Why the Bud Light disaster could cripple the entire company’s many brands for years

The damage done by the casual embrace of a transsexual by Bud Light came at an extremely bad time for not just the brand, but for all the brands sold in the US by the parent company,  Anheuser-Busch InBev (ABI). The reason is rooted in a critical aspect of commerce that mostly escapes public notice: physical distribution.

A consumer products company needs to get its products onto store shelves (and featured prominently by online merchants).  For beer, the companies that hire the truck drivers who wheel cases of beer into stores on dollies and who negotiate with store managers to set up special displays are critical. Beer distribution is a blue-collar, labor-intensive business, and historically, beer distributors, especially those who handled the Anheuser-Busch family of brands that has dominated American market share for decades, have been local businesses. Mostly, very lucrative local businesses.

John McCain came back from Vietnam as a war hero and married the daughter of the A-B distributor in Arizona and became a wealthy man. A young woman I knew in my 20s was the daughter of the A-B distributor in a top 20 US market, and she never lacked for anything material, quite frankly admitting that she was “rich”. This for one second- or third-tier metro area.

Writing in American Greatness,  John Conlin reveals how ABI has been restructuring its beer distribution, no doubt in the name of increased efficiency and market power, and thereby made itself very vulnerable to a slowdown in sales.

When InBev was analyzing the Anheuser-Busch acquisition, it determined substantial profits could be gained by consolidating the AB wholesaler network.

In reality, InBev thought it could erase the AB network and take over distribution entirely. The multinationals soon learned just how politically powerful U.S. beer distributors really are, and came to accept this likely would never happen.

But the financial allure of consolidating the AB network remained strong. They started a program where distributors were chosen to be a “preferred” distributor. These folks were given the opportunity to make acquisitions and act as consolidators. These were also the folks most likely to go along with ABI desires. 

In ABI's mind, these were the best of the best distributors. Over the past five years or so, a lot of the country saw these consolidators making significant acquisitions of other ABI distributors. And these deals don’t come cheap. 

Owning a beer distributor is as close to printing money as is possible, so it took a substantial amount to convince an ABI distributor to leave the industry. The vast majority of these were family businesses, many of them multigenerational. Selling any family business is no small deal. So that created an even bigger hurdle to convince these folks to leave.

Thus, they sold but at astronomical values. The preferred ABI distributors stepped to the plate and paid these amounts because they trusted ABI would continue to be good stewards of the brands and historically there were few investments better than an ABI distributorship. So, they paid many years of cash flow. And remember, the distributor is the only one of this entire crew who actually has skin in the game.

In a lot of the country, the ABI distribution network went from smaller, generally debt-free family businesses to much larger wholesalers with either a far bigger distribution footprint and/or they began operating in multiple markets—all sitting on a mountain of debt. In total, I’d guess the debt number is well over a billion, likely billions.

If this Bud Light fiasco turns out to significantly impact volume—and it sure looks like it will—the geniuses at Bud Light marketing will have severely injured, if not killed, the best, chosen distributors in their network.

Consolidating local distributors in the beverage business has been an industry trend for decades. Most famously, Coca-Cola was initially set up with a huge number of local bottling companies who trucked the recyclable glass bottles to retail outlets and picked up the recycled containers. When cans and one-way bottles,  and higher speed bottling equipment came along and changed the economics, the bottlers went through a consolidation process that closed many small local bottling plants all over the country.

With its new financially-leveraged distributors facing probably volume declines, there may have to be layoffs and other money-saving measures taken. Drivers that know their retailers well and were able to negotiate favorable space for the product and extra displays for promotions might no longer be able to interact with their friendly retailers.

It will be impossible to see, but how many sales won’t happen because of an end-cap or display that never appeared? Or a cooler set that doesn’t go ABI’s way—expect to see Bud Light cooler space slashed. And then multiply that by thousands across the country.

How many tap handles will go with other brands? This will be a classic “what-if” analysis, but the long-term impact may be significant. It won’t show up in any sales report, but it is quite real all the same.

The economics of distribution allowed ABI distributors to drive a ton of money to the bottom line. But the opposite is also true, these sales decreases will come directly from their bottom line. And trust me, being in serious debt impacts every decision you make.

My sense is that for reasons Conlin also explains very well – the emotional ties between beer drinkers’ identity and their brand choice – Bud Light sales are in for a long-term impact. The damage could spread to Brands like Budweiser, which are identifiable siblings of Bud Light. Whether or not this be enough to seriously damage major distributors is unknown to me, but it can’t help.

My conjecture is that nobody in the marketing team at Bud Light who had any sense of who their best customers are had any input at all on the hiring of Dylan Mulvaney. And nobody in a position  of power had any inkling that a vast reservoir of resentment over the top-down imposition of transsexualism on American society would lead to anger at the brand for betraying them.  

Photo credit: Mike Mozart

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