Some Distribs Frustrated Over Costs, Logistics of Returns
As more distributor commentary from the field rolled in on the heels of yesterday’s story about April projections, another theme emerged: Some second tier frustrations with other tiers.
A lot of it seems to do with the ongoing process of keg returns/credits and the decanting that comes with it.
One Northeastern wholesaler asked, rhetorically:
“If suppliers are requiring or asking us to drain the draft beer, should not this cost be borne by them?
“Also, [shouldn’t the] cost of disposing of all the draft beer be the responsibility of the supplier?”
Even beyond the bare cost issue, logistics are problematic. Another distributor expressed frustration with a lack of details from a large supplier, so they aren’t comfortable picking kegs up from the market. Meanwhile, the wholesaler is still seeking clarity about disposal from their area wastewater management.
Note, for most distributors, mass decanting is not a familiar proposition.
One Central distributor points out that “decanting a keg takes a half an hour, even if you have the right equipment.” Then there’s the issue of whether one has talked to “our water people; our waste treatment people…”
Beyond that: “beer distributors are used to downstream logistics”: after you take it off a truck, “it’s constantly going downhill … [but] think about 180 lbs, bringing that [full kegs] back uphill; bringing it up out of a basement.”
SOME HEAD-SCRATCHING RETURNS POLICIES. And naturally, the whole keg returns process isn’t standardized from large supplier to large supplier. Some processes seem more tedious than others.
When Molson Coors first came out with its guidance a couple of weeks ago on keg returns (at 50% FOB cost reimbursement), they specified that kegs were to come back empty, decanted either by distributors themselves (though MC offers a $5 per keg credit for such logistics) or a third party (recent communication MC gives distributors the choice of an MC approved one and MC will cover the costs if the distrib prepares it for pickup; if the distributor secures their own third-party solution they still get the $5 credit).
Meanwhile, an April 13 memo (obtained by BBD through nefarious backchannels) outlines a much different process for Constellation distributors seeking the promised 70% reimbursement for full keg returns:
“Starting Monday, 4/20, you can begin reaching out to your MicroStar contact to initiate a full keg pick-up,” it said, with, of course, the necessary paperwork. STZ covers decanting and freight costs.
But for all the frustrations we heard, some distributors are clearly grateful for any supplier help. “By and large, an argument can be made on both sides (distributor and brewer) no matter how you slice and dice it is an extremely costly proposition all around.” This Northeastern distributor is “pleased the brewers have not walked away from us and left us out there alone.”
COULD A-B BE OFFERING KEG REIMBURSEMENT SOON? And then of course there’s A-B, which hasn’t offered any reimbursement for keg returns — although we’ve heard from several sources that such a measure could very well come down this week.
IN THE END, distributors know they’ll get through this, but not without a little pain.
In fact, one Midwestern distributor expressed the sentiment that maybe their tier was a bit too fat, but will get lean by the end of the year. We need to spend our PPP money, but eventually we will tighten our belts and run a much more efficient business, they said.
Then again, a lot depends on when the on premise opens — and when people are comfortable going out again. Those could be two very different propositions.
“Nobody’s gonna want to go down to the bar and smash six tacos on Taco Tuesday” shoulder to shoulder, anytime soon, per yet another Midwestern distributor’s description.
“My shoe hasn’t dropped yet,” he said. “My shoe is, ‘what’s my out of date [beer] exposure.’ Right now it’s relatively small but if it goes to June, my exposure is 10 cents a case, as a one-time hit.” That’s just for what they have in their warehouse.
DESPITE CURRENT COVID CRISIS, MOLSON COORS “CONFIDENT” IN NEW BETTER-FOR-YOU LAUNCHES
In a less-than-ideal climate for big new brand launches, Molson Coors is sticking to their game plan and pushing forward with two of their most anticipated rollouts for 2020 this month.
Last week saw the release of their new hard seltzer play, Vizzy; and this week comes the launch of their new canned wine spritzer, MOVO.
Vizzy, which bills itself as “the first-ever hard seltzer with Antioxidant Vitamin C,” is now available nationwide in four flavors – Pineapple Mango, Black Cherry Lime, Blueberry Pomegranate and Strawberry Kiwi – each clocking in at 5% ABV, and carrying 100 calories and 1 gram sugar.
MOVO, meanwhile, is dubbed as “a modern take on vino,” and is now available in four-pack (8.4-oz.) slim cans at retailers nationwide in three flavors — Peach White Blend, Raspberry Rosé and Blood Orange Sangria – all checking in at 5.5% ABV and holding 100 calories.
As we alluded to at the top, these certainly aren’t the conditions Molson Coors was expecting when launching these brands, but the company assured us that “distributors and retailers are excited about these launches.”
They say that “Vizzy brings a truly differentiated proposition to a segment that’s still very hot right now, and products like MOVO brings a modern take to wine, a very strong segment that we are excited to have entered.”
Plus, these two brands “were always going to be sold predominantly in the off premise, where trends have obviously been strong,” according to the company.
“So based on what we have heard from the network and from retailers, we’re confident they’ll do everything possibly can to ensure the success of Vizzy and MOVO.”
SORINI ON RECENT DIRECT TO CONSUMER ALLOWANCES: IT’LL BE “HARD TO PUT THE GENIE BACK IN THE BOTTLE”
The esteemed, retired (at least, we had heard he was supposed to be) beer lawyer, Marc Sorini, delivered a legal/government affairs update on Monday to kick off the Brewers Association’s online Craft Brewers Conference sessions, in lieu of the live event that COVID measures cancelled.
He covered a lot of ground and you can access his full presentation here. But among the most pressing themes he covered was how emergency COVID provisions could endure; the regulatory legacy of seltzer; and the TTB’s new direction.
