AB distribs RA Jeffreys (NC), Crown (SC) and Southern Eagle (GA-SC) ‒ who tried to create mega-distrib disapproved by AB earlier this yr filed double-bbl response to AB lawsuit.  Recall, AB sought ct declaration that disapproval of deal “reasonable.”   Distribs seek dismissal of all claims, arguing AB had no standing to sue non-NC distribs there, and more. They also restructured deal and argue no case exists.  In Jun 1 letter from their atty to AB’s Bob Tallett, distribs say they were “surprised” and “deeply disappointed” with AB disapproval and decision to “pre-emptively sue,” plus they “disagree” with reasons AB gave for disapproval.  But they also assured “new proposed transaction addresses and resolves the concerns” that AB raised in its rejection letter.  

New Deal Has 2 Equity Agreements, Reduces “Sprawl”  One reason AB rejected deal: its “unwieldy” size, stretching over 500 miles in 3 states, impossible for one equity mgr to handle.  New deal creates two Equity agreements and two mgrs: Robert Jeffreys will continue in NC; Southern Eagle’s Will Dorminy will oversee SC/GA biz and “only territory that would be added to his management” will be 7 SC counties. That “cuts in half” territory Will would have managed under single equity agreement.  What’s more, letter notes, AB has approved consolidations “of much larger territories — and more disparate and non-contiguous territories” than this.  For example, they point to JR Hand as sole equity agreement manager for distribs in 3 states that sell over 39 mil cases, spanning 600 miles (TE, KY, IL), plus others.  

Territory Contiguous; “Anchor Wholesalers” with Deep Mgt; Less Leveraged Distribs also point out their territories contiguous and contrast that with combos AB approved elsewhere.  Besides, Southern Eagle and Jeffreys considered “anchor wholesalers” who’ve been “encouraged and expected to grow and consolidate.”  Each co has deep, award-winning staff.  Tho AB concerned about finances of original deal and resulting leverage, distribs say they’re “not increasing their total debt as a result of the merger” and “combined entity would be significantly less leveraged than these wholesalers” were in past.  Proposed ownership structure of new co, which would be GA-based LLC, is 45% owned by Fitzgerald Ice Co (Southern Eagle’s owner), 45% owned by Jeffreys and 10% by Crown.   Net-net: distribs hope AB will take “more reasonable and measured approach, one that is more consistent with its partnership with wholesalers, rather than one that seeks to sue those companies that are responsible for AB’s success.”  (Much more detail in current issue of BMI.)       

April imports dropped 245,000 bbls, 7.8% according to US govt stats, reported by Beer Institute Friday afternoon.  That meant imports now up just 18,000 bbls, 0.2% yr-to-date.  But that makes little sense compared to known scan data and Constellation’s reported depletions data.  Imports were up 6.5% thru Apr 29 in Nielsen all-outlet, now up 7% thru 5/20.  And recall, Constellation, which represents over half of all imports, reported sales-to-retailers up 9-10% in 1st qtr. Constellation still flying in scan data; up 13.6% thru 5/20 in Nielsen.  Yet Mexican import shipments down 1% thru Apr, perhaps having to do with timing of last yr’s bottle recall.  Dutch imports up 3%, Belgian imports down 10% and Canadian down 6%.  Whatever the cause, import shipments do not reflect current retail trends.

Still gathering info, but input so far suggests beer biz did not recover over key Memorial Day weekend, with at least 2 brewers noting ongoing softness, some weather-related, especially in Northeast where it was cool and rainy.  The Northeast “got hammered,” noted one.  How was your Memorial Day?  Send comments to This email address is being protected from spambots. You need JavaScript enabled to view it.. Confidential, of course.    

