As a young District Sales Manager for Lone Star Brewing Co., my district included West Texas with many miles to cover and a multitude of distributors on whom to call. One was a medium size Miller/Lone Star/Pearl whose owner was in college at the same university, at the same time as I. During my visits to this west Texas town, he and I became friends, hunted and played golf. One night, while barbecuing, this friend brought up his desire to purchase a small distributor about 10 miles from his home market. He told me he would pay ten thousand dollars for it (they only sold about a pallet a month, a very tiny operation) and he did not care to whom he paid the money. That statement caught me a little off guard and it did not sit well with me.
When Coors was only available in the western states, their draft policy was to not split handles. It was either exclusively Coors, or no Coors draft. At the same time in Louisiana, it was legal to sell draft boxes to on premise accounts. The account would pay five dollars extra per keg until the box was paid off. Again, for the distributor, it was an exclusive account.
Exclusive accounts were almost always driven by market share. At the time, I was in Kansas with a 60%+ share of market, AB and Schlitz each had less than 10 draft accounts. As Coors entered new states and markets they had to change their policy of exclusivity.
The pressure to obtain and maintain draft handles grew to the point that many retailers leveraged that pressure to their advantage. Free kegs, glassware, discounts, p-o-s, and even furniture (including the dispensing boxes) were some of the many requests certain retailers added to the product on tap. Menu prints, credit card charges, in store media sponsorships, then on to third party funding stepping outside of traditional channels all have been, and are still used.
Franchise laws today not only protect the distributor from termination, but such laws have also allowed distributors to divorce themselves from under-the-table payments to retail since the inception of consolidation at the middle tier. Now there may only be two (three) distributors in the market with all the brands. Therefore, all the pressure to obtain taps falls squarely on the shoulders of the vendor. Field sales teams are usually bonuses on market performance. I know one vendor who requires all field people to sell in two new accounts each week! The pressure on these people (mostly young) to make numbers could easily result in questionable practices.
Today’s crafts face similar problems; consider the revolving handles. When we introduced Krombacher in DFW we ran (with the distributor’s participation) kick off draft incentive and achieved a number of key accounts. Within six weeks, Krombacher was no longer in many of those places, served only as the beer of the month on the revolving handles. It cost both of us quite a bit of budget money. Now, was it good for the brand exposure? The next quarter sales indicated it wasn’t.
As more and more crafts enter the market, the pressure will increase on the breweries from investors, distributors, and retailers. How the craft market handles this pressure will be telling. As General Eisenhower once said, “the supreme quality for leadership is unquestionably integrity!”
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