One of the principal architects of many of the policy gains that distilled spirits made in the last couple of decades, Guy Smith, has long been one of the very sharpest minds in alc bev govt affairs.  This morning, Diageo announced that Guy will retire as EVP, Corporate Relations after 17 yrs with the company.  “During Guy’s tenure the political and cultural environment for spirits has changed radically, in large part due to a concentrated effort Guy laid out 15 years ago,” wrote Diageo. “Guy’s impact is most visible in the area of consumer access.  We can now market spirits on television and in sports stadiums - even sponsor sports teams,” crowed Diageo. “Buying spirits is now the norm on a Sunday and in most states you can sample spirits.”  Yes, Guy is the guy who led the efforts at the largest distiller and therefore also at Distilled Spirits Council to make all that happen.  Many objectives achieved.  And even if beer folks disagree with some of distillers’ policy objectives (especially equivalence), ya gotta tip your hat to Guy and the spirits industry for their effectiveness in changing (“leveling”) the landscape.  Heck, Guy was a beer guy once upon a time; he worked for Miller way back.  Guy’s replacement (insofar as Guy can be replaced) will be Jon Pageler, currently Senior Veep Corporate Relations. He’s been at Diageo for 13 yrs “and served as Guy’s right hand for the past seven.”  Jon assumes new role as EVP, Corp Relations on Jul 1, but Guy will stay thru the end of the yr, “serving an emeritus role and assisting with the transition.”  

Talk on Constellation call this morn not exclusively about beer, but it sure was lion’s share.  “We have no concerns whatsoever” about current health of Mexican portfolio, including Corona, “period,” said ceo Rob Sands.  Mexican brand depletions +9% in qtr thru May, as “each brand grew across most channels and packages.”  (Interestingly not a lotta detail about Corona itself, tho earlier recall did impact trends and Rob noted Corona cycled big can intro numbers in same qtr last yr.)  Modelo Especial depletions up in 20% range, and brand still has “pretty good distribution runway,” with ACV of around 70% vs 80-90% for other big natl brands.  Meanwhile, Pacifico depletions up about 17% and 24-oz can is #1 new import pkg this yr, said Rob.  He’s hearing “chatter” that Pacifico is becoming “go to” session beer for craft drinkers when not drinking craft.  On Ballast Point, “what can you even say?” Rob asked.  Depletions grew over 60%, still growing in Calif mkts and “triple digits” in some places.  Rob’s not sure Ballast “perceived with any geographic specificity” in new mkts but rather as “really high end, high quality, award-winning brands,” all about styles and flavors.  But he distinguished BP brands from FMBs, as rather “very subtle stuff” with flavors that “accentuate exotic hops” and “appeal to real beer aficionados.”  In that way, Ballast “much more like high-end wine.”  In another beer/wine parallel, Rob pointed out that wine premiumization continuing, with growth segment moving up from $8-12/ bottle to the $15-20/bottle segment.  That reminded us of recent work by consultant Bump Williams showing outsized growth of highest-price craft beer segments.  CBBD still plans to make Ballast Point natl before end of year, now in over 40 states. 

Q1 Factors that Affected Trends  Rob commented on “debate” over uneven scan trends in Q1.  IRI tracks about 50% of beer at retail, he noted, so only a “partial picture,” vs CBBD’s shipments/depletions reports.  Then too, there was “significant variability” in week-to-week scans (don’t we know it!) as result of selling day comparisons and holiday timing.  Trends also impacted by Corona recall, which created some “temporary product shortages,” cycling big can intro #s last yr and “pockets of poor weather.”  There was also some “promotional activity” in same qtr last yr that “wasn’t duplicated” due to some packages not in supply, Rob said.  Despite these “temporary headwinds,” all “brand health assessment rankings” are consistent or increasing, he assured.  Then too, Jun numbers good and “progressing in line with forecasts.”  Elsewhere, Rob said CBBD on-premise trends up mid-single digits while beer, wine and spirits categories each down.  CFO David Klein reminded that shipments ahead of depletions in Q1 as inventories generally built in this qtr and there was some “shift” as result of beer recall. Distrib inventories at end of Q1 “fairly level” with prior year. Asked to break out growth scenario of Mexican portfolio, David said that for full yr, Constellation sees 40% of growth coming from increasing distribution (new accounts/more package offerings), 10% from pkg innovation and remainder from demographic shifts (i.e. Hispanics and millennials) and other “environmental factors” he didn’t detail.  On Ballast Point, ACV increased about 40% since CBBD got brand and now about 20%.  