COVID USHERS IN REVOLUTIONARY DTC AGE. WILL IT LAST? As BBD readers know, many local authorities have really loosened the regulatory frame to help the off-premise move through bev alc displaced by a shuttered restaurant landscape.
In other words:
“Overnight in the month of March, you went from a system where very few breweries had the right … to ship directly to consumers homes, to one where in the majority [of] the country, ABCs have put out these emergency orders, these various special regulations that allow the direct-to-consumer shipment and delivery of beer and other alcohol, in many cases, to the consumer’s home.”
“What a revolution!” he says. “But it’s all temporary.”
But is it? “When it finally does come to an end, it’s going to be very, very hard to put the genie back in the bottle,” he says.
Why? “Consumers are going to like this, and businesses are going to like it, breweries are going to like it; on premise retailers are going to like it; restaurants. … And we’re going to be in an era of the new normal for at least another year, at least until there’s a vaccine for this dreaded virus.”
He called delivery a “critical piece of the model in this new normal era.” It’s “very significant.”
(As an interesting side note, he questioned whether these recent permissive orders are even legal: “The states are jamming them out, and nobody’s challenging them legally. But does the state ABC have the authority to waive what might be otherwise a restriction in a statute defining the privileges of a license? I don’t know.”)
OTHER AREAS OF SCRUTINY, FROM SELTZER’S SLIPPERY SLOPE TO EQUIVALENCY, TO TTB’S INVESTIGATIVE FOCUSES
DOES SELTZER OPEN THE FLOODGATES FOR EQUIVALENCY? That’s another big timely question Marc mulled in his presentation.
Most non-malt, sugar based hard seltzers are “IRC beer” / “FDA beer.” As such, Marc says, they have some special provisions that beer doesn’t, while still being taxed federally at the same rate as beer (vs. liquor, which of course is taxed at a higher rate).
Marc argues some of those special provisions have actually contributed to the segment’s success. For example, it is the FDA, rather than the TTB, that regulates the labeling of such products “primarily under the federal Food, Drug and Cosmetic Act.”
That affords a few benefits: For one, their labels tend to look more like food or non-alc labels (call that a halo effect for information-minded consumers). Second, hard seltzer labels “do not require a Certificate of Label Approval (“COLA”) or other federal government pre-approval.” And as we’ve seen in the case of brands like Vizzy, which makes bold claims about Vitamin C content, the FDA seems to be more lenient in what’s allowed as a health statement than does the TTB.
Again, “hard seltzers enjoy this status even though they also benefit from the favorable (when compared to distilled spirits) beer excise tax rate,” says Marc.
The big question is, as hard seltzer “blurs the lines between beer and other alcohol beverages, notably distilled spirits … should the beer industry fear that the continued blurring of lines will eventually lead down the path of tax and regulatory ‘equivalency’ among beverage types?”
He also points out that beer has largely for years bucked FDA-style labeling/nutrition disclosures; but again, the success of seltzers open the door.
Then again it’s helping us recover Tito’s and soda share. Marc thinks we’ll be dealing with these issues for years to come and questions, “Is there a middle ground?
One last zeitgeist: Marc tackled the recently active TTB’s future focus.
TTB SHIFTING FOCUS TO TAX FRAUD? BBD readers know that the TTB has been especially active the last handful of years with trade practice enforcements, the height of which has seen Heineken pay a $2,500,000 offer in compromise for alleged exclusive outlet and tied-house violations.
“But what’s really interesting is for two years there’s been a lot of discussion and a lot of knowledge that TTB is out there investigating big sports venue sponsorships … and I think the conventional thought, at least for the last year, is ‘The Big One’ is going to come.”
That hasn’t happened. “Maybe the big brewers called TTB’s bluff,” Marc mused, arguing that maybe some of TTB’s “aggressive” tactics wouldn’t hold up under third party scrutiny. Maybe that’s not it, Marc admitted. But many expected some “$5, $10 million settlement [with] the big brewers, or at least one of the big brewers by now. And we haven’t seen it yet.”
The TTB has, however, indicated that they will be reallocating resources toward some “potential tax fraud” in the wake of CBMTRA tax cuts (they’re still getting an extra $5 million a year to enforce their trade practice efforts).
“Their primary concern is about imported products” says Marc — very specifically, imported spirits products. “The fear is that companies that really aren’t entitled to the lower rates — let’s say because they’re part of a much larger company, where they’re only entitled to one shot at the lower rate and not 10 — are somehow breaking down their production and taking advantage.”
Marc thinks that’s “probably not happening.”
But the TTB has concerns, and is seemingly redirecting some focus.
“So it may be that this trade practice investigative uptick over the last three years, may be coming to an end. Still hard to see.”
THE FOUR HORSEMEN OF THE APOCALYPSE, PART II. Three weeks ago these guys were spot-on, so I got them back together. Bump Williams of Bump Williams Consulting, Kaumil Gajrawala of Credit Suisse, and JB Shireman of Arlington Capital talk about the month since COVID-19 has taken its toll on the beer business. Watch and listen here>>
BENJ VS HARRY. CLASH OF THE TITANS. Yes, my arch nemesis, (not really, we are friendly competitors) Benj Steinman at Beer Marketer’s INSIGHTS and I will be on a conference call with Credit Suisse analyst Kaumil Gajrawala later this morning, register and listen here>>
Harry, Jenn and Jordan
“Nothing is as simple as we hope it will be.”
– Jim Horning
———- Sell Day Calendar ———-
Today’s Sell Day: 11
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thurs.
This month last year ended on a: Tues.
YTD sell days Over/Under: +1