What Liquor Can Learn From Coffee and Soda

None of us would want to find out that someone spat in our drink. And we definitely wouldn't want to be told that someone will be spitting in all our future drinks. That's why the outrage came as no surprise when Beam (NYSE: BEAM  ) brand Maker's Mark decided to water down its future batches. But now that the company has reversed the decision, it has a shot at being on the same page as beverage greats such as Cola-Cola  (NYSE: KO  )  and Starbucks (NASDAQ: SBUX  ) . Here's how.

Like bourbon for coffee
Beam is by no means the first company to temporarily lose its footing. Starbucks, for example, was in danger of losing its soul after the departure of founder and CEO Howard Schultz in 2000. In his absence was an eight-year stretch of burnt coffee, bad atmosphere, and stale pastries. The situation became so blatantly awful that when written critiques didn't work, Schultz set about saving his company the only other way he knew how: by taking the reins again as CEO in 2008.

Starbucks' stock had performed acceptably enough in Schultz's absence, but it has catapulted to new heights since he came back. By returning its attention to a high-quality user experience, the company has seen revenue jump 24% since 2009. The company also began issuing a dividend in 2010 that has since doubled. 

Beam can take plenty away from the Bucks. The coffee staple learned the hard way that taking shortcuts on quality ultimately cuts short a company's profits. With the Maker's Mark flap, Beam appears to have learned that same lesson in a tiny fraction of the time. It will take a while for Beam to win back the trust of customers and investors, but if it puts a persistent focus on maintaining the quality of its product -- even if that means raising prices -- higher morale might not be too far off.

Beam and Coke
While Starbucks and Beam had their share of blunders, neither was as high-profile as Coca-Cola's. When giants take a misstep, they fall hard.

Remember New Coke? Of course you do. The introduction of a replacement formula for the beloved soda immediately sparked outrage within the market. Investors felt betrayed that a brand they had trusted would so abruptly undertake such a dramatic change, and without any of their input. The incident even helped Coke's archrival, PepsiCo, overtake the top soda-maker spot at the time.

Of course, the company eventually saw the error of its ways, stuck New Coke on the back burner, and gave it a different name in 1992. (Has anybody ever actually had a Coca-Cola II?) Coke shook off the dust of a mistake and reclaimed its place at the top. Now, two years after New Coke's 25th anniversary, Coca-Cola reigns supreme and is a stalwart stock for any dividend investor. Beam might have a shot at following suit.

Can Jim Beam get his groove back?
Plenty of beverage titans have recovered from a misstep on Wall Street. To get over this latest gaffe, Beam somehow needs to prove that the company is still listening to its shareholders. For now, its financials are still strong, and like Coke, it has the makings of being a great dividend stock.

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  • Report this Comment On February 25, 2013, at 11:23 PM, SuntanIronMan wrote:

    Outrage over a slight product change. Outrage over a change that was never created, sold or consumed by customers. Outrage over a change that the only likely end-result is that it gets you slightly less drunk. Those are first world problems for ya, haha.

    I'm of the mind that this was planned all long. Beam knew the predictable reaction they would get. This essentially seemed like a referendum on alcohol content verses price. Without actually asking the question outright, they gave people this choose: To meet increased demand abroad, we (Beam) can either decrease the alcohol content or increase the price. Which do you choose.

    But they didn't ask it as a question. They said "We're changing the product you love!" and announced it directly by email their most hardcore of hardcore fans. The reaction was of course against any change. And now Beam has all the justification they need to raise prices. Now they can say "You said you wanted to keep the same quality. You begged and pleaded with us to keep the quality the same. Well, here is the same quality, but at a higher price point. Enjoy!"

    I don't actually know if that was Beam's plan. Maybe I'm giving them WAY too much credit. Entirely likely I'm giving them too much credit. But Beam was either oblivious to the obvious reaction they would get or they used the obvious reaction to get exactly what they wanted in the first place.

    Fun to speculate.

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