US Surgeon General issued first-ever report on “Alcohol, Drugs and Health” yesterday.  We’ve not digested it yet, but here are a coupla top lines.  Report adopts language and approach of public health advocates, specifically emphasizing “importance of implementing evidence-based public-health-focused strategies to prevent and treat alcohol and drug problems” in the US.  Intro does include statement that US Dietary Guidelines “indicate that moderate alcohol use can be part of a healthy diet, but only when used by adults of legal drinking age.”  But chapter on “prevention programs and policies” states as “key finding”:  “federal, state and community policies designed to reduce alcohol availability and increase the costs  have immediate, positive benefits in reducing drinking and binge drinking,” as well as related harms. So, SG office basically joins CDC in explicitly endorsing higher taxes and restrictions on alcohol availability.  Note too: Intro chapter includes equivalence graphic and definition of “standard drink” as 12 oz regular beer, 8-9 oz malt liquor (why malt liquor?), 5 oz wine and 1.5 oz spirits.  Also includes definition of heavy drinking as 8+ drinks per week for women, 14+ per week for men. 

Recall, industry policy watchers had been anxious about report since they’d not seen any advance language.  

Beer Inst put out statement: “We are pleased to see the Surgeon General's Report acknowledges that moderate alcohol use can be part of a healthy diet for adults.  We also welcome the Surgeon General's efforts to destigmatize treatment and recovery for those for whom alcohol consumption is a concern. Significant progress has been made in reducing alcohol abuse, including long-term declines in drunk driving and underage drinking. More remains to be done and we stand ready to support proven strategies to combat alcohol abuse.”  On SG’s policy points, BI commented that “the prevailing and widely accepted research shows that one-size-fits-all policies, including advertising bans and tax increases, fail to effectively address the problem of alcohol abuse, divert resources from more targeted approaches, and unfairly and negatively impact moderate and responsible consumers.”  BI also joined Distilled Spirits Council and Wine Inst with similar statement. 

We got to thinking a bit more about two comments from MC cmo David Kroll to Calif distribs last week (see Nov 11 Express).  Early in his talk, he noted that American light beers have only 28% of Calif mkt, compared to 44 share nationally.  Concluding his talk, David declared “a healthy, growing American light lager segment is essential to a healthy growing American beer industry.”  But, upon closer inspection, the former fact belies the latter belief.  Why’s that?  Look at the numbers.

In 2015, US beer shipments were 4.9 mil bbls lower than in 2008, down 2.3%.  Premium light beer lost 11.3 mil bbls, 15% during the same period.  But in California, shipments in 2015 were 150K bbls, 0.6% higher than in 2008.  No great shakes, but the state significantly outperformed the country, especially in recent yrs.  Note too, economy brands (important to MC, AB and Pabst, but not others) are also significantly under-shared in Calif vs the rest of the US.  That segment shed 7.3 mil bbls, 14% nationally during the same period.  Overshared in Calif: Mexican imports and craft, which combined were near 40 share of the Calif mkt in 2015 vs under 20 share of the total US mkt.  This suggests possibility that the more that the rest of the US beer biz looks like Calif’s, the healthier the US beer biz may be.  By the way, per capita beer consumption in Calif declined by less than the US average did during this period.  Just some brew for thought.  

You don’t see this kind of abrupt departure very often, especially after so short a tenure and at so senior a level.  Just 6 mos after starting as cfo of Molson Coors, Mauricio Restrepo resigned “effective immediately,” Molson Coors announced yesterday “because of matters regarding personal conduct.”  That conduct “unrelated to the operations or financial statements of the company,” it added. 

Tracey Joubert Appointed Molson Coors CFO; Greg Tierney Appointed MillerCoors CFO Stepping in on short notice, MillerCoors cfo Tracey Joubert will become Molson Coors cfo.  At presstime, MC announced that Greg Tierney, MC’s veep of financial planning and controller, will take Tracey’s place as MillerCoors cfo.  Tracey is “well known to our investor community as a highly qualified and respected financial leader,” said Molson Coors.  Several analyst reports did not see changes as creating risk. Indeed, Cowen and Co’s Vivien Azer wrote “In Tracey We Trust,” describing her as “incredibly competent and deserving.” And Greg with Miller since 1998, “taking on progressively bigger roles…. His extensive experience equips him well for the expanded responsibility,” said MillerCoors ceo Gavin Hattersley in note to distribs.  Greg’s “close partnership working with Tracey throughout the years will make for a smooth transition,” added Gavin.  

