“Volume sales of on-premise craft beer decreased each of the last 3 months an average of 6 percent versus a year ago,” reported Restaurant Sciences LLC earlier today.  Whoa there.  That would be something, perhaps first big chink in armor of craft revolution.  But another data source, GuestMetrics immediately countered with its own on-premise data that showed craft still up, tho definitely slowing on-premise.  Craft up 1.9% for 4 weeks thru Oct 6, up 4.1% for weeks thru Nov 3 and and up 1.7% for 4 weeks thru Dec 1, sez GuestMetrics.  Craft was still up 6% in 2d qtr of 2013 on-premise, but up 2.5% in 3d qtr in GuestMetrics data.  Slowdown seems more likely than a sudden plunge to a 6% drop. 

That wasn’t only data disconnect, highlighted by GuestMetrics ceo Bill Pecoriello.  While Restaurant Sciences sez” number of craft beers sold on-premise has decreased 19 percent versus a year ago,” GuestMetrics data shows number of brands at 6595 in 3d qtr, up 30% from a yr ago.  And Restaurant Sciences points to possibility that consumers “balking at price increases in the three to seven percent range this fall across restaurants, bars and night clubs.”  But GuestMetrics data shows that highest priced beers are the ones growing the most.  Only beers priced $5.25 or lower on premise are flat to down thru 9 mos.  Beers priced from $5.25 – $5.55 are up 6.8%, and above $5.55 beers are up 14.3% thru Sep, sez GuestMetrics.  

This one’s been brewing for a while.  Monarch Bev, Indy’s biggest beer distrib, has been trying to get legislature over several sessions to change state law that bars beer distribs from wholesaling liquor as well.  (Wine distribs can sell both, plus beer.)  Legislature hasn’t budged.  So Monarch went to fed ct in Oct.  Suit charges Indy law (only one like it in license states) that bars it from adding liquor license is an “anachronistic classification” going back to post-Prohibition era, is “entirely illegitimate,” has no purpose and violates equal protection rights under US Constitution.   Not surprisingly, wine and spirits distribs assn – representing heavy hitters like Southern Wine, Republic National and Glazer’s – has weighed in to defend law.  And distrib assn that represents AB wholesalers – Indiana Bev Alliance – supports wine/liquor distribs against Monarch, reports Indianapolis Biz Journal.  Why?  Monarch has MillerCoors in 69 of state’s 92 counties, IBA prexy Marc Carmichael told paper, and is statewide for some craft brands. “It’s a zero-sum game for the Legislature to make a change that dramatic because all it would do is shift business from some wholesalers to Monarch.”   Net-net: AB distribs don’t want Monarch getting even bigger/stronger.  Those distribs – 18 of ’em compete vs Monarch in its MC territory – much smaller than Monarch.

Wine/liquor distribs assn argues that Indy law does not violate Monarch’s equal protection rights.  Moreover, the beer/wine/liquor distribs “are not identical in all relevant/material respects” (i.e. beer distribs have franchise protection) and if ban overturned that would violate their equal protection rights.  What does state say?  In its very limited answer to Monarch’s complaint (details likely to follow), state alc bev commission denies Monarch allegations and insists Monarch rights haven’t been violated.  Indy alc bev laws are constitutional, ABC sez, “are rationally related to a legitimate government interest and are not discriminatory or irrational.”  

Monarch begs to differ, of course.  In complaint, Monarch said system goes back to 1935 when law first banned beer wholesalers from carrying liquor.  As it played out, in Monarch’s view, county politicians doled out beer licenses (capped in number) and state politicians doled out liquor licenses.  But “rewarding politicians and their patrons is not a legitimate governmental purpose,” Monarch argues.  What’s more, ban on beer distribs from carrying liquor: 1) does not protect retailers (other laws do that); 2) isn’t aimed at promoting competition, since wine wholesalers can sell liquor and there is “no relevant difference between beer and wine wholesalers”; 3) has “no effect on consumer behavior” or temperance since wholesalers don’t sell to consumers. 

