MillerCoors, Chesbay and assorted ramblings

Well the 75^th NBWA convention has finished up and a good time was had by all… at least I think it was.  Based on distributors who came up to speak to me, from 80 – 90% liked my past couple posts and 10 – 20% thought I’d lost my mind.  For me, that’s pretty good! 

 

So let’s tumble through some random thoughts from warm and sunny San Diego.

• First, one more time on my last couple posts, which you can find here and here.  My point was (and is) very simple… if franchise protections are going to be put in play, then you had better be prepared to address some of the issues surrounding them.  A look of a deer in headlights is not the correct response when some reporter (or elected state official) asks you why you deserve these special privileges… and trust me, they are special privileges… whether you like or accept that reality or not.  You had better have a clear, concise and honest answer.  If at their root all you have is some protectionist goal, then long-term you are going to lose.  Don’t shoot at me, that’s the way I see it and I don’t see any error in this reasoning.

 

• And regarding the MillerCoors and Chesbay lawsuit.  Let us step back and attempt to look at this in a completely unbiased, don’t have a dog in this fight view.  First, I’m at a loss to see how MillerCoors’s desire to retain the right to control which independent wholesaler distributes their products is a threat to the independent three tier system… and as my readers know, I regularly beat MillerCoors and ABI corporate like a bongo, so I don’t think I’m being a stooge for these two. 

 

Let us try to think about this just as a business student in an MBA class.  Is our position that a manufacturer of some product which chooses to go to market through an independent distribution channel can lose all rights to who actually distributes THEIR product via state law?  That once they choose a distributor in that state, that distributor now controls who distributes that product?  Forever?  And you wonder why the craft folks aren’t fans of this?!

 

I think I know beer distributors pretty dang well and I don’t know a one of you who would willingly accept this if you were the manufacturer.  I can hear each one of you now… “It’s my damn product!  I make it!  I own it!  Who are they to try to take this right away from me?”  Tell me I’m wrong here.  I think the logic and “rightness” of this is a stretch.  Could it be worse?  Maybe.  Some non-beer beverage suppliers, i.e., Gallo, take a more “pay-for-performance” approach. They control and own the distribution rights, which are not for sale and can’t be transferred!  Meanwhile, the lucky wholesaler gets the opportunity to add more gross profit per stop and improve their bottom line on an exclusive territory basis if they continue to meet the suppliers expectations.

 

I realize we’re all beer distributors (or black hearted mercenaries like me serving the industry) so we cheer for our side but again, pulling back and trying to look at this thing objectively… why is MillerCoors the bad guy in this?  Why isn’t Chesbay the trouble-maker here?  They were going to get their money… they were going to be made whole and lose nothing… so why didn’t they just take their money and leave?  They got rich in this industry and were getting paid wealth that will go on for generations in their exit… so why isn’t a “don’t let the door hit you on the way out” attitude acceptable?  Isn’t it their action which is the root cause of this dustup?  A dustup which like ripples on a pond may spread to who knows where with results none of us can predict?  They are leaving the industry so why put the entire industry at risk for their personal needs?  Isn’t that logic just as valid as MillerCoors being some rotten SOBs trying to destroy the independent three tier system?

 

None of us outside of the participants know all the facts but it would seem a possible reason this fight is occurring is because of a “binding agreement” Chesbay signed with the Reyes Beverage Group.  Perhaps the merger and acquisition advisor who “helped” Chesbay should be horse whipped – and I know just the horse to do it ;-)   Perhaps all of this boils down to some pretty bad advice?  All I know is the results speak for themselves. 

 

It will be interesting to watch it all play out and many in this industry may find they rue the day this whole thing started.  I’ve got nothing against the Chesbay folks but this is like any type of conflict, there is more than one valid opinion here and the reality is often much more complicated (and twisted) than any of us will ever know.  Once things are put in motion, one never can be certain where they will end up.  Perhaps we need to be more careful about what we put in motion. 

 

• And as a side note, you are all asking A LOT of your state association execs.  You want them to defend franchise protections which many of you find difficult to produce coherent, logical and NON-protectionist arguments for… and trust me, getting upset at Conlin is not an argument ;-)  For many states, these franchise laws were written and enacted a relatively long time ago… when your political power was MUCH greater than today.  Many states have term limits for their state-level elected officials, so many of this industry’s friends… folks who actually understood this industry and knew why it was a good idea… they are long gone.  With term limits the education process is a continual one… in effect the game never ends… and this industry’s very valid points take more than 15 seconds to explain.  In addition your execs are attempting to deal with an exploding craft beer industry which is just beginning to flex their political muscle. 

 

Right now you have more money but they have everything else.  Long term that is a problem (and short-term ain’t that good either).  And of course you have large suppliers who plan to harvest your profits… yeah, the life of a state exec is a cake-walk ;-)  And we want to get into a fight for Chesbay and get all this crap in play?!  What are the odds things get better?  What are the odds things get worse? Have at it state execs ;-)  We’ll blame you (and Conlin) when it doesn’t work out that well.

