Blog Entries by Jeff Cioletti

Three-Tier System: Keep the Baby in the Bathwater

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Category: General Blogs  |  Tags: beer, spirits

It always amazes me how quickly people are so ready to throw the baby out with the bathwater when something doesn’t quite work in a manner entirely favorable to them. I’ve been hearing/reading a lot of chatter, particularly in the blogosphere, where folks are taking to task the three-tier system, going so far as to say it should be eliminated. Excuse me?

Look, I am a strong proponent of franchise law reform. In some states it’s next to impossible for a craft brewer or other small alcohol beverage producer to get out of a draconian contract when the supplier/distributor relationship isn’t working out. Now that there are more than 3,100 U.S. small brewers, whose influence continues to grow, I’d like to see them effect real change at the state and federal levels.

But too many people—particular badly informed, one-sided bloggers—equate franchise law reform with dismantling the three-tier system. The two are mutually exclusive.

Ask most successful craft brewers (or distillers and wine makers for that matter) and many likely would admit—albeit sometimes grudgingly—that they would not have grown to the level they’ve achieved without the three-tier system and the work of distributors. Does that mean they shouldn’t be allowed to self distribute? Of course the should. Small producers that operate in states that permit self-distribution have been able to bootstrap themselves to a point where they got on the radar of wholesalers that have been able to help them expand to the next level. Most self-distribution has been out of necessity and once someone else is willing to take it over, the majority of small beverage alcohol suppliers are happy to be out of the distribution business. (Having said that, the three-tier system is far from perfect—at best a necessary evil.)

And about that 3,100 figure. There would only be a fraction of those brewers thriving in the market if there was no three-tier system in place. One need only look overseas for what could have become of the modern U.S. market (and actually had before Prohibition). Walk into an average bar in many European cities and your choices are limited, for the most part, to the products from one brewery. That’s the tied-house system still at work in those countries. The 21st amendment forbids that in the U.S.. And I think we’ve started to take for granted the diversity that our system has allowed us.

Our system is the envy of the rest of the world, by the way. And the U.S. craft movement has sparked revolutions around the world where small brewers are starting to squeeze their way into the market. It’s a little tougher for them to get into existing tied-house bars, so specialty pubs have started to pop up showcasing those small European brands. But those are still the exception and not the rule and still have a long way to go to achieve broader market exposure.

I’ll leave you with this thought. Just imagine an America where an AB InBev or SABMiller got into the pub and retail business and started buying up local watering holes. Then imagine what the array of tap handles would look like. Where’s that diversity now? 

Some Choice Words

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Category: General Blogs

Full disclosure: I’m a devoted craft beer drinker. (Big shock).

I more than eagerly seize every opportunity to tout how beer consumers live in a time of unprecedented choice. That’s never more apparent than at the Great American Beer Festival (GABF) and this year’s edition was no different.

But it’s not just craft brewers that sample their products, as the likes of Pabst, Anheuser-Busch and MillerCoors tend to have tables and the awards competition features categories like the macro-friendly American Style Light Lager.

Of course, the big guys have been putting out craft-like brands, much to the chagrin of the small brewers.

I’ve tried to be Switzerland on the “craft” versus “crafty” debate, primarily because it’s really just semantics. I know what I like to drink and I know what I don’t like. I also believe that whatever brands I personally choose not to drink have a right to exist so other consumers have a chance to choose whether or not to drink them. (Having said that, I also believe in brands being upfront about their origins, enabling consumers to make informed choices.)

One of my more eye-opening experiences as GABF last month actually involved one of those large brewers playing in the craft sand box (or Sandlot in this case), Blue Moon—the MillerCoors brand that’s been singled out as a macro in craft’s clothing. Blue Moon invited me to its booth for a tasting and meet and greet with brewmaster John Legnard. I sampled some of the brewery’s latest, little-known limited offerings including First Peach Ale, a brown ale with a slightly tart peach note;  White IPA, a hybrid of a Belgian-style wit and an India pale ale; and Cinnamon Horchata Ale, which very closely mimics the taste of the Latin American beverage it emulates. Some of my fellow craft-devout might unfriend me for what I’m about to say, but so be it: They were actually quite flavorful. Blue Moon may not be everyone’s choice, and that’s okay. But it has a right to be a choice. If I had let geeky biases get in the way, I would have missed out on a fairly memorable malt-and-hops moment. Score one for cognitive dissonance.

