When AB InBev got rights to import German Spaten/ Franziskaner brands, it sent letter to big Indiana MC distrib Monarch that it intended to move ‘em to AB distribs in state.  Monarch and 7 AB distribs could not agree on fair mkt value of brands, so they went to arbitration.  Decision came down earlier this week.  Per usual, turned out to be battle of experts, in this case consultant John O’Connor of OMAC Bev Advisors for AB distribs, Geoff Westapher, former Warsteiner prexy and distrib, for Monarch.  Arbitrator hadda decide two things: base year and appropriate multiple.  He ruled 2011 was base year since it was “last operating year where a normal course of business occurred” for Spaten brands.  He didn’t pick 2012 because “there were no promotions, discounts or incentives” that yr and already known in 2012 that brands likely to move. 

On key issue of multiple, arbitrator didn’t find John’s discounted cash flow model to be “persuasive” because he disagreed with 2 of John’s “principal assumptions,” that “customers would be lost in the transition” and Spaten declines would continue.  John also used sales comparisons, but after reviewing “evidence and credibility and background of the expert witnesses” arbitrator found John’s GP multiple – 3.45X, we understand – to be too low.  Instead, he found “persuasive” Geoff’s opinion that “imports would continue to be profitable” and that craft success would not blunt import sales.  Also, “based upon the recent Spaten Brands sales to other distributors (albeit precipitated by AB’s acquisition of Spaten), the strength of the import market, the reputation of the Spaten brands…the trend of existing sales, and the ability of AB to promote and incentivize” its distribs, arbitrator found “appropriate GP multiple is 5.5.”  As result, 7 AB distribs paid total of $640K (from low of $2K paid by Greenfield Bev to high of $381K paid by Zink Dist, rather than $401K under John’s suggested multiple.  One other point: entire process took from Mar 1, 2013 when AB informed Monarch it would move brands, to Nov 19 when arbitrator ruled.   

Crown Imports will be changing its name next March to Constellation Brands Beer Division, it announced today.  The new name reflects the “scope and scale of who we can be” and “leverages the opportunity of being Constellation,” Crown ceo Bill Hackett told INSIGHTS.   For technical and regulatory reasons, Crown Imports will still be used for importing beer in the US and will still appear on the labels and ad tags.  Even corporate name Crown Imports LLC is not changing, but it will become a “d/b/a” (doing business as) so Crown can refer to itself in the trade as Constellation Brands Beer Division.  So what’s in a name?  Why the change?

“We recommended this” to Constellation ceo Rob Sands, said Bill.  Rob would have been fine with keeping the name Crown Imports, Bill added.  But Crown Imports no longer encompassed what the co has become following the deal to buy Piedras Negras from ABI, according to Bill.  Now Constellation/Crown owns a brewery, has offices in San Antonio related to managing that brewery, plus “the handcuffs are off” and Crown can be “more than just an importer,” said Bill.  He added “our book is wide open.”  The company “can potentially scale up” and represents an attractive “vehicle to market” through its Gold distribution network for any number of potential partners. “Nothing is imminent,” said Bill, but “we have had conversations.” 

Then too, the combined power of Constellation makes for more “leverage” at retail, noted evp Bruce Jacobson. He gave as an example a recent “top-to-top” meeting with Kroger’s with both beer and wine, tho INSIGHTS unclear why that will work better if it’s Constellation Brands Beer Division than if it’s simply Crown owned by Constellation.  New name “will take some getting used to,” acknowledged Bill.  But evp mktg Jim Sabia quick to note that from a consumer standpoint, this won’t even really be visible.  Co has gone from Barton to Crown to Constellation Brands pretty seamlessly, so this just “opens up another chapter.”

