MillerCoors cmo David Kroll will be on medical leave for 8-12 weeks starting Feb 13 to undergo open heart surgery for a previously diagnosed “aortic issue,” ceo Gavin Hattersley wrote employees this morn.  David is expected to be back by early May after being treated at top-rated Cleveland Clinic.  During David’s absence, “we will continue to drive the momentum we’re building behind our brands,” said Gavin.  David’s team will report to Gavin. “Fortunately, David and his marketing team have nearly all of their 2017 plans and programs locked down and ready to execute.”  Here’s wishing David all the best for a speedy recovery.  

Sierra issued a 36-state recall of bottles of 8 different brands, including Pale Ale, Torpedo and many others, out of its North Carolina facility on beers made between Dec 5 and Jan 13.  “This recall comes after quality inspections at our Mills River brewery detected a very limited number of bottles with a flaw that may cause a small piece of glass to break off and possibly fall into the bottle, creating a risk for injury,” Sierra wrote distribs.  “We are collecting for destruction all beer matching those packaging codes and types already shipped to our distributor warehouses,” it added. “To date we have not received any reports of injuries from the potentially affected bottles,” it wrote.  Sierra “believed the concern could impact about 1 in every 10,000 ‒ or 0.1% ‒ of its bottles packaged during the five week time period,” said Sierra.  

As state of Mass task force about to launch review of all alc bev laws, two bills proposed at deadline last Friday. One creates carve out from franchise law for brewers under 30K bbls; the other wipes out franchise law. Only the first got any media attention.  Beer Distribs of Mass proposed what it calls “equitable solution” for “Emerging Breweries” to resolve ongoing battle with small brewers over franchise law there. Currently, small brewers can self-distribute, but once they work with distrib for 6 mos, can’t move without good cause, i.e. meeting one of five conditions stated in law.  Proposed bill will allow brewers under 30K bbls to move brands for any reason, as long as they give 90-day notice, name successor-distrib in territory, pay for inventory and pay fair mkt value for distrib rights.  Recall, brewers had been seeking ability to move brands if they were less than 20% of distrib’s biz, a limit that would “devastate” indie distribs, the assn claims, and a non-starter for them.  Any disputes about whether brewery qualifies as Emerging Brewery would be resolved by Mass Alc Bev Control Comm.  Fair mkt value defined as amount rights would “sell for in an arms-length transaction between a willing buyer and a willing seller.”  If distrib and brewer can’t decide on that amount, it would go to “final binding arbitration.”  

Beer Distribs of Mass announced proposal late Friday afternoon, touting it as “giving breweries even more choice and flexibility with beer distributors.”  Citing BA data, distribs note that “96% of the breweries” operating in US “stand to benefit” from bill. But bill wouldn’t apply to a couple of most important players in Mass, so unlikely to get unified support from brewers.  Lookin’ at in-state brewers, Boston, Harpoon and Wachusett already over the 30K limit in 2015.  Cisco right at 30K.  Ipswich was close (26K).  Hot Jack’s Abby was 20K and Berkshire at 19K in 2015.  Proposal is “a terrific opening effort” and it’ll be “very interesting to see how the Brewers Guild [of MA] reacts and where this leads,” Wormtown Brewing managing partner, David Fields, told CBN.  Recall, David has a wholesaler background, so he’s got unique perspective from both sides of the aisle.  “I do think franchise reform is overdue,” and “I’m excited to see where this step takes us,” but “I do worry about total unlimited freedom” for small brewers, he cautioned, referring to previous Guild proposals that included brewers up to 6 mil bbls in carve out.  Indeed, this will be heavy topic of discussion at MA Brewers Guild meeting taking place this afternoon, CBN understands.   

