Indiana c-stores  really had to fight for their right to sell cold beer.  But they lost.  And now they’re in an even worse place than when they started.  Not only did federal and state courts reject their challenge of a unique state law that allows liquor stores to sell cold beer but limits c-stores to selling it warm.  But a c-store that sells cold beer now faces criminal prosecution as the state last yr made it a Class B misdemeanor, punishable by up to 180 days in jail and a fine up to $1,000.  That fine “may be levied on a container-by-container basis.”  Call it the “$24K cold suitcase law.”   Indiana really does not want c-stores to sell cold beer.  That’s even tho they are allowed to sell cold wine and can be situated right next to and indeed, share a wall, ownership and employees with a liquor store.     

Understandably perhaps, c-stores felt the law’s disparate treatment of them vs liquor stores: 1) violates federal and state constitutional guarantees of equal protection; 2) should be voided for “vagueness” and “lack of a rational basis”; 3) violates Indy’s “prohibition on the grant of special privileges and immunities,” which they believe the liquor stores enjoy.  They were wrong on the federal challenge, a US Dist Ct judge told them last year.  They were wrong on the state challenge, an Indy Superior Ct judge told them last week.  The judges’ reasons for rejecting the c-stores’ right to sell cold beer were essentially the same.  First, the state had a right to restrict sales of cold beer to fewer outlets in an attempt to limit beer “available for immediate consumption” and   curtail sales to minors (who according to testimony prefer their beer cold).  Allowing c-stores to sell cold beer would lead to an “exponential increase of cooled beer sales” and its availability, which would strain state resources, the state also argued, and the judge agreed.  The definition is not vague, the state court judge ruled, citing testimony by one Major Poindexter of the Excise Police. Tho the statute does not define “cooled,” he pointed to “common sense,” noting that “cooled” is “colder than warm – than room temperature.” 

Finally, both the federal and state court judges found that there are enough “important differences” between c-stores and liquor stores to justify the state’s disparate treatment of them regarding cold beer.  For example, liquor stores cannot sell quite the variety of items that c-stores can, their licenses are more expensive, they cannot be open 24 hours, minors are barred from their premises, clerks must be 21 years old and undergo server training. Therefore, both judges deemed the law to be a “classic example of legislative line-drawing” and “rationally related to the legitimate goals of Indiana’s alcoholic beverage laws.”  Almost as an afterthought, the state court judge tossed in that “in addition, Indiana has the authority to set limits on the sale of cold beer via the 21^st Amendment,” so the state’s “policy decision is constitutionally grounded in the 21^st Amendment and is, thereby, protected from constitutional challenge.”  Oddly, the federal judge, who rejected the c-store’s attempt to get a preliminary injunction last year, did not mention the 21^st Amendment.

Beer lost 0.6 share of alc bev $$ in GuestMetrics on-premise data in Q2, compared to 0.4 for last 52 weeks, a recent deck showed. So beer’s share loss steepened in latest 3-mo period.  Spirits gained 0.6 share and wine held last 13 weeks.  But across all 3 alc bevs “there is a premiumization trend… in the on-premise that shows little signs of letting up,” according to GuestMetrics.  Premiumization trend most skewed in spirits where “luxury” pours that are  $11 and up were up 14% in Q2 (tho just 2% of sales), while basic “premium” pours ($5-6.50) down over 7%.  And in wine, bottles $56-80 (glasses $14-20) up near 10% (3% of unit sales), while economy wines down 7% last 13 weeks.

Same phenomenon in beer, but lower priced beers even softer and higher priced beers not quite so robust, except for craft over $7 per glass/bottle.  Lower priced beers (i.e under $5) fell 7.5-8% in Q2, while those $5.50 and up were down just 0.8%.  At same time, highest price tier of craft beers (over $7) were still growing 15%+ on-premise, compared to declining sales for craft brands that were $6 and under. 

