As distrib Southern Glazer’s battles Great Lakes Brewing and Boston in OH court, gotta keep in mind that bulk of Glazer’s beer biz remains separate entity as Glazer’s Beer and Beverage (GBB), not at all involved in lawsuit.  “The majority of the malt beverage distribution business operated by Glazer's prior to July 1, 2016, in Texas, Arkansas, Louisiana, Iowa and Kansas was not included in the combination of the wine and spirits businesses of Glazer's and Southern Wine & Spirits of America,” GBB ceo Phil Meacham remindeds.  “As a result, Glazer’s Beer and Beverage, LLC was created and it continues to be 100% wholly owned by the Glazer family and is a totally separate company from Southern Glazer’s Wine and Spirits LLC.  Consequently, we are not involved in any way with the lawsuits in Ohio.”

That didn’t take long.  Day after SABMiller shareholders approved sale to AB InBev, MC cmo David Kroll e-mailed distribs that Molson Coors will kick off effort to “assess its media agency support” in US, UK and Canada.  This is about media planning/buying, not creative.  “Integration initiative,” as David called it, involves seeking info from current media support agencies and others in US, UK and Canada to “select a smaller number of agencies who will be invited to participate in the [subsequent] RFP” (Request for Proposal).  Initiative aims to “identify the best strategic partner or partners to deliver breakthrough media planning and superior buying effectiveness, along with strong capabilities in research, analytics and reporting.”  Some “cost efficiencies” hoped for as well, natch.  Molson Coors aims to make final decision on agency or agencies in Q1 next year.        

Four years ago Mark Anthony Brands/Mike’s Hard Lemonade Co made mistake of “spreading the innovation knife too thin,” launching 32 new SKUs in 2013 and “getting away from our core,” acknowledged prexy Phil Rosse during annual distrib mtg held in Chi yesterday.  Ever since, it’s “made significant progress,” gradually accelerating growth each of the last 4 yrs while reducing SKU count by 30% and upping mktg investment 75% since 2014.  And now shipments up 13% and depletions up 10% YTD.  Mike’s expects to finish yr over 24 mil cases, Phil shared.  Trends even better thruout key summer period and during each of key 3 holiday periods.  A “record year” for Mike’s, but it’s “just getting started” founder Anthony von Mandl asserted.  

Next year co aims to be #1 growth co among top suppliers, up ~3 mil cases to 27 mil total (Editor’s note: not specified but likely talkin’ about best trend, not overall growth, since Constellation still likely to grow more in toto).  Mike’s sets sights much higher yet.  In the next few years co sees FMBs growing from an estimated 119 mil cases in 2016 to 150 mil cases by 2019.  Mike’s expects to be 40 mil cases by then: Mike’s Hard and Harder each representing 15 mil cases and rest from innovation brands such as new White Claw seltzer, Palm Breeze, and Cayman’s.  That’d be an incremental $150 mil in annual distrib gross profit, sez Phil.  Currently, Mike’s Hard family is 53% of total biz, Harder family 32%, White Claw 7%, while Palm Breeze and Cayman Jack’s each around 4% of biz.  

FMBs to Eventual 10 Share, Mark Anthony to 100 Mil Cases; Distribution Gap Oppy Eventually, Anthony sees oppy for total FMB category to more than double from over 4 share to 10 share in US.  And he believes Mike’s should be able to reach 100 mil cases within that framework.  “Is this reasonable?” he asked.  “Was it reasonable” for Corona?  “I believe that Mike’s is one of those precious iconic brands like Corona,” he declared.  Anthony helped launch Corona in Canada and recalls how it slid back to 8 mil cases in the US before rising to over 100 mil, “which no one thought was possible.”  Similarly “when we created the FMB category, no one thought” it could reach “more than 1 share.”  All in, 10 share would mean ~270 mil cases of “high margin” category, and in Anthony’s view, his co should be able to hold onto ~35 share of segment at that point (a good amount higher than current 22 share of segment).  

