Beer was soft in Apr.  Volume continued down slightly in scan for 4 week periods throughout, including down 0.9% for latest 4 weeks thru Apr 30 in Nielsen all-outlet.  But thru 4 mos of 2016,  beer volume still up 1.2% yr-to-date.  Each of AB and MC down over 2% in Apr scans; AB down 0.4% yr-to-date, compared to MC down 0.7%.  AB lost 0.8 share of volume YTD, but 1.2 share of $$.  MC lost 0.5 share of volume and 0.7 share of $$. 

Constellation still up nearly 15% YTD, but gain dipped under double digits for last 4 weeks.  Up 8.5%.  It gained 0.8 share of volume and fully 1 share of $$ YTD, leading industry by far.  Total Heineken USA volume dipped nearly 4% for 4 weeks, but still up 0.7% YTD. Boston Beer also down about 4% in Apr, down 1% YTD.  Pabst volume up 8-9% including Small Town Brewery (and $$ up about 26%).  Mike’s still up 6% YTD in Nielsen, while DGUSA down 0.5% and NAB down 4%. 

Mixed Megabrand Trends  Bud Light down 1.9% yr-to-date, 4% last 4 weeks and it accounts for most of AB share loss.  But Michelob Ultra remains hottest brand in industry in 2016, volume up 23% and picking up most of that share loss. Gained 0.6 share of $$ and volume.  Brand Bud down 1.6% YTD too.  Both Miller Lite and Coors Light up about 1% YTD in Nielsen, tho they were down in April.  Modelo Especial the 2d biggest gaining brand and continued explosive growth.  Volume up 25% and it too gained 0.6 share of $$ but 0.5 of volume.  Meanwhile, Corona growth slowed to 1% last 4 weeks, but still up 9% YTD.  It gained 0.2 share of volume and 0.3 share of $$.

Economy Brands Declines Continue, No Avg Price Gains  Economy brands are still 26 share of industry volume YTD, but under 18 share of $$ for 4 weeks.  With continued 2%+ declines and no price realization for last month or two, this segment, so dominated by AB and MC, continues to struggle.  Several big subpremium brands have lower avg price per case in latest 4 weeks, including High Life, Keystone Light, Busch and Icehouse. Yet each of top 6 subpremiums continued down. 

Above Premium Up Near 8%, Gained Over 2 Share of $$ On other end of value spectrum, above premium segments continue to grow volume 7.7%, $$ over 10% YTD. Gained 1.8 share of volume to over 30 and another 2.4 share of $$ to 41.7 so far this yr.  But that gain now split differently.  Each of import and FMBs gained 0.9 share of $$, while craft just gained 0.4 share of $$, superpremiums 0.3 and cider down 0.2.  Import volume up 7.5% YTD, FMBs up 16%, but craft slowed. Volume up 2% for 4 weeks, 4.7% YTD.

 

Instead of using red/white/blue colors or stars and stripes designs on its summer packaging, this year it looks like AB is “poised to make one of its biggest patriotic plays yet,” by putting “America” right on the label instead of Budweiser, per Ad Age.  Filings with Alcohol and Tobacco Tax and Trade Bureau indicate besides use of America on packages, AB plans to use phrases such as “E Pluribus Unum,” and “indivisible since 1776,” among others, per report.  Even the AB on the label would be replaced by US instead.  AB didn’t comment to Ad Age, but possible patriotic pkging shift was “foreshadowed” by mktg veep Jorn Socquet in recent interview, when he suggested Bud brand “would make use of Olympics and Fourth of July celebrations, as well as the Copa America soccer tournament,” noted mag. “You have this wave of patriotism that is going to go up and down throughout the summertime,” said Jorn. “And we found with Budweiser such a beautiful angle to play on that sentiment.”   

“Germany’s Federal Cartel office  has fined several retailers a combined total” of $103 mil as “part of a price fixing probe focused mainly on beer” that dates back to 2010, reported WSJ.  German govt “found retailers colluded with the German subsidiary” of ABI between 2006-2009 “to fix beer prices.” Several retailers got “reduced fine because they agreed to a settlement” but office “didn’t fine AB InBev or supermarket group REWE because of their cooperation in the inquiry.”  “Commenting on the beer probe,” WSJ added, prexy of Fed Cartel office said ABI “coordinated price increases with retailers on several occasions and the brewery ensured those hikes occurred simultaneously across competing retailers.”  

