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Playing the consumer game.

According to Rich Vassos, Labatt's U.S.A. vice president of marketing, the company is emphasizing consumer spending in a tough import market.

MBA: Rich, how would you characterize the performance of the import segment over the past year?

RV: It's clear the imports had a poor year. They were down about 10 percent and they will also be down this year. At this point, imports are down a percent, but we think it'll wind up being down around three percent.

Our Labatt's line last year was down three percent, mainly because our 50 Ale and Labatt's Dry were weak. Labatt's Blue was up slightly and Labatt's Light was up a bit more. Blue may have been up one percent, and Blue Light up six or seven percent for the calendar year.

MBA: Why are the imports having such a tough time?

RV: The import market is having problems in several areas. First, I think there is the overall problem with the demographics, in that there are fewer 21- to 26-year olds. That's going to be true for six or seven years, and those consumers are our customers. That demographic group consumes 30 percent of imported beer. As the numbers decline in that group, that will cause some decline overall. That's one factor.

Another factor, is that since 1987-88, imports have gotten too much into the price game, and shifted funds from consumer marketing into price promotion. And I think that has been caused partially by competitiveness in the domestic market.

It has also been caused by imports trying to hold their volumes. First, when Corona came in and took a little bit of everybody's business. And, second, when the brands weren't getting the high-growth percentage increases, people started turning more and more to price. That even started before the recession, and then the recession and the excise tax kicked in.

To hold their volumes, importers began to price promote even more, continuing the shift from consumer funds into price. I think this short-term attempt to hold volume has hurt the overall imported market, because I think it tears away at the image of the brands.

I see it continuing today, unfortunately. I do see some of the importers making a better attempt to improve their consumer marketing and spend more money in the consumer marketing area. Unfortunately, though, we're not spending, any of us, in the consumer area the way we were six or seven years ago. I think we all have to get out of the price promotion game and more into the consumer game.

MBA: What is Labatt's doing to get back into the consumer game?

RV: We actually started doing that a year ago with our Labatt's brands. We upgraded our packaging, which cost us a lot of money, and we stopped following what our competition did in price. It did hurt us in a couple of markets, but in other markets we haven't felt it at all.

With the Labatt's brands, we are now trying to go our own way, and not pay as much attention to what our Canadian competition is doing in the price area anymore. We're just trying to do what we think is right, and we're trying to move more money back into the consumer area. We have a very modest goal for the year we're in, and that is to increase our business three percent. We're tracking our progress, and we expect to make that objective. But we're not looking to be any more aggressive than that because we're not interested in short-term price promotions. We are trying to get away from that. But, it's hard to do, because our competition is not moving away from it.

MBA: What is driving importers to widespread price promotion?

RV: In the case of the other Canadian brands, it could be that they believe that they need to be lower priced to the consumer. That could be part of their strategy. They may be doing it to try and hold their volume, or maybe because it's part of their strategy to be closer in price to the domestic brands.

In the next couple of years, there will be better cost of goods coming out of the Canadian breweries. As the Canadian breweries are consolidated and become more efficient, there may be a strategy to move pricing down.

MBA: When you talk about shifting resources to consumer spending, what areas are you talking about?

RV: Better packaging, improved advertising, more advertising dollars, more consumer promotional type programs. As an example, we're doing a baseball promotion, that is backed by Labatt's on CBS major league baseball at the national level. That's one example of how we're trying to get to the consumer.

MBA: What other measures can importers take to strengthen their position?

RV: As I said, stronger consumer marketing is critical. I also think the importers must get closer to the wholesalers. Wholesalers right now have margin pressure. They have pressure from the major breweries to make the sales numbers. The margin pressure is very intense right now for wholesalers because almost everybody is price promoting so much. The domestics are price promoting a lot, so the wholesalers are sharing in that, and the imports are price promoting, and they're sharing in that.

As importers, we have to look at our wholesalers not only as customers, but as partners. We've got to work very closely with them. Our intent is, once again, to try and get out of the price promotion game, which should help wholesalers improve their margins.

Our philosophy is to work closely with them to educate their sales force, to motivate their sales force, and really become very close partners with them. If an importer doesn't do that, he'll have trouble growing his brand in the marketplace. If you're not close to your wholesalers, they're not going to pay the attention because you're a small player.

MBA: What benefits do wholesalers derive from the partnership with importers?

RV: For one thing, margins for imports are greater than domestics. If we're growing, wholesalers are happy because our volume has gone up and his gross margin is increasing.

MBA: Isn't it labor intensive, particularly for small importers, to build a strong relationship to the wholesalers?