Big ask is to up distribution and invest more time and resources on Mark Anthony portfolio. “We are going where the puck is going, to use a Canadian term,” Phil quipped.  Each of the last 3 yrs Mike’s has added equivalent volume of top 20 craft brewer.  So as craft slows, biz gets more complex, more “here today, gone tomorrow” FMB brands enter category, there’s an “opportunity for us to continue to become a more significant supplier in your house.” Especially with distribution gaps.  If Mike’s brands had Ritas or Redd’s level of distribution, “we’d already have 40 million cases,” and “your business” and “profits” would be “close to double,” said Anthony.  Breaking it down further, top 6 Mike’s 6pks have between 21-68% distribution, so there’s “way too much opportunity” there, Phil showed.  Newer 24oz cans of Mike’s Harder added incremental 1 mil cases and they’re only 10 share of 24oz FMBs.  So those potentially “can drive millions and millions of cases in the coming years.”  And rest of Mike’s portfolio, White Claw hard seltzer, Palm Breeze and Cayman’s each have their own growth propositions (see next issue of Express).  

Big Seltzer Bet with White Claw; 1 Mil Cases in Yr 1 Co “decided to take a pass” on hard sodas and “turns out, it was the right decision” said Anthony.  But hard seltzers are a different story.  He pointed to 27% of consumers “who prefer vodka and soda in addition to other mixed drinks” as major oppy.  “The shift away from beer will accelerate” and seltzer can “bring [consumers] back to beer by giving them what they want.”  (Editor’s note: hard seltzers technically not malt-based, but are bottled, taxed and sold similarly to beer, and sold almost entirely by beer/FMB cos).  Then too, non-alc seltzers looks like they’ll pass traditional sodas next year as largest carbonated soft drinks category, shared vp of mktg Sanjiv Gajiwala.  “We think this is a sustainable growth category,” said Phil.  Distribs were asked to think of seltzers as a healthy consumption proposition, “similar” to Mich Ultra, sitting at 5% abv and 110 calories with all natural ingredients as well as gluten free component.  

With the competition comin’ quick, Mike’s was forced to “do things off cycle,” launching White Claw nationally this May.  It will reach 1 mil cases sold and depleted in first yr, about 35 share of hard seltzers.  And even with AB’s latest purchase of Spiked, co still feels it “absolutely [has] a leadership opportunity in this category.”  ABI’s “gonna have 90% distribution overnight” but “they can kill the whole category,” said Anthony.  So he urged for need to be sampling next to Spiked.  In fact, co confident enuf to have distribs taste test White Claw against both AB’s Spiked and Boston’s Truly brands during mtg to showcase differences.  Mike’s will put every $ of White Claw gross profit back into the brand for next year ($6 mil YTD).  Currently co offers 3 flavors: black cherry, natural lime and ruby grapefruit.  And since Variety pk is the #1 format for hard seltzer, it’ll include Hard Raspberry as a 4th flavor only available in the variety pk next yr.  

Think of Canada Deal with ABI Like ABI Modelo Outside of US; No Option to Acquire; Zero Debt Flexibility Mark Anthony Brands’ deal with ABI in Canada and for international rights should be thought of as “exact same arrangement” Constellation has with Grupo Modelo beer brands, Anthony explained.  “ABI does not have an option nor are there any side deals” in the US (gotta note, unclear that ABI would even be allowed to acquire US biz anyway).  The deal was done because Mike’s hit a roadblock in Canada and internationally.  Co was “blocked” from 2 biggest Canadian mkts, Quebec and Ontario, and saw “great potential” internationally.  It became “evident” that an international launch on its own would be an “enormous uphill struggle” that would “drain focus” way from US.  So “when ABI approached us with an incredible offer” to “make Mike’s one of their key international brands” it was “the perfect outcome.”  Currently Mike’s is testing Mexico “starting early production….Think of the impact in America,” said Anthony.  All in, Mark Anthony Brands is a “zero debt” company in US, which “allows us to invest more in our brands in the US.”  So “if we see the right opportunities,” co could make “rapid strategic acquisitions without going to a bank.”  