Wine/spirits distribs assn counters that Monarch “actually seeks preferential treatment that would put Monarch in position to dominate the wholesale tier” of the Indy alc bev market, to detriment of its members. Howzzat?  Over last 80 yrs, “entirely different set of ground rules have developed” for beer and liquor/wine distribs, including franchise protection for beer, none for liquor.  Monarch win would create “uneven playing field” since it would be “entitled to compensation if beer brands it presently distributes moved” to a liquor house, while “Monarch would have no reciprocal obligation to compensate” liquor distrib who loses a brand. 

Meanwhile, a trucking co owned by Monarch is also suing the state, arguing that the same ban Monarch is challenging is illegally preventing it from providing transportation and warehousing services to liquor wholesalers.  That violates fed transportation laws, trucking co sez.        

MillerCoors ceo Tom Long spoke to packed house of over 400 people last Friday for Milwaukee Business Journal’s Power Breakfast, including the Mayor and other local big shots.  Tom talked about MC’s “commitment to Milwaukee” and how it is “maintaining a Milwaukee-centric approach with ventures like Tenth & Blake,” wrote the Biz Jnl (which ran 3 separate articles on the talk so far).  Recall, MC purchased a 110,000 sq foot warehouse behind its existing 30,000 sq ft brewery and will start operating there in early 2014.  “We’ll bring some new beers in there and use that space for more packaging facilities,” said Tom.  MC is taking the “when we grow, then we’ll add jobs” approach, because its breweries are the right size, notes the Jnl.  “While the volume of some of our beers is going down, the capacity (in the breweries) is being fully absorbed by these beers that take more time to make,” said Tom.   

MC’s Local Strength; But Sales Soft in Wisc MC announced in Oct that it would lay off 27 salaried workers in Milwaukee, but MC still employs 1600 people in Wisconsin.  MC pays $175 mil in wages and benefits statewide, purchases $700 mil of goods from Wisc cos and invested $100 mil in its brewery there.  What’s more, MC still has its highest share in the US in Wisc (state #s not part of presentation).  At 44.2 in 2012. 

It’s under lotsa pressure there tho, including loss of 3.5 share points in last 4 yrs.  MC lost 206,000 bbls, 11.6% in Wisc between 2008 and 2012.  And MC down another 56,000 bbls, 5% thru Jun 2013.  So Tom’s show of local strength and commitment took on added meaning against that backdrop.  He did also note that Wisconsin folks “are drinking more Coors these days,” according to the Jnl.

MC Digital, Mobile Spending Up 20-30% Per Yr; MC’s Strategy; “Holding” Co of “Authentic” Breweries  MC, like other brewers, shifting more of its marketing budget to digital media and consumer experiences, MC ceo Tom Long told Milwaukee Biz Jnl’s Power Breakfast.  Digital and mobile media spending up 20-30% per year in recent years, said Tom. “Digital and mobile is a huge platform.  Remember, these are all just pipes—and content needs to go through the pipes, whether it’s television advertising, whether it’s our presence at Lambeau Field, whether it’s mobile applications.”  MC also spending more on “experiences” like its Brewers Unleashed event.  “We’re having to bring more experiences to people,” said Tom.

Finally, Tom “highlighted the company’s business strategy as it adapts to new consumer preferences” with many smaller brands.  MC is “really a holding company of authentic breweries,” Tom said, including Coors Brewing, Miller Brewing, Blue Moon Brewing and Leinenkugel.  “It lets us compete effectively with small brewers and big brewers…. The notion of a parent company—with many brewers underneath it—brewers that are real places with real people and (have a) real heritage is the difference for us,” said Tom. “We can’t be the biggest, we want to be the best,” Tom concluded.  

As of Tuesday, Heineken became the biggest shareholder of United Breweries in India.  At almost 39%, it has just surpassed “flamboyant Indian billionaire tycoon” VJ Mallya, reported the Financial Times.  Mallya still has 37.5%, but has already seen “his airline grounded” and his spirits biz is now “controlled by Diageo,” notes FT.  With Heineken purchasing an additional 1.4% stake of United from Citicorp Finance, it is now biggest shareholder.  “It is yet another sign that Mallya’s booze-to-planes empire is crumbling one company at a time in the wake of the disaster of Kingfisher Airlines,” noted FT. 

Other VJ Mallya companies own stake in longtime craft brewer Mendocino, but Heineken reportedly does not have stake in that US craft brewer, which is declining.  Recall, Mendocino sales down 14% thru Sep and has $7 mil working capital deficit.  