Meanwhile Crown biz has stayed strong (recall Constellation reported 7% Crown depletions gain in latest qtr thru Aug).  Crown up 14% for 13 weeks thru Nov 3 in IRI multichannel + convenience and up 8% yr-to-date.  And for last 4 weeks, avg prices up 3% and it still maintained that 14% growth rate.   It’s still “really early days” to gauge effect of Crown’s price increases, some of which didn’t go into effect until early Nov, said Bill, but so far Crown likes what it sees.  Crown execs no longer able to give up-to-date all-channel depletion trends, citing the dreaded “quiet period” that virtually all big public companies routinely invoke in between quarters.  (Constellation market cap now near $13 bil, having gone up 3.5x in last 18 mos and now 1.3x bigger than Molson Coors.)  Yet it’s clear that Crown sales have kicked into a higher gear in recent mos.  Modelo Chelada is “far exceeding our expectations,” noted Bill.  Brand is in restricted supply, noted 1 sizable distrib. “We aren’t getting what we ordered.”  Recall, Modelo Chelada is over 1 share in latest 4 weeks in 1 large c-store chain. 

How’s Crown getting along with ABI in production agreement?   “It comes down to putting together a deal that’s workable for both parties,” said Bill. ABI is “doing everything they committed to.  They’ve been very supportive and accommodating of our requests.”

Craft Brew Alliance promoted Andy Thomas to ceo from prexy of commercial operations position he has held for 3+ yrs, effective Jan 1.  Current ceo Terry Michaelson, in ceo role since 2008, will become sr advisor thru 2014.  At same time, CBA also announced a number of other changes to its exec mgt team that will serve to “flatten” the organization, Andy told INSIGHTS, and which will lead to faster decisions.  That expanded exec mgt team has over 125 yrs of beer experience, Andy reminded.  He characterized all these moves as a “logical progression” and “next chapter” after “fantastic ride” that Terry had as ceo. 

Ken Kunze, just recently hired as chief marketing officer (also served in that role under Andy at Heineken USA) is also now in charge of Restaurant & Retail operations.  That’s “logical” sez Andy, since those are “marketing weapons.”  In sales, Dan Partelow is gen mgr west and Peter Schauf gen mgr east. Both still report to Andy, but since he’s now ceo that effectively will eliminate a layer. Another longtime sr exec, exec veep brewing Sebastian Pastore, who’s been with the company for more than 20 yrs, will also leave CBA.  His responsibilities will be split between brewing ops veep Scott Mennen and veep supply chain and logisitics John Glick, both of whom had long tenures at AB.  And CBA also named (sales vet) Derek Ham chief of staff, a new role, encompassing human resources, admin and corporate affairs. 

 “The Board has planned carefully for this succession,” said co-founder Kurt Widmer, praising both Terry’s “exceptional leadership” and Andy’s “instrumental” role in CBA’s success in recent yrs.  Depletions up 14% in latest qtr. But strong as its volume results have been recently, recall that its gross margins challenged in latest qtr.  Making progress against that is #1 priority for 2014, Andy reaffirmed.

About Terry’s tenure as ceo: in 2009, CBA had $80 mil in sales and net loss of $33 mil in wake of Redhook/Widmer merger, Oregon Live noted.  By end of his tenure, sales will have doubled, the co is modestly profitable and stock is on a tear.  CBA stock price was under $2 in much of 2009 and about $6 as recently as a yr ago.  But CBA stock up 2.5x in the last yr alone and is currently trading at about $16. Stock market capitalization is $300 mil.   

Andy will get a base salary of $400,000 in 2014, plus he’s eligible for cash incentive bonus of $250,000 based on achievement of corporate and individual performance goals.  He also signed non-compete, meaning he’s “prohibited from accepting employment with a competitor” thru Dec 31, 2015.  Andy had base salary of $300,000 in 2012, plus he got stock and option awards. Then-ceo Terry Michaelson had base salary of $339,000, up from $270,000 in 2010.  Terry also has about 60,000 shares of CBA, including options, according to govt filings.

New blog started up in last week or so that’s worth a look from anyone interested in beer ads.  It’s written by Dan Fox who ran Coors Brewing’s advertising for many yrs at Foote Cone & Belding.  Dan “personally wrote the Pete Coors ‘Somewhere near Golden, Colorado’ commercials, designed the Coors NASCAR graphics, authored sales-convention speeches, and most important of all, formulated marketing strategy for virtually every Coors brand, including Coors Light, Keystone, Killian's Irish Red and more,” he sez.  This is a man who knows beer ads.