Hadda happen eventually.  How long could other major beer suppliers let Michelob Ultra have its fast-growing superpremium light, low-carb turf all to itself?  This week, MillerCoors announced a pilot of Goldwing in Tex and Lousiana, starting next Feb.  It’s lower in carbs and calories than Ultra.  But how much muscle will MillerCoors put behind it?  And does it really have a distinctive proposition?  Too early to tell.  Ain’t just MC.  Heineken USA has its own version coming, Amstel XL.  That will also be tested next yr.  Again, not too much known about it yet.  Earlier this week, AB ceo Joao Castro Neves told assembled wholesalers at NBWA that Ultra accelerated to above 20% growth this yr.  Presuming that’s sustained, Ultra will gain over 1 mil bbls in 2016 (at 5.2 mil bbls last yr, INSIGHTS estimates).  Ultra up only mid-singles a couple of yrs ago, so it’s built quite a head of steam.  The other hottest brand in biz, Modelo Especial, also likely to be up more than 1 mil bbls in 2016.  (AB taking aim at Especial with Estrella Jalisco and Montejo.)  Modelo Especial and Michelob Ultra will already be #6 and #7 brands by value in 2016.  Either this yr or next yr they are likely to pass Busch Light and Natural Light by volume too.  Only Corona and the (declining) Bud, Miller and Coors megagbrands will be bigger.  These are big powerhouse brands now and no wonder others look to get a piece of their action. 

Editor’s Note; Miller Brewing tested a product called  Lite Ultra, tested way back in 1991, an astute reader with a good memory reminded us.  It had 77 calories and was marketed as “a smoother, lighter low-calorie beer” to “fit their active fast-paced lifestyles.”  It was also intended as a “perfect complement” to Miller Lite, which had reached its all-time peak volume in 1990.  Lite Ultra was ahead of its time, but didn’t stand the test of time.    

retailers consider “‘tweaks’ and ‘fixes’” required for spring resets, many expressed an “overall sense of confusion,” consultant Bump Williams wrote in monthly letter this afternoon. “They just didn’t get it right (again),” this fall, he wrote, seeing fewer shoppers, spending less and more out of stocks than expected. In conversations with big retail clients, Bump heard from many “lacking direction” from both “category ‘leaders’” and “smaller ‘growth’ engine companies.” And he “was simply amazed at the LACK of analytics and insights” retailers getting from brewers and distribs digging into lack of loyalty for brands and stores, effectiveness of both promotions and new brands and more. Analytics on new brands a particular blind spot, Bump sez. So he also takes moment to hit point harder: 6,512 new brands (not even counting different pack sizes, etc) counted in IRI MULC channel YTD thru Sep 4 already 4% ahead of new brands in calendar 2015. Also 119% ahead of new brands that hit market during calendar 2011.

Retailers report maintaining space for large declining brands because of promotional and merchandising support. But check out bullet-point from Bump’s “US Retail Landscape” summary slide: “Space Management Still an Issue as the Category Captains’ Self-Interests at Stake Before Retailer Health and Wellness.” (Could be recent legal conference we attended, but reminds us of TTB guidance on CatMan activity in alc bev industry, issued earlier this year.) Other comments from retailers include continued trade up and interest in “LOCAL,” while they’re “Finding it Easy to ‘Hide’ Private Label Brands.” Bump sees plenty of opportunity for “more innovative and growth-oriented Regional Breweries” to fill in gaps in analytics as well as provide sought-after cross-category merchandising oppys considering shelf space overall not growing. In fact, plenty of upside for “out-of-aisle Craft and Crafty-Import displays throughout the stores in the back half of the year,” Bump wrote. And increase in merchandising for holiday seasons leads him to “expect Craft to bounce back nicely at the end of the year.”

“Can you contemplate” a complete “abolition” of the three-tier system within the next 10 years? That was troubling but fascinating question posed to panel of regulators at CLE Wine, Beer & Spirits Law meeting in Colorado last week. “Yes,” said Calif ABC general counsel Matt Botting, “I could envision it.” On the other hand, Colo’s Liquor & Tobacco Enforcement Division director Patrick Maroney was admittedly “Pollyana-ish.” He did note attempts at “true degradation,” that is, “more than just putting holes in it.”  So he sees inevitable evolution, but not collapse. Plenty of pressure points highlighted throughout CLE seminars. Among ’em: younger consumers who seek greater convenience and question status quo, said Teri Quimby of Mich Liquor Control Commission. “Are we getting into ‘death by a thousand cuts,’” wondered Stephen Humphress, general counsel for KY ABC, about 3-tier? “A judicial opinion” could come down affirming that there are “so many exceptions that it’s not reasonable anymore.” 