RV: I think a lot of it is the attitude of your sales team. Our sales team looks at the wholesaler as a partner. As a customer. You go in well-planned, with the right programs. You have to make it easy for the wholesaler and his people to understand your programs and execute your programs. There must be lead time. There also has to be coordination between the wholesaler management, and the importer sales manager.

Sometimes wholesalers have said to me that a sales manager will come in and ask the wholesaler |So, what do you want to do?'

Our sales people come in knowing what they want to do, and they sit with the wholesaler and work together and make it happen.

Importers really need the wholesalers right now - badly. But we realize it's tough for the wholesalers. The pressure from the big domestics is very intense. The competition is so heated in the domestic game - I think it's more intense than it's ever been.

People are just going right at each other with lot of price promoting, a lot of P-O-S, a lot of neon, a lot of advertising. They're fighting for shelf space and line extensions. It's just a real battle out there, and imports can be forgotten.

The elephants are fighting and importers have to be careful that our brands don't get trampled.

MBA: Have you seen that happening? Do you think that is one reason the imports have been having a tough time?

RV: I see wholesalers a little concerned by the decrease in margin on imports. They were used to making a pretty good buck on imports, and with price promotion so heavy, they're not making the margins, and that's true for the domestics as well.

Wholesalers really have a margin squeeze right now, and you talk to most of them and they'll tell you about it. They are really getting squeezed out there because they are so involved in the price promotion game.

And the price promotion game is really led by the brewers and the importers. It's not wholesalers recommending price promotion, it's really the brewers and importers saying, |Here's the price promotion schedule I'd like you to run, and I'd like you to work with me on it.' And almost every wholesaler goes along with the recommendation, but it's cutting into their margins substantially.

MBA: In this environment, if an importer declines to go along with price promotion strategies, won't that company get hurt?

RV: In our case, we're going to slowly cut back either frequency or depth. It will be a very slow gradual process, so that we don't get hurt too much volume-wise. And we hope our competitors start to follow us on that, but we have no idea if they will or not.

MBA: Do the wholesalers that you've talked to favor that idea?

RV: It's mixed. In some situations, where we have cut back on price promoting, it hasn't hurt our volume. And in some areas, our competition is going deeper and we're not matching it, rather than us cutting back.

For example, our major competitor dropped their F.O.B price 80 cents a case in Southern California, and we did not follow that. At this point, I'm not sure how that is going to effect our business. We'll have to see. We're trying not to get deeper than we are, and we're trying to slowly get out of it.

MBA: Does your strategy of reducing price promotions cover all your brands?

RV: I'm talking mainly about our Labatt's brand. Our specialty import brands aren't price promoted much, and it's not very deep. Two of our specialty imports, Moretti and Red Stripe, are priced over Heineken. So it's a different ballgame. They're not that price sensitive, and they are low volume. It's easy to grow brands like that if the marketing is well done.

MBA: How much of an impact are the microbreweries having on the imports?

RV: I think microbrewery brands are hurting imported beer on-premise. I think particularly the European brands. The European brands are very flavorful, as a lot of microbrewery brands are. I think the people interested in trying new products will try some of the microbrewery brands that have some of the same flavor intensity as the European brands. They might switch, or decide, |Hey, I like this microbrewery, I want to try others,' and it might take them awhile to get back to the European brands.

That's trouble for imports because that means we don't get the trial we need on-premise. We don't have the big advertising budgets to get to the consumer as much as we would like, and we need the trial. It is critical to developing brands.

So, microbrewery brands could be stealing a little bit of our on-premise business.

MBA: How can you win those consumers back?

RV: I think you can do it in two ways. One way is to do an overall good marketing job, with your packaging and your advertising. The second way is to have good on-premise programs. And have the on-premise programs scheduled throughout the year. It keeps your brands in front of the retailers mind and it gets him involved in helping promote your brand to his customers. That is critical.

MBA: Was your specialty import division developed as a response to the influx of the microbrewery brands?

RV: The specialty import division was formed to be an incubator for small brands that had good growth potential. Brands that could be grown to a million cases, even though they may be starting out at a couple hundred thousand cases. The idea was to create a division that was the champion of these small brands. The specialty division people are only associated with these small brands. They eat, drink and sleep these specialty brands.

We started out with one marketing/ sales person and five sales managers. Now we have two marketing people and seven sales managers. The volume for that division is 1.1 million cases, with five brands. We have Clausthaler, Red Stripe, Dragon Stout, Moretti and La Rossa. It's working, and it is profitable.

MBA: So the specialty division is something like a small company within the company?

RV: Yes, and we see this specialty import division growing pretty substantially over the next couple of years. We would like to add a brand a year, but we would only go up to five or six brands.

