(Boston, MA) – Seeking Alpha has a rough 7-page transcript up of a recent speech by Boston Beer Company Chairman, Jim Koch, at the recent Barclays Back to School event. Highly worth a read. A few highlights (with some editing)…
On why craft brewer M&A deals are few and far between:
“You can consolidate a conflicting distributor footprint but it is a big problem. Alan Newman described to me the problems he had when Magic Hat brought Pyramid. In a lot of markets, they were sending salespeople to do business with two competing wholesalers. And the wholesalers wouldn’t see their salespeople because they say today you are working for me to sell Magic Hat but tomorrow you can be with the Pyramid wholesaler ruining my business. Get the hell out of here.”
On organizing retail by brand or style:
“I was talking to the beer manager at a very good retailer in Texas. They tried setting their shelves by style and it was apparently just a disaster. Consumers couldn’t find what they wanted and they were frustrated. Consumers want retailers to organize and structure chaotic categories for them and craft beer runs the risk of being chaotic. Consumers want some order and structure just like with imports. For example, they put all the Heineken together so you get this block of green and that helps the shopper know that’s the import category.”
On the retail shelf (and bar tap) space ceiling:
“Beer is starting to take a little bit shelf space from wine which hasn’t happened for decades. My guess is, retailers will probably continue to expand the shelf space for craft beers for several years, but it will hit a wall. I don’t think it’s going to contract because they think volume will grow. If/when it stops growing, the retailer will just come to the conclusion that they had 20% more shelf space for craft and didn’t sell more beer and maybe that wasn’t a good idea.
I am seeing it even with on-premise retailers that have added tap handles. They have gone from 10 to 20 to 30 and somewhere around 20, their volume stops growing. They realize that it was good to go from 10 to 20 because they got revenue increases but when it went from 20 to 30, they just added confusion and didn’t sell anymore beer at a higher price.”
On the tide turning against large domestics:
“Back in 1970 […] 99% of the beer was regular strength domestic beer. The import category was very small, less than 1% and there were no craft brewers. That was just over 40 years ago. You fast forward today and that scene has changed dramatically. That 99% is down to 24%. The leading brand in the regular strength domestic beer is Budweiser, which may still be the largest brand in the world. It is a great brand run by a great company with great marketing behind it. Despite all of that, its last year of growth was in 1987. Ronald Reagan was President.”