etc. and ask how we can become more cockroach and less panda.

If tough times come the cockroach will still be around ready to take advantage of all the opportunities change presents.  The panda can barely get by in good times, in tough times it is probably toast.

So ask yourself, are you a panda or a cockroach?

 

 

 

 

The Coming Artisanal/Craft Era

Paradigm shift - a radical change in underlying beliefs or theory.  Some times in history it is evident that one is living in an on-going paradigm shift.  The French and American revolutions might be examples.

But I believe most of the time we are unaware of the incremental small changes that are occurring around us.  If you could step out of the here-and-now and look down on what is happening it might be quite evident… but since we live in the here-and-now we often don’t see the paradigm shifts until they have already happened.  It is always easier to view the past than the present.  Then one can look back and see how “obvious” these changes were.

With that intro, I believe we are in the midst of a profound paradigm shift that will rock most consumer product companies to their core.  Over the recent few decades this country has seen the growth of large consumer product companies with their associated strong national/mega-brands.  The smaller local and regional players were hit pretty hard during this time… in fact most have been squashed as this national/mega-brand reality simply rolled over them.

But that tide has already turned.  I believe we are in the midst of an explosion of artisan or craft consumer products that will only accelerate over the coming decades.  One sees it in this industry with the explosion of craft brewers.  The Brewers Association reports that as of June 2013 there were 2,538 breweries in the US… more than at any time in the country’s history.  And hundreds more are coming on-line.

Although it hasn’t receive as much attention, the craft/artisanal distilling industry is following the same path as craft brewers… although at an even faster pace. 

The local paper in Denver had a recent story on an artisanal cheese manufacturer.  This paradigm shift is not localized to any one industry or region.  It is the tip-of-the-spear and it is moving like lightning.  And I believe it will sooner or later impact nearly every consumer products company and every mega-brand in the entire country.

At its core, this is what is driving the present downward trends for all the beer mega-brands… that compounded by being used as a Cash Cow… which is being milked like a milkmaid mainlining Red Bull ;-)

The high-water marks for the beer mega-brands might have already been reached and they might face a long-term prospect of continued decline.  It might not be so much that the consumer doesn’t desire a light lager… just that they don’t want THOSE light lagers.  For any craft folks reading this, I believe this just might be an opportunity for you… there are only so many IPAs the world needs ;-)

There are many things driving this profound paradigm shift…

Technology and manufacturing – Since we live in the here-and-now we often don’t really understand how far and how fast things have changed on this front.  Small players can product world-class product… for relatively small investments.  This is true for manufacturing, packaging, labeling… the whole nine yards.  And although there still might be some economy of scale advantages for the mega-manufacturer (and these have historically been quite large), these advantages are shrinking all the time.  And all evidence is that this will only continue.  In addition, in a world where customer choice is king, being smaller and nimbler is an advantage, not a weakness.  The huge plant employing hundreds and hundreds might be turning into an albatross, not a competitive advantage.

People power – In addition, as the large consumer products companies have flattened their organizational charts and technology has replace thousands of positions, there is much less upward mobility for their employees.  Life-time employment is a thing of the past.  So there are people with tremendous knowledge and skill sets who are available.

Hard economic times – Perhaps counter-intuitively, tough times cause an explosion in entrepreneurial activities.  The risk/reward decisions become easier when you don’t have many other options… trust me, I’ve got some been there, done that on this topic ;-)

Intangibles – People are social animals… we long to belong to a team.  Few of us strive to be some anonymous schlep at some large, face-less, soul-less corporation.  These smaller companies offer a great deal of personal fulfillment… sure everyone would like to hit the long ball and get rich but getting up every day and loving what you do is worth a lot more than $$.  Talk to almost any employee at a craft brewer.  In addition, in a smaller organization you can actually see the results of your efforts.  If you work for a huge multinational company your efforts simply disappear into the ether whether you bust your butt or surf the web all day.  This is not true in a smaller company.

The changing consumer – let’s use the ubiquitous smart phone as an example.  Here is a product which has already become the most important item in many people’s lives.  It is the primary means that they use to interact with the world around them.  And it allows almost complete personalization… almost every aspect of it can be changed to fit the user’s desires.  And it can easily be changed tomorrow and the next day and the next.  Ring tones can be personalized to whatever you want… ring tones can tell you exactly who is calling.  You can listen to the music you want when you want.  You can watch video entertainment of your choice and time… the concept of TV is being transformed as we speak.  It offers immediacy… these folks don’t email (that’s soooo 2000).  They don’t leave voice messages… why take the time?  They text which is about as immediate as one can get… hit send and it’s at the other’s phone in a matter of seconds.  To believe that this consumer, and all who follow, will be drawn to some mass-produced, mass-marketed mega-brand is beyond wishful thinking.    

Combine all these factors and one can get a fleeting glimpse of the profound consumer products paradigm shift that is occurring under our feet.

Will the beer mega-brands go the way of the dodo?  Not anytime soon. There still are A LOT of bottles and pints of these brands being consumed.  Brand Budweiser has been declining for years and it is still the number three beer brand in the country.

Will they see continued volume and share growth?  I’d bet against it.  I think the future is in the other direction.  And it might come faster than any of us can imagine. 

Historically one often speaks of eras… no question the last few decades have been the era of the mega-brand.  Perhaps that era is coming to a close?

Beer, spirits, cheese, you name it… the small artisanal explosion is already happening.  Where it goes is anyone’s guess, but it will leave its scars on more than a few large consumer products companies and their associated mega-brands.  And perhaps on their distributors too.

 

Is the US beer market being milked?

The US beer industry continues to have a tough time.  The Beer Institute reports total shipments down 2.3% in the five months thru May.  Longer term, spirits continues their march, taking share.

The high-end continues to rock but the rest is pretty poor.  The usual suspects are blamed… weather and weather… taxes and the economy… and those dastardly spirits folks. 

Could the US beer industries woes be the logical result of the market realities of its larger players?  Could the woes be as simple as the result of over-aggressive pricing and to a lesser degree a change in the nature of the product consumed?  For the bang-for-the-buck crowd, a case of beer will never match a 1.5 liter of booze.  In my favorite local liquor store I can get a 1.5 liter of Sapphire gin or Kettle One vodka on deal for $32.  Note these are super-premium products; there is A LOT of much cheaper, quality stuff out there too.  As of 7/29, a significant liquor store in Littleton has a front line price on 24 12oz cans of Coors/Bud/Miller at $27 and change.  With taxes that will be over $30 for a case of cans.  Oh... and we are covered by two branches ;-)

For the bang-for-the-buck crowd, a mainstream light beer will never match the punch of a craft beer… to say nothing of a taste profile which younger (most?) drinkers are flocking to.  A few craft beers are already priced at parity with Coors/Miller/Bud bottles. 