We're actually very selective, and we have turned down people. Either we felt the partnership wasn't right, or we thought that the brand, under the current import environment, would not be a growing brand - that it would be a very difficult sell. We are trying to get brands with some distinctiveness.

Clausthaler, for example, is the number-one non-alcoholic brand in the world. That gives it distinction. Red Stripe is a very different brand with a unique package. Moretti is a niche brand on-premise at Italian restaurants, and we are hoping that we can channel that into some off-premise appeal.

MBA: Does this success of your specialty division indicate to you that there is still room in the market for relatively small, focused importers.

RV: In my judgement, small importers can make it if they have about a million cases. If they control their overhead, and if they have a good supplier. You can make it selling a million cases a year.

MBA: Will those importers that can't reach that level drop out of the market?

RV: I think there will be some consolidation, but I believe that the larger importers are not that interested in acquiring other imported brands. So there will always be 7-10 importers of decent size in the country. A lot of importers that are supplier-owned are not interested inn any other beers.

At Labatt's, we are now becoming more and more selective, because of the success we are having, about the imports we want to be involved with. There are very few of the larger brands that want to move from where they are.

MBA: Will that tend to put a ceiling on the number of imported brands that come into the U.S. market?

RV: I think one of the problems today is that a lot of brands will have problems finding importers. People may find that importers are not that eager to keep their brands on. And, if they keep them, they might not really drive them. Because, if they're not really going anywhere, it's hard to put muscle behind brands that aren't growing. In this market, importers want to take their bigger brands and drive them in this competitive environment.

MBA: Do you think that Canadian brands have more resiliency in that kind of market?

RV: I think there are a couple of reasons why Canadian brands can continue to do well. Part of it is their price level, which is between domestics and Europeans. I also think there is very good imagery that American beer drinkers have for Canada, and I think that carries over to the Canadian brands.

Canadian brands are not seen as pretentious to the American beer drinker. They are very friendly brands, that are thought to be a little different than American brands, but in the same category.

To Americans, Canadians are very similar to them, and the same feeling exists for the beers. There is the feeling that the beers are good products, made from clean water; the Canadian wilderness comes into the imagery. And all the Canadian beers here in the U.S. are outstanding products.

I believe the Canadian brands can be bigger players in the import market. The beers are accessible, not pretentious, but are still thought to have something special about them.

So I think they can grow, but I think whether that happens or not really depends on the Canadian importers. It's not in anybody else's hands. It's in our hands, and we have to do a really good job.

MBA: You talked demographics before, and how demographic trends could harm the import segment.

RV: Yes. A lot of upscale drinkers are not drinking imported beer today because imported beer is not as much of a status item as it once was. If you have five people that drink a beer and one of them was drinking it for the status, and that person leaves, you could be down 20 percent. The people who like imported beers for the flavor, and maybe the experience, and the feeling of the country it comes from, those people are still drinking imported beer. It's the guy, who said, 'I'm going to drive my BMW, and I'm going to drink this European import because that's in and that's status.' Suddenly, now it's |yuppie' to drive a BMW and maybe to drink this imported beer. So that guy says, |I'm not going to do that anymore because people will think I'm a yuppie.' And maybe he'll change to a microbrewery brand because that's in. Some of that is going on in the last couple of years.

MBA: Do you want that consumer? He seems kind of fickle.

RV: Do I want that consumer? I'll take any consumer that wants to drink my product. They may be fickle, and you can't target them, but you like when they're there.

MBA: How do you attract those drinkers?

RV: It's more difficult today. In the '80s, the consumer was spending. It's a very different environment. People are being more careful in the 90s. It will be much tougher for import brands to grow.

Suppliers have to understand that. Suppliers can put a lot of pressure on importers to make volume numbers and that can be short-sighted. Short-term decisions could be made that might hurt the overall business long-term.

Generally, over the years, suppliers have been much more long-term oriented than they are today. They were long-term oriented and the business grew in the '70s and the '80s. When the business got tough, I see and hear from other importers, there's a lot of pressure from the overseas supplier to make numbers, which isn't a long-term view of building a brand. A lot of short-term decisions can be made that might hurt the business.

I went through that myself when I was on Schaefer beer domestically. Schaefer always had to make numbers, and was always struggling to make volume. We made a lot of short-term decisions along the way that wound up hurting the brand. The same thing will happen with some imports.

MBA: How significant a role will imports play in the U.S. beer market of the future?

RV: Imports will come back, because imports represent some of the best beers in the world. Things seem to go in cycles, but imports will come back and grow again, in the 5-10 percent area, although it may be four or five years from now.

I think you'll see a decline of three percent in '92, maybe one or two percent in '93, then it will start to turn up and you'll see gains of two or three percent.

