Lotis Blue Consulting's CEO, Garrett Sheridan, and Constellation Brands’ Chief Commercial Officer, Bruce Jacobson, discuss the emergence of the craft beer industry and what it means to the marketplace. In many regards, the rise of craft beer is a classic example of a disruptive industry player adding complexity to an already highly competitive industry. What does it mean for the beer industry? And for consumers who are inundated with options? Bruce shares his perspectives.
Garrett Sheridan: A lot of times when we are working on strategy with clients, they are constantly surveying the market for up-and-comers and who is going to disrupt them, and how to remain differentiated so that they can keep market share. I happen to live on the north side of Chicago. My local place to pick up beer or wine is a place I’ve been going to for years, and I’ve been friends with the owner. And when I saw craft beers starting to take off, I was very curious about the impact on his business. And what he said was fascinating to me. He said, ‘It’s difficult. It’s high margin. But people like a flavor profile versus a brand. So it’s hard to get the rotations right and know what I should be carrying. I have to listen to my customers.’ So it’s added a lot of complexity, at least as I see it, and he would describe it. How do you think about Craft Beer and its competitive threat to your business?
Bruce Jacobson: Well, craft beer has been both positive and negative for the beer industry. First, from a positive standpoint, it keeps people engaged in the category. If it was a craft wine business or something like that, that would likely be more of a drag to beer, but it is not. People are talking about beer, they are drinking beer, trying different styles, interested in brewing at home and they go to breweries. All of those things are really good for the beer category. It’s also good for the beer category because it raises the price level. So consumers look at the value they get out of the beer category. It creates an umbrella for the entire category to have a little bit stronger pricing reality because beer now has higher value in the consumer’s mind. And price is part of that value equation. But there are a lot of challenges with things like the craft beer emerging. There are a lot of craft brewers. At this point in time, I don’t know the exact number, but it is well over 9,000 craft brewers in the United States. And it is really difficult for 9,000 things in the same industry to be differentiated.
Earlier, we talked a little bit about beer being a branded category as one of the success measures for us. So with craft, people aren’t buying brands as much. They do buy local, and so it works really well to have a local brand, but that is a different model from what we have. We are a scale operator. We need big brands across the country where we can leverage our national account coverage and leverage our distributor coverage, and to have a number of small brands in many markets across the country is very difficult in our business model. So it creates challenges and positive opportunities at the same time.
It is also one of the places we are starting to use more big data. What we are able to do is to go in with IRI and Nielsen information and determine what SKUs are no longer incremental to the category; what are redundant SKUs in consumers’ minds. It gives us the ability to go to retailers and distributors and help them manage their portfolio brands and help them understand how many IPAs makes the most sense for their business and their location and what that looks like. Or how big their craft selection should be. And we help them with their assortment. We do that not only with craft but also across the import category as well as other segments of the beer business. And it is a situation where we are able to find about 20% of the SKUs in the beer business today can be eliminated because they are redundant. So when we do that, we help the retailers maximize the value of their categories. So it’s a great situation, where we are using the available information to help make business stronger with independent and chain retailers across the country.
GS: And that’s a fantastic value to them because they probably don’t have the resources to do that themselves.
BJ: No. They know what sells in their store, but when you look at it, it is not about how much something sells but about the incrementality of those items. So if two items are interchangeable, you can get rid of one and save inventory cost and the ordering process and storage, and turn it into one package. We are talking someplace that would carry 300 packages and be able to carry 240 packages. So it is not like we are slashing availability for the consumer, we are just helping understand what is truly important to the consumer and offering them those things without having so much so much selection that it becomes redundant.
GS: It’s really interesting. I’ve noticed that over the last 15 or 20 years that selling has always had a relationship component to it. But increasingly it has a data and a value-added component where you have got to bring something different. And there have been some provocative things written, saying that people are becoming obsolete, especially with ERP software sales, because there is this view that the buyer, with the ubiquity of information, has almost made his or her decision before the process begins. So in that world, what can the salesperson do to add value? In your world, how do you get that correct blend in the talent between the data piece and also the relationship piece, which I would imagine continues to be important.
BJ: The relationship piece is critically important. Every great relationship is built on trust. The business that we do with our distributors and retailers is all repeat business. You are in there one week, and you’re probably going to be walking back in the door the next week, and whatever you tried to sell them one week- if it’s not working for them two, three or four weeks down the line, they are not going to be as open to the next thing that you bring in the door. And so there is no question that the sales position has changed dramatically over the course of time, where it was nothing but relationship at one point in time. Now with the information that is available the sales rep has to change who they are and they become more effective when they can bring that great relationship they already have, and bring great insights to that relationship with the buyer on whatever it would happen to be. We find that to be really critical. It also, by the way, ties back to data, insight and action. A buyer may be able to see from the information but may not have the right insights applied against it if they only use the lines of their retail environment or their distributor territory. And once you can apply a broader perspective on that information, you can help them and yourself develop better insights which turn into more quality actions.
GS: So a consistent theme in terms of data, insight and action across many things that you do.
BJ: Yes, we use a version of data, insights and action, which is called, ‘What? So What? Now What?’ I use that a bit more internally. When I am working with our marketing teams, they will tell us, ‘This is what is going on in a test market.’ So that is kind of the ‘what.’ And my next question to them next is, ‘So what? All those things are happening, now tell me what it means and which ones we should be thinking about.’ And you boil it down and create the insights by asking that question, ‘So what?’ And then ultimately the “what’ is the action. So now that we know that, now that we see that insight, what should we be doing to take it advantage of that or to eliminate that threat?