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02.2007

Massachusetts Beverage Business

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Article By: Andy Crouch

We don't need it, but it certainly enriches our lives when used in moderation. Be it a can of Budweiser while out fishing or the reward of a well-aged barleywine to cap a family celebration, beer lets us know that we are not simply automatons seeking the barest wares of survival.

But the issue is far more complicated than casting all beer as mere indulgence. The buzz of business consultants in recent years has been the concept of 'trading-up'. On its surface, the idea that increased personal wealth leads to people choosing to purchase better quality goods seems entirely sensible. When applied to the beer industry, however, the issue comes into greater focus as we have seen larger than normal growth in the higher end product segments. Two years ago, a twenty-dollar bottle of beer seemed crazy; today that bottle is fighting for top-shelf space with other similarly priced items. In many markets, including Massachusetts, the price of a six-pack has quickly risen. The ten-dollar six-pack was once an aberration. Now, it's a twelve-dollar six-pack whose presence is threatened by similarly priced, up-and-coming brands.

And the luxury phenomenon has not been limited to crafts and imports. Citing pressure from wholesalers seeking entry to this expanding luxury market and higher margin pool, larger brewers have released a slew of new products priced beyond the traditional rates of Anheuser-Busch, SABMiller and Molson-Coors. Beyond the Michelob series of faux-craft offerings, A-B has released magnum-sized beers brewed with chocolate and vanilla, Miller has produced a chocolate lager, and Coors has expanded its popular Blue Moon line with the release of a Winter Ale.

While the concept of trading up is far too complicated for a single article, this month I spoke with an importer whose business focuses on high-quality products, full in flavor - and who charges accordingly. Matthias Neidhart started B. United International in 1994 and focused on importing specialty beers to fill an unmet niche market. B. United's portfolio includes some of the world's classic beers, including offerings from George Gale, J.W. Lee's, Brasserie d'Achouffe, and Brauerei Heller Trum. Aside from offering classic beers from Malta, Italy, Belgium, and beyond, B. United also imports a range of meads, ciders and sakes. I recently spoke with B. United's founder about premium, specialty beers, price ceilings for beer, and why he hates the phrase 'luxury beer'.


ANDY CROUCH Thank you for taking the time to speak with me today. I'm writing an article on the concept of 'luxury beers'. What is your initial reaction to the phrase 'luxury beer'?
MATTHIAS NEIDHART I think the term is absolutely awful because it implies that this segment is targeted at the rich and famous, which is plainly not the case. That's not what we are trying to achieve with our higher end products.

AC Is the term 'luxury beer' an oxymoron when it comes to beer, something that cuts against the very character of beer?
MN Obviously I hate the term 'luxury beers' because I think it's inappropriate. Beer is unlike any other beverage as it is absolutely not driven by any image factor. For us, it's about the complexity of flavor. If it was about the image factor then I would say absolutely, this is a luxury product. But this has nothing to do with that. It's about the liquid itself.

AC Who are the individuals who are buying these products at the higher price points?
MN That is a great question and it's one that we are hearing all the time. We haven't commissioned any kind of study to answer it but we do have anecdotal evidence about this target segment. In terms of who buys these products, I don't think you can pin down the buyers. To me, it's very much people who are interested in tasting complex things and who are interested in experimenting and trying something new. Those people are our customers.

AC B.United has an extensive and wide-ranging portfolio of different beers. How do you go about selecting those to include?
MN That's the way we have built our company and the way we have built our portfolio. We want to bring in outstanding examples of as many different styles from around the world. We want those that offer the highest complexity. That usually doesn't mean the market or segment leader in terms of quantity of sales. Always, we want to have the most complex beer available. There are people out there who are so interested in learning about these things.

AC When you started B. United International in 1994, what was your approach to importing beers?
MN Out approach hasn't changed. We've always tried to bring the best examples of as many different classic beer styles as we possibly could. At that time our company was focused on beer. Years later we expanded to include sakes and ciders and classic meads. That's our concept. We didn't want to bring in a product because everyone just said it was the best thing. We wanted to have some expertise so we basically talked with various beer writers, including Michael Jackson and Roger Protz and others from Europe and later on from the United States, and others who in our opinion are basically unbiased. In some cases we take on brands because they meet our criteria. In others, we might think it is a great brand but still won't bring it in.

AC In recent years, B. United has been active in working with foreign breweries to produce a variety of new products for export to the United States. Many of these products are not even available in their home markets, be it Belgium or Germany. How did you get started with this approach?
MN We are a very sensitive company and one of the things we don't like is when someone says, "Oh, you guys are just another importing company." From the beginning, we've tried to be as creative and innovative as we possibly could. Obviously, you need to build a relationship with these brewers so you don't start off that way. Eventually, we asked brewers whether they could do something that we either read about - maybe a classic style that was discontinued, or just a brand new recipe that might create something unusual and exciting. Now we have fifteen brands like that we created or helped to innovate. And the breweries, thanks to their infinite complexities, executed them and their results have been tremendous.

