In the rest of the world, “if you have a 40 share you don’t get to buy stuff,” stated Pabst chairman Eugene Kashper during Brewbound Session in San Diego yesterday.   But ABI continues to buy brewers outright here in the US and “circumvent antitrust” in other ways while “our DOJ doesn’t want to deal with it.”  DOJ is “kind of focused very short term,” he went on.  “If something is not going to result in prices going up in the industry tomorrow,” then DOJ feels “they shouldn’t really waste time.”  Perhaps state AGs will become “more active going forward,” he suggested.  But Eugene “surprised at how it’s developed so far.”  

He listed “tying them up” (seemingly referencing CBA), “doing something with distributors,” (he “fully sympathize[s] with” Yuengling’s “situation” in MS), and venues/stadium sales as specific ways AB circumventing antitrust now.  ABI’s “been quite successful in their interactions” with DOJ and it’s likely “emboldened” them and “probably MillerCoors as well...to do more things” to “cement their duopoly in the US.”  There will always be taprooms, he acknowledged, but as far as national shelf space and “share of the profit pool,” “they’ve been put in a position where they can really box everyone out.”  So far it hasn’t “gotten to the stage yet where other industry participants are really feeling what they’re doing, but they’ll get there.”

Pabst Brewing Co hired former Duvel Moortgat USA prexy/ceo Simon Thorpe as its chief exec officer, starting tomorrow.  Current chairman/ceo Eugene Kashper will keep the chairman role.  But there “will be a 60-day transition period between” Simon and Eugene to “ensure a smooth handover.”  Simon is “both a true industry visionary and a highly respected operator,” according to Eugene in release. 

In Eugene’s original vision, he “would have preferred” to split the ceo and chairman role right away, he told INSIGHTS.  While it was “great to be deeply involved” in day-to-day last couple of yrs, co has so much going on that it needs both a ceo and “full time committed chairman owner.”  Pabst never went into a “formal process,” searching for new ceo, it hadda be “good fit.” Eugene knew Simon and after he left DMUSA, they talked about what he would do next. Gradually it emerged that Simon would be “great fit.” 

Grow PBR and Local Legends; “Pursue Partnerships” with “Like-Minded Brewers”  In note to distribs/partners, Eugene said: “Simon will be 100% focused on executing against our two main strategic priorities: 1) To take advantage of our unique brand portfolio and accelerate the growth of Pabst and our Local Legend brands. 2) To build a best-in-class sales and supply chain platform that will allow us to expand our portfolio in the longterm through collaboration with like-minded independent brewers.” 

With Simon’s “deep marketing background,” he “gets these heritage brands” and “will take the bold actions necessary” to build ‘em, sez Eugene (Recall, Simon had multi-yr stint at InBev too, as ceo of InBev USA and head of M&A/Strategy.)  With his “deep experience in the high end” and many relationships he has formed, Simon can be key for Pabst to “pursue the right partnerships with like-minded brewers” where there are “huge opportunities,” sez Eugene. Simon can “help us capture the right ones.”  Simon also has “the right temperament.” Pabst already built “great” team, but Simon “will really round it out.” He’s “next step in our evolution,” tho Pabst not planning to change its “team, strategy or organizational structure,” added Eugene.

Not Your Father’s “Return to Growth” Next Yr; Incubation Unit Following 20%+ rev growth last yr, 2016 turned into a much harder yr, after Not Your Father’s Root Beer started cycling intro numbers.  2016 was a “tough year for us,” conceded Eugene, but he’s “optimistic” about plans and programs coming on stream, and 2017 can be a “great year.”  Hard soda segment “settling in” and Not Your Father’s franchise has robust innovation pipeline, Eugene said.  Next yr, Not Your Father’s franchise can “return to growth.”  Also, Pabst “getting a lot better on supply chain side” and “can be a great partner.” Then too, it will dial up local legends thru an “incubator unit” within mktg that came up with Old Style Octoberfest (“couldn’t supply enough”) and Stroh’s Bohemian (Stroh brand up for first time in 20 years). 

