I am saddened to learn of the passing of former White House Chef and author Walter Scheib. Here is a story on it, apparently he was hiking in New Mexico and went missing. Thoughts are with his family and friends. I enjoyed my time with him. He had fascinating stories. See here my post from 2011.
White House Chef
Hanging late night 2011
Last week, I chose to graduate a bit early from YPO “Young Presidents Organization” into WPO “World Presidents Organization” its sister organization for the over 49 crowd. While I will remain active in WPO and the Food & Beverage Network and Deal Network in particular, the past twelve years in YPO have enriched my life greatly and its a good moment to reflect on that. Also I’d like to give special thanks to Todd Maurer for his remarks introducing me. These are my remarks giving thanks at the graduation ceremony.
Todd Maurer giving remarks on Smoke Wallin at YPO graduation 2015
YPO GRADUATION – J. Smoke Wallin
Thanks Todd, I really appreciate your kind words! Speaking of giving thanks, today is the anniversary of DDay 1944.
In 2003 when I joined YPO and “Forum Unplugged” my kids were 13, 11, 8 and 3, today they are 26, 24, 21 and 16… wow nothing like kids to express the passing of time.
Since then I’ve been blessed with a lifetimes worth of experiences professionally and personally as a direct result of YPO. This was not an accident. It did not just happen to me. You see, I don’t believe in doing things part way. Either you commit or you do not. When I joined YPO I made a commitment to give and get as much as I possibly could.
Henry David Thoreau said “True friendship can afford true knowledge. It does not depend on darkness and ignorance.” This is YPO.
From Australia to India to the UK to cities throughout the US, YPO members have been welcoming and helpful to my family and me. I know this because I dined at their homes, visited their businesses, attended their events and engaged with them in business. I know the last 12 years of my life have been greatly enhanced by this commitment.
I will express my gratitude by sharing a couple of stories and mention a few people.
First, I met my wife Anitra on a YPO trip and that changed my life forever. Thanks Darling.
YPO George HW Bush Event – Smoke & Anitra 2004
I could stop there, but I won’t.
I joined Forum Unplugged and have had 12 years of deep relationships, friendships and confidences with 22 Forum mates. They include:
YPO Forum Unplugged
These are some of the finest individuals I’ve ever come to know and I am grateful for all they have done for me in my journey.
Some of our very best friends today are members we met through YPO including Bryan and Lara Sperber in Phoenix and Lesley Berglund in Napa
Through Networks, I’ve expanded my industry network tenfold. Engagement in networks has been the single most important business and professional development aspect of YPO for me. Fortunately, I’m excited to be able to continue through WPO as I Chair the 2016 Food & Beverage Roundtable in Napa, CA.
Looking back, I’ve lived so much life over the past 12 years it’s hard to summarize in a couple of minutes. I’m not alone when I say it has come with great successes and great loss. I’ve lost partners, friends and employees to both accidents and suicide. I’ve had incredible business ups and downs and started numerous new ones along the way. Throughout all of it, I’ve had YPO people to help me be better or simply to be there when I have needed it most.
To all of us, but especially those newer members… I’d like to remind you of some things that did not exist when I joined:
All of these things that are now a part of the world and our every day lives.
“There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.”
– A. Einstein
Looking forward, what will the next 12 years bring? I spend a lot of time thinking about what’s next in brands, but I won’t try and answer that question here. There is one thing that I do know…. I am confident many YPO people will be involved in changing both the world and my life for the better.
Thanks for everything you have given me.
I recently read and shared an article in Forbes by Patrick Hanlon called, “Why Brands Must Evolve” that is so spot on that it has led to a number of interesting conversations in the past week with some of my clients and partners who own brands in beer, wine and spirits. As one who spends a lot of time thinking about new brands, as well as igniting established brands in new ways, Patrick’s thoughts really resonated with me. I don’t think there is a better industry than beverage to illustrate his points about what is going on with brands. Brand proliferation is happening across the board making “breaking through the clutter” ever more difficult. At the same time, the reason this is happening if fundamentally that there is demand for new brands. As I wrote in “RE: Is Craft Beer In A Bubble”, there is a big and growing market for new brands in beer, but also in wine and spirits. Not everyone will succeed and in fact many new brands will fail. To the big brand manager, the fundamental challenge has also never been so big – how do you keep a loyal following when your following gets gigantic. I think about an Iconic brand like Patron Tequila. I was a distributor for Patron as it passed between different sales companies and was a very difficult sell. Five years from the time it launched, Patron was doing about 55,000 cases. Now that is a nice little brand, but nothing would have screamed, “This brand is on fire!” Then, it did catch on fire and became the very symbol of luxury. Check out Patron case sales for the first 10 years:
Patron is an amazing brand and continues to outsell all of the other super premium tequilas (and frankly all other spirits brands at $40/750ml bottle and higher). They have a huge and loyal following. However, as brand manager for Patron today, the things one has to do to market the brand are quite different than in the early years. How does one keep the “cool” factor going when you are the largest brand in your category. There are dozens of new entrants who are going after their market and have the advantage of being smaller (think Avion, Casamigos, Don Julio) and bringing a new “cool” factor to the market. Clearly there are many that succeed at this but being true to your brand and your audience while changing things up can be quite difficult. Absolut Vodka was THE luxury brand of the late 1980s and early 1990s. It was the “it” brand among the “it” crowd.
