Ranks of distribs keep thinning. In more and more markets it’s getting down to 2 distribs. Calif going Miller/Coors in a hurry. Over 1/2 dozen distrib deals there in just last 6 mos. So far in 2002, new Miller/Coors distribs in all these cities: Van Nuys, San Jose, Redwood City, Santa Maria and Visalia. That followed Oakland and Long Beach/Anaheim late last yr (when Coors sold its Anaheim branch to Reyes family, that seemed to open floodgate). Here are some of players: Allied Bevs (owned by Kevin Williams) bought 2-mil-case Coors/import distrib Sierra; it also sold Miller in Santa Maria to new Central Coast (partnership between Coors distrib Larrabee Bros and ex-Sierra owner Frank Clark). South Bay Bevs (owned by Bob Fransechini Jr) bought 3.2 mil-case Miller/ Coors distrib in San Jose. That was 4th new owner there in 4 yrs. Bob also sold Coors West in Redwood City to Maita Dist to form new Miller/Coors distrib there. And Valley Wide of Fresno bought 1-mil-case Coors distrib C&S in Visalia; it already has Miller there. But 1 state well ahead of Calif on consolidation curve: the whole state of Fla is now consolidated Miller/Coors. Other recent Miller/Coors deals also inked in Tex, Tenn, Va, Mo, Ga and Mass. In recent Tex, Fla and Mass deals, Corona brands peeled off and sold to AB distribs again, for over $20 per case in Fla and Mass. In Tex, Houston Dist and Faust Dist bought 3-mil-case Coors/Pabst/import distrib Hillman Intl Brands; Houston Dist got most of that. But Corona brands sold separately to 2 Bud distribs, mostly giant Silver Eagle. Silver Eagle now sells about 1 mil cases of Modelo products. In Richmond Va, Loveland Dist (Miller) bought 1.2-mil-case National Dist (Coors) and it kept Corona. In all, it will sell 4.7 mil cases and have about 60 share. While most deals followed well-established patterns, a couple of curveballs in Tenn and Ark. In Memphis, nation’s largest DVD distrib, Ingram Entertainment, acquired 1.5-mil-case Coors/import distrib Crown and will sell beer out of its DVD warehouse. Next door in Ark, another switch: smaller AB distrib bought a much larger non-contiguous 3.3-mil-case AB distrib. Eagle Dist in Texarkana paid around $25 mil all-in for Golden Eagle in Little Rock.

SAB "set to clinch "Miller deal "next week," wrote Reuters on 4/11 as we went to press. Cited industry and banking sources. "This looks like a done deal," said one close to the talks. But one day earlier, SAB spokesman told INSIGHTS negotiations in "early days." So go figure. Most execs INSIGHTS talked to recently consider deal likely. Both PM and SAB publicly acknowledged negotiations following a Wall St Jnl report that called discussions "advanced." Parties hope to "finalize terms in the next few weeks," Jnl had written. Yet SAB officially merely said discussions "preliminary" and SAB "in discussions with a number of third parties regarding the ongoing consolidation of the industry." PM’s statement even blander; it just confirmed negotiations. SAB issued its statement to comply with UK regulatory requirements (the South African co is listed on London exchange). Remember that in early Mar, PM COO Bill Webb told Miller meeting that media reports on deal consisted of "tired old rumors," and that S&N (said at time to be 3d party in deal) had done different $1.5 bil deal in Eastern Europe. What reignited discussions? "After shopping Miller around and finding few buyers," wrote NY Times, PM "lowered its asking price, a prospect that has helped lure SAB back to the bargaining table." PM apparently dropped its asking price from $6 bil to $5 bil, according to various reports. What’s $1 bil between friends? Better yet, that $5 bil wouldn’t involve any cash outlay at all. In deal supposedly on table, PM would keep 25% stake in combined entity worth about $3 bil and allocate $2 bil in debt to new co too.

Here are a few notes about SAB. In fiscal yr ended Mar 31, 2001, SAB had about $4 bil in revs, $667 mil in pre-tax income. So its revs almost identical to Miller, but income about 30% greater. Meanwhile, it recently listed annualized volume almost 2x Miller: about 75 mil bbls. Because of devaluation of South African currency, SAB profits have actually declined last couple of yrs. (Beer in South Africa is pretty cheap these days, about 22 cents a pint.) SAB on acquisition spree in emerging mkts; did 27 deals in China in last 7 yrs, according to Forbes Global. SAB also sez it's most profitable brewer in China where it does over 20 mil bbls. SAB sells 2/3 of all beer in Africa.