Pabst $$ sales still up 3% in IRI multi-outlet + convenience yr-to-date thru Oct 30.  Volume up just 0.2%.  For last 12 weeks tho, Pabst fell into a hole.  Its $$ sales down 19% and volume down 10%.  Not Your Father’s Root Beer $$ fell over 70% last 12 weeks, but $$ sales up 4.6% YTD.  Pabst Blue Ribbon brand $$ flat and volume down 1.4% yr-to-date in IRI MULC.  Those 2 brands accounted for 62% of Pabst $$ sales in scan data.

Shelton Bros has “no right of private action” for alleged violations of Mass alc bev laws and no right to seek damages from distrib Craft Brewers Guild.  What’s more, Shelton’s breach of contract charges “dead on arrival” and it acted in “blatant violation” of law by specifying alleged damages in its complaint.  So sez Craft Brewers Guild in motion to Mass state ct seeking immediate dismissal of Shelton Bros suit filed earlier this mo (see Nov 7 and this morning’s Express).  CBG also refutes many of Shelton’s specific allegations, but even if they were true, suit should be dismissed, CBG insists.

Shelton’s allegations about CBG’s lack of efforts to sell its brands, pricing policies, pushing competitive brands and more “all essentially based on allegations that Craft violated provisions” of specific Mass alc bev law.  But that law “grants Shelton Brothers neither an express nor an implied right of action,” sez CBG.  Mass Alc Bev Control Comm (ABCC) has “sole authority” over such charges and any violations, CBG argues.  So Shelton Bros has no right to sue, as courts have repeatedly ruled in similar cases.  Mass Superior Ct “simply does not have jurisdiction over the specialized alcoholic beverages subject matter” here and Shelton “first required to exhaust its administrative remedies at the ABCC.”  Mass ABCC can hold hearing, require discovery and determine whether Shelton can terminate CBG for good cause and stop shipping beer.  (That process already underway.)  Even as Shelton Bros did file request with Mass ABCC to act on its complaints, lawsuit is “clear attempt to circumvent the appropriate administrative procedure.”  So again, “dismissal is entirely appropriate.”   Tho Shelton sought injunction barring CBG from trying to deter other distribs from carrying brands, CBG points out Shelton “failed to articulate any particular conduct” by CBG that’s causing Shelton harm or “harassing or intimidating” CBG’s competitors.  In fact, Shelton has no exclusive agreement with CBG in first place and it is already “dualing” CBG and selling brands thru other distribs. 

Shelton has statute of limitations problem too, CBG argues.  Complaint alleges CBG “not making good on its promises” to build Shelton biz back in 2011.  But Shelton waited over 5 yrs to file suit, so any breach of contract charges “barred by the four year statute of limitations.” Finally, Shelton specifically barred from naming an amount of damages in such litigation under Mass law, sez CBG, since it “provided no verification” or any “ascertainable calculation used to reach” its allegation of $1.7 mil in damages.  Shelton’s claimed damages “served only as a mechanism to create sensationalism for the benefit of the press.”  At very least, court should strike the number and order Shelton to file “a legally compliant complaint, or, in the alternative, dismiss on this basis as well.”

Shelton Creating “False Narrative” for Legislators and Press, Sez CBG  While courts (and defendant) have to assume facts alleged by plaintiffs are true, CBG “vigorously disputes” many of those as well, it sez in footnote.  And as Express reported this morning, CBG includes charge that Shelton’s complaint is “just a vehicle to denigrate Craft’s reputation in the industry, create a false narrative to further Shelton’s lobbying agenda to attack existing alcoholic beverage law in Massachusetts, and to extort Craft to release its rights to continue to purchase beer from Shelton. Instead of first serving the Complaint upon Craft, Shelton Brothers immediately released it to the press and it was quickly reported on by the Boston Globe.”  CBG also notes Shelton’s claim it did not file suit earlier because of “shaky finances.”  That claim, sez CBG, “almost certainly false” since Shelton “extremely litigious and has sued or been sued by many wholesalers (including other affiliates of Craft) on numerous occasions during the time it was allegedly” short of funds to litigate vs CBG, which then lists same cases it cited in statement released this morning. 

