Craft Debate Revisited: Consumers and Lawyers


Further thoughts on the craft subject

Last March, I wrote about Craft Confusion and this past week two interesting pieces of information have come to my attention.

The first was a webinar co-sponsored by the law firms of Locke Lord, experienced in defending consumer products companies in class action lawsuits and Lehrman Beverage Law, a law firm specializing in the alcohol industry labeling and regulation.

A day later Wine and Spirits Daily reported two surveys on the topic – among its readers (industry leaders) and among 2,000 consumers via a survey conducted by Nielsen.

Both of these have had an impact on my view of the topic.

The Lawyers

In a webinar entitled, Spirits Industry Under Fire, Tom Cunningham and Simon Fleischman of Locke Lord and Robert Lehrman of Lehrman Beverage Law discussed what the flood of class action lawsuits are about, why they are filed, who the targets are and why. (Here is the full discussion.)

My takeaway is as follows.

Blame the bottom feeding plaintiff attorneys. As you can see in the report from Locke Lord, the filing of one case creates a “herd mentality” with copycat suits following. It started with Skinny Girl, largely because the label used the phrase “all natural” and that ambiguity was enough to generate a lawsuit. From there it became an epidemic with more than a half dozen other suits including Tito’s, Templeton and others. Follow the money.

According to Locke Lord:

Plaintiffs’ class action attorneys by and large don’t care whether your product is truly “handmade” or made in “small batches” or is “craft.” They trade in what is essentially blackmail and terrorism. If they have a basis for alleging that your product is not what you claim it to be, even if you fervently believe that it is, they will sue you. Very few cases go to trial. Especially class action cases, which can easily kill a company. They have the power to put you out of business simply by making a claim. Therefore, you are likely to pay them to simply drop their claim, even if it’s bogus.

In other words these attorneys are hoping for a payday in a settlement that includes their fees. The best example of this shame is that they use “professional plaintiffs.” Thomas Zimmerman is a class action attorney in Chicago, often referred to as the city that is the home of “numerous notorious plaintiff’s’ class action attorneys.”

It turns out that Zimmerman represents Mario Aliano and Mr. Aliano’s restaurant, Due Fratelli. Aliano and his restaurant claim to have purchased a number of different brands of liquors – both for personal consumption as well as for resale in the restaurant. So the ambiguity or other issues regarding marketing and labeling was enough for these folks to sue Templeton, Whistlepig, Angel’s Envy and Tin Cup on behalf of Aliano and Due Fratelli.

Does this sound to you like consumers or retailers who need to seek redress because they were deceived?

According to Locke Lord,

“Mr. Aliano and his restaurants are what we call “serial plaintiffs;” they act as Zimmerman’s plaintiffs and class representatives in numerous class actions and generally receive an incentive award of a few thousand dollars in the resulting settlements. In terms of sheer number of cases, Zimmerman is the leader.”

Until the US adopts a legal system involving a “loser pays” rule, class action suits will hurt all businesses. That’s a rule in many countries whereby the party who loses in court pays the other party’s attorney’s fees. Read this recent article in the Wall Street Journal.

The other solution involves labeling

Robert Lehrman offers some explanations and sound advice.

First, the fact that the Alcohol and Tobacco Tax and Trade Bureau (TTB) approved the label at the Federal level is not a so-called “safe harbor.” The TTB has the tools necessary to control anything “misleading” but does not enforce it and “risks being a bystander and ceding much power to the courts and private litigants.”

My interpretation – the TTB needs to “man up” and either become an agency protecting consumers who drink alcohol products or fold the tent and let another government entity do it.

The other answers involve substantiation of claims, transparency, revisiting marketing and above all (in my view) certification. If I were running a small batch production brand I would want the American Distilling Institute or American Craft Spirits Association seal on my label. In that way I would expect to reassure my consumers and hopefully also use it as shark repellant.

The Consumer

Wine and Spirits Daily asked consumers (through a Nielsen survey) “Which of the following are the top 3 terms you associate with the word ‘craft’ as it relates to alcohol beverage products?” This was the list of choices:

  • produced locally
  • handcrafted
  • environmentally responsible
  • small, independent company
  • artisanal
  • higher priced
  • small batch production
  • superb quality
  • healthy alternative
  • highest ethical standards

The top five consumer results: 1) small, independent company 2) small batch production 3) handcrafted 4) produced locally 5) artisanal.

The same question was posed to their readers (industry professionals) who were asked to predict what terms they thought consumers would use. The answers were fairly close – 1) small batch production 2) artisanal 3) small, independent company 4) handcrafted 5) superb quality.

