In an opinion that rejects distrib Frederick P. Winner’s legal tactics and arguments, Circuit Ct in Baltimore County tossed distrib’s complaint that it was unfairly terminated by Pabst after Eugene Kashper bought co.  Winner filed complaint last May after Pabst sent termination letter in early Mar.  Md has law similar to Ohio’s that allows successor beer manufacturer to move brands without cause, tho successor distribs obliged to negotiate and pay fair mkt value for brands.  Winner argued that Pabst did not qualify as successor manufacturer and sought TRO preliminary injunction that Pabst had violated its 1994 contract with Winner.  Winner failed to get TRO/injunction.  It later filed amended complaint, suing under its 2014 contract with Pabst, saying reference to earlier contract was “mistake.”  It also added requests for fair mkt value for brands and an injunction vs 7 distribs that got the brands.  But judge tossed the Amended complaint as untimely (saying Winner had “ample” time to amend complaint but “failed to take action” earlier) and prejudicial to Pabst, given it had already spent $$ and time creating defense strategy based on earlier contract.

Judge then tossed original complaint, and agreed with Pabst’s arguments in its motion for Summary Judgment. Since termination “has already occurred” and “implemented,” Winner’s “request for declaratory relief fails.”  Then too, judge noted original complaint brought under a version of the contract that “was not in force at the time” of the termination so he tossed that count “for failure to state a claim upon which relief is possible.”  Judge also noted that Winner failed to ever “identify or quantify any damages,” or the “harm” to the distributorship and ruled that Pabst is a successor beer manufacturer under Md law since acquiring co “has complete control over every aspect of Pabst’s business.”   Finally, since Winner did not follow legal process to determine fair mkt value of brands with new distribs and “waited until filing the Amended Complaint…to request Fair Market Value,” those claims “time barred” under the state law.

Frank Liquor (parent co of Frank Beer Dist and La Crosse Bev) will buy near 10 mil cases of Beer Capitol LLC and more than double size of its beer biz to 17 mil cases.  That will make it one of largest beer wholesaling bizzes in entire midwest and over 25% of volume in state of Wisc.  This big beer biz essentially built in just a generation.  Back in 1990, Steve Frank and Steve Wheeler (ceo of Frank Beer) sold 600,000 cases of beer, led by Coors and Stroh.   Now they will become by far the largest MillerCoors wholesaler in its highest share state. 

All of Frank’s previous consolidations were within the Frank Liquor footprint, so this big consolidation move is “outside of the comfort zone” for Frank, said ceo Steve Wheeler.  But it was “driven by the 4^th generation,” added Steve, meaning Justin Frank, ceo of Frank Liquor and Mike Frank, president of Frank Beer.  “Opportunities like this don’t always come along.”  Interestingly, deal not about synergies.  In fact, all 320 employees of Beer Capitol will stay on, said Steve, and its sr mgt, prexy Mike Merriman and sales/mktg veep Dave Neville, will continue in their present roles.  That continuity for employees was very important for owner/ceo Aldo Madrigrano, who is selling his stake. Aldo is current panel chairman for MillerCoors. His partner in Beer Capitol is Ron Fowler, formerly one of larest beer wholesalers in US, currently part-owner of San Diego Padres.  Aldo and Ron had tried to sell Beer Capitol years ago, but no deal consummated at time.  This time there were 3 bidders, INSIGHTS hears, in most significant beer consolidation deal of 2016 so far.    

Ad Age also published nifty table on top 10 beer cos’ measured media spending (tv, radio, cable, mags, outdoors, etc).  Total beer measured media $$ at $1.388 bil in 2015, up $42 mil, 3.1%.  As noted above, AB #1 at $531 mil, MC #2 at $428 mil.  AB at 38 share of voice on measured media and MC at 31 share.  Constellation measured media spending up $14 mil, 8.5% to $178 mil.  That’s 13% of all measured media spending on beer.  Heineken ain’t far behind at $151 mil.  At 11 share of measured media spend.  So top 4 players well over 90% of spending.  Boston Beer spent $65 mil.  Diageo next at just $18 mil in beer.  

ABI broke into top 20 US natl advertisers overall last yr, according to Ad Age report on top 200 advertisers, using Kantar data plus its own estimates.  AB spent $1.682 bil, almost 2x as much as Miller Coors at $920 mil.  For some perspective, Proctor & Gamble was #1 spender overall at $4.4 bil, followed by AT&T at $3.9 bil, and GM at $3.5 bil.  AB climbed from #23 spender to #20, with a 7%, $114 mil jump.  MC was the #47 advertiser and up $32 mil 3.8%.  Interestingly, AB only spent about 1/3 of its advertising $$ on measured media, or $533 mil (measured includes traditional advtg channels such as tv, radio, cable magazines, outdoors, etc), while MC spent 48% ($444 mil). 

