Coca-Cola's newly elevated prexy/coo James Quincey assured Wall Street listeners this morning that co won't diverge from enhanced focus on revenues rather than volume in more-developed markets, even as he touted need for acquisitions as way to play catchup in emerging segments in fragmenting NA bev market. And he offered interesting strategic rationale behind bottler consolidations like the one he recently helped orchestrate in Europe.

James was speaking at Barclays Global Consumer Staples conference in Boston, not quite 4 weeks after being elevated to new role in move widely perceived as attempt by board to counterbalance clout of chmn/ceo Muhtar Kent and deepen bench of succession candidates. As noted at time (BBI, Aug 14), the 19-year KO vet had played instrumental role in recently announced merger of Coca-Cola Enterprises, Coca-Cola Iberian Partners and Coca-Cola's German unit to form Coca-Cola European Partners, which will be largest indie Coke bottler by sales, and at earlier stops within KO system had showed knack for spotting and acquiring promising noncarb brands, including Innocent juice line in UK and Jugos del Valle in Mexico, lending particular interest to his views on M&A as means of broadening product range on noncarb side.

Certainly in today's appearance James didn't diverge at all from strategy Kent has been articulating, discussing need to plow savings from streamlining program into more and better marketing. But he offered some additional color on co's move in recent quarters to place greater emphasis on price realization than on volume generation, move which has moderated price-promo skirmishes at retail in markets like US, where KO had been widely viewed to be main instigator forcing responses from PepsiCo and DPS. While KO "didn't discover revenue yesterday," it's now moving toward very clear segmented roles for the countries - mix first, then rate, then volume," Quincey said, with US serving as best example so far as co has coaxed consumers toward more premium impulse packages and portion-control serving sizes. Indeed, even in troubled market like Argentina, where exec had arrived just in time for economic meltdown early in new century, part of solution proved to be developing new packages - not just value-oriented ones but premium ones too. Key lesson was that such moves help build brand equity, because they provide more ways for consumers to connect with Coke franchise, he said. "It all starts to work together."

To foster that consistently, co has been changing incentive systems and routines to make mgrs "more clearly connected to what we're asking them to do and how they're being rewarded," Quincey said. Because it requires a mfg system with flexibility and scale, it puts premium on teaming with bottlers who have capability of investing. By contrast, in emerging markets with lower per-caps, such as India, KO will retain "tried and trusted volume-building activities."

Quincey also offered his basic take on acquisitions as way for KO to play more fully in noncarb realm, where he readily acknowledged Coke has enough catching up to do that it won't get there fast enough "just organically" without recourse to acquisitions. So we can anticipate more deals. Potential deals arise opportunistically, he said, and often enough price is a key barrier. But even when price is right, he said, it's vital for both parties to agree on where they're heading. That was case with now wholly owned Innocent juice brand, where co had started with $$ number it wanted to hit and sought potential partner willing to take least amount of equity in return. But Coke was able to steer discussion to mutual goal both parties had: Coke had "big black hole" in chilled juice in Western Europe, while Innocent agreed it was important goal to become value leader in that market. That allowed complex pieces to come together with successful conclusion to 3-stage negotiation process. "In the end each market is its own narrative, its own story . . . we need to work back from that," Quincey said.

Quincey also offered illuminating take on bottler consolidations, particularly the 3-way merger occurring in Europe that is creating what is essentially an anchor bottler for region. The opportunity was created, he said, only after Spanish system consolidated, even as KO itself took a whole range of bottlers in Germany. "So the opportunity only really emerged in last few years," he noted. That said, the key rationale was trends that accelerated after economic crisis of 2008, which saw retail landscape converge across Europe as discounters proliferated in all countries and there was a shift to convenience across the board. While each indie bottler had core strengths suited to prior configuration of its market, new environment required each to draw upon strengths possessed by bottlers in other markets. "So just in the context of Europe it makes sense," concludes James, warning that it only will work in other parts of world where there is some degree of integration across borders, as in parts of Africa and Latin America where smaller consolidations have occurred.

