The Distributor Productivity Issue: It's Starting to Matter Big Time

FILED OCTOBER 19, 2016

Dear Client:

Yesterday A-B sent word to distributors of "movements in the sales and marketing teams" and the advent of a new national WOD [Wholly Owned Distributors, or brewery-owned branch] team. In a minute we'll get to more of why we think this is happening.

"To drive step change growth in our business, we are creating a new Vice President position and national structure," letter said. Mateus Schroeder has been tapped to lead the team as VP, WOD, reporting to VP sales, Alex Medicis.

A-B said the new setup will allow them to "standardize WOD operations," and drive "performance" and "execution." As we understand, this "new" structure is actually a return to one they'd had in the past.

THE DETAILS. Mateus will lead the U.S. WOD sales and marketing operations, "which will begin reporting to him with dotted line relationship to the local RVP."

Under the new structure Michael Valenti, currently Director of WOD and reporting into Bob Tallett, will now report to Mateus in the national WOD team.

Mateus, who will remain in New York for his post, has been a WOD Director in LAN, and he's held posts as brand director for Pepsi and Antarctica beer in Brazil. He was most recently VP of Regional Marketing.

OTHER KEY APPOINTMENTS. Note relayed other sales and marketing movements: Former Walmart team head, Randy Ornstein, will now lead the partnership with Starbucks for the ready-to-drink Teavana product as General Manager. Tim Gossett will replace Randy as VP of Walmart and Sam's. Adam Byrne is now VP, Category Leadership, replacing Tim.

Jonathan Wiese will lead the VP CPPM team, replacing Marcelo Michaelis, whose "new role will be announced in the upcoming weeks." Kane Kaltenbronn will replace Jonathan's former role as director of sales for South Florida.

Lotsa changes indeed. This is the biggest reshuffle in top management in A-B in years, I believe.

WHY NATIONAL WOD TEAM? In answer to that, I would look to Reyes, the second largest distributor group after A-B WODs (although Reyes is independently owned, and is a Blue-Silver-Gold network). Reyes, operating under a single leadership lead by Ray Guerin, has been successful in consolidating, streamlining, and standardizing processes across their many distributors across the country. With cloud computing, several mission critical distributor processes can be put in one place, thus creating synergies.

THESE ARE A FEW OF MY FAVORITE THINGS. "Raindrops on roses and whiskers on kittens, bright copper kettles and warm woolen mittens, brown paper packages tied up with strings, these are a few of my favorite things…."

Actually, no. Here are a few of MY favorite things (yes, I'm a productivity nerd): Route accounting in the cloud, centralized tel-sell call centers, smart ordering by accounts directing through the web/apps, automated driver check-in, GPS routing, EFT clearinghouse, smart warehouse picking systems, web-enabled employee training, pre-sales Mobility best practices, uniform and enforced safety standards, appropriate merchandising levels, employee retention, finding/training qualified CDL drivers who can pass a drug test, faster stretch-wrapping of multi-case pallets (this is something that drives me crazy……. It takes WAAAAY too long to wrap a pallet and you guys are using WAAAYYY too much stretch wrap), reduced breakage and outdated product, forklift and fleet management, CNG vs diesel, energy management …..

You name it -- when you centralize these functions, you can not only realize cost savings through more leverage with vendors apparently (you tell me if not), but you can conceivably pinpoint best practices at each warehouse and roll it out nationally. It's easier said than done, trust me. But I think this is the holy grail A-B is after through these changes.

DISTRIBUTORS SAY: MARKETING, INVENTORY TOP AREAS TO IMPROVE COSTS

Speaking of distributor productivity and best practices, our friend Joe and his son Wes Verno at Verno Consulting LLC sent over some surprising results from their recent beer distributor survey.

Says Joe: "We asked wholesalers to select the top three areas targeted for cost improvement in 2017. The attached chart (below) shows that inventory, warehouse, marketing, delivery, and merchandising were the five areas most frequently selected by wholesalers.

"Here is the interesting point: In our 2014 survey of over 400 beer wholesaler execs, 5% of MC and 4% of AB wholesalers listed marketing as one of the top three areas for cost improvement.

"This year's survey shows 44% of MC and 50% of AB wholesalers are targeting marketing expense as one of the top three areas for cost improvement in 2017. [Damn]. This is major increase in targeting marketing for cost improvement. Also, inventory was selected by 57% of MC and 49% of AB wholesalers one of the top three areas for cost improvement in 2017.

"You could connect cutting marketing and inventory areas to the craft business maturing at the wholesaler level. Yes crafts are still growing and very important, but the way wholesalers manage and sell crafts is changing," says Joe.

