For second straight month, the “beer purchaser’s index” reported by NBWA economist Lester Jones found that beer biz orders expanding.  BPI for May reached 60.8, a “moderate increase” over April reading of 58.9 and well ahead of 53.3 reading vs May 2016.  Recall previous 4 months BPI was under 50, which means beer orders contracting.  But recall that beer biz had soft Memorial Day, so one would expect Jun purchaser’s index to be less healthy, unless biz picks up a buncha steam in short order.   Even in  May index for “at risk inventory” (going out of code within 30 days) edged up to 50 compared to 48.5 in Apr.  Below premium, premium lights, FMBs were each ahead of BPI vs May 2016, while imports and premium beers look about even and craft purchases were down significantly.

Amid further US cider category struggles, Bold Rock Hard Cider sales continue to skyrocket, climbing top cider brand ranks, senior vp of sales & mktg Jeff Liebhardt shared with INSIGHTS.  Indeed, total cider $$ down 5%, volume down 8% thru Jun 4, while Bold Rock $$ grew 79%, volume up 82.5% to $6.5 mil and 193,800 cases respectively YTD in IRI multi-outlet + convenience data. So co nearly doubled share of segment to over 4. In fact, $$ sales now ahead of Woodchuck (-46%) and MC’s Smith and Forge (-24%), making it 4th largest cider brand by $$. And volume just passed Stella Cidre (+0.9%), making it 3rd largest cider brand by volume (with $$ only just behind). That’s all in just 10 states. Recall, Bold Rock expects to grow over 40% to 65K bbls in 2017.

In home states, VA and NC, Bold Rock’s presence even more pronounced as clear #2 cider brand. Only behind Boston Beer’s Angry Orchard. In VA, Bold Rock is growing nearly 70% with 39 share of cider $$ and 41 share of volume, compared to AO down 3%, shedding over 6 share of segment to ~43. In VA foodstores, Bold Rock’s already ahead of AO. And in NC, Bold Rock nearly doubled sales (+92%) to 19 share of $$ and 22 share of volume.

Nationally, Angry Orchard still holds commanding 56 share of cider $$ and 59 share of volume. But sales dipped 6-7% thru Jun 4. And Heineken’s Strongbow sales down 5-6% with share of cider flattish at ~7.  Meanwhile, 2 Towns, Ace and Austin Eastciders are other top indie cos among top-10 cider brand families, all growing fast-paced double-digits. 2 Towns $$ up 83%, Ace up 43% and Austin Eastciders up 78%, now up to 1.8, 1.6 and 1.2 share of segment respectively.

Here’s another legal action involving AB and a distrib, tho not one of its equity agreement distribs.  AB’s suit in Illinois marks at least 3d state where AB currently involved in court battle with distrib (others are Mississippi and North Carolina.) On Jan 31, AB filed for a declaratory judgment in US Dist Court against MC distrib Robert “Chick” Fritz.  AB argues that section 7 of IL franchise law applies to its “termination of” Fritz “distribution rights,” for AB European import brands, which Fritz still sells.  Under Section 7, if a brand represents less than 10% of a distrib’s volume, supplier can move  for “reasonable compensation,” according to AB.  It also seeks judgment on what constitutes reasonable compensation, giving gross profit multiples for Bass, Beck’s and St Pauli Girl family at 5x, Stella Artois at 6.5x, Spaten and Franzikaner families at 5.5x.  

AB sent notice to 18 distribs, including Fritz, in Dec 2014, “seeking an amicable transition.”  But now this ain’t so amicable.  Fritz is “only holdout,” among 18 non-AB distribs for whom these Euro imports represent less than 10%, AB sez in court papers..  Fritz also is only distrib that “takes the position” that Section 7 “requires good cause for termination.” Seventeen of  18 wholesalers “reached an agreement to transfer the brands based on reasonable compensation for the fair market value  of the brands.”  

Fritz filed counterclaims vs AB in late Apr.  Argues AB violated other sections of IL franchise law that “prohibit” brewers from “requiring a wholesaler to assent to any unreasonable requirement, condition, understanding or term,” “failing to provide each wholesaler of its brands a written contract,” “discriminating against a wholesaler by not making signs or advertising materials available.”  Fritz argues AB did all these things and more, causing Fritz to “suffer actual, substantial and irreparable harm.”  AB also “placed Fritz on a lower priority level to receive the European brand beer products.” Fritz sez it is largest beer distrib in Southern Illinois.  Fritz also argues that AB subject to section 4 of franchise law, which requires good cause for termination.  Fritz concedes that AB imports are less than 10% of its volume.  But “their value to Chick Fritz’s overall portfolio is immeasurable…. The European Beers also are some of the more profitable brands that Chick Fritz distributes.”  So it seeks injunction.