Did someone say it’s getting expensive to compete in US beer biz? Media spending for beer reached $971 mil in 2001, according to CMR which tracks spending in 10 media. That’s up $60 mil, 7% over 2000 (an Olympics year), $171 mil, 21% over 99. So suppliers spent about $4.80 per bbl, up 20% from $4 in 99. Total spending up even tho biggest spender AB reduced spending $25 mil, 7%. AB’s cut is partially because 2000 was Olympics year when AB always spends more. AB’s spending will jump this year with 2002 Winter Olympics and Bacardi Silver intro. Coors spent about same $200 mil each of last 2 yrs, Modelo brands got same $37 mil both years, and Labatt USA spent about same $17 mil. Boston slashed spending by $9 mil in 2001. So who boosted spending? Miller, Heineken and Guinness jumped spending over $100 mil between ‘em. Miller hiked media spending nearly $50 mil, 25% to $239 mil. That was still below its $262-mil spending peak in 97, but $75 mil more than in 99. Heineken tacked on a $12-mil, 22% increase and spent $69 mil. Biggest % jump: Guinness upped media support nearly 5-fold to $49 mil as it spent $40 mil on Smirnoff Ice alone.

High-end brands getting bigger and bigger share of spending, even before this yr’s malternative mktg madness. Look at shifting "share of voice":

   Media Spending $$ (000)

2001

2000

1999

Bud             

130,028   

55,721    

134,213

Bud Light       

93,169   

107,258    

104,096

Bud Misc          

2,078     

5,519      

1,139

Bud Ice/Lt          

111       

160         

86

Busch Fam        

9,453    

18,241      

7,284

Michelob Fam     

43,460    

38,702     

33,936

Tequiza           

6,251     

2,833      

1,123

Doc Otis          

6,801     

1,266          

0

Other            

36,617    

23,663     

35,353

AB              

327,968   

353,363    

317,230

Lite            

102,899    

90,159     

82,840 

High Life        

16,930     

9,917     

14,173

MGD/GDL          

49,657    

24,453     

28,270

Mil's Best/Lt         

7     

3,229        

336

Icehouse          

1,260     

8,550      

8,364

Foster's*        

13,779    

14,334     

10,322

Other            

54,627    

40,283     

20,140

Miller          

239,159   

190,925    

164,445

Coors Light     

120,712   

111,276     

94,594

Coors            

36,920    

40,716     

27,890

Keystone/Fam      

4,778     

6,002      

6,015

Killian's        

13,719    

12,251     

13,839

Zima             

15,947    

17,962     

13,093

Other             

9,871    

11,598     

10,619

Coors           

201,947   

199,805    

166,050

Modelo (all)     

37,015    

36,699     

37,216

Heineken         

69,315    

56,931     

42,232

Labatt USA       

17,092    

16,453    

21,737

Guinness-Bass    

49,987    

10,126      

9,892

Boston            

4,992    

14,182     

10,644

AB dropped to 1/3 of measured media spending from 40% in 99. But major imports/ specialty/ malternatives spending jumped to 
$200 mil or over 20 share, up from $128 mil, 16 share in 99. (Includes suppliers shown in chart plus Mike’s Hard Lemonade, 
$14.7 mil, and Beck’s $7.2 mil.) Throw in another $100 mil big brewers spent on hi-end brands and over 30% of beer $$$ spent 
on hi-end. In all, Miller climbed back to 24 share of spending from 20 in 99. Coors held 20 share. 

