NY Beer Wholesalers honored veteran industry consultant Mark Rodman last night in NYC with assn’s special “Sammy Award” for lifetime achievement. Mark worked closely over years with the assn and individual NY distribs. He also led efforts to develop state’s franchise law, including provision that helps assure distribs receive fair mkt value for brand rights when suppliers consolidate. Per usual, Mark active during assn’s general mtg too, with probing questions about direct shipping cases and distribs' need for “Plan B” if those cases and/or Costco lawsuit further erode 3-tier protections. In gracious and surprisingly brief acceptance speech, Mark “shared his pride with a single gentlemen” who was “more than a mentor,” ex-USBA prexy Henry King, who continues to battle cancer. “Few have had such an enormous, wise influence on the course of our business,” Mark told distribs and supplier execs. Our readers are familiar with Mark’s provocative analysis, his commitment to the industry and, of course, what he dubbed his “windy way of giving advice.” We add our congrats.

When the ceo of #1 US brewer chooses to focus speech predominantly on increasing challenge from spirits cos, times have changed. Beer biz is at “an historic point” in terms of “challenges we face,” AB ceo Pat Stokes told Calif distribs meeting. The “future is filled with competition” from other alc bevs. “Beer is at risk at an increasing number of social occasions,” Pat added. For example, martini stands at outdoor neighborhood festivals “didn’t exist” 4-5 yrs ago. Beer should keep reg advantages where it has them, but in states where spirits have mktg advantage built into law, “we should change the law,” Pat said. In Calif, beer cos should be able to conduct consumer tastings to sample new products and give promo items worth $5 like spirits cos (beer cos are only allowed 25 cents), according to Pat.

That’s what InBev sales veep Tom Cardella said InBev has accomplished, in terms of distrib deals that either closed or are in works in early 05.  InBev “pretty much fulfilled 1^st phase” of consolidation.  Deals mostly involved smaller distribs in “non-successor” states; about 5% of InBev volume in all.  InBev “taking high road,” according to Tom, by offering compensation even where it could just terminate under state law.  Getting Inbev’s 3 global brands “aligned” is “critical,” Tom added, especially in major urban mkts.  

It’s been a long and winding road, maybe not all that much fun, but this morning Molson shareholders voted to approve the deal.  After all the noise, the deal won the approval of 80% of Molson Class A shareholders and 84% of B shareholders at a special meeting in Montreal, wrote Reuters.  Next week, the Coors shareholders vote.   Looks like it’s a done deal.    Full issue later today. 

Gambrinus just put out release that confirmed it had initiated arbitration proceeding against Modelo before Intl Court of Arbitration and Intl Chamber of Commerce.  It was “brought to resolve a dispute regarding the term and renewal of the Gambrinus importer agreement.”  Modelo first expressed “interest” in buying Gambrinus “to improve Modelo’s profitability.”   When Gambrinus said it wanted to remain independent, Modelo told Gambrinus that “the importer agreement would not be renewed after” 2006, even tho it praised Gambrinus for "outstanding performance," wrote Gambrinus.  Gambrinus then “filed the arbitration to preserve its import rights beyond 2006, disputing Modelo’s right to this action.”  Decision expected by fall 2005.  Gambrinus said it’s “confident that it will prevail.”  Said too that for “15 consecutive years,” its Modelo sales “have consistently outperformed the national sales growth for the Modelo brands.” 

Modelo and Gambrinus “are engaged in arbitration talks,” wrote Biz Week Intl, citing “sources close to the company.” Modelo “wants to buy out the import contract,” but would not provide details. In 2004, Modelo “bought out more than half its 80-odd distributors” in Mexico. “Company insiders say Anheuser Chairman August A. Busch III has long urged [Modelo ceo] Fernandez to take over US imports to cut out middleman fees,” added Biz Week. August granted rare interview to Biz Week to say “we couldn’t be happier” with “hard-charging” co. While Constellation/Barton execs have been more vocal about their desires to get other half of biz (see Express 83), this report suggests Modelo going a different way.

