Flurry of paper and commentary yesterday around Dept of Justice and ABI over ABI-SAB deal likely caused some confusion about govt process and future steps.  As best we can figure, DoJ compelled to file legal complaint in US Dist Ct to challenge ABI-SAB on its face, given resulting competitive impact in US, identified by DoJ as: 1) eliminating competition between top 2 players; 2) allowing ABI to “disadvantage its remaining rivals” by “impeding the distribution of their beer.”  That’s even tho ABI intended to sell SABMiller stake in MC to Molson Coors from the beginning.  At same time, DoJ filed a “proposed final judgment” agreed upon with defendants ABI and SABMiller, also called a “settlement” with the court, which it believes will resolve its complaint.  Those are the details reported yesterday.

Another document, a Competitive Impact Statement, lays out DoJ’s explanation of the proposed final judgment with less legalese.  Yet another document assures that AB complies by the proposed settlement and preserves status quo at MC until the final judgment becomes final.  Meanwhile, DoJ files these documents in Federal Register and places a public notice in “certain newspapers” (AB pays for the ads) to inform the public it has 60 days to comment.  DoJ considers those comments, files them with the Court and then “may ask the Court to enter the proposed final judgment (unless the US has decided to withdraw it consent).”   At that point Court “may enter the Final Judgment without a hearing, provided that it concludes that the Final Judgment is in the public interest.”  No one expects DoJ to change its mind here or the court to reject the final judgment.  But that’s the process and could take most of the yr to finalize.          

DoJ ruling “represents a critical milestone on our journey to take full control of MillerCoors,” said Molson Coors prexy/ceo Mark Hunter.  Once acquisition completed, it “will allow us to simplify decision making and reduce complexities of dual ownership,” and allow Molson Coors to become “a more integrated and efficient brewer,” as well as “a more effective competitor,” added Mark.  

While some called NBWA a big winner for getting major concessions out of AB in DoJ decision, “The winner is the American consumer,” said NBWA prexy/ceo Craig Purser.  DoJ “recognizes” an independent distrib system “is essential to a competitive marketplace” and this ruling will “go towards ensuring that the U.S. market can remain a ‘consumer pull’ market,’” and prevent a “supplier push model” from reducing consumer choice, added Craig.

At Brewer’s Assoc, “we continue to believe that the merger” of ABI-SABMiller “is bad for both the beer industry and consumers,” said prexy/ceo Bob Pease. However, the “DoJ’s significant requirements” of ABI, “appear to address some of our major apprehensions with the merger,” he added.  Bob assured that BA “will closely examine the consent decree and compliance with its provisions,” and will “monitor ABI’s actions, specifically with regard to the acquisition of independent craft brewers.”

Meanwhile the Teamsters Union, still fighting to keep jobs at MillerCoors’ Eden, NC plant, is steamed at ruling. DoJ “missed an opportunity to protect the interests of workers, consumers and competition in the United States, said general prexy James P. Hoffa.  “Unlike antitrust enforcers around the world who secured meaningful concessions from the merging parties to protect competition and interests of works and consumers, DoJ appears to have rolled over for big corporate interests.”  MC “simply can’t absorb Eden’s total production” at its other facilities and allowing Eden to be closed, “will introduce significant inefficiencies at the remaining breweries,” and “will force” MC to “reduce the variety of product offerings, jack-up prices, or both,” added Hoffa.

Given all of the docs filed yesterday, plenty of interesting details and relevant side issues pop up in different places.  Two key numbers.  First, DoJ sez 9% of AB’s US volume now sold by branches (other sources, including ABI ceo Brito last Dec, have cited a lower figure), which gives it another 1% to stay under the cap, approx 13 mil cases.  Second, DoJ sez “in 2014, 85% or more of the beer sold in the US” distributed by AB branches, AB- and MC-affiliated distribs. 

Finally, focus has been on fact that DoJ required that ABI can’t terminate any distrib based on ABI-SAB.  But proposed settlement “prevents ABI, SABMiller and Molson Coors from claiming that either the transaction or the divestiture is a change of ownership or control that would otherwise enable ABI or Molson Coors to make changes to their distribution contracts, potentially limiting their rival brewers’ path to market.”  This should ease fears of those who fretted that MC would try to move some brands in the future based on Molson Coors being a “new” owner, but also just reinforces commitment made at Senate hearing by Molson Coors ceo Mark Hunter.       

