Post 9/11 and in tuffer economic times, volume in Puerto Rico already down mid-to-high single digits so far this yr, but looks like it?s gonna drop more. Excise taxes there will jump a whopping 50% in mid Jun from $2.70 to $4.05 a gallon as guv seeks to reduce deficit. Retail prices for a case of 10 oz (dominant package) expected to go up almost $4 per case. While volume will likely take big hit, profits might not get hurt too badly if distributors and retailers able to pass on additional increase to preserve margins. Note tho: local brewers exempt from tax hike & US brewers pay no fed excise tax on beer shipped to PR. Tax hike there has "implications for the broader beer industry," wrote Caroline Levy at UBS Warburg "as it sets a precedent for other states to use higher excise taxes on alcohol to balance their budgets."

Total beer biz down 1.4% in supers for 4 weeks thru May 18 and flat for 12 weeks, according to AC Nielsen numbers reported by J.P. Morgan’s John Faucher yesterday.   AB off 0.4% for 4 weeks but gained share in supers.  Miller down 4%, Coors down 3% for 4 weeks, each down about 2% for 12 weeks.  But pricing mostly holding in supers:  avg prices paid for AB and Miller brands up 2.5-2.6% for 12 weeks as both benefit from high-priced malternative intros and price hikes, while Coors avg prices up 0.8% for 4 weeks and 1.1% for 12 weeks “largely due to negative mix effects from Killian’s and Zima,” wrote John.

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.   

 

Neither Miller nor Coors headed into peak-selling season with much momentum.  Following an ok Apr, Miller sales-to-retailers down 7-8% for 4 weeks thru May 25, with Gen Draft down double-digits in period.  Miller reportedly 700,000 bbls or so below budget so far this yr.  Coors also sluggish at best.  Sales-to-retailers up less than 1% YTD thru mid-May, down a smidgen for 4 weeks.  So it's missin' targets too.  Coors actually up solidly in some areas, but hurt badly in southern Calif and northern Tex.  Coors southwest FBA down 8% or so for 4 weeks thru late May, 4% for 13 weeks as Coors Light down just slightly there, but other brands way off. 

Interesting primer on nuts and bolts of Smirnoff Ice intro from Guinness Bass Import Co mktg veep James Thompson at Bev Mktg Forum. Intro played into "elements of beer fatigue and dissatisfaction," said James, yet Smirnoff Ice also designed to "look, feel and act like a beer." It was malt-based to gain "access" to tv, "significantly greater number of distribution points" and lower taxes. Tried various "seeding approaches" to build "widespread" brand awareness "quickly." Primarily this meant spending "equal to beer brands," so Smirnoff Ice "pegged" hi-end leaders Corona and Heineken. It was on-air for 33 weeks in '01. Evolved ad message from "very, very overt beer cues" to "cut-through image of spirits brand," etc. Has 7 ads on air, and "refreshing our ads on a regular basis." Orchestrated "thousands of sampling events," and one in 3 tv ads is social responsibility. Result: Smirnoff Ice is 3d largest hi-end brand (behind Corona and Heineken).

Went on PR offensive in NYC this week with press conference highlighting benefits of moderate drinking and how to pair beer with food.  While wine and spirits assns have run similar programs in past, big brewers have so-far shied away from health issue, presumably because of liability concerns.  But NBWA brought in respected Harvard alcohol/health researcher Eric Rimm and MD Dr Norman Kaplan from Tex to outline how moderate drinking linked to lower risk for heart disease, stroke, heart failure, diabetes, dementia and other health problems.  About 2 dozen reporters attended, including folks from Wall St Jnl, medical news website, food mags, etc.  Details in June Alcohol Issues INSIGHTS.

In case you forgot, CSPI complained to Fed Trade Commish last spring that maltenatives/RTD/"alcopops" were being targeted to kids. After year-long investigation FTC concluded "we do not believe that the available information supports the conclusion" that these products "are targeted to minors." FTC?s wild goose chase included a 10-city retail survey, ad review, analysis of internal co documents and consumer research. FTC reserved right to take further action in public interest if required, but net-net: "this investigation has been closed." In slight Pandora?s Box twist tho, FTC said it would discuss with ATF "label improvements" that would clarify alcohol content, since some labels don?t include info at all, some have "inconspicuous or unclear disclosure."

While broadly speaking pricing holding up so far, there?s stepped-up activity in select areas. A few recent examples: in OH, Miller?s 6th largest state where it sold 2.05 mil bbls last yr, Lite 12-packs will be at $6.99 from Jun 17 to Jul 28, compared to Bud at $8.49. AB reacted: dropped 12-packs to $7.99. Miller High Life suitcases will be $9.99, Busch $10.99. In Fla, $9.99 20-pack for Bud in Winn Dixie in Apr angered competitors, tho 1 AB distrib characterized it as "loss-leader" by chain. And Coors recently ramped up price activity in parts of Tex and Calif. Morgan Stanley pricing survey just before Memorial Day found that while pricing holding overall, Coors more aggressive than AB or Miller.

Lotsa malt bev media bucks spent in 1stQ with Olympics, malternative rollouts and general increases. Top suppliers spent approx $244 mil on major brands, up more than 33% from 1st qtr 01. Wow! Look at some of hi-end spend: $24 mil spent on Smirnoff Ice, Bacardi Silver and SKYY Blue alone. Another $55 mil+ spent on other hi-end brands, including big jumps for Michelob family, Killian?s, Boston and LUSA brands. Exceptions: little spent on Corona (never much in 1stQ); Heineken spent $13 mil but that was down. Hi-end brands got almost 1/3 of total spending. More in BMI.

In aftermath of Diageo/Seagram deal, expect the 4 big wine & spirits distribs in Illinois will be pared back to 2, according to vet alc bev atty Mort Siegel at NCSLA meeting. Said too that 6 "national wholesaler" organizations control close to 50% of spirits biz. In "some instances, some wholesaler organizations control as much as 25-28% of a single supplier?s business."