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Fly on the Wall with Andy Thomas

June 17, 2011

Dear Client:
Remember Andy Thomas? He was the former chief of Heineken USA from 2005 to 2007, and left to become a consultant while keeping his hand in the beer industry. Most folks were surprised when it was recently announced that Andy would become president of commercial operations at Craft Brewers Alliance, as it is rare for the chief of a mega-supplier to go into the craft space. In fact it’s so rare I can’t think of another instance where it’s happened. It’s a sign of craft’s maturation and esteem within the beer
industry. And Craft Brewers Alliance itself seems to be hitting its stride more lately, with YTD IRI scans showing it up 13%, and in more recent 4 week numbers, it’s volumes are up 16%. Andy has been working as a consultant for CBA for 18 months now, and so it’s a natural progression to formally join the ranks.

BBD sat down with Andy to talk about his move and what he sees in CBA and craft beer’s present and future. You, my friends, are a fly on the wall:

“Over the course of the last 18 months we’ve had a lot of really good discussions and some fun along the way working to carve out a future strategy for CBA and going through the crystal ball exercise of looking at what the future of craft is going to look like. We looked as broadly as ‘beer’ and as narrowly as craft as we know it today….. that included a lot, Harry, including work on the business model. You’ve seen a lot of moves at CBA, like fully integrating Kona into the fold, saying goodbye to Goose Island, significant changes in the way we work with A-B, and a pretty significant rethink on how the portfolio comes together….It can be easy to fall into the rut of talking just amongst ourselves and forget to talk to the consumer and see what they are saying. I think if you listen to what the consumer is saying now, it’s a pretty exciting time to be in the craft beer business. So we’ve been studying what each part of the portfolio really means to the consumer…. and then on the wholesaler side, it’s been fascinating to me to get to know the A-B network again….and finding out from them, what can CBA bring to the party and how can CBA help you be stronger.”

“This is going to sound strange, but I think the stakes are actually higher, because the margin of error is a lot tighter. And the resources are slimmer. And on top of that, CBA is an interesting animal, because while it has a large portfolio, it’s a relatively small company, and yet it’s publicly traded. So you’ve got a lot going
on. You need to activate when it comes to the market, because you have shareholders and governance issues, and you’ve got to connect with craft consumers. And when you take a look at it, CBA is a force to be reckoned with in the West, and as we look East, it is and can be a really sizable business. I also think consumer-wise there are some significant nuances in terms of what beer consumers are looking for when they walk into a craft occasion versus an import occasion. It’s easy for us to paint a broad brush and say they’re the same, but they are different.

“We’ve got the ‘more, more, more’ strategy, which is ultimately why I joined and I really believe in it. If you

look at CBA in its entirety, Harry, what we see is an ability to satisfy more consumers, in more occasions, with more authentic beer brands than anybody else. One thing that a lot of craft brewers and importers deal with is that they have footprint issues and access to market issues. CBA doesn’t have that. We have a seamless distribution network through the single A-B system, and that’s a big check mark. I can tell you from history, that’s a competitive weapon that we need to activate more. And if you can touch every corner, then what do you do? We have a pretty diverse portfolio. When you look at Kona, and you think of where Kona can grow and why a consumer would pick up a Kona, (and my lens through all of that is consumer occasions, the same as it was when I was with Heineken), you’ve got consumers who walk in, and based on who they are, and what occasion they’re in, there are specific things that go through their mind, and the Kona brand connects with them differently than the Redhook brand and differently than the Widmer Bros brands
can. So it comes down to understanding, what is that connection to the consumer? And when are they looking for each of those specific brands, and in what packages and channels are they looking for them
in? Once you understand all of that, your path becomes clearer…..We’ve got the portfolio that can satisfy the most consumers and occasions, and we can reach them in all corners of the country….

“We’ve also been fortunate to attract some really good talent. Take our National Retail Sales
department. When you couple the access to market with complementary brand positionings and our NRS resources, it makes us excited about our chances to win there….. Terry is a great guy. He’s a quiet, calm, confident steward of the company. You can’t underestimate the value of having somebody like that. And when I look left and right on the leadership team, I see great people. It’s very important. CBA has got a great history that has tested its mettle. I think CBA has an outstanding platform to build upon. And they’ve worked hard to get here, and lived through the tough times. The brands are getting in shape. CBA is supporting the brands where they want to be. I think Redhook, Widmer, and Kona, if you personified them, couldn’t be more different people. I think the key is, is allowing them to be different and cultivate those differences instead of trying to make them be like each other…..

“What’s great about it is that it was born and flourishes with the consumer. We can talk about innovation as much as we want, but in a bad economy, people are thinking twice before shelling out money in general. And you’ve written about this, but when you look at beer and craft beer, you’re seeing people say, ‘hey, I’m willing to treat myself a little bit by buying craft beer.’ That’s an incredible endorsement for craft beer in the worst economy most of us have lived through. So I think it’s got sustainability from a consumer
standpoint. Second, I think authenticity is an overused work, but it’s true with craft beer, whether it’s the personalities involved or the occasions it satisfies. There’s something cool, not in the shiny new object way, but in the sincere authentic way about the craft category that’s alluring. Third — and I’m not a student of this — but the alcoholic beverage category in the US is really coming of age. If you go back and look at what happened before, during, and after Prohibition, it really set us back about 100 years. Look what’s happening with cocktails now. We’re making cocktails like they were made during the roaring 20′s before the Temperance movement. And in wine, boutique wineries have come so far. And I think the American craft beer movement plays into this trend perfectly.

“The watch-outs are like any growth category, in that sometimes we don’t know why the growth is happening, and that sometimes what got us there isn’t going to be what is going to take us to the next phase. I would caution all of us who are stewards of the category, is not to always look into the rear-view mirror, and let’s not only talk to ourselves, let’s make sure we continue to talk to the consumer. Because craft isn’t growing right now because that traditional craft consumer all of the sudden doubling their consumption. They’re not necessarily drinking more beer, but rather craft is stealing occasions from the rest of the beer, wine, and spirits categories. We’re getting crossover drinkers. And that’s a good thing. I think we need to be more inclusive of drinkers rather than exclusive. That will help everyone….. I also think that there needs to be more debate as an industry. You personally have facilitated a lot of that with your letter and with your

Summit. But I think getting together to debate industry issues is healthy and a great way to bring together diverse perspectives.

“I think it’s a sign of the maturation of the category. If you’re selling nothing but singles, and you get into sixers, your revenue per ounce is going to go down. And it goes down again if you get into twelves. And when you start getting into chains, and getting more broad based — people are shopping for high end brands in Costco and discount clubs — to play in that world, you go through different pricing rules, and craft is starting to go through that.

Until tomorrow, Harry

“I like a teacher who gives you something to take home to think about besides homework.” -Lily Tomlin

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