Price matters, and beer price trends have no doubt had an impact on overall beer growth, even as above premium segments continued healthy gains. Consumer beer prices, as measured by govt’s CPI index, outpaced inflation and, perhaps more importantly, wine and spirits consumer prices in recent yrs.  More of the same in 2016.  While CPI for all items up 1.3% in 2016, beer CPI rose 1.8%.  There was similar half-pt gap in 2015 and modest gap in 2013.  So beer CPI outpaced all items for 3 of last 4 yrs.  Indeed, beer CPI up or even for 21 straight mos thru Dec 2016.  And since beer volume peaked in 2008, beer CPI up 15% vs 11.5% increase for all-item CPI.   

But look at the gap between consumer beer and wine/spirits prices.  In 2016, spirits CPI up just 0.4%, following 0.1% increase in 2015.  Beer prices significantly outpaced spirits prices (1 full pt or more) almost every yr since 2008.  Indeed, spirits CPI up just 4.5% during that period.  Wine gap even more dramatic.  Wine CPI actually negative in 6 of last 7 yrs; -0.1% in 2016.  Since 2008, wine CPI basically unchanged.  These are all off-premise trends.  On-premise pricing much more aggressive across alc bevs in recent yrs.  In 2016, on-premise beer CPI up 1.7%, spirits +3.1% and wine +1.4%.  Since 2008, beer’s on-premise CPI +19%, matched by wine’s on-premise CPI trend, while spirits’ on-premise CPI jumped 23.5%.

“Our most discouraging AmBev visit in 25 years revealed poor consumer insight driven marketing and innovation execution,” began HSBC’s Carlos Laboy in blistering report that downgraded AmBev to reduce.  Carlos has extensively covered LatAm bevs for a quarter century and saw rise of ABI before most, accurately forecasting AB and SAB takeovers.  Now he thinks ABI will buy Coke (detailed in other reports).  But in Brazil, “weak category and brand custody is a long running issue that is no longer masked by M&A or by an economic surge.”  To get to “next phase of growth, required AmBev to have mastered consumer and channel insight skills that now appear elusive…. It all snowballs as old deficiencies undermine new initiatives.”  Carlos cited “evidence of poor mainstream beer brand execution for its top package innovation project. We saw weak consumer and channel-insight driven initiatives, low differentiation of liquids and packaging…confusing brand messaging, subpar innovation and sloppy execution that we were not expecting.”  Ouch!  “We now view Ambev as a ‘show me’ story with implications for ABI,” Carlos concluded.  Brazilian mkt share “erosion has accelerated.”  Carlos’s note “adds to the ABI concerns raised by our Europe team in December” in report entitled: “Tough sledding in US beer weighs on ABI.”  All that’s just on first page of 25 page report.   

New Bud Light campaign will debut with 60 second spot on Super Bowl.  Tagline “Famous Among Friends” is “true” to brand’s lineage, new mktg veep Marcel Marcondes told INSIGHTS, featuring “fun social moments with people you like,” adding “friendship stays forever.”  Bud Light ads should “not be something juvenile” but rather aim for “universal relevance.”   Marcel met with media in NYC yesterday (INSIGHTS couldn’t make it, but had separate brief conversation).

AB not yet finished with any of its Super Bowl ads, so it did not show any new work.  It will buy “at least” 3 minutes of ad time, showing ads in each qtr.  That’s 30 seconds less than last yr, at least 1/3 less than 4.5-5 minutes in days of yore.  Could be partly because ads are $5 mil for 30 seconds now, roughly double a decade ago.  Absent showing any new work, this meeting about which brands would be featured and strategies behind them.  AB pr said it will release several of new ads on digital platforms prior to the Big Game. But Marcel told meeting that AB is “considering releasing some elements” of Bud Light work prior to big game, “but has not made a final decision,” reported Ad Age.  New Bud Light campaign also comes from Wieden & Kennedy, which produced last yr’s unsuccessful Bud Light Party campaign.  Both the agency and AB probably feeling more than usual pressure to succeed with “Famous Among Friends.”  

If biggest stakes riding on Bud Light work, most interesting news for this yr’s Super Bowl is first ever Busch ad.  Marcel said folks sometimes ask why a Busch ad on the Super Bowl.  And his answer is “Why Not?”  Busch franchise “performing very well,” he said.  “Let’s see how far this can go.”  Overall, Busch Super Bowl ad is “not a big change” in Busch media budget, which “already included some media,” Marcel told INSIGHTS.  Is there a “social movement… back to traditional values,” Marcel asked.  While unwilling to answer definitively, Busch ad in Super Bowl in part is recognition that “something is going on,” whether that’s Busch brand or related to larger societal trends.   Busch family share flat in 2016; modest share gain in 2d half.

