End of Year Thoughts
Well the year is winding down and all-in-all it has been a pretty good year. Hope life is treating you and yours well. Thought I’d mention a few things to close out 2012 while bringing in the New Year… some personal, some beer industry related and a high value-added activity for wholesalers to consider for the New Year.
On a personal level, my wife Barb continues to fight a little Graft Versus Host Disease (that’s when her new immune system attacks the rest of her body) but other than that she’s strong as an ox – she loves it when I say things like that ;-) This is somewhat to be expected but has gone on a little longer than planned… but all-in-all, things are going great. Much better than being dead.
I thank God each and every day for her survival… and the wonders of modern medicine. Without it, she would be in the ground for over 2 years. It still gives me the shudders to think about it and the odds of survival she faced back then. I was looking up some info on another project I’m working on and found data that chilled me to my bones as I mentally revisited that time a couple years back… and caused a little eye moistening… The American Cancer Society forecast that in 2012 there would be 13,780 diagnoses of Acute Myeloid Leukemia and 10,200 deaths. I’ll let you do the math but I don’t think many want to play those odds.
BENEFITS OF THE THREE-TIER SYSTEM
As I pull back and take a look at the industry, there is one amazing fact which leaps out… just how well the independent three-tier system actually works. Think about it. The top 2 brewers have 80% of the overall beer market yet in the history of the country there has never been a more dynamic time for beers, brewers, and consumers. In many other types of markets where the top 2 players control that much share, competition is stifled (or at least they try). Not so in beer. It is incredibly competitive and these 2 combined eighty share companies are losing share! So much for being able to use this market strength to crush the smaller competitors. And competition is a funny thing… it is SO dang successful. I don’t care what the industry, it out paces even the most determined attempts to control it.
It is a testament to the genius of those who structured this regulated system 75 years ago. Without the independent 3 tier system, I can envision no situation where this dynamic marketplace would exist. Much like the greatest document ever written by man, the US Constitution, many don’t understand the vision and brilliance (and compromise) which created the documents. Tinkering with either is fraught with the peril of unintended consequences. Changing either for some supposed short-term gain is foolishness on stilts. You can take that to the bank.
THE CRAFT CONUNDRUM
And not surprisingly, the friction between the craft folks and “big beer” continue. Just like the prettiest girl at the dance, more is never enough. All rules must be bent to their desires and once they are… they need to bend even more.
Now some of the craft folks want to fight “faux-craft” beers…“craft versus crafty”… crafty, craft-like beers and “true” craft beers. Their gentle sensitivities are all a-flutter that “big beer” is actually making products which “hide” their true ownership. They call for “transparency in brand ownership and information to be presented in a way that allows beer drinkers to make an informed choice about who brewed the beer they are drinking."
I guess their point is if ABI or MillerCoors (or god forbid Pabst!) makes a world-class IPA it’s not REALLY a “craft” IPA… just more bilge from some huge factory pumping out liquid swill… and the consumers are just too stupid to follow their taste buds. I guess I had better toss one of my favorite beers, Pilsner Urquell in the trash… dang thoughtless taste buds… what do they know?!
What happens when one of these “craft brewers” cross their arbitrary volume line between craft and non-craft? Do they then become crafty too? Do the brands magically become faux-craft and swill like their fellow mega-brands? The prettiest girl doesn’t think that far out since she doesn’t have too.
Next they’re going to be telling me Little Debbie isn’t really making those cakes! Or that Aunt Jemima isn’t a true master of maple syrup! Say it ain’t so. Cover the children’s ears! Get the FDA involved! Where is truth in advertising when we need it?
Sadly it seems whether big or small, almost everybody out there wants to use government and its’ enormous power to either help themselves or to hurt the other guy. That’s one of the reasons I’m an advocate for small, limited government. Human nature being what it is, folks will always attempt to use this power to their advantage. It is far better to let free people freely interacting with other free people to determine most of these issues… under of course a general structure of laws and regulations. But that’s my political soapbox.
But speaking of crafty, now I can’t get that great Beastie Boys song out of my head, She’s Crafty. I can envision a great TV ad… hot babe drinking a craft beer (faux or “real”) with this song as the theme. Some of the lyrics…
She’s crafty, like ice is cold - This could become the tag-line for the first craft line extension from Coors Light! You guys owe me! Mid-six figures at least.