In late May, AB filed motion to dismiss Fritz’ counterclaims, claiming that Fritz “straining to obscure the issue” with its two counterclaims.  The claim that AB “somehow discriminated by not enabling Chick Fritz to purchase promotional materials” is “entirely inapplicable” because Fritz  has no contract with AB “relative to signs and advertising materials.”  Fritz gives no specifics of “unreasonable” AB requirements, conditions, etc, according to AB. And similarly Fritz’s “vague and conclusory allegation that it was placed on a ‘lower priority’… is not supported with any factual allegations and does not state a claim under BIFDA.”  BIFDA does not require “a supplier to deliver beer to every wholesaler at the same time or otherwise treat all wholesalers alike.” Late last week, Fritz sought 2 week extension until Jun 23 to respond to AB’s motion to dismiss, to which AB agreed. All 3 AB lawsuits, in MS, NC and IL,  are handled by busy DC lawfirm Cadwalader, Wickersham & Taft, headed up by longterm “lead counsel” Peter Moll, who has taken on many of AB’s big legal battles over last several decades.

Here are more areas where beer industry consultants Sam Kursh and Mark Hall have differing views.  Mark represents OH distrib Southern Glazer’s in its litigation vs Great Lakes Brewing and Boston Beer over their attempts to terminate SG earlier this yr.  Part 1 ran in yesterday’s Express.  

Do “Wrongfully Terminated” Distribs Suffer Special Harms?Sam sez no. Doesn’t matter whether transaction voluntary or not, value of brands can be expressed in monetary terms. That’s true even when they’re huge portion of distrib’s biz.  A question here is whether ct should look at SG’s beer biz or overall alc bev biz; beer just 15% of SG Columbus branch rev.  Loss of Boston and Great Lakes would be “de minimis” to Southern Glazer’s, sez Sam, given its wine/spirits book.  That ignores damages to Columbus branch, sez Mark.  Termination would “erase the beer” revs and its ability to “cross-sell and retain existing customers,” gain new ones.  Also, distrib that’s wrongfully terminated, claims Mark, suffers additional harm, i.e. to its goodwill, reputation among retailers/suppliers, ability to attract new bands, etc.  Sam counters: “Does it affect [retailers’] buying decision?  That’s the question.  They may consider it....  Can he demonstrate that it affects their buying decision....  I don’t think it does.”  Similarly, new supplier may take positive view if distrib’s been terminated if it has “an IPA that pirates market share from” IPA distrib lost.  And “given that there is brand life in this business, it may be good to move from one brand to another.”  Sam also limits good will to a financial measure, defined here as a distrib’s ability to get retailers to pay more for same brands than a competitor could.  But that doesn’t happen, he sez.

Will Losing this Biz Have “Negative Effects” on SGs’ Other Biz?  Absolutely, especially if loss is involuntary and leaves distrib with small beer book, sez Mark.  Such a distrib would suffer “negative consequences” to its reputation and negative impacts on biz partners who may take a distrib termination into consideration when deciding what brands to buy (retailer) or whether to enter a new relationship (supplier).  Nope, sez Sam.  Distrib can always pick up other brands, possibly better ones.  What’s more, “I have never observed a change in customer base as a result of losing a brand.”       

A Brand is a Brand, Sez Sam; Can Mean A Lot More, Sez Mark  Tho “all brands are unique,” Sam acknowledges, brands here “are more desirable than some and probably less desirable than others.”  In any case, again, their value can be monetized and determined.  SG gets “important economic benefits” from its portfolio, counters Mark.  Boston and Great Lakes brands also allow SG to “hold itself out to retailers as a full-service” distrib.  Terminations would “effectively force” SG out of beer biz, he adds, and lose “valuable synergy across its portfolio,” not to mention shelf space, changing the “character of its operations.”  Besides, Boston and Great Lakes brands are “anchor brands” in its beer portfolio and “unique brands that cannot be easily replaced” since brands like them “do not regularly become available.”

What’s Goodwill, and Who Owns It?  Sam and Mark also fundamentally disagree on nature of goodwill. Sam focuses on economic goodwill which “manifests itself in profits.”  What’s more, goodwill “associated with the brand is not the property of the distributor” but the brand owner.  So, “any goodwill elements of the brands were not property of Southern Glazer’s to lose.”  Besides, any goodwill that is owned by SG “would be included in the monetization of brand rights,” which are based on its profitability from those brands.  In Mark’s view, “synergy among products and services and business connections” are also part of distrib’s goodwill, not just profits.  Distribs “also generate goodwill by investing in a brand and building a market” for it.  Loss of that goodwill would be part of damages due SG.  “Even though these damages may be difficult to quantify, they exist and cannot be compensated through the purely monetary award that Mr. Kursh proposes.”         

Here are more areas where beer industry consultants Sam Kursh and Mark Hall have differing views.  Mark represents OH distrib Southern Glazer’s in its litigation vs Great Lakes Brewing and Boston Beer over their attempts to terminate SG earlier this yr.  Part 1 ran in yesterday’s Express.  

