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Dreaming in La-La Land

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Category: General Blogs  |  Tags: beverage

There was one quote that impacted me more than any other in the profile of Coke CEO Muhtar Kent that The Wall Street Journal ran on March 18th. It occurred during a section about a planned meeting Coke was supposed to have in Silicon Valley with the likes of Google, Facebook and other high-tech companies.

Of course, it piqued my interest when I read that sentence to begin with. Such meetings, after all, don’t happen very frequently in the beverage industry. While this industry is—slowly—changing, I think most observers would agree that it won’t win many awards for being on the cutting edge of technology. Sure, there are examples here and there of beverage companies that are embracing the latest technology—whether it comes to production, marketing, packaging what have you—but rarely these days are we being blown away by a technological breakthrough that we watched first emerge from the beverage industry. Usually, it tends to be the other way around. We in beverage borrow a lot from other industries.

Anyway, back to the quote. During the section on the meeting we learn that it ended up being canceled because Kent thought it more important that his people focus “on quarterly results instead.”  The article then continues, “In an interview, Mr. Kent explained his logic. Coke needs to equip itself with the “right technology,” he said. “But we can’t, you know, go and dream in La-La land.” 

If Coke fails to turn itself around, I think such, what I’ll label, short-term thinking, may have a lot to do with it. 

I read the Journal article having recently come back from what I guess could also be considered La-La Land—Los Angeles, after having attended the Natural Products Expo West. Yes, I will admit, some of the things I saw at the Expo were a bit ‘out there,’  but the immensity and excitement of this trade show is simply without compare in the beverage industry today. Heck, it even had mega-movie-stars pitching beverages! 

There is just no doubt that the beverages at Expo West, and there were plenty of them, are trendsetting and positioned where many of the younger, up-and-coming consumers are today: natural, transparent, healthy—and young. In fact many of the beverages at Expo West were either founded by young entrepreneurs or are brand new inventions of industry veterans who can see which way the wind is blowing.

Does Muhtar Kent see which way the wind is blowing? Well, he scores points for in 2011 going ahead and finishing the purchase of all of Honest Tea, a company I consider one of the most forward thinking in the beverage business today. But the “La-La Land” comment is reason to be concerned, especially when placed into context about focusing on next quarter’s sales possibly at the risk of losing sight of the bigger picture, as the Journal article so correctly suggests.

Less pump, more pop

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Category: General Blogs  |  Tags: retailing

When gas prices drop, as they have across the U.S. for more than six months beginning last September, convenience store operators brighten. That may seem counterintuitive given that about 84 percent of the 153,000 c-stores in the U.S. sell gas and that 70 percent of their sales are made at the pump, not inside the stores.
But c-store retailers don’t make a lot money selling gas; only about 30 percent of their profits are from the gas pump, according to the National Association of Convenience Stores (NACS). So when gas prices drop, a couple of things typically happen: people tend to travel more (and therefore stop to gas up more often) and, since they’re spending less at the pump, they have more disposable income to spend inside the store.
And what do c-store shoppers tend to buy inside the store after making a gas purchase? Most are likely to purchase beverages, according to a NACS consumer survey. Recent data supports that.
Sales of non-alcoholic beverages were up a strong 5.9% in c-stores in the final three months of 2014, according to a recent “Beverage Buzz” survey of 15,000 c-store locations conducted by Wells Fargo Securities.
Sales volumes for Coke, Pepsi, Dr Pepper Snapple Group and Monster Beverage Corp. all increased in the fourth quarter of 2014.
Beer dollar sales in c-stores were up a solid 4.0% year-to-year in the 12 weeks ending December 20, 2014, according to Wells Fargo in another report.
“It’s all about low gas prices with 100% of our contacts indicating lower gas prices had a favorable impact on sales relative to last year,” the “Beverage Buzz” report noted.
It went on: “The most notable impact of lower gas prices (and steady gains in employment) is consumers ‘treating themselves’ and trading up to higher-priced premium items in categories such as craft/import beer…that lend themselves to trading up.”
The data backs that up: In the same 12-week period ending Dec. 20, 2014, according to Wells Fargo, dollar sales for Constellation Beer were up a stunning 19.2 percent. Heineken and Boston Beer, too, saw double-digit sales growth during that period. Comparatively, sales for AB InBev were up just 1.1% and sales for MillerCoors were up 3.2%.
This “trading up” phenomenon in beverages isn’t limited to c-stores or to the beer category. The general growth and outperformance of premium beverage brands over regular brands across the board is significant.
Shifting consumer dynamics have a lot to do with it, with generally more disposable income as just a part of a much broader picture, as editor-at-large Jeff Cioletti found out in putting together this month’s cover story, “Top shelf  goes mainstream” on page 44.
“Cost is taking a back seat as premium-price-point brands are transcending socioeconomic boarders and connecting with a broader array of mainstream beverage buyers,” he points out.
Higher consumer incomes and employment, of course, can’t hurt. Neither can six months of fantastic weather. Now that’s worth dreaming about. BW

