Craig Purser Remarks: NBWA's 78th Annual Convention and Trade Show | NBWA: America's Beer Distributors

Media Contact: LAUREN KANE

lkane@nbwa.org; (703) 229-3702

Press Releases| Oct 12, 2015

Remarks as Delivered on October 12, 2015

 

Good morning!

It’s great to have 4,000 people gathered here together. You can feel the excitement and energy in the American beer business throughout this convention.

We have folks here from all 50 states! Even Alaska and Hawaii. And we even have people attending from Australia and the Philippines! I know a lot of you spend a great deal of time on the road like I do. And I swear sometimes my life feels like a line from that Johnny Cash song, “I’ve been everywhere, man, I’ve been everywhere…”

Well about three weeks ago I woke up in Little Rock, Arkansas, to the big news about the ABI acquisition of SABMiller. I was in Little Rock for a meeting of the state association but I didn’t see the news from my Google news alert or see it on CNBC, I read it on Facebook. One of you had linked the Wall Street Journal article to your page and I had to double check that it wasn’t a hoax. My point is that I had to go to Facebook to see the Wall Street Journal. Facebook is disrupting traditional news media… just one example of how some industries are facing disruption these days.

Let’s take a look at the political scene. Right now, we all have a front row seat to watch political disruption on a grand scale!

Donald Trump, a billionaire, and Bernie Sanders, a socialist, are leading in New Hampshire right now – with just weeks before that state’s primary! If you told me six months ago that Hillary Clinton wouldn’t be a shoe-in, I’d say you’re crazy. And if you told me that a reality TV star would have 30,000 people at a political rally, I would say, “You’re fired!”

And just two weeks ago, the Speaker of House – who has been a great friend to NBWA and this industry – announced a surprise resignation from Congress and sent shockwaves through the Capitol.

These political disruptions have a common denominator: the electorate isn’t happy with the current political environment. In beer industry terms, the customer isn’t happy with the product, and the consumer is demanding change. Tomorrow, political correspondent Candy Crowley will talk to us about all of these “disruptions” in the political arena so stay tuned.

Today we're going to talk about marketplace disruption. You can’t pick up a newspaper – or turn on your iPad – without a reference to marketplace disruption.

It’s almost as if marketplace disruption is the catchphrase of the decade. And it is happening because consumers are demanding more choice, selection and competition in the marketplace.

Now, it is important to note, that disruption can become a mere distraction depending on what YOU do, and how YOU handle it. We’ll take a look this morning at how planning, leadership and focus can help us prepare for the changes and challenges facing this great industry.

And in that spirit, we’ll look at how NBWA is providing leadership that will help the independent beer distribution industry plan for disruption and focus on the future.

To explain what I’m talking about, I want to take a look at another industry. One where disruption may be leading to destruction.

Many of you have probably taken Uber. Uber is an app on your phone that allows you to call a black town car or a taxi-style car and get a ride wherever you want to go.

This app turns mostly ordinary drivers into taxi drivers.

Uber is a disruption to the traditional taxicab model.

The taxicab industry is a regulated and licensed industry. The model requires strict compliance with standards for safety and limits competition. But a license is a privilege. And somewhere along the line, the taxi cab industry stopped meeting the customer’s need for convenience, choice and value… Many consumers were frustrated with the level of service – bad driving, dirty cabs, rude drivers and not meeting modern necessities like accepting credit cards. It was a regulated industry that wasn’t generating economic or commercial value.

Because of that, the taxicab industry was ripe for disruption, and that’s exactly what Uber did. Uber generated competition with the taxi industry and is giving consumers greater choice and selection.

Today Uber has contractual relationships with over 160,000 drivers and a staggering market cap of over $40 billion.

It’s not just Uber that is creating disruption and marketplace distractions.

Have you swiped your credit card on Apple Pay, Square or Pay Pal?

Or shopped for your next home on Zillow, Redfin or Trulia?

All of these marketplace disruptors have one thing in common. They are filling a void where consumers are hungry for something new.

So what about the beer distribution industry? Sure, we’re seeing some significant challenges and changes, there’s no doubt about it.