One of most unusual distribution deals in entire US recently closed as 4 distribs merged to form an LLC in NC. Four distribs, 2 Miller and 2 Coors in Salisbury and Hickory, got together and merged into new jointly-owned shared-house entity totaling about 4 mil cases. Called United Bevs. One of 4 partners, Paul Weislar, designated as operating partner, who reports to board which includes each of the 4. Interestingly, United Bevs kept Modelo portfolio. This unique structure is a way for all 4 distribs to stay in game. Note: AB has around 60 share in NC. Despite Miller misgivings about shared houses these days, they keep comin’. Miller apparently prefers other solutions, or that Miller distribs buy Coors distribs. And yet another Coors/Miller deal recently closed in Waco, Tex. Giant liquor distrib Glazer’s, which already had Coors in Waco, bought out longtime Miller distrib Dudley Haas Dist Co. Glazer’s on a tear in Tex: bought El Paso last yr, Waco this yr and another major south Tex deal for Valley Bevs should close soon pending supplier approval. Those 3 alone would total about 7 mil cases. Glazer’s does over $2 bil in sales, mostly spirits, and may be just beginning in beer. Some other recent Miller/Coors deals: in Vancouver Wash, Stein Dist bought Evergreen late last yr. Owner Craig Stein sells near 3 mil cases of beer there with over 60 share and major wine presence too. Craig is consolidated Miller/Coors in Vancouver and also a Miller distrib selling about 1.5 mil cases of beer in Boise, Ida. Commercial Dist in Mass bought out 2 Coors distribs totaling over 1 mil cases.

AB also active in Wash; reported $6 mil gain from sale of distributorship there in its yr-end financial release. That would be based on its resale of National Dist. AB had purchased National over 5-yr period concluding in 3d qtr 03. By 4^th qtr, it flipped National to Steve Knight, owner of neighboring City Bev (and son of ex-Emerson Electric ceo and AB boardmember Chuck Knight). City Bev now sells close to 6 mil cases of AB annually. Another interesting move: AB’s Boston branch bought about 700,000 cases of Modelo brands from 2 distribs Metropolitan and Burke. AB now has exclusive and distributes 1 mil cases of Modelo in a major metro area. Recall that AB branch named 1 of 3 Modelo distribs a couple of yrs back. Didn’t pay for that original chunk of volume. Now it paid significantly less than the $20-25 per case you heard about in deals last few yrs for 700,000 cases ($11-12 mil we hear), in part because of dualing situation. For the full 1 mil cases, AB branch got a good deal.

SABMiller chief Graham Mackay stressed inter-dependence of brewer/distribs in success of both and described Miller’s place in SABMiller’s global strategy. Globalization of beer biz in 2d phase, Graham believes, as "land grab" into new mkts by big players has ended. Future "will be about competition in highly contested, highly sophisticated markets – like the US – and will then be essentially focused on brand marketing." SABMiller sees "natural place" for strong #2 in mkt like US, and brewer in that spot attracts "other brands, new partners." Globalization has 4 "implications" for distribs, in Graham’s view. First, big players will have to "maximize growth" to compete. For Miller distribs that means "we will not treat Miller as a ‘cash cow’ that can be milked," but as a "vital business that we can and must grow." Second, SABMiller believes "operational capability is still the single biggest competitive factor in the beer business," and that SABMiller’s expertise there gives it an advantage. Third, long-term brand building through mktg will become increasingly essential in global mkt, and SABMiller has brands, including Pilsner Urquell and Peroni, which it believes have "the ability to compete on the international stage." Finally, Graham said, while SABMiller needs to get stronger, "we don’t have to get bigger.... Our focus will be on ensuring that our existing businesses perform. We’re not looking to M&A to grow our way out of trouble. We’re looking to operate our way into the future." Graham pointed to SABMiller’s abilities to analyze mkts and "re-construct" them. "We know how to turn situations around," he assured.

