Lotsa lawsuits filed over the yrs in Ohio by distribs when “successor manufacturer” buys a brewer and then has window under OH law to terminate distribs, move brands if distrib losing brands gets “diminished value” for those brands.  Pabst currently in litigation in OH over this issue.  Here comes new suit by Southern Glazer’s Dist of OH against craft brewer Great Lakes.  Glazer’s sez Great Lakes is attempting to terminate it unlawfully after Glazer’s announced combination with Southern Wine & Spirits earlier this yr.  So instead of successor brewer terminating distrib after new mgmt comes in, existing brewer is terminating distrib after that distrib made new deal.  Great Lakes claims it can terminate since Glazer’s did not get its prior consent, as specified in their contract.  Glazer’s claims OH law bars such a termination. 

Glazer’s of OH has sold Great Lakes brands since 1999 when it bought Robins Wine & Spirits distrib.  Signed contract in 2006.  It sells Great Lakes in 34 counties in central OH.  Great Lakes brands represented 25% of its Columbus Branch’s beer revs over past 12 mos, 4% of Branch’s total revs.  Distribution of Great Lakes brands, sez Glazer’s, “an essential component of the overall operation of the Columbus Branch.”  And since 2011, Glazer’s sales of Great Lakes up more than 43% in volume.  In Southern-Glazer’s deal, name changed and biz went from corporation to LLC.  But sales of Great Lakes “still distributed today from the Columbus Branch by the same legal entity that was distributing the Great Lakes brands” prior to transaction.  Day-to-day operations, equipment and employees haven’t changed.  Great Lakes termination effective Sep 25; it intended to stop taking order Sep 9, according to Glazer’s.  Glazer’s filed suit Sep 8, insisting “a manufacturer’s lack of consent to a change in ownership of a distributor is not just cause for termination” under OH law, even if contract “purports to require such consent.”  Glazer’s seeks: 1) declaration from US Dist Ct that Great Lakes doesn’t have just cause to terminate; 2) temporary restraining orders and preliminary injunctions to stop termination and bar Great Lakes from allowing another distrib to sell brands in its territory or “frustrate or otherwise prevent” delivery of Great Lakes beer to Glazer’s.  Not surprisingly, Glazer’s using same attys that have represented lotsa terminated OH distribs under the successor-manufacturer law.

Meanwhile, Great Lakes represented by McDermott Will & Emery law firm in DC, which has done lotsa work for BA and craft brewers.  In Jul 26 letter to Glazer’s, atty Art DeCelle (ex-genl counsel for Beer Inst) wrote Great Lakes had “reached out” to Glazer’s mgmt in good faith after the Southern-Glazer’s deal made public to “negotiate an alternative arrangement to termination” and “attempted to work out a transition and sale of the distribution rights to a new distributor.”  But Glazer’s “closed door to a negotiated transfer” of Great Lakes brands to another distrib.   Art’s letter asserts: 1) Southern-Glazer’s deal “constitutes a change in ownership and/or an assignment” of brands; 2) Great Lakes contract with Glazer’s requires prior written consent to any transfer by distrib; 3) lack of consent gives just cause to terminate.

At Pabst’s upbeat Apr sales meeting in Milwaukee, ceo Eugene Kashper proudly detailed how the company almost doubled number of employees from 250 to 440 in a year and a half.  But just as suddenly Pabst had wave of job cuts late last week.  They were effective immediately, mostly hitting sales and brand teams (number unknown at presstime but reportedly dozens). These cuts tied to not meeting revenue targets, but also to improving organizational structure, say sources.  Revs now expected flat or up low singles in 2016, compared to over 20% growth in 2015.  Yet these changes will also lead to significant improvements, sez one informed source, like “strengthened” sales platform, “upgraded talent,” with new regional veep structure and an “increased number of distributor facing roles.” Reached just before call with distribs, Pabst ceo Eugene Kashper noted of region vp structure: “We want generals ‒ not lieutenants ‒ in new regional vp roles… running divisions so they can function as CEOs ‒ help set strategy and goals and take responsibility for their respective businesses.”

Latest round of Pabst moves are “more strategic than financial,” chief growth officer Rich Pascucci told INSIGHTS.  “We have offered many people new roles within the new structure and are still working out all of the details,” he said.  “We added positions, and unfortunately had to eliminate others.  These were very difficult decisions, but we do believe that PBC will be better equipped to compete and take advantage of opportunities as a result. Bottom line is we are 9 months into 2016 and headcount is UP this year.  We just executed a restructuring to make sure we have the right roles and the right people in them.”