Stunning situation developed late last week when Calif ABC director Tim Gorsuch suddenly resigned and in rare if not unprecedented move,  California Highway Patrol at least temporarily took over ABC function.  Calif Highway Patrol has already named temporary director, also district directors for northern and southern districts.  It is interviewing numerous other personnel about what went on at agency. None of this aired out in public yet.  “The whole place is totally dysfunctional,” said one source, especially since ABC chief deputy director Lori Ajax left to work on medical marijuana.  Lori reportedly played key role in long running investigation into trade practices, especially those of ABI.  That investigation started perhaps 6 months ago without charge or resolution.  Separately, ABC levied  fine against AB for bar bucks in a single account in San Diego last Sept.  Investigation has seemingly languished in her absence.   Is there any other state in US where highway patrol in charge of ABC?  What’s it all mean?  Stay tuned.    

Just days after suit became public, the Int’l Brotherhood of Teamsters has already announced it will host conf call this Friday “to discuss potential obstacles to Justice Department antitrust approval of the proposed” deal to buy SABMiller and sale of MillerCoors JV to Molson Coors. Suit filed by Pabst “raises concerns about the Eden closure,” per Teamsters statement.  MC’s shutting down Eden, NC plant “will eliminate needed production capacity in the U.S., drive up prices for consumers and harm industry competition,” said David Laughton, dir of Teamster’s Brewery Workers’ Conference, which represents all teamsters at 11 ABI breweries and 3 MC breweries.  “It is becoming harder to see how the U.S. Justice Department can greenlight this deal without addressing the anticompetitive effects of an Eden closure,” he added.  

Here are details in lawsuit, filed back on Mar 30 by Pabst vs MC charging MC breached contract brewing deal they’ve had since 2007 (see May 5 Express) and amended 8 times already.  Pabst claims it has and will suffer damages in neighborhood of $400 mil because MC sez that after it closes Eden, NC brewery this yr, it won’t be able to supply Pabst with sufficient product when current term of agreement runs out in 2020.  That’s even tho, Pabst alleges, MC had assured Pabst for a year that supply would not be a problem and that MC “prepared to extend the Agreement on commercially reasonable terms.”  In fact, Pabst owner Eugene Kashper depended on those assurances when he bought Pabst in late 2014.  He “would not have proceeded with the purchase…had MillerCoors disclosed” it would lack capacity, according to lawsuit.

Pabst Tried to Lease Eden; MC Tried to Triple Brewing Fee  Troubles started last Sep when MC and Pabst started to negotiate extension thru 2025.  Recall, that’s when MC announced it would close Eden.  And that’s when MC told Pabst it would no longer have sufficient capacity to fulfill its obligations after 2020.  During same talks, “after dropping its capacity reduction bombshell,” Pabst claims it offered to “lease the Eden Facility” to keep it open and brewing.  But MC “refused to entertain” that offer and “was only willing to sell the Eden Facility to Pabst at an astronomical, non-market price.”  MC’s not sayin’ much.  No official response filed yet.  MC insider told INSIGHTS Pabst’s offer “not legitimate,” but “an attempted Hail Mary pass with no receivers on the field.” 

Then too, Pabst charges MC earlier indicated it wanted to increase the contract brewing fee from planned “fixed charge” of $18.30 per bbl in 2020 (it’s $16.83/bbl now and goes up approx 2.2%  per yr) by about 10% to $20 per bbl.  Yet, after a “change of executive leadership” at MC, (Gavin Hattersley replaced Tom Long as ceo), MC told Pabst about the capacity issue, claimed it makes “no money” producing Pabst brands and sought a “commercially devastating” $27/bbl increase, as Pabst called it.  That would jack the price from $18.30/bbl in 2020 to $45 per bbl, costing Pabst over $125 mil incremental annually based on what MC brews today.  Claim that MC makes no money on Pabst is “facially false and made in bad faith,” sez Pabst. 

