Following what he describes as “a decade of foolishness,” splitting Arizona Ice Tea biz with his former partner John Ferolito, co-founder, Don Vultaggio told Wall Street Jnl he hopes to double co sales in next 5 yrs. “I tell the guys, now we have to turn every rock,” as co looks to recoup losses after finally buying out John in court-approved deal this past May.  That was quite a payout given co was valued at $2 bil by court.  One part of Don’s lofty sales goal is launch of Crazy Cowboy beer this fall, after launch of “Coco Nutz, a coconut-flavored malt beverage” this past spring, noted WSJ.  Crazy Cowboy, a lager, will be shipped “soon,” said Don. He predicts beer could be 25% of Arizona biz by 2020, a huge jump from 2% now.  Don estimated that bitter split with former partner cost “nearly $200 million in estimated legal fees,” and he spent “70% of his time in recent years on litigation,” rather than running biz.  

Calif plaintiff accusing MillerCoors of misleading consumers by mktg Blue Moon as “craft” beer when MC not a craft brewer (under BA definition) responded to MC request that fed ct dismiss suit.  Plaintiff counters MC’s  arguments and insists suit should move forward.  “MillerCoors’ deception runs deep,” plaintiff sums up, primarily by “intentionally disassociating Blue Moon beer from the MillerCoors name” which  allows MC to “keep consumers in the dark” and “capitalize on their confusion” to “tap into the multi-billion” $$ craft biz.  Specifically, recall MC sharply challenged BA definition of craft brewer as “arbitrary” and without legal force.  MC insisted “craft” defined in dictionary simply as made “with care or skill.” Same dictionary MC cited defines “craft beer” as “a specialty beer produced in limited quantities,” plaintiff points out.  Continues to insist craft beer is one made by craft brewer and MC ain’t that.  For plaintiff, key is that under Calif law, he only has to prove a “reasonable consumer” would be deceived.  And while MC has every right to use trade name, deceptive part is how ituses Blue Moon Brewing Co.  “Overwhelming evidence,” he claims, points to MC’s “practice of intentionally omitting any reference to MillerCoors on the Blue Moon website and in all Blue Moon” ads.   

Plaintiff also challenges notion that fed/state laws give MC a “safe harbor from liability,” given the way Blue Moon labels, ads and website mislead consumers into thinking it’s made in “small, limited capacity brewery located inside a baseball stadium in Denver,” when it’s actually “mass produced” at MC plants.  He counters other MC points and concludes that at very least, he should have right to amend complaint if court finds it “deficient.”  Meanwhile, same fed ct in Calif just handed Jim Beam a victory in similar battle.  Judge dismissed suit from plaintiff who argued Beam’s use of  word “handcrafted” on labels misleads consumers into thinking Beam actually made by hand, not machine. But judge did not grant dismissal based on Beam’s argument (being used by MC in Blue Moon suit) that TTB’s label clearance gives it “safe harbor.”  He did agree with Beam that a “reasonable consumer wouldn’t interpret the word ‘handcrafted’ … to mean that a product is literally ‘created by a hand process rather than by a machine.’”  More detail on these cases in today’s Craft Brew News.

Redburn’s Chris Pitcher reduced estimates for top global brewers’ earnings over next couple of yrs this morn because of margin pressures created by craft in US and Europe, plus currency/inflation and affordability considerations in emerging mkts.  “A decade of consolidation” helped “expand brewing margins,” noted Chris, pointing out that “margin expansion has been the hallmark of investing in the brewing industry.”  Since 2000, as global beer consolidated, top 4 brewers (ABI, SABMiller, Heineken and Carlsberg) grew from 24% to 54% of global volume, sez Chris and climbed to 70% of the industry profit pool.

But now “next couple of years offer a more lackluster margin outlook.”  Why?  “Currency weakness, rising inflation and affordability considerations are weighing on emerging market profitability,” he noted.  And in US and Europe, “the rise of craft brewing is causing developed market fragmentation and eroding the benefits of scale.”  Imagine that.  Craft wave has gotten big enuf and powerful enuf that it affects global brewers’ earnings prospects.  And it’s still spreading.  Indeed, “the irrepressible rise of craft brewing,” added Chris, means “big brewers have to invest more in developed markets… to support increased innovation and increased sales resources especially in the on-trade in an attempt to slow the current rate of share loss, thereby putting further pressure on short-term margin progression.” 