Constellation still expects Mexican beer pricing to be up 1-2% this yr; rev/bbl up 2.6% in Q1.   Rob noted “some competitive activity” in mkt, but “really nothing” to suggest anything has changed significantly and “no one falling off a log and changed their general modus operandi” on pricing.

One thing about being the world’s biggest brewer tryin’ to get bigger: you’re never off the radar.  Today, AB InBev celebrates official clearance of its SABMiller purchase by South Africa’s Competition Tribunal.  A formality after last week’s developments, that brings total `to 16 jurisdictions that have approved.  US and China still pending and foes continue to voice concerns here, as we’ve reported.

Meanwhile, ABI continues to face other scrutiny of its actions, official and unofficial.  In addition to report that Dept of Justice opened separate probe of its craft buys, according to Capitol Forum, European Union just launched “formal antitrust probe” into its “practices on the Belgian beer market,” Wall St Jnl and others report today.  This is an odd one.  EU is concerned that ABI “may be hindering imports of its beer from less expensive markets in neighboring countries.”  Howzzat?  Officials apparently think ABI may be “pursuing a deliberate strategy” of altering its packaging to stymie imports of its own brands from “less expensive” countries like France and Netherlands to pricier Belgian market.  There is also suspicion that ABI “restricting non-Belgian retailers’ access to certain rebates and key products.”  EU Competition Commissioner said “AB InBev’s strong position on the Belgian beer market is not a problem,” reports Deutsche Press-Agentur, “however, we want to make sure that there are no anti-competitive obstacles to trade in beer” within Europe and if ABI is preventing importation of its own beer that would be “anti-competitive obstacles to trade.”

Back in the USA, Wash Post cast doubt on AB’s dedication to equal pay, touted in new Bud Light ad, with headline: “Bud Light’s latest advertisement has a big problem.”  WaPo asked AB if AB pays its male and female employees equally, but “the company won’t say” and did not provide info on “how many women it employs, how much those women are paid and how that pay compares to that of their male colleagues.”  That gave WaPo oppy to explore pay gap more broadly in US, note dearth of women on ABI’s North American leadership team, ex-hi-up employee Francine Katz’s lawsuit over pay disparity, the flap over the Bud Light “no” ad last yr, fact that AB did not sign a White House-generated “equal pay pledge” and more.  AB’s Bud Light veep Alex Lambrecht said AB uses “a rigorous and gender-blind compensation process” to determine wages, but net-net, WaPo went negative.                 

Despite all the increased efforts and investments from large beer suppliers to improve their performance on-premise, total beer biz trends got even worse in GuestMetrics data over last 3 mos.  Beer volume down 6.3% for the last 12 weeks, down 6% for 4 weeks.  Last yr, beer volume down 4.5% in GuestMetrics data.  In this tough environment where on-premise traffic declined 4% last 4 weeks and 3% yr-to-date (compared to -0.5% last yr), only solace was that spirits gained a little less share in latest period. Up 0.7 share for 4 weeks, compared to 0.9 YTD.  Beer lost 0.8 share compared to 1 full share YTD.  Within beer, craft gained 0.4 share of beer for 4 weeks, compared to an 0.5 share gain for full yr.  Keep in mind, total on-premise trend likely a bit better as GuestMetrics does not include taprooms and a number of craft-centric accounts, but these are still sobering stats

Another superlative set of results from Constellation Brands Beer Division in its first fiscal qtr, Mar thru May.  Organic shipments jumped 7.2 mil  cases, 11.9% to 67.5 mil cases, while organic depletions up 9.7%.  Throw in 1.4 mil cases of all incremental Ballast Point and Constellation total beer shipments up 14.3% to 68.9 mil in qtr. Ballast Point up 60% in qtr, Constellation ceo Rob Sands said.   Organic beer revs up $143 mil, 15%. But with the Ballast Point trade up kicker, accounting for $42 mil in sales for the qtr, total Constellation Beer revs up $185 mil, 19% for the qtr.    That’s strong.  Earnings up even stronger.  CBBD operating income jumped $73 mil, 22% to $409 mil for the qtr.  Operating margin jumped almost a full point to a whopping 35.6%. 