This one has gotta sting, amidst an already challenging environment where beer sales soft, and steadily losing share to booze for over a decade.  The most popular US sport, National Football League will change its ad policy to allow distilled spirits this yr, Wall St Jnl reported, breaking story on Friday eve. NFL will accept “no more than” 4 30-second “hard liquor spots per game with a limit of two such spots in any quarter or during halftime,” wrote WSJ citing NFL memo.  Additionally, networks could run 2 pregame or postgame spots.  Also required: “a prominent social responsibility message.”  And at least 20% of ads must “consist exclusively of social responsibility messaging.”  Beer gets one ostensible offset, albeit minor; brewers will now be allowed to advertise FMBs on football.  Allowing spirits is described as a “test,” but “policy is expected to become permanent,” noted WSJ, quoting unnamed NFL exec.  Recall, NFL ratings were down 8% last yr.  

Liquor Still Treated as “Second Class Citizens,” Sez Ad Age Even tho “liquor brands will still be treated as second class citizens compared with beer,” wrote Ad Age, “new league rules give liquor a boost in its long quest to be seen as socially acceptable as beer.”  Ad Age included several stinging quotes from anonymous former beer exec: “Beer hasn’t had a response to hard liquor,” losing not just share, but “share of mind…. This deal blurs the line [between beer and booze] even more. If this is like a football game, liquor is running up the score and beer hasn’t even fielded a team, let alone put together a game plan.” OUCH.

Advancing Equivalence; NFL Was The “Last Holdout” for Liquor Ads  And of course spirits trade assn DISCUS wasted no time in pounding its equivalence message: “Adult fans realize alcohol is alcohol and our responsible spirits sports marketing has been met with broad public acceptance.”  It also called the development “not too surprising given spirits companies have partnered with individual NFL teams, and other major professional sports leagues began accepting spirits advertising more than a decade ago,” according to DISCUS prexy Kraig R. Naasz.  Ad Age also quoted former ad buying exec for major brewer: “It’s been a slow march of hard liquor encroaching on television.... This was inveitable because networks and leagues need more revenue opportunities.  The NFL was the last holdout, which the beer industry valued because it’s the biggest and most popular league.”  

“It appears that another domino has fallen,” wrote Consumer Edge’s Brett Cooper.  “While it’s unlikely that the change by the NFL will drive a step change in relative performance, it is a positive for spirits and a negative for beer as beer will face increased pressure on share of voice relative to what it has today.”   

New Belgium ain’t resting on its laurels when it comes to innovation.  In fact, “we are only getting warmed up,” mktg veep Ruairi Twomey told Coloradoan. He hinted at “two more big” brands that’ll launch next year.  That’s on top of several new brands and re-brandings already this year, as well as upcoming Fat Tire Belgian White this Aug. “We had gaps in our portfolio,” Ruairi stated. And as for Fat Tire Belgian White, “the best brands always go back and recruit the next generation.” Indeed, Belgian White along with Dayblazer Golden Ale and Voodoo Ranger series rebranding mark big yet measured shifts in approach and messaging in attempt to appeal to broader range of consumers. Its Old Aggie Lager launching July in partnership with Colorado State University yet another example of that on a local level. Recall, Ruairi has Diageo Guinness USA background prior to NBB gig; seems that more mainstream approach with certain brands is his vision as much as anyone’s.

Meanwhile, Citradelic Lime, Tartastic Lemon Ginger Sour ale and Bohemian Pilsner all launched this year too.  Yet at same time, co’s working to bring “more discipline” and “stay focused,” co-founder and exec chair Kim Jordan stated at Beer Insights Spring Conference in Chicago last mo (see CBN vol 8, no 44). "There is still a huge pie of, or number of gallons of beverage alcohol drinking opportunity" for craft beer to take. To do that, it’s “really important that we figure out how to remain credible and hip and sticky, attractive and something that beer drinkers want to be attached to,” she continued. “We’re trying to balance that with also being more organized and business-like for our customers.”