Extensive profile earlier this week on Allentown PA’s Banko Beverage, the $100 mil (annual revs) distrib that’s “the largest wholesale beer distributor in the region, extending north to the Scranton area and east into New Jersey,” and only getting bigger, reported Lehigh Valley Business (LVB).  The 80 yr old distrib will move into its “new headquarters next spring that will nearly double its size.”  Banko is investing $7 mil into the new hq, and “expects the move to occur in March,” Banko vp and general manager, Tom Lynch told paper.

Currently co “has 131 total employees, 50 of whom are union members.”  Biz was started by Frank Banko Sr., who had emigrated from Yugoslavia in 1908, and “added Schaefer Beer to his soda bottling operation,” in 1933.  Frank Banko Jr then took over for many decades.  His daughter Mary Ellen (Banko) Racz is current ceo.  “Everything Mr. Banko touched was a good brand, whether it was Genesee, Miller, Schaefer,” Dick Yuengling told paper in recent interview.  “He bought 17,000 cases from the guy who was previously our wholesaler and he got it up to almost a million cases a year,” he added.

Tho total on-premise biz soft, Hotel/Lodging operators are projecting food and beverage sales to grow over 4% in 2014, according to Technomic’s BarTAB Report.  Adult beverages are becoming “increasingly important” to hotels which are focusing on growing their bar biz more, noted Technomic.  Hotel/Lodging accounts represent 7.2% of on-premise beer sales; 7% of spirits and 16% of wine according to analysis.  Half of hotel operators indicated their alc sales grew this yr.  Report notes that “a greater proportion” (33%) of 21-34 yr- old consumers visit hotels at least once a month vs just 14% of those 35 and older.  Hotel operators are realizing “a creative and operationally-sound drink program executed across the various outlets of a hotel property can add value and enhanced experience elements for guests, as well as high-profit sales,” noted David Henkes, vp of Adult Beverage Practice.   

Malt and aluminum cost pressures are easing for brewers, tho it’s complicated and timing will be different for different regions, Bernstein’s Trevor Sterling detailed yesterday.  Brewers with lotsa biz in Western Europe (Heineken/Carlsberg) will see bigger impacts and more quickly from sharp fall in malt prices there, about  15%, Trevor figures.  Costs for malting barley have fallen even more sharply than that.  At same time, current spot prices of aluminum now about 15% below last year, “indicating likely relief as hedges roll over in 2014,” he wrote.  Hedging, timing of contracts and impact of foreign exchange rates all play a role in final costs facing brewers.  Here’s how Trevor summed up impact on US: “modest relief on COGS (cost of goods sold) in 2014” implied by contract prices falling earlier this yr with increased production, following spike in prices in 2012.

Then too, “more good news in the pipeline, albeit 12-18 months ahead,” Trevor noted.  Contracts for 2014 signed at even lower prices, which imply “10-15% fall in the price of malting barley for the 2015 cost base.”  At same time, “most brewers,” Trevor believes, “have considerable upside from lower aluminum prices in 2013 and that this will continue in 2014.”  Aluminum spot price was $2400/ton when brewers made their hedges for 2012, dropping to $2000/ton when hedges made for 2013.  But lotsa aluminum will be hedged “this year when prices have been closer to $1800/ton,” Trevor calculates, “implying likely further upside for the brewers’ P&L’s in 2014.”  Be interesting to see whether these easing cost pressures on one side of biz have impact on pricing decisions going forward.   

Total beer $$ sales have taken a turn for the better in recent mos in off-premise scan data.  Beer $$ sales up $395 mil 5.6% for 13 weeks thru Dec 1, according to IRI, with a combo of 2.3% volume growth and 3.2% avg case price increases (over half trading up).  So healthy pricing continues.  At same time, beer sales have gotten even softer on-premise, according to GuestMetrics.  Down 5.5% last 4 weeks thru Dec 1.   While the industry is still challenging overall, some brands stand out as especially hot in recent months in IRI, growing the most incremental $$. 