Even more interesting, Nielsen asked about the influence of craft. “Which of the following describes how you feel when you hear an alcoholic beverage described as Craft? More interested, less interested or doesn’t influence purchase decision.

A third of all consumers surveyed said hearing something described as craft does make them more interested. BUT, nearly 50% of millennial males (21 to 34 years old) felt the same way.

Putting these two pieces together…

The consumer is not stupid. The WSD survey tells me that some don’t care about craft alcohol products and, among those who do, they have a strong idea as to whether the use of the term is genuine, marketing hype, or even outright deception.

Above all, I don’t think we need to waste the time of the courts with serial lawsuits and bogus plaintiffs just so a few attorneys can get a payday.

Like I said, there are other solutions.

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The Control States

A close look at an important segment of the alcohol industry

header_logoThe National Alcohol Beverage Control Association (NABCA) is the national association representing the Control State Systems – those jurisdictions that directly control the distribution and sale of beverage alcohol within their borders. There are 17 member jurisdictions, 16 states and Montgomery Co, Maryland and they control 24% of US spirits volume.

Additionally, there are municipalities in Minnesota and South Dakota that act as retailers and there are three other smaller

The control state jurisdictions (in blue).
The control state jurisdictions (in blue).

counties in Maryland that are also considered control jurisdictions.

Last week NABCA held it’s 78th annual conference.

In some states, liquor stores are state-run and basically in the retail business (e.g., Alabama, Mississippi, Pennsylvania, Utah, New Hampshire). In many, the states are the “wholesaler” and appoint agents (private businesses) to run the retail business (e.g., Maine, Ohio, Vermont). There are a number of other variations but the common denominator is that the state government in these jurisdictions is in the alcohol business.

Until a few years ago there were 18, then the State of Washington voted to privatize and that’s where our story begins.

What has been the result in Washington?

I recently spoke to a friend in Seattle and asked him what changes have resulted from privatizing the liquor business. My friend’s politics are such that I wasn’t surprised by his response that “government doesn’t belong in private enterprise.” I next asked him what happened to the prices of spirits in his state. He said he wasn’t sure and thought they went up. Then revealed that he buys his liquor in Oregon (a Control State) because it’s much cheaper.

In fact, according to an article in The Seattle Times last June:

Many saw privatization as a win for business, government and the public… The state would get more revenue from newly imposed fees. And consumers would get cheaper, more widely available booze.

Well, most of that happened: A nearly $1 billion business is in private hands, the state has enjoyed a short-term revenue windfall, and liquor is ubiquitous. But on average it’s not cheaper, and certainly not perceived as such.

KREM TV in a story earlier this year reported that the state now has the highest prices in the country.

In Washington, a gallon of alcohol costs about $35. Compare that to two years ago when it cost $27 before it was privatized. Washington’s liquor prices are currently the highest in the country and cost $25 more than what it would cost just a few miles away in Idaho.

The winner in Washington is Costco, not the consumer. Unless of course, you want to buy one of their limited selection brands in gigundous sizes.

Control State confusion

Over the years, I’ve always felt that misconceptions abounded when it came to attitudes toward the control states. So I check with two former Seagram colleagues about the system. One was Steve Bellini, EVP Business Intelligence/Trade Development at Sidney Frank Import Co. and my former (and last) boss at Seagram. The other was Gregg Mineo, a Seagram and Absolut alumni and currently Director, Maine Bureau of Alcohol Beverages and Lottery Operations.

Both confirmed my view of the past. Once upon a time, the control states were run by political appointees whose knowledge of business in general and the spirits industry in particular was minimal. Gregg and Steve agree that the situation has appreciably changed. If it was ever true in the first place.

Further, suppliers (other than Seagram I might add) did not understand the control state structure and how to operate in that world. Everyone knew how to go to a distributor and beat him over the head but presenting to a control state board was uncharted waters for most.

Besides – and here comes my jaded perspective – when you need to make a “number” you can poke your finger in a wholesaler’s chest but can’t do that with a commissioner or director. You can load a wholesaler with merchandise if you have the clout; you can’t do that with a control state.

By the way, I just read this in Wine and Spirits Daily

Control States represent 45% of Diageo’s group earnings before interest, tax (EBIT), per Morgan Stanley.

Why I love control states

Education Awards Program Report
Education Awards Program Report

When I ran market research, I always felt that the data provided by NABCA was the most accurate snapshot of consumer behavior or ‘takeaway.’ DISCUS numbers were important but dealt with sales to wholesalers. Nielsen data is consumer driven but is limited to 10% of the market and extrapolated for a holistic view.