Multiple participants and observers have put their own spins on Dept of Justice’s deal with ABI to clear ABI-SAB (see below).  How does DoJ describe the deal?  Govt headlines that “settlement” maintains competition in US, “prohibits ABI from disadvantaging rivals” and “provides review of future ABI craft beer acquisitions.”  So even DoJ views this as win-win-win: for ABI, competing brewers and distribs, as well as consumers.  First, divesting SAB’s MC interest “prevents any increase in concentration in the US beer industry,” a fundamental DoJ concern.  Second up, in DoJ view: settlement “prohibits ABI from instituting or continuing practices and programs that limit the ability and incentives of independent beer distributors” to sell beer of “ABIs high-end and other rivals.” 

DoJ Review of Future Buys; New or No?  Further, settlement “precludes ABI from acquiring beer distributors or brewers including non-HSR [Hart-Scott-Rodino law] reportable craft brewer acquisitions without allowing for department review of the acquisition’s likely competitive effects.”  DoJ explains this provision by noting that settlement requires ABI to notify govt of deals that would not otherwise be reportable under current law.  They include acquisitions of “any interest” in brewers that do over $7.5 mil in annual revs and distribution rights to non-ABI brands or distribs with revs over $3 mil.  Provision gives DoJ oppy to review acquisitions (for 10-yr period) for any potential violations of other parts of the settlement and/or other competition concerns.  DoJ sez this “significantly broadens ABI’s pre-merger reporting requirements because the $3 million and $7.5 million threshold amounts are significantly less than” the HSR Act’s threshold.  DoJ notes too that “ABI has acquired multiple craft breweries over the past several years, some of which were not reportable under the HSR Act.  Acquisitions of this nature, individually or collectively, have the potential to substantially lessen competition” and settlement gives govt shot at evaluating such transactions “in advance of their closing even if the purchase price is below the HSR Act’s thresholds.”  While DoJ claims settlement “significantly broadens” ABI’s reporting requirements, turns out that requirement notices of brewer or distrib right acquisitions are simply extensions of agreement ABI made in Modelo purchase.  Notice requirement for buying a distrib worth over $3 mil is new and makes sense given 10% branch volume cap. 

Regarding the “supplemental relief” and detailed new “rules of the road” for ABI and its distribs’ 3d-party brands, DoJ describes them this way: “ABI therefore may require ABI-Affiliated Wholesalers to promote ABI’s beers in proportion to the revenues it earns on ABI’s beer….  The proposed Final Judgment is not designed to prevent ABI from competing.  Rather, it is designed to ensure” that 3d-party brewers “have the opportunity to compete with ABI on a level playing field – not on a playing field in which ABI has used its influence over the distributor to favor ABI’s beers at the expense of” competitors.  DoJ even cited specific practices in the AB Equity Agreement that caught its attention in this regard, including prohibitions on distribs: 1) requesting that a bar replace an AB tap handle with a competitor’s beer; 2) compensating salespeople for sales of competing brands (i.e. a cents/case incentive) unless they get same incentive for “certain ABI brands.”  The latter, DoJ believes “effectively limits” distrib’s “ability to promote” 3d-party brands “through targeted sales incentives.”  DoJ also singled out VAIP “alignment” incentives and exceptions for very small, local brewers (but not larger ones). This, in DoJ’s view, “has the effect of impeding rival craft brewers from growing large enough to have the scale to better compete with ABI.” 

Here’s DoJ’s take on requirement that AB can’t base mgmt change or distrib deal approvals based on relationships with 3d-party brewers: “These provisions are intended to prevent AB from using its rights over management or ownership changes to promote alignment by selecting new owners because they have demonstrated a willingness not to carry or promote rival brands.”      

