Studies Show Guinness Beer is good for you
Good for a wholesaler’s bottom line, that is. We talk with Tim Kelly, new president of the Guinness-Bass Import Co.
The Guinness Import Company is now the Guinness-Bass Import Company, a name change that reflects the importance of Bass Ale as one of the twin pillars that have driven the company’s growth over the years. Tim Kelly, a Briton of Irish descent, arrived in April of this year to serve as president of the newly renamed company. Kelly has worked for Guinness since 1995, and most recently served as marketing director for Guinness Ireland. Prior to his post at Guinness, Kelly worked for the Coca-Cola Company in London as head of marketing and head of sales. “My experience is in sales and marketing in blue chip global branded business,” he says. “Selling and marketing global brands for big companies is what I do.” In the interview that follows, we talk with Mr. Kelly about the challenges facing the Guinness-Bass Import Co. as it rides the waves of the turbulent but profitable imported beer segment.
What was your charter when you arrived here?
This business is about growth. If we examine industry dynamics and consumer dynamics there is a huge amount of opportunity for us to grow here. It is my job to realize that potential. To take advantage of the external dynamics and bring a brand to the market, Guinness, that will grow at 20% a year. My job, if you like, is to get the company, in terms of skills, credibility, morale, and people to realize our investment and produce that return.
You speak of external dynamics….
External dynamics meaning that the consumer is trading up to better beer. We’re moving up from the domestics to something that is more challenging in taste with lots of history and heritage. American consumers have got a lot of money in their pockets and they are willing to pay for something that is high quality, with excellent heritage, but also represents good value for the money.
And do you see this as a broad-based trend?
Yes. I see it in cars, food, restaurants, cinema, everywhere. People are willing to pay a little bit more for an experience. And you see that in shopping and retail – you see it in the way that people sell. Not just the way that people buy.
So this better beer segment is expanding. How high will it go?
It’s hard to know exactly where we’ll get to. There is a lot of experience in other markets. Not just the beverage industry, but in other markets around the world. based on that experience, the premium segment can command up to 20% of the total. There are some people who think that this better beer segment will get to 20%.
Are you among them?
It’s hard to say. I think that it would be possible. It is certainly going to be a lot more than 10%, but probably more like 15-16%. Twenty percent is a lot.
In other beverage arenas, wine and spirits have gotten up there.
Certainly, that’s true. If you take ice cream…you take confectionary…you take soft drinks…lots of businesses. That’s not just the consumers driving it, but clearly there is a lot more margin there. So 15-20% is not out of line as a long-term prediction.
We’ve seen the import market in this country go in cycles driven up by a few strong brands and then we usually see a lull. Do you see that occurring again or has the game changed?
It’s hard to predict that. I think generally the cycles are a good way of looking at the business and looking at the world in terms of economies. But in terms of brands, I would say that brand Guinness is sufficiently strong and sufficient in longevity not to be influenced by cycles. I think we would expect 20% growth each year for the next five years almost irrespective of other factors.
What numbers did you chalk up for Guinness in ’98?
Well we track a fiscal year that is July through July, but 20% is pretty close. Draught Guinness is growing over 20%; canned Guinness is near 100%, and bottle Guinness, which is the slower growth is less than 10%.
And Americans are embracing Stout?
Absolutely. I was at the Boston Fleadh with Elvis Costello, and Hootie & the Blowfish. There were tens of thousands of people that had come to that event looking to drink Guinness. I see that, not just in the Northeast but the Fleadh in San Francisco had 32,000 people – it was packed. And that’s one of the highest taste beer markets in the U.S., or the world.
So you define “better” beer as “taste” beer.
We break it out as taste and imports.
So you break the Canadians and Mexican brands out?
No we don’t actually. We define two segments internally. One is taste beer and one is import beer. But we tend to add them up and just call them “taste”, which would include imports.
You take 90% of the market-A-B, Miller, Coors, and it leaves a segment, we’ll call it 10%, that includes Corona, Heineken, us, the micros, all others. We compete in that segment, what we view as “taste” beer.
Certainly the micros in the “taste” category had employed a lot of growth until quite recently. Why do you think they hit the wall?
Failure to build brands is one very good reason. Consumers want to pay more for a brand that means something to them, that has a genuine history and heritage. I think they also want to pay more for excellent quality. And I think that the micros, in general, don’t have the history and heritage, don’t have the quality and didn’t do the brand building. Now there are clear exceptions to that. Some very good exceptions to that. But in general that category was built with a lack of attention to those three things. The proliferation of SKU’s is the legacy of that market. I mean there is really a bizarre range of SKU’s out there..
