BBD has heard from several Gambrinus distributors across the country who are expressing shock today as some (though not all) have reported that Gambrinus is increasing the price of Corona SKUs almost across the board about 6%, with front line pricing going up even higher.
Look for Gambrinus’ Corona pricing in the East to go up $1.20 a case, effective September 15. Not all distributors have received their letters, but BBD heard from several that had, with one of them characterizing the increase as “freaking nuts.”
Gambrinus sales vp Don Lake said in the price letter that high freight costs, volume momentum, healthy industry pricing, and the long period of time since the last price increase (almost three years) means it’s a good time for an increase. Oh, and there’s a huge product shortage of Corona, as we’ve reported earlier.
BIG PRICE INCREASE – BIG MOTIVE. I think this decision was based more on the product shortages than Don’s letter implies. It appears to me that Gambrinus is likely attempting to recapture lost revenues through pricing that it is losing in the major product shortage from Modelo, a shortage that some at Gambrinus view with suspicion (Barton’s Corona shortages have been minimal). The situation is dire in some areas, with chains canceling Corona ads for Labor Day and some distributors completely out of Corona Extra. We’ve heard that many accounts are angry about the inventory disruption.
Look, like it or not, Gambrinus is doing the smart thing if you look at it from their point of view. Simple supply and demand economics dictate that production shortages should be accompanied by raising prices as per-case demand increases. Indeed, this somewhat resembles the Corona shortages of the late 1980s. Gambrinus came into being with market disruption, and is going out the same way.
PRICE GAPS TO WIDEN. You can bet that Corona’s competitors are giving each other high fives both at the shortage and the price increase, as this development gives all other brands some breathing room with respect to their respective price gaps. A-B, Miller, Coors, and Heineken USA will likely be dusting off their pricing models over the next few weeks to see what can be done for the GI in January.
WILL THE SHORTAGE AND PRICE INCREASE HURT THE BRAND? Yes, in the short term Corona will get dinged. But in the long term we suspect that Corona will recover and get back to growth as it typically always has. That doesn’t mute the fury of distributors and accounts that are waiting each day for product. The chains will be angry at first that price ceilings have been broken, but after a few months they will forget once volumes rebound as consumers get accustomed to the new sticker price.
THE BRIGHT SIDE. And Gambrinus will have done the heavy lifting for Barton. Once January 1 comes around, the new price, provided it sticks, will be well-established in the marketplace and Barton can examine whether it may be a good idea for other markets.
GAMBRINUS: A SMALLER COMPANY. It doesn’t appear that Gambrinus will be making any big acquisitions in the near term, meaning that after December it will operate as a much smaller company with Shiner, Moosehead, Pete’s, Trumer, and Bridgeport. While its size will be cut dramatically, it still is a decent sized craft brewer with an import as a kicker. But it will likely lose a good portion of its talent.
CARLOS BECOMING A BANKER. Meanwhile, just because Gambrinus will be smaller, doesn’t mean that Gambrinus’ president and founder Carlos Alvarez is thinking small in his investsments. He has invested heavily in wineries, colleges, and San Antonio’s favorite local bank. Carlos, who has been a director at regional Cullen/Frost Bank since 2001, invested an additional $1.1 million for 20,000 Cullen/Frost shares last week. Carlos has invested a total of $3.2 million in Cullen/Frost stock since the beginning of the year, including last week’s buy.
FEDERAL JUDGE DISMISSES ANOTHER CLASS ACTION LAWSUIT. Another big victory for our industry: A Federal Judge in West Virginia is the latest judge to dismiss a class action lawsuit which had been brought by Roger and Kathy Bertovich against over 100 beverage alcohol producers and their lobby groups.
Judge Irene Keeley said in her 35 page opinion that parents can’t blame alcohol producers when their underage children violate the law and purchase alcohol. Lisa Joley, vp and general counsel at Anheuser-Busch, put it best, saying the Bertoviches’ suit would create “a perverse form of a frequent illegal drinkers’ reward program in which the more an underage adult or adolescent drank, the more his parent would be paid.”
THREE TIER PROTECTS PRODUCERS. Interestingly, Judge Keeley wrote that West Virginia’s three-tier system in West Virginia means that “defendants aren’t able to sell their products directly to individual consumers. They may only sell their products to wholesalers approved by the State of West Virginia, who in turn may then sell their products to retailers, who may then sell the product to consumers.” Three-tier actually shields producers from blame.
ALCOHOL PROTECTED BY ‘COMMON KNOWLEDGE’. The fact that consuming alcohol by minors is illegal and risky is ‘common knowledge’, and that fact protects consumers. Writes Keeley:
“The Bertoviches cannot overcome the fact that it is common knowledge that the consumption of alcohol is both illegal and dangerous for underage persons.. Although the Bertoviches have pointed to various marketing practices that may be distasteful and irresponsible, no laws currently prohibit alcohol manufacturers from advertising their products in this way.”
BBD subscribers can access the entire dismissal here: http://www.beernet.com/aboutus/bertovichdismissal.pdf
Ed. Note: In case you haven’t checked in awhile, I’ve updated my editor’s personal blog at: http://beereditor.blogspot.com
and our video update at: http://www.beernet.com/aboutus/weeklyupdate.html
Both are works in progress so pardon our dust.