For ABI, Chris downgraded earnings per share estimates by 8% in 2015 and 11% in 2016, with about half of downgrade related to currency. But part of it is also about lower margin forecast for US “to reflect the higher investment required to stabilize share losses…. It is imperative” for ABI “to slow its current rate of share loss” in US and “shore up profitability,” said Chris.  This report is one of a number of recent reports that turn up heat on ABI for better US performance (and Chris still has “buy” rating on stock, even with downgrades).  ABI stock is currently 18% below its peak.  ING upgraded ABI to “buy” today, in report not available at presstime. 

Next week, ABI is holding a 3 day investor seminar in China, which tho only 3% of earnings is 16% of volume and a source of strength, Nomura’s Edward Mundy reminds this morn.  But Chinese mkt also under pressure these days.  That meeting “will be critical,” said Redburn’s Chris Pitcher “in laying out the company’s strategy for the next five years in the face of some growing challenges in several of the company’s major markets.” 

A couple of AB distrib deals should be coming real soon in nation’s biggest mkt.  Recall, AB has talked with several Calif distribs about selling to AB; latest word is that a couple of distribs in Northern Calif will take AB up on what has become an enhanced offer. Clock is ticking for AB as it pushes to realize tax benefits of 1031 exchange based on its sale of Constellation brands and loss of Monster. Needs to close by early Nov, INSIGHTS understands, which means announcement expected as soon as next week because of Fed requirement of 60-day notification for employees. Recall, Calif MC distrib Mesa will sell to PAC NW megadistrib Columbia in deal announced earlier this summer.  Plus Firestone Walker sold to Duvel Moortgat.   More MC and craft deals in works too. 

Off-premise biz seems to have picked up recently, but still very slow going on premise, according to latest data from GuestMetrics.  “Consumer remains cautious,” sez GM’s Bill Pecoriello, and “we’ll continue to monitor whether low gas prices and shifts in consumer sentiment drive any improvement” as year winds down.  But when exactly will it be clear that lower gas prices just ain’t gonna fuel significant beer growth?  Anyway, on-premise traffic down 2.7% for 4 wks thru Aug 9, GM reports, almost 2X the 1.5% dropoff yr-to-date.  Beer volume marginally better, but still really soft: down 4.6% for 4 wks vs -4.8% YTD.  Spirits and wine both got softer in latest period, tho each still outperforming beer.  So beer share loss narrowed to “just” 0.5% in most recent period.  Within beer, craft share gain continues to erode, +0.7 for 4 wks, vs +1 for 12 wks, near 2-pt increase last yr.  Premium light share loss narrowed to -1.2 for 4 wks vs near 2-pt loss last yr.  Mexican imports kept overall import share even in most recent period. Separately, both Corona and Modelo Especial gaining steam in recent weeks on-premise, sez source. Cider share up just 0.2 for last mo and 3 mos.

No summer slowdown for spirits sales in control states.  In fact, Jun-Jul volumes up 4-4.2%, reports control states’ assn NABCA.  Dollar sales jumped 7.6% in Jul and trending +5.4% for 12 mos.  Finally, 12-mo rolling volume trend hangin’ in +2.7-2.8% for each of last 3 mos thu Jul, a slight increase from earlier this yr.   

Not Your Father’s Root Beer is “a phenomenon,” City Brewery ceo George Parke told La Crosse Trib. “It’s a great opportunity. It alone is supplying 45 jobs or more” among roughly 500 salaried and hourly workers at the brewery.  “This time of year is normally slow,” George told Trib, which often means some layoffs.  Not this yr and Small Town (NYFRB brewer) is “a huge part of that,” added George. “It is different this year with more overtime, no layoffs and no shutdowns. From a production standpoint, we have never seen anything take off as fast and as strong as Small Town.”  The lengthy La Crosse feature harkened back to Heileman’s heyday, celebrating local brewery guys.  It began: “Workers at City in La Crosse are toasting success of a root beer on steroids, because it is ensuring their jobs during a season when lager production often lags.” 