She's crafty, she's gets around
She's crafty, she's always down
She's crafty, you know she's got a gripe
She's crafty and she's just my type
I seen this girl I could never forget
Now, I like nothing better than a pretty-girl smile
And I haven't seen a smile that pretty in a while
The girl is crafty, she knows all the moves
Dang it gets better the more I think about it. I’ve GOT to stop giving this genius away for nothing. If anyone takes this and runs, please send the checks to my corporate offices. She’s craaaafty! And don’t forget to Fight for Your Right to Party! ;-)
For one of the many YouTube videos of She’s Crafty, go here http://www.youtube.com/watch?v=4k9DE1zycg0
And speaking of strategy (how’s that for a segue?)… ABI is all about making money and their pricing strategy reflects this. And as it is with most markets, when the market leader wants to make money (especially via pricing), then everybody makes money. But like all decisions in life, there are unintended consequences… this strategy has allowed a lot of room for those small, crafty craft brewers to also increase their prices. Is this price-maximization strategy in effect opening the door to the demise of the big-boy’s mainstream products?
As we all know, it’s all about brand positioning at retail. Are they actually planting the seeds of their own destruction… as the moth flies too close to the flame? Is it giving room in the marketplace for marginally profitable small craft brewers to grow and expand their market share? A situation which might not be possible if ABI were more interested in share and/or keeping overall beer pricing lower? Would the industry not be seeing as much growth in small craft brewers and the loss of share of stomach to wine and spirits if their pricing strategy were different?
Looking at this as a case-study, the structure of a market has significant impact on the moves of the participants (and in all honesty, what makes sense). A market with three major players (perhaps market shares of 50, 30, 20) will in all likelihood be much more price competitive than one with two major players with more equal share (whether volume or GP $). Why? Because in the first situation with 3 players, it will probably make sense for one of the smaller two to use strategic price competition as a weapon and a means to grow market share. Note that the share leader in almost any market will be a fan of the status quo… they’re the leader, why would they want to mess with that? If those two smaller players would happen to merge (can you say MillerCoors), then the market becomes more balanced between more equal competitors… and price competition becomes less effective in growing share for anyone. No one has to collude or anything like that… the reality simply becomes one where price competition isn’t as effective for anyone.
So on one hand the present market structure tends towards less price competition… depending on your point of view this might be good or bad… but at the same time the present market structure and the pricing structure it brings allows very fertile ground for young start-up breweries to spring into life across the country… something that would be very difficult if there were aggressive price competition from the big boys. Take a buck or two off the price of a craft brewer’s 6-packs and their world changes dramatically. I’m not advocating anything, just analyzing the present market. I LOVE the craft beer explosion and the excitement it brings to all aspects of the beer business. Just something to think about.
A VALUE-ADDED NEW YEAR’S ACTIVITY
Consider bringing in 2013 by having Conlin and Cook do an objective financial valuation and industry comparison profile for your business. Many of our wholesaler clients continue to benefit from our high value-added, no-nonsense financial analysis with industry comparisons report. This isn’t some report you just toss to your accountant. This report will form the basis of many strategic and tactical moves… for 2013 and many years out. This is a strategic and operational document.
In some cases, especially for our smaller and medium size wholesalers, it is a real eye opener to properly compare profitability, revenue streams and operating costs to the industry, to actual, to short and long term trends. Although incredibly valuable for all wholesalers, this analysis is extremely important if you are a high-share ABI distributor (or any size). Your world is changing dramatically and you MUST be able understand where present trends lead. This is probably the most important strategic planning tool you can have.So hope you have a wonderful Christmas and holiday season. If you want to spread some Christmas cheer might I recommend www.EndtheEducationPlantation.org ;-) It’s a good cause and I hear the guy running it is a freaking genius (or so his mom tells him).
With what’s going on in DC (and what’s already baked in the cake), 2013 is going to be one wild ride regardless of your political leanings. So hold on to your beer (crafty or not) and enjoy the show. One way or another, the sun will still rise.