One of the big things that would help the import market is if an imported brand got hot and helped bring the whole category up. I don't see that brand on the horizon, but it could be out there somewhere. Maybe we'll make Labatt's that brand.

MBA: Thank you, Rich.

MBA: What is the philosophy behind the Specialty import Division?

MM: For small niche brands, it really gives us the opportunity to give small brands a lot of extra attention. This business is extremely competitive, and our sales force focuses on Labatt's and Rolling Rock, so these small brands can get lost. We are devoted to these brands, and with that special attention, I think we get more ot our wholesalers' attention. That's really the whole thing, getting the wholesalers attention.

MBA: How does that work in the field?

MM: Every brand needs a champion. With the Specialty import Division, you can have a guy calling on his wholesalers and all he's talking about are these brands. It's not, |Here's Rolling Rock first, and then Labatt's, and, by the way, we've got these specialty import brands.' Instead, it's |Let's talk Clausthaler, let's talk Red Stripe, let's talk Moretti.' This way the wholesaler gets a chance hear about these brands.

MBA: Does it seem to be working, in terms of wholesaler response?

MM: It seems to be. All three brands are doing very well in the marketplace. Clausthaler volume is steady, at a time when the imported NAB market is falling apart. In a category where sales were down 24 percent, Clausthaler was flat. So, the brand is doing relatively well, although we'd like to see it grow Moretti sales are up, doing very well, 20 percent over last year. And Red Stripe, although we don't have good numbers for last year, is really hot right now. It's a very exciting brand. All three brands have a lot of potential to grow. and they are doing very well, so I think that speaks well of the wholesalers attention. If we can double the brands in a year or two, as it grows we'll add more salespeople.

One problem, particularly with Red Stripe, is the wholesaler not ordering enough. We have wholesalers that are out of stock and it drives me crazy. Sales are good, the programs are good, retailers are calling us. The brand is taking off. We have on-premise retailers calling us here in the office, saying |Where can I get beer, my wholesaler is out.' So we're going crazy with that, because I don't think our wholesalers anticipated the level of activity.

MBA: What is stopping them from stocking at higher levels?

MM: I think it's just that they're not that familiar with Red Stripe. Some of them are new wholesalers, since this our first summer with the brand. So we've put a lot money into the brand and a lot of pressure on the marketplace. We've got radio advertising in some markets and got all kind s of programs going on. So the brand is really accelerating, and though we got wholesalers to order up, it still hasn't been enough. it's almost hard to overstate what we see happening with Red Stripe. We were out last week selling on Cape Cod, and everybody was happy to take Red Stripe. On-premise retailers are struggling and you bring a brand like Red Stripe, and you do a sort of Red Stripe-reggae night, and it brings people in the door. It's such a natural. Very unusual bottle, lure of Jamiacan music. It brings life into the accounts, and a lot of enthusiasm. The retailer sells a lot of beer. It's unbelievable how Red Stripe is catching on. We don't even know the extent of it yet because this is our first real summer. Let's say we have very high expectations. General market bars - all over the Cape young 21 + beer drinkers, when bars run Red Stripe promotion nights, it just causes that much more positive activity in the account.

MBA: How has the last year been for your Canadian brands?

CP: We feel we've had a decent year. No one is happy when their brand is down, but our base business is strong. Blue Light continues to grow for us, and Blue has held even, and is actually up slightly. That we're satisfied with. We took some hits with Labatt's 50 Ale and Labatt's Dry, a lot of that is a result of the squeeze on imports, but that's hurt us a bit.

MBA: Will this year be any different?

CP: We expect a good year this year, up three percent. We're putting effort behind Labatt's Blue and Blue Light, really trying to drive on-premise. We realize that's how you build a brand.

We've also made some packaging changes that we're excited about. We believe that we've really upgraded the look, really taken it a step up.

In addition to the packaging we're putting some programs behind the brands. One is "Red Hot, Blue Light." It ties in Blue Light with hot foods. We're doing some good point-of-sale stuff and table tents. We have some new neons as well.

We're also doing a baseball promotion, "Labatt, La Ball," with a write-in for an aluminum bat.

So we're providing the brands with a lot more support, putting more emphasis on-premise. And we're starting to see results. Our Labatt's Draft is doing really well, it seems to have a lot of appeal.
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Title Annotation:includes other interviews; interview with Rich Vassos, Labatt's U.S.A. vice president of marketing
Publication:Modern Brewery Age
Article Type:Interview
Date:Jul 13, 1992
Previous Article:Consumer choice: imported beers add diversity to the marketplace.
Next Article:Image means everything.

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