Even more on MillerCoors, Chesbay, and Reyes
Wheee doggie! That last post, which you can find here, sure hit a nerve or two. Just remember that just because you don’t want to hear it doesn’t mean you don’t NEED to hear it. Don’t take potshots at the poor little ol’ messenger ;-)
And it is interesting times… being in play is most definitely interesting… Harry and Benj report that the craft folks might be lining up against the Modelo/ABI deal… at least the US and Crown aspect. But at the same time I hear rumors that ABI is courting the craft folks to join forces in fighting franchise laws. I don’t think too many craft people are supporters of strong franchise protection… unless of course there are exemptions for them.
I guess politics really does make for strange bedfellows… but everyone wants the craft folks on their side… they remain the prettiest girl at the dance. And they get similar favorable treatment. That’s just the way it is. Just try not to turn over the keys to your car to them as you court their favor. You might not like the way it turns out as you look at the twisted and smoking heap that was once your pride and joy.
As a side note, still thinking about an exit this year? It can still be done (barely) and there are ways one can structure the deal so you get this year’s tax rates… but you had better hurry. You might not get brewery approval this year but that doesn’t necessarily end the matter. Want to know how? Give me a call ;-)
As for my last post, let me give you a timeline to further explain. Originally the post was going to be solely about the concept of being in play. I think that is a profound reality which has the potential to transform this industry… and you’re not going to like all of the potential realities. Therefore work to make certain the future that comes is the future you desire. If you sit back and wait, the game will be over before you even knew it had started.
And you have more than a few uphill battles… what I wrote in the last post isn’t what I think, but it is what more than a few folks think. Recognize that reality or deal with the consequences.
And as a side note, but one which beer distributors should take note of … I have talked to a number of GMs and sales managers since the last post. They all had a similar epiphany. First they’d start defending franchise protection and the life-long, multi-generational protections it provides for a handful of families (obviously these folk’s employers). Then to the person they’d say…
“gee, why am I fighting for this? I don’t have any contract… I don’t have any protection. They could fire me at any time regardless of my performance and I don’t get some retirement-level ransom when I walk out the door. My kids and grandkids don’t have any job waiting for them at this company. Why shouldn’t I be granted these same types of “franchise” protections? My efforts are building these brands a heck of a lot more than the owner’s efforts… to say nothing of their kids. Yet I’m working for a paycheck and they are sitting back raking in wealth I can only imagine... and I’m fighting for them? I’m a sap”
And this is from YOUR SENIOR EMPLOYEES! If they think this way (and they know you and the industry far better than anyone else) how do you think some outsider looks at these things? You’d better get your pitch prepared because you are going to need it.
Anyhow, as I was spewing that wisdom on being in play the whole MillerCoors, Reyes, Chesbay thing popped up. I tried to ignore it for a while but was contacted by more than a few who wanted my take on the thing. I think they all thought I’d unload on MillerCoors.
But I can see MillerCoors’s point in all this. Forgetting the Reyes’s for a moment… One can understand why MC doesn’t want a single distributor to get “too big”. One could imagine a future where a very large, very profitable distributor would use their financial strength to in effect purchase the entire distribution tier. One could envision a future where because of tremendous financial power, a single distributor could become the top bidder in literally every single significant transaction in the country. Then they use these footprints to spread out and take over, state-by-state. One might attempt to implement that strategy… I think it’s a pretty good strategy that has merit too. Look at Southern Wine and Spirits… it’s worked out pretty well for them don’t ya think?
As a side note again… one strategic issue that all businesses must confront is the double-edged sword of being “captured” by a big customer. On one hand a business is always overjoyed to find a large customer who likes their product or service. Often times this single customer drives the expansion of the business. Soon, the business is almost entirely dependent on this one customer, i.e. they have been captured. And once captured, they will dance to this customer’s tune… whether they like it or not. Many businesses NEVER want to have more than 40% of their business coming from any single client… it just puts too much at risk and makes them very vulnerable to changes of heart from this single customer. And makes them vulnerable to demands from this single customer. MillerCoors might be thinking in similar terms… strategically they might not want the Reyes operations to “control” too much of their distribution. So one can understand their position.
As for the Reyes’s… one can understand their position too. They are MillerCoors distributors in good standing, having won awards on performance, etc. Although I gave Ray and the brothers a little grief on a couple issues, no one can deny they are pretty dang good distributors. They simply want to expand their footprint with the acquisition of a willing seller. They were the ones who stepped to the plate on the price. Nothing stopped others from beating the price but none did. How frustrating for the potential buyer! Go get the Reyes’s to bid on your company, knowing they are willing to pay top dollar, and then sell to whoever else it is that finally is brought to the plate by MillerCoors. They Reyes’s spend all the time and effort and $$ to bring the deal to fruition and are left at the altar.
Therefore prospective qualified buyers such as the Reyes’s now demand sellers to commit to selling TO THEM… not just to anyone who will match the price. They force sellers to accept some risk in these transactions too. Pretty straightforward… you want top dollar? Then you accept risk too. And the risk they accept is some type of penalty if in the end the Reyes’s aren’t allowed to be the ultimate purchaser. If this happens, Mr. or Mrs. Seller has to pay the Reyes’s a fairly handsome sum… for their time, effort, and $$ spent in the effort. Again, I can’t blame Ray and the brothers… I’d do the same thing.
More sellers think getting top-dollar is a 100% thing… as in they get 100% of what they want. That’s not the way the real world works. Far too many sellers want…
- the highest price ever paid
- the seller to buy the warehouse at a pre-real estate collapse value
- purchase all the assets at a premium
- purchase all the inventory - and let’s just ignore unsalable product between us friends ;-)
- And an all cash deal
Well welcome to the future. I think we will see a lot more purchasers start demanding sellers accept some of the risk of the deal not being approved… on both the MillerCoors and ABI sides. You want top dollar? Then you will have to give on a few things too. That’s just the way it is. And I will make the contract so that you will fight for ME as the final purchaser, not just anybody who will match the price. No more happily taking the money and leaving your suitor standing alone at the altar.
As for Chesbay… they are discovering the mind numbing speed at which you burn through dollars in a big time business lawsuit. The first $100K will fly by so fast you won’t even see it go. The Reyes’s are attempting to join the lawsuit but the question is do they have standing? We’ll see but I’d guess the odds are against them. The Chesbay folks might look back at this and wish they’d accepted a lower offer but one that was actually blessed by MC. But they are in the fight now and the doors are locked…no one’s leaving.
All you other wholesalers need to learn from this company’s pain… these transactions are far from risk free and when they go bad, they can really go bad… in a lot of different areas.
I’m certain the accusations and strong words will flow for some time now. How (when?) does it end is anybody’s guess. If the decision is a major one (regardless of who “wins) you can be assured it will be appealed by the other side. Chesbay might see this thing end in a decade or so – longer wouldn’t surprise me. If I had to predict I think they will rue the day they ever attempted this sale (although I admit they didn’t do anything wrong). Perhaps the entire industry will do the same. Being in play… welcome to it.