Disclosure: AB Inbev is not a GreatVines client and we are not outlining the following as a means of helping them achieve any particular advantage. We just wanted to take the opportunity to point out something we disagree with from a strategy perspective.
It is logical for an organization to assess the cost benefits of any resource or activity and to adjust operations accordingly. Certainly, underperforming resources and activities should be halted and profitable ones expanded. Yet, there are some limitations to this reasonable axiom and there are times when a counterintuitive notion may be a smarter choice. We’re talking, in this case, about AB InBev’s recent decision to restructure (read: dissolve) its 3,000-person “High End” division in the US. Rumor has it this included over 300 brand activation managers including approximately 50 cicerones. In case you missed it, here’s a recap of their announced restructuring plan and why we think it deserves a small measure of second guessing.
According to Beer Business Daily, AB InBev is planning an overall 2% reduction in its US roster of more than 18,000 employees. Included in the 2% cut are the sales reps supporting high-end and craft brands. Word on the street is that the decision was influenced in part by wholesalers who suggested AB InBev had too many people focused on the craft brands in the field. They hinted that these people were redundant to distributor reps; but are there really many Bud distributor sales reps who are cicerones spending the time to train and ingratiate bartenders and to execute brand building activities in key accounts? Can they really go from “too many feet on the street” to “no feet on the street”, aligned against the highest margin, highest growth parts of their portfolio. More likely this is a corporate-based (read “Non USA”) decision by a company that is particularly known as best-in-class at cost cutting to profits above all else.
Although craft brands and other high-end product lines don’t drive the massive overall profits produced by the macro elements of their product catalog, they do represent the fastest growing segment of the industry overall and likely the company’s highest margins/unit. The case could be made (and here we are making it) that cutting these roles at this time could be a shortsighted mistake.
Since AB’s decision was based on feedback from their wholesalers, we need to understand the wholesalers point of view. By layering in their own high-end sales resources, perhaps AB is overstepping bounds and infringing on distributors’ autonomy to decide what they will focus on. A more prudent course of action in our opinion would be to figure out ways to market more harmoniously with distributors, evolve the management structure to embrace the craft movement and capitalize on the trends without overstepping bounds and invading turf. By abdicating their efforts entirely, AB runs the risk of diminishing the growth and profit potential of this rapidly expanding market.
The market is changing and sales methods must adapt accordingly. The numbers coming out of the craft brew market reflect it in no uncertain terms. There’s the 16.6% growth rate of new breweries opening from 2015 to 2016. There’s been $23.5 billion craft retail dollar value growth in 2016 – up a healthy 10% over 2015. The volume share for craft brewers more than doubled in five short years – from 5.7% in 2011 to 12.3% in 2016 and 2017’s numbers promise even greater growth. Surely something could be done to ride this wave other than to shrink away from the market?
As providers of a solution designed to help suppliers and distributors capitalize on innovative sales and marketing processes that power their field sales execution, we see AB InBev’s high end/craft performance potentially suffering by downsizing in this most promising area of the market. Execution at retail is everything in this business, especially for craft brands. What kind of performance against critical sales driving activations like tap handles, trade education & advocacy and merchandising & display will AB’s High-End/Craft portfolio achieve now that there is no dedicated field sales focus? Moreover, this step opens the door for competitive craft breweries and distributors to pick up market share and further blunt AB InBev’s already formidable advantage.
From where we sit, this strategy seems shortsighted given the market’s movement toward craft. Can distributors focused on the big brands properly execute to the level required in the craft space without dedicated resources? Seemingly, with proper support and exploitation, distributors would happily embrace new craft brands demonstrating strong profit potential. It is just up to a supplier to make a persuasive case and prioritize the segment. That’s the art of beverage selling! Companies of all sizes – even biggies like AB InBev – must keep their eyes on where future growth is coming from or they risk succumbing to the inertia that so often plagues the largest, most successful organizations.