It is in unmeasured spending where ABI really outspent MillerCoors.  By over 2 to 1.  The unmeasured media # is Ad Age estimate of spending in paid search, online video, mobile, social media, promotion, experiential marketing, direct marketing, etc.  ABI spent almost $1 bil on unmeasured spending, compared to MC’s $477 mil.   ABI unmeasured spending up 10%.  Largest distilled spirits co, Diageo, at $785 mil spending overall and  #57. Its total spending declined 2%.

In a “tense and unexpected victory for supporters of Senator Bernie Sanders,” according to Wash Post, the Democratic Party platform committee yesterday endorsed this amendment: “Because of conflicting laws concerning marijuana, both on the federal and state level, we encourage the federal government to remove marijuana from its list as a Class 1 Federal Controlled Substance, providing a reasoned pathway for future legalization.”  So the momentum builds.

Like virtually every state, Massachusetts “has been building on a post-Prohibition law with little fixes here and there, but we need to do more than technical fixes,” state Treasurer Deborah Goldberg told Boston Globe.  She also called current alc bev laws “outdated, unclear and burdensome for businesses,” Globe wrote, again echoing lotsa observers, state regulators and industry members/attys.  (At recent Natl Conference of State Liq Admins, similar language, similar beefs and similar promises to modernize aired by industry and regulators, per usual.)  To “anticipate the market” and create 21^st century alc bev laws, Goldberg aims to set up a task force of producers, distribs, retailers and attys this fall to develop recommendations for legislature, which would have to pass any significant reforms.  Tho recent action by Mass ABC on pay-to-play is part of environment that spurred task force, according to Globe, there were also recent incidents involving flaps over different types of retail licenses, farm breweries, direct shipments and more.  Mass also has some crazy blue laws the task force will likely review.  Finally, “Goldberg said the task force will also consider beefing up” the Alc Bev Control Comm, since it has just 15 inspectors for over 30K licensees, an issue that’s come up in wake of pay-to-play. 

Problem for any task force is same as always.  Can industry members with competing interests, and history of animosity (specifically brewers vs wholesalers in Mass, sez Globe) put them aside and come to consensus on specific, meaningful reforms? New York recently had similar type task force that did recommend some new laws, after agreeing to put aside most contentious issues, we understand.  In Mass, craft brewers guild prexy Rob Martin, “cautiously optimistic,” said Globe. He pointed to 85-yr-old regs that don’t reflect current mkt, “hinder business and don’t serve the public interest.”  But Rob also knows the rub: “If there’s no chance brewers are going to lose any rights in these discussions, we can move forward.”

Few state alc bev laws have been tested as often as Ohio law that allows “successor manufactures” to move brands without cause if distrib gets “diminished value” of its biz from losing those brands.  Last week, US Appeals Ct for 6^th Circuit handed down decision that strongly supports previous supplier interpretations of this law.  Two distribs, Tri County and Bellas, terminated for NAB brands when Costa Rican FIFCO (via subsidiary called CCR American Breweries) bought out KPS back in Dec 2012.  They sued and lost in US Dist Ct which upheld terminations under the law.  Court determined Tri County due $2.8 mil for diminished value, Bellas due $303K.  Distribs appealed decision (and amounts), and lost again.  Appeals Ct signaled in 1^st paragraph this would be rough go for distrib side: Noting 3-tier system set up after Prohibition ended, judge wrote: “While many economists are skeptical about the public benefits of this regulatory scheme, Ohio continues to operate under a three-tier system.”  Ouch. 

First, citing other cases, judges rejected distribs’ argument that FIFCO not a true successor manufacturer since “transfers of ownership at the upper levels” (via multiple holding companies) “do not trigger” the law.  US Dist Ct had focused on whether there was change in “control” of brands, which happened here. Appeals Ct agreed, calling “such a functional approach…a sensible reading of the statute, in contrast to the distributors’ hyperliteral approach, which excludes all transactions at the parent-company level.” (Keep in mind, several Oh distribs including same distribs here, in fed ct over exact same issue, and making similar argument as they challenge Pabst terminations after Eugene Kashper and colleagues made their purchase.)   Second, US Dist Ct and Appeals Ct rejected distribs’ argument that terminations violated “Takings Clause” of Oh and US Constitutions.  Appeals Ct reminded those laws protect against govt taking of property, not the case here.  Appeals Ct added this kicker: “The distributors are the beneficiaries of an anticompetitive statute that deprives suppliers of their freedom to terminate contracts with distributors.” 

Distribs Have to Hand Over 1/3 of Original Award  Next, the Appeals Ct rejected distribs’ argument that US Dist Ct had underestimated actual diminished value, ruling against distribs’ attempt to get additional recovery for net operating losses as they tried to replace brands.  NAB argued distribs wanted “double recovery.”  Courts agreed, ruling distribs got “sum of money equal to the discounted present-day value of the projected future profits from those brands.”  Suppliers and distribs both challenged US Dist Ct’s determination of proper capital structure to calculate discount rate used to determine diminished value.  But Appeals Ct declined to re-litigate what it called “battle of the experts” (US Dist Ct averaged experts’ figures to determine capital structure) and affirmed its calculation.  Last, but very far from least: Appeals Ct ruled that the profits distribs made on brands while case litigated – “it has been over 3 years since the suppliers should have been able to terminate the agreements,” the court pointed out – “must be deducted from their award.”  That’s about 35% of the original award. 