You know what else has a right to be a choice? Macro-produced, corn-and-rice-filled light lagers. Celeb chef David Chang recently got lambasted by many in the craft community for a GQ blog entry in which he declared, “I love cheap, watery, swill.” Hey, to each his own. Time and place for everything, right? One of my own fond beer memories involves sitting on a rickety plastic stool in Vietnam, eating cockles grilled  on the sidewalk and drinking the local mass-produced adjunct-laden light lager…over ice! I wouldn’t make a habit of it, but, you know, when in Saigon…

Back in the states, the breadth of available choices is what makes the beer market here the envy of the rest of the world (at last!) The argument against the multinational brewing behemoths has been that for decades they’d limited the options available to consumers. I think it’s critical for those of us who champion the underdog (and yes, I include myself among those champions) to not do the same by begrudging someone a selection that might not quite mesh with our own sensibilities.

For Your Consideration...

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Category: General Blogs  |  Tags: beer, brewing, alcohol, spirits

We tend to use the term “Emotional roller coaster” so much in our every day lives, both personal and professional, that we’ve become numb and oblivious to just how much of a cliché it’s become. But there really is no better way to describe major global beverage alcohol news from the past month and a half or so. Reading the headlines of the past six weeks has been akin to watching all of the most hackneyed cinematic clichés play out on screen.

There’s the tragic romance in which the overtures of a much more well-to-do suitor (SABMiller) are ultimately rebuffed by the object of affection (Heineken). Of course, that unrequited pursuit may have been in defiance of a forced marriage (AB InBev).

Then there’s the tale of the rebellious, sardonic hipster whose tough, above-it-all exterior really hides a delicate vulnerability (Pabst). That all comes to the surface when the rebel falls for an exotic stranger from a faraway land (Russia).

And, especially this time of year, there has to be plenty of Oscar bait. And who doesn’t like a good, sweeping epic? It’s the story of a nation in conflict (Scotland) and the common hard-working folk (The Scotch whisky industry) just trying to get by as the world around them is nearly torn at the seams. I say ‘nearly,’ as at the 11th hour, that world was forged back together.

Okay, I should get serious for a bit, put on my movie critic’s hat, and tackle each of these in reverse order.

The Scotch Whisky Association sees last month’s “No” vote on Scottish independence as the dodging of quite a bullet. If Scotland had left the United Kingdom, uncertainty and instability in the Scotch market would prevail. Whisky exports already have been falling. If the industry suddenly faced new tariffs as it tried to ship to its biggest markets in the EU—which it would have to go through a potentially lengthy process of rejoining as its own entity—it wouldn’t bode well for the bottom line.

On the Pabst development, I was surprised (well, not really) at how many people expressed shock that the brand that’s enjoyed a renaissance at the hands of American hipsters would be (*GASP*) foreign-owned (and by investors in Mother Russia, no less). To that, I say, “Get over it.” Pabst has been playing ownership musical chairs for years. It’s essentially a trademark holding company, as it doesn’t operate its own breweries. Drinkers shouldn’t get too upset about something as abstract as a trademark. It’ll be business as usual.

As for the AB InBev-SABMiller dance and the SABMiller-Heineken dalliance: That’s a little more serious. If a merger between the two biggest brewers were to take place, it’d essentially create an entity that’s responsible for nearly a third of all beer volume in the world and closer to 40 percent of its revenue. That’s pretty intimidating. But I wouldn’t get too scared because there are far too many regulatory hurdles to jump before such a combination could become a reality. As for Heineken, my hat’s off to the family for, well, wanting to keep it in the family (at least for now). Though, it would’ve given SABMiller a solid and rapidly growing Mexican brand (Dos Equis) with which it can compete directly with the Modelo business that AB InBev now owns.

But I’ve had enough of these manipulative, heart-string-tugging films. I’m in the mood for a feel-good comeback story. And that’s exactly what’s happening in Kentucky. If there’s ever been any doubt that the bourbon renaissance is here to stay, just look at what Diageo’s been up to over the past couple of months. The company broke ground on its $115 million Bulleit Distilling Co. distillery and cut the ribbon on the visitors’ center at the rejuvenated historic Stitzel-Weller facility. When the world’s biggest spirits market gives the Bluegrass State and its distilling heritage that much of a vote of confidence, it makes me eager to get off that chaotic emotional roller coaster in favor of another cliché: raising a glass.

The Mother of Reinvention

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Category: General Blogs

Lately I’ve been doing a fair amount of speaking at industry events across the country on a range of topics, everything from cider to managing SKU proliferation in the warehouse. Each presentation has had its own unique challenges, but I have to admit, none have been more challenging that the one for the panel I moderated last month at The Beverage Forum. And the reason for that is the disparate nature of the four speakers (other than me) on the panel: Becky McAninch of Kraft, speaking specifically about the company’s MiO water enhancers; Paddy Spence, CEO of Zevia zero-calorie CSDs; Andy Thomas, CEO of Craft Brew Alliance (CBA) and Charles van Es of Heineken USA (who graced our April cover), addressing the company’s Strongbow brand.