Here’s how executive merry-go-round worked here.  Recall, Gavin Hattersley left job as MillerCoors cfo to become global cfo of Molson Coors in 2012.  Tracey then took over as MillerCoors cfo.  Then Gavin became ceo of MillerCoors, first on interim basis, then officially last July. Now 16 months later, Tracey goes to Molson Coors.  Recall, Molson Coors also promoted Michelle Nettles from position in MillerCoors to become chief people and diversity officer of Molson Coors.  

Mauricio had extensive background in sr roles in alc bev biz, both at Beam Suntory and for 9 yrs at SABMiller.  At time of his hiring, Molson Coors ceo Mark Hunter had touted Mauricio as the “ideal candidate.” But when Molson Coors “learned of certain personal conduct by executive that violated the company’s policies,” Mauricio “agreed to resign,” according to TAP’s govt filing.  Not only that, he has to pay the co back a big chunk of change for sign on bonus and relocation bonus “currently estimated at $776,149.38.”  

In-house innovations and new brands have been an important aspect of AB’s FMB and superpremium biz.  However, several more recently launched brands rapidly declining amidst brand clutter and skus that’ve piled up.  So AB made decision to “discontinue or realign a selection of low-volume brands and flavor variants this spring,” an AB spokeswoman said in an email to St Louis Post Dispatch.  Laundry list of discontinued brands includes: Bud Light Mixxtails, Oculto, Bud Black Crown, Beck’s Sapphire, Raz-Ber-Rita, Cran-Ber-Rita, Lime-A-Rita Picante, Lime-A-Rita Splash, Shock Top Raspberry Wheat and Shock Top Honeycrisp Ale.  And Montejo brand “will be limited to California and Texas while AB focuses on Estrella Jalisco.”  These discontinued/realigned brands are collectively marginal at best, making up just 0.8% of AB’s total $$ sales and 0.5% of total volume YTD thru 10/30 in IRI multioutlet +convenience.

Recall, Mixxtails and Oculto were entirely new brands brought in just last year.  This year, Mixxtails brand family down 70% plus and Oculto down 50% in IRI multi-outlet + convenience data thru Oct 30.  As they say, hindsight’s 20/20, but arguably Mixxtails in particular took further cut of AB’s Rita family of brands.  Rita sales previously grew each year since 2012 launch before plummeting more than 20% in 2015 scans; down 13% in 2016 YTD.  Many Rita family flavor variants are declining.  So AB decided to cut several Rita flavors to make room for national launch of Grape-A-Rita, “pilot launching of Orange-A-Rita,” and new Pineapple Splash Rita.   

Then too, after investing heavily in Bud Black Crown and Beck’s Sapphire in 2013, including a Super Bowl commercial for each brand, both deteriorated since.  Black Crown declined about 50% and Sapphire declined 35-40% each of the last 3 yrs in IRI MULC (including 2016 YTD).  Discontinuing Sapphire is “intended to help the brewer focus on the Pilsner flagship to deliver stronger execution and build brand equity,” noted paper, citing AB’s letter to distribs.  AB High End already talked about plans to phase out Shock Top SKUs and focus on flagship Belgian White; Raspberry Wheat down 23% and Honeycrisp Ale down 39% YTD thru Oct 30.  And Montejo down 40% plus in its second full year in US, as AB shifted focus to launch of Estrella Jalisco.  Altogether, AB’s Mexican import portfolio volume up 17% in scans YTD.  AB “is consistently looking for ways to optimize our portfolio and deliver the right brands at the right time,” spokeswoman told paper.  “This proactive approach will allow us to prioritize our core offerings and make room for exciting new products.”  

Consumer price index for beer increased 1.4% in Oct vs yr ago, per latest gov’t stats. While easily outpacing monthly pricing trends for spirits (+0.3%) and wine (-0.2%) once again, beer prices grew less than all items (+1.6%) in Oct.  That’s first time in 20 months that gain in beer CPI was below increase for general inflation.  YTD, CPI for beer still up solid 1.8% vs 1.1% gain for all items, while spirits and wine eked out gains of 0.3% and 0.1% respectively thru Oct.  

