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Vosper: Of bikes, beer and Balkanization

Published October 14, 2019

In his October Grapevine column BRAIN publisher Marc Sani has more than a few sharp words for the major industry players whose withdrawal from Interbike hastened — some would say “deliberately engineered”— that show’s eventual collapse. If you haven’t read it already, I recommend doing so. Here’s a representative sample, what we marketing types would call The Money Quote:

… it’s been my long held conviction that it was a selfish act to turn their collective backs on the industry and siphon dealer attendance away from the only event that offered a collective experience for so many to enjoy. Perhaps there could have been a better way, instead of the majors Balkanizing dealers into singular tribes defined only by brand, which is where we find ourselves today.

As for myself, I’ve sat on the other side of that desk, fussing with budget-line dropdowns and trying to make a business case one way or the other for an event that was often the single largest marketing expense of the year for my employers and clients. To this day I’m still not sure what the right answer is. Or was. Or might be in the future. But the Balkanization of the industry that Sani talks about is a very real element of Bike 3.0, if not its signifying principle.

As discussed more than once in this space, we currently have a retail landscape where just over half of U.S. bike shops, and some even larger share of sales, are primarily allied with one of four major brands for bikes and equipment. Anyone who thinks this tribalized landscape is unintentional does so at their peril, because retailers grouped “into singular tribes defined only by brand” is exactly how the Quadrumvirate see the specialty retail channel. From this perspective, retailers exist solely as a conduit for their brands and have no function or identity or value beyond that. And having a big event once a year where everyone in the industry shows up and does business together — a grand-scale conference of equals — is directly antithetical to that notion. Make no mistake: the Quadrumvirate want our industry splintered, isolated and out of touch with itself. And with the destruction of Interbike, that’s exactly what they have accomplished.

You can see the proof in their advertising. There is no mention of the dealer there, no acknowledgment that the specialty retail experience adds any value whatever to owning those brands’ products. Perhaps tellingly, there is nothing in those ads or videos to differentiate the Triumvirate’s products from those of their consumer-direct competitors. 

Bikes and beer

The larger question here is the long-term effect of a relatively few brands promoting their own advancement by sabotaging everyone else in the channel. Think of a few wealthy landowners who can afford to sink their own wells, passively working to destroy the water supply for the rest of the town. But even better than wells and water, the Quadrumvirate strategy fits two other favorites of cycling culture: pubs and beer.

Note: Some of the following is rewritten from a pretty-good Wikipedia article which you can read in its entirety here.

In the United Kingdom, a tied house is a public house (pub) under contract to buy some or most of its beer from a particular brewery or pub company. That’s in contrast to a free house, which is able to choose whatever beers it wants to sell or thinks its patrons might want to drink.

The pub itself might be owned by the brewery. More often, a prospective owner is encouraged to finance the purchase with soft loans (often a mortgage) from a brewer and required to buy beer from it in return. 

Sound familiar? In the bike biz we call these company stores or concept stores, respectively. And of course, breweries also offered smaller independent pubs better pricing in exchange for stocking the brewery’s products either preferentially or exclusively, making them tied houses in principle even if not in name.

The problem with the tied house concept comes when one or more breweries collectively control enough of the pubs in an area to make it difficult for consumers to buy other kinds of beer they might happen to prefer or even just want to test-ride — I mean, taste.

In the UK, this led to the founding of The Campaign for Real Ale, an independent consumer group promoting traditional (which they call “real”) ale and cider, and consumption of those beverages in traditional British pubs. CAMRA claims just over 192,000 members, making it the largest single-issue consumer group in the UK, and it’s considered one of the most successful consumer organizations of any kind in Europe. There’s even a CAMRA app for Android or iPhone to help thirsty Brits (no to mention Welsh, Scots and Northern Irish) find quality refreshment nearby.

But tied houses also existed in the United States, particularly in the freewheeling pre-Prohibition era. The reason they don’t anymore is because states found the practice fundamentally anticompetitive and used the broad regulatory powers granted them with repeal of the 18th Amendment to limit suppliers and wholesalers’ ability to control retailers. Eventually, the entire practice was legislated out of existence illegal, with certain very narrow exceptions like brewpubs.

Here are some quotes from the landmark California State Supreme Court’s 1971 decision in the case of Calif Beer Wholesalers Assn. v. Alco. Bev. Etc, which validated both the anticompetitive nature of tied houses and the State’s legal authority to regulate them:

“By enacting prohibitions against 'tied-house' arrangements, state legislatures aimed to prevent two particular dangers: the ability and potentiality of large firms to dominate local markets through vertical and horizontal integration … and the excessive sales of alcoholic beverages produced by the overly aggressive marketing techniques of larger alcoholic beverage concerns. … In the era when most tied-house statutes were enacted, state legislatures confronted an inability on the part of small retailers to cope with pressures exerted by larger manufacturing or wholesale interests.”

If that comparison is too subtle for some readers, let’s substitute “a few jointly dominant bike brands” for “large firms” and “possibly deliberate, unrelenting season-after-season oversupply of bicycles” for excessive sales of alcoholic beverages and see if my meaning becomes a little clearer.

Short-term strategy begets short-term results. And that's fine, if you're in business for the short term.

Of course bikes are not beer, however well the two may go together. And I’m not suggesting the actions of large bike industry brands with respect to Interbike and/or authorized dealer agreements are literally illegal. What I do suggest is that the broad effect of these actions is generally anticompetitive and certainly short-sighted … unless your version of a long-term strategy follows the Nixonian model of destroying the village in order to save it. 

These practices—and the brands that employ them—create a fundamentally less healthy bicycle industry. Even worse, turning retailers into tied houses impoverishes the ecology of brands and viewpoints that make cycling such a rich experience for people who like to ride bikes. Instead of local pubs, each with a selection of offerings, we end up with a series of brand showrooms, more like a chain of ice cream parlors with a sign outside each one saying “Adolph’s One Flavor — Take It Or Leave It.” And when the industry itself is under greater stress than at any time in the post World War II era, that is ultimately not a good thing for anyone.

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