As a result, when I ran new products, I always wanted a control state market as part of my test markets because I felt that the feedback would be more indicative of the product’s potential. Further, I was able to more easily determine the impact of programming and strategy with the information I received.

Today, I’m happy about the control states system because they provide easier entry points for smaller brands (think craft and other startups) and these brands are likely to be given a fair chance to get off the ground if there’s a reasonable amount of support by the supplier. Not to mention giving consumers a wide range of choices.

So, there are many reasons to be a fan of the control state system.

Meet Jim Sgueo

Mr. Sgueo is the President and CEO of NABCA and has been with the association for over 40 years and served in various capacities including, Systems Analyst, Director of Statistical Operations and Deputy Director. When you ask Steve Bellini about him, be prepared for a long, glowing series of comments such as “He is one of the industry’s unsung heroes… Humble but extremely knowledgeable and a real driver behind moving the control states forward.”

Gregg Mineo is no less effusive. He cites example after example of how, under Jim’s leadership, the association has become more sophisticated and more effective in providing information and education to its members.

Jim Sgueo President and CEO of NABCA
Jim Sgueo President and CEO of NABCA

I spoke to Jim and was not surprised to learn that he has indeed been at the forefront of change. He points out that in the distant past, state commissioners might have been political appointees without strong business skills. Since the 1980s, Governors have appointed directors and commissioners with general and alcohol business experience. Many of these directors have transformed their agencies and implemented 21st century business practices. This is the new generation of control state leadership that NABCA is geared to.

Here’s the part I like the most…

Those data resources I mentioned? The proceeds of the sale of that information go back to its membership in the form of education grants, research, the conference and other activities.

I don’t know about you, but I don’t know many associations that use the proceeds from selling information to fund activities.

Despite his many years at NABCA, Jim Sgueo strikes me as a man that doesn’t rest on his laurels and is open to change and adaptation.

I know many business executives that could use those attributes. So the next time you hear discussion about privatizing a control state because government ‘intervention’ in the market is wrong, just tell them to look at Washington. And, to realize that control states are moving more and more to balancing commercial interests with their regulatory role.

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Bud Light Woes

Are we overly sensitive or is A-B InBev thoughtless?

Last week Bud Light shot itself in the foot (or was it the can?) with it’s “Up for Whatever” campaign. The campaign involves

The package
The package

slogans on the packaging including this one: “The perfect beer for removing ‘no’ from your vocabulary for the night.” This message is one of 140 different slogans that appear on the package.

If the intent of the overall campaign is to create a dialogue with consumers on social media, then be careful of what you wish for. This slogan drew a firestorm of criticism due to its insensitivity on the subject of “no means no” and date rape.

In a wide range of news outlets (from Ad Age to USA Today) the company was taken to task for this … this what? Insensitivity. Stupidity. You name it.

The primary mission of alcohol marketing and communications is responsibility in messaging. I can’t tell you how many times I’ve heard or used this adage: The appearance of impropriety is as bad as the impropriety itself. This slogan goes way beyond that.

Who is to blame?

According to the Wall Street Journal, there were five layers of approvals given to the slogan. But, that didn’t stop the company from blaming the ad agency. Sorry folks, the blame ends with the marketing department at A-B InBev. If you’re in the alcohol business you need to be cautious with what you say and how you say it.

Someone at the company thought the ‘cuteness’ of the slogan made it compelling and no one had the sense to think about the depth of meaning. Don’t these marketing geniuses know what’s going on in the world?

It seems to me that in their zeal to appear hip and clever, they’ve lost sight of the business they are in. Or, they don’t have the appropriate safeguards in place.

The best comment on this fiasco I’ve read comes from Harry Schumacher at Beer Business Daily:

I can see that A-B was talking about “No” meaning not saying no to new experiences, not in a sexual context.  But the issue of date rape is front and center right now, and it’s completely inconceivable to me that nobody in the vast organization of A-B, including their ad agencies, didn’t see that this message could be misconstrued in a sexual context and give it the nix.  Are they not reading anything in the popular press?  It’s a very sensitive subject and it suggests that at the very least A-B’s ad agency who produced this message has a tin ear.

So the answer to my question is that it has nothing to do with the public being overly sensitive. It’s about Bud Light being out of touch at best, or just plain irresponsible, at worst.

(For an interesting look at this subject, check out John Oliver’s take from HBO’s Last Week Tonight with John Oliver here.)

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