Mass ABCC Orders Shelton to Continue Sales  to CBG; Spring 2017 Hearing  In addition to motion seeking dismissal, CBG obtained order from Mass ABCC requiring Shelton Bros to “make sales of the Brand Items [75 of ’em] and continue to makes sales and deliver same” to CBG until a hearing is held and decision rendered.  Shelton and CBG have to complete discovery by end of Mar, 2017, file pre-hearing memos a month later and hearing will follow within 60 days.  Meanwhile, “the ABCC urges the parties to resolve their differences prior to the scheduled hearing.”     

Crazy 2016 numbers continue.  Even as we reported better Nov retail scans this morning, turns out Oct not only lousy on the street, but domestic brewers’ taxpaid shipments took biggest hit since Feb 2015. Taxpaids off 1 mil bbls, 7.3%, estimates Beer Inst economist Michael Uhrich.  That put taxpaids down 1.7 mil bbls, 1.2% for 10 mos, and down 1.3% for 12 mos.  That’s even softer than last yr’s calendar trend.  Also wipes out import gain thru Sep.  So US beer shipments dead even in reported yr-to-date figures, down a touch if you include soft cider biz.  Thru Sep, biz had still been up estimated 0.5%. 

What Happened? Contraction and Convergence   Oct had one less selling day, consumer beer prices continue to outpace wine/spirits prices and distrib inventories high at end of Q3, Michael noted.  Indeed, drop reflected tuff “beer purchaser’s index” in Oct.  That’s a measure developed by NBWA economist Lester Jones.  Each mo he surveys distribs about their beer orders.  Oct figure was “lowest index in the past two years of the survey, indicating a contraction in volume for total beer.”  And quite a contraction it was, at least for taxpaids.  (Oct imports will be reported next week.)  At same time, gotta note STR trend for both AB and MC softer than their shipments thru Sep, to tune of about 1 mil bbls combined, we estimate.  That matches overall Oct taxpaid drop.  Recall too, AB InBev reminded that it “expects our STRs and STWs to converge on a full year basis” when it reported Q3 figures.  MC’s STR and STW trends usually converge as well.  What are prospects for rest of yr?  Taxpaids have fairly easy comp: down 1.5% or so in Nov-Dec 2015.  But imports surged almost 900K bbls, 20% in Nov-Dec last yr, including unreal +28% Dec surprise.  Better Nov scans and 2016’s up-and-down patterns suggest better Nov numbers.  But who knows?            

Picture this: historically huge, iconic brand, sometimes called “Big Red,” loses favor and share among millennial consumers.  It responds by trying to make brand hipper via pkgng and mktg tweaks.  It succeeds.  No, this “Big Red” ain’t Bud.  It’s Marlboro.  Fascinating story in Wall St Jnl yesterday detailed how Philip Morris USA engineered revival of Marlboro franchise among millennials unmoved by macho, cowboy imagery.  Vast majority (85%) of young adults don’t smoke and most that do weren’t choosing Marlboro; brand lost 9 share of smokes biz among 18-25 yr-olds from 2005 to 2011 govt data showed.  (Sound familiar?)  So PM put out Marlboro Black, a “bold, modern take” on brand, marketed via direct mail and “digital shorts about graffiti artists, lowrider cars and Chicago city photographers.”  Moves are “making Marlboro relevant again,” Wells Fargo’s Bonnie Herzog told WSJ.  Brand grabbed full share of smokes, she estimates, and lifted Marlboro’s popularity among millennials, again per govt stats. 