No wonder atty Marc Sorini, who brought this decision to our attention over the weekend, called it “a win for supplier-tier companies.” Indeed decision “may substantially reduce the current incentive of distributors to challenge successor terminations under the Ohio statute, as the profit reaped from continued sales now will be deducted from the fair market value award distributors are due under the statute.”   Marc also noted that “while the decision does not formally bind Ohio state courts on questions of Ohio law, it binds lower federal courts and provides strong persuasive authority to the state courts” on these issues.   

Ad Age also published nifty table on top 10 beer cos’ measured media spending (tv, radio, cable, mags, outdoors, etc).  Total beer measured media $$ at $1.388 bil in 2015, up $42 mil, 3.1%.  As noted above, AB #1 at $531 mil, MC #2 at $428 mil.  AB at 38 share of voice on measured media and MC at 31 share.  Constellation measured media spending up $14 mil, 8.5% to $178 mil.  That’s 13% of all measured media spending on beer.  Heineken ain’t far behind at $151 mil.  At 11 share of measured media spend.  So top 4 players well over 90% of spending.  Boston Beer spent $65 mil.  Diageo next at just $18 mil in beer.  

ABI broke into top 20 US natl advertisers overall last yr, according to Ad Age report on top 200 advertisers, using Kantar data plus its own estimates.  AB spent $1.682 bil, almost 2x as much as Miller Coors at $920 mil.  For some perspective, Proctor & Gamble was #1 spender overall at $4.4 bil, followed by AT&T at $3.9 bil, and GM at $3.5 bil.  AB climbed from #23 spender to #20, with a 7%, $114 mil jump.  MC was the #47 advertiser and up $32 mil 3.8%.  Interestingly, AB only spent about 1/3 of its advertising $$ on measured media, or $533 mil (measured includes traditional advtg channels such as tv, radio, cable magazines, outdoors, etc), while MC spent 48% ($444 mil). 

It is in unmeasured spending where ABI really outspent MillerCoors.  By over 2 to 1.  The unmeasured media # is Ad Age estimate of spending in paid search, online video, mobile, social media, promotion, experiential marketing, direct marketing, etc.  ABI spent almost $1 bil on unmeasured spending, compared to MC’s $477 mil.   ABI unmeasured spending up 10%.  Largest distilled spirits co, Diageo, at $785 mil spending overall and  #57. Its total spending declined 2%.

Zeroed in on ambitious goals for Stella Artois, AB’s High End biz unit not letting up, spending about 25% more on media for the brand this year and spreading word via many food-focused events thruout summer. Stella’s got “twenty consecutive quarters of double-digit growth,” behind it, brand veep Harry Lewis told INSIGHTS recently. And he’s looking to keep going with twin goals to “unleash growth” and “protect sophistication.” Recall, AB seeks to make Stella a billion-dollar brand by 2020, and double in 4 yrs, Harry reminded. It looks to be biggest European import in US, putting bigger focus on high-end occasions, where biggest current Euro import, brand Heineken, “left open this opportunity,” as High End CEO Felipe Szpigel told us. Marketing efforts behind Stella this year focused on hosting occasions, Harry explained, as it asks consumers to “host beautifully” and “put a little substance and spark to this hosting occasion.” It’s supporting that notion of hosting and connection to food by sponsoring 12 different food fests across US this summer. And it’s teamed up with London-based high-end food artists/chefs Bompas & Parr, Cirque du Soleil and some special musical guests to host Le Savoir event, “a multisensorial dining experience,” in NYC next month. Hosting focus to return for winter holiday ad work, Harry said. And the brand will also be bringing back Buy a Lady a Drink campaign, program it runs to support Water.org and its work providing clean drinking water to women across the world.

On-premise still very important for Stella, which does “really well even at craft bars,” Harry said, as a dependable option after trying something new. And “we will have a seat at fine dining,” Harry promised, after noting that “my dream is to have a red wine glass, white wine glass and a chalice [on the table at high-end restaurants] before you even get there.” The brand got lots of attention at Food & Wine’s Classic in Aspen, he said, so Harry still sees plenty of oppys with  a new generation of chefs much more interested in beer as a pairing option and as an ingredient. Off-premise, Stella still doing well too. It’s AB’s 9th largest brand by $$ in IRI multi-outlet + convenience data, up 17% YTD thru Jun 12. Stella gained 0.1 share of $$ to 0.9 YTD, got almost 5.3 share of import $$. And Stella Artois Cidre simply “flying,” Harry said (see above).  That brand really “going after wine, rosé, champagne drinkers,” where there’s “lots of opportunity,” Harry said.