Is that clutter one of the big factors in the slow down?
Yes, and I think it’s the flavor proliferation. You see a lot of bottles of raspberry-flavored-something with funny labels on it. Consumers try it and they figure that there isn’t a lot of heritage or history behind it, that the quality can be variable, and that it isn’t a brand being built. There is not sufficient reason for them to buy that brand time and time again. They might be presented with a good reason for once or twice, but the purpose of brand building is is to present new reasons and better reasons time and time again, and to keep up to date with changing fashions.
How do you do that with Guinness? I mean, it is a very old brand of stout…
Constant attention to the external world. Guinness was first made in 1759. In its home market of Ireland, it is constantly rejuvenated in terms of graphics and identity, consumer communication, relevance. And that’s what all good brands do. Coke is brilliant, they do outstanding marketing. Because Coke keeps itself up to date with today’s market. And that’s what we do at Guinness, we are very consumer focused. What consumers want is what we have to provide them. And consumer habits change.
I notice you’re doing a Guinness Extra Cold in Ireland?
Yep. It’s an outstanding success Today’s drinkers in Ireland want a colder product. They’re used to drinking Budweiser or Carlsberg, and for them Guinness needs to be served at colder temperatures to be more like what they’re used to drinking. So Guinness Extra Cold was launched in ’96. It has a different identity in terms of colors and graphics. It was launched in England in ’97, and has been a huge success. Extra Cold has made Guinness appeal to a younger lager-drinking population. That’s an example of keeping up to date.
We still get the “cellar temperature” Guinness in the States, correct?
On average, Guinness is at 3-1/2 degrees Centigrade in Europe, and on average, Guinness is at that temperature here. But there is a case here for us to look at the serving temperature. And we’ll examine whether we could sell more Guinness here by making it colder.
Is that a surrender to the American pre-disposition to cold beer?. Cellar temperature beer seems to have been a proud tradition in the British Isles…
Surrender implies that we’re giving up something…
So you see it as simply a sensible shift?
I think it’s sensible. If consumers want cold beer, then we should give them cold beer. We should stay true to our brand and not make changes to the brand that are inconsistent with what we’ve built. If we can do that and serve colder Guinness, that’s a very good thing and that’s a challenge.
I suppose you’re still doing a traditional temperature in many pubs, but the Extra Cold for younger-oriented pubs…
Well, not necessarily younger, this is just maybe to say Guinness should be colder. Which is not the story of the day and this is quite different in America than it is in Europe. We’re just taking a look to see if we can sell Guinness by serving it colder.
Back to the craft beers…is the micro segment on the way out in your view?
No, I think there are some very good micro brands that will be here for good many years. I think it’s the tail that is being reduced – the tail of copycats, also-rans, seasonal varieties. I think having a strong micro segment that is providing better beer is a good thing for all of us.
How do you see the dynamic of the larger brewers affecting your business?
Well I think the whole U.S. beer industry is going through a huge amount of change and it’s at several levels. The strong brewers – Miller, Coors, Anheuser-Busch – they want to get bigger and that’s one constant dynamic that we have. There is clearly one leader that is way ahead of the other two. We all know that Anheuser is a tough competitor for everybody in the business.
The big brewers are demanding more attention from wholesalers, and we even see importers starting to do that. Does every supplier have to demand “share of mind” and if so, how do you start segmenting it?
I think it’s pretty tough for some of these contracts to be effective in the reality of day-to-day management and measurement. I think that our job is to start with the premise that our wholesalers do a very good job and our job is to have a level of service that encourages them to grow our brands. That is through product quality, brand investment, profit margin for them and for the retailer and an agreement with them that encourages them to do the right thing. I don’t believe that a police force is the right way to go I think I would rather have agreements in place that encourage wholesalers to do the right thing because it is in their own best interest.
You draft specialist arm is an unusual program for a company of your small size…
We have a lot of skill in draught beer, a lot of expertise, and we have an industry that’s not as used to selling draught beer as we are globally. We think it is an investment that pays dividends in terms of extra sales and improved quality. Our wholesalers love seeing our draught people, and it’s not just them, it’s retailers. They enjoy drawing on our draught specialist expertise and they enjoy working with them.