Separate Proposal Wipes Out Franchise Law  Meanwhile, media missed 2d bill proposed late Friday.  That bill, aimed at “restoring contract rights to craft brewers” basically wipes out franchise law in Mass for all manufacturers of malt beverages, including definition of good cause needed to terminate.  That definition currently includes disparagement of product, “unfair preferment” in sales for competing brands, failure to exercise “best efforts,” “engaging in improper or proscribed trade practices” and failure to comply with terms of sale.  Instead, going forward, relationships between manufacturers and wholesalers “shall be governed by the parties’ agreement, the law of contracts and/or other generally applicable provisions and principles of commercial law.”  What’s more, “any dispute” between suppliers and distribs on termination “shall not be determined by” the Mass Alc Bev Control Comm unless a court rules relationship for some reason not governed by this new law.  While Beer Distribs of Mass touting Emerging Breweries bill, forces behind second bill so far unnamed.  But since Act restores “contract rights to craft brewers,” gotta figure some support from that corner.

Another sports sponsorship bites the dust for AB.  Budweiser has been US Olympics team sponsor since 1984, noted St Lou Biz Jnl, but has chosen not to renew sponsorship.  “We continually evaluate our sponsorships as our business priorities evolve and we’re adjusting our portfolio to reflect those priorities,” AB veep Elco van der Noll said in statement.   Sports Biz Jnl first reported news and said 4-yr deal that just ended worth about $13 mil.  But Olympics not such a good fit, former ABI exec told Ad Age.  Winter Olympics just after Super Bowl and Summer Olympics “skew older and more female,” former exec said.  Sports Biz Jnl said AB is “latest in a string of high profile partners to not renew” with Olympics.  

But it also fits with pattern where AB’s mktg priorities place less emphasis on sports these days, even if it still spends lots on sports.  Several examples.  First of all, AB will only buy 3 minutes of Super Bowl time, compared to 4.5-5 in old days.  Second, recall Constellation got Barclay’s arena sponsorship in Brooklyn.  That wasn’t taken by STZ, a source said; AB walked away from sponsorship.  Then too, in another major city, sports team sponsorship is up for grabs, and AB so far expressing little interest.  But AB is spending more money on sales and mktg overall than ever.  So, is AB simply less interested in sports sponsorships these days, as a distrib source sez?  If so, it’s something that AB has yet to explicitly acknowledge or explain.  

A pair of US Courts of Appeals, in the 8th and 9th Circuits, are taking a close look at whether alc bev regulations that regulate what industry players can advertise (and pay to advertise) violate commercial speech rights.  Out of the blue, the 8th Circuit Ct of Appeals yesterday reversed a US Dist Ct decision that upheld a Missouri statute and 2 regs.  Those provisions: 1) bar industry members from advertising “any coupon, premium, prize, rebate, sales price below cost or discount as an inducement” to buy alc bevs; 2) bar advertising of price below retailers’ actual cost; 3) require producer ads that include names of retailers to include more than one (Single Retailer Advertising Prohibition Statute).  Importantly, distillers can offer and advertise cash rebates, and all alc bev producers can offer coupons for non-alc merchandise.  A 3d party representing broadcasters, a number of radio stations, a winery and a retailer challenged #1 and #2 restrictions, claiming they violate 1st Amendment, adding that the state “inconsistently enforces” them. Meanwhile, #3 “unconstitutionally compels speech” by forcing ads to include multiple retailers.  While US Dist Ct upheld the law/regs, the US Appeals Ct found the Plaintiffs “plausibly stated a claim upon which relief can be granted” and reversed.

Indeed, Appeals Ct judges basically agreed with the Plaintiffs that the regs did not directly advance the state’s interest in promoting responsible consumption.  Nor did law advance the state’s interest in orderly markets, they found.  Number 3 “conceivably” compels speech.  In fact, several key quotes from this decision support broad challenges to many state regs, not just those at stake here.  

• Defending the regs, state officials claimed a “commonsense link” between ads and increasing demand for alc bevs (public health advocates make the same assumption).  There may be a link, judges acknowledged, but that doesn’t mean these restrictions advance temperance.  “A theoretical increase in demand for alcohol based on a lower price does not necessarily mean any consumption of that alcohol is irresponsible.”  (This may not help save these regs, but it’s a great point for industry in policy battles.)