So what was it exactly that binds this diverse lot together? That was my conundrum. And then it hit me in the form of one word: reinvention. It’s a concept that has driven some facet of each of the brands that will be showcased on the main Forum stage.

When Kraft launched MiO it was essentially reinventing the way consumers drink water. More specifically how they enhance their water. Value-added water has been on a bit of a downward trajectory over the past couple of years, according to Beverage Marketing Corporation (BMC, our partner on The Beverage Forum). Last year, BMC reports, value-added water dipped nearly 7 percent. The emergence of flavor drops, such as MiO was really rooted in the overarching customization trend. In this age of social media, Spotify and Pandora, consumers, especially the mammoth millennial demographic, are looking to have everything their way. And with products like MiO, they can determine just how much flavor and functionality their water has.

Zevia seized on a similar downward market trend—albeit one on a much grander scale than functional water. The CSD market has been declining for most of the past decade, as consumers are looking beyond just simple refreshment in their liquid refreshment products. Two terms that keep popping up are “natural” and “healthy” and those are words that often are associated with Zevia’s signature ingredient, stevia. Zevia, in essence, is a reinvention of the struggling soda category.

The whole craft beer phenomenon, one could argue, is a reinvention of the overall beer category and some of the core brands in the CBA portfolio, Widmer and Red Hook in particular, were among the pioneering players in the segment involved in that reinvention. However, companies like CBA are reinventing the specialty segment even further through their marketing strategy. They’re recognizing that there’s not really such thing as a “craft drinker” but sub-segments within the craft universe that need to be targeted with the utmost precision.

And a similar scenario is playing out in the surging cider market. As the category enjoys its current explosion, brand owners are realizing that there really isn’t a “cider drinker” per se.  It’s segmenting much like the overall beer market has: There are the premium domestics (think A-B’s new launch Johnny Appleseed and MillerCoors’ Smith & Forge), the crafts (such as this month’s Breakout Brand Virtue) and then the imports (Stella Artois Cidre, for instance). But Heineken USA has recognized that there’s segmentation even beyond imports into the upscale, lifestyle, “badge brand” space—a space that it hopes to define by the reinvention of its venerable, classic Strongbow trademark.

The general rule in today’s beverage market is that there are no rules. Those who try to adhere to “the way things have always been done” will be mere spectators as the world is reinvented around them.

Don't Let Quality Be Blinded By Quantity

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Category: General Blogs

If there’s one theme that sticks in my head from last month’s Craft Brewers Conference (CBC) & BrewExpo America in Denver, it’s quality versus quantity. Or, more specifically, how much does the latter help or hurt the former?
 
The quality issue has been a running theme at the past handful of CBCs and has been a core talking point in Brewers Association director Paul Gatza’s annual State of the Craft Brewing Industry address. And it kind of has to be, especially when you’re bringing quantity into the equation. By quantity, I mean, of course, the exploding number of new breweries getting into the craft business year after year. Just last year the number of new craft operations surged by about 15 percent to 2,768 at the end of 2013.  

It’s exciting but it’s also somewhat frightening and that sentiment’s certainly not lost on the folks at the Brewers Association. It’s a segment whose key players have survived and thrived largely because of an uncompromising commitment to quality. The pioneers got in the business when there was no bandwagon on which to jump or wave to ride.

But now, as everyone from financial community to amateur brewing hobbyists are hip to the accelerating growth of craft, there could be many getting into the business without getting their heads around what’s truly involved. I’ve spoken to more than a few people who’s said, “I’m a pretty good home brewer and my friends said I should start a brewery. So I did.” And more than a few others among the moneyed classes who’ve said, “I hear craft brewing’s hot, so I’m going to invest in it even though I don’t know much about it or really care all that much about beer.”

I can somewhat relate with the first group. It wouldn’t be immodest of me to say that the dozen years I’ve been writing about beer (not to mention every other beverage) that I know slightly more than the average consumer about it.

But I could never claim to know as much or more about beer than actual brewers or authors who’ve had several books published on the topic—many of whom I count among my friends. The friends not involved in beer in anyway, however, think I know “everything” about the beverage because I know a few more things about it than they do. So I’ve had them tell me on more than one occasion, “Hey, you should start a brewery.” Umm, no. There are two types of insight my experience has afforded me. No. 1: Running a brewery is hard work.  No. 2: The more I learn about brewing the more I learn how little I know about brewing.

So it scares me when folks say they’d committed their every penny to a business based on nothing more than the urgings of less-knowledgeable friends.
   
Don’t get me wrong, I’m thrilled that there’s so much interest in craft beer and so many new players. I fell in love with craft beer my first year at Beverage World and the rise of the segment over the past decade-plus has paralleled my own personal beer geek adventure.

This is personal for me. I don’t want this surge in quantity to be at the expense of quality. Because it’s quality that really makes craft...well, craft.