And have you seen an improvement in draught quality due to this program?
Yes, indeed. We measure draught quality by wholesaler every month. We have a five score measure that covers taste, temperature, head retention, glassware, and so on. We’ve got records dating back now for several years and we’ve seen a substantial improvement in Guinness quality. It is the same system we use globally, and we can compare quality of beer in Denver to quality of beer in London. We know what drives quality – core factors like gas, or temperature, or taste. We stay very close to it.
With all these companies chattering for attention, can Guinness stand above the fray, given its status as an icon?
No, no. We would be very foolish and arrogant to do that. We have to work hard for our relationships. We do that by employing excellent people. We have very well motivated people, they enjoy working for our business, they enjoying working in the beer trade, they enjoy working with wholesalers and that’s both ways. They provide us with a competitive advantage. We have great brands, and we invest a lot behind those brands, we provide good margins for wholesalers. So there are lots of reasons. But I think the difference is the quality of our people.
You have indeed invested dramatically in this market, along with all the other importers. Is the growth we are seeing directly linked to that kind of investment power?
We are not a charity. We want a return on our investment. We think that having excellent people will provide us with a direct return to what we do. And we measure that very carefully. We measure advertising, we measure promotions, we measure everything, but we track very carefully the impact the people have.
Do you think the import segment is being driven by this greater level of investment?
Yes. I think there are some natural dynamics that are driving it, like the “trading up” that is going on. But I think there are some factors there that are driven by the high levels of investment that everyone in the market is making.
Do you think that will continue?
Yes, because it’s leading to high levels of growth. People love growth. People enjoy the benefits of working in a growth business. They enjoy the feeling of being successful and making a direct impact on what they do. So, yes, I think there will be many, many years of high-level investment in imports.
And perhaps this indicates that the old up-and-down cyclic pattern of the imported beer segment could be broken?
Yes, absolutely. I don’t think there is any reason to be anything but very optimistic. We’ve made a long-term commitment to this business, to this market. Diageo, our parent, sees a huge opportunity for the beer business in the States for us. Diageo is a very demanding business. They want excellent brands built through high-levels of investment, delivering high rates of growth. And they are very proud to support us. They understand this market very well and they understand the wholesaler network and they realize that we’ve been successful through sensible investment and sensible return. They are absolutely committed to this business in the States.
The U.S. wholesale/retail sectors are changing… wholesalers are consolidating like crazy, and the retail chains are very powerful now. How do those factors change the way that you’ll do business?
Well it means that there are fewer outlets to deliver to. Which is good. Wonderful news that the economics are likely to improve. It means that unless you have genuine distinctiveness you’re going to get squeezed. It means that those brands that have something unique will prosper. Because very demanding customers have got excellent information. They know wharfs growing, what makes money, what doesn’t. They look pretty carefully at their business because they are professional businessmen. And unless you are able to provide quite a difference or compete effectively in your market or your segment, they’ll look pretty hard at your brands.
Do chain store customers gravitate towards the mainstream rather than something distinctive?
Well, we don’t reflect the industry make-up, that sells 90% of the beer off-trade. Our business is not the reverse of that, but about 60% of our business is on-trade. That suits us. Competing with Budweiser and Miller and Coors with large multi-packs of cans in a grocery store is not our thing. We can’t do that and we would be foolish to try. It’s a different market. Their costs are better. We have to provide our own distinctiveness.
Speaking of cans, how’s your new widget ale doing, Caffrey’s?
We launched on draught at the end of last year, and it’s doing well. A can is coming in September. It’s an Irish Ale, it has sold very well in Ireland and in Britain prior to coming here. It’s a great tasting beer, it has got a lot of heritage, made in country Antrim. It has a large investment behind it, and has a long-term future that’s very bright. We are building a brand, and brands take a long time to build.
And is that an independent brewery originally?
Originally it was, yes. It is now owned by Bass, so it’s a Bass brand which we got the distribution rights for in the U.S. Have there been any operational changes since you incorporated the Bass name into your corporate identity?
It’s more than just a name change, it’s a signal of commitment to us and our wholesalers that we are going to be a partner with Bass for the long term. And it is a signal from Bass to us that they want Guinness to be a partner for the long term. It’s a big statement of commitment between the two of us together, and to our wholesalers.
And how is Bass Ale performing?
