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Posted June 2015

USA - Big Beer: between a rock and a hard place

In this interview Brian Sudano from the Beverage Marketing Corporation, New York, explains why big brewers were too slow to respond to the challenges of craft beer, all the while relinquishing their share of throat to spirits.

Q. Big beer has been losing out to craft. What were the reasons? Were the Big Brewers too slow to respond or are the entry barriers too low in the U.S. beer market?

A. I think you first need to put it into context. We keep hearing about how the “Millennials” demand variety. Variety has been sought by young consumers since the mid 1980’s. So this is not a new phenomenon. I think you are absolutely right to ask the question as to what happened to the big brewers and why they were slow to react. First, for the six years up to the formation of MillerCoors and InBev’s purchase of Anheuser-Busch, craft beer grew by a CAGR of 7.5 percent and added 3.5million hl of volume. Then, for the six years after the formation to 2014, craft has grown, we estimate, at a CAGR of 13.2 percent or 11 million hl. The absolute volume growth has accelerated every year since 2008 versus the prior year, which was not the case during the prior six years. This suggests that there is more to the current craft growth rate than a macro consumer movement. 

Why is big beer losing share to craft? First, AB-InBev and MillerCoors both reduced advertising and promotional spending. In fact in 2012, they both were spending less than they did in 2007. This is going to have an impact. Second, several reorganizations and the loss of institutional knowledge resulted in less efficiency in addressing the changing competitive environment along with company capabilities. Third, both companies began to aggressively raise prices at a time when American consumers were going through the worst economic recession in 70 years. This was compounded by the fact that in 2008, the “big is bad” message was communicated across the social platforms. All this resulted in a perfect storm. Only recently have the big brewers begun to refocus on their big brands. However, momentum has since shifted to other brands and segments which results in the difficult task of changing the perceptions of these brands after consumers have moved on to other brands.

In effect, big brewers were too slow to respond. Also the barriers to entry are low for two reasons: brewers don’t need distribution assets due to the Three Tier System and craft brewers can access third party production capacity.

Q. "Craft" seems to be the in thing these days. There is craft cheese, craft coffee, even craft sodas. Isn't the entry of PepsiCo into "craft sodas" going to make the whole debate over the definition of craft pointless?

A. The meaning of craft has always been somewhat contrived. For the most part in craft it means local. There are other meanings that have historically been associated with craft, including higher quality, unique flavour, a more hands-on approach to making beer, greater care in producing product, etc. Over time the meaning will change. You ask: “is a debate over the definition of craft pointless?” I’d say yes, as there is really no single definition and it means different things to different people.

Q. In the U.S. some observers argue that big beer brands also adhere to the "product life cycle theory," which holds that big brands will eventually mature and begin to falter. Can this case be made? Read on

 

United Kingdom – Rumour mill grinds down on Diageo

That's desperate, that's truly pathetic. Are the chattering classes in the financial world so anxious for a Big Deal in the brewing industry that they eagerly lap up even the most outlandish of speculations?

Since early June 2015 media all over the world have reported that AB-InBev could be setting its sights on the British drinks company Diageo, after nearly a year of speculation that AB-InBev was targeting fellow brewer SABMiller.

The source of the recent media frenzy was an article in a Brazilian newspaper which argued that the Brazilian billionaire Jorge Paulo Lemann, a shareholder and board member of AB-InBev, and his partners in the private equity firm 3G Capital are in the initial stages of studying a buyout offer for Diageo, the stock market-listed maker of Captain Morgan, Smirnoff, Baileys and Guinness, among other alcohol brands.

The rumour does not indicate if Diageo will be taken over by 3G or by AB-InBev.

Ah well, this is not the first time the possibility has circulated. In June 2014, amid speculation of an AB-InBev purchase of SABMiller, analysts wheeled in Diageo as another possible takeover candidate. Eventually, as no grit was added to the rumour mill, the gossipers lost interest in Diageo, as they did in SABMiller. Read on

 

Australia – Coopers to brew Brooklyn’s beer

Having found out that shipping beer to Asia and Australia is challenging, Brooklyn Brewery first tied up with the Hitachino Brewery in Japan to contract brew Brooklyn Lager for them.

Now it has joined forces with Australia’s largest family-owned brewer, Coopers Brewery from Adelaide, to make and distribute Brooklyn Lager in Australia.