And the very nature of craft beers will lower overall volumes.  If every drinker in the country switched to craft beers, overall volumes would plummet to a new much lower baseline.

And tough economic times drive many to think in more bang-for-the-buck ways than they might in better times.  If you want to feel better as you whistle past the graveyard you can read how the price of beer is actually quite low based on this or that metric but you know what?  Whether these are valid or not is completely irrelevant.  It is the consumer who determines these things, not some inflation-adjusted formula or some explanation based on the increased cost of inputs.  And the consumer is not tied to these analytics; they can change their mind and “re-set” what they consider a good price.  Is over a buck a beer for off-premise consumption a “good” price?  I think many folks are saying no.  And I think their wallets are in complete agreement.

But there is a reason for this aggressive price… back in the days when all of the major brewers were US companies (and US-focused) there was much more importance to things like a share point here or there and the never-ending battles with wine and spirits.  For the most part the US was the only stage on which they played.

But now 80% of all US beer volume is controlled by 2 large, international companies.  I don’t believe they look at US beer pricing (and its impact) in the same way these companies did in the past when they were solely US companies.  And why should they?

This is neither right nor wrong it simply is an observation.  I have written about the economic concept of Cash Cows which you can find here.  Basically Cash

Cows have high market shares in a marketplace with low growth rates – that pretty much defines the US beer market.  InBev saw A-B (rightly) as a very fat Cash Cow just waiting to be milked.

Cash Cows are typically high share leaders in a mature market or high share mature companies in major markets… they generate more cash than they consume AND typically have a lot of dough available… this pretty much defined pre-acquisition A-B.

Under classic strategy these business units should be “milked”… taking profits and investing as little cash as is possible. 

Cash cows provide the cash to drive a lot of the other actions of the company…

·         Providing cash for major business development initiatives, i.e., turning Question Marks into market leaders and helping fund Stars

·         Reorganizing regional and global financials by consolidating post-acquisition revenues, company-wide admin, R & D costs, debt service, dividends, etc.

I think the “woes” of the US beer industry are as simple as this… it is being milked, especially via pricing, to help fund these companies other activities in other countries… places where there is tremendous upside.  Again, this has no moral aspect, it is simply a business decision I believe has been made.

Unfortunately, this cash harvesting strategy and reapplying of financial resources for other programs could create a significant paradigm shift. Broad-based business expansion projects become top priority.  These can deplete resources for ongoing business development.

And by doing so it has opened the door to many of these “threats” and has been a boon for craft brewers by giving them tremendous pricing leeway.

Many beer wholesalers cry about their volumes these days but most are pretty happy with their gross profit.  I don’t see too many running for the exits.

Now of course if one takes the long view (ignoring the kumbaya sing-along on unity from the Beer Institute) will this be good for the beer industry for the long haul?  As I have noted in my attempts to share my wisdom on the craft brewing industry (which can be found here)… in reality there isn’t any such thing as the “beer industry”.

Folks who run large public companies and who think of the long-term are as rare as purple, 2-headed unicorns who speak French.  This is no negative reflection on them; it is simply the sad reality they live in.  And as a friend and fellow cynic noted when he worked at a large bank… this public company was run to enrich the top 200 employees (and I think he was very generous in this number) and to keep the stock price up.  That’s it. As a side note, I believe the Third was an exception to this but he was very old-school and he thought more as the owner of a private company since that’s basically how he ran A-B. 

So I would assume the big dogs will continue to do what they perceive is in their best self-serving interests… not necessarily in the US “beer industry’s” best interests but in the multi-national’s best interests… all while looking down the road about a quarter or two.  And unless ABI has a change of heart, or MillerCoors wants to get into a bruising fight that they cannot win, one would expect that the US domestic beer industry will continue to be treated as what it is to these companies, a Cash Cow that exists for the milking.

Of course they will fight things like equalization because that will hurt their Cow.  And of course they will come out with new products, etc… this isn’t an either/or type situation just the reflection of a larger strategic reality.  They have access to… or do they own? ;-)… incredible distribution systems.  You want that Cow to gush milk for as long as forever… or at least as long your stock options last ;-).

It remains to be seen what this paradigm shift means and how it will impact US beer distributors who do live in the long-term.  You’ll have to wait for my wisdom on that topic ;-)  Perhaps I’ll even make you pay to hear it and to devise strategies for dealing with it!  How’s that for a crazy thought?  ;-)

As a parting side note, just as I was about to post this came an article in the St. Louis Business Journal… you can find it here.  I’ll quote the first paragraph…

Anheuser-Busch InBev invests $1.4 billion in China

“In a push to create the world's first global beer brand, Anheuser-Busch InBev is making a big investment in China — a market that is expected to deliver more than 40 percent of the industry's growth over the next 10 years.”

 That Cow is goin’ be a rocking ;-)

And as another parting side note, the day after I posted the above, Harry led his 7/30 newsletter with this news...

A-B Taking Pricing

Dear Client:


A-B is taking a price increase again at the end of September in some markets.  BBD has seen price sheets going up between $0.45 - $1.20 on package beer.  Looks like it's going to be another year of 2 to 3% price increases even in soft times

Thanks to Harry... and I hear the milkman coming... again and again and again ;-)

Craft Brewers and the Prettiest Girl at the Dance-Syndrome

After reading a recent piece in Harry’s newsletter I was taken back to a significant time in my life.  Harry and I emailed back and forth about it and I thought it could perhaps be a good post.

Harry was reporting on the money and attention that is being thrown at craft brewers and their responses.  Let me tell every craft brewer out there (and every wanna-be) my tale of woe…

THE SITUATION

The time is the late 90’s.  The dot-com boom is rocking.  There was a river of money flowing by and I wanted to jump in and grab some.  The final straw was when I read about DrKoop.com in the Wall Street Journal... here was a company with revenue (not profits, but revenue) of around $40,000 and its market valuation topped out at over a billion.  And where is it today?  Exactly.

I called a tech friend and said let’s get together… as I told him, he was a tech-wizard and I know how to start businesses so let’s get rich.  We got together with a few of his tech buddies and discussed how we could all make each other rich.  And off we went with a company we named eSniff.com (notice how we tried to capitalize on every buzz-word of the time, the e and the .com).  Our technology used in tech-terms a packet sniffer and thus the name.

The company’s goal was to help organizations keep people from screwing around on the Internet at work.  It was a real product with real profit… both things few of the dot-com companies had.  We even went international right away with sales in Mexico and a beta-product for Japan.  Trying to impress the money-guys even more.

Looking back, our arrogance and my ego were astounding… are you listening yet craft brewers?  Little did we know we were looking in the rear-view mirror when we pounded our chests about the value of our business and what we would or wouldn’t take for even a piece of it.  We thought since this or that company was valued in the billions we could match them.  But since we were doing our planning by looking in the rear-view mirror, we failed to see what was coming… instead we focused on what had been… and the past was very much to our liking. 

