Inbev's new distro incentives

This is honey after the vinegar. The last five years have damaged AB's relationships with wholesalers in a very significant way, and all the rhetoric coming from AB, both publicly and privately, has started to change because they understand that.

 

No doubt, but it still bothers me.

 

Not trying to be difficult, but why? Is it simply because it is AB? Employers offer employees incentives all the time to focus their attention on one thing or another. Consumer goods often offer mail-in rebates to entice you to purchase their product, or to cross merchandise with something else to try to increase your ring. Many other breweries offer incentives to wholesalers for certain goals and objectives. This is, at the very root of the matter, a coupon or rebate from one entity to another.

 

As I noted earlier, because beer is sold differently and always has been. We place burdensome restrictions on craft breweries in the spirit of "a fair and orderly marketplace." A marketplace we don't seem so concerned about for every other good and service. Coke has the money to mandate their products in every shop and restaurant; how are soda sales doing?

The three tier system, and franchise laws as a whole, have been used as a reason for limiting taprooms in some states, and limiting or eliminating self distribution in others. The rhetoric always places the top importance on separate, unlinked channels of distribution. If Bud can use their weight and buying power to influence the second tier, then certainly other producers should have the right to opt out of that tier entirely (provided they are otherwise following alcohol sales laws regarding taxes, safe selling, etc.)

 

I guess we are a little more insulated in NYS, which has been incredibly progressive on the craft beverage front, not just beer, where self-distribution isn't the norm but there is much more freedom and tap rooms are a significant form of revenue for these smaller producers (something which I, as a distributor, pushed for in Albany).

And if no one buys into this incentive, doesn't that confirm the rhetoric about an independent second tier? Sure, you may have the Grey Eagles of the world make a move or two, but let's wait until many wholesalers actually follow through and start dropping brands to hit these thresholds before we start stomping our feet and throwing stones. Again, we went through this three years when AB announced their anchor wholesaler plan, and really nothing came of it.

And the Red network is not the only path to market; let's stop confusing this point. Deschutes is going to be just fine in St. Louis. If a craft brand is a good brand, they will succeed regardless of their distribution network. If an AB wholesaler wants to drop a brand that is selling well, then why wouldn't another wholesaler want to pick them up?

Look, I may be wrong, and I may have to eat some crow here in a bit, but I have spoken to many other AB distributors, all of whom have basically said this will not change the way they do business.

 

And I suspect you are correct. All I'm asking for is, if three tier isn't going to truly be three independent pillars, then let's stop pretending and make inclusion for all breweries optional.

 

Fleet Center? What year is this?

 

It's not simply because it's AB. I'm a harsh critic of businesses small and large. Additionally, in my view, this isn't simply an incentive program, by which you're trying to reward someone's performance. ABI is trying to limit the success of other businesses with these incentives. I don't care for that (for a variety of reasons). Sure, "that's capitalism" and yes, "that's just business," but it's not how I'd like to see business operate and so I'll choose not to support it when I see it. Ultimately I'll end up supporting similar, if not more unethical (by my standards) practices, so I know it's naive to think I'm not supporting such in one way, shape or form. I try to be as educated a consumer as I can be and actively research various practices of businesses, from mom and pop stores to huge multi-national corporations, in pursuit of that end. When, during that research, I see something I don't like, I stop supporting that business. It's a personal choice of mine that reflects my values. Every dollar spent at a business is an endorsement of that businesses practices from top to bottom, no exceptions. With that dollar consumers are saying, "Keep doing what you're doing." When we live in a country that, in my opinion, prioritizes the sustainment of business over people, then the purchasing of products becomes the only way we can really vote. Therefore, if I want certain businesses practices to change, I have to do what I can to avoid supporting said practices, though, admittedly, it can be impossible to avoid them completely (unless I was to live totally off the grid, which wouldn't allow me to continue my career, a career based on service to people). It's a tough bind and I'm mucking my way through it. I'll continue to muck my way through it, as opposed to simply say "You can't win 'em all" and press the eject button on important socio-political-economic conversations that impact our lives (not saying that you're doing that, just a general example of some of the resistance I get on these boards and beyond when I express my views).

 

Ironically, you not purchasing ABI products is Capitalism at its finest!

 

Sorry, I meant the Boston Garden, you know, where I used to see Dead shows...!

 

I wouldn't say "it's finest," but I agree that the choice is a key element. I also don't reject capitalism or wish to see it end. However, the version of it that dominates in the US is not working in the best interest of the people and I'd prefer to see it change in various ways.

 

I...this...wow. This may be the best response I could have received. One of my biggest gripes with the beer world is that the time and energy given to who owns what brewery and where is my money going is often given by people wearing Nikes and griping from their iPhones, two companies who have signicantly more questionable business practices than anything AB has ever done. So, thank you.