Right about this time last year, Not Your Father’s Root Beer was just starting to pick up steam in what would turn out to be a historic brand rollout and birth of a sub-category that nobody really saw comin’.  Fast forward a little over 1 yr later and Not Your Father’s Root Beer declined for latest 4 wks thru Jul 10: $$ down 1% and volume -2% in IRI MULC data.  And big part of that decline was sizable 11% drop in just the last 2 wks thru Jul 10.  It’s still up 285% YTD (by $$) but that’s drastically decelerated from 800% plus 52 wk trend and continues to slow as the yr goes.  Small Town’s Ginger Ale, Vanilla Cream and 10.7% abv Root Beer variants will keep overall brand family lookin’ healthy for the year.  But at least so far, those variants aren’t enuf to build parent co Pabst’s trends in the short term.  Indeed, Pabst $$ up just 3% for 4 wks and volume up just 1% compared to 18% and 6% gains YTD.  Will Small Town sodas be able to get back on track or is this the beginning of a familiar FMB-like cycle of flavors that we’ve seen repeatedly from various brands and cos? 

Interesting IRI chart shows how ABI has noticeably improved in scans thruout this yr as co gradually shoring up share losses.  Indeed, AB shed just 0.47 share of category volume for latest 2 wks thru Jul 10 compared to -0.95 share loss for 52 wks, -0.72 for last 26 wks, -0.6 for 12 wks, -0.56 for last 4 wks.  MC lost 0.63 share for 52 weeks, but that steepened to -0.66 for 12 weeks, -0.69 for 4 weeks and -0.67 for 2 weeks. Now losing more volume share than ABI, even tho it’s half the size. 

All of AB’s share loss is comin’ from c-stores in the 2 wk holiday period.  AB’s lost nearly 1 full share of c-stores for 2 wks, compared to -1.2 share for last 52 wks.  But AB drastically improved in multi-outlet, drug and foodstores, actually gaining a bit of share in each during the 2 wk holiday period, compared to shedding more than half a share in each for 52 wks.

Boston Beer sales-to-retailers dropped 5% again in Q2.  Shipments down 100,000 bbls, 5% in 1^st half.  Revs dropped $18 mil, 3.7% for 26 weeks thru June 27.  And operating income fell $16 mil, 23% for 26 weeks, even tho Boston reduced advtg, promo and selling expenses by $8 mil, 11% in 2d qtr.  Boston perked up a bit in 2 weeks since then as it now sez depletions down 4% thru Jul 9.  Boston “narrowed” its guidance; now sez depletions will come in between flat and down 4%; previously saw an upside potential of 2% growth.  So far this yr, “volume was significantly below our expectations,” said ceo Martin Roper, “primarily due to decreases in our Samuel Adams, Angry Orchard and Traveler brands,” which were “partially offset” by increases in Twisted Tea, Coney Island and Truly Spiked and Sparkling, Martin added.  Boston’s Nitro Project and Sam Adams Rebel Grapefruit IPA “have been successful and well-received,” said chairman and founder Jim Koch, but didn’t offset declines of other Sam Adams beers.  On Truly Spiked and Sparkling, “we are pleased with progress and volumes to date,” said Martin.  Sam Adams will get new packaging and advertising in 2d half.  Boston Beer  has “plan to invest to help return the hard cider category and Angry Orchard to growth.”  Tho 2d half will have easier comps, not many green shoots in these numbers yet.     

For decades, public heath activists have targeted beer ads for ubiquity, specific messages they find offensive, alleged appeal to youth and more.  Their efforts to restrict ads and/or alter the messaging consistently fail in the courts (often due to 1^st Amendment issues), before legislatures and, we’d submit, in the court of public opinion.  The US Federal Trade Comm has basically supported and praised brewer, vintner and distiller self-regulation in this area, even while suggesting tweaks to voluntary ad codes from time to time.  Beer Institute, Distilled Spirits Council and Wine Inst have set up boards to review complaints.  They get very few and very rarely find any ads violate the codes, yet another sign that self-regulation works.  Even the most vocal critics refrain from even making complaints to these boards about specific ads, likely knowing they have no case and not wishing to become part of a process that so clearly works. 