But here’s the reality: In 1983, there were 50 breweries operating in the U.S. When I started writing this speech, there were 3,700, and just two weeks ago, the Brewers Association announced there are 4,000 breweries in the U.S.!

Those numbers right there show that this is NOT a marketplace ripe for disruption but instead it is a marketplace evolving right before our eyes!

This system IS giving the consumer choice and adding value to the retailer. And that value IS getting the right beer to the right consumer.

This system IS working well, and it’s up to us to protect and strengthen it.

Even though this system is working well, there are some who are choosing to challenge it, or change it. They say they want to disrupt it. I’m not sure how much better you can get than THIS, but are these challenges and changes causing disruption?

Let’s look at the environmental changes just in the past few months:

New Leaders

Brewers and importers, of all shapes and sizes are getting new leaders.

Heineken USA, MillerCoors and Anheuser Busch InBev all have new presidents guiding their companies. Other brewers including New Belgium and Stone have both announced changes at the top. And distributors are seeing generational shifts in leadership. We will hear from some of these new leaders during this convention.

Capital Infusion

An incredible amount of new capital is flowing into craft beer.

Brewers are taking “swim to shore” money. Private equity is investing. Employees are being offered a piece of the action in the form of ESOPs. And, as Jim Koch pointed out at a recent congressional hearing, many of these investors are from outside the U.S. making acquisitions in the American beer industry in an effort to take advantage of lower corporate tax rates overseas.

Big Acquisitions

ABI has purchased four small brewers in the past year.

MillerCoors’ Tenth and Blake is in the acquisition game as well. And a couple weeks ago, we learned of the biggest deal to date in craft. Fifty percent of a brewer’s equity, a valuation of over $400 million, and a joint venture between Lagunitas, the fastest growing craft brewer, and Heineken, one of the world’s largest brewers.

And of course there’s “mega brew.”

We are all on the edge of our seats waiting for more details to emerge for what could be a $300 billion combination. The global market power that results from this new entity could be like nothing this industry has ever seen. The impact worldwide related to raw materials, market share and overall influence is staggering. That is why regulators and antitrust officials must give this acquisition thorough scrutiny and exhaustive review. And distributors should provide assistance when asked by the DOJ about the potential impact that this global deal could have on the American marketplace. And we want to ensure that the American marketplace – an orderly marketplace – isn’t negatively impacted by an increase in global market power.

At the same time, this proposed global deal reinforces the value of the open and independent American distribution system. What better way to demonstrate the value of having three separate tiers – a system that gets new brands to market, generates robust competition and delivers the best selection and value to retailers and consumers? And if we educate policymakers, the net result will be greater public understanding of and support for the American independent distribution system – a system that the Boston Consulting Group calls “open, freely competitive, and driven by consumer choice.”    

In other words, thinking globally about the beer industry gives us a tremendous opportunity to act locally. Let me say that again: thinking globally gives us an opportunity to act locally.

And when I say act locally, I mean in the U.S. At the local level, the state level, and national level. We act locally to educate policymakers about the strengths of this system. We act locally to make sure opinion leaders know how independent distributors help brewers of all sizes reach new markets and new consumers. We act locally to help trading partners – of all sizes, and all tiers – grow and succeed. And we act locally to spread the word that the beer distribution industry works for everyone – especially the consumer and the public.   

And we are seeing some additional challenges, too. One challenge is the expansion of large brewer ownership of distributors. For several years, I have said on this stage that vertical integration threatens distributor independence. It threatens the policy rationale for the three-tier system. But the good news is that states are taking action to limit the expansion of large brewery ownership of distributors. Policymakers understand that competition is weakened and consumer choice is reduced when one tier can own or unduly influence the others.

Smaller manufacturers need to understand that the ability to sell their own product at retail or to self-distribute is a privilege – not a right. Many states allow for tasting rooms, growler sales and other retail oriented activities to help brands get established. But these allowances must consider policy rationales that keep a level playing field. Three-tier exemptions designed to help new brewers get established should not be expanded to give larger brewers additional advantage in the marketplace.

And finally we need to be mindful of marketplace pressures from suppliers of all sizes related to companion brands or competing brands. The open and independent distribution system works best when distributors are free to focus on growing their entire portfolio – and getting the right beer to the right consumer. Interference by a larger supplier with the sales effort given by an independent distributor to companion brands is anticompetitive.