Coca-Cola's newly elevated prexy/coo James Quincey assured Wall Street listeners this morning that co won't diverge from enhanced focus on revenues rather than volume in more-developed markets, even as he touted need for acquisitions as way to play catchup in emerging segments in fragmenting NA bev market. And he offered interesting strategic rationale behind bottler consolidations like the one he recently helped orchestrate in Europe.

James was speaking at Barclays Global Consumer Staples conference in Boston, not quite 4 weeks after being elevated to new role in move widely perceived as attempt by board to counterbalance clout of chmn/ceo Muhtar Kent and deepen bench of succession candidates. As noted at time (BBI, Aug 14), the 19-year KO vet had played instrumental role in recently announced merger of Coca-Cola Enterprises, Coca-Cola Iberian Partners and Coca-Cola's German unit to form Coca-Cola European Partners, which will be largest indie Coke bottler by sales, and at earlier stops within KO system had showed knack for spotting and acquiring promising noncarb brands, including Innocent juice line in UK and Jugos del Valle in Mexico, lending particular interest to his views on M&A as means of broadening product range on noncarb side.

Certainly in today's appearance James didn't diverge at all from strategy Kent has been articulating, discussing need to plow savings from streamlining program into more and better marketing. But he offered some additional color on co's move in recent quarters to place greater emphasis on price realization than on volume generation, move which has moderated price-promo skirmishes at retail in markets like US, where KO had been widely viewed to be main instigator forcing responses from PepsiCo and DPS. While KO "didn't discover revenue yesterday," it's now moving toward very clear segmented roles for the countries - mix first, then rate, then volume," Quincey said, with US serving as best example so far as co has coaxed consumers toward more premium impulse packages and portion-control serving sizes. Indeed, even in troubled market like Argentina, where exec had arrived just in time for economic meltdown early in new century, part of solution proved to be developing new packages - not just value-oriented ones but premium ones too. Key lesson was that such moves help build brand equity, because they provide more ways for consumers to connect with Coke franchise, he said. "It all starts to work together."

To foster that consistently, co has been changing incentive systems and routines to make mgrs "more clearly connected to what we're asking them to do and how they're being rewarded," Quincey said. Because it requires a mfg system with flexibility and scale, it puts premium on teaming with bottlers who have capability of investing. By contrast, in emerging markets with lower per-caps, such as India, KO will retain "tried and trusted volume-building activities."

Quincey also offered his basic take on acquisitions as way for KO to play more fully in noncarb realm, where he readily acknowledged Coke has enough catching up to do that it won't get there fast enough "just organically" without recourse to acquisitions. So we can anticipate more deals. Potential deals arise opportunistically, he said, and often enough price is a key barrier. But even when price is right, he said, it's vital for both parties to agree on where they're heading. That was case with now wholly owned Innocent juice brand, where co had started with $$ number it wanted to hit and sought potential partner willing to take least amount of equity in return. But Coke was able to steer discussion to mutual goal both parties had: Coke had "big black hole" in chilled juice in Western Europe, while Innocent agreed it was important goal to become value leader in that market. That allowed complex pieces to come together with successful conclusion to 3-stage negotiation process. "In the end each market is its own narrative, its own story . . . we need to work back from that," Quincey said.

Quincey also offered illuminating take on bottler consolidations, particularly the 3-way merger occurring in Europe that is creating what is essentially an anchor bottler for region. The opportunity was created, he said, only after Spanish system consolidated, even as KO itself took a whole range of bottlers in Germany. "So the opportunity only really emerged in last few years," he noted. That said, the key rationale was trends that accelerated after economic crisis of 2008, which saw retail landscape converge across Europe as discounters proliferated in all countries and there was a shift to convenience across the board. While each indie bottler had core strengths suited to prior configuration of its market, new environment required each to draw upon strengths possessed by bottlers in other markets. "So just in the context of Europe it makes sense," concludes James, warning that it only will work in other parts of world where there is some degree of integration across borders, as in parts of Africa and Latin America where smaller consolidations have occurred.