Ironically, Bud Black Crown, a hipper, more upscale version of Bud, barely got off ground in 2014 and now being pulled from mkt.  Here’s huge strategy difference.  AB priced Bud Black Crown as superpremium to match image and try to steal spirits occasions. In contrast, PM USA parent “Altria’s leadership recognized not only that Marlboro’s appeal among young adults was slipping but that its higher prices were challenging a generation hit particularly hard by the 2008 recession.”  So it discounted Marlboro Black, to tune of $1.50 per pack lower than Red.  Flavor altered too, to be “less harsh” than Red.  Black also helped “boost sales across the entire Marlboro portfolio of brand colors,” including Red, Gold and Green, two chain retailers told WSJ.  Could be success of such image-price-flavor tweaks unique to cigs and this brand.  Could also mean that flagging flagships of all kinds can be revived with the right moves.                  

Following Dutch brewer Bavaria’s acquisition of the majority of Palm Belgian Craft Brewers earlier this yr, its just-announced acquisition of US arm Latis Imports has to be viewed as a logical “next step” as cos say.  Latis founder David van Wees sold his stake, but staying on as managing director.  Interestingly Latis brands will continue to be sold thru Radeberger USA, which also sells Schofferhofer and other brands.   

Meanwhile, David will also now run co’s Bavaria Importing arm.  So far that’s mainly the Hollandia brand, a low priced European lager that does the bulk of its biz in heavily Hispanic Miami metro area.  Distrib Gold Coast sells about 300K case of this brand that often sells for as low as $9.99 per 12 pack, David noted.  Expect Hollandia to expand to other urban mkts with high Hispanic populations such as NY and Chi.

Bavaria is a 7^th generation Dutch brewer, which sells about 5 mil bbls in toto globally in 120 countries (including major recent investment in Ethiopia) and has goal to double over next 5 yrs, thru m&a, organic growth and partnerships.  More recently co has “looked to move more aggressively behind its borders.” While its US biz is small, David pointed to “young, aggressive” mgt group that is “debt-free” with “incredibly low cost structure,” “willing to work at low margins.”  Twenty eight family members currently work at co and there are over 100 shareholders.

Why is David selling now?  “It makes more sense for a brewery to own its route-to-market” among imports now in US.  Mkt for smaller imports is “challenging place,” “congested” at distrib and retail level, with “oversupply.”  As an owner, Bavaria will be “more commercially focused,” “open to new ideas” with “more resources” than Palm previously had.  He pointed to upcoming Rodenbach launch of Fruitage, a 4.2% ABV Flanders Red Ale that Latis will launch in 8.5 oz cans in 4-packs with a suggested retail price of $6.99.  This “refreshing” and “highly accessible” liquid will serve as a more affordable entry point to Rodenbach.

Mass distrib Craft Brewers Guild fighting back hard against Shelton Brothers lawsuit filed against it earlier this mo, seeking $1.7 mil in allegedly lost sales from CBG (see Nov 7 Express).  First, CBG filed motion to dismiss suit. Second, it got favorable ruling from Mass ABCC, ordering Shelton to continue to ship beer.  Third, CBG issued its own statement with blistering quotes against Shelton Brothers. 

“Given Shelton Brothers’ history of nuisance and cut and paste litigation,” wrote CBG, “it is more likely that Shelton Brothers brought this spurious litigation to drive its personal agenda.”  Like what?  Several components according to CBG: “To attempt to capitalize on the ABCC’s February 2016 decision concerning CBG [over pay-to-play allegations], to denigrate CBG’s reputation in the market place and industry wide, to create a false narrative in a legislative battle to attack existing alcohol beverage laws and to extort CBG to release its rights to continue to purchase beer from Shelton.”  That’s quite a mouthful.