Constellation also announced that it completed “next phase of capacity expansion,” bringing Nava to 20 mil hectoliters (17 mil bbls).  Beer division up to 61% of revs.  Constellation still expects 14-17% growth in beer revs and oper income for full fiscal yr.  Even with somewhat slower wine and spirits growth, in toto, Constellation Brands sales and net income up double digits for the qtr.   

In his annual review of the teeming alc bev legal landscape for the Natl Conference of State Liquor Administrators (NCSLA), veteran atty Richard Blau provided some “food for thought” in what he deems a “world of change” in the biz, beyond the specific cases he cited.  Richard highlighted 3 key changes: First, “unprecedented consolidation” in wholesale tier.  Richard pointed to mega-wine and spirits operations that cross state lines, but that’s happening in beer too.  However efficient and effective, these huge, “capable and powerful organizations” were “never contemplated” when alc bev laws first promulgated.  One specific challenge just surfaced in federal govt allegations -- denied by the co -- that employees of Republic National Dist Co sold product from Md to NY retailers who evaded higher NY taxes.  So a system devised to be state-by-state is clashing with a “world clamoring for more efficient, comprehensive regional and national” options. 

Second, Richard pointed to the “phenomenal growth of craft beer” in recent years, which has challenged brewers big and small to make decisions about how to effectively compete.  Some of those decisions “not always pretty.”  Large producers, more used to a limited “orderly market” are now competing with thousands of new brewers and brands.  And while MillerCoors felt a buyback program for Fortune complied with the law, TTB saw it as a consignment sale.  MC “settled and moved on.”  AB ran into similar issue.   Elsewhere, in order to compete in Boston, Mass distrib Craft Brewers Guild felt compelled to “pay to play,” got rapped by the Mass ABCC, paid huge fine to avoid license suspension and is battling case in court, Richard reminded.  Third challenge that popped in last 12 mos was category mgmt issue kicked off by Kroger’s proposed planogram program to be coordinated by Southern Wine & Spirits.  Kroger sought efficiency and cost effectiveness.  Other industry members, the states of Ohio and Pennsylvania and TTB saw this as violating the law. 

On the flip side, always lots of talk at NCSLA about updating Prohibition-era or later laws that may no longer serve current mktplace, given changes in the biz.  Richard asked regulators to consider a couple areas where they may need to modernize.  He asked: “how many of your states restrict the ability of a manufacturer or distributor of one segment to produce or sell products from another segment?”  Also: “How many have tied house laws that penalize manufacturers and distributors who provide inducements for exclusion but are silent when retailers solicit those inducements?”  

In addition to investigation into ABI’s bid to acquire SABMiller, the US Dept of Justice is now specifically looking into the co’s recent spate of craft deals as well, The Capitol Forum reports, citing industry source. The new investigation follows continued pressure from lawmakers largely listening to concerned industry members. All have consistently encouraged DOJ to include restrictions on AB’s owned US wholesalers, incentive programs with independent distribs and purchases of craft brewers. Now DOJ has separate investigations into both craft deals and those incentive programs (see Express on May 25). That “may provide political cover to clear” ABI-SAB, Capitol Forum writes, without including the kinds of remedies insisted upon by some Congress members. Indeed, the “DOJ is likely struggling with tying competition issues in the beer industry to the specific merger,” per report. And if it included stricter remedies, like limiting acquisition of more distribs/brewers or modifying incentive program terms, DOJ would need “to defend in court” that such remedies are “deal-specific.” However, Capitol Forum does suggest such behavioral remedies could be conditional of ABI-SAB approval “despite the lack of deal-specific harm to craft brewers.” Either way, ongoing investigations “likely to curb” AB’s craft (and distrib) acquisitions in near-term and “may be contributing to delays in clearance” of much bigger ABI-SAB deal, the publication writes.

This separate DOJ investigation takes up claims repeated most recently by Brewers Assn prexy/CEO Bob Pease, as we reported Monday. Yet AB took issue with his use of picture of Maryland concert venue with mostly AB-owned products to defend his points. “Let’s not let anecdotes substitute for facts, or distort the reality that today’s beer market is objectively more vibrant and competitive than at any point in our country’s history,” AB spokesperson Gemma Hart wrote. She pointed to 3 such facts: 1) “about 70% of the taps in the US are non-AB,” the co’s wholesaler survey found; 2) “in the last 5 years, craft’s share of shelf space has grown by more than 10%” in IRI data; and 3) “in the vast majority of the time, AB is below our fair share of shelf space, meaning our space is far below what it would be if it was based on sales volume.”