Total craft $$ sales up 4% and it gained 1.1 share of beer in 2d qtr. Climbed to 35.6 share. But gained 2 full share in 2d qtr last yr.  Meanwhile, premium lights dropped 1.3 share, compared to 1.9 share loss in Q2 last yr.  But premium light fell to under 20 share in GuestMetrics data last 13 weeks.  At just 19.8.  New beer brands grabbed 2.1 share of beer $$ on-premise in 2d qtr.   Cider at 2.25 share, with Angry Orchard half of that on premise. A few other brands register with about 0.1 share, but 950 other cider brands collectively only got 0.6 share on-premise.   GuestMetrics tracks sales in 6,000+ accounts, expected to jump 50% in next yr or so. 

Beer volume trends improved markedly in most recent period in scan data.  Indeed up 4.3% for 4 weeks thru Aug 9 in IRI multioutlet + convenience. Trend looks almost too good to be true.  (Up 1.4% in Nielsen all outlet for 4 weeks thru Aug 8).  Most of normal share patterns continued.  But Constellation picked up steam.  It grew 1.2 share of $$ last 4 weeks to 9.5.  Its $$ sales up a whopping 22%.  Each of AB and MC up for 4 weeks, but continued to lose $$ share at nearly same pace, down 1.6 share and 0.5 respectively.  One key encouraging sign: improved trends of megabrands in latest 4 weeks.  Bud Light volume up 3.4% for 4 weeks, bouncing back from a tuff couple of mos.  Coors Light up 4% and held share.  Miller Lite up 8% for 4 weeks and gained share. 

Some other interesting departures in latest stats.  For example, Mike’s Hard accelerated to mid-teens growth.  Up 16% for 4 weeks (Palm Breeze).  And DGUSA also accelerated; got double digit growth last 4 weeks for first time in a long time.  $$ sales up 11.3%.  Meanwhile, Not Your Father’s Root beer decelerated, fairly dramatically.  Got $2.5 mil in sales last 4 weeks, compared to $8 mil in prior 4 weeks thru Jul 12.  Could this summer’s phenom already be shifting into a lower gear? The “Keep on Truckin’” award has gotta go to Lagunitas, of course.  Still up more than 50% last 4 weeks.  

For 2d straight mo, govt data suggests avg consumer beer prices paid off-premise ticked up.  Consumer price index for beer at home +1.2% in Jul following 0.9% gain in Jun vs same mos last yr.  Meanwhile wine and spirits consumer prices for at home consumption dipped slightly in Jul.  For 7 mos, avg beer price up just 0.3%, sez govt, vs 0.2% wine price increase, 0.5% bump in spirits prices. That’s while all-item price index barely budged in Jul or for 7 mos.    

Report this morn that 4th largest global brewer Carlsberg had very tuff qtr reminded of just how difficult it is these days for global brewers to build volume.  Lotsa moving pieces in different mkts, but net-net: each of top 5 has enough challenging areas that offset healthier mkts.  Table below shows SABMiller and Heineken eked out 1% beer  volume gains for 6 mos, tho SABMiller off in Q2 and Heineken flat.  ABI’s “own-beer volume” and Molson Coors worldwide volume each off 1-2% in Q2 and 6 mos.  Carlsberg, gettin’ whacked in Russia especially, took a 7% volume hit in Q2, -5% for 6 mos.  Rev figures are better, especially for 6 mos, with 4 of top 5 reporting organic rev held even or increased.  As for profit figures, each brewer reports profits differently and not all report quarterly.  So it’s all over the lot.  But AB InBev still puttin’ up best profit trends.     

Two more top 15 craft brewers are exploring options, including selling a piece of their cos (but just a piece), according to a splashy Reuters article this morn: Brooklyn Brewery and Dogfish Head.  But when you boil the article down, all it really says is they’ve taken meetings and explored possibilities.