Brooklyn Brewery’s Steve Hindy said: “We are still testing recipes at Cooper's but are confident they will get it right. We think these contract arrangements will ensure fresh beer for those markets.” Read on

 

USA – BrewDog to expand into U.S. with Ohio brewery

It was only a matter of time. Scots craft beer maker BrewDog, on 6 June 2015, at its AGM revealed plans to build a brewery in Columbus, Ohio, which is expected to create around 100 jobs. The 100-barrel brewhouse with an estimated annual capacity of 56,000 hl will be the company’s first brewery outside Scotland and will house its U.S. offices, a visitor centre, a craft beer restaurant and a taproom, BrewDog announced.

The new location will allow BrewDog to more easily deliver beer to its American fans. In addition to the new brewery, the firm is also planning to open five flagship bars in the country’s craft beer hubs, such as the West Coast, the North East and Florida. An American crowdfunding scheme, Equity for Punks USA, will launch later this year to help fund its expansion.

No figures were released about the amount of money BrewDog will spend on the project, nor how much it plans to raise in the United States. Read on

 

USA - Snoop Dogg sues brewer Pabst

Life writes the best stories. Snoop Dogg (who he?), a U.S. rapper, is suing Pabst Brewing, saying the firm owes him money from the sale of the company and its beer lines last year, various media reported on 9 June 2015.

In a lawsuit filed in Los Angeles, the rapper is seeking 10 percent of the net sales paid to Pabst for its malt liquor brand Colt 45.

To back his claim, Snoop Dogg, 44, argued that in 2011 he had signed a three-year deal to endorse Blast, a fruit-flavoured extension of the Colt 45 brand.

At the time, Colt 45 and a host of other brands belonged to Pabst Brewing, which was owned by the twentysomething brothers Daren and Evan Metropoulos. Their father, the buy-out specialist Dean Metropoulos, acquired Pabst in 2010 for allegedly USD 250 million and then passed the business on to his sons.

Under his contract, Snoop Dogg claims he was to receive a portion of the sale of the brand if Pabst sold it before January 2016.

The sale of Pabst to Oasis Beverages, a Russian brewer and distributor, headed by Eugene Kashper and backed by investment firm TSG Consumer Partners, was finalised in November 2014, but no purchase price was announced.

The rapper's lawyer, Alex Weingarten, however, states in the lawsuit that the beer company was sold for USD 700 million. The sale price of the brand Blast by Colt 45 was not disclosed.

Snoop Dogg, whose legal name is Calvin Broadus Jr, and whose net worth Forbes estimated to be USD 135 million (2014), had a payment of USD 250,000 for the contract and received another USD 20,000 for every 10th mention he made of the beer on social media, TV or during a concert.

Now readers will understand why rappers are called Hip-Hop Cash Kings. They don’t make their money from their music but from flogging all kinds of stuff – and booze.

The Snoop Dogg-Blast deal is not unique. Many rappers have close alcohol links. Although some rappers own the alcohol brands they represent (e.g. Bryan “Birdman” Williams who owns the GT Vodka brand), a few of them only have partial ownership deals or superior endorsement deals (like Snoop Dogg or P. Diddy), i.e. they share a certain percentage of profits and get a cut from the proceeds if a brand is sold.

However, it seems that despite Snoop Dogg’s best efforts, the umbrella brand Colt 45 did not perform all that well. Sales dropped between 2011 and 2013.

Pabst, the maker of beers like Old Milwaukee and Schlitz, said in a statement that it had not been contacted by the rapper or his representatives about the claims.

We are investigating the matter and would be happy to talk to Snoop or his representatives to try to get to the bottom of this,” the Associated Press quoted the statement as saying.

 

USA – AB-InBev and Coke welcome changes at FIFA

Following the resignation of Sepp Blatter as FIFA’s President on 2 June 2015, the association’s top sponsors, The Coca-Cola Company, Visa and Adidas, issued monotonously similar and surprisingly non-committal statements.

Coke said on its website that they “respect Mr Blatter’s decision. The announcement is a positive step for the good of sport, football and its fans. Our expectation remains that FIFA will continue to act with urgency to take concrete actions to fully address all of the issues that have been raised and win back the trust of all who love the sport of football. We believe this decision will help FIFA transform itself rapidly into a much-needed 21st century structure and institution.”