 

Gregor

Where I live there are plenty of very good local independent beer choices. Not nearly so many smart phone or sneaker choices.

What particular business practices by Nike do you consider questionable?

 

Precisely. Unless you're in an extremely rural area there will always be at least 2 distributors, because AB and MC don't want to be represented by the same distributor. Most metro areas will have at least a couple other independent distributors as well. Hell, Portland has at least 6 distributors.

If an AB-affiliated distributor drops a popular brand like Deschutes because of this incentive you know damn well that any one of their competitors would be happy to pick up the brand and use those beers against them in the battle for tap handle space.

 

I appreciate the praise, but those folks could be just like myself (I'm typing this out on an Apple laptop let's not forget). The people with the Nikes and Iphones simply may not have had the same desire to type out as thorough a response as myself.

 

Beer sales, when discussing the brewing industry, have long been measured by volume, in barrels. Even The Brewers Association uses that standard for individual breweries (examples from The New Brewer, M/J 2011).

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I admit their recent inclusion of what they term "Dollar Share" is very interesting, and does simply explain what makes the segment attractive to "macro" brewing companies like AB, MC, Constellation, etc., since the cost of brewing beers of that type is nowhere near the difference of the final retail prices they are sold for - especially when coming out of their multi-million barrels facilities.

But, that figure is suspect - I've never found anywhere where the B.A. explains or gives the source of that "Dollar Share" figure. (The older issues of NB I have don't even mention it, but I'd guess more recent years do?). Even if based on IRI or similar marketing research company data, it is obviously just an estimate, since IRI doesn't monitor all sales from all the various types of licensed retailers in every state.

OTOH, the actual volume of beer brewed and sold by a brewery (also called "Beer Shipments") is an exact figure, determined by the Federal Excise Tax paid by the brewery.

Caution - Math ahead. (Somebody double check my work ).​

The B.A. claims the US dollar share of the 22.8 million bbl of "craft" beer equals $19.6 billion. That works out to $882 a barrel! Or $64 for the industry standard case-equivalent of 144 oz (24 X 12oz.) So, an average sixpack of $16, $2.65 a bottle.

Given that the US beer market is approx. 90% off-premise and 10% on-premise - even though the total dollar amounts are nearly for total expenditures with the total US alcoholic beverage market the same (54% off/46% on - Brewers Almanac) - AND "craft" beers' on-premise percentage is probably higher than the brewing industry's in general - it's still a pretty meaningless figure when discussing individual brewers, since - given the three tier system - much of that retail dollar goes to the wholesaler and retailer (esp. the on-premise retailer).

Of course, in reference to others' who state that AB should just get into the "craft" market on their own without buying "craft brewers" - by definition, they can't. They have and continue to brew a number of "craft-y" beers (the most notable probably their Shock Top line, which does OK - but nowhere nearly the couple million barrels of its "inspiration" MC's Blue Moon line). But, by definition (both the B.A.'s and most industry sources) AB can't brew "craft" beer (too big) and even the handful of breweries they have bought are no longer considered "craft" and, thus, their total sales are listed under AB's, not within "craft" or "specialty" listings.

 

It's been established for a few years already that the macros have been steadily losing market share: http://bit.ly/1XVKxS2. Hence, desperate attempts at horizontal integration through the biggest merger in history. Hence, desperate attempts at vertical integration through thuggish heavy hands on the distribution channels.

 

Really? Child labor? Paying less than a dollar a day in wages to factory workers who are putting their shoes together? Hiring local thugs in the towns where their factories are to break up potential unions? I could go on for a while. All these are well-documented business practices that Nike has engaged in for upwards of 25 years.

 

But it probably makes them far more likely to need a job soon. http://www.nj.com/essex/index.ssf/2015/01/newark_official_saddened_by_budweiser_manufacturer.html

 

Right. Losing market share, we are in full agreement there. And sure, they are worried about that. But AB is more profitable than they ever have been. They are far from 'deperate;' desperate people cannot finance a $104 billion merger after they paid off their previous $54 million dollar merger down in three years.

And they are also far from thuggish. This is hardly an attempt at using a big stick. Unless you have some first hand knowledge, all you have to go on is rampant speculation. I have long said that AB right now looks at craft in the weakness aspect of their SWOT, but firmly in the opportunity area, not a threat. Wine and spirits are keeping those execs awake more than anything the craft world is doing. And if they really wanted to destroy the craft market they wouldn't have to do it through their wholesalers. They could just walk in to any hop farm or union in the country and buy all their hops for the next 10-15 years on the spot; that would do more to eliminate any craft brewer than any influence, undue or not, that they could exert over distributors.