Brooklyn Brewery is “considering selling some equity with the help of investment banks,” sez Reuters. “We want to stay independent,” sez chairman Steve Hindy, “but we are looking at building a very large brewery in New York City which will probably cost in the neighborhood of $150 million.”  Prexy Robin Ottaway told INSIGHTS: “We have a brewery to finance and we’re exploring options. But we don’t need to sell equity to complete this project.”  Beyond just Brooklyn, “anyone in craft” has to be “looking at all possible options,” Steve told INSIGHTS. “Given valuations you’d be foolish not to,” he added.  “Valuations are out of this world,” Steve also said to Reuters, “There are people swarming all of us wanting to give us money,” added Steve. “In a two-week period, I had 17 different private equity firms that called.”  But even if Ottaway family did some kind of deal, it would retain control, INSIGHTS understands.  Prexy Robin Ottaway told Reuters: “These are fascinating times in US craft beer, and like many of our brethren, we talk to many different people who are interested in participating in this dynamic business.” 

Dogfish Head is also “exploring selling a minority stake,” Reuters wrote. Many private equity firms will intro themselves as minority investors “but within the first meeting they talk about a path to majority control or an IPO,” found Sam Calagione told Reuters.  That’s not what Sam wants.  Like, Robin, all he really said, is that he’s taken some meetings.  Unclear what if anything happens from here.   

There’s an “investor gold rush” as Reuters noted, pointing to several other craft brewers that are exploring selling parts of themselves “in private placements or initial public offerings,” including Lagunitas, SweetWater and Ballast Point.  “Each of them is estimated to be worth hundreds of millions of dollars.”  So far the record paid for a craft brewer is approx $250 mil for Firestone Walker, although implied valuation in 30% stake of Founders that sold last yr is higher ($300+ mil).  Could there be even bigger deals on horizon?    

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. We've got a great program that will feature everyone from new Pabst ceo Eugene Kashper to new MillerCoors cmo David Kroll, on-a roll Constellation cmo Jim Sabia. We'll also feature some of craft segment's hottest and most intriguing players: Lagunitas founder Tony Magee and Alltech Lexington Brewing and Distilling ceo Dr. Pearse Lyons. Plus the irrepressible consultant Mike Mazzoni. Beer Marketer's Insights prexy Benj Steinman will present an industry overview. More speakers to be announced in coming weeks. You won't want to miss this. Space is limited. Click here to register.

Just as top 2 brewers' volume trends stubbornly soft in face of significant efforts to move the needle, long-running debates over how alc bevs should be sold, marketed and taxed, plus health issues, have similar "been there-heard that" quality, even as new tweaks made to old arguments. With these alcohol policy issues likely to be discussed at upcoming Beer Inst and NBWA/CAP mtgs, here are some recent developments.

Excise Taxes: Advocacy, Equivalence and Ever-Elusive Unity Anti-tax mood in US muted advocacy for higher excise taxes in recent yrs. But pro-tax arguments got flurry of attention earlier this yr when study surfaced linking a nickel-per-drink price hike in Ill to reduced crash deaths. Industry assns pushed back that higher prices don't deter heavy drinkers, but public health has never abandoned tax hikes as key prevention measure and you never know when they'll get traction. In Jul, article on VOX website titled: "The case for raising the alcohol tax, in one paragraph." Cited research where author concluded from "preponderance of evidence" that "higher prices do correlate with less drinking and lower incidence of problems such as cirrhosis deaths." A "conservative estimate" is: "10% higher alcohol prices could save as many as 6,000 lives each year. It would mean paying about 50 cents more for a six pack of Bud Light to probably save thousands of lives."

Meanwhile, producers seek tax breaks across the board, with special bid to reduce smaller players' burden. Behind scenes: ever-present tension over distillers' efforts to equalize taxes as they say "a drink is a drink." With competing bills, backers jockey for support. Recall, compromise bill intro'd by Sen Wyden gives tax breaks to all alc bevs, but treats big beer far better than big liquor or wine; bill boosts beer's advantage. Last week, Wine Inst criticized it for not providing "meaningful support" to vintners. Veep told Wine & Spirits Daily that Wyden bill gives AB a $12 mil break, but Gallo gets just $30K. Diageo gets $1.1 mil, likely why Wyden bill got tepid response from DISCUS. This creates obstacle to passage. Right now, Senate version has 14 co-sponsors, House version has 73.