Entries have titles like “the ad strategy Budweiser rode to the top,” “‘seven deadly sins’ of beer advertising” and more.  Why’s he starting this blog? Dan sez he is “upset with what he sees as the accelerating, but avoidable decline of virtually every major beer brand in the country,” so “he set aside the hyper-competitive ethic of the beer business to campaign on behalf of the fortunes of all the big-beer brands.”  Please Don’t Let Bud Die is an unexpected title for a blog from a Coors loyalist, but then again Dan is a self-proclaimed “real beer guy.”  Tho out of the game for last few yrs, he makes many interesting and potentially still relevant points. His inaugural post was entitled “Why would a Coors guy give a damn about saving Budweiser.”  Check it out at www.plzdontletbuddie.com.  

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Consumer price index for beer increased 2.3% in Oct compared to Oct 2012.  That’s biggest gain since Jul.  Meanwhile, CPI for All Items up 1% in Oct vs yr ago, its lowest monthly gain in 2013.  Spirits prices up 1.7% in Oct while CPI for wine up just 0.1%.  CPI for beer up 1.6% yr-to-date  vs 1.5% increase for general inflation while spirits and wine up 1.1% and 0.7% respectively.  Households in general “are getting some extra cash to spend on other goods and services as fuel expenses cool,” noted Bloomberg.  

Interesting how different execs from different bev cos are looking at the biz these days.  At last week’s Beer Insights Seminar, MillerCoors’ chief customer officer Kevin Doyle said “real issue” for beer biz now is “per capita beer consumption is not growing.”  In fact, it’s declining, while spirits and wine per caps are growing.  “That’s something we all need to take care of.”  Then too, “one segment can’t drive the industry,” said Kevin, referring to strength of high end, while premium/subpremium volumes suffering.  AB’s David Almeida and Pabst’s Kevin McAdams stressed similar point, that industry needs balance across mainstream categories.  But #1 distiller Diageo’s chief exec Ivan Menezes had different perspective in comments to investors this week, according to Daily Telegraph.  “Our strategy is all about drinking better.  We don’t want people to drink more, we need them to drink better.” 

Another recent comment got our attention.  While Coca Cola execs in US have never been enthusiastic about selling alc bevs along with soft drinks, that sentiment not universal.  Indeed, Coca Cola Amatil’s chief down under, Terry Davis, called getting back to selling beer in Australia a “no-brainer.”  (CCA’s beer biz put on hold for 2 yrs in wake of SABMiller’s Fosters deal; Coke owns 29% of CCA.)   Davis cited Australia’s $1 bil beer profit pool, that beer a duopoly there with 2 cos making 30-35% margins and that his co has distrib network/technological platform in place to be “third force” in mkt, selling intl beers, reports AAP.  CCA has Australian rights to Molson Coors, Sam Adams and others.   Sales of intl beers there is “market that’s been growing at double-digit rates for the last seven or eight years so it’s a no-brainer.  We’ll have a bit of fun over the next three or four years,” he vowed.   Will Coke folk elsewhere around globe be seeking to have some beer fun down the road as well?      

World’s #1 distiller Diageo meets constant speculation that it may (or should) sell its beer biz with constant expressions that it remains committed to beer, especially its global Guinness biz.  That was message again from recent mtg with analysts. Diageo “sent a message that [Guinness], together with the mainstream beer business in Africa, are not for sale,” wrote Nomura’s Ian Shackleton.  But ceo Ivan Menezes “did not rule out pruning some non-core brands,” Ian added, speculating possible sale of Red Stripe.   In US, “the (Guinness) brand is picking up some steam on the back of its ‘Wheelchair Basketball’ commercial, which (our opinion), might be one of the best television adverts ever made,” wrote Santander’s Anthony Bucalo.  Guinness Draught $$ up 1.6% yr-to-date, and +2.3% in latest 13 weeks in IRI multi-channel data thru Nov 3.  Guinness Extra Stout +3.6% for 13 wks, +3.5% YTD.  Total DGUSA trends improved too, tho still down.  Diageo Guinness USA volume down 7.5%, $$ sales down 7% yr-to-date thru Nov 3, yet improved to -3% for 13 wks.  In 2014, “line extensions of Smirnoff Ice and Parrot Bay are intended to combat the success of” Bud Light Ritas, reported Stifel’s Mark Swartzberg.