Hike is “Poison Pill” Aimed to End Deal; Pabst Seeks Damages, Continuation of Contract at “Reasonable” Fee  What’s more, proposed fee hike, more like a “poison pill,” sez Pabst, would be “unprecedented and intolerable increase” that “far outstripped Pabst’s reasonable commercial expectations” and will lead to a “premature termination of the agreement.”  This “bait and switch” move also represents breach of their agreement, “threatens both Pabst’s ongoing business and Blue Ribbon’s [Eugene’s co] investment” and would “sabotage Pabst’s ability to compete and consolidate MillerCoors’ already large market share.”   MC “explained” at time that there was “strategy to realign MillerCoors’ production capacity to service only its own production,” Pabst sez.  But Pabst believes it “is simply a case of a new CEO walking away from the contractual promises and undertakings” of his predecessor, disregarding “preexisting legal obligations.” And thus Pabst charges breach of contract, misrepresentation, fraud, negligence and more.  Pabst asks court to enforce the agreement, extend it through 2025 at “reasonable Fixed Charge to be determined at trial.”  Pabst also seeks punitive damages, a declaration that MC breached agreement, atty fees and costs.  Note: we only have Pabst’s side here and the MC comment that Pabst’s offer to buy Eden was “not legitimate.”  Each side also sez it expects to prevail in court. Last Friday, MC succeeded in getting case moved to different judge.

Eden, This Could Be A Problem  Finally, gotta figure that Dept of Justice, NC govt officials and Teamsters (see below) would be very interested in this development.  Recall that Molson Coors ceo Mark Hunter was asked about the timing of the Eden announcement at the December Senate subcommittee hearing and he said it had nothing to do with AB InBev’s offer to purchase SABMiller and deal to sell SAB’s stake in MC to Molson Coors.  And both politicians and Teamsters wondered about alternatives MC may have had to closing Eden. 

Fascinating story broken by Milwaukee Journal Sentinel today. Reporter there obtained lawsuit filed by Pabst vs MillerCoors claiming breach of good faith/fair dealing, liability for misrepresentation, fraud and negligence. Pabst charges that MC breached long-term contract brewing agreement, “without warning and after repeated assurances that MillerCoors had sufficient capacity to honor the deal into the next decade,” paper reported. Pabst and MillerCoors started talkin’ about extending deal beyond 2020 last yr. While those talks going on, new MC ceo Gavin Hattersley “began backtracking on claims about capacity” and MC’s “willingness to extend the agreement,” according to JS report. Then MC announced it would close Eden and “told Pabst it would no longer have sufficient beer production capacity to meet the agreement.” Also, MC had allegedly told Pabst it made no profits on contract, a claim Pabst sez is “facially false and made in bad faith,” and MC said the only way to continue contract brewing arrangement was if fee Pabst paid after 2020 MC “nearly tripled.” That threat aimed to “effect the premature termination of the agreement,” suit sez. Losing ability to extend agreement, Pabst alleges, will cost it in neighborhood of $400 mil in damages. Apparently both Pabst and MillerCoors believe lawsuit still under seal, as it was filed that way. So they’re not sayin’ much about details of suit. But Pabst spokesperson Alya Wilhelm told Journal Sentinel: “We expect this issue to be resolved in our favor, and that it will not affect Pabst’s long-term ability to brew.” MC spokesman Jonathan Stern told Express: “MillerCoors has attempted to work fairly and collaboratively with Pabst regarding the extension of their agreement to no avail. It is disappointing that they have chosen to let a court resolve this issue. However, we are highly confident that we have acted properly and in good faith in this matter and we believe the court will agree." Three other relevant notes not from lawsuit or Journal Sentinel. First, supply issues of Pabst products from MC breweries has been discussion point between Pabst and distribs recently. Second, while MillerCoors brews lion’s share of Pabst products, Pabst now has products brewed in 7 non-MC plants. Third, we understand Pabst actually made offer to buy Eden plant from MC but was rebuffed.