Do “Wrongfully Terminated” Distribs Suffer Special Harms?Sam sez no. Doesn’t matter whether transaction voluntary or not, value of brands can be expressed in monetary terms. That’s true even when they’re huge portion of distrib’s biz.  A question here is whether ct should look at SG’s beer biz or overall alc bev biz; beer just 15% of SG Columbus branch rev.  Loss of Boston and Great Lakes would be “de minimis” to Southern Glazer’s, sez Sam, given its wine/spirits book.  That ignores damages to Columbus branch, sez Mark.  Termination would “erase the beer” revs and its ability to “cross-sell and retain existing customers,” gain new ones.  Also, distrib that’s wrongfully terminated, claims Mark, suffers additional harm, i.e. to its goodwill, reputation among retailers/suppliers, ability to attract new bands, etc.  Sam counters: “Does it affect [retailers’] buying decision?  That’s the question.  They may consider it....  Can he demonstrate that it affects their buying decision....  I don’t think it does.”  Similarly, new supplier may take positive view if distrib’s been terminated if it has “an IPA that pirates market share from” IPA distrib lost.  And “given that there is brand life in this business, it may be good to move from one brand to another.”  Sam also limits good will to a financial measure, defined here as a distrib’s ability to get retailers to pay more for same brands than a competitor could.  But that doesn’t happen, he sez.

Will Losing this Biz Have “Negative Effects” on SGs’ Other Biz?  Absolutely, especially if loss is involuntary and leaves distrib with small beer book, sez Mark.  Such a distrib would suffer “negative consequences” to its reputation and negative impacts on biz partners who may take a distrib termination into consideration when deciding what brands to buy (retailer) or whether to enter a new relationship (supplier).  Nope, sez Sam.  Distrib can always pick up other brands, possibly better ones.  What’s more, “I have never observed a change in customer base as a result of losing a brand.”       

A Brand is a Brand, Sez Sam; Can Mean A Lot More, Sez Mark  Tho “all brands are unique,” Sam acknowledges, brands here “are more desirable than some and probably less desirable than others.”  In any case, again, their value can be monetized and determined.  SG gets “important economic benefits” from its portfolio, counters Mark.  Boston and Great Lakes brands also allow SG to “hold itself out to retailers as a full-service” distrib.  Terminations would “effectively force” SG out of beer biz, he adds, and lose “valuable synergy across its portfolio,” not to mention shelf space, changing the “character of its operations.”  Besides, Boston and Great Lakes brands are “anchor brands” in its beer portfolio and “unique brands that cannot be easily replaced” since brands like them “do not regularly become available.”

What’s Goodwill, and Who Owns It?  Sam and Mark also fundamentally disagree on nature of goodwill. Sam focuses on economic goodwill which “manifests itself in profits.”  What’s more, goodwill “associated with the brand is not the property of the distributor” but the brand owner.  So, “any goodwill elements of the brands were not property of Southern Glazer’s to lose.”  Besides, any goodwill that is owned by SG “would be included in the monetization of brand rights,” which are based on its profitability from those brands.  In Mark’s view, “synergy among products and services and business connections” are also part of distrib’s goodwill, not just profits.  Distribs “also generate goodwill by investing in a brand and building a market” for it.  Loss of that goodwill would be part of damages due SG.  “Even though these damages may be difficult to quantify, they exist and cannot be compensated through the purely monetary award that Mr. Kursh proposes.”         

More and more analysts these days talk about “struggling” US beer mkt as Bernstein’s Trevor Stirling did yesterday in bleak report.  Trevor again noted worst 3-mo shipments dropoff in over 10 yrs (-5%) and also “ongoing weakness” in Nielsen.  “Contending with a Potentially Deteriorating Category,” Cowen’s Vivien Azer pointed to as an investor “concern” for Molson Coors  in her report on “tumultuous response” to TAP’s “transparency.”  Trevor also noted “indications that the weather was poor over the key Memorial Day weekend.”  

INSIGHTS got a range of responses, mostly from distribs, on Memorial Day sales. Two distribs from an upper Midwest state said sales were “soft” because top 2 got themselves in a “rut” with buy 2 get one free promos, which “further erode brand equity.”  Plus Mich Ultra not part of  “buy 2 get one free” this yr and weather was lousy there too.  Meanwhile, one sizable northeast distrib talked of a “train wreck” over wet and cool Memorial Day.  Yet in one midwestern state, despite “massive rain” sales flat to slightly up.  AB had tough mo in a number of Midwest states and Calif, said multiple sources.  And finally in one Southwest state, “great weather” and “great ads” led to strong sales over holiday weekend.  

Most of the talk about border adjustment taxes has focused on potential hit to Constellation and its Mexican portfolio.  But, “if there are duties on aluminum coming into this country, it will obviously get passed to us and the customer.  Our prices will go up.”  That’s what Molson Coors’ sr commodity risk mgr Tim Weiner told Harbor Intelligence conference in Chi this week, reports Bloomberg News.  Turns out that Obama admin filed complaint with World Trade Org in Jan about “unfairly priced imports” and Trump admin signed exec order in Apr to start “investigation into aluminum imports as part of a push to bring back jobs to America’s rust belt,” Bloomberg points out.  Things could happen fast, another industry source told us earlier this week.  Just what the beer biz needs right now.  Asked his view of the prospects for aluminum import duty, Tim said: “It depends on whether it’s politically motivated, or business motivated.  I think there’s political motivation for putting some tariffs on.”