AB reduced spending on both Bud and Bud Light in 2001. In fact, spent less on both than 2 yrs ago. Brought per-bbl spending on Bud down from $4.60 in 2000 to under $4 in 2001. And Bud Light’s per-bbl spending dipped even more, from $3.42 to $2.75. Bud Light, #1 brand in US last yr, ranked #4 in media support at $93 mil, below Bud ($130 mil), Coors Light ($121 mil) and Miller Lite ($103 mil). AB slashed Busch media in half to $9 mil. But AB increased support for Michelob family by $5 mil, 12%, more than doubled spending for Tequiza and raised spending for Doc Otis from $1.2 mil to nearly $7 mil. AB’s "miscellaneous" spending up sharply in 2001 too. That includes some public service announcements and spending for "various" brands unidentified by CMR. While AB reduced spending on its biggest brands, Miller hiked spending on each of its core brands. Lite spending back over $100 mil. Up $13 mil, 14% and just below $6.50 per bbl. That’s about $4 more per bbl than Bud Light. Miller more than doubled spending for Gen Draft to almost $50 mil, close to $10 per bbl. High Life spending way up too. Miller spent $14 mil on Foster’s alone in 2001, about the same amount it spent on all Molson USA brands in 2000. Two Miller spending cuts: Icehouse and Mil’s Best. In all, Miller spending topped $6 per bbl, up from $3.80/bbl just 2 years back. Coors cut support for Original Coors by about $4 mil, 10%, but raised support for Coors Light by $9 mil, 8%. Coors Light media cost Coors $7.80 per bbl in 2001, fully 5 bucks/bbl more than AB spent on Bud Light, and up $1.50/bbl in 2 years. Despite reduced support for Original Coors, it still got over $20/bbl in media last yr. Coors continued to spend heavily per bbl for Zima and Killian’s too. In toto, Coors neared $10/bbl media support in 2001.

After spending $18-19 mil each yr 96-98, Heineken really poured it on. Spent nearly $70 mil or about $1 per case ($14/bbl). Huge Guinness jump also works out to about $1 per case. Spent $1.67 per case on Smirnoff Ice, some funded by distribs. Modelo brands kept up mid-teens volume growth rate with virtually same amount of media in last 3 yrs, tho that’s double what Barton/Gambrinus spent back in 98. Still, Modelo brands got $10 per bbl less media support than Heineken and Guinness brands.

At long last, here is biggest global beer deal yet: SABMiller plc. And make no mistake, SABMiller  plans more deals to come.   PM and SAB struck deal to combine #4 worldwide brewer SAB and #7 brewer Miller and create a new #2 brewer.  Deal expected to close in Jul.  SAB ceo Graham Mackay said deal “represents a new chapter in our development…positioning us to be a major participant in the ongoing consolidation of the global brewing industry.”

SABMiller sold 102 mil bbls in yr thru Mar 31, 2002 (including licensed volume), about 5 mil bbls behind AB.      Combo had pro-forma  revs of $9.3 bil and EBITDA of $1.5 bil.    But both Miller and SAB earnings declined in latest year.   PM will keep 36% stake in combined co (stock worth $3.6 bil), have 3 seats on board  (out of 13) and voting rights just under  25%.   PM said deal will be neutral to its earnings for next 2 yrs, but it will have 1-time gain in 3d qtr of a mere $3 bil pre-tax, $2 bil after-tax.  Because of way transaction structured, PM minimizes taxes and SAB minimizes cash outlay. SAB sez it expects deal to add to earnings in yr 1 and  bring cost savings of $50 mil per yr starting in yr 3.  Miller prexy John Bowlin stays on “responsible for SABMiller’s business in the US and Central America.”  PM agreed not to sell any shares for 3 yrs and not to buy any more for at least 2.5 yrs, “subject to certain exceptions.”  

In conference call this morning, PM ceo Louis Camilleri emphasized that PM has “flexibility” to either buy more of SABMiller  and “form a 3d leg” (to go with tobacco and food) if it likes where SABMiller headed in global beer game, or reduce its stake.  SAB chairman Graham Mackay said talks with PM about future “had nothing to do with withdrawal [of stake], but much more with keeping their position and supporting it, in fact even improving it in the longer term.”   Deal “gives us scale and the benefits of a hard currency, a large profit pool in which we will now operate without having to pay a high price for it” added Graham.   Lots more details in Beer Marketer’s INSIGHTS.   

Wow!!!  This afternoon, US Dist Ct Judge Martin granted FEMSA tuff-to-get preliminary injunction in its lawsuit to stop Beck’s integration into Labatt USA.  LUSA had already started putting the companies together.  “We’re disappointed and we’re looking at our options,” Labatt USA prexy Steve Cahillane told INSIGHTS at hearing.   Right now, no further steps can be taken to integrate Beck’s into Labatt USA for 30 days.  Expect appeal.  That ain’t best way to start peak-selling season.  More details tomorrow.