Top execs

gotta be guarded about what they say in forums like Beer INSIGHTS Seminar. But AB InBev ceo Brito

provided combination of strategy insights, frank answers to some tuff questions and quirky personal notes

(regarding chocolate, toothpaste and shampoo -- really) in wide-ranging discussion at our meeting yesterday.

Here are some highlights:

ABI Turned Around Big Brands in UK and Brazil; Position vs Composition in US On key question about

AB’s “share stabilization” goals in US, Brito claimed “very good progress,” and that US team making “right

calls.” Pointed to reduction in share loss of Bud, gains from Michelob Ultra, High End and craft. Still “some

fixing to do” on Bud Light, Brito acknowledged. Efforts so far have “moved some indicators,” but not

translated to sales gains. ABI has turned big brands before, Brito reminded. Pointed to Stella Artois slump in

UK that ABI reversed by adopting more premium image. Also, ABI got Brahma brand “back to growth” in

Brazil by making “new connections” with consumers. Ain’t easy, Brito acknowledged, and past doesn’t predict

future, but it’s possible and “we’re committed to do it” on Bud Light. He also linked share stabilization to

distrib partners and ABI attempts to “get the relationship to a better level.” While volume down, AB gross

profits (and distribs’) marched upward, he noted. “From day one” in US, ABI “liked AB’s market share

position” in US, “but not the composition.” Too much volume in value brands (30%), ABI execs thought, not

enough in premium and above. That gap needed to be “diminished,” and that’s where the margins are. ABI

“not in business to sell cheap beer,” but to “build brands that are premium” and charge a premium for ’em.

Fillin’ the Gaps, Finding “Shelf Ready” Solutions While tons of attention paid to “innovation” these days,

Brito makes no bones about ABI strategy to “identify gaps” in its own and other bizzes, discover how others

“do it better than we do,” learn those cultures and “copy what they do.” It’s “foolish to waste energy

reinventing things that are shelf ready,” Brito added. He pointed to specific learnings from other brewers when

he ran #2 brewer in Brazil. One of those (perhaps ironically): AB’s Ambassador of Excellence distrib program.

Brito got copy of that program from AB, “took the book” back to Brazil and “never looked back,” he said.

ABI also picked up valuable insights from mtg with Starbucks folks, Brito noted, and now in biz with them on

Teavana.

How Does ABI Get to 20% of Its Biz in Low-Alc, No-Alc Products? 0.0 Beer As part of responsibility

commitments, ABI adopted ambitious goal of having 20% of its volume in low and no-alcohol products by

2025. It’s 6% globally now and tiny share in big US mkt. How does it get there? Not by including any soft

drink biz, Brito said. Goal involves just malt-bev products. He noted no-alc Bud Prohibition “doing quite well”

in Canada and biggest beer segment growth in Germany now 0.0 products. They’re positioned there as “energy

products” (i.e. “like Gatorade”) but “not chemistry,” or with “artificial colors,” rather as natural products with

known ingredients. In Brazil, 0.0 got to 1% quickly and up to 7-8% in some mkts.

Where Are the Americans in Global ABI Top Mgt? Brito tackled tuff question about why there are no

Americans in top mgt in AB InBev head on. Sometimes, he said, “you go for the people you know when you

implement change,” people who have “been through the battle” with you. Interestingly, in other parts of world,

ABI has “much better mix of nationals and ex-pats” than in US and ABI taking more people from SAB than in

previous deals, Brito said. (He did not mention it, but Peter Kraemer, AB’s head brewmaster and supply veep

since 2008, is now direct report to Brito as chief of global brewing ops.)

We’ll get to lots more in beer marketer’s INSIGHTS, including Brito’s comments on learnings from spirits,

“pain points” and more on Bud Light.