 

And a side, side note about supplier owned branch operations… some might think they see a discrepancy with my recent posts and my vocal support of outlawing branch operations.  No such discrepancy exists.  I’m against allowing branches for two reasons:

1.         At a higher level, I’m against them on philosophical grounds.  How can one support a three tier system and think branches are acceptable?  To my simple mind you can’t have a true three tier system and branch operations.  It is simply the merging of two tiers… and thus the three tier system is somewhat of an illusion.  I think that is a dangerous course to walk, “kind of” having a three tier system while at the same time accepting the disappearance of the distribution tier in many locations.  There is a legal doctrine where if over time you refuse to exercise your rights, you lose them.  We don’t want to go there.

2.         At a nuts-and-bolts level, I’m against allowing branches since it permanently changes the dynamics at the elected state level.  Once a branch enters a state, the reality at the state legislature changes.  Unanimous distributor support for wholesaler-friendly legislation generally won’t happen again… the branch is a subsidiary of the supplier, not an independent distributor, and will thus vote accordingly.  If the supplier supports the legislation, the branch will too.  But if the supplier does not support the legislation, guess what?  That branch isn’t going to be supporting it either. 

 

And this makes the life of an elected official MUCH more difficult.  These folks can’t be experts in every freaking industry.  And with term-limits, their depth of understanding shrinks ever further.  Thus they often look to unanimous support from all members of the state association to help them make decisions on whether to support or oppose specific legislation.  For them it is much easier to punt on the decision when there isn’t unanimous support, i.e. it makes it more difficult for state execs to move the legislation along.

 

And think about the actual dynamics… the 21st amendment dictates state-based regulation of alcohol.  Thus there is no more important area for this industry than state legislatures.  Since disagreements with suppliers are certain to occur and often laws/regulations will be the solution… this industry practices unilateral disarmament at the state level when it allows branch operations.  In effect it gives away (or severely weakens) this route to address conflicts with suppliers when they allow a branch operation to take root.  It’s a poor move anyway a distributor looks at it.

 

• And lastly but certainly not least; a couple posts ago I made some comments regarding some customer service issues regarding the Reyes’s operations.  Ray Guerin (he’s the guy who runs the Reyes Beverage Group) had some exceptions to these comments.  Ray brings a tremendous commitment and passion to his job (and I have to admit some impressive credentials and results too… and to this black hearted mercenary, ultimately results are ALL that matter).  Rather than attempting to throttle me, he invited me and my associate Steve Cook to tour their joint venture in San Diego, Crest Beverage.  Crest is a joint venture between the Reyes’s and the Sourapas family.  Great story there… one was the Coors distrib, the other the Miller distrib and both wanted the other to leave (with their respective supplier lined up behind each)… but when it was clear that wasn’t going to happen they instead went to Plan B and formed a very successful partnership.  Something many distributors could learn from.  Although I’m not intimate buddies with the brothers, I’ve known Chris and Jude for years and have met all the brothers over the years.  From what I hear you can take their handshake to the bank… and in my book that is about as important as it can get. 

 

Anyhow, Ray drove us to Crest and we got a great presentation on how they go to market and a tour of their operations.  Their go to market strategy is world class and they really know how to use their size, power, and technology to their advantage.  It’s all about eliminating waste and holding themselves accountable to doing things right the first time.  Something we can all learn to do a better job at. Perhaps more fundamentally, it is obvious they grow great managers… without them, the rest is meaningless.  Many a management team could learn a thing or two from Dean McMillan’s Crest team.  I’m certain I’ll still piss Ray and the brothers off now and then – it’s my gift ;-) but they run great business and are a class act.  Here’s a very public thank you… and now you owe me a beer or three next time we meet ;-)

 

• And just to end by letting my warm and fuzzy side out for a walk… this past summer I was invited to speak at several state annual conventions.  At one such state convention they had a pirate-themed reception prior to dinner which proved to be an epiphany for me.  And by epiphany I don’t mean the Christian festival but rather the other meaning. 

 

Def: epiphany - A sudden manifestation of the essence or meaning of something or a comprehension or perception of reality by means of a sudden intuitive realization

 

All from some pirate-themed reception at a beer convention?!  Yep.  There was pirate stuff for all… bandanas for pirate head coverings… pirate hats… eye patches… earrings… a plastic sword or two… gold coins.  As the reception got going EVERYONE was sooner or later in pirate garb… grandchildren had grandparents on the run – until those crafty grandparents did a rear-guard action and turned the tables and had the kids on the run… there were at least 4 generations in the room… laugher and sheer silliness were everywhere (and I am a big fan of silliness).  And it grew and grew.  The Bud folks and the MillerCoors folks simply disappeared… suppliers and distributors gone… all that was left was a multi-generational party of happy, loving people… all that was left was simply joy.  Wearing my bandana, I pulled back and watched this in awe.  I think I saw it clearer than the others because I often observe outside myself, but this really was the essence of joy… I wish I could bottle it. 

 

After the convention I wrote to these distributors asking them to remember this time, this moment in space when this joy was like an exploding firecracker.  I reminded them that conflicts are certain to occur… often times with both sides having very valid points… but to hold fast to this memory, to hold fast to this joyous occasion when these points of friction occur.  To remember that just because we might disagree, that doesn’t mean the other side is evil or bad… we just disagree.  To hold fast to this joy because each one of you… whether owner, employee, supplier or black hearted consultant… has something very special here.  And you’d be foolish to put it at risk over some temporary disagreement which in the end will most likely prove to be ephemeral.  If this industry wants to see another 75 years, it could do worse than to stand back and learn a thing or two from these wild and crazy pirates.