Now, some might say what we’re seeing today is marketplace disruption. Only time will tell.

Make no mistake about it. Disruption can be cataclysmic. It can result in destruction – devastation. The end the world as you know it.

Later this morning we’re going to hear from Captain Sully Sullenberger.

He was piloting a US Airways flight – with 155 people on board – when a flock of geese caused both of his engines to fail. He had to make a calculated, precise decision in a matter of seconds. As you know, he miraculously landed that plane in the middle of the Hudson River, saving hundreds of lives in the plane and on the ground.

I had the opportunity to talk with Captain Sullenberger before this meeting, and I asked him how in the world could you prepare for disruption.

You know what he told me?

He told me he never could have imagined this – but it’s the kind of thing that pilots train and prepare for. So, because of so much training, he was able to deal with a sudden turn of events that could have been destructive, but instead was able to land the plane safely on water. Put simply he said, it’s planning, leadership and focus. Planning, leadership and focus.

Let’s think about this in our terms.

Planning.

What you are doing to plan and prepare for disruption? What are you doing to protect your business and defend this industry? Are you empowering employees as advocates? Are you fully supporting your state wholesaler association? Are you politically engaged at the state and federal levels – hosting warehouse tours and supporting the PAC? Are you investing in the future by sending your next generation of leaders to NBWA’s Next Generation Group?

The good news is that I believe distributors ARE investing in the future and I believe distributors ARE planning and preparing for potential disruption. I believe this because YOU have hosted more than 100 members of Congress in your warehouses already this year. YOU continue to support the NBWA PAC at levels that make it one of the top PACs in the country. And YOU are planning for the future and sending more than 125 people to the Next Generation Conference each year.

Leadership.

Your national association provides leadership day in and day out for this system and for independent beer distributors.

NBWA will continue to promote and support the open and independent beer distribution industry through a strategic policy agenda. And we will ensure that that all stakeholders – including distributors themselves – understand the importance of this open and independent system that delivers consumer choice and protects the public’s interest.

We will continue to strengthen distributor engagement through stronger communication and increased education.

NBWA will defend this system in the nation’s capital, in the states, and in the courts. And we will increase support for state associations who are on the front lines of many of these issues. 

But leadership must be provided by more than just your state and national associations. Everyone in this room needs to be committed to supporting and strengthening this system. Look to your left and look to your right -- your partner, your fellow distributor and even your competitor are all critical to this industry’s future. The challenges facing us require that we stick together and do the right thing. The challenges facing the industry require that distributors stick together and do the right thing. As the founder of modern management, Peter Drucker, said, “Management is doing things right. Leadership is doing the right things.” 

Focus.

NBWA will continue to focus on the importance of the three-tier system, the value that independent beer distributors deliver and the vibrancy of the American beer industry.

This system is strong because of the enormous choice it delivers to the consumer.

This system is strong because we are seeing new brewers, new distributors and new retailers opening their doors and competing successfully against established businesses.

This system is strong because it is an economic engine that supports quality jobs and generates revenues for tax bases.

And this system is strong because it provides a regulatory framework that balances public safety with robust marketplace competition.

In short, the open and independent distribution model works for everyone: suppliers, distributors, retailers, and the public – namely, it works for consumers.

Planning. Leadership. Focus. To help prepare for disruptions of any kind. That’s exactly what your association is doing for the open and independent beer distribution industry. NBWA is planning. NBWA is providing leadership. And NBWA is providing focus for America’s 3,300 beer distributors and their state associations.

It’s football season. And I know some of you don’t need that reminder after losing big on some games yesterday in the sports book. Whether you follow the NFL, the SEC, the Big 10 or the Big 12, great coaches always seem to say the right thing at the right time. One late coach once told his players something that resonated with me. He told his team, "It's not the will to win that matters—everyone has that. It's the will to prepare to win that matters."

Alabama fans will likely remember that it was the great "Bear" Bryant who said that. And I think it couldn’t apply more to the people in this room.

I know everyone in here has the will to win. But we also need the will to prepare to win.

Thank you very much.