That’s exactly issue cited by 9th Circuit Ct in ruling that sent Retail Digital Network (RDN) case back to a lower court, Matt said (he spoke of RDN case recently at Calif Craft Beer Summit, see Sept 16 Express). That case at center of “Intersection of First Amendment and Tied-house Law,” explored by meeting co-chair, atty Marc Sorini of McDermott Will & Emery. Recall, in RDN, 9th Circuit told lower court to apply greater degree of scrutiny to law, putting “heavier burden” on the state, which now has “an uphill battle,” Marc thinks. Laws that “suppress speech for the benefit of the listener” are “inherently suspect,” he said, following review of 1st amendment/free speech case history. Could be tough to prove specific prohibitions “actually prevent vertical or horizontal integration” that exists “in the market today and in the circumstances of this case,” in Marc’s view.   

Third Party Providers: from RDN to Drizly and Instacart  RDN has different biz model, but lots of other third party providers (TPP) entering alc bev space, often catering to younger generation, Teri mentioned. At CLE, Nidhi Kumar, general counsel/senior vp of industry affairs at Drizly, and Tia Sherrington, legal director at Instacart explained legal setup and issues dealt with by respective cos. But impact of RDN case brought up by audience member: isn’t next “logical step” to “provide third party services back to suppliers,” like a “pop up ad” or “sorting selections to support a certain supplier?” That could make regulators “uncomfortable,” said moderator Carrie Bonnington of Pillsbury Winthrop Shaw Pittman. But “we would welcome some guidance on that,” Nidhi said, adding “that is an opportunity that Drizly would like to take.” Therefore, “RDN may or may not have some impact on this going forward,” Carrie commented.  

Mixed Messages on Trade Practice; Franchise Law & Federal Law; Antitrust, Other Pressure Points  Panel of regulators at CLE generally expressed interest in stepping up enforcement of trade practice violations, but not all agencies may be setup to handle more policing. In Jan, Colo will add 3 investigators solely focused on trade practice, but only has 16 total investigators “for the whole state,” Patrick said. In KY, as more and more territories vote to go “wet” and allow alc bev sales, “our geographic responsibilities increase, but our resources do not,” Stephen said. Nationally, additional funding given to TTB will allow it to hire 23 more people, but many will help alleviate pressure on label and formula approvals, chief counsel Anthony Gledhill said.

Another broad, intriguing question posed to a panel of supplier and distrib attys by an audience member: is franchise law supported by the 21st Amendment? The lawyers had very different views, natch, ranging from complete affirmation to skepticism to complete denial. Meanwhile, Tuck Duncan of Duncan Law Offices suggested possibility of broader “challenges to this industry under antitrust laws.” Separately, other speakers questioned how private label alc bevs change roles of retailers and how blurring between different types of alc bevs challenge some current regs too. Don’t underestimate the power of the people either. They’re becoming more active in the industry in two ways, separate speakers suggested. First, there continues to be big uptick in class action suits against consumer goods companies and alc bev manufacturers are clear “target.” Interestingly, suits often follow regulatory action, Daniel Blynn of Venable said. At same time, alcohol-focused ballot initiatives are on the rise too, noted Steve Gross, vp/state relations at the Wine Institute. And they can precipitate regulatory or legislative action, as seen in Oreg and Colo just this year.

ABI agreed to pay the U.S. Securities and Exchange Commission $6 million to settle charges that it violated the Foreign Corrupt Practices Act by paying off Indian govt officials to get biz several yrs ago.  ABI also “chilled a whistleblower who reported the misconduct,” according to SEC.  SEC investigation “found that the company used third party sales promoters to make improper payments to government officials in India to increase the sales and production of Anheuser Busch products in that country,” said SEC release.  ABI also had “separation agreement that stopped an employee from continuing to voluntarily communicate with the SEC… due to a substantial financial penalty that would be imposed”  (i.e. “chilling a whistleblower,” a new term to us).  