Graham also addressed two "concerns" many observers had when SAB bought Miller: SAB wouldn’t have mktg "savvy" to take on AB, and didn’t understand 3-tier system. Those concerns legit, said Graham, but SAB approached both by "systematically analyzing the problem," listening and "building capabilities." New Lite/MGD campaigns are fruits of Miller’s "new disciplined approach" that "cuts through the clutter." Regarding 3-tier, Graham noted SAB works with "wide range of distribution systems" around world, and while US has "true peculiarities...it’s certainly not off the chart of our experience." SABMiller learned "critical role" distribs play in US, the "local knowledge, local influence, local continuity" that distribs can provide better than central corporate culture.

 

To extent that money talks in DC, distillers and vintners still have much bigger mouths than brewers. At least as measured by Natl Journal’s bi-annual review of assn budgets and top exec salary/benefits. Chart below shows DISCUS and Wine Inst budgets each 3.5X bigger than Beer Inst in 2002. That’s not as big a gap as in 2000 or 1998, but notable since brewers assn revs still less than 10% of all alc bev supplier assn dues while beer still well over half of all alc bevs sold measured by absolute alcohol. Individual brewers still spend plenty lobbying in DC; then again so do individual distillers. Wine and liquor supplier assns pay top execs lots more too. For example, DISCUS prexy Peter Cressy made over a $1 mil in salary/benefits in 2000 and 2002 compared to Beer Inst prexy Jeff Becker, whose salary/benefits were $186K in 2000, $242K in 02. As in past, assn revs and top exec salaries at distrib level much closer. NBWA managed slight rev increase last 2 yrs despite consolidation to $5.8 mil, but barely ahead of inflation. In contrast, Beer Inst revs jumped nearly 50% 2000-02. WSWA’s revs also up slightly, to $4.7 mil, but there are lots more beer distribs than wine/spirits distribs. NBWA prexy Dave Rehr got $370K in salary/benefits, similar to WSWA’s Juanita Duggan. Look at some health assn revs: Amer Med Assn, $215 mil; Amer Acad of Family Physicians, $63.9 mil; Amer Acad of Pediatrics, $64.3 mil. Note too: CSPI revs were $15.2 mil in 02.

	2002		2000		1998
	Assn Revs	Salary/Ben	Assn Revs	Salary/Ben	Assn Revs	Salary/Ben
Beer Inst	3,910,520	241,638	2,629,045	185,738	2,458,321	323,534
DISCUS	13,844,159	1,106,974	15,123,226	1,504,435	12,130,290	480,135
Wine Inst	13,475,921	595,377	12,453,287	551,132	10,540,480	420,860
NBWA	5,795,265	370,212	5,530,392	314,149	4,923,285	275,437
WSWA	4,684,699	352,711	4,612,825	316,616	3,277,055	273,456

Modest pay hikes and big bonus cuts among top Coors execs in 03. Ceo Leo Kiely saw salary up 6% to $800,000, but his bonus slashed nearly 60% to $281,000. In fact, Leo made less salary/bonus than 2 yrs earlier. Chairman Pete got even smaller pay hike than Leo (just 1.4%, following no pay hike in 2002), similar bonus cut. CFO Tim Wolf ahead of 2001, but about 8% below 2002 in salary/bonus. Only one top exec "realized value" from exercising stock options in 03: Leo Kiely realized $487,000 on 15,251 shares he bought.

	2003		2002		2001
	Salary	Bonus	Salary	Bonus	Salary	Bonus
Leo Kiely	800,000	281,250	755,194	678,085	686,456	407,423
Pete Coors	771,000	222,750	760,500	546,242	760,500	452,272
Tim Wolf	419,500	163,522	395,167	236,138	371,000	163,899