Industry members who sought full 9^th Circuit Ct of Appeals review of controversial Retail Digital Network tied house case rewarded with “rare en banc review,” reports NBWA’s Alcohol Law blog.  General counsel Paul Pisano calls this a “very important development.”  Allows state of Calif, distrib assns, craft brewers and others another shot to uphold state’s restrictions of direct or indirect payments to retailers by other industry members.  Recall, case involved 3d-party biz (Retail Digital Network) that provided ads in retail stores, paid for by suppliers and distribs, “then sharing that funding with the licensed retailers.”  State, distribs and small brewers argued that violated tied house laws that bar giving things of value to retailers.  They cited specific previous case in Calif that upheld law.  Lower ct agreed, but 3-judge panel on 9^th Circuit reversed lower ct opinion and sent case back for more fact-finding.  Panel suggested 1st Amendment law had changed and Calif law might violate commercial speech rights.  If Calif law tossed, “there is a serious risk of a flood of illegal payments disguised as pay for advertising,” Calif beer, wine and spirits distrib assns warned earlier this yr.  Now, entire Appeals Ct court will “further examine this important alcohol regulatory issue,” Paul wrote for alcohol law blog.  

After TTB accepted record $750K offer-in-compromise from Craft Beer Guild for “pay to play” activity, Boston Globe talked to TTB’s Robert Angelo “who vowed his agency would now take a ‘hard stand’ against pay to play,” wrote the Globe.   Robert, who is director of TTB’s Trade Investigations Division, also acknowledged that govt had not vigorously enforced fed prohibition against slotting fees, but added that pay to play “getting a lot more emphasis now.”

More Investigations; TTB “Signals National Crackdown”  TTB’s Robert Angelo characterized this offer-in-compromise “as a warning to beer distributors everywhere,” wrote Globe.  “Feds…signal national crackdown,” headlined paper.  “You’re going to see further investigations in this area,” Robert told Globe.  I would hope that industry members take notice of this, and take notice of the fact that this is a very significant [settlement].  I don’t want industry members to consider getting caught the cost of doing business.  I want them to realize there are significant consequences if we catch you committing slotting violations.”  Notice duly taken.  

Don’t forget this newly activist TTB has also gotten offers-in-compromise from AB and MC in last 12 months on consignment sales, and put kibosh on Kroger’s CatMan plan with Southern Wine and Spirits.  So at very least, we’re in new phase where Feds are paying much more attention to purported violations. 

“Enforcement Works Best…When Evenly Applied,” Stone’s Greg Koch told Globe  Long-time critic of pay to play, Stone Brewing co-founder Greg Koch, also quoted in Globe on two interesting points others have raised: the singling out of CBG as only distrib tagged here and brewer complicity.  “Enforcement works best when it’s evenly and effectively applied,” said Greg.  He also noted pay to play “doesn’t happen without the implicit cooperation of brewers and wholesalers.”  Recall, Mass ABCC investigation tied CBG payments back to suppliers. On question of extent of TTB’s future activity, alc bev atty Marc Sorini reminded that CBG’s offer in compromise “an easy one for them [TTB]. It will have some deterrent effect, absolutely, but it didn’t take a lot of resources or a crystal ball to piggyback on the state investigation.” 

Hangin’ the Pirate in MA Led to Lull in Pay to Play, Attys Say   Speaking on a panel with Marc at Beer INSIGHTS Seminar earlier this week, another veteran alc bev atty, Mike Moses, “applauded” Mass ABCC investigation and publicity surrounding issue there.  He likened actions to “hanging the pirate in the harbor” to make an example.  After Mass actions, Mike heard from clients across US which suggested “a lull in some of the shenanigans that were going on” as industry players suspected other states would follow.  On same panel, director of NJ Beer Wholesalers assn, and ex-head of NJ ABC, Mike Halfacre agreed: “Anecdotally speaking, New Jersey was a much quieter summer after what happened in Massachusetts.”  Action in MA, “definitely had an impact.”  Will feds forge ahead?   Robert’s clearly signaling “yes.”  On our panel, Marc said “it would be great if there were real enforcement that works.”  But Marc believes pirate not really hung in Mass, but rather “given a haircut.”  And given ongoing lawsuit there, and other factors, Marc remains “a skeptic” about big fed push (tho his comments came 2 days before CBG’s offer in compromise).  He reminded that feds have no jurisdiction over retailers and that in tagging distribs/brewers it faces high hurdles of proving competing brands excluded from outlets and “willingness.”  If feds do move, they’ll “have to be very careful about the cases they choose or face difficult challenges” in the courts.  Stay tuned.      