Florida is one of a number of states where

there’s more than one distrib assn, going back to late 80s when Fla passed franchise law AB didn’t like and all

AB distribs, except a few left the assn en masse (3 of those later got into big legal battles with AB). Earlier this

mo, the 2 assns held their meetings together for the first time in decades, openly discussing legislative issues

common to all distribs. Maybe there’s hope yet for split assns. Beer Industry of Florida is home to all the MC

distribs, and Florida Beer Wholesalers Assn is assn for AB distribs. Reyes Bev Group belongs to both.

Following legalization of recreational

marijuana in 4 more states, Constellation “is considering a new approach to livening up its beverages:

marijuana,” according to a Bloomberg article. “We’re looking at it,” Constellation ceo Rob Sands told

Bloomberg. “There are going to be alcoholic beverages that will also contain cannabis.” Many have viewed

marijuana as a threat to alcohol, “Sands sees it as an opportunity,” added Bloomberg. Marijuana could grow

into $50 billion industry over next decade, according to research from Cowen & Co. “Why wouldn’t big

business so to speak, be acutely interested in a category of that magnitude,” noted Rob. “If there’s a lot of

money involved, it’s not going to be left to small mom-and- pops.” To those who fear marijuana will

cannibalize alcohol, Rob took different view. “People who are using cannabis may be disinclined to drink as

much as they might have otherwise, but maybe they weren’t going to drink in the first place and then they drink

something,” Rob said. “Maybe the whole thing will work out synergistically.”

Total beer

biz down 0.2% (volume) last 12 weeks thru Oct 30 in IRI multi-outlet + convenience, supporting other reports

that suggested tuffer trends in recent mos. That compared to up 0.6% yr-to- date. But imports continued to

grow at 7% clip, led by Mexican imports up 10%. And Mexican imports reached a new milestone. At 69.6

share of import volume and 69.7 share of $$, rounding up to 70. They captured all the growth in the import

segment. Gained 3.2 mil cases, 10.2% last 12 weeks in IRI MULC, compared to craft up 355,000 cases, 1.4%

and FMBs actually down 0.5%. Only other segment showing robust growth now is superpremiums, up 1.4 mil

cases, 7% last 12 weeks. But Ultra is all of that growth and then some. Ultra up 2.4 mil cases all by its

lonesome and captured 63% of segment sales. All other brands IRI defines as superpremiums collectively

down double digits.

“Since we rolled out the Climb On campaign, Coors Light has regained momentum and is now growing with

women, millennials and Latinos.” That was silver bullet point from MillerCoors cmo David Kroll in talk to

Calif distribs yesterday. David made familiar jabs at last 20 yrs of premium light beer mktg, by both AB and

MC, and touted MC’s new approach to celebrate “intrinsic advantages of our beers,” rebuilding respect for them

and being “more consistent and inclusive in our marketing,” especially to women. “We actually sell less beer to

women today than we did a few years ago,” David acknowledged. What’s more, he said 35% of light beer

decline over the past 4 years “driven by women.” Coors Light “Climb On” campaign gets additional platform

starting in Jan, David added: sustainability. Few causes “resonate more deeply with young people,” he said,

especially in Calif. Two-thirds of drinkers “willing to pay more for sustainable brands,” and Coors has long

history of environmental commitment. Meanwhile, response to new Miller Lite’s messaging of pride in beer

and “difference” also paying off. “The response to this work has been the best we’ve seen in 10 years,” said

David, with trends improving with core drinkers and “now also attracting both millennials and Latinos.”

All in, since new mktg model adopted “we have gained share each and every quarter.” That’s share gain of

premium light. Recall, MC reported Coors Light STRs flat in Q1, up low singles Q2, down low-singles in Q3.

Miller Lite STRs flat in Q1 and Q2, down mid singles in Q3. In latest IRI multi-outlet + convenience scans,

Coors Light and Miller Lite each off just 0.1% yr-to- date thru Oct 30. For last 12 wks, Coors Light -0.6%,

Miller Lite -1.2%. But each had solid Oct: Coors Light +0.3%, Miller Lite +0.8%. “This is a fascinating

moment in the American beer industry,” David concluded. Top 2 brewers attempting to “rebuild interest” in

American light lagers, but “taking two very different marketing paths.” (David dinged AB’s Bud Light ads for

not talkin’ about the beer and staying “overly focused on young male drinkers.”) But rebuilding light beer

“essential” to “healthy growing American beer industry,” David believes. Does MC have the messaging to

make it happen? “Only time will tell,” he said. In any case, it will be quite a challenege: premium light beer

down every year since 2008 and lost about 12 mil bbls in that period.