CBG stays on offense: “Shelton Brothers’ claim that it is ‘lacking in resources to engage in a legal battle’ is an excuse that better fits Shelton Brothers’ fictional narrative and increases the chances that Shelton Brothers’ story will get the attention of reporters who might publish articles about an otherwise patently frivolous lawsuit.”  CBG points out that Shelton Brothers “is extremely litigious and has sued or been sued by many wholesalers on numerous occasions.”  Indeed, “many of their lawsuits contain the same claims as brought in this current litigation,” according to CBG, which also provides list of 8 other Shelton Brothers legal actions.  CBG concludes: “We look forward to both the Hampshire Superior Court granting our Motion to Dismiss in its entirety and the MABCC granting our application for relief.” 

Beer biz up 2.7% again for 4 weeks thru Nov 19 in Nielsen all outlet, continuing streak of recently improved sales.  Now up 0.7% YTD (it was 0.5% thru 10/29).  Beer biz doing so much better that even economy brands inched up, with a little help from some price cuts. Total economy segment up 0.3% for 4 weeks, compared to 2% drop YTD as avg prices down almost 1%.  Lost slightly less share. Lotsa lower priced brands showing noticeable improvement in trend, especially Busch Light up 5.7% last 4 weeks and Miller High Life up 5.6%, compared to 0.7% gain and 0.5% drop respectively YTD. Of course, each brand reduced price, Busch Light avg prices down 1.6% and HL down 1% for last 4 weeks. Hamm’s has also seen a short-term reversal in trend with sharply lower prices. Up 4% for 4 weeks, down 5% YTD as avg prices down 37 cents, 2.8% to $12.70 a case in latest period.  But even with improved sales, economy segment still lost 0.6 share of volume for 4 weeks, just 0.1 better than YTD and lost 0.9 share of $$ in both periods. Meanwhile, trading up continues, if at slightly slower pace. All above premium segments gained 1.8 share of $$ for 4 weeks, 2.2 YTD.

(Editor’s note: this article originally appeared in our newsletter Beverage Business INSIGHTS last week, a space, particularly in organic and natural bevs, where triple bottom line companies are more prevalent.  It seemed especially appropriate on the day before Thanksgiving.)

It wasn’t really what his board of directors wanted to hear in depths of 2008 recession, but FIFCO ceo Ramon Mendiola pressed his case: the time had come, he argued, to merge the co’s business practices with sustainability and become a triple-bottom-line co that is as concerned with its impact on people and the environment as with profitability.  That would mean decisive changes in governance, such as shifting employees’ compensation from a 100% tie to business performance to blend of 60% economic goals, 30% social goals and 10% environmental goals.  “I had a tough time even with the board of directors in the midst of the financial crisis,” Mendiola allowed to audience at Beer INSIGHTS Seminar in NY last week.  And while millennial-age staffers embraced program – “you can see the sparkle in their eyes,” he said – more senior execs were different story.  “I had a tougher issue with my direct reports and second line of executives,” he recalled.

So began odyssey that resulted in the Costa Rican beer and soft drink co being named a Sustainability Champion at World Economic Forum in Davos, Switzerland.  Tho its operations had long been focused on Central America, FIFCO (the name stands for Florida Ice & Farm Co) took on visible role in US 3 years ago via acquisition of North American Breweries, which brought into the mix such familiar brands as Genesee and Labatt.  FIFCO is 25%-owned by Heineken and also is a Pepsi bottler in Central America, as well as marketing its own array of NA brands such as Tropical.  Tho many of its social activities initially were related to curbing alcohol misuse, sugar now is looming large as issue on non-alcoholic front, with Mendiola telling BMI audience he’d even sought to nudge along supplier PepsiCo into reformulating brands a few years ago, tho soda giant wasn’t ready to move yet.  (It recently announced plan to slash sugar across its portfolio.)  “We did it 5 years ago” with FIFCO’s own brands, including Tropical, tho co waited 2 years to communicate moves to consumers because it’s sensitive issue.  “We couldn’t do it with our PepsiCo brands because they wouldn’t allow me until this year,” he claimed.