Search for new CEO and brewmaster currently in works, following departures of longtime employees Christine Perich (last yr) and Peter Bouckaert (end of this yr).  Yet despite some exec turbulence, NBB sales still strong this year on top of rebound 5% growth last yr (NBB down for first time in 2015).  Recall, NBB finished 2016 at 958K bbls.  New Belgium up 8.6% in Nielsen all outlet data thru 5/20.  So 1 mil bbls within reach if present trends continue.   NBB now fully natl.  Dayblazer is largest new craft launch in scans thus far this yr. Voodoo Ranger IPA and Rampant Imperial IPA each among top craft growth brands with $$ sales up 30% and 56% thru Apr (see CBN vol 8, no 43). And co hinting it has more up its sleeve. Key will be ability to sustain onslaught of innovation into following years while maintaining focus on flagship Fat Tire.  

At MS hearing on Rex suit last week, AB atty Peter Moll kicked off laying out language of AB equity agreement and asset purchase agreement, reminding that nothing else really relevant, in its view.  But AB’s reading of facts “can’t be right,” countered Rex atty Alysson Mills as it amounts to “because we said so.”  Recall, hearing concerned AB’s motion to dismiss charges Rex brought against it.  Suit revolves around $3.1 mil Rex didn’t get for Yuengling rights after AB matched and redirected Rex’s sale to Mitchell instead of Adams and Yuengling terminated. AB sez it did nothing wrong, acted according to contractual obligations.  Part of Rex’s case requires showing “tortious interference and conspiracy” between AB and Mitchell. And to prove that, Rex needs to show AB acted in “bad faith and malice.” But Rex doesn’t “need the DOJ complaint” or “Trade Press to spell out malice” by AB, Alysson said. “These are facts that the Magruders lived.”  

As example, Alysson cited “phone conversations where AB is telling Dan and Ann Magruder that if you do business with Yuengling, we’re going to make your lives harder.”  Were they “veiled threats,” judge asked. “Not even veiled,” Alysson responded. Rex wants suit to move forward to discovery stage, at least, which dismissal asked for by AB would prevent. That’s so Rex and court can see “all communications” between AB and Mitchell on Yuengling to “tell us whether or not this really was, as we believe it was, AB’s efforts to reward Mitchell for doing its bidding and also punish Rex for doing business with Yuengling.” Without those communications and others, “it would be premature to dismiss,” in Rex’s view.

Peter acknowledged that “yes, Anheuser-Busch did say to its wholesalers, we really would prefer that you didn’t take the Yuengling brand,” when it met with MS distribs in Nov 2015. That meeting called to roll out “an incentive program” (that’s VAIP, which DOJ nixed). Yuengling’s atty seized that comment as admission that AB “began this track of anti-competitive behavior” then. But “there’s nothing illegal about that. Nothing illegal about it at all,” Moll maintained. Meeting had “nothing to do” with eventual match and redirect of Rex sale to Mitchell. And it was before DOJ consent decree finalized anyway. Plus, Yuengling has made antitrust case to DOJ “to no avail,” Peter reminded. “They can’t now say, well, we struck out in Washington DC, so we’re going to try it down here,” he added, because all alleged violations of a consent decree must be handled by DOJ, Supreme Ct “has repeatedly held.”

Rex atty Alysson, though, not concerned with DOJ’s decision there because timeline of consent decree’s formulation is “very relevant and interesting background” in this case. “AB knew that its actions violated the consent decree with DOJ because DOJ was investigating it at the very same time for the very same acts that it was committing here in Mississippi,” she claimed. “AB knew all of that, but AB did what it did anyway because that’s what AB does.” Au contraire, Peter concluded: this case boils down to the contracts and AB in the clear there. Judge issued no ruling. More hearings on tap for later this month and plenty more fireworks to follow.