With annual payments of about USD 30 million (EUR 26.9 million) according to estimates, Coke is one of FIFA’s biggest sponsors – together with Visa, Gazprom, Adidas and Hyundai. Read on

 

UK – How much did SABMiller pay for Meantime?

When brewer SABMiller acquired London’s craft brewer Meantime in May 2015, they refrained from saying how much they paid. This has not stopped observers from speculating, of course.

The figure could have been high, analysts say. Because recent valuations for the Scottish brewer BrewDog put its implied worth at GBP 305 million (EUR 415 million) or 10 times BrewDog’s 2014 revenues of GBP 29.6 million (USD 45 million). Not bad for a brewer whose output was 90,000 hl beer in 2014.

Another upstart brewer from London, Camden Town, which was set up in 2010 and sold over 40,000 hl beer in 2014, was valued GBP 70 million. All these estimates are derived from the two brewers’ recent crowdfunding-initiatives.

Meantime had 2014 revenues of GBP 17 million and beer volumes of 64,000 hl. If we apply BrewDog’s metrics (10 times revenues), Meantime could have fetched GBP 175 million (EUR 240 million / USD 267 million).

That’s what some would call a very lucrative exit.

 

Belgium - NGOs resign from EU’s Alcohol and Health Forum

On 2 June 2015 more than 20 public health NGOs resigned from the EU Alcohol and Health Forum, following the announcement by Commissioner Vytenis Andriukaitis on 22 May 2015 that he has no plans to submit a new strategy to reduce alcohol-related harm in Europe, suggesting that the issue will be tackled as part of a broad range of “risk factors” affecting chronic diseases.

The EU’s latest strategy to tackle alcohol abuse ended in 2012 and was not replaced by a new one. Read on

 

Germany – Beck’s brewery boss sacked over drink-driving incident

He should have known better. The head of the German unit of the world's biggest brewer AB-InBev, Till Hedrich, lost his job with immediate affect over a drink-driving incident, media reported on 2 June 2015.

Mr Hedrich, 44, who joined the group in 1996, had only been in charge of Beck’s since January. He admitted to causing a car crash on a motorway south of Munich on 30 April 2015 while being significantly under the influence of alcohol. The German tabloid BILD reported that three people were injured and had to be taken to hospital. The damage amounted to EUR 72,000. Mr Hedrich’s blood alcohol level allegedly was 0.12%.

Justifying the immediate dismissal, a spokesperson for Beck’s said: “We, as a company that produces alcohol, have strict internal rules and recommendations for consumers for the enjoyment of alcoholic beverages.” These include a no-tolerance policy for employees driving under the influence, with a clause stipulating “career consequences” for any violations. Read on

 

Russia – Heineken to brew Gösser domestically

Russian beer is getting crushed. The Russian beer market plunged by an estimated 9 percent in the first three months of 2015, compared to the same period last year, according to reports. Moreover, imported beers are becoming almost prohibitively expensive due to the ruble’s continuing weakness. Consumers are feeling the pinch.

To prevent its volumes from dropping much further, Dutch brewer Heineken in Russia first resorted to start brewing kvas, a slightly alcoholic drink earlier this year. In June it announced that it will locally brew its Austrian lager brand Gösser to make it available at a lower price. Read on

 

USA – PepsiCo goes craft - or perhaps crafty?

What is “craft” about the production of sodas, many wonder? But with the success of craft beer, it’s been seemingly inevitable that U.S. soft drinks companies will launch their own craft lines too.

It will be interesting to see if these “craft sodas” catch on. Should consumers willingly buy into the “craft soda” moniker, my guess is we probably won’t have to worry about definitions for 'craft' in the future!

Media reported in June 2015 that PepsiCo plans to introduce a line of “craft” fountain sodas made with real sugar with the hopes of appealing to people who shun big soda brands. The company says Stubborn Soda will be made with sugar, rather than the high fructose corn syrup used to sweeten many other sodas like Coke and Pepsi. Read on

 

Switzerland – Beer lovers on pilgrimage to new monastery brewery

Those, who can, do. And those who cannot, play golf. It’s a cruel saying (my apologies to golfers) but it came to mind when recently talking to Martin Wartmann, a Swiss brewer, who coquettishly explained his decision to open Switzerland’s only monastery brewery at the age of 67 because he does not enjoy playing golf.