Pair of small brewers from outside US announced plans to move into California market recently, one simply selling its beer from south of the border, another with plans to take over old Lost Coast Brewery site. Growth of cerveza artesenal in Mexico continues to heat up and more of those brewers now sell beer in nearby SoCal. One of largest small brewers from just across the border, Cerveceria Insurgente, launched sales in LA this month after opening a new brewery with 15-bbl brewhouse last year, LA Weekly writes. At same time, The Booth Brewing Co of Seoul, South Korea checked out the former Lost Coast Brewery in Eureka, Calif, with hopes to set up US operations there, according to Lost Coast Outpost. The co already has a handful of pubs in the Korean capital. But nothing stateside is definitive yet, Lost Coast founder Barbara Groom told the paper.

 If you thought the Salted Caramel Brownie Brown Ale announced this spring was the end of the New Belgium and Ben & Jerry's collaboration, think again. The pair debuted Salted Caramel Brown-ie Ale ice cream at a DC event this week, kicking off about 3 months of sales of the beer and the ice cream. Both certified B Corps, beholden to broader biz standards than healthy bottom lines, NBB and B&J's brought in non-profit org Protect Our Winters too, which will receive a portion of proceeds from sales of both products. Indeed, this shared concern with their communities as well as climate activism brought the 2 co's together, rather than any attempt to put respective brand names in new outlets or store sections. Their primary focus for these limited-batch brands was "not necessarily where we appear in the supermarket or how we appear in the supermarket, but how we appear in the world," NBB's Bryan Simpson told CBN during sneak peek at the combo of brands. Through at least 8 months of development, the partnership "felt right from the beginning," he said. NBB produced about 9000 bbls of the brown ale (which isn't as sweet as you might expect an ice cream-inspired beer to be), available throughout its distribution footprint while it lasts.

After acclaimed Asheville brewery Wicked Weed entered its first out-of-state mkt, Atlanta, GA with Atlanta Beverage this mo, co-founder Walt Dickinson talked with Atlanta Journal-Constitution about reasons for adding Atlanta as well as upcoming plans and challenges for his biz. Walt pointed to "progressing" food, beer, wine and spirits culture in Atlanta, and "being only three hours away, we want Atlanta to be an extension of our home market." Recall, this July Wicked Weed opened new $7 mil production facility with 50-bbl brewhouse, referred to as "our answer to the Southeast's call for more of our beer," on co's website. So "we're trying to be a big brewery all of a sudden," he quipped. Last yr Wicked Weed about doubled production to 5,200 bbls, with only "about 1,000 bbls" that even left Asheville, according to separate Asheville Citizen Times article.

Also recently, its Pernicious IPA "has blown up" after winning a silver medal at GABF and "now we're trying to decide how to deal with it." Yet "we never saw ourselves as a big regional brewery" since "a lot of what we built our brand on is kind of creative ADD." Wicked Weed will still make "as many as 20 different beers" at its production brewery, "plus as many as 40 more sour and funky beers at the Funkatorium," noted paper. And "the sour program is really growing," Walt said. "I don't know where we fit in as far as scale in the US but we're one of the largest sour beer programs in the country at this point. I want to fight the good fight and turn the world sour."

First: a finalized acquisition of SABMiller by AB InBev will not include the former's majority stake in MillerCoors. Since it would be totally out of the question in the eyes of the US Dept of Justice (which, recall, required that ABI keep its hands off even production of Modelo brands imported into the US when that deal came thru), such consolidation of the brewing biz here isn't even being considered, CBN has heard definitively. That hasn't prevented a steady stream of speculation and even insistence that the opposite could maybe possibly somehow be true.