Bass is great. It’s a brand that, like Guinness, constantly keeps itself up to date, as it has to remain competitive. It’s a brand that we are looking at some new ideas for, for the future, and we have some big ideas coming up in the Fall. Because we’ve got to keep ourselves up to date. If we don’t then the brand will suffer.
Jim Koch of Boston Beer is doing blind tastings around the country now, matching imports, Bass and Guinness among them, against his portfolio of Sam Adams brands. He’s getting a certain amount of media attention in doing it. Does that kind of thing get your goat?
Well, blind tasting is not really the point, is it? I mean who buys a drink blind taste tested. Look at Pepsi vs. Coke. We’ve had years of hearing “Pepsi’s preferred blind” and so forth. What’s it going to prove? You don’t buy brands blind.
There are a lot of very good brands that have been around with pleasant taste that have not stood the test of time. So it’s important, but it is not going to be the determining factor.
So what’s a consumer looking for in a brand when they go into a store?
In the U.S., 90% of the market is drinking Budweiser or Coors or Miller. Those consumers may be looking for something more, but in today’s world I need to have a genuine reason to buy any brand. And the brand for me can be different depending on the occasion of mood, the day, the time, the place. We think that Guinness is a genuine, distinctive brand and we can provide a reason to buy Guinness whether you are at home, in a restaurant, in a pub.
People seem to have a set of brands that they choose from…
Yes, people have what we call have a repertoire. But they often step outside beer. If you go to a restaurant, wine comes into it, or you go to a night club then maybe cocktails come into it. And we map our brand choice against a range of needs. And those needs vary by all sorts of things – the weather, the location, the age of consumers, whether they are on their own or with friends, whether it is early evening or late evening or it is mid-week or the end of the week. Lots of things. That’s the starting point for the branding. What needs are you meeting? And then it comes down to how well you can communicate that need.
It gets rather complex
It is complex and we have a consumer planning department here that starts with consumer needs. And they map these needs against a range of choices and a range of other beverages, not just beer. We have to understand what drives consumer consumption. And there are changes and we track that. And we try to say to ourselves, “Are we understanding what these needs are? Are we providing for these needs with a competitive brand and a point of difference?” Because unless we can honestly say to ourselves that we do that, we can’t say that to our wholesalers and retailers. We are a consumer business. Everything we do is driven by our consumer in terms of our measurements, our communication, our understanding of what we do.
They used to say that on-premise, consumers like to have a bottled import on the bar in front of them, so people would think them sophisticated. Perhaps now maybe it is something dark or amber in a pint glass.
That’s very true. As you know, 25 year-olds and 30 year-olds like to make statements, and they like to wear fashion items, a badge that says “I’m discerning, or I can afford this, or I’m up-to-date in terms of trends.” And Guinness says a lot. Guinness says that “I’m discerning enough to choose a brand that is not run of the mill, not every day; I’m discerning enough to make a choice, I know my own mind, I can afford to pay for something that is worth it; I understand the history of this brand. This is not just another stout or another beer.”
Given the way the mainstream of the American market tilts towards light lagers, an outside observer might think that a stout is a tough sell.
Well that’s a fair assumption, and it would be true. [laughs] Yes.
But you’ve done rather well.
Well I think it’s a tribute to the brand, the investment and the quality of beer. It’s a tough business because here we are this very small importer in Connecticut and we are driving 20% growth – in an overall fiat market. We don’t rest on our laurels, because we have a high level of dissatisfaction as well. We are always looking to do more. Personally I think that we have a huge amount of growth ahead of us.
Where do you see the opportunities?
Well I think at one level more of the same – more of what we’re doing; At another level I think we must start raising our sights a little higher and think about becoming more aware about the long-term potential profits. I think there’s an opportunity for us to recalibrate our sights. Everything is right for us in the market today. The industry changes suit our growth and it would a travesty if we weren’t to realize that. I think that my job is to make sure that we can grab 20% growth in the next 5 to 10 years.
Is there any room for real luxury products in the beer market….
I’d say that’s our level.
Yes. But maybe even pricing things a notch higher.
I’m afraid that would be tough. On the one hand we’ve got cans in the supermarket chain, an area that is heavily focused on by the big guys, and it would be tough to launch into that market with a new brand. Within the on-trade, I think Guinness varies between say $3.50 and $4.50 dollars/pint or a glass. It’s possible, but it would be tough.
You make interesting variations of Guinness Stout around the world, foreign extra stout for one.
Yes, there are different versions of it, right.
Would you ever consider throwing one of those interesting variations into the U.S. market?
