Category: General Blogs
It’s way beyond cliché by now to describe the beverage world as being in a constant state of change. The business is full of new products—heck, new categories of products, all chasing consumers with changing tastes.
To describe the sweeping changes taking place in the beverage world around us, we’ve often written about it from the point of view of the companies and the products or categories of products that seem to be most in the middle of that change. But we’ve not in a comprehensive way looked at the people running those companies and marketing those products, the individuals driving that change.
The cover feature for this issue has been perhaps the most fun and yet challenging feature we’ve attempted at Beverage World in recent memory. It’s been fun in the sense that it’s been so challenging.
We wanted to define the group of people who are shaking things up most dramatically in the beverage world. We choose to call it Beverage Disruptors, borrowing from the concept of “disruptive innovation” that is so prevalent in current business management literature. “Disruptive innovation” in a simple sense describes an innovation that changes a product or company or market in a fundamental or unexpected way. Therefore a disruptor is a person who innovates to the point of changing the status quo, who changes things in a fundamental way.
To understand the editorial process that went into creating Beverage Disruptors would be akin to peeking into a proverbial sausage factory—you may not want to know how the stuff was made, but you may enjoy the end product nonetheless. Suffice it to say that all of our longtime editors, Jeff Cioletti, Andrew Kaplan, Heather Landi and myself, created our own lists, each approaching the assignment through our own experiences in observing the beverage business.
Defining who in the business are “disruptors” is worthy of debate, then culling the list to 50 and ranking them certainly is as well. Why isn’t so-and-so on the list? Why is so-and-so ranked so high or so low? Is the list too long, or too short?
That’s what makes the feature a fun and interesting read, but it’s not intended just as an entertaining exercise. The core idea is to come away with new or hidden perspectives on the beverage business. The list is incredibly diverse in terms of the beverage territory it covers—we wanted to get to the change makers in all corners of the beverage world—and in terms of the individuals and how they have impacted the business.
Some on the list have disrupted based not on creating a new product, but changing how the product is marketed (marketing bottle water to kids, for example). Some have disrupted by pioneering an entirely new product or product category (energy drinks, coconut waters). Some have disrupted by applying technology to how the beverage is produced and packaged (lightweight containers) or by putting a product in a different style package (craft beer in cans).
The list goes on, as do the insights. Long live the Disruptors.
Category: General Blogs
It’s an issue that a good many beverage companies have faced over the years, some with success, some with failure. And for those who haven’t yet faced it, somewhere deep down they probably have at least a passing wish that they will one day. The issue I am talking about is how to maintain your company’s culture when being swallowed up by a much larger company. What do you do when you find yourself suddenly a small fish in a much bigger pond?
The beverage world is notorious for putting companies in this position. Like a minor league ball player hoping to one day make it to the big time majors, many smaller beverage companies—especially in the non-alcohol space—hope to one day be bought out by a Coke or Pepsi.
Our Disruptors ranking, which begins on page 27 of this issue, refers to several instances where this has happened. Mergers and acquisitions is a constant part of the beverage industry as many of the categories face maturity.
But how does a smaller company maintain its carefully crafted culture when suddenly being bought? One of the Disruptors on the list—in fact, our No. 1 Disruptor, Seth Goldman—has much experience in the matter. Honest Tea, which he cofounded with his partner Barry Nalebuff, was bought by Coca-Cola in March of 2011 after an initial 40% investment in 2008. At first, there were many concerns all around about what the joining would mean to Honest Tea. The company received its share of critical comments from consumers right off the bat, concerns that it had sold out, for instance.
While the relationship continues to be a work in program four years later—Honest Tea just this past year graduated from Coke’s Venturing and Emerging Brands (VEB) portfolio to its water, tea and coffee group, and as a result is now being included in plannograms with other products in Coke’s portfolio—Goldman did share with me some words of advice for other beverage entrepreneurs.
“First of all, I think it’s great that Coke has had the Venturing and Emerging Brands model,” Goldman says. “You often see companies that get bought where there is not really an infrastructure to support the brand or to help steward the brand.” By this he means VEB colleagues are able to deal with a lot of the bureaucracy of the vast organization that is Coke that otherwise he and his people would have to spend time focusing on. “One good way to kill an entrepreneurial organization is to make them sit through meetings all day,” Goldman says with a laugh.
The way Coke began as a minority investor in Honest Tea, and maintained that for the first three years, also wins high praise from Goldman. “It meant that we still ran the business with our own team in place and Coke was a supporter and followed the conversations and was an advisor, but they weren’t dictating how we did things,” he says. “Call it a dating period.”
During this time, both organizations got to know each other closely and were able to scale the Honest Tea business as well. “So when it came time for Coke to exercise the option and to buy the company, we realized what we wanted the organization to look like was what it looked like. We didn’t try to change what was already working. This was a much more gradual exchange of DNA and I would say a healthier one, too.”
A couple of months ago I noted that the breadth of available choices is what makes the U.S. beverage market—especially beer and spirits—the envy of the rest of the world. I witness this as a consumer, as much as I do as an industry observer. I frequent a lot of bars that boast, 25, 50, even 100 tap handles. Their whiskey lists are intimidatingly robust; I don’t think I’ll get to try half of the items on the menu in this lifetime.
But is such on-premise abundance always a good thing?
At many of my local haunts, it’s not uncommon for Monday’s chalkboard list of what’s on tap to look nothing like the one on Thursday. There’s a complete turnover. If you happened to like something you tried Monday night, you’re out of luck if you want to drink it again later in the week. And I’m as guilty of enabling this as anyone. My M.O., more often than not, is to try something new rather than default to the familiar. When there’s wait service, the server returns to my table and usually asks, “Could I get you another X?” My response tends to be, “No, this time I’ll have Y.”
More than a few distributor reps with whom I’ve spoken have admitted that while it’s great that their on-premise accounts are eager to buy so many small, up-and-coming brands, it stresses their entire system to fulfill such variable demands so frequently. It’s not just a huge order of a handful of high-velocity SKUs anymore. It’s an epic series of micro-orders of much lower-volume products.
Distributors, to their credit, have adapted fairly well to this new normal.
The real potential casualty in all this, however, is brand loyalty. I know, I know, marketers always tell me “On-premise is where consumers experiment and off-premise is where they’ll buy the six-pack of the beer or a bottle of the bourbon they discovered during the course of their experimentation.”
But shouldn’t we be worried that, essentially, on-premise is completely ceding any notion of brand allegiance to the off-premise?
The craft beer world and now, to some extent, the craft spirits talk about the “wine-ification” of their products. The dark side of that dynamic is that when menus turn over so quickly to keep up with consumers’ brand A.D.D. (again, guilty as charged), bar and restaurant patrons are just going to order by style, not brand, as is often the case with wine. I.P.A. will be the new Cabernet. And don’t think that this behavior won’t spill over into the off-premise as well. It already happens off-premise with wine and I have witnessed it on occasion with beer and spirits. Consumer: “Do you have Russian River Pliny the Elder?” Retailer: “No, but we just got a couple of bomber bottles of this double IPA from a new brewery that just opened in Virginia.” Consumer: “Great, what brewery?” Retailer: “I don’t remember.” Consumer: “Whatever, I’ll take it.”
And with that brief commercial exchange, another tiny nail is driven in the coffin of brand loyalty.
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?