For over 40 years Mr Wartmann ran the Actienbrauerei Frauenfeld near Lake Constance and developed the first Swiss monastery beer brand, Original Ittinger Klosterbräu, which today is brewed by Heineken Switzerland. Deciding to scale down in 2003, he refurbished his brewery and turned it into a brewpub. As he always wanted to brew seciality beers, he had to realise to his chagrin that brewpub operations did not allow him to devote attention to such beers. In pursuit of his dream he next decided to buy a small brewery but this scheme did not come to fruition.

He hit upon the idea to set up a brewery in a monastery and call it - appropriately - Pilgrim a few years ago, when he did a course in meditation at the Fischingen monastery and saw that an outbuilding was standing empty. Read on

 

Australia – Return of Foster’s?

Once Australia’s top-selling beer, Foster’s Lager can now be found on tap in just ten bars and pubs scattered across the country: three in the state of Queensland, two in New South Wales, three in Victoria and two in Western Australia.

The last surviving venues were revealed by Carlton & United Breweries (CUB), following its launch of Foster’s Classic, a new packaged-only variant created to leverage the brand’s retro appeal. The iconic Foster’s brand has been embraced by drinkers as Foster’s Classic, according to CUB and Woolworths, owner of liquor retailers Dan Murphy’s and BWS.

Foster’s Classic has hit its sales targets since its launch on Australia Day, 26 January 2015, according to CUB’s owner, brewer SABMiller. Read on

 

Denmark – Carlsberg cuts about 180 jobs in home market

Job cuts are never easy but someone has to swing the axe. Carlsberg on 20 May 2015 announced it had cut about 180 office jobs, seeking to save money and offset the challenge of a shrinking economy in Russia, where it’s the biggest brewer.

About 20 percent of the staff at Copenhagen headquarters and regional offices have lost their jobs, the company said.

Carlsberg, the world’s number four brewer, employed an average of 46,832 people last year, of which 31 percent were in western Europe, according to its annual report.

The sad announcement was made as Carlsberg’s CEO is making his way to the door. Chief Executive Officer Joergen Buhl Rasmussen will hand the reins to Cees ’t Hart, the company’s first non-Danish CEO, in June. Observers hope that the incoming CEO will not have to break any more bad news any time soon.

 

UK – BrewDog behind new craft brewer initiative

Despite its impressive rise over the last few years, craft beer still occupies a tiny share of the UK beer market: less than 1 percent, says BrewDog. The Scottish brewer is behind a new initiative - United Craft Brewers – a group which was launched in early May 2015. The founder members are Camden Town Brewery, Magic Rock Brewing, Beavertown Brewery, distributor James Clay and BrewDog. The association’s mission is to “respect, promote and educate the British drinking public about craft beer – a joint promotion of beer, irrespective of delivery method.”

United Craft Brewers will officially launch in July, when other craft beer producers will be invited to join: once its definitions and values have been finalised, the founders want all breweries which tick the boxes and share their beliefs to become involved in this association. Read on

 

China – Beer sales dropped in 2014: just a blip or serious trouble?

It’s how you see it. The volume of beer produced in China decreased in 2014 for the first time in 24 years, falling by 2.7 percent to 490 million hl, according to the country's National Bureau of Statistics.

In 2013, China's beer production broke the 500 million hl mark to reach 506 million hl, but in 2014, beer was the only alcoholic drink in the country that registered a drop in production, Taiwanese media reported on 17 May 2015. Read on

 

Canada – A dubious victory for Ontario’s craft brewers

Ever wondered why Canada is such a profitable beer market? Although beer consumption is only 22 million hl and declining slightly, Canada ranks as 6th largest beer profit pool in the world. That’s because Canadians continue to spend freely on booze.

Canada’s Bureau of Statistics, in May 2015, released new numbers on the sale of alcoholic beverages and concluded that Canadians spent CAD 20.5 billion (USD 16.7 billion) on beer, wine, and spirits in 2013/2014, up 1.1 percent on the previous year.

Beer remains the drink of choice for many Canadians as CAD 8.7 billion was spent nationwide on the drink. On a per capita basis, Canadians are spending CAD 294 each (USD 240) on beer, albeit with huge regional differences.

Consumers in the Yukon and Northwest Territories bought the most litres of beer per capita with 124.3 and 98.5, respectively, far above the Canadian average of 75.9 litres, it was reported.

The other reason why Canada is so profitable relates to the country’s bizarre beer distribution system which is a veritable minefield, as each province sets its own rules and regulations and retains its own authorities. Read on

 

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