Meanwhile, Bud and Mich Ultra will also get Super Bowl ad slots.  Bud work “will draw inspiration from the story of its founder” Adolphus Busch, celebrating brand’s “ambition and hustle,” said AB.  Sounds like ad will be less “in your face” than “Brewed the Hard Way.”  Those ads drew attention, got praised, but Bud down 3.7% in IRI multi-outlet + convenience in 2016, 4.5% for last 12 weeks.  Meanwhile, Michelob Ultra ain’t broke and AB ain’t fixin’ it.  Ultra was industry’s hottest big brand in 2016, grew more cases than any other in IRI, up 23%, 10 mil cases for full yr.  “We don’t need to reinvent the wheel,” said Marcel. “It’s working really well.”

Even while leading Japanese brewer Asahi nowhere near digesting $10 bil in purchases of Euro beer volume that fell out from ABI-SAB deal (and getting just a distant 9 share with that investment), it’s not ruling out even more deals, sez  prexy Akiyoshi Koji, according to Reuters and Bloomberg reports.  Recent purchases will jack Asahi’s debt-to-EBITDA ratio to over 5X, sez Bloomberg.  But it has registered to buy stake in Vietnam’s biggest brewer (Sabeco), tho Koji would not confirm whether Asahi will actually formally bid.  Asahi has currently 20% stake in China’s Tsingtao and smaller brewer there and is also reviewing options with those bizzes.  Asahi seeking growth outside Japan more understandable when you see how tuff beer biz is there.  Volume fell another 2.4% in 2016, to approx 44.7 mil bbls.  That’s down about 9 mil bbls, 17% in last decade, which makes 1.2-mil-bbl, 0.5% drop in US during same seem pretty modest.     

After very soft Dec, Jan projected to be a much better mo, because of calendar effects, even if it started slow.  There will be an extra selling day, but just as important, significant amount of pre-Super Bowl volume shifts into Jan this yr, compared to Feb last yr.  Between 1 extra sell day and “gaining 2 Super Bowl Build days in last week of month,” net impact on Jan of these calendar effects should be +7-9%.  That’s according to AB deck, shared with retailers in Oct.  Anecdotal reports suggest Jan will be a good mo in all.  In Feb, we’ll give it almost all back and in Mar, beer biz “losing Easter build to April,” sez AB.

After nearly 20 yrs, MC will return to “industry standard,” 50/50 on promotional splits, effective Mar 6, sales prexy Kevin Doyle wrote distribs today.  Since 1998, MC gave distribs a 70/30 split on promos, unlike other key players like AB and STZ who stayed 50/50. MC aim in going to 70/30 in late 90s was to get faster alignment on promo strategies and in effect give distribs a carrot.  But as MC takes that carrot away, it insists there will be no cost to distribs, i.e. “revenue neutral.”  

How does revenue neutral work here?  If a promotion was $1.00 and before distribs paid 30 cents but now they will pay 50 cents towards that promotional effort, then they will get a 20 cent reduction in FOB, sez MC. And so revenue neutral.  It gets a little more complicated than that in states with single FOBs where “we will keep distributors revenue neutral via incremental local marketing credits, in perpetuity,” according to Kevin.  This is “not a money grab,” Kevin assured INSIGHTS.  Why do it?   MC aims to get “better execution” of its pricing strategy so that MC and distribs can “make better decisions together,” Kevin told INSIGHTS.  

We got initial skepticism from small sample of distribs/others.  “Absurd,” e-mailed one, about revenue neutral claim. “If that was the case, why do it?”  he wrote.  This and other comments suggest MC will face skepticism. Timing, just 2 days after DOJ said its “proposed final judgment” on ABI-SAB will stay as is, struck another source as suspicious.   Some commenters asked DOJ to apply same restrictions to Molson Coors as it did to ABI.  Timing “starts to vindicate the paranoia” that MC could copy ABI on pricing and distribution, he added.  Another distrib agreed move will be revenue neutral, but sez this is a “total distraction.”  For next 2 months or so, MC will “take their eye off the  ball.” First they will spend “1 month explaining” and then “1 month arguing” about pennies here, nickels there.  All this while biz not growin’.  Another potential rationale for MC action: to limit its downside risk.  “The move does not seem to change the economics for MillerCoors if the industry goes to plan in 2017,” wrote Consumer Edge’s Brett Cooper, “but does put some of the downside from a higher promotional environment (relative to plan) on a distributor’s P&L relative to that of MillerCoors.”  

Recent AB distrib consolidation in New Hampshire follows MillerCoors consolidation that already happened awhile back, an astute reader reminded.  New Hampshire only has 2 MillerCoors distribs. It’s been that way since 2009. On top of it, biggest NH MC distrib is JV between Amoskeag (Tom Bullock) and Hobo LLC (partners include MC megadistribs Jeff Honickman, Simon Bergson and Dominic Origlio).   