Still very early days, but Yuengling off to impressive start in Indiana.  Yuengling Lager alone did about $1.5 mil in sales in Nielsen food in Indiana, getting a 7.7 share in period 4/3-5/14.  That made it #4 brand in mkt in period, bigger than Bud.  Yuengling Light Lager and Black & Tan also in top ten, getting 2.9 share and 1.6 share respectively.  That totals about a 12 share for Yuengling outta the gate, which it hasn’t seen since OH launch several yrs back.  What’s more, Yuengling putting up big numbers at price points of $21.74 per case, compared to low prices of $17.46-$17.67 for Bud, Miller Lite and Coors Light.  AB and MillerCoors still had 84 share of Indiana shipments in 2016.   

In advance of Molson Coors investor day next week, some recent analyst reports take tuffer tone on MillerCoors volume and pricing, even while they still recommend the stock.   “Molson Coors U.S. outlook is inferior to what it was a year ago,” wrote Stifel’s Mark Swartzberg, noting that “premumization is slowing,” and that Molson Coors’ premium trends “are worsening.”  And yet “this pressure is small by comparison” to coming “cost savings.”  Mark still sees stock as worth $111, instead of its present $97.  Noting MillerCoors flat rev per bbl in 1st qtr compared to AB’s 2% gain, Susequehanna’s Pablo Zuanic opined: “It may surely be harder than it seems, but one would think MillerCoors is leaving money on the table.”  Divergence in price realization compared to AB a “big factor” in MillerCoors losing 100 basis points of margin, according to Pablo.  Yet he too still sees significant upside in stock.  MillerCoors volume down 2% yr-to-date thru 5/20 in Nielsen all-outlet data, including 2.3% drop for 4 weeks. Avg prices up just 5 cents, 0.2%.  

Largest beer producer in Philippines, San Miguel Brewery (not to be confused with Spanish brewer Mahou San Miguel), plans to build its first US production brewery in Los Angeles, CA, reported Philippine Daily Inquirer. SMB expects to spend upwards of $150 mil for nearly 25 acres and a facility capable of 2 mil hectoliters (~1.7 mil bbls) annually.  “I think soon, America will have a bigger potential,” San Miguel Corp prexy Ramon S. Ang told reporters during SMB stockholders meeting. Ramon and co are reportedly set to “finalize the purchase” of property sometime this Jun.

Recall, Kirin Holdings Co, Ltd owns 48.5% of San Miguel Brewery, while San Miguel Corporation owns majority (51.1%). Currently Kirin products are sold in US thru agreement with ABI.  Kirin also bought 24.5% share in Brooklyn Brewery last yr.  San Miguel not just spending money abroad either; co plans to invest $500 mil in next 2.5 yrs domestically (in Philippines) and expand existing bottling facilities, paper noted. SMB has about 24 mil hectoliters of capacity across its 12 facilities in southeast and east Asia. It exports to more than 50 countries, tho export sales only accounted for 0.22% of total net sales in 2016; down from 0.33% in 2015 and 0.41% in 2014, per public records.  Yet co continues to grow and all expansions will be funded by “internally generated funds,” sez paper. “SMB has so much money you can leverage it to make a $10-billion acquisition, if there’s an opportunity,” Ramon said.  Last yr, SMB’s total net revs reached nearly $2 bil (+18%) and net profit grew 30% to about $355 mil “as sales volumes reached an all time high.”

Mostly under the radar, but AB’s Landshark Lager is back to double-digit growth in scans this year.  At much lower prices. While $$ sales up 19%, volume grew 29%, avg price per case dipped 8%, $2.27, to $26.51 YTD in IRI multi-outlet + convenience data thru May 14.  Landshark launched in 2009 as an above premium lager, peaked in 2011, but sharply declined after that. Yet Landshark gradually returned to growth, and it’s accelerating this yr.  Currently its $$ sales ($15.4 mil YTD) are larger than AB’s 2d largest craft acquisition co, Elysian ($15.1 mil) and volume nearly twice as large in scans. Clearly another way AB can compete in above premium space. Altogether, various craft and high end moves unable to curb total AB decline; still down at 2-3% pace YTD.