Hasn't stopped threat of scrutiny from Congress either. Chairman and ranking member of Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights promised a hearing on the deal. "It is critical that we examine this deal closely to see how it will affect the price of a pint, and if it will harm the craft brewers that are serving up world class beer and jobs across the country. We must ensure competition in the beer industry remains on tap," ranking member Sen Amy Klobuchar of Minn said. Chiming in with similar "concerns": federal and state lawmakers from Maine (where AB and MC combined lost more share in last 5 yrs than any other state, see May 22 issue).

Idea that a combined ABI-SAB will own rights to some Miller brands elsewhere but not in the US seems to confuse many. So lots of misleading or outright incorrect statements made in last couple weeks. But that confusion captured eloquently by St Louis Post Dispatch editorial staff, reflecting on "discombobulation" of a world without AB battling Miller, Playboy printing naked ladies and the Cardinals beating the Cubs. Coincidentally, that column invoked two separate references that CBN's occasional columnist Nestor has also called up: Yeats' "the center cannot hold" (in April 4 CBN) and the tale of King Canute trying to hold back the tide (which appeared in sister-pub INSIGHTS Express instead of CBN).

Nestor used Yeats to consider the future of mid-sized craft brewers, those grown beyond a local-focus but not yet in upper echelons of the segment. In wake of ABI-SAB announcement, it seems just about every-sized brewer is re-considering its future, often underpinned by fear. "Small brewers have good reason to fear that mergers among the industry's giants will make it harder for them to sell their products if those companies also come to control big beer distributors around the country" according to a NY Times editorial yesterday. Indeed, many less concerned with a global tie-up than AB's growing collection of craft breweries or distrib branches. It shouldn't surprise that beer isn't the only food & drink category where larger companies are acquiring smaller, fast-growing brands positioned as premium, local or "natural." A tricky dance for all parties, as NPR lays out, this tango isn't made any easier by a crowded dance floor with the tremors of ABI-SAB underfoot.  

Some familiar state-level beer policy issues getting renewed attention recently, with a couple of notable twists and turns, including an intriguing request from a unique, part-control/part-privatized Maryland market. Popping up again this week all over Colorado: perennial request by grocers to sell wine and "full-strength" beer (over 3.2% alc by weight). This time around, grocery-funded group Your Choice Colorado looks toward a 2016 ballot initiative, it seems, appealing to consumers and hoping they'll vote to change a law the legislature's denied amending for years. Recall, independent liquor stores and state small brewers regularly oppose such a change. The new Your Choice Colorado group is now backed by bigtime retailers Walmart, Safeway and King Soopers, according to Denver Post, which calls this "the most substantial push in recent years." YCC held a press conference this week, launching what it called a "year-long campaign," a spokesperson told the Denver Biz Journal. At same time, comments from Colorado Brewers Guild reps appeared across multiple sources, reminding of small brewers' collective stance. Adding to opposition, Gov Hickenlooper characterized the campaign as "a threat," noting that allowing grocers and convenience stores to sell a full slate of alc bev products "would be very hard on the small liquor stores," to a Denver Post blogger.

Across the country, another proposal to amend alc bev laws in Pennsylvania appeared this month. It would also allow sales of beer and wine at grocery stores. As in Colo, proponents insist the measure is about "giving convenience to consumers," as Rep Paul Costa said, according to PennLive. The proposal would further expand beer package options allowable at 4th-tier home distributors and clear to-go sales of beer and wine for a handful of other licensees.

Answer to Deep Ellum Suit Offers Little Insight Into Defense; Brewers on Both Sides Meanwhile, across the South, small brewers and supporters still questioning status quo in legislative off season. "Texas' Unfair Liquor Laws Limit Local Craft Brewers," the San Antonio Current headlined recently. Issues there not new: production breweries seek on-site sales for off-premise consumption, currently available to wineries and distilleries in the state. Those desires recently also reiterated to Community Impact paper in Austin by handful of local brewers. At same time, federal lawsuit brought by Deep Ellum Brewing continues. Earlier in the month, Tex Alc Bev Commission filed answer to suit, denying majority of allegations but providing little indication of basis of its defence. In essence, TABC answer admits that they issue various types of licenses that come with different privileges and responsibilities, but denies they are "irrational and arbitrary" or are in violation of any law. Though addressing each of a complaint's sentences is the way of such answers, TABC's specific denial "that Plaintiff is not challenging Texas' three-tier system by its lawsuit," reads particularly pointed.