Our business strategy was to get big fast… that’s what got the private equity guys attention… so we burned through money and did in fact get relatively big.  We actually had the beginnings of a pretty nice little company… eh, craft brewers?

Now the private equity folks aren’t stupid and they knew many of these business plans and the valuations they were generating were in many cases built out of smoke and mirrors.  There really wasn’t much there, there.  But operating on the greater fool principle… you know the greater fool principle?… the specific investment might not make any sense and have any real value but as long as you can find a greater fool to sell it to at a profit, what difference does it make?

During the housing boom in Florida I heard of many situations where people bought a house and sold it in 90 days for a $30K profit.  It’s all well and good as long as there is a never-ending supply of greater fools.  But just like the kid’s game Musical Chairs, it’s not much fun when the music stops and there is no chair for you.  Being the last fool really sucks.

So these private equity folks were all VERY aware that a great deal of the dot-com stampede was driven by greater fools… but they played because they could make HUGE profits… and did.  And they had the inside information so they thought they could ensure there would be an exit for them once the music stopped.

So we lived it… a river of money and crazy valuations simple stopped.  It did not slow down… it did not coast to an easy stop… it ENDED.  The private equity folks behaved like a herd and when one smelled danger they all took their money and ran to the exits.   Dreams of going public?  Yeah right.  Dreams of a big dollar payday?  Yeah right.

And for those of us whose business plans depended on this river of money to fund our growth?  Well we went from the prettiest girl at that dance to a person begging to do things just for a few bucks to keep us alive for another day.   Not only were we willing to sell our soul, we did.  When you are staring into the maw of bankruptcy and the damage to every employee it will impact, it is amazing the things you will willingly do.

THE CASE FOR EXPERIENCIAL LEARNING

Every craft brewer out there needs to read that last paragraph again.  Getting your nuts cut off has a very negative impact on your aforementioned arrogance.  I went from laughing about the “low” valuations that we would never accept to sleepless nights wondering how we could all just get out with our hides in one piece.  Our original investors lost everything… and they were friends who had trusted me.  I still can’t get over my failures to these folks.

So craft brewers… enjoy the ride.  But the path from prettiest girl at the dance to the depths of depression and despair is a lot shorter than you might think.  And if you think you remotely control this (we’d NEVER let that happen to us), you are whistling past the graveyard.  I’ve had the misfortune of walking this path… you are riding a wave but don’t let your arrogance and ego convince you that you are the maker, let alone the controller of that wave. 

Being in the sweet spot of an incredible consumer awaking is a great place to be.  Just make certain your strategy is flexible enough to deal with all potentialities.  I don’t know the future, but things are just like they have always been right up until the moment they aren’t anymore.

And remember, if and when the money folks get a sniff of fear, the game will be over and it will be over quickly.  No more come-hither looks from across the room.  No more business cards with special messages.  No more of a lot of things.  Only the bottom-feeders will be happy when this comes to be… and you very well might be their meal… that is if they even consider you worth eating.  Right now the value of your brand equity is high (oh, I remember those days) but after the crash you may find it is non-existent… been there, done that.

And yes, Steve Cook and I are providing M&A and profit-improvement services to craft brewers and would be happy to discuss potential opportunities but please don’t write off my tale of woe as just some self-serving marketing ploy.   This story and my scars are very real.

Whether you use our services or not, keep the above in mind as you enjoy being the prettiest girl at the dance.  Just don’t think that it will last forever.  I lived it and hope you can learn from my very real pain.  From the peak to the valley is a lot shorter (and a lot quicker) than you can imagine.  And it’s kind of like sky-diving… it’s not the fall that is the problem… it’s that sudden stop at the end  ;-)

Random Thoughts on Craft Brewing

Craft beer… the prettiest girl at the dance.  Harry, Benj, Modern Brewery Age, Beverage World, Beverage Industry and everyone else and his dog have written extensively about where it is and where it is going.  As usual, let me help clarify why. ;-)

First we need to understand that words are abstractions, they don’t necessarily exist in the real world.  Thus the craft beer industry doesn’t really exist.  Craft brewers yes… an “industry” not so much.  So all this concern about where the industry is going is somewhat off the mark.

Each and every one of these craft brewers will do what they perceive is in their self-interest.  That’s exactly what they should do.  So for example when folks are wringing their hands over the explosion of craft brewing capacity they are talking about something over which no one has any control.

As a mental exercise, let’s take a stroll and see what the Tragedy of the Commons can teach us.  Haven’t heard of that phrase before?  It comes from an article titled "The Tragedy of the Commons" by ecologist Garrett Hardin. 

Hardin used an example involving medieval land use in Europe.  The Commons was a “public” area where herder’s could graze their livestock.  Since it was “owned” by all, no individual or group existed to look out for the best interests of the Commons.  Thus it was in each herder's individual interest to let as many of their livestock as possible graze there.

Of course this will ensure the Commons is sooner or later overgrazed and damaged for all.  But for the individual herders, for at least a while they receive all of the benefits from the additional livestock grazing, while the damage to the Commons is shared by the entire group.  If all herders make this individually rational economic decision, the Commons will be depleted or even destroyed, to the detriment of all.

Now the craft beer business is not a limited resource like the Commons but the realities they face are similar in many ways.  One can look at the landscape of craft brewers and see a very likely train-wreck regarding over-capacity.  But who is going to pull back their expansion plans for the good of the “industry”?  I can answer that… no one.

Much has been written about the issue of old craft beer and the damage it might do to the “industry”.  Guess what, folks have discovered the wonders of pipe-line fill.  It can make a business look incredibly successful (for at least a while), whether this is reality or not.  All those warehouses and all that retail space adds up to quite a bit of beer… this is something the big boys discovered long ago.  And if the beer gets old?... perhaps that’s not a worry of an individual craft brewer.  And the damage it does to the “industry”… what “industry” is that? ;-)

KNOW WHO YOU ARE

Long ago in my MBA finance class we had a case study on a quickly expanding grocery/mass merchandise chain, a hypermarket.   The case study was to analyze the financial-driven growth of this company… and the solution/discovery was that their growth was the only thing funding their operations… and once the growth slowed or ended, the company was not financially sustainable and would fail.   Obviously rapid growth sooner or later hits a wall and down the company fell.

So my prediction on the craft capacity front is that a number of things will most likely happen to individual craft brewers…

·         Some will hit the wall at high speed and meet an unfortunate end....fail to plan then plan to fail.

·         Some will hit the wall at slow speed and will survive the experience if they get some well needed strategic and tactical help.

·         Some will power through the whole episode and come out stronger and more profitable – these will be considered the smartest guys in the room – but remember as I’ve noted before, nothing wrong with a little luck to go along with their skill.  However, if you can only have one, give me luck any day!