It’s a brave new world for craft in early 2017, as 3 news flashes from last several days show. Former hi-flyer Denver’s Great Divide was “having 25 to 30 percent growth on an annual basis,” founder Brian Dunn told Westword Friday. But last yr production fell 6,600 bbls, 16% to 35,300 bbls. “It was definitely a tough year and it stings,” Brian said.  As result, Great Divide “will hold off for a while on the construction of a new brewery,” Westword wrote. “We can’t justify the expenditure right now,” Brian added.  “Once” current location “is at capacity, perhaps in a few years, the company will reignite its plans to build a new brewery, restaurant and beer garden,” wrote Westword.   

Then too, another hi-flyer, Green Flash, “laid off approximately 25 employees from their accounting, marketing, events and brewing operations departments,” wrote Full Pint late last week.  But Green Flash is “not reducing the number of employees,” founder/ceo Mike Hinkley said, but rather increasing total. Recall, it’s hiring dozens for its VA brewery, which opened in Nov.  

As if declines and layoffs weren’t tuff enuf, Seattle’s Big Al brought a reminder that it can be tuffer yet.  After 8 yrs, it closed its doors on Saturday and will file Chapter 7 (liquidation).  Founder Alejandro Brown pointed to increased competition (WA breweries went from 86 to 300), rotation nation (“permanent placements were few and far between”) and increased costs as factors in Big Al’s closing, in letter to investors/employees.

Turns out there are many more accusations against Calif retailers, over 30 of them, in both Straub Dist and AB branch territories, alleging “thing of value” violations of Calif ABC code (see Jan 12 Express).  In batch of 34 accusations we’ve seen, 9 identified Straub Dist, 25 identified either AB LLC or AB Wholesaler Development Corp as wholesaler.  Locations naming AB included Long Beach, Riverside, Van Nuys, etc.  Distribs provided mostly coolers, but also some draft systems.  Dates range from Jan 2014 thru Dec 2015.  Most include single count, but over half dozen include multiple counts, up to 5 coolers in one case.  Tho all of these accusations filed vs off- and on-premise retailers, our sources speculate that likely means AB branches will ultimately be charged too. Stay tuned.  

This just in.  In 50-pg document, Dept of Justice looks at the one dozen comments it received in response to its initial “proposed Final Judgment” and concludes: “After careful consideration of the public comments, the Department continues to believe that the proposed Final Judgment, as drafted, provides an effective and appropriate remedy for the antitrust violations alleged in the complaint and is therefore in the public interest.”  So no changes.  DOJ “will move” that the Court “enter the proposed Final Judgment” as is, “after the comments and the response are published.”  

Recall, only Yuengling’s extensive comments objecting to deal previously revealed.  Who else commented? Many of the usual suspects.  Brewers Assn, NBWA, American Bev Licensees, WBAE (assn of state assn execs), i.e. associations representing brewers, wholesalers and retailers.  A couple of other state distrib assns, OK and VA, also commented.  Only 1 other brewer besides Yuengling commented: Ninkasi.  Commenters didn’t think DOJ went far enough in its remedies.  Teamsters of course weighed in with arguments against closing of Eden, plus Consumer Watchdog (a consumer advocacy org), a prof and more.  But none of their arguments swayed DOJ to change their report one iota.  This is the usual case, from what INSIGHTS understands.  Those comments not yet available at presstime.

DOJ details its own process. Proposed Final Judgment “is the culmination of a thorough nine month investigation conducted” by Antitrust Division of DOJ.  It “collected more than 1.4 million documents from the Defendants and third parties, conducted over 70 interviews of beer industry participants, took numerous party depositions and coordinated with both state and foreign competition agencies reviewing the transaction.”  Dept “carefully analyzed the information it obtained from these sources, and thoroughly considered all of the competitive issues presented.”  

DOJ pats itself on the back for making ABI divest of SABMiller’s equity interest in MillerCoors,  which ABI had to know from day one would be an absolute precondition of the deal’s approval.  So no surprise at all there.  More interestingly, recall that other restrictions far reaching and multi-faceted and a big disappointment to AB.  Those include limiting branch ownership to 10%, not allowing AB to go forward with its VAIP program or other attempts to limit AB distrib sale of 3d party brands and much more.   DOJ said that “to further help preserve and promote competition” in US beer, proposed Final Judgment also “imposes certain restrictions on ABI distribution practices and ownership of distributors.”  It also “requires ABI to provide” US govt “with notice of future acquisitions of beer distributors and craft brewers prior to their consummation.”  One-by-one over course of 50 pages, DOJ deals with each objection, before finally concluding that its own original “proposed Final Judgment” is correct as is.  More details next week.