Back in the early 80’s, on a hot summer afternoon, I was getting in a quick 9 when an elderly man drove up in his cart wanted to play in with me. We started talking, and I learned he had been the first Pearl beer distributor in the Texas Rio Grande Valley after prohibition. At the time, I had the Pearl brand, so we continued to visit. The elderly gentleman mentioned that his business had lost money every year through 1938. Then, all the Texas distributors came together and raised $60K to lobby the state legislature to pass the “cash law.” In 1939, he stated, he made $1,000. The WBDT had become a force in politics as have many other state associations.
In recent years, consultants including IBG and others, have championed wholesaler consolidation in an effort to eliminate costs from their operations. Over the years, the result of the consolidations and political activity have created a beer model that resembles an hour-glass. The top being the breweries, and the middle, the wholesalers, and the retailers, the bottom. Today the sands in the top are overflowing. Breweries cannot sift through to the bottom as the wholesalers are now so clogged that little moves through to the retailers.
When Beer Marketeers’ Insights started in the 70’s, the articles were almost all sales and marketing. Today when you look at these publications, all we read about are law suits; legal actions; legislative issues and problems; three-tier attacks; and of course, the ongoing franchise disagreements between wholesalers and suppliers. So the question should be, why can’t we get by these disagreements and grow the business?
Business models, like products, have life cycles, and whether or not you agree, the current model for beer is outdated. When I purchased the Schlitz operation in the Texas Rio Grande Valley in the early 80’s, there were nine companies selling beer. Until just recently there were now only two, and a third has opened in the past year. How can consumers find the brands they see on the internet? How can new products get to market? How can retailers get competitive pricing and the service they want?
Consolidation, state franchise protection, and national associations have all contributed to this “hour-glass” model which is choking the three-tier system. When awarding Krombacher in Florida, I had a wholesaler tell me he wanted language in the agreement which would have had the brewery pay him three times the value of the brand if he went out of business, even if he lost his license. His position was that he had invested in trucks, warehousing, personnel, inventory, etc. and should be compensated for his effort. I reminded him of “our skin in the game,” that breweries were not cheap, to consider the costs of kettles, packaging lines, cooperage, etc.. and that he was not paying for the brand and was making a nice GP off each case. This was not an isolated situation as these comments are more common than you may realize.
As this is being written, the NBWA is going on and I’m sure this topic will be one of the major issues being discussed. Will anything come of these discussions? Nope, I doubt it. What we can plan on, however, is more attacks, more legislation, more lawsuits, and more negative press on the system. The model is broken, and if it doesn’t change soon, there will be no three-tier system as we now know it. There are none so blind as those who will not see!
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