New Rules

The rules of the beer business are changing. Part four of a weeklong series.

For nearly three decades, the American beer industry operated by some very basic rules. Big brewers marketed big brands with big television advertising campaigns, and distributors pushed hard with big floor displays.

But now the game is changing. Retailers increasingly influence the consumer marketplace, a trend with implications for suppliers and distributors. And while the big brewers once focused almost exclusively on big brands they're now trying to mine niches. .

The latest issue of print Brew looks at seven old rules and their replacements. And it looks ahead to dynamics that are shaping future rules.

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Now, on to rules six and seven.

Old Rule: Suppliers hold the power
New Rule: Retailers call the shots

The three-tier system was established, in part, to ensure that suppliers would not exert undue influence over the bars and stores that sold alcohol beverages to consumers.

It seems a quaint concern now, as national grocery chains and big boxes such as Wal-Mart Stores Inc. and Costco Wholesale Corp. have increased their influence on the retail landscape. And indeed, they’re now flexing their muscles in the alcohol-beverage category.

“Super centers” have snared a growing number of shoppers going for “beer trips” – even as fewer are going to grocery stores. In 2005, 33.1 million beer trips were made to super centers (including Kmart, Target and Wal-Mart Supercenters), up 64 percent from 2001, according to figures from ACNielsen. Beer trips to grocery stores slid by 9.2 percent to 264.7 million in the same period.

This shift forces suppliers and distributors to go to market differently than they have in the past. It’s increasingly the role of suppliers to deal with the national retailers in figuring out everything from packaging to promotions — and to help their distributors in those relationships.

That’s one reason Coors has been emphasizing chain execution. And for Miller, Top priorities have been strategic accounts and convenience stores as well as improving planning and sharpening the way it translates brand ideas into retail.

Old Rule: Stack ’em high and watch ’em fly
New Rule: … And sell the small if the margin’s tall

For decades, the leading domestic brewers concentrated almost exclusively on big brands that they sold through big advertising campaigns.

But with more consumers seeking imports and crafts, the brewers need to broaden their focus. They must continue to capitalize on the power of their scale – the size of their brands and their clout with retailers – even as they play profitably in niches. Both approaches are required.

It’s challenging. It requires patience and focus. But there are signs that the brewers can do this. Coors Brewing Company’s success with Blue Moon Belgian White ale (a brand that may have prospered because it was left on its own) is one example. Miller’s success with Jacob Leinenkugel Brewing Company is another case study.

The leading brewers will always depend on their flagship brands, which are the preference of most U.S. beer drinkers. Indeed, Miller CEO Tom Long said at recent distributor meetings that the brewer’s top three priorities are Miller Lite, Miller Lite and Miller Lite.

But the leading brewers increasingly recognize that small is beautiful.