·         Some might be able to cash out before the wall and possibly laugh all the way to the bank if they have value and brand equity.

And of course too many trade publication view things from a static perspective, but the tsunami is inevitable.  Keeping up with change and paradigms shifts are critical… so the entire issue of what is a craft brewer is an ever changing one.  Consumers don’t care if this or that company fits into this or that category.  That’s not the way they think – and why should they?

Most importantly, one has to contend with a wide range of strategic and tactical options. Perhaps Company A wants to some day become the biggest brewer in the land. Perhaps Company B wants to ramp up as quickly as is possible (can you say fill that pipe-line) and get out while the getting’s good.  Either choice is acceptable (as are hundreds in between) but your success is more likely when you know the exact path you hope to travel.  Not that there won’t be surprises and adjustments as you walk that path, you just have to have the knowledge and flexibility to deal these too.

All you craft brewers out there… need some business development support?  We can link where you want to go with how you will get there!  Steve and I are now working with craft brewers to explore their options based on their unique situations.  Give us a call and let’s talk about diving a little deeper.

ABOUT RETAILING

Perhaps one perceives themselves as a brewer, not a retailer.  The next sees the craft beer-thing simply as the draw to fill their on-premise establishment (kind of like the strippers at a “gentleman’s club”).  Note this doesn’t imply the retail-vision will produce lower quality craft beers, just that their strategic vision is different than those with a desire to be a brewer first and foremost. 

And it can be quite a retail draw.  A retail-focused craft brewer just opened up in my neck-of-the-woods and their business is incredible.  They are only open limited days and times… but every time they are open, they seem to be packed.  Anyone in this business knows that you can make a heck of a lot of money in a short period of time with a hot on-premise establishment. 

In fact in many places in the country a push-back is starting from regular on-premise accounts from what they consider the unfair advantage the craft brewers enjoy via their tap rooms.  The craft brewers (being the prettiest girl at the dance) often get special treatment for their tap rooms… most to their advantage.  And of course since they make everything they sell, their retail profitability is dang high!

How long will it last?  How high will it go?  Heck if I know.  But there is no indication it is slowing nor do I think things will ever go back to “normal”.  This is a permanent change in the landscape.  Lots of moving pieces and I’d guess there will be surprising winners and losers.

Some pricing changes are already occurring… in several places in the country major craft brewers are priced at parity with Bud/MC 6 pack bottles.  Perhaps those $12 four-packs are going to find some pricing pressure?  And of course volumes remain soft for the big boys (and quite a few others)… everyone is asking themselves if this will be the summer when serious price competition fires up. 

What’s going to happen to those high prices and sweet margins the craft brewers (and their distributors) presently enjoy?  From a distributor perspective, in MANY situations, those craft beer gross profit dollars are what is keeping you healthy.  You might want to take an objective look at your business exposure.  Our valuation services do just that and much more.

Just some things to think about as we go about our Commons and our everyday business.

Coca-Cola rethinking their US distribution plan

There was an interesting article in the 4/17/13 edition of the Wall Street Journal.  If you subscribe, you can find the article here.  The headline was “New Coke: Bottlers Are Back

 Basically the article was about Coca-Cola’s recent change in direction where it is now gradually getting out of the distribution business, again.  Some quotes from the article explain this: (underlining and highlights are mine)

 “Coca-Cola Co. likes to have its cake and eat it too.

 That is why it sold its bottlers and then bought them back again. That is why it is now going back to the franchise model for distribution.

 In a deal that would allow it to keep vast amounts of control over its business, Coke said it reached an agreement in principle to expand territorial distribution rights to five independent bottling partners. That would reduce Coke's direct control over its U.S. distribution only to about 75% from 80% currently. The company said more such deals are on the way as it backs out of the delivery business.   

 "You need to walk before you run,'' said Muhtar Kent, Coke's chief executive, in an interview, of the step-by-step approach.

 In 2010, Coca-Cola Co. paid $12.3 billion to buy its biggest U.S. bottler in order to secure control of most production and distribution in its home market. Now, this latest approach will allow it to keep production of popular brands including Sprite, Powerade, Minute Maid and Coke in-house but gradually parcel out distribution once again.

 The move is a delicate balancing act by Coke, which is trying to keep a tight grip on how its drinks are made and sold while shedding the capital-intensive business of maintaining delivery trucks, routes and warehouses. Coke also is seeking to boost sagging profit margins in the U.S., where soda consumption has fallen eight straight years.

 Coke's share price surged 5.7% Tuesday to close at $42.37 on the New York Stock Exchange as Wall Street applauded the model even as the company reported a decline in first-quarter profit and revenue.

 The Atlanta-based company's move could prompt PepsiCo Inc., PEP +4.13% its main beverage rival, to speed up its own review of its operations. PepsiCo paid $7.8 billion in 2010 to acquire two large independent bottlers, also giving it direct control of most of its U.S. beverage manufacturing and distribution.

 Coke currently has about 70 small bottling partners manufacturing and delivering about 20% of its drinks in the U.S. Tuesday's announced deal would increase the scale of five of them…

 But unlike past distribution deals, some of which stretch back generations, Coke isn't giving the bottlers perpetual rights to the new territories. Instead, bottlers would be given 10-year licenses for any new real estate, which then need to be renewed. The initial deals with the five bottlers aren't expected to close until 2014.

 Mr. Kent said a lot has changed since Coke began striking U.S. distribution deals for its famous cola roughly a century ago. At the time, territories were determined by how far horse-driven carriages could travel in a single day. The new distribution deals are "moving us into the 21st century,'' he added.

 Selling off distribution rights could earn Coke a lot of cash. Consumer Edge Research estimates that the 80% share of U.S. distribution rights currently owned outright by Coke to be worth around $9.5 billion.

 Coke isn't ready to surrender control over manufacturing, though, planning instead to further integrate bottling operations around the country. Manufacturing of Coke products currently is spread over hundreds of facilities.

 Mr. Swartzberg said he wouldn't be surprised if Coke eventually also sells majority stakes in the manufacturing part of the business a few years down the road.”

 My first reaction is to notice that same old big business trend… new management has to do “new” things.  Team X comes in and decides outsourcing is the key… after they leave Team Y comes in and decides insourcing is obviously the right call.  Can’t just stand there, you’ve got to do something!

But this change is pretty big news.  Coke has found (and it seems Pepsi might be following) that the distribution end of their business is better done by others.  I completely understand their desire to control the production (it is after all THEIR product) but they have found the “capital-intensive business of maintaining delivery trucks, routes, and distribution” is perhaps not their strongest suit.

Soft drinks are like beer, they require a lot of feet on the street and a smaller, more local private company driving this effort seems to be a superior choice.  I hope some of those craft brewers think about this… are they craft brewers or are they distribution companies who happen to brew beer?  Strategically these are WAY different beasts.  Et tu Brito?