• Then too, “multiple inconsistencies within the regulations poke obvious holes in any potential advancement” of responsible drinking, the judges note, “to the point the regulations do not advance the interest at all.”  The argument that exceptions are swallowing the alc bev regs comes up a lot among alcohol regulators (and industry members). Retailers can’t advertise discounts but can offer ’em once patrons are inside the establishment, the judges pointed out.  State regulators “assert the challenged restrictions prevent retailers from luring vulnerable consumers to their places of business, yet defendants apparently are not as concerned with retailers baiting consumers to drink excessively once they arrive.”  

• Then too, retailers can advertise “generic” promotions like “happy hours” and “ladies nights,” which “could also encourage irresponsible drinking,” the judges point out.  That ain’t all.  Exceptions for coupons/rebates represent “perhaps the most glaring inconsistency,” according to the judges.  These exceptions “allow certain speakers to make comments” under MO law, that “supposedly encourage irresponsible drinking.”  Net-net: if “true aim” of regs is to promote responsible drinking, these inconsistencies “make no rational sense.”  

• Finally, judges also reject notion that the Single Retailer statute (#3) helps maintain an orderly marketplace.  How’s that?  Missouri law ostensibly bars financial interests between tiers.  But this law “weakens” the statutory scheme, the judges suggest, as another exemption that allows tiers to become “financially entangled.”  

In addition to this analysis, the Appeals Ct judges suggest the laws/regs are “more extensive than necessary” to achieve state’s interest and that there are “reasonable alternatives” to them, less intrusive to speech rights, to achieve those interests (temperance).  Like what?  Like higher taxes, other types of regs (not on speech), and educational campaigns.  Here, judges refer to key Sup Ct case (Central Hudson) that prescribes how commercial speech issues should be tested.

Same Issues Pop in 9th Circuit in Retail Digital Case  Same day that 8th Circuit revived MO case, full panel of 9th Circuit Ct of Appeals judges reheard arguments in Retail Digital case in Calif.  Recall, US Dist Ct there upheld Calif law that bars producers and wholesalers from paying for ads on screens that 3d-party co Retail Digital installs in retail stores.  But 3-judge panel on US Appeals Ct sent case back, suggesting law may be illegal speech restriction.  Distribs and others in Calif fear that decision opened doors wide for pay-to-play.  In rare move, full Appeals Ct will review decision and had 1-hour hearing yesterday.  

Much of discussion and back-and-forth resonated with language in MO case.  At length, attys and judges batted around whether Central Hudson still rules or whether, as Retail Digital atty insisted, more recent Sup Ct case (Sorrell) requires Calif regs need to be viewed with “heightened scrutiny” since they are “content based” and target specific “speakers,” i.e. producers and distribs.  (8th Circuit noted Sorrell but focused on Central Hudson test.)  Issues of the impact of exceptions, whether Calif law helps maintain orderly markets (state AG insisted reg helps “preserve market structure” and prevent big producers/distribs from undue influence over retailers), whether there are “reasonable alternatives” and impact on temperance also came up.   Interestingly, state AG conceded that any argument that Calif restriction needs to be upheld because it prevents people from seeing ads and promotes temperance “would likely fail.”  It will be interesting to see what the full panel of judges concludes.  Importantly, industry members who support these regs focus on them as business regulation, acknowledging that free speech challenges are more difficult to handle.   

Another well-known craft distrib selling its biz.  Seattle-based Click selling to MC distrib Stein, out of Vancouver, Wash and Boise Ida, pending supplier approval.  Recall, Click won NBWA’s Craft Distrib of Yr award back in 2008.  Stein will simultaneously form JV with another of Northwest’s larger distribs, Odom Corp.  The JV will reportedly sell about 3 mil cases of beer, wine, spirits, NAs.  Ownership teams believe the “combined organization will enhance the resources and expertise to better serve the growing needs and competitive challenges” in northwest mkt.  Deal expected to close at end of Q1.   Meanwhile, “existing Click organizations will continue to operate independently for the foreseeable future,” said press release.  Click  mgt “and substantially all of the Click staff will continue with the new organization.”