No, not today. I think we’ve got enough to do with our own current portfolio.
Are there something around 18 variations?
I can’t recall the exact number. Some of them are peculiar to individual countries or regions, like Africa or Jamaica. Some of the versions are quite small volume as well. Some are brewed locally just for a given market. Certainly the Guinness here in the United States is the same as the Guinness made in Ireland. The same flavors and texture and strength. We want to stay true to our roots. For the States, Guinness will always come from Dublin.
What do you see for the next couple of years in the broader beer market?
I see increased competition from the domestics. I think they’re going to be looking at themselves a lot more and Miller will have to come out fighting. Coors and Anheuser-Busch are very well-run businesses. Recently there has been some growth in the market, and those three will be trying to recover their costs, and get the volumes up so they can make some money. Or make more money. I think they will also be investing more in marketing and trying to create more distinctiveness.
I think that the imported beer market will grow – and at a substantial rate. And I think it will be led by Corona and Guinness, as the two fastest-growing brands in the import market. At the wholesale level I think there will be continued evaluation. It is not just wholesalers being put up for sale, consolidation, but I’m also sure we’ll see some public businesses soon.
That just seems to make sense.
Yes, it does. I mean they need capital investment – and it’s a great way to raise it.
But there are prohibitions on public ownership from some of the big guys.
Yes, but I can see some changes in the distribution system, sectors becoming blurred.
It’s tough given the legal structure.
There may be changes there as well.
The drive for efficiency will force it?
Economics will determine all these things. Basically there is not enough money being made in the beer business for all of these partners. Take the value chain, as we call it. Let’s say the value chain is three linked spheres… we all share a bit of value, overlap. One is the brewers, one the wholesalers and one the retailers. There’s been generally movement to the retailers, and the brewers are trying to fight back a bit and the wholesalers are in the middle trying to protect their turf.
It’s a pretty thin dime for them.
Yeah, it’s a very small market. You look across the whole thing and it’s a matter of what we want and they want. What we all want is to take a bit more. The best way of doing that is growing the total, not to fight amongst ourselves.
Do you see a healthy beer market in our future?
There are of positive signs. There have been some price increases, there has been some rationalization, you mentioned Stroh’s earlier.
So that’s a good thing in your view, the demise of Stroh?
Over capacity is a bad thing. What I’m saying is there is core optimism about the future of the beer industry.
Demographers say that there is a new cohort of 21 year-olds coming in…
This will be interesting, because I think there is a new paradigm. The old model was that you start on some kind of cooler, then move a lager, and graduate to a stout as you get older and more aware. I don’t think the old model holds. I see a lot of people drinking stout today at a young age.
Yes, they start with micros or imports…and often as not, they don’t look back.
They don’t go back. The idea was that you get old enough or big enough to take the taste or afford the price. Not true anymore. People are beginning to drink some of these more complex drinks at an earlier age.
And that’s what will make 20% high-priced share of the market a reasonable prospect?
Yes, and our job is to find the reasons for consumers of all legal ages, in all geographies and drinking situations to choose Guinness.
In the old days you could say Guinness was good for you…
You can’t tell them that anymore. But the folklore lives on. Guinness has got lots of iron. Guinness is made with very high quality ingredients, natural ingredients and it is genuinely a good product. So you can’t say “Guinness is good for you” today, but I think the consumer has that sense of it.
The wine merchants have been able to get a little bit of labeling leeway in the U.S. recently.
Yes, I saw that. I think that would be good.
We are seeing changes as people are drinking more water and other things, do you think beer will keep its pride of place in the repertoire?
Beer is good with food. Probably not drunk enough in restaurants. It is good in pubs, on special occasions, it’s good at home. It’s good for outside. It’s got more variety of formats than most other beverages. I think that compared to most drinks, beer has got a lot of untapped potential.
You mentioned beer is not served enough in restaurants. Guinness-Bass is big enough to perhaps try to alter that…
That’s a big focus for us. We have Guinness and food promotions and programs with key accounts, we have point-of-sale that’s designed for restaurant chains, we have a national account team that calls on these chains trying to get distribution.
It used to be you’d go to the Oyster Bar in Grand Central, and you couldn’t get a stout with your oysters. Now you can get a Guinness there, but it’s been a long time coming.
Yes. I think the market has been ready for us for awhile, and now we’re ready to grow right along with it..
Thanks so much for your time, Mr. Kelly.