In fact in other parts of the world, Coke has already divested itself of both distribution AND manufacturing… they let other specialists take care of that.  They want to retain control and make money.  Pretty simple.

Also interesting that these franchises aren’t perpetual but rather with a fixed time frame.  Coke wants to ensure IT ultimately controls them, regardless of who actually owns the thing.  Again, I understand their desires.  Might we see something like this taking hold in the beer business?  I’d be surprised if we didn’t.

Of course there are many differences between soft drinks and beer but as many organizations have found, specialization often leads to better performance.  Let the local guys deal with the warehousing, delivery, and merchandising needs (by definition these are local activities, they must be) while the big dogs focus on getting a great product produced and marketed.  Then pass the ball to the local guy and let them take it to the street.

Sure makes sense to me… and obviously to Coke and Pepsi too.

UPDATING YOUR VALUATION PROPOSITION

By Stephen Cook, CMC

Great Lakes Consulting Associates, LLC

www.BeverageGuru.com

The nature of consumer goods and the dynamics of the supply-chain continue to tax our abilities to effectively manage and concisely communicate. For the beverage industry consultant, using numerics to identify opportunities by developing illustrations is a must have for our “chief” kit. How better way to get your point across then by “painting with numbers.” Don’t believe it? Consider this.

A long time ago while at home in NYC, I was watching John Gnagy, America’s pioneering television art instructor.  I remember thinking how creative and impactful Gnagy’s visualization process and comments were. His audio-visual process was incredibly effective in translating his vision into a reality that was easily understood by viewers. Just how good was it? He was chosen as the first performer, on the first show on the day the TV broadcast antenna was completed atop the Empire State Building in NYC.  This self-taught “blacksmith” of art went on to become one of the country’s greatest audio-visual educators by teaching drawing art, yes drawing and art, to millions of viewers. Gnagy’s success focused on breaking down the drawing process into fundamental elements and developing a quick, easy and proven method to learn through visualization and communication.

Our valuation methods and process are very similar to Gnagy’s approach. The process addresses the fundamentals, namely, the business components that drive cash flow and the overall value of the enterprise. We keep it simple yet effective and compare our clients operating financials to a pro-forma template that is organized, easily understood and presents a clear of picture of the business. Just like Gnagy our “painting with numbers” methods are proven and provide high value by visually translating and clearly communicating the current and longer-term financial realities of your business based on size, region, product mix and financial performance.

As the pressures of consolidation continue to diminish (estimate over 80% domestic volume consolidated), we are finding more clients interested in a less formal valuation process and an updated financial review. Our high value-added strategic planning approach to company valuation aligns well with the ever-changing market needs for many of our wholesaler clients by identifying areas of financial strength and weakness; providing a clear picture of what the business looks like; and ensures our clients are focusing on the right priorities and business drivers which convert into increased value of the enterprise.

A valuation process of this nature is about more than just providing “a number”. It is about enhancing your planning process by providing expert insights into sales and operational areas of improvement throughout the company. Deliverables include financial-based analyses of your entire company AND an industry performance comparison AND projections of sales revenues and operating expenses based on current activities and trends.  This is a battle-tested executive management tool which could be a vital part of your strategic planning session.  

The Proposition, from both a strategic and tactical standpoint to wholesalers:

Can you afford NOT having an updated valuation profiling of the enterprise and NOT use the results in your planning process? KNOWING MORE, ABOUT YOUR COMPANY, THAN POTENTIAL BUYERS, SUPPLIERS, COMPETITORS OR CUSTOMERS IS JUST GOOD BUSINESS PRACTICE!

Give us a call if you would like to discuss further. Looking forward to everyone having a great and prosperous year.

 

 

Operational Realities of the Explosion of Brands and Packages

Had quite a few responses to the last post on brand and line-extensions.   So I thought I’d talk a little more about this explosion of brands and the operational realities this creates. The constant evolution of the beverage scene will continue to put stress on strategic planning and proper resource allocation.  There is no room for complacency.  The game is from here on out.

AN ENVIRONMENT OF CONSTANT CHANGE

I admit I’m getting old but I well remember driver-sell days.  Can you imagine trying to sell today’s product line via driver-sell?!  I would pity the poor driver who had to try to come up with that day’s load.  Yikes indeed.

We live in a world with an explosion of suppliers and brands and packages.   

  • Suppliers come and go (expect this to pick up pace as a normal process of shake-out sooner or later occurs in the craft world).
  • Brands come and go.  And not just from smaller folks. 
  • Being the “Bud guy” no longer insulates you from these market-driven realities.
  • Seasonals – everybody’s favorite ;-) make things even more interesting. 
  • Packages come and go and come back again. 
  • Lastly, the battle for space is never ending, and I have yet to find a box-stretcher that can magically accommodate everyone’s desires.
  • Bottom-line… performance from every area of an organization is becoming increasingly important and increasingly more difficult.

As some of my responses noted, this is simply the new normal so you might as well get over it and get out there and sell.  Never forget the advice from that old guy (104 years old) “Was ain’t is”. 

THE NEED FOR ORGANIZATIONAL FLEXIBILITY & PLANNING

Many companies have responded to these changes by adding a few of these over here… and modifying some of those over there.  Over time, these individual responses to a rapidly changing market often become inefficient and less effective than desired.

Why?  Well, remember your company is an integrated complex system.  It is a living, breathing organism whose performance is directly affected by the relationship and ability of the parts to communicate and work to a common goal.  It is not the sum of a bunch of different parts.  The better all aspects of the system work together, the better the system will perform.  Having parts which are not in harmony is not only inefficient; it can be very frustrating too.  Think of an engine whose timing if off, the system will not perform well no matter how hard one tries.  And it will most likely take even more effort (and $$) to obtain this sub-par performance.  A Lose-Lose situation.

These market-based organizational modifications are well and good if part of a larger strategic and tactical planning process.  Otherwise it can cause a lot of organizational stress.  Occasionally, one needs to step back from this and with the management team look at the company completely anew… the roads are where the roads are.  The bridges are where the bridges are.  The retailers are where the retailers are.  Other than that, everything can be changed.

The answers to these questions should drive the planning process: Who are you?   Who do you want to be?  What market realities do you confront?  What are your organizational strengths and weaknesses?  What threats and opportunities present themselves?  What are your options?  Where is the company going?  Is that where you want to go?  How will you get there? 

A HIGH RETURN ON YOUR INVESTMENT

Now I’m biased in this but I firmly believe my or Steve’s presence in this process greatly helps ensure a better, more effective and efficient solution.  You and your management team know each other very well.   Sometimes that’s good but sometimes it is a hindrance to creativity.  You all are well aware of the other’s thoughts, biases, and BS.  Often important issues aren’t even discussed since everyone already knows everyone else’s opinion.  Necessary and vital discussions don’t occur since they lead to the same dead-end… why go there for an unproductive exercise in frustration? 