Case in point.  Between January 2014 and June 2016, Beer Institute got a grand total of 2 complaints about beer ads.  Both involved AB Super Bowl ads for Bud Light, one in 2014 and one in 2016, as Ad Age reported earlier.  Reading the extensive report prepared by BI’s 3-member review board shows they meticulously analyzed the ads and the complaints, while justifiably finding neither violated BI’s code.  The 2014 ad was “Epic Night.”  The complaint alleged that the ad violated the code’s bar of showing open containers in a public space (it didn’t), promoted excessive consumption (it didn’t) and, hilariously, posed “hazardous risk to the safety and welfare” of a llama depicted in an elevator with actor Don Cheadle (!!).  The review board found that “the elevator was plenty large enough for the llama” and pointed out “with respect to the llama, we did review the commercial carefully and we did not believe the llama was in any danger or was in any way abused.”  (One wonders how much BI has to pay 3 serious professionals to have to write such a sentence.)  The board similarly dismissed allegations that the ad appealed primarily to youth, used underage-looking actors and suggested the central character would not have achieved “social success without the consumption” of Bud Light.

The 2016 “violation” was equally ridiculous.  The complainant complained that the Super Bowl “Caucus” ad with Amy Schumer and Seth Rogen appealed primarily to youth and that it contained lewd/indecent language.  Indeed, he wrote that “This is a ‘cock’ ad plain and simple. It degrades the brand and the industry.”  Recall, Amy responds to Seth’s point that “we have the biggest caucus in the country” by saying: “But it’s not like too big.  Like you can handle it.”   He also claimed the ad in “very bad taste” and suggested a “similarly veiled” ad involving a part of the female anatomy in the same region, using another 4-letter lewd word himself, “would not be acceptable.”  What’s more, according to the report, during the process the complainant had sent AB an email “that directed offensive statements to an Anheuser-Busch employee.”  AB subsequently cut off communications with him.  In their analysis, the review board rejected the notion the ad had “special appeal” to youth and noted the Super Bowl audience in 2016 was 82% adult, well above the 71.6% guideline that BI members adhere to.  Nor did they find the ad lewd, noting “the mere use of a sexually suggestive pun would not be seen as ‘vile’…patently offensive or offending recognized standards of good taste.”  For support, they referred to a conversation on “Live with Kelly and Michael” with the hosts joking about the size of an iPhone, and the 2016 Republican Presidential nominee’s discussion of his hand size during the primary campaign.  Net-net: the review board found that both petitioners totally missed the humorous angles of the ads.  Imagine that.                   

SABMiller reported perhaps its last trading update this morn, including a relatively soft set of MillerCoors results.  Recall, MillerCoors shipments up 1% in 1^st qtr, as it built inventories, 2 points ahead of 1.3% STR decline.  Paid the piper in 2d qtr when MC shipments dropped about 600,000 bbls, 4% and sales-to-retailers declined 2%.   STR # surprisingly weak, given bump at end of Jun from calendar effect.  MC reportedly off more in Apr-May, before a stronger Jun.  MC rev per bbl up just 1%, SABMiller reports, “reflecting positive sales mix together with favorable, although softening, net pricing.” 

Miller Lite “in line with the prior year” while Coors Light “declined low single digits driven by the discontinuation of Coors Light Citrus Radler summer variant.”  Total premium lights down low singles, as MC “continued to gain market share in the segment.”  MC above premium STRs also “down low single digits” with “mid-single digit declines” in Redd’s and Blue Moon brand families.  Those are MC’s 2 biggest above premium franchises.  But Redd’s and Blue Moon declines “partially offset by the continued growth of Henry’s Hard Sodas.”  No trend given on Leinie.  MC below premiums again “experienced a mid single digit decline,” with Keystone and High Life down mid-singles, Mil’s Best down high singles.  Recall, MC will unveil a subpremium strategy later this yr. 

Globally, SABMiller beer volume in line with the prior yr and revs up 2%.  But this trading statement shows exactly why ABI so intent on doing this deal.  SABMiller revs up 5% in Latin America and 6% in Africa.

Some Early Comments;  DoJ Did an “Excellent” Job;  Craig Purser and ABI The “Biggest Winners”

“I believe that Justice did an excellent job here,” said one source who has dealt with DoJ before. “They did have ABI back off of some measures (such as VAIP) that were overstepping.  And while the 10% rule [cap in branch volume] still strikes me as overstepping, ABI did voluntarily suggest this themselves.  Your fifth paragraph is a very good summary (Editor’s note: the one with subhead “Everyone’s a Winner”) of what can be termed a Solomonic judgment.” 