“Of the nation’s top five beer brands, only one -- Corona -- has been with the same lead creative shop since 2010,” wrote Ad Age this morn.  “Corona is also the only brand of the five that has a higher share today than it did in 2010.”  And “the other brewers have responded to their sales declines by rapid agency shifts,” continued Ad Age.  “Bud Light, the nation’s largest brand, is on its fifth lead agency since 2010. But is changing shops the answer?”  Then it shows chart (using BMI data) that demonstrates continued share declines for nation’s top beer brands.

Same article began: “Earlier this month, MillerCoors called off Cavalry” (agency that handled Coors Light, Redd’s and Blue Moon).  Current Ad Age mag also contains column from Cavalry ceo Marty Stock which headlines that when you lose a major account, “don’t cry in your beer—just move on.”  Noting that his team had worked on Coors brands for “decades, spanning 5 CEOs and seven CMOs,” he pointed out how the “best agencies have always internalized the ups and downs of their clients’ brands and made a personal investment of sweat equity to ensure their clients’ success.” 

“The recent trend of agency switching by the major brewers is a clear sign of unrest and dissatisfaction with brand performance,” Mart added, echoing Ad Age. “But there’s more to it.”   Basically there’s a new environment where relationships matter less: “Now many relationships don’t make it to three years.”  Marty is never specifically critical of MC.  He sez: “Scratch the surface of any long-term agency client relationship and you’ll find trust.  Trust in people and their integrity.  Trust that the ideas are great.  Trust that financials get handled fairly.”  Now Cavalry is moving on. “Only a couple of days after our relationship with MillerCoors came crashing down, the itch to create stuff took over and the next phase began.  We may be bloodied but we have a fierce competitive streak and a desire to prove ourselves all over again.”  

Chicago has long held dubious distinction of being perhaps most intensely price competitive mkt among major metro areas in beer biz.  That’s a perennial, a story INSIGHTS has written literally for decades.  And here we go again, with some new twists.

This yr, in mkt where MillerCoors is number one and therefore nominally price leader, AB again tried to change that, leading with relatively normal front-line increase effective 9/28 (tho its discounts, known as “nets” not published at same time).  Recall, AB now has just one distrib, Lakeshore Bev, throughout Chicagoland while MC has a cluster of ’em.  Chi Bev Systems, owned by Reyes Bev Group, followed quickly, about 10 days ago.  That was even tho MillerCoors recommended more selective increase and 1-month delay.  Within a day or 2 after that, the rest of the MillerCoors cluster in Chicago followed on the frontline.  But rest of the cluster “upped the discounts on a number of key packages,” sources told INSIGHTS, and going up Nov 2 as per MC wishes.  

If MC plan adopted by chains, there won’t be much price realization in Chicago this fall.  Less than 1%, maybe barely anything, say several sources.  That would include some price decreases, particularly on smaller packages.  But wait a sec.  Chi Bev Systems has already notified trades of a different discount schedule with more overall rev realization.  AB likely to let chains know its discounts in very near future.  Will AB match discount levels of most of MC cluster, CBS or go its own way?  There are currently at least 3 different pricing actions going on simultaneously in Chicago.  Which will chains base their pricing on? Eventually it will sort itself out.  Lots of moving pieces, with many different undercurrents and implications.   

The Beer Insights Seminar on the evening of Nov 8 and all day November 9 at the Waldorf=Astoria in NYC promises to be another premier beer biz event.  Our most recently added speaker: Alltech ceo Dr. Pearse Lyons, who is building a new model in alc bev biz, as founder/prexy of fast-growing Alltech Lexington Brewing and Distilling in KY.  Plus he recently acquired UK and Ireland craft brewers.  Other speakers include outspoken new MillerCoors cmo David Kroll, fast-movin’ change agent Pabst ceo Eugene Kashper, provocative consultant Mike Mazzoni, plus industry growth leaders: Constellation cmo Jim Sabia and Lagunitas founder Tony Magee.  Beer Marketer's Insights prexy Benj Steinman will also present. More speakers to be announced in coming weeks.  Space is limited.  Click here to register.