AC One product innovation in particular that has been very popular is the Houblon Chouffe Dobbelen IPA Tripel produced by the Brasserie d'Achouffe in Belgium. Can you tell me a little about how that product came into existence?
MN Obviously, Belgium is very famous for brewing and one of the classic styles is the tripel. And in America, one of the great innovative styles to develop is the double IPA or imperial IPA or, as some call it, the San Diego IPA. It's an intense version of the traditional English IPA. We figured that maybe somebody should combine them as I like the character of the Belgian tripel and the dryness of the American double IPA. We thought this might be a great way to combine two styles, one classic and one that is brand new. And we felt that d'Achouffe might be the right brewery to do it. When we approached them, we didn't expect them to say yes because they have been in the past four or five years very strict about focusing on La Chouffe and on N'Ice Chouffe. But surprisingly they said yes as long as we guaranteed them a minimum run and did all the work on label design.

AC Is this higher price point market sustainable, be it called luxury beer or not?
MN I really think the luxury segment is the opposite of what we do. Budweiser doing magnum bottles of beer to celebrate New Year's Eve is what I associate with the luxury segment but that's not what we're doing. When you look at what has happened in the United States in the last twenty to twenty-five years, people have shown they are very open-minded and very innovative and you can't really find anything like that back in Europe. People have had some bad experiences in the past but they have hung in there and the beer has become so much better. People here keep trying, keep experimenting and learning about it. When people try something like a Schneider Weisse or a La Chouffe, how can they ever go back to those one-dimensional beers? It just indicates to me that there is a market for people who are trading up and I don't see the end of it to be honest.

But there is one trap that you have to avoid and that is you cannot mislead the customer. The customer is incredibly smart and sophisticated and people find out very quickly when you overcharge for something that doesn't have the flavor. You have got to be absolutely honest with people and offer them something very complex. If you do this, I don't see an end to this market.

AC You bring up a point about people suffering through bad beer in the past and this is an issue I wanted to address with you. Many brewers do not date their bottles for freshness. Talk about the challenge of freshness in the face of charging such a premium price for more flavorful beers.
MN It's a very good question. About fifty to sixty percent of our beers are very strong - and some when we receive them at our office are actually too young to be released. These need extended time to age, mature and become ready. Other beers fall into the category that they should be consumed earlier. Due to the three-tier system, we try to bring in smaller shipments. This is very opposite to what many other importers do. As the specialty beers do not sell as much volume, a lot of beer will sit in warehouses before it gets to stores. So the brand will not be fresh when it gets to the store shelves. I hate that, absolutely hate that. When shipping from Europe or Japan, we will put together beers from many breweries before shipping it back instead of sending a full pallet of one brewery's beers.

AC We've seen a substantial increase in the price ceiling for beers in recent years. We are seeing some bottles of Belgian beers, which sell for five euros in their home market, selling for more than thirty-dollars here. What are your thoughts on the price differential we are seeing?
MN It's an obviously free market system here in the United States and it's not like the former Russia with government agencies setting the price. I doubt we would like that. My basic argument is that - in a free market system - if you don't like the price point, don't buy it. That is the free market idea of supply and demand and I think it works very well. You can't forget that here in the United States we are subject to the three-tier system. Wholesalers work on margins of thirty to thirty-five percent, retailers work on margins of thirty to thirty-five percent, and if it goes into an on-premise restaurant you're looking at seventy percent. These are enormous margins that you don't see in Europe because there is no three-tier system. A brewery can sell directly to a consumer. A brewery can sell directly to a retailer if he wants to do it. Obviously, the three-tier system adds a lot of price to the final amount. But there certainly are players out there who seem to be over-priced. But again, that is the free market system. If the company makes the decision on the pricing and it sells, then the price is fair.

AC What advice do you have for retailers who want to better cultivate or attract consumers who are willing to spend the extra dollar or ten for a bottle of beer?
MN It's incredibly easy but very few people do it. It all comes down to making sure your staff is incredibly knowledgeable and trained and educated. If you have this kind of staff, they will help develop the kind of informed clientele who will push you to bring in other things. We have people who will help you develop a menu of specialty beers that will help generate money for your account. But you have to have the commitment to getting the training and giving knowledge and not many people do that. In many places, if you go into a store and ask for help, you're really not getting the type of assistance you need.

AC Do you believe there will come a time when we consumers finally will be unwilling to pay the prices?
MN It all depends on the quality of what is being brought in, but it seems like every beer made in Germany and Belgium is available here in the United States. I believe that it is possible that somewhere along the way the customer may say, 'enough is enough' and if you mislead customers they will switch to another brand that is not quite as expensive but is equal in flavor. I don't really see that the price, however, is too high right now. If you put our most eccentric beers up against some of the best wines and whiskeys in the world, they are still very cheap. Even if I'm paying twenty dollars for a beer, if it's exactly what I expected it to be in terms of complexity, I still think it is very very cheap.

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