Alcohol-pot parallels took yet another leap forward on Election Day, beyond passage of recreational pot in 4 more states.  Denver approved first-ever expansion of pot use to bars/restaurants, as AP reports.  Lotsa restrictions: 1) smoking pot only allowed outside; 2) bars need to get “approval” of neighbors; 3) staff training and operations plans are mandatory to prevent underage use, spot over-intoxication.  And it’s BYOP (bring your own pot), natch, since sales by bars still prohibited.  Other “non-service establishments,” like yoga centers and art galleries can also apply to operate “pot-smoking areas or hold events serving both pot and food and drink,” AP reports.  “The entire goal of this initiative is to provide adults with private places where they can consume cannabis so they’re not consuming in public” (still banned), said Mason Tvert, spokesman for Marijuana Policy Project.  Gives not only tourists a place to partake, but also parents who may not want to use pot at home and tenants living where landlords bar use.  Elsewhere, Alaska working on rules to set up “tasting rooms,” Calif’s law allows for pot clubs and remains to be seen how Nevada, Maine and Mass regulate where use allowed, according to AP.  Final factoid: Washington State Liquor Control and Cannabis Board “expects the tax haul” from pot sales -- $65 mil in fiscal 2015 on sales of $260 mil -- “to almost triple in 2016, bringing in more than was collected on alcohol last year,” reports Prince George Citizen, a British Columbia paper.         

As 3 industry attys debated 3-tier issues, trade practices and more at our Beer INSIGHTS Seminar earlier this week, questions about efficacy of middle tier percolating in NY market and elsewhere.  Distrib advocates point to middle tier’s role in maintaining orderly markets and assisting states in regulation and tax collection. Yet recent fed lawsuits and fed charges detailed ongoing scheme to smuggle liquor from Maryland to metro NYC to evade taxes, as Express reported earlier this fall.  Legal skirmishes involve Republic Natl Dist Co, Empire Merchants, Breakthrough Bev Group and execs in those companies.  Fed charges vs RNDC and its execs subsequently dropped.  And while it’s not clear whether any laws were violated, no one doubts that liquor’s moving from MD to NYC or that NY losing tax revs.  And this movement either enabled by distribs, or at very least, certainly not foiled by them. 

“Liquor bootlegging has cost New York about $1 billion in lost taxes in the past 15 years,” Crain’s New York suggested in detailed dive into liquor and tobacco smuggling.  Bootlegging booze to NYC not a new phenom, natch.  Last effort to reduce it involved law that would have required distribs to warehouse liquor/wine in state for 24 hrs before shipping to retailers, to ensure proper tax stamps, Crain’s reports.  Some liquor distribs actually have warehouses in NJ for cost reasons and “bill never got out of committee as it became apparent that those distributors weren’t willing to pay additional rent for in-state storage space,” according to Crain’s.  Then too, uptick in smuggling was one of “unforeseen consequences” of ex-NY Atty Gen Spitzer’s crackdown on “pay to play” in NY about a decade ago.  That crackdown resulted in $1.6 mil in fines paid by liquor distribs, but also “a sudden spike in traffic on the decades-old Maryland-to-New York liquor smuggling route.”  Again, both feds and distribs themselves allege a distrib role in that smuggling. 

That ain’t all.  Further upstate in Albany, handful of retailers just sued Southern Wine & Spirits and successor Southern Glazer’s for charging alcohol sales to retailers’ “will call” accounts (product held in warehouse until delivery or retailer picks it up) that was never ordered by or delivered to those accounts.  Retailers seek over $1 mil in damages, plus punitives.  Retailer told Times-Union: “It’s not just me; it’s every bar in the state” dealing with this practice.  Retailers also apparently believe Southern reps sold over-ordered liquor on the side.  Southern offered “unsatisfactory financial settlement and refused to acknowledge a systemic practice of padded bills and charges for product never ordered,” retailer’s atty told Times-Union.  “To my knowledge the SLA [state liquor authority] is investigating this matter,” he said.  Neither SLA nor atty for Southern commented.

Hits keep coming for Mass distrib Craft Beer Guild, tagged by state for pay-to-play and with lawsuit recently by Shelton Bros.  TTB just accepted offer in compromise from CBG in amount of $750K over allegations that CBG “paid ‘slotting fees’ by furnishing things of value to various retailers in order to obtain favorable product placement and shelf space” at “various places in Massachusetts” between Jan 2013 and Oct 2014.  “This is the largest offer in compromise that TTB has recovered from a single industry member for trade practice violations,” TTB said in release, adding alleged activity by CBG is “sort of pay to play activity [that] is incompatible with fair competition and will be actively investigated by TTB.”  CBG acknowledged “it has agreed to a $750,000 offer in compromise” with TTB “in connection with a review that originated from a 2014”  Mass ABCC investigation.  “CBG fully cooperated with the TTB,” it sez, and “continues to pursue a legal appeal of the February 11, 2016 decision” by ABCC.