Perhaps you need someone with new BS ;-)  That’s me.

Although you and your management team are the experts in your specific marketplace (and if you aren’t there is little I can do to help you), Steve or I perform a critical leadership role in the strategic planning process while providing the organizational design expertise (based on hundreds of wholesaler and supplier engagements) to meet your ever-changing needs.  Together we create a better, stronger team.  I’m the agitator who changes the dynamics of this mental process.  And when we’re done, I leave as does my cost.

I firmly believe there is tremendous value (and team building) in the planning process.  Most management teams learn to love me right away.  I’m about identifying problems and SOLVING them.  In addition, I generally can give the boss more grief than they can comfortably do ;-)  

My attitude is you are paying me for my advice and insights; therefore I am obligated to provide them.  This type of true unbounded communication rarely occurs without the presence of an outside agent of change.

As an additional benefit, I help owners better understand their team and I help managers become better at the art of management.  This last point is not a minor one.  Your managers and supervisors are the tactical players who guide the battle… the better they are at managing, the better your performance on the street and on the income statement.

Not to brag ;-) but your entire organization will be better because of this process.

The best time to do things is the present. Take good and make it better.  Take great and drive it to a higher level.  But don’t wait for pain to force this mindset.  Instead embrace it as a positive and rewarding constant. Let us work with you, your management and staff to design and implement a continuous improvement process.

Take a week or two and re-imagine your company with our assistance.  You won’t regret it… but then again, I’m biased. ;-)

Give me a call or email if you would like to discuss this opportunity. 

Line extensions and Krusty the Clown

When I speak to state associations I often stray off into the weeds and find the Simpson’s cartoon character, Krusty the Clown.  Krusty is a shameless shill who will put his name on any product… and I mean ANY product.  All of them being of rather dubious quality. 

A tale of two strategies

I use this amusing – hopefully ;-) illustration to make the point on the difference in strategy between MillerCoors and ABI as they roll out new products.  MillerCoors has historically been hesitant to do line extensions, especially on major brands.  ABI has no such qualms.  First a disclaimer… I use Krusty as a humorous example, not a reflection of quality.  ABI and MillerCoors produce GREAT products of the highest quality.  They all may not be your cup of tea, but the quality is always world-class.

But whose strategy is “better”?  That is easy… the one that works the best.  Although Brito never did seek my advice prior to the acquisition – his loss ;-) I’ve always thought they saw more value in the brand names than did others (both for the US and world-wide markets).  Yes of course they saw a shockingly corpulent cash cow but I think they also felt the value of the brand names was not completely reflected in the stock price.  My gosh, it wasn’t that long ago that one in four beers consumed in this country was a single brand, Budweiser.  THAT is a mega-brand.  And this fact was reflected throughout the marketplace.  How many distributors are named “Budweiser Distributing" or "Bud of …” rather than “Anheuser Busch Distributing”? 

Therefore that they have proceeded with a line-extension strategy (ala Krusty) is not really too surprising.  In the past many producers have been wary of line-extensions (especially for major, important brands) and feared the potential risk of losing total market share based on several factors including:

  1. The line extension would dilute and weaken the overall brand.
  2. Failure of the line extension would damage the overall image of the brand in the customer’s eye.
  3. The cannibalization of other brands in the portfolio.

In the past these may have been true (and of course anything taken to excess will have negative repercussions) but I think they are less true today. 

Today’s beverage consumer is used to (expects?) a lot of brands.  And these brands often come and go.  The negative impact of a “failed” brand extension is more often than not, simply not noticed by the vast majority of consumers.  And let us not forget the long and twisted path that got us to Bud Light (and others).

So I think the downside of well-executed brand-extensions is much less than many think.  It seems to me as if ABI is building the Bud Light brand into a mega-brand name under which various other products are grouped.  Obviously you have the various beer line-extensions but you also have Bud Light Lime-a-Rita, Bud Light Lime Straw-Ber-Rita.  Some might ask what does a ready to drink margarita-in-a-can have to do with Bud Light… but this is an extension of Bud Light Lime.

They are doing the same with the brand Budweiser but for now are keeping the extensions down the beer lane.  I’d have to guess this might also change.  These names give instant recognition to these brands.  At some point do these extensions begin to take a toll on the strength of the brand name?  Perhaps.  But if enough are hits, I think they will over-shadow the losers… and as noted above, today’s consumer doesn’t seem to really care about (or keep track of) of disappearing brands.

In addition, I believe another factor in the ABI brand strategy is control of “their” distribution network.  There is only so much time in the sales day (and only so much room in the warehouse) so these brands have the added benefit of forcing these wholesalers to spend limited time focusing on ABI brands rather than chasing the next hot craft beer.  Brito and the guys are pretty good at strategy and this must be one aspect of it.  I sure haven’t seen any ABI distributors dumping brands to grab that golden ring of Anchor Wholesaler.  So this achieves the same distributor network goal…control; whether the distributors want to play along or not.

Now MillerCoors has been much more careful with their brand names.  Sure they do things with Genuine Draft… but let’s get real.  That’s not much of a risk for them.  For them the big dogs would be Coors Light and Miller Lite.  They (or Miller) have put the Miller name on various products (and might be planning to do it again soon) but the Miller brand name is not remotely the Budweiser brand name.  Or at least that’s my read of the marketplace.

MillerCoors is rather attempting to build completely new brand identities based on differentiation within the portfolio.  In some ways this makes sense especially when we are seeing an explosion of new craft - and crafty ;-) brands.  People are trying new things… looking for new tastes, new emotional bonds… so customer trials should be pretty high.  And perhaps those hapless consumers will be fans of the product before they discover it is really brewed by MillerCoors.  And of course once a few of these brands are successful, they provide new avenues for THEIR own line extensions.  Over the course of a decade or so, this “multiplier affect” could prove to be substantial.  So one could go with a new brand building strategy and then roll into a line/brand extension strategy to capitalize on these successes – assuming there are any successes ;-)

And of course there is that old saying, “don’t put all your eggs in one basket”, so there is perhaps some strategic protection from these multiple new brand platforms. 

But ultimately I think the different strategies reflect the different realties ABI and MillerCoors face.  The strength, breadth and reach of their brand names are as diverse as their brand strategies.  Their power (and space) at retail is simply not the same.  Just think of the strategic impact of space at retail.  In many high market share markets, one could argue ABI has too much space for various brands.  These line extensions allow them to keep this space/handles (and from their perspective, hopefully grab more) rather than allowing the competition to make the argument to cut their space.  MillerCoors on the other hand generally losses the space battle (this is the definition of a zero-sum game).  So if they do a line extension, is the retailer more likely to demand that they squeeze it into their present space?  Or if they come with a new brand, are they more likely to take some of that “extra” space from ABI?  There are a lot of moving parts in these analyses.