Of Bud and mud (slinging)

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Category: General Blogs  |  Tags: beer, brewing, craft beer

We’re already at least six weeks past the Super Bowl, so I’m probably the last person to weigh in on the brew-ha-ha over Budweiser’s “Brewed the Hard Way” ad—you know the one where Bud proudly owns its “macro-beer” cred and gets in a jab about “pumpkin peach ale.” But the ad’s still in fairly heavy rotation as of this writing and the chatter surrounding it seems to be lingering long after the Patriots’ last victory lap. 
It was the (some say cheap) shot heard ’round the craft beer world, which was predictably, but understandably up in arms.
I completely get where Anheuser-Busch was coming from with the ad’s tone. It was 100 percent in line with the brand’s personality and spoke directly to its target demographic. Bud drinkers are unapologetic about being Bud drinkers even when they’ve got a growing number of friends and acquaintances who make a sport out of bashing the brand and try to get them to drink craft (many brewers of which AB InBev now owns). The ad reinforces their Bud-loyalty and keeps them from straying outside the trademark. In politics, they’d call that “playing to the base,” which is exactly what A-B needs to do for a brand that continues to hemorrhage volume in the low single digits each year. 
The spot does make its share of missteps however—and, to be fair, it’s a tall order for all 60 seconds of any minute-long ad to be perfect. 
The obvious component, and the one that I am by no means the first person to highlight, is the “pumpkin peach ale” slam. While I’m sure it wasn’t the company’s intention, it comes off as a dig at a craft brewer it just acquired barely a week prior to the ad’s debut: Elysian Brewing Co. Elysian is well known for its diverse array of pumpkin beers (sans peach). 
And I’m not even going to get into the subtext embedded in “pumpkin peach ale.” Tonally, it equates such a style with being a “girlie” beer, which does little to reverse the generations-long trend of alienating women from the category.
The spot also does somewhat of a disservice to the brewers and QC staff of Budweiser itself. Saying the brand is not to be “fussed over” is probably news to the production team. The production team fusses over it plenty to make sure it is of consistent quality and flavor, batch after batch, year after year. It also contradicts the “Brewed the Hard Way” mantra. People should make a fuss over the end product of so much hard work. 
Oh, and one more thing about making things the hard way. Get any 100 craft brewers in a room and I’d be willing to bet that not one of them characterizes what they do as “easy”—especially when they’ve got a fraction of the operations staff that the King of Beers has on the payroll.  
To A-B’s credit, it’s a brilliant marketer and knows exactly who’s drinking and whom it expects to drink each product in an increasingly diverse portfolio. The company will do well to continue to play to those bases. However, to use another political analogy, the path without so much mud slung on and around it is the clearer path to victory. BW

Lights! Cameras! Beer?

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Category: General Blogs  |  Tags: distributors, distribution

