At least a couple of AB distrib deals in Northern Calif imminent at presstime (as reported in INSIGHTS Express). If/when they happen, will add to AB's already extensive branch holdings in Calif. They'll also add strength to competing distribs, who will acquire extensive non-AB portfolios, including importantly, Constellation. Recall, AB talked with several Calif AB/Constellation distribs about selling to AB in last month or two. Some not interested, but turns out a couple of N Calif distribs will reportedly take AB up on enhanced offer, especially with high multiples reportedly offered for non-AB brands.

All of AB's current branches are in Southern Calif. Either or both of these deals would serve as significant beachhead for AB branches in Northern Calif. Other deals certainly possible down the road. AB has lotsa mostly smaller distribs in Northern Calif. AB sold 118 mil cases in Calif in 2014. Branches already sell over 30 mil cases, 25-30% of AB volume in Calif, sez source. Meanwhile, AB and its indy distribs go up against at least 2 giant distrib competitors. In SoCal, Reyes Bev Group largely competes against branches and sells about 67 mil cases. DBI in NorCal is 28+ mil cases annualized (did deal earlier this yr). So those 2 distribs sell 95 mil cases in all, equal to 80% of AB's total volume in state, with much better trends. What's more, Columbia Dist of Pac NW will purchase Mesa Dist, giving it a "beachhead" in Northern Calif too. It will be 41 mil cases. Sets up battle royale in Calif between 3-4 industry giants for yrs to come. And AB hasn't been winning in Calif, including where it has branches. Share loss is big part of what's driving consolidation push. Recall, AB share down to 36.1 in Calif, from peak of 50 in early 90s. It lost at least 1 share in each of the last 2 yrs, while Constellation gained 1.5 share last yr. And Constellation reportedly up double digits in Calif again this yr.

AB has time constraint to get these distrib deals done. Clock is ticking. It seeks to realize tax benefits of 1031 exchange based on its sale of Constellation brands following termination of branches (for near $200 mil) and loss of Monster. These deals need to close by early Nov, INSIGHTS understands. Initially, AB reportedly offered what only amounted to 2X gross profits (tho it valued based on EBITDA multiples, not GP), while non-AB brands likely worth 5-6X GP to outside buyers (Constellation recently traded at 6X in several deals with AB branches). Offers reportedly went up, but AB brands would still trade for dramatically less than non-AB brands in these deals. Going forward, lower value of AB brands vs Constellation and craft could create an effect reverse of what AB intends, sources commented. Howzzat? AB seeks increased focus on its brands. That is its desire and one of key reasons why it looks to control more of its distribution in Calif. But if an AB distrib contemplating exit strategy in coming yrs, wouldn't it create more value to get even greater growth of some non-AB brands rather than expend extra resources struggling to stem tide of its declining AB brands? Non-AB brands would be worth so much more per case on the way out. A prospective buyer might pay that much more down the road. Some interesting decisions ahead, to say the least, for AB and its distribs.

So far, hasn't been a smashing summer for beer biz. Jul shipments down 311,000 bbls, 1.9%, estimates Beer Inst economist Michael Uhrich. For 3 mos May thru Jul, domestic taxpaids off 700,000 bbls, 1.4%. And yr-to-date dropoff now 2 mil bbls, -1.9%. Even with import gain of 1.2 mil bbls thru Jun, means current yr-to-date total US shipments trend is -800,000 bbls, -0.7%. Aug-Sep is easy comp: taxpaids down 1 mil bbls, 3% last yr. So oppy to gain ground there, tho imports strong Aug-Sep last yr. We'll see. At retail, on-premise improved only marginally in latest period. Beer volume dipped 4.6% for 4 wks thru Aug 9, reports GuestMetrics. Still down 4.8% yr-to-date. Better news: off-premise biz picked up in latest period. Volume up 1.8% for 4 wks thru Aug 15 in Nielsen all outlet data. That's a nice bump since for 13 wks going back to Memorial Day volume just even. Yr-to-date thru Aug 15, volume +0.7%; $$ sales up healthy 4.5% for 4 wks, +3.2% YTD.

There are “very serious challenges” to beer biz, noted August IV, including liquor/wine growth.  August played industry ambassador role as he focused on beer cos’ need to address collective challenges.  John Brock pushed same theme even further.  “We are losing share of throat,” said former Cadbury exec, not just in alc bevs but in “bigger broader world of bevs,” including water, juices, CSDs, energy drinks, etc.  “This is a serious issue…. We had really better figure it out,” added John.  “We have to define what beer really is.” 