MillerCoors long ago accepted the wisdom (or is it the reality, whether they liked it or not?) that they are best served in a multi-brand distributor.  AB and then ABI have never accepted this (nor do I expect them to do so in the near future).

The importance of supplier/distributor alignment

The best strategy always is based on the realities one faces.  These two face different facts on the ground (and different goals via distribution) and thus their individual strategies for brands (and many other things) will by necessity be different.  Only time will tell which is the “best” strategy.  My guess is that both will be successful.  This isn’t an “either/or” situation.

Work hard my friends, stay the course....THE BEST STRATEGY WILL ULTIMATELY BE THE ONE THAT GAINS THE BEST ALIGNMENT OF THE THREE TIERS TO MEET CONSUMER NEEDS. Don’t forget who is driving the bus!

As a side note, I’ve heard from many ABI distributors that they do like some aspects of ABI’s brand creation.  In the past AB would study the hell out of some new product idea before they even considered taking it to market.  This created a lumbering process where new brand introductions were very slow (and costly).  Under Brito and company they do a quick study and if the results look good, they roll.  Saves money, gets the product out there for the consumers to decide, and keeps “their” distributors hopping on THEIR products.  Pretty good strategy indeed.

Would Krusty approve?  I think he would give it a hearty, “HEY HEY!”.

Drinking age sanity

I had planned to use this post to discuss the strategies and risks behind line-extensions... but the following was just published at National Review Online and it is a must read.  I couldn't agree more!

You can find the original link here,

http://www.nationalreview.com/articles/343680/cheers-drinking-reform-charles-c-w-cooke?pg=1

And here is the wisdom of Mr. Charles Cooke...

Cheers for Drinking Reform
It should be a libertarian’s dream issue.

By Charles C. W. Cooke

Alcohol occupies a peculiar position in the culture of the United States. Like so much else besides, it is subject to the ongoing brawl between puritanism and libertarianism, two philosophies that have long jockeyed for dominance here. Americans have made many contributions to the bar — including the perfection and popularization of the cocktail. But puritanism has survived, enjoying a rich history of its own. Benjamin Rush’s inquiries into alcoholism spawned a variety of anti-alcohol movements at the outset of the new republic; in the 1850s, “temperance” overlapped uncomfortably with the Know Nothing movement’s distaste for secular principles; and in the 1920s the 18th Amendment was passed, in part on the back of widespread mistrust of immigrants and the drinks they brought with them. The role of alcohol in society, remember, is the only such question ever to have been placed within the U.S. Constitution. Nowadays, the folly of Prohibition is widely known. But in practice it still obtains for some, as a deviant exception to the rule of adulthood.

In the United States, we treat 18-year-olds as full citizens. At this age, a man may vote and he may serve as a juror — or he may search for excuses as to why he should do neither. He may smoke cigarettes and fly an airplane. He may get married, or he may eschew that road in favor of pornography and promiscuity. He may enter into contracts, max out his credit cards, and run a business into the ground. He may join the military, putting his life in danger. In some jurisdictions, he may run for public office. Less welcome but no less real are the opportunities to be executed by the state for capital crimes and to sign up for the Selective Service. But what he may not do — in any of the fifty states — is walk to a bar and buy an alcoholic drink. This is nonsense — an aberration from the usual rules. What sense does it make to deprive an adult of just one feature of adulthood, and why are the arguments in favor of doing so taken seriously?

Lobbying the federal government in the 1980s, Mothers Against Drunk Driving claimed that there was a connection between young-adult drinkers and the worrying number of deaths caused by drunk driving. Their evidence is by no means indisputable. Traffic fatalities in the 1980s decreased considerably less after the drinking was raised than they did during the same period in Europe, where drinking is common at 18 and below; and, as the research of Harvard’s Jeffrey Miron shows, the “drinking age does not produce its main claimed benefit.” But, arguendo, let’s presume that MADD was correct. A bigger question would still remain: If practicality wins out in that arena, why is it alone? Why is William Pitt’s “Necessity” justifiable as the “plea for every infringement” in this domain but not in others?

Should we perhaps raise the marriage age or age of consent to 21? And if not, why not? After all, young people often think they are in love when they are not, and young lust can lead to inordinately bad decisions. (Just ask Romeo and Juliet.) Should we make home ownership illegal until one has 20 years and 12 months under one’s belt? Again: If not, why not? Perhaps our young people need a little time to rehearse in the marketplace before they make the biggest financial decisions of their lives? In fact, given that purchasing a house is top of almost all common stressors, one might classify being forced to navigate the mortgage market while sober as cruel and unusual punishment.

The answer to these questions is that there already exists a cutoff point beyond which your personal choices are deemed to be nobody else’s business. The rapper and producer Dr. Dre had, he said, “a house, a Mercedes, a Corvette and a million dollars in the bank before [he] could buy alcohol legally.” This inconsistency is grotesque. Are we to indulge an arrangement by which a father might say, “I’m really proud of you for joining the military, son. But don’t you dare have a drink”? In Personal Reminiscences, Robert E. Lee quotes Stonewall Jackson as having claimed to be “more afraid of alcohol than of all the bullets of the enemy.” That was certainly Jackson’s prerogative; alcohol, like so many things, can be terribly destructive. But recognition of this is neither basis for wise law nor sufficient reason to deprive young adults of their choices. Guns are destructive, too. Smoking is destructive. Paint thinner is destructive — I would buy a round for the first politician who defended the notion that the state should insist on age limits for the patrons of Home Depot.

 The 26th Amendment lowered the minimum voting age from 21 to 18 and, in doing so, corrected the untenable incongruity of 18-year olds’ being drafted into the military and sent to fight in the jungles of Vietnam but asked to wait three years before they might cast a ballot. In the wake of the change, with 18 set as the new yardstick, a majority of states saw fit to lower their drinking ages. Between 1970 and 1976, 30 did so. This logical trend was cut short by federal overreach. And what an overreach! Under the provisions of the Federal Underage Drinking Act, any state that holds out and allows its resident adults to enjoy a drink before they reach the age of 21 will be punished with a 10 percent decrease in its annual federal highway funds. This is no less than legalized bribery, one of many means by which the federal government circumvents the restrictions imposed on it by the Constitution and buys off the states. That since 1988 not a single state has told the feds to bugger off and mind their own business is a testament to the craven, upside-down nature of modern American federalism. (Also to the tyranny of self-interested majorities: Whatever demographic changes are visited on the United States in the years to come, we will likely not see an electorate that cares that much that people 18 to 20 years of age are deprived of the opportunity to go drinking

The law is an ass, and it is faithfully treated as such. Winston Churchill, who, having “taken more out of alcohol than alcohol [took] out of [him],” would no doubt have opposed the status quo on libationary grounds. But Churchill also wisely counseled against contriving a legal framework that undermines respect for the law. “If you have ten thousand regulations,” he enjoined, “you destroy all respect for the law.” Quite so. With the exception of the equally asinine laws against marijuana, it is difficult to think of another law that has become such an open joke among those at whom it is aimed. It’s not just the drinking bit: We introduce our citizens to the responsibilities of adulthood by encouraging them to get their hands on — and casually and routinely use — false identification documents. This in turn causes the purveyors of fake documents to proliferate and pushes them into the mainstream.