ABI spokeswoman said it “was pleased to have resolved the SEC’s investigation” based on events that took place 4-7 yrs ago at a “former minority owned joint venture,” wrote WSJ.  Now that it has full ownership of Indian operations, ABI told WSJ “it has offered Foreign Corrupt practices training to employees and improved its compliance practices.  It also encourages employees to report any activity that might violate laws or company policies.”  ABI has also had unusual alphabet soup of settlements, fine, accusation and consent decree in last 12 mos or so; TTB, SEC, DOJ, ABCs.   At fed level, TTB got $300,000 offer in compromise re alleged consignment sales on Shock Top,  then there was DOJ’s consent decree on Megabrew, and now today’s $6 mil settlement with SEC. At state level, $150,000 fine by Wash ABC (which AB challenged) while Calif ABC made accusation last Sep that AB San Diego branch offered “thing of value” to retailer (don’t know if resolved). INSIGHTS has heard of other ABC investigations, but they haven’t become public.  

In most important beer election this season, SABMiller shareholders voted 95%+ in favor of AB InBev acquisition of SABMiller.  AB InBev shareholders did same, natch.  So fears that minority of SAB shareholders who opposed deal could stymie it proved unfounded.  Other new news: AB InBev to keep its name going forward.  Deal still expected to close Oct 10.            

In info-packed 90 minute meeting, MillerCoors talked about slew of new products coming (several in test), its several recent craft acquisitions, new Miller Lite taste test campaign, several components of subpremium strategy, impending 100% Molson Coors ownership  and more.  Perhaps most interesting announcement: a Michelob Ultra fighter called Goldwing, a pilot into mkts in TX and LA (state) in Feb.  MC also doubling down on FMBs.  Will launch Henry’s Hard Seltzer line, plus Zumbida (based on Aguas Frescas), Easy Tea tests, new Henry’s Grape flavor and more.  Henry’s sodas will sell 5 mil cases this yr.

While MC has made “great progress” with Miller Lite and Coors Light, said ceo Gavin Hattersley, fixing “softness” with Blue Moon and Redd’s “a priority.”  As MC looks to achieve its “ambitious growth imperative” of getting to growth in 2019, its “targets” will become “increasingly more aggressive,” Gavin added.  Some of new Miller Lite ads squaring off against Bud Light got good applause.  MC also unveiled several new aspects of its subpremium strategy.  Unsurprisingly, many included  components of “value” such as 15 packs of Keystone Light, 42 oz instead of 40 oz on a couple of brands, higher ABV on several ice versions of subpremium brands.  Perhaps more notable: a return to historic High Life themes and tag “If you’ve got the time, we’ve got the beer.” That’s not finished yet, but video (not actual ad) warmly received.  More in Beer Marketer’s INSIGHTS.  

Top AB execs spoke briefly at reception for wholesalers during NBWA convention out at Goose Island brewery in Chi.  AB making progress in US, spending “big resources,” “learned a lot” and currently has “best share momentum” in 4 yrs, said ceo João Castro Neves.  Mich Ultra “on fire,” noted João, also citing other high end successes such as Stella, Goose. Mich Ultra was up 6-8% a couple of yrs ago, then 10-12% and now over 20%. Bud’s last 2 yrs are its best in many yrs.  And Bud Light showing “better results on brand health indicators... but we’re still not there,” he added.  João and others came in from NY after attending presidential debate, where AB only CPG sponsor, had a beer garden, even came up with a presidential Blue Point beer based on an 18th century recipe.  João touted importance of AB’s presence at this forum, where AB putting best face on both beer generally and AB.  

Goose Island Will Be Almost 600,000 Bbls; IPA Doubling Goose Island a great place for AB to have a reception for its distribs.  Goose  up 31% yr-to-date in IRI, said High End prexy Felipe Szpigel, adding that Goose IPA is doubling and is now 4th largest IPA.  Goose Island has come a long way (AB bought 110,000 bbls), now in top 7 among craft brewers, according to Felipe, and will near 600K bbls this yr.

AB Down 0.2 Share in Latest Nielsen, Sez Alex  In 2015, AB lost 0.9 share of volume in Nielsen data, said sales veep Alex Medicis.  In more recent periods, AB only down 0.2 share, while MC down 0.9 share, according to Alex.  (Editor’s note: Has gotta be different cut of Nielsen than INSIGHTS sees.  AB down 0.6 share in Nielsen all outlet for 4 weeks thru  Sep 17).  AB STR trend better than MC’s for last 11 qtrs noted Alex.  And its #1, #2 and #3 priorities remain to gain share.  If trends continue and AB loses less share in 2016, will call for “fist bump” perhaps, instead of “high five,” Alex suggested.