"With most major crafts already in distribution in most markets, wholesalers are looking at the cost required to sell and manage all brands including crafts and the cost associated with being attractive to and winning new suppliers. We interpret targeting inventory for cost improvement as out-of-code and breakage reduction. Wholesalers aren't willing to eat the current level of finished product loss from both major domestics and crafts."

ED. NOTE: As far as the wild swing to distributors being worried about bloated marketing spends, we see craft beer weekend festivals, tap takeovers, crazy sampling, card swipes, retailers getting more aggressive on give-aways, etc….. these are getting out of hand, from sources we talk to.

OLD BEER: THE MONSTER UNDER THE BED. On outdated beer and breakage: this is a subject that has been bubbling under the surface of distributors' minds for about a year or more. Eating old beer is a hard pill to swallow. And it's getting much worse by the month, particularly as brewers of all sizes push forecasts and pressure distributors for increasing orders (and the dang seasonals). More on this later.

Your thoughts in confidence? hs@beernet.com

LATEST NIELSEN: CRAFT REBOUND? BUD LIGHT DYING. CONSTELLATION CAN'T BE STOPPED

Are you tired of hearing about how Constellation is kicking ass? Well, it's not stopping, it's accelerating. And in case you think it's price related…. It's not. They are up the most in price (85 cents) in all outlet four week scans to October 8 in Nielsen scans, and up in volume 14.8%. (Jim Sabia needs to be knighted in the Beer Marketer's Hall of Fame, if there was one).

And it's not just Modelo Especial…. Or Constellation for that matter, Heineken's Dos Equis is also kicking ass too. Mexican brands are clearly taking share from premium domestic lights, and Bud Light is getting the brunt of it.

Bud Light lost 0.75 points of share in the latest set of data. I haven't seen this degree of share loss in a single beer brand since 1997 when Miller Lite embarked on its disastrous "Dick" campaign.

Miller Lite lost saw its share decrease 0.08 points and Coors Light actually grew category case share 0.04 points. The overall premium light segment is down 2.5% and losing 0.2 points of total category share.

Overall beer volumes are on the verge of entering into positive territory, down 0.1% in the latest round of Nielsen.

It's the closest we've been to getting back in black for months now. The category's volumes sunk down into the red right around the end of July and have remained relatively steady since, declining at slightly less than 1%.

Last week volumes were down 0.7%. So what do we owe this week's jump to?

CRAFT REBOUND? Well, the biggest improvement over last week came from craft. The segment was down 0.5% and shot up to 2.4% in the latest set of data. It's tough to pin this increase on any particulars in craft, but Leinenkugel's Shandy franchise did see its trends improve from down 11.1% to down 2.9% over the stretch.

ABOVE PREMIUM DRIVERS. Craft's recent gains are fanning the flames in the above premium space, which saw case volumes up 5% and case share gains 1.6 points in the latest four weeks. But the above premium segment is still largely benefitting of imports and super premium's hot streak. The two segments continue to roll, both growing volumes right around 8%.

You guys already know the brand responsible for super premium's growth, Michelob Ultra, which is growing at 21.6% in the latest four weeks.

For imports, it's the usual suspects: Modelo Especial, up 20.6%; Stella Artois, up 12.8%; Corona Light, up 10.9%; and Dos Equis, up 9.2%.

THE LOWDOWN ON PREMIUM. It's a different story for the plain ole premium segment with volumes down 2.5% and case share down 1.1 points. We already highlighted premium light's woes up top, but premium regular is still searching for answers too, with volumes down 2.4% and share dwindling 0.9 points.

Looking at premium regular we see Yuengling Amber and Coors Banquet rocking, gaining 0.06 points of category share and 0.01 points, respectively. Budweiser isn't doing so hot though, losing 0.22 points of category share.

BREWER RUNDOWN. As we noted in our opening, Constellation continues to outpace all the major brewers in total category share, gaining a full share point in the latest set. Again, its volumes are up 14.8%. Mike's had the second biggest gain in category share up 0.1 points and its volumes are currently up 10.1% in the set.

There were only two other brewers in this specific set of data that saw its volumes in the black: Heineken, up 2.3%; and Diageo/Guinness, up 1.3%.

MillerCoors volumes are down 1.6% and the brewer lost 0.5 points in total category share. A-B volumes are down 2% and experienced the largest loss, among major brewers, in total category share losing 0.8 points.

Until tomorrow, Harry

"The nice thing about egotists is that they don't talk about other people." - Lucille S. Harper


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