What Should Dietary Guidelines Say? Equivalence also plays role in big brewers' efforts to get "drink definition" out of fed dietary guidelines. Earlier this yr, BA and NBWA joined BI in latter's 3d attempt to get feds to remove notion that 0.6 fl oz of alcohol is a "drink," since it supports equivalence. Wine Inst joined too. But that was after BI dropped its new "Know Your Drink" graphic from recommendation. That graphic depicts glass of wine with a dot and a half to show alc content; bottle of beer gets one dot. Govt drinking guidelines also popped last week in wake of new study in British Medical Jnl that linked (again) just 1 drink/day to increased breast cancer risk. Same study found no "appreciable" risk for cancer among non-smoking males and only minimal increases for overall cancer risk among women who drink 1/day, men up to 2/day. Given much larger risk reductions in heart disease and reduced overall mortality linked to moderate drinking, op-ed in same BMJ advised cancer study "does not challenge" current US recommended limits of 1/day for women, 2/day for men. Yet a vocal UK advocate claimed "the research confirms there is no such thing as a safe level of drinking when it comes to the risk of cancer."

Alcohol-Pot Parallels Persist Pot legalization is relatively new compared to these issues but, as we've reported, legalization advocates continue to hit alc bevs. A "Campaign to Regulate Marijuana Like Alcohol" surfaced in Mass; its proponent claimed pot is "significantly less harmful than alcohol, and our laws should reflect that." At same time, Center for Public Integrity reported (via TIME mag article) that a handful of beer distribs in Nev donated near $100K for a ballot measure to legalize pot in that state, a measure which gave "only licensed alcohol distributors" the right to wholesale pot for 18 mos. Talk about "golden cases." Finally, a new twist on pot vs alcohol surfaced from study earlier this mo in Journal of School Health. That research showed "alcohol is actually the gateway drug that leads to harder substances instead of marijuana" and that "alcohol is to blame" as "the gateway drug into doing harder drugs like heroin or cocaine," reported the Gazette Review, another internet news aggregator. This claim likely to surface in future legalization efforts and add pressure when advocates seek tuffer alc bev restrictions.  

Both AB and MC are suffering from an innovation hangover in 2015. Many of their brand innovations from last year either aren't cycling (The Ritas, Summer Brew, Fortune) or this yr's innovations ain't cutting it (Mixxtails, Oculto). Innovation is a risky business. Big cos place big bets. And when they don't pan out, the expenditures can seem wildly out-of-whack. But with the US beer mkt in so much flux, and big brands under increased pressure, obviously can't sit still either. Gotta keep tryin'.

Biggest drag on AB's biz this yr is underperformance of the Ritas, as ABI ceo Brito made clear during AB's most recent conference call. Indeed the Ritas down 2.2 mil cases, 22% YTD in IRI multioutlet + convenience yr-to-date thru Aug 9. Total AB only down a half mil cases, 0.1% in IRI. Several Rita variations are down 35-40% YTD. New Lemon-Ade-Rita is 2d biggest flavor, but can't come close to picking up slack. AB doubled spending on Ritas in 1st half, according to Nielsen (see above). Meanwhile, Mixxtails have sold less than 1 mil cases in IRI YTD; Oculto only about 400K and Montejo a little over 500K. So the 3 together don't make up for the Ritas decline. Ritas, Mixxtails and Montejo got $43 mil in measured media support in 1st half, Nielsen reports. That's about 16% of AB's spend for only about 2% of volume. On plus side, Michelob Ultra has grown more cases than any other brand, up 3.85 mil cases, 17.6%; and Stella accelerated to over 20% growth.

MillerCoors' innovation hangover comes down to 2 brands: Fortune and Coors Light Summer Brew (now Citrus Radler). Last yr's big innovation push, Fortune down by 2/3, over 1 mil cases YTD in IRI. Summer Brew down 331K cases, 42%. Neither remotely stuck. Last yr they were 13-14% of MC spending in 1st half for 1% of volume or so; this yr close to nada. Total MC biz down about 600K cases, 0.2% in IRI. Redd's franchise is still providing shot-in-arm. Up 1.3 mil cases, 25% YTD. But all the gain and then some provided by new flavors Wicked, Green Apple and Wicked Mango. Original Redd's variants falling at 15-20% clip. Redd's is in flavor game, where growth always dependent on the next new flavor. Typically, that's game of diminishing returns. But Leinie Grapefruit Summer Shandy and Blue Moon White IPA providing lift to those respective franchises in 2015.