All this also tied to inability of Not Your Father’s Root Beer to cycle last yr’s numbers, while other new initiatives mostly ain’t gaining much traction yet either (Woodchuck way off, for example).  At that Apr sales meeting, Pabst also said $$ sales were up near 30%.  But Pabst $$ sales since pulled back sharply, especially NYFRB.  Pabst $$ sales still up 14% YTD thru Aug 7 in IRI multi-outlet + convenience, with volume up 4.5%.  But Pabst $$ sales now up just 1% for 12 weeks and down 8.5% for 4 weeks in IRI MULC. Not Your Father’s Root Beer down a whopping 60% for 4 weeks and 31% for 12 weeks, while still up 73% YTD (Not Your Father’s franchise also has incremental Ginger Ale and Cream variants).  Just as NYFRB shaped Pabst’s fortunes on way up, it seems to have necessitated a corporate overhaul as it began to rapidly decline.  Yet Pabst also taking this as opportunity to do some things it likely needed to do anyway.  

We headlined and highlighted upper end of Beer Institute economist Michael Uhrich’s current 2016 volume forecast for US beer in yesterday’s Express.  He actually projects a gain in range of +0.25 to 0.5%.

NY state will invest $9 mil into North American Breweries’ $49 mil Genesee Eco-Brewery District project, Gov Cuomo announced at conference earlier this week, reported Innovation Trail (among others).  That’ll come from Empire State Development providing “up to $4.5 million in performance-based Excelsior Jobs Program tax credits in return for North American Breweries’ job creation commitments,” and “$5 million capital grant through the Upstate Revitalization Initiative,” noted Rochester Biz Journal separately.

Recall, NAB originally announced project in Dec 2015, which includes new 130K sq-ft facility with glass viewing wall, new brewing system and expansions of Genesee Brew House and pilot brewery (see Dec 14, 2015 issue).  “The expansion of the Genesee Brewery is a symbol of the economic renaissance unfolding throughout the Finger Lakes and an important example of how we are leveraging the region’s resources to generate growth and opportunity,” Cuomo said per Rochester Biz Journal.  “We will continue to invest in New York’s burgeoning beverage industry to raise the profile of New York’s unparalleled products, create jobs and unleash potential for future economic growth.”   

That was quick.  Just 3 days after DoJ approved Devils Backbone deal, AB announced it bought SpikedSeltzer “the innovator and creator behind the hard seltzer category,” as it said in release.  In between Devils Backbone and Spiked, global ABI also bought Belgian craft brewer Bosteels (see below for details).  That’s three deals in one week.  And ABI-SABMiller not even closed.  Wow!

SpikedSeltzer began in 2013 but is now over 500K case equivalents, distributed in 14 almost entirely east coast states (New England, Mid-Atlantic, Va, NC, part of Fla) and a small part of Calif. “We had a cap on our resources until today,” founder Nick Shields told INSIGHTS.  “If we had more, we could have gone further.”  In meantime, Boston Beer came out with Truly Spiked and Sparkling and Mike’s came out with White Claw.  So Spiked lost a little of “first mover advantage,” acknowledged co-founder David Holmes, but these entrants are  also “validation” and Spiked will continue “to play our own game.”  Now AB is getting in game as  big cos clearly seeing potential in this category.  But this is an interesting departure for AB’s High End unit, heretofore all imports and crafts.  SpikedSeltzer is “first non-malt flavored alcohol beverage to join The High End.”  The lines keep getting blurrier.  High End attracted to way Spiked fits consumer needs such as gluten-free and low carb, got there first, with “best-in-class” taste and sales potential, according to Felipe.  Spiked at 6% ABV, but only about 140 calories.  

Nick is grandson of Ted Haffenreffer, and until 2012 worked on last brand of former New England brewer’s legacy Haffenreffer Private Stock.  “The partnership will provide SpikedSeltzer with the resources it needs to expand capacity and meet current demands.” The deal is already “closed” and it “conforms with DoJ consent decree,” said High End prexy Felipe Szpigel.   Could be simply because it’s not beer or a brewer.  Spiked is taxed like beer, said Nick, even tho it’s not malt based.  Spiked Seltzer has 8 employees and they’re staying on.  Nick and David Holmes will sit on AB’s craft advisory board.  Production “will gradually shift” from NAB and Blues City Brewery to AB’s Baldwinsville Brewery.  

Overseas Too: ABI Buys Belgian Craft Brewer, BosteelsMeanwhile, ABI buying more craft overseas too, after agreeing to purchase 200 yr-old brewer Belgian brewer, Bosteels, reported TheStreet.  Up to this point the family brewery was “backed” by Dutch private equity firm Waterland.  Both Heineken and Duvel Moortgat were reportedly interested in acquiring as well.  “Bosteels family will remain involved with Antoine Bosteels continuing to run the business…within AB InBev’s craft and specialty division.”