But were some winners bigger than others?  “The biggest winners are Craig Purser and ABI. And that’s one strange combination,” said another industry observer.

The VAIP was problematic from the git-go, according to another source.  “One thought to remember for any distributor that feels like they lost something with VAIP going away.  Why in the hell would they choose to roll out an exclusivity program at a national meeting, with much fanfare and media attention, one month following the announcement of the biggest global beer deal ever?”

Editor’s Note: To get this critical global deal approved in the US, ABI did make some meaningful concessions, especially in the direction of its distributors’ independence.  But they are a small price to pay.  None of them will seriously impact AB’s ability to do business in the US.  Arguably, they will enhance AB’s position, as more obstacles are removed that have prevented AB from having a better relationship with its distribs.

For independent AB distribs, this is a red letter day as the Dept of Justice has codified the necessity of them being able to freely make their own choices.  Six ways to Sunday.  NBWA does deserve kudos for positioning the critical importance of this correctly with DoJ, in what we originally thought was an overreach (as it has nothing to do with straight antitrust analysis of the effects of the deal).  It’s a meaningful improvement for all indy AB distribs and probably one of NBWA’s finest hours, tho its full effects will only be apparent over time. 

We’ll have more later, including official comments from all over and more analysis.   Got comments?  Send them to This email address is being protected from spambots. You need JavaScript enabled to view it.  

“Proposed final judgment” filed in US Dist Ct to resolve DoJ’s competitive concerns regarding ABI-SAB deal.  It details divestiture of SAB’s stake in MC and conditions placed on AB InBev in US.  Includes about 5 pages of “supplemental relief,” with very detailed listing of what AB can and cannot do in regard to its relationship with independent distribs and especially their sales of 3d-party brewers’ beer. Here are highlights:

• ABI cannot cite ABI-SAB deal as “basis for modifying, renegotiating or terminating any contract” with any distrib.
• ABI cannot “provide any reward or penalty or in any other way condition its relationship” with distribs based on the volume or sales of 3d-party beer, or the mktg, advtg, promotion or retail placement of that beer.  “Prohibited actions” include ABI “conditioning” the “availability, prices, services, product support, rebates, discounts, buy backs or any other terms and conditions of sale” of ABI’s own beers based on sales, mktg, etc of distrib’s 3d-party beer.
• ABI can’t condition any agreement or program based on indie distrib’s sale of 3d-party beer “outside the geographic area in which” distrib sells AB beer.  Does this lift cloud of “insidiousness”?
• ABI can’t require distrib to “offer any incentive” to sell ABI beer “in connection with or in response” to any incentive distrib has from 3d-party brewer.
• ABI cannot prevent distrib from using best efforts to sell, mkt, advertise or promote 3d-party beer. 

What can ABI do? 

• ABI can enter and enforce agreements that require distribs to use best efforts for ABI beer.  
• ABI can condition incentives and programs on volume, retail placement, mkt share of ABI beers in distrib’s operation, so long as such incentives “do not require or encourage” distrib to “provide less than best efforts” for 3d-party beer. 

Agreement also specific about criteria when ABI faced with transfer of control or deal approvals.  For example, ABI “shall not give weight or base any decision to exercise” approval rights on distrib’s “business relationship” with 3d-party brewer, including sales, mktg, advtg, promotion or retail placement of 3d party’s beer. 

ABI Can’t Request Data on Volume, Rev, Profits Etc of 3d-Party Beer  In a win for distribs, ABI can’t even request distrib to report “whether in aggregated or disaggregated form,” distrib’s revs, profits, margins, costs, volume or other financial info on 3d-party beer.  ABI can request “general” financial info on distrib’s “viability” and percentage of total revs ABI beers represent, again, as long as info doesn’t “disclose or enable” ABI to “infer the disaggregated” revs, profits, etc of 3d-party beer.   AB can perform “ordinary course due diligence in connection with any potential acquisition” of indie distrib.

Finally, ABI can’t “discriminate against, penalize or otherwise retaliate” against distrib if it complains to DoJ about any “actual, potential or perceived” violations by ABI of these conditions.”  ABI also has to file report with DoJ about how it will inform distribs about these conditions, describe changes and tell them they can report any violations without “fear of retaliation.”