Ivan stressed half-dozen must dos for Diageo goin’ forward, including accelerating premium core brands, winning in highest end (where avg gross margins are 75%) and innovation.  Diageo does not need to buy Jim Beam (or other big bourbon), said Ivan.  Rather, Diageo intent on “expanding its existing whiskeys and launching new ones,” wrote Mark.  Current whiskey portfolio is growing, said Larry Schwartz, head of US biz.  He also “indicated price increases are coming on the North American whiskey portfolio, while vodka price increases may be put on hold due to increasing competition.”   Diageo and National Basketball Association (NBA) just announced a new multiyear marketing partnership that will make Diageo exclusive spirits partner of the league, leading with Ciroc and Crown Royal brands.

While beer volume challenged across developed mkts in US, Europe, Australia, SABMiller chief exec Alan Clark noted “trading environment is quite different.  In the USA for example we are able to get pricing and we don’t see the same level of price competition” as in Europe.  MillerCoors rev/bbl up 3% for 6 mos thru Sep “as a result of firm pricing and favorable brand mix” from growing above-premium biz, SABMiller reported today.  “We’ve been able to trade our portfolio up,” Alan noted, which has “helped to drop profit to our bottom line.  So overall I think a better environment for us in the USA.” 

SABMiller reported 1% volume gain across its global biz for 6 mos.  Organic rev/bbl up 2% and brewer booked “constant currency EBITA growth of 7%,” but depreciation of foreign currencies knocked reported EBITA gain back to 4%.  SABMiller got organic rev/bbl increases in 5 of 6 regions (all except Asia Pacific), organic EBITA margin growth in 5 as well (Europe was outlier).  

Anytime IPA will compete against All Day IPA (Founders) and Daytime IPA (Lagunitas) next yr in the increasingly coveted and crowded session IPA space, surely a big battleground for craft beer in 2014 and beyond.   Anytime IPA label from the Just Beer Project (one of Alchemy & Science’s initiatives for Boston Beer) appeared on BeerPulse late yesterday.  Asked if that was a new brand, Alchemy & Science’s Alan Newman said it’s the “same great beer as Just IPA, just a new name – one to better communicate ‘sessionability.’” 

That word has become something of a mantra among craft brewers these days.  Could that be the next step in craft’s ascent? More and more craft brews play in spaces somewhat more similar to big brewers’ beers and look to source further volume from them.  Yet sessionability is also a word that big brewers use to distinguish their beers from craft beers.  Now that Lagunitas has more capacity, it will be ramping up production of its Daytime IPA.  And Founders All Day has quickly risen to become that fast-growing brewer’s #1 brand. 

Boston getting more serious about competing in IPAs more generally as its Rebel IPA is expected to roll to many markets in 2014.  That brand reportedly takes direct aim at Lagunitas IPA.  Lagunitas is the fastest growing craft brewer in recent years, jumping from just over 100,000 bbls in 2010 to over 400,000 bbls in 2013.  Big 2, AB and MC, have not yet made serious push into IPA space, though Goose Island’s IPA up 165% on small base in IRI and Goose expected to have more IPAs coming in 2014.  Total IPA $$ sales up 44% yr-to-date thru Nov 3 in IRI multichannel + convenience and gained 3 share of $$ in craft segment to 18.  

Modelo Especial Chelada grabbed over 1 share of $$ in last 4 weeks thru Nov 3 in Southwest in scan data in 1 leading c-store chain.  And Modelo Especial still grew $$ over 25%, gaining 1.9 share of $$.  Bud Light dropped 1.6 share and Bud 0.8 last 4 weeks in this chain.