Then too, other small brewers "split on whether a lawsuit is the best path forward," according to the Current. Some prefer "seeing it settled in the court rather than by the money funded to our legislature by lobbyists," as Alamo Beer prexy Eugene Simor said. Others think the law is "very clear," that "there's not much interpretation" and "what we need to do is change the language of the law," according to Ranger Creek Brewing and Distilling's Mark McDavid. He acknowledges that distribs "are definitely big and powerful, but they want to protect what they have worked hard to build." So he understands that "direct sales to consumers is a big scary thing for them not because craft brands are going to sell some beer, but if one of the big guys found a loophole." Familiar challenges to existing laws recently re-appeared in Florida, Georgia and Alabama papers as well.

Alc Limits Still Under Consideration in Ohio Proposal to increase allowable alc by volume in beer above current 12% level remains under consideration in Ohio. Now in its third time before legislators, "this is the first time it's gotten a chance for all of its hearings," sponsor Rep Dan Ramos told Cleveland.com. Tho MillerCoors offered short statement opposing the measure, most others support, Rep Ramos said. We've not seen any official statement, but bill likely supported by another brewery investing in the state, BrewDog. It's building a US facility in Columbus and is well-known for pushing limits, including of ABV with a handful of offerings at 32%, 41% and 55% ABV in the last 5-6 years. Elsewhere in Midwest, clips criticizing license limits in Wisconsin continue to roll in (see CBN from Sep 22 and Oct 1).

Fragmented Biz Too Much for Montgomery County to Handle Odd structure of alc bev control in Montgomery County, Maryland finally frustrating retailers enough that the county may tweak it, perhaps making it even more unique. Recall, the DC-adjacent county controls liquor distribution, one of few counties (rather than states) to do so. But "the county's old-fashioned distribution can't keep up," WTOP reported. It seems the quick expansion of consumer demand for a wide variety of craft beers and local wines has outpaced the local government's ability to distribute them. And retailers ain't happy with incorrect or late deliveries. So one County Council member is working on proposal that would allow "private distributors to fill orders for boutique wines and beers, while keeping the county's monopoly on widely distributed national brands." That proposal will need to go through the state. Stay tuned.

Leading into big project to expand from 50K bbls/yr capacity to eventual 200K bbls/yr (see Oct 7 CBN), VT's Otter Creek Brewery is seeing "double-digit growth" that's "at [craft] industry growth levels," mktg director Jed Nelson told CBN. (Craft segment +16% thru Jun according to Brewers Assn.) That solid boost comes after co gave its entire core beer lineup a serious makeover. Otter Creek replaced each of its year-round brands this yr and each of its seasonals in the last couple yrs. Otter Creek's new brews are typically more hop-forward. Jed singled out new Backseat Berner IPA (its first ever IPA) as one it "can't make enough" of, and sez it's "not even close to satisfying demand." Currently NH, Boston and Philly are mkts where Otter's doing "really well," and "everywhere we've released it people have been really receptive to it."

Recall, Otter Creek is part of a group of VT brands that are owned by PE firm Fulham & Co, including largest of the bunch, Long Trail, as well as Wolaver's Organic Ales and Shed Brewing brands. "Most of the exciting stuff" in the next couple yrs will be on the Otter Creek side of the biz, Jed explained. Co expects to have its new brewhouse "totally cranking by summer" 2016, and once everything's up and running it has 3-4 "new beers planned" including a sour series and other hop-forward brews. With new-found capacity Otter Creek will look to expand distribution, already "digging in pretty deep in terms of the research." Right now it's "looking at places like Florida" and further expansion in Ohio, said Jed. It'll also look into "attractive" mkts in "the west and the Rockies," he added. Co also "just purchased" a new canning line that it expects to be up and running by Q1 2016, so "expect more cans from us." And in 2d phase of expansion (sometime in 2017), it'll expand its restaurant space.

