Antiquated Thinking is Killing Big Beer Brands

a942361b0df2890c40e7221b4b444bc7Yesterday I stumbled onto an article calling out Pete Coors, chair of the Molson Coors Brewing Company and Chairman of MillerCoors, for being so out of touch with the modern-day drinkers. While the Denver Post article was a fascinating look into a man atop a brewing empire it was also a good look into why the mass market breweries are losing market share while craft beer is exploding.

Not to shortchange Bryan Roth whose analysis was spectacular I will include his thoughts and comments as well as my own.

Bryan writes:

“Basically the biggest trouble we have is on-premise sales,” he said. “We have a lot of bar owners who are enamored with craft beers. They are beginning to take off the premium light handles and putting bottles behind the bar instead and replacing the handles with craft beer handles. We lose 50 percent of our volume when that happens.” …“We have done research that shows it’s not in the economic benefit for a bar to do that.”

Let’s first acknowledge that bar owners are running a business and when craft beer sales are beating macro lagers solidly, it makes sense to give the people what they want. Growth of the craft brewing industry in 2013 was 18 percent by volume and 20 percent by retail dollars. If you can charge an extra buck for a craft beer over Coors, that’s good for a business, especially when a customer doesn’t mind paying extra for higher quality.

But let’s also consider the issue of variety. I’ve noted before the rising interest in variety packs and the idea of the “portfolio drinker,” but also consider that having a large beer menu – like one featuring craft beer styles that people are nuts for – moves product

Bryan is right on the money with this analysis. While my Grandfather might be a diehard Molson drinker completely disinterested in any other beers out there in the world many younger drinkers are more excited to search out new and exciting flavors, styles, and breweries than settle into drinking a single favorite.

The fact that bars are adjusting to this changing attitude of drinkers isn’t a brief temporal flux on the part of bar owners. They aren’t enamored with craft beer because it is new or hip or has shiny packaging. They are changing to craft beer because that’s what their customers want. They are realizing that while some regulars are there to drink Bud Light on special for hours at a time (which probably nets them very little profit) if they have a tap takeover of a good craft brewery they’ll have a bar filled with customers willing to pay seven, ten, or even twelve dollars for a premium craft beer. The economic principles are not difficult to understand. If the demand is high so is the profit.

To further underscore this point Bryan pulls out this gem of a quote:

Pete Coors … said he still drinks the same beer he has consumed for decades.

“I am a Coors Banquet drinker,” he said. “I grew up on it and just can’t get myself to change.”

… and that’s an issue. In an industry where innovation, variety and change are embraced, Pete Coors’ biggest problem is that he doesn’t want to.

I’ve long advocated that people should drink what they like without judgment. Taste is an aesthetic choice and it impossible to justify one aesthetic preference over another. While one can claim to have a more experienced or higher expertise in a realm of aesthetics which gives more authority to their opinion on the matter ultimately you like what you like and no one should belittle whatever that like may be.

However, it appears that Pete Coors has no interest in exploring the greater and quickly changing world of craft beer. And that is his prerogative. If his lifetime supply of Coors Banquet leaves him satisfied who are we to question his love of it? Where I do object is his inability to understand why not everyone would settle for a light American lager brewed by his company and stalwartly maintain that preference in an ever-growing and changing market of beer in America. With so many breweries brewing so many beers it seems the high of arrogance to assume that none of them could possibly offer something as good as or greater than the beer you are currently drinking.

Coors said he is baffled about trends that show the more expensive craft beer market growing by about 7 percent, the light premium beer market staying flat and the economy beer market with brands such as Pabst Blue Ribbon and Keystone dropping by 7 percent or even into double figures.
This situation is not baffling, not after craft beer beat the recession. From 2007 to 2012, craft beer sales more than doubled from $5.7 billion to $12 billion. This is all while Average Joe and Jane were hurting financially.

Even when economic trouble hit, you can’t beat a superior product:

About 24% of beer drinkers told Mintel that they drank more craft beer sold at stores in 2012 than they did compared to 2011, while 22% upped their craft beer drinking in bars.

Bryan is right. People will pay higher prices when they think the money is worth it. While not everyone may want to spend ten dollars for a glass of KBS market trends show more and more are willing to pay five dollars for a pint of their favorite craft beer. That price isn’t what determines the most successful beers being sold in America is a decidedly good thing. It doesn’t take a genius to see that Americans are being exposed to better tasting beer and liking it. It isn’t some impossible trend that defies logic. Since prohibition beer choices have been exceedingly limited and since the 1970s beer options have grown dramatically. The reason MillerCoors is losing market share is because they are no longer the only alternative to Budweiser. They have to compete with craft beers which are often obsessed with flavor and quality and drinkers often want that.

Pete Coors “confusion” persists:

“In this economy that is difficult to understand,” Coors said. “But people are staying at home now, not buying cars or houses. They have money to spend. They want to spend it on something that they think has more value. … You talk about the millennials. The world is very different.”
Just to be clear, used car sales are up. New car sales are up. Home sales are up. There is additional money to be spent.

What got me was his acknowledgment that Coors products apparently aren’t something that people think has value. Pete Coors seems to intimate he thinks Coors has value, but consumers don’t. Especially those pesky Millennials, who are making the world very different and won’t get off his lawn.

I’ve written at length about the importance of Millennials to the beer industry so kudos to Coors for taking the bold step of writing them off.

Someone ought to send Mr. Coors some balm for that scorching burn. But this quote shows how desperately out of touch the MillerCoors board is if this is their leadership. Beer is changing in America and rather than moving to adopt this exciting new trend where customers can drink what they think tastes best, to embrace variety and quality Pete Coors wants to stick his head in the sand and talk about the good old days when there wasn’t consumer choice and marketing was all that mattered.

I think this sort of inflexible thinking is what is going to harm the mass market breweries in the next few decades. I think AB-InBev has seen the writing on the wall and has decided to solve their problem by buying the competition. By investing in companies like Goose Island and Craft Brew Alliance (among others) they make sure that if craft beer were to dethrone the “King of Beers” that it would be replacing one despot with another.

If MillerCoors wants to pretend that craft beer is just a fad I’m all for it. It might be slightly embarrassing when they no longer had a market presence.