As expected, Australian antitrust commission green-lighted AB InBev purchase of SABMiller. It concluded deal “not likely to substantially lessen competition” there or “result in higher prices” for Aussie consumers. Statement noted deal “would not significantly change the current market structure,” as ABI has “limited presence” in country and does not brew beer there. “Importantly,” Comm added, ABI already sent letters of termination to Lion for Corona. Comm had concern that if key competitor kept Corona that would have “increased the ability and incentive for coordination between Lion and AB InBev.” Recall that by losing Corona, which has about 6 share, Lion also loses #1 spot to ABI. After deal done, ABI would have approx 45 share and Lion 40, according to AFR Online. Asahi picks up a coupla share from purchasing Peroni, Grolsch. Meanwhile, in US, Wash Post ran lengthy article early this week highlighting that “Merger crackdowns speed up as Obama term ends.” Article cited Halliburton’s recent decision to “walk away” from deal to purchase Baker Hughes, but also reported that Obama admin “has become increasingly aggressive at enforcing antitrust rules after a relatively slow start.” It heavily quoted Diana Moss of American Antitrust Inst, a vocal critic of ABI-SAB. Indeed, WashPo pointed out that Halliburton’s attempt to salvage its deal included offers to “peel off various business lines,” but DoJ spokesman said “the deal was not fixable.” WashPo reporters immediately segued to: “It remains to be seen whether Anheuser Busch InBev can pass [DoJ] tests.” Noted AB’s purchase of craft brewers might be seen by antitrust regulators as “gobbling up rapidly growing craft beer competitors.” Net-net: “concerns” over ABI-SAB’s potential impact in US continue to resonate. Meanwhile, alc bev atty Marc Sorini said during seminar at Craft Brewers Conference yesterday that DoJ “is coming very close to a decision.”

Can’t say we weren’t warned, but temporary closing of Craft Brew Alliance’s Portland brewery to increase capacity and gross margin took a big bite outta its Q1 results. CBA announced shipments down 16K bbls, 10.2%, tho depletions off just 3%. Kona stayed on track: volume up 7K bbls, 12% with depletions rockin’ along at +19%. But Widmer shipments -17% (depletions -14%), Redhook -34% (depletions -22%) and even Omission shipments -19%. Kona just under half of CBA total shipments in Q1, up from just over 1/3 as recently as 2013. Things change fast in craftland. Brewery closing skewed all results. Sales down 6%, tho rev/bbl and pub sales increased. CBA figures brewery closing knocked 8.9 pts off the sales figure. Gross margin took a near 5-point hit. Then too, selling, gen & admin expenses increased. So CBA operating loss nearly tripled to $5.3 mil and net loss more than doubled to $3.2 mil. Given big single-qtr hit, CBA provided 12-mo figures, not nearly as bad. Depletions -1%, net sales +2%, gross profits +3%. Operating income in black for 12 mos, tho just $848K, down from $4.1mil. Also, CBA maintaining calendar yr guidance of +1-2% shipments, avg price increases of 1-2% and modest gross margin improvement. It expects volume to accelerate to +4-5% thru balance of year including ramping up of partner biz with Appalachian, Cisco and contract biz for Pabst.

Former MC veep David Colletti pled guilty to one charge of wire fraud in connection with fed charges he and others conspired to steal approx $8.6 mil from MC via phony promo events, inflating invoices, etc, according to plea agreement filed with US Dist Ct in IL. His plea is “the beginning of a process, not the end,” his atty told Law 360 and others, as David has been talking to govt to get possible sentence reduction. Under wire fraud charge, he faces 20 yrs, but that’s reduced to 8-10 yrs in plea agreement and could be cut to 5+ “if the government determines” that he “has continued to provide full and truthful cooperation.” Two other defendants expected to plead guilty today. Five others have pled not guilty and David required to “provide complete and truthful information in any investigation” or trials involving scheme. MC owed $8,658,302, David acknowledged in plea agreement, and he “agrees to the entry of a personal money judgment” in that amount. He’s already forfeited 2 Acuras. MC also has civil suit pending vs David. Recall, David worked for Miller/MC for over 30 yrs. From 2008 thru 2013 he was veep on-premise natl accounts. But scheme with at least 7 others started at least as far back as 2003, according to plea. Basically, David and cohorts “falsely billed” MC “for specific events or promotions that did not occur as billed or at inflated costs.” David instructed cohorts, who represented a dozen or more “marketing companies,” how to invoice MC using “false dates, locations and costs association with fictitious events” and/or inflate costs for events that did occur. Then David “knowingly approved false estimates.” After MC paid the bills, co-conspirators provided David with “a cut of the fraud proceeds in various forms including cash, funds transfers, payments on investments and debts, international golf trips, hunting trips and collectible firearms.” Plea cited at “least 200 false estimates,” MC paid out “at least” $8.7 mil to “at least 15 different” 3d party vendors. After plea filed yesterday, MC spokesman Jonathan Stern told Chi Trib; “We are pleased with today’s developments as it’s a step closer to justice being served in this embezzlement case.”