Warner Morris may be  the vp of operations for the Norcross, Ga.-based beer wholesaler Eagle Rock but part of his job has been keeping up to date on the latest TV shows being filmed in Atlanta. Because in a rather unique endeavor for a beer wholesaler, Eagle Rock is taking more than half of its new 800,000 square foot warehouse and committing it to the television industry, as the soon-to-open largest-under-one-roof television production facility in the U.S., Eagle Rock Studios Atlanta.
Talk about business ingenuity! It means taking something that’s been right under your nose the whole time—in this case, hundreds of thousands of square feet of extra warehouse space you recently bought but didn’t have any use for— and finding a lucrative new use for it. 
When the company was trying to lease one of its warehouses a few years ago after consolidating into its current Norcross facility, Eagle Rock crossed paths with television industry folks who were desperately in need of a place to shoot. It just so happens that Georgia has been quite successful in wooing Hollywood over the past several years—to the tune of becoming the third largest production location after California and New York in the U.S. And what’s more, the Hunger Games movies were also filming in town, gobbling up all the available studio space, putting even more of a squeeze on local television production.
Eagle Rock, an A-B wholesaler (featured in our March 2015 issue beginning on page 88 for the automated system at its new facility), quickly learned that Hollywood producers were virtually biting at the bit to get into the empty warehouse it was leaving as it consolidated into one facility. But Eagle Rock’s big Hollywood moment didn’t just end there. When it moved to its new facility in Norcross—a massive 800,000 warehouse previously occupied by Kraft Foods—this beer wholesaler only had need for about 350,000 square feet of that (the refrigerated side of the facility). What to do with the other 450,000 square feet? Turns out, Hollywood could use that too—big time. “Just from the connections and the relationships they built at our previous Stone Mountain facility, we realized, well we got this big giant 450,000 square foot thing, we can film more TV shows there,” explains Morris. And thus was born Eagle Rock Studios, which the company describes as a “Separate new entity and business endeavor, with common ownership with Eagle Rock Distributing.”
All of this makes for a rather entertaining thought: on one side of the wall will be conveyors running thousands of cases of beverages, while on the other, actors and actresses in costumes take to sound stages to rehearse and film their TV shows. I asked Morris if his workers will ever be allowed to take a break to watch the latest show being filmed?  “I think we might get to go over occasionally if we promise to be very quiet,” he says with a laugh. “At our old facility they film the TV show Devious Maids and they have basically rebuilt houses inside of our warehouse. I mean you walk around in them and you feel like you’re in somebody’s house. So it’s pretty interesting.”  Yes, Morris and his team have become true Hollywood insiders, a pretty glamorous proposition for a wholesaler with some extra space.
You can check out their new studios at  BW

Don’t trust ‘the future’

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Category: General Blogs

Maybe it’s partly because I am writing this just after “the biggest storm in New York City’s history” never quite made it past the airports, but I have been thinking for a while now about all the predictions about the future that are supposed to be certainties. But what if they’re not quite as certain as we all think?
Everyone, for example, predicts that consumers are moving to digital devices—digital this, digital that. That future shopping will be via the Internet, on a mobile phone, or on a website. Or, that the way we learn about new products will also be over our mobile devices, as will be the way brands send offers to consumers. Quite frankly, with all this computer screen staring, it’s enough to give you a headache. 
Sometimes you really want to unplug from it all.
I’ve been thinking about my Kindle, for example. I’ve been reading books from a Kindle for years. So far, I’ve gone through two versions of the device. Now, my second iteration is starting to act up and seems to be dying. Is it time to just abandon what was “supposed to be the way to read in the future” and go back to what effortlessly works, is able to last for decades—or even longer—and has more charm to it that a black and white screen? A regular, printed book?
I love my iPad and use it for countless things. But I’ve recently realized that I also love picking up a printed magazine, holding it in my hands, feeling the texture and listening to the pages crinkle as I turn them. I have never quite taken to reading long-form articles on my iPad. It’s not as easy on the eyes, and, let’s face it, there are too many other distractions just a click away that somehow interrupt. 
In the cover story I wrote for this issue of Beverage World, beginning on page 36, there is a lot of talk about the future. How the millennial generation is reshaping consumption patterns and literally giving the big, iconic, venerable brands a run for their money, so to speak. They’re proving elusive to these big brands and harder to appeal too for a variety of reasons. But there are also some signs that the venerable brands are marshaling themselves to the challenge and even in some cases growing again. It may, in fact, be too soon to write them off. 
Even the expert consultant quoted in the story admits at one point, “It’s the future, nobody knows.”
Maybe all the predictions we’ve heard about the beverage industry aren’t quite set in stone. Maybe we’ll be surprised to find the categories and brands we think will grow, and the ones we think will decline, may end up surprising us.
I used to field phone calls almost every day from people looking for information about smoothies. This was several years ago and it was predicted to be the next big beverage category. I don’t get those calls anymore. 
People have moved on to the next “big thing.”  BW