Pernod Ricard paid over $8 billion to acquire the brand a few years back. How does Pernod now manage a giant brand that was formerly the top luxury vodka in a market with such massive proliferation of brands that the high-end vodka category has experienced. I’m told there are 800 vodkas in the Beverage Media New York book. Pernod recently announced a new bottle. Absolut is one of those brands that defined itself by its bottle. Changing the bottle is a big move even in subtle ways. Adding the big A is a pretty big move. Large companies don’t usually make big moves, but staying relevant in a crowded market sometimes requires big moves. Pepsico made an even bigger move a few years back with their Gatorade brand. I thought at the time, it was fairly risky, but it appears to have paid off (does anyone know details?).
Patrick’s article certainly cites a number of great examples of big brands that have managed to evolve over time and keep or even build on their past successes. “…the challenge for brands has evolved from creating awareness to creating meaning.” How do you keep creating meaning at scale like Nike, Apple and Disney have successfully done. They each connect to their consumers and continually create meaning.
The wine market has evolved so dramatically, that I have to look up many of the brands on the grocery shelf today and I have been involved in selling $100s of millions of wine over the years. Why? New brand proliferation to attract the millennial consumers.
Take a look at the top 10 domestic “Hot Brands” put out by Marvin Shanken’s Impact Databank:
Four of these are Gallo Brands, but none say Gallo. All have interesting, contemporary labels. To succeed in this hyper-competitive market, every brand must have a number of things. Great branding is vital, without it your brand is lost and has no chance. Great liquid that fits the taste of your target market is key, without it they won’t buy a second time. Distribution is essential, a brand cannot become relevant if consumers can’t find it. But how does a brand build a real following of consumers who care? That is, how do we create meaning? That is the question every new brand team needs to answer.
To quote Patrick again: “We want the added value of believing in something. The added value of belonging to something: being a part of something that hard-wires us to a larger community of “people like me””
Seth Godin in his fantastic book “Tribes” articulates this concept well.
“Seth Godin argues the Internet has ended mass marketing and revived a human social unit from the distant past: tribes. Founded on shared ideas and values, tribes give ordinary people the power to lead and make big change. He urges us to do so.” Brands have to figure out how to reach their tribes and how to engage with them. Notice, I did not say create their tribes. This is an important distinction. I believe tribes are discovered not created. Brands who overtly try to create one typically struggle. If a following is not organic, today’s savvy consumers sense it. I think brands can make themselves relevant and worthy of a following and then as that following begins to show signs of life can play a role in fostering and accelerating it.
I’d love to hear your stories of brands you think are doing this right.
Cheers,
Smoke
On this Memorial Day weekend I am thinking about all those who have paid the ultimate sacrifice in defense of Freedom. The world we live in is a dangerous one, fraught with men with evil intentions. But for the sacrifice of a brave few, those men would have their way on all. We can see it in places near and far, from the evil men who brutally tortured and killed a YPO family in Washington DC (Savvas Savopoulos) to the evil being inflicted on whole countries in the Middle East. Left unchecked evil prevails. We live in a the greatest country, a place where an individual, no matter if they were born into poverty and extreme disadvantage can do and be anything they set out to achieve. A country where the world’s people, seek out more than any other, to take refuge from evil, to build a better life for their family, to live free. We are all privileged and I give thanks to those who have made it possible.
This poem, by General Douglas MacArthur, commander of the Allied Forces in the Pacific during the great struggle against evil in World War II, has hung on my wall for 26 years. I can think of no better message to all of my children (sons and daughters) than that contained herein.
“Build me a son, who will be strong enough to know when he is weak, brave enough to face himself when he is afraid, one who will be proud and unbending in honest defeat, and humble and gentle in victory.
Build me a son whose wishes will not take the place of deeds; a son who will know Thee-and that to know himself is the foundation stone of knowledge.
Lead him, I pray, not in the path of ease and comfort, but under the stress and spur of difficulties and challenge. Here let him learn to stand up in the storm; here let him learn compassion for those who fail.
Build me a son whose heart will be clear, whose goal will be high; a son who will master himself before he seeks to master other men; one who will reach into the future, yet never forget the past.
After all these things are his, add, I pray, enough of sense of humor, so that he may always be serious, yet never take himself too seriously. Give him humility, so that he may always remember the simplicity of true greatness, the open mind of true wisdom, and the meekness of true strength. Then, I, his father, will dare to whisper, ‘I have not lived in vain.’”