A partial counter from Graham Mackay who said that worldwide beer still showing “stronger growth in volume and value” than spirits or wine. Beer is “resistant to commoditization,” insisted Graham and “resistant to power retailers.”   August IV returned to theme at end to say it is “incumbent upon” AB to achieve “a higher level of value creation and sophistication both for ourselves and industry as a whole.” To that end, noted August, “we will be working with Beer Institute to try and come up with industry-wide campaign.” 

This is a “huge” challenge, especially in US and Western Europe, said John.   Beer biz is doing “a fairly miserable job of making the consumer connection,” he added.  Pointed to Nike, IPOD etc as example of companies that have done better job of making connection.   One other hard-hitting point from John: “We better figure out a way to make beer more relevant, more salient and more approachable to females.”

Pretty wild just to see ‘em all on same stage for several hours:  InBev ceo John Brock, AB prexy August Busch IV, SABMiller ceo Graham Mackay and Heineken ceo Jean Francois van Boxmeer, plus Carlsberg, Foster’s and Efes (dominant  in Turkey, strong elsewhere) ceos.  These top execs spoke and participated in discussion at unique World Beer & Drinks Forum in Munich on Sunday. Several had never met.  For example, a fun sight: August IV and Graham meeting and shaking hands for first time.

Miller managed media well on intro of new High Life “Girl in the Moon” ads. Got long article in NY Times, plus AP and local coverage too.  Chi Sun Times columnist went way over the top:  called it “gloriously literate,” “hauntingly beautiful,” “imaginatively eclectic” and so on. Several stories noted planned hike in media spend.  Miller spent $12.5 mil on High Life in 04 (plus $10 mil on High Life Light) of its $283 mil total, reports tns media intelligence.  Miller faces tuff challenge of turning brand (down 03-04 after gains 01-02) in fast-eroding popular-priced regular beer segment.  Those brands averaging 5% declines since 2000.  Only brand growin’ in segment: PBR, with virtually no media spend.  Note too: AB has poured well over $100 mil of media yr after yr into Bud and hasn’t had up yr since 1988.

Consumer price index for beer bought off premise rose just 0.5% in Aug, compared to 3.6% bump in prices for all items.  Aug softness in beer prices followed 0.6% increase in Jul, 1.1% in Jun.  YTD beer CPI up just 1.6%, noted Merrill Lynch’s Christine Farkas, while “broader CPI” up 3.1%.  Recall that from 1999-2004, beer CPI tracked or exceeded inflation.  Meanwhile, wine and spirits pricing a bit healthier: up 2.5%, 1.1% respectively in Aug.  YTD, all 3 alc bev indexes on similar 1.3-1.6% gain pace.  

Miller letter to Calif distribs last week (from GM Dan Werth) said Miller “will become increasingly judicious in our use of scans coupons and price promotions.”   Miller said it will stop beer-only coupons “except for already committed programs through September 2005.”  While it will continue with “cross-merchandise coupons” (fuel, ice, etc), coupons “will not exceed $2.00” per case.  Miller seemingly attempting to limit scanbacks, will “return to the original Scan programming” and “all new scan programs require GM approval.” 

This message welcome since Miller led with $5.00 off IRCs in Calif, had 99-cent 12 packs of High Life there too over Labor Day.  “We know the heavy discounting has inflicted damage to distributor profitability,” wrote Dan.  Also noted “heavy discounts are beginning to reach a point of duration at which they will begin to undermine the image of beer,” and “we are quickly approaching the time of year when prolonged discounting will significantly undermine our ability to restore the annual pricing routines… so critical to the health of our system.” 

But 2 small issues.  Since Miller has historically been aggressive in its Calif discounting practices, even its own distribs somewhat skeptical that its good intentions will last.  The 2d: Miller’s changed stance doesn’t exist in a vacuum.  In fact, AB has just come out with its own $5.00 IRC in Calif, good through October 31^st.   Maybe it’s in retaliation, maybe it reflects AB’s own softness.  Either way, not out of this yet. 

Here we go again!  InBev USA prexy Simon Thorpe will move to corporate merger and acquisitions role.  His replacement will be Doug Corbett, InBev mktg veep in Europe with little or no US beer biz experience.  But that’s not all.  InBev USA bringin’ back Sean Higgins, who served as Labatt USA sales veep for about 1 yr, to replace recently departed Tom Cardella.  So another new prexy and sales veep at InBev USA.  Just another day at the office.  Simon spent a little less than 2 yrs as prexy of InBev USA and predecessor organization, Labatt USA.  Labatt USA had 5 prexies in previous decade.