Indeed, 5 brands captured almost half of the industry’s $$ sales growth last 3 months in IRI.  Straw-Ber-Rita got $52 mil in sales, 0.7 share of $$.  Redd’s now nearly as big, at $44.5 mil in sales and 0.6 share of $$.  Modelo Especial jumped to 30% $$ sales growth last 13 weeks and an incremental $36 mil in sales.  Avg prices paid up 4.2%.  And it gained 0.4 share of $$.  Corona back to major growth in recent mos, $$ sales up $33 mil, 12%.  Avg prices up nearly 2%.  Gained 0.25 share of $$. Michelob Ultra accelerated to double digit $$ sales gains.   Up $23 mil, 13% and 0.2 share, with avg prices up 3.3%.  Those 5 brands grew $189 mil and 2.2 share of $$.

The 3 brands that lost the most in $$ sales last 13 weeks were all AB brands.  Bud Light Lime-a-Rita suffering a change in fortune. Down big 30%, $16.5 mil.  Natty Light $$ down $12.2 mil, 4% and Bud Light Platinum down $9.7 mil, 11%.  In last 4 weeks, Cran-Brr-Rita made up for Lime-a-Rita drop and then some.  Which brands lost the most $$ share last 13 weeks?  Big premium light beers.  Bud Light, even tho $$ sales up slightly, off 0.8 share last 13 weeks.  And Miller Lite $$ sales down $7.6 mil; it lost 0.45 share. 

After about 3 yrs at helm, Beer Institute prexy Joe McClain will resign effective this Friday, Dec 13 to “pursue other interests,” Beer Inst chairman (and MC prexy) Tom Long said in a statement.  Tom said Joe “stabilized” BI and “led the organization through many challenges,” crediting him also with “strengthening” the org with the hiring of gen counsel Mary Jane Saunders and vp communications Chris Thorne.

Search for a successor “begins immediately.”  In the meantime, “longtime BI mgt committee member Tim Scully is interim president.”  Tim is MC’s  DC honcho.  BI gives one clue as to its future direction: “We will recruit an individual who has a clear understanding of the inner workings of Washington DC and can represent all brewers with policy makers, industry associates and partners.”  This sentence suggests that BI will look for an inside DC player this time as Joe’s background was mainly in the Navy.

Beer Inst remains a much smaller assn than its counterparts in wine and spirits, and also much smaller than either the NBWA or the Brewers Assn.  Traditionally, the big brewers have preferred to have their own individual lobbying arms doing much of the heavy lifting.  But as beer continues to lose ground to wine and spirits, as big and small brewers remain divided on issues such as tax reform, and as beer faces a growing potential challenge from the legalization of marijuana, can such an approach effectively be sustained?  For much of Joe’s tenure, we heard lots about BI’s coming push on “Brand Beer” but that hasn’t yet been implemented in a big time public way.  

Tho trial in lawsuit between partners Molson Coors and SABMiller in Canada on tap to start today, settlement talks led to postponement, reports Globe and Mail.  Recall, SABMiller tried to terminate long-term deal it has for Molson Coors to sell Miller Genuine Draft in Canada.  Claims Molson Coors missed (by far) MGD target sales for 2010-2012, so it had right to terminate.  Molson Coors sued, got injunction to stop termination. Turns out both companies had anticipated rule change regarding use of clear glass that would have allowed Molson Coors to brew MGD in Canada, instead of importing it, thus improving margins and incentives, Globe and Mail explained.  That put sales goals on hold.  But rule change didn’t occur and SABMiller sez that meant old sales targets still in effect.  Molson Coors maintains sales goals were supposed to be renegotiated and that losing MGD would be “irreparable harm” given strategic role brand plays in portfolio. 

Judge had granted Molson Coors injunction in Jul.  At time, he “said Miller has the strongest case on many of the legal issues,” but felt trial could go either way, paper reports.  Judge also pointed out both brewers “sophisticated” enough to work together despite dispute, (as they do in US) and that should “temper whatever personal acrimony may have arisen in the course of these proceedings.”  Recall too, Miller had tried to end agreement back in 2005, when Molson merged with Coors and Miller said that would reduce their incentive to sell MGD in Canada.  Lawsuit then ended in settlement to extend agreement.  Tho MGD fading fast in US, it is one of SABMiller’s 4 global brands, along with Grolsch, Pilsner Urquell and Peroni.