– General Douglas MacArthur
As we all enjoy the holiday weekend, including the many who come to town for the Indy 500 Sunday, let’s all take a moment and reflect on these words. Happy Memorial Day Weekend.
With Gratitude,
Smoke
May 23, 2015
Savvas Savopoulos YPO Member
The Wallin Children May 2015
Fortune Magazine published a story by Chris Morris May 14th that is getting a bit of attention, posing the thoughtful question: Is craft beer in a bubble?. The New York Times published Craft Beer Is Booming, but Brewers See Crossroads asking the same question on February 4th. I am now getting this question quite frequently from my friends both inside and outside the industry. I’m in Chicago at the National Restaurant Association Show #NRASHOW and this was a hot topic last night over cocktails. 
It is particularly relevant given the amount of new outside money (many of my YPO and friends from other industries are investing in local breweries and increasingly distilleries.) I read the statistic that there is a new brewery opening on average every day in the US this year. In Fortune, they increase this by end of year to every 12 hours. This statistic is a bit alarming on face value, but let us dig a little deeper. To answer the question, one must answer two others:
1. Market Growth: Where is the market going – meaning is the growth in craft share going to continue and to what level?
2. New Capacity: Given the market assumptions from #1, can the size of the market absorb the growth in total capacity?
Market Growth: First, a little perspective: In craft beer boom 1.0 (circa mid 1990s), Chris Miller correctly points out there was a slow down in late 1997 and then flat to low growth for more than a decade before the current much larger boom. My company at the time was actively investing in and building multiple craft beer brands both on the distribution front in Chicago (Goose Island, Sierra Nevada, Pete’s, Bells) as well as regionally/nationally (Goose Island, Rogue). Fortunately, we also had a healthy import business (Grolsch, Staropramen, Tennant’s) that continued to boom during the slowdown. At the start of the current boom, we helped Flat12 start-up in Indianapolis and acquired Napa Smith Brewery in 2009 (sold in late 2012). There is very little comparison this time around from the 1990s. The degree of craft beer penetration into the beer market is fundamentally different. It is much deeper and wider, and is touching every market in some way. That said, the current level of craft sales as a percentage of the beer market is still quite small nationally (11% of volume according to the Brewers Association) vs in select highly developed craft beer markets (Portland, Seattle, San Francisco, Denver). That number has roughly doubled in the past 5 years. I predict craft beer sales will double again and exceed 22% of the US beer market by 2020. This mean approximately 22 million barrels of new craft sales on top of the existing 22 million.
(NOTE: one aside/caveat: craft beer is narrowly defined as independent brewers excluding cross ownership by larger companies in the alcohol industry. This is more political than it is any reality with consumers. Therefore the current share is actually a bit larger than 11%, adding in brands from companies like Goose Island and Craft Brewers Alliance (ABI). My 22% number includes craft taken over by larger brewers).
New Capacity: This is where the “new brewery every 12 hours” statistic is not the most relevant one. The important question is how much new capacity is actually being added to existing breweries combined with new breweries? 95% of the new breweries (and existing breweries) are more like restaurant businesses with a touch of manufacturing, than they are breweries. They will never sell any meaningful volume outside their four walls of the tasting room. There is nothing wrong with a local brewpub being a go-to stop for local people and there is clearly a market for this form of on-premise account. The real question is how much capacity are the production breweries adding and how many of the start-ups actually believe they are going to sell beer outside their four walls. This is where the true competitive dynamic in the marketplace will come into play. Most new breweries that intend to go to market through distribution and retail will fail. This is not because they have bad beer (some might but will die quickly) but rather they cannot make their brand relevant to the consumer in such a crowded field. This lack of differentiation and branding will prevent them from having any meaningful distribution and retail penetration.
The lack of experience in running a full service brewery with a restaurant, attached to a major manufacturing operation, attached to a distribution business, attached to a consumer marketing company will be the downfall of many. Here at the NRA, the 1000’s of operators can attest to the competitive nature of the restaurant aspect alone. There are a lot of smart investors in restaurant companies that have leadership teams with deep experience fighting hard for their share of the consumers’ purchasing dollars. Breweries that want to scale must both run a brew pub that competes with them and figure out how to sell in their beer to a limited number of tap handles available.
My conclusion as of today: The market can absorb many more breweries and capacity than exists today. The ones that remain focused on serving their local clientele will have the best chance of success. The ones that enter the fray of production and distribution will enter one of the most competitive and tough businesses that exist. Those that do not bring an experienced team, significant capital, creative and compelling branding and distribution to the table will fail. There is a bubble of inexperienced entrepreneurs combined with inexperienced investors who are entering the market. I look forward to the shake-out and the opportunities it will create for those prepared. In the meantime, I love capitalism at work and entrepreneurial spirit the craft beer market is demonstrating for all to see.