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Tho mega-retailer Total Wine tried to exclude beer, wine and spirits distrib assns, plus retailer assns, from

intervening in its suit challenging CT’s pricing laws (see Nov 1 Express), judge will allow them to intervene.

She ruled each assn has “sufficient interest” in case to defend laws that impact their sales/profits. And while

state itself and biz assns have “same objective” in defending laws, they don’t necessarily have “identical”

interest. That “may well incentivize some or all of them to raise different arguments” than state regulators

make. As far as beer distrib assn goes, Total claimed that it’s only challenging regs for wine and spirits. But

they’re the same regs and Total didn’t even ask Court to limit any ruling to solely wine and spirits. So the beer

distribs are in too. Finally, judge will “take seriously” assns’ offer to work together to make their intervention

“more efficient for all involved.” Net-net: assns will be able to intervene, help state defend post-and- hold,

minimum price and bans of below-cost selling and volume discounts, etc.

As part of its ambitious

growth plans (beer revs up high singles in next 3 fiscal yrs), Constellation will step up its innovation in beer and

launch an Ultra fighter, Corona Premier, which will test in 4 mkts, Paul Hetterich announced. This will be

Constellation’s “first test at consumer weight,” meaning that it will spend extensively “to see what we can

drive,” while also closely monitoring cannibalization. So Ultra will no longer have space to itself. HUSA is

going ahead with its Amstel XL test too we hear, but recall MC grounded its Goldwing test.

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Michelob Fighters of the Past Many Michelob fighters flooded mkt in early 80s as Michelob at 8 mil bbls

back then and had superpremium biz to itself, one vet of beer industry mktg wars reminded. Remember?

Schlitz had Erlanger, Pabst sold Andeker, Coors intro’d Herman Joseph and Stroh sold Signature. None of ’em

made much more than a ripple in marketplace, our source reminded. Or are around anymore. Only Miller’s

Lowenbrau sold for awhile, but Miller spent a ton of money advertising and lowered price after changing it

from import to domestic; none of that proved sustainable. Sometimes, a brand is part of a segment, but

sometimes it is something unto itself, sui generis, as our source noted. Then it becomes that much more

difficult to compete against. Perhaps such thinking is one of factors that weighed on MC, as Goldwing will no

longer take flight. But STZ will still be “stretching” Corona to Premier.

While Corona

Extra depletions at 117 mil cases, +10% last fiscal yr and getting “more innovation than in any one year” next

yr, said Paul, its Casa Modelo at 79 mil cases, +18% (including Negra Modelo and Chelada) and has all kinds

of growth potential. Indeed, Constellation just moved goalposts on its Casa Modelo franchise, which will be

well over 90 mil cases in 2016. Whereas previous goal was to get Modelo Especial to 100 mil cases, now it sez

Casa Modelo can get to 150 mil cases, almost double last yr. Wow!

Constellation believes it has permission to play in wide variety of possible extensions in Casa Modelo; it “could

go to heavily hopped” or “ABA style products,” said Paul. Constellation itching to get into FMBs, which it

calls ABA (alternative beverage alcohol). Paul made several references to STZ possibilities in this space,

including leveraging off existing wine and spirits equities, or Modelo name, tho no announcement. At same

time, Constellation looks like it may have another hit brand: Pacifico. Its 24 oz can is #1 new item in c-stores.

Last yr, Pacifico at 7 mil cases and grew 5%, but this yr its IRI growth greater than 20%. And STZ intro’d

stretch goal of 25 mil cases for Pacifico, including going national and getting much more media investment.