Drinking Reform has few public champions, which is a shame, because the issue presents those who habitually exalt limited government, individual liberty, and the rule of law with a golden opportunity to prove them congruous. Truth be told, it should be a libertarian’s dream issue. Why haven’t prominent figures picked it up? Benjamin Franklin said that beer was “proof that God loves us and wants us to be happy”; he also warned that the United States would remain a republic “if you can keep it.” Federalism’s advocates are missing an opportunity to demonstrate what happens to republican principles when the federal government gets too powerful. What better way than a call for the repeal of the Federal Underage Drinking Act to introduce to the young people of America both of Franklin’s principles at the same time?

— Charles C. W. Cooke is an editorial associate at National Review.

 

Another watered down rant?!

News flash… it have been scientifically proven that Conlin is NOT watering down his rants!  Whoever starts rumors such as this should be horse whipped, and I know just the horse to do it. 

 So let’s start with that class action lawsuit against ABI. 

 A classic: the cart before the horse

First, who was the judge who approved the class action status?  An attorney doesn’t make that decision… they can ask for it but a judge has to grant it… why on earth would a judge grant class action status to such a flimsy action?  Why not let the plaintiffs first provide the hard evidence that this nefarious “watering down” was actually occurring?  Why let the damage to ABI happen (and which they all know will happen) before, SHOCKINGLY finding that the claim doesn’t hold up to testing?

That is of course a rhetorical question… that a judge makes a stupid decision is like a “dog bites man” story.  Sadly very common.

But in the Sunday March 3rd Denver Post, ABI felt they had to respond to this dubious charge with a full page ad touting all the water they have canned/bottled for disaster relief… with the tag line “they must have tested the wrong product”… above a picture of their canned water.  The ads ran in the Houston Chronicle and the New York Times among others too.  You can see the graphics and a short story here, http://blog.chron.com/beertx/2013/03/anheuser-busch-punches-back-with-ad-campaign

A couple things on this story… The Popular Science website ran a story titled, BeerSci: Is That Water In Your Pint Glass? Anheuser-Busch is being sued for watering down their beer, but there's a way to test for that.

Which you can find here, http://www.popsci.com/science/article/2013-03/beersci-water-your-pint-glass.   As they note, for $100 this claim could have been tested before a class-action lawsuit was started.

Searching for truth and objectivity

For those with an inquisitive mind I have a project… use any search engine and search for articles on this ABI watering down its beer story… use whatever words you think will work.  You can skip the articles (and there are MANY) but make certain you read the comments.  Read at least a few article’s comments… in a short period of time you can get a pretty good idea where the beer industry is today… and it ain’t pretty for any of the mega-brands.

If anyone thinks the craft beer craze is slowing or is only a short-term aberration, these pages and pages of comments will dissuade you of this foolishness.  If ABI and Molson Coors and SABMiller only got their revenues from the US market, one would be wise to short their stock.  You will be hard pressed to find ANY commenter supporting these companies or their brands.

Luckily, you all are distributors so continue what you are doing… offering incredible value to every craft brewer out there… and in realty, offering incredible value to every supplier you carry.  The future for the light mega-brands is going to be one of tough sledding.  And my gut says the odds of some young craft beer drinker switching to Bud Light or Miller Lite or Coors Light AT ANY TIME in their lives is incredibly small.  Just ain’t going to happen.  Not that these drinkers won’t necessarily drink products from the big suppliers (but many never will)… but that most will likely NEVER drink those products.  At least that’s my crystal ball.

Want to save some dollars and get better results in keeping track of this industry?

Did you know that by using the power of the modern search engine you can get free, broader, more objective perspectives than many (all?) subscription industry publications.  You can typically get better, more timely, unfiltered information delivered to your inbox as often as you desire.  In today’s world why let someone else determine what is news and what isn’t.

For reference, Google has what they call Google Alerts (and many of the search engines have a similar feature).  You enter in a key word or two and anytime that word/phrase is in a story you receive an alert with links to the stories.  I use a lot of alerts… ABI beer, MillerCoors beer, beer distributor, beer wholesaler, Anheuser Busch, Conlin Beverage Consulting, John Conlin, etc.

They all do a great job too… you only get the best results… you’re not inundated by a ton of stuff, just fairly targeted, very timely news on what interests you.  With some well-defined alerts, in 15 minutes of reading you can be on top of everything happening in this or any other industry.  And if you find you get a bunch of stuff that is not what you are looking for, simply fine-tune your searches.

In effect these search engines allow you to create your own personal, industry-specific newsletter.  You can go as deep or as wide as you desire.  All with very little effort.

In fact I found that link to the newspaper graphics via an alert… it was the first link in an alert for “Anheuser Busch beer”!  

If I were a distributor, in addition to the broader industry-related alerts, I’d probably have alerts for every brand and supplier I carry… in addition to my company name.  That way I will always know what is being written about them (and yourself).  You can perhaps spot trends before they become well-known.    In today’s connected world, why let anyone be a gatekeeper on information?  As you are well aware, the Internet is changing business models across the globe… it’s doing the same here.  If you desire, you can easily control the flow of information and manage it to your desires.  No one else needed. And you don’t have to be an Internet wizard to accomplish it.

And of course if you want opinion and rabid rants, you’ve got little ol’ me ;-)  Yesterday is yesterday… or to quote an old geezer from a story I did long ago, which you can find here, was ain’t is.  Don’t ever forget that.  Whether it’s subscribing to industry  publications or projecting brand trends or designing your company for the future… things change… change with them.

More on craft beer and the value of distributors

A few months ago I did a radio interview with a guy who does an Internet radio show and blog called Bite and Booze, http://www.biteandbooze.com (it’s about food and alcohol down in Louisiana).  His name is Jay Ducote.  So after 15 minutes of my incredible wisdom, this is what he created and put on YouTube… http://youtu.be/txcDK3XGb6c

 I think most of you will agree with this.  In fact it might be a useful link to send to legislatures who are thinking about writing craft beer carve outs to franchise laws.  15 minutes of genius cut down to one sound bite… such is life ;-)  But it IS a good sound bite.  Way to go Jay!

 Next post I’ll give my 2 cents worth on line extensions versus new brands… or as I note in speeches to state associations, a Krusty the Clown strategy versus a non-Krusty the Clown strategy… and it won’t be watered down either ;-)