Too early to say all that will be on innovation agenda for AB and MC next yr. MC already announced Henry Weinhard hard soda line, dubbed a "platform." By the time MC launches it will be well behind Not Your Father's Root Beer as well as Boston Beer's Coney Island line. Question is, with sobering lessons of Fortune, Mixxtails and Black Crown on minds of AB and MC marketers, will we enter more cautious era on innovation and see more focus on "core" brands, a pendulum that has swung in beer biz for yrs? Or are innovations still viewed as critical/necessary component in efforts to get back to volume growth? Separately, ABI has also reportedly become obsessed with "disruptive innovation," concepts like Uber or Netflix, that go way beyond brands.

 Starkly different media strategies from top 2 emerge in Jan-Jun media spend measured by Nielsen, including internet but probably not all social media efforts. AB boosted $$ on flavored beers and new brands while MC focused more on core premium lights this period. Overall, AB reduced spend about 5% while MC upped it about 5%. That's while several smaller players really jacked media support. All in, measured media spend up a modest $11 mil, less than 2% in 1st half, Nielsen reports, and just 0.6% more than 1st half 2 yrs ago.

AB doubled spend on Ritas, pumped $7 mil into Bud Light Lime, and spent $17 mil on Mixxtails. Also put $13 mil into Montejo. That's $50 mil on modest volume, tho AB never shy with intros. At same time, AB jumped Bud support by $11 mil, 20%, Mich Ultra by $8 mil, 46% and more than doubled Stella $$. Yet Bud Light media $$ slashed by $62 mil, 38%. That's huge cut for #1 brand, especially following 13% reduction Nielsen reported for Bud Light media last yr. Gotta figure lotsa $$ for "Up for Whatever" event not makin' into this figure and AB spent lots on World Cup last yr. Then too, AB sez increase planned for 2d half (see below).

Miller Lite got a near 20% boost and Coors Light support up 11%. Another view: AB still spent 50-60% more on Bud Light than MC spent on either Coors Light or Miller Lite this yr. But in 1st half of 2014, AB spend on Bud Light was $52 mil more than MC spent on Coors Light/Lite combined. This yr, Lite/Coors Light combo outspent Bud Light by over $25 mil, according to Nielsen. Interesting. Blue Moon family got a big hug: $9.5 mil measured media support. MC also built support for Coors Banquet and Redd's. But it slashed $$ for Keystone and Coors Summer Brew/Radler. Another difference between top 2: AB pulled back hard on Stella Cidre while MC upped Smith & Forge $$. One AB/MC parallel: just as AB eliminated big Bud Black Crown spend in yr after intro, MC did same with Fortune this yr. Constellation Brands Beer Div really fueled the fire for its portfolio. Jumped media $$ by $15 mil, 23% vs 1st half last yr and up 77% compared to 1st half 2013. Corona Extra/ Light about 75% of Constellation media $$, Modelo Especial most of the rest. HUSA's media $$ increase more modest, +$4 mil, +7%; Heineken/Light got biggest bump. Boston Beer upped media spend $5 mil, 22%. DGUSA spend way up, but that followed huge cut Jan-Jun 2014.

AB Sez Lotsa Bud Light Spend Unmeasured, More Coming Big Bud Light spending cut reported by Nielsen raised flag; we asked AB to comment. "Bud Light will see a significant pressure increase in 2015 full year and AB investments will be at an all-time high," consumer connections veep Lucas Herscovici told us. Nielsen "does not account for most of our digital spending, which is a huge growth driver for Bud Light." Then too, AB focuses $$ on "the moments most important to the beer industry" and lotsa those in 2d half. Also: "Bud Light's spend and media pressure more than doubled in May and June," with "significant" hikes in Jul-Aug. "Finally, as a company, our share of voice is up significantly year over year. We've grown our media pressure by 44 percent as a company since last year."