As for sugar issue, Mendiola doesn’t minimize magnitude of challenge, at time childhood obesity is crisis in both Latin America and US.  It’s “something the industry failed to recognize in time,” he asserted.  “We need to get much better . . . The big players need to do much much better than what they’re doing up to date.” 

So is triple bottom line (3BL) a naively idealistic approach?  Not quite.  Even as FIFCO has continued to ratchet up its social and environmental commitments, its profits have more than quadrupled over past decade.  So FIFCO seems to be doing well by doing good.  After first committing to become zero-waste by 2011, water-neutral by 2012 and carbon-neutral by 2017, this year the co resolved to move into positive territory in terms of water, emissions and waste by 2020, via such means as bringing potable water to in-need communities and protecting rainforest.  Among its social missions has been to reduce alcohol abuse, tho curbing sugar intake via its NAs now has become a key priority, as noted. 

Effort began with deep dive in 08 to glean “what society expects of us,” Ramon said.  That meant interviews and qualitative and quantitative research with all stakeholders including suppliers, regulators, non-gov’t orgs (NGOs).  “Some of that feedback was not nice at all, especially from those opposing the alcohol industry.”  Tops, by far, was dealing with harmful use of alcohol, tho also serious concerns were environmental impact of co’s water use, PET bottles entering waste stream and carbon emissions.  FIFCO “decided to respond with public commitments to society.”  Those 3 initial commitments on attaining neutrality on water, emissions and waste were announced.  Meanwhile, analysis of alc consumption patterns revealed that main issue was not frequency of consumption – Costa Rican adults averaged just 1.7 sessions per week – but binging when they did drink, avg 5 drinks per session, leading to intoxication.  (By contrast Canadians indulge 4.5X per week, but only drink 2.7 beers when they do.)  So FIFCO devised tailor-made programs to address that and related issues. 

Another key initiative stemmed from “purpose quest” upon which FIFCO embarked in 2014 after string of 4 acquisitions including NAB had exploded size of co, causing execs to lose connection with most employees.  At gathering of 3,500 employees for 2014 “learning mission,” employee asked what was being done about colleagues living in poverty conditions.  Issue hadn’t come up on Mendiola’s radar, and “I was shocked,” he recalled.  In 5 months co had devised comprehensive plan, starting with the 3.6% of co’s Costa Rica employees who were living in poverty conditions – not thru low wages, he emphasized, but thru poor decision-making, such as misuse of credit cards.  That led to program to eradicate poverty within FIFCO within 3 years, expanding first to Central America, then to US.  Within a year and a half, 42 employees had been eased out of morass.  There was unanticipated benefit, too: morale among rest of staffers.  “I never realized the impact on the other 97% of employees knowing what the company was doing to lift them from poverty,” Ramon said.

FIFCO continues to augment its ambitions, as it moves away from straight philanthropy to more strategically targeted social investments directed at issues impinging on co’s own “footprints.”  Before big shift in 2008, FIFCO contributed less than 1% of its net profits to these social and environmental causes, about in line with where most US and European cos are today.  That’s been steadily increased to 3%, then 6% over past 4 years, and this year will reach 8%.  That’s about in line with most generous co in such contributions, Microsoft, at 8.5%.

By now, ethos permeates co.  Even those higher-ranking execs who were initially leery of move came around as it became clear that 3BL orientation would enhance, not hurt, co’s performance while offering broader meaning to their work.  “Now they’re all in,” Mendiola reported.

Have a great Thanksgiving holiday!!   

AB’s latest promotion for Bud Light features limited-edition “Strike Gold” packaging for Super Bowl, reported St Louis Post-Dispatch. AB will release just 37,000 Bud Light Super Bowl 51 cans in gold, and those who find them will be eligible for grand prize of Super Bowl tickets for life, or 51 years, whichever comes first.