Meanwhile, this yr Long Trail up "healthy" and Shed "right at double digit growth," while Wolaver's "not as much" since "we've been reorganizing that brand to allow for the growth of our Otter and Shed brands, which account for significantly more volume" at this point, said Jed. Long Trail's done its fair share of portfolio additions in recent yrs too, with release of Limbo IPA, Sick Day IPA and Space Juice (among others). It's "not all about altbiers anymore," but with Limbo IPA "the window is huge for us." Also, Long Trail's brewing facility has been at capacity (around 95K bbls/yr) for several yrs, and the state of VT has been "pretty stringent" on co building any further at its location in Bridgewater Corners. Yet at Otter Creek facility "in Middlebury we have a lot more leeway" and can "expand as much as we need." So "as we grow both brands we're going to continue to do some of the Long Trail Brewing at Otter Creek." Last yr total co grew about 6% to approx 130K bbls: about 90K bbls of Long Trail and 40K bbls of combo of Otter Creek, Wolaver's and Shed brands.  

Factoring in "weak" core beer growth and "moderate" Angry Orchard growth, Goldman Sachs' Judy Hong still "expect[s] upcoming innovations…to add more than 5 pts to growth in 2016," in report that upgraded SAM from sell to neutral. That would be over 200K bbls of growth from innovations boost.

Coney Island Hard Root Beer could be over half (3pts) of that growth next yr after "already reaching 6% of total volume [7% of sales] in just the first month of launch," citing Nielsen all outlet data. Interestingly, Hard Root Beer has seen "a distribution ramp of similar pace" compared to Rebel IPA intro last yr (largest craft brand intro to-date), yet Root Beer "sales velocity has been much stronger." Then too, Sam Adams Nitro beer lineup could add 1 pt to depletions growth and Rebel Grapefruit could add 1% to SAM total sales mix, sez Judy. Nitro category still "nascent" at just $130 mil in Nielsen all outlet, and Guinness is still largest nitro player by a longshot at about $101 mil (next closest are Green Flash and Left Hand at approx $4 mil each). Grapefruit beer "has emerged as another booming category (in conjunction with grapefruit shandy), growing over 3X this year, but is still relatively small with about $9 mil of total sales in Nielsen tracked channels." Rebel Grapefruit would need to reach about 20% of Rebel IPA to potentially "add about 1%" to total sales mix, Judy estimates. And lastly, Judy highlights Angel City distribution expansion coming next yr as a growth factor. (Editor's Note: Angel City will fill out rest of Calif and will add Reno, NV "to compliment chain coverage with Las Vegas," Alchemy & Science's Alan Newman told CBN. Also recall, Coney Island traditional beer portfolio just rolled out to several states in the "Atlantic region.")

Meanwhile, one "key risk" next yr will be Angry Orchard, which has "decelerated more quickly than previously anticipated," Judy wrote. She doesn't expect AO "trends to accelerate meaningfully," due to its "already high levels of distribution." Also, SAM beer (excluding Root Beer) "is now down low-single digits" amid always increasing competition, tho Judy believes trends will "begin to inflect." All in, "we now see a recovery path emerging for depletions" starting Q4 this yr. Keep in mind, Boston Beer has been goin' up against tuff comps all yr thus far, yet Q4 comp is much easier - only +4% in Q4 2014, compared to up 20-30% in Q1, Q2 and Q3.  

Oskar Blues just announced that it will expand to Mississippi and Utah in late 2015, bringing it to 46 states. It expects to be fully national in 1st half 2016, adding North Dakota, South Dakota, Oklahoma and Montana. In early Oct, Oskar Blues said it is approaching 200,000 bbls in 2015, up 30% or so. It has entered 9 states this yr and filled out Illinois too.