In the late 1940s, Coors entered Texas by opening El Paso and Amarillo. Further expansion did not take place until the mid-1960s when Coors moved into the remainder of West Texas and the DFW market. The success of the two original markets, El Paso holding a 60%+ share, allowed Coors to appoint new exclusive operations. No doubt some of Coors high share came from customers buying the beer and carrying it back to their homes outside of Coors markets.
A number of the new operations in these markets were composed of owners who had been distributors of other beers, but divested themselves of these brands in order to acquire Coors. This was a wise decision on their part, as all of these operations became hugely successful as exclusive Coors houses. Given that successful track record, 10 years later Coors moved to open central and south Texas and used the same strategy in appointing new wholesalers.
This time though, most of the new wholesalers did not have beer backgrounds. There were politicians, baseball and football stars, astronauts, businessmen, and even some school teachers. There were a couple of beer guys, one a former Jax wholesaler in Houston, and another was the Miller wholesaler in Corpus Christi. Remember, in the mid-1970s, Schlitz was the market leader. Miller had just introduced Lite but its growth was years away.
Coors never got more than a five percent share, unlike north Texas, and all of the operations sold or merged with other houses over the years. In fact, some operations sold out within two years of getting in business. In Corpus, the new Coors guy could not make it but Miller took off like a rocket. The new owner, Barry Andrews, now owns one of the largest beer houses in the US. Coors soon realized that the stand-alone Coors house in new markets could not work as in the past. Future expansion targeted other beer houses across the country.
Prior to that time, exclusive houses were the industry standard. As the regional brands began to slip, Schlitz and AB kept pressure on their houses to remain exclusive. This pressure had much to do with franchise protection laws instigated by the wholesalers. As an example as a Schlitz house, you had a national brand, a strong popular beer (Old Milwaukee), the #1 malt liquor (Schlitz), and if you were lucky, had either or Heineken and Femsa. Logically, the breweries’ argument was that as a wholesaler, you had all the bases covered and did not need other brands.
AB began to incentivize their houses by providing monetary payments and extended credit terms if the distributor remained exclusive. Their program was tiered based on the operation. You got the top level if you were exclusive AB; the next tier consisted of AB approved brands like Modelo. Finally, if you were in a multi brand house, you were at the bottom. This program worked well for AB.
In 2008, when InBev purchased AB, one of the very first decisions made by InBev was to discontinue incenting AB houses for exclusivity. In addition, InBev also discontinued paying for truck paints. Just recently an AB wholesaler mentioned he had lost hundreds of thousands of dollars when this business model was discontinued.
What would have happened if InBev had not only continued these incentives but increased them? What if MC had jumped in also to incent their wholesalers? The question might be: would AB and MC have lost all those millions of cases? Would craft beers be growing as fast if they struggled for distributors?
Obviously ending these incentives was the InBev strategy, but maybe the essence of strategy is choosing what not to do!
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