Recall, Kirin entered into talks with Heineken, ABI and Brazil’s Grupo Petropolis last fall “on potential partnerships,” Nikkei Asian Review reminded.  But Heineken “eventually proposed to buy the unit outright, given that earnings seemed to be in recovery.” Kirin Holdings will sell its Brazilian beer biz to Heineken “as soon as this year…. The two breweries have largely agreed to an arrangement under which Heineken will pay” about $870 mil, while Kirin is expected to take loss in hundreds of mil, according to Nikkei Asian Review.  Kirin entered Brazil in 2011, when it paid $2.6 bil for Schincariol biz, but it took about $1 bil  writedown on that deal in 2015.   Brazil is #3d largest beer market in world.  Following deal, Heineken will have about 20 share in Brazil, going head-to-head with ABI, notes Consumer Edge’s Brett Cooper.  Heineken’s “purchase can be seen as a defenseive one” to “be able to inflict pain” on ABI in one of its “profit strongholds,” noted Brett, should ABI “reinvest some of its synergies in more competitive prices in strong Heineken markets.”  

Wheels of justice continue to grind in criminal and civil suits around scheme to defraud MillerCoors run by ex-veep David Colletti and group of suppliers who billed brewery for events that never happened and split fees with David.  He and most other defendants have pled guilty in criminal action, but there’s also civil suit filed by MC claiming over $13 mil in losses.  One of the suppliers just settled with MC, pledging to pay back $$ he made on phantom golf tournaments.  Amount not disclosed, but indictment had charged him with “conning MillerCoors out of at least $1 million,” reports Law360.  Same guy has also provided MC with info in civil suit.  On top of this settlement, “the suit has already resulted in more than $2 million in money judgments for” MC, according to court records, Law360 notes.

We’ve seen it before.  Industry members, politicians and regulators talk of need to “modernize post-Prohibition-era” alc bev regs/laws.  But when push comes to shove, opening that Pandora’s Box means threatening status quo, parts of which some players really like.  And who knows what may pop in “modernization” move?  So process gets bogged down, sometimes abandoned.  Mass ready to take the plunge this yr, as Boston Globe reports today.  And even tho task force tasked to “create a more cohesive set of rules that ‘deals with the 21st century’” still not fully formed and hasn’t met yet, fretting has begun.  

Two key issues in beer alone: 1) distrib franchise law, which small brewers have been pushing unsuccessfully to revise for years to make it easier to move brands; 2) small brewers’ retail rights.  “Any change has us nervous about the jobs we’ve created and the revenue streams we have,” Rob Burns, prexy of Mass Brewers Guild, told Globe.   Rob’s also concerned distribs will push to limit taprooms, even as his members seek to expand taprooms and get right to sell competing brands in ’em.  Mass distrib assn didn’t comment.  Wineries and retailers have their own concerns, but fear “unintentional consequences” of regulation rewrite.  “I hope there’s a lot of scrutiny...to make sure we’re not unraveling the entire system,” head of package store assn told paper.   “We’re not starry eyed,” Mass Treasurer said. “We know we won’t be able to get everyone to agree...but if we never try, we’ll never get beyond 1933.”  Stay tuned.

Constellation powered thru with 11.8% growth in its southeast region, it told distribs.  But up only 2% in Dec, with 1 less selling day.  Constellation grew 13% off premise, 5.8% on premise in region for the yr, including a drop in Dec.  It’s off to fast start in Nielsen.  With only 1 week of data in (thru Jan 7), Constellation up 27% in Nielsen all outlet and it gained 1.8 share of $$ for one week.