Current batch of beer ads were ranked in feature in Forbes using methods of Advertising Benchmark Index measuring spots “for recall, relevance” and importantly, “purchase intent” among viewers.  Budweiser’s “This Summer Is In Your Hands” spot scored best.  When first hearing Bud would be renamed “America” for short time, “I was a little skeptical. Would it come off as pandering or bandwagon hopping?” wondered contributor Will Burns, ceo of mkting firm Ideasicle. To his surprise, this Bud spot touting “America” “scores well across the board” because its “message was clear, brand linkage was strong, and relevance was high,” said Will. Even more importantly, “purchase intent” was “twice the norm.”  “I think the spot was just plain well done. I love the double entendre of ‘America is in your hands’ (the beer and the country) during election season,” he added.  Strongbow’s “Acting” spot with Patrick Stewart scored high on ABX as well. It had “strong brand linkage, clear communication, huge point for the brand’s reputation and relevance.” Unfortunately for Strongbow, purchase intent “was a little below the norm.” Ranked #3: Sam Adams got high marks for spot explaining “Why Are Some Beers Hazy,” which was “a clear winner on one important aggregating attribute – propensity for Action in any form (look for the product, purchase and recommend, talk),” noted Will.  What about the ugly per ABX scoring? Ads for Miller High Life, Angry Orchard Cider and Bud Light were each seen as weakest.  Viewers were “confused” by High Life ad, seemed to enjoy Angry Orchard spot but were also left “confused,” while ABX scores for Bud Light’s “Party Dock” were “pretty average overall” and had “low purchase intent.”      

MC will launch new ad campaign for Coors Banquet dubbed “How It’s Done” starting July 4 on networks such as ESPN, FX, Pivot, Animal Planet, CNN Films, MLB Network and TBS, cmo David Kroll announced via email to distribs.  It’ll include 5 different 15 second spots – Barley, Golden, Handshake, Tough and Water – that “continue the brand’s focus on its ingredients and western attitude while using the familiar rugged voiceover of actor Sam Elliot,” wrote AdAge.  Interestingly MC “seems to favor” 15 second spots, mag added, which “provides greater efficiencies for more air time and spreads out the media buy,” one MC spokesman said.  MC media buy for Banquet boosted 5% vs last yr, so you’ll see ads air once every other week opposed to once every 4 wks last yr, said Kroll.

Then too, email focused on oppys to close the gap on Budweiser, pointing out that it “still lags Budweiser significantly on distribution” and “still not getting enough Coors Family of Brand displays, despite the fact that we know these dual-branded displays result in incremental sales for both Coors Light and Coors Banquet.”  Currently Coors is “on track” for 10th straight year of volume growth, he noted.  Volume’s up 5.5% YTD thru Jun 18 in Nielsen All Outlet, but share stayed put at just 0.8 of total beer YTD.  Meanwhile Budweiser lost 0.2 share but still holds 6.9 of total beer volume.  It’s down 2% YTD, tho got 1% gain in latest 4 wks in early innings of its “America” label push.

The two hottest brands in the beer biz, Michelob Ultra and Modelo Especial,  kicked it up a notch in latest 4 weeks thru Jun 18 in Nielsen all-outlet data.  Gained 0.7 share of $$, compared to 0.6 yr-to-date.  Total beer volume up 3.2% for 4 weeks (just 0.7 YTD), so Ultra and Especial’s gains look especially outsized. Each up nearly 28% in volume with Especial up 31% in $$ sales. 

AB has 6 of top 10 growth brands in latest period, with Ultra, two Best Damn variants, Stella, Busch Light and the debut of Estrella Jalisco at 0.1 share nationally.  But AB still lost 0.5 share of volume, 1 share of $$ overall for 4 weeks. Constellation has only 2 of top 10 growth brands, Especial and Corona, but gained 1.2 share of $$ overall last 4 weeks and 1.1 yr-to-date.  MC has 2 smaller brands on list, Henry’s Hard Orange and Redd’s, but lost 0.6 of volume and 0.7 share of $$ for 4 weeks and YTD.  For the first time in about 1 yr, Not Your Father’s Root Beer not on list of top 10 growth brands.