Just to recap, Bosteels marks at least ABI’s 5th overseas craft acquisition in the last yr and change, joining UK’s Camden Town, Italy’s Birra Del Borgo, Brazil’s Cevejaria Colorado and Columbia’s Bogota Beer.  And Bosteels is actually the largest overseas craft acquisition yet.  Co grew to approx 124K bbls last yr and sold for an estimated $225.4 mil, about 15X EBITDA, paper noted citing KBC Securities analyst Wim Hoste.  “The news comes as a bit of a surprise as AB InBev is currently still closing the transaction with SABMiller,” Wim said in note.  But he “doesn’t foresee any issues with competition authorities in Belgium” since Bosteels not movin’ the needle much.  

Did someone say “piecemeal privatization in Pennsylvania?”  Another step down that road in largest control state taken as state Senator intro’d bill to allow beer distributor-retailers same rights gained by grocery stores and restaurant license holders recently to sell up to 4 bottles of wine to consumers per transaction.  Additional license will cost $2K.  Consumers welcomed recent changes to PA’s “antiquated liquor laws” (there’s that word again) in recent weeks, Sen Killion noted in a press release.  But: “Unfortunately, hundreds of Pennsylvania beer distributors and small business owners were left out of those reforms and now must operate in an even more competitive environment.”  Killion added that beer distribs have invested heavily in their bizzes over the yrs and “played by the crazy rules set by the state.  We cannot allow absurd regulation to drive distributors out of business and put thousands of people out of work.”  Same release quoted distributor who called proposal “critical” for distribs’ survival, noting decline in Labor Day traffic.  Unknown how many of 1200 distribs in PA will opt for wine license, but wine likely to squeeze some beer off the shelves of those that do.       

Our founder and my father, Jerry Steinman, got the Jeff Becker Beer Industry Service Award from the Beer Institute yesterday.  He’s 92.  It was an honor, and great to be there with him. My brother flew in from Hong Kong for the event. And we’re very proud of Jerry.  Thanks, BI.  

BI had a more substantive meeting with better vibe, several interesting presentations and panels.  Maybe, partly because mtg took place in Portland, city also known as “Beervana.”  The meeting included broad economic and political analysis, as well as distribs, data providers, top execs etc.  More details in Beer Marketer’s INSIGHTS.  Also nice to see and hear of top execs hanging out and talking together enjoyably at shindig hosted by Heineken USA at the Oregon Museum of Science & Industry. 

Craft Beverage Modernization and Tax Relief Act (CBMTRA) has 280 co-sponsors, now a majority, in the House and 45 co-sponsors in the Senate, Beer Institute celebrated at its annual meeting yesterday.  The bill is “very close to passing,” said BI prexy Jim McGreevy, “but we cannot stop until it does.”  With “more than half the House and nearly half the Senate” as co-sponsors, no prior beer excise tax relief bill “has come close to that level of support,” added Jim. Incoming BI chair (and MillerCoors ceo) Gavin Hattersley called this “significant and important progress.”  In past 15 mos, “we’ve witnessed the coming together of the entire brewing industry” on tax reductions, including BI and Brewers Assn, which is “no small feat” especially after “fairly contentious” positioning that preceded this progress. So “yes, we are united” and “should be proud of that fact.”

Following flat 2015, US beer  biz eking out small gain in 2016.  But at least it’s a gain.  Volume up just 0.3% thru Jul, estimates Beer Institute economist Michael Uhrich.  July was “a rough month” but “we’re going to get a lot of that back” in Aug, he added at Beer Inst annual mtg yesterday in Portland.  “Early read” on Aug, said Michael, is that industry will be +1% for 8 mos.  But Michael expects biz to be off slightly over final 4 mos, as “we’re lapping pretty tough comps.”  Still, industry “would have to be down 1.5% for those 4 months” for a flat yr.  And Michael thinks it will be better than that.  Hence, Michael upped his forecast slightly to a 0.5% gain in 2016. And he’s “hopeful” about 2017.  Gotta note, +0.5% implies about 1.05 mil bbls.  That ain’t much wealth to share, especially since Constellation on track to gain 2 mil bbls+ on Modelo portfolio alone.  That keeps the squeeze on everyone else, and likely to mark yet another absolute alcohol share loss to spirits and wine.  

Steep Drop in Number of New Brewery Permits Issued By TTB YTD  In another sign of craft slowing, TTB has issued 2/3 fewer permits for new breweries so far this yr, Michael pointed out.  That slowdown “does not mean a lot of brewery closures,” Michael said, but indicates “decreasing pressure” to increase overall capacity.  Development may also suggest a “growing intensity of M&A” and perhaps more partnering as brewers seek to create more “flexible capacity, nearer consumers.”