Turns out Miller trying to rein in excessive discounting nationally.  Calif memo in INSIGHTS Express last week actually adapted from natl directive sent by sr veep Doug Brodman to all sr sales personnel.  Natl move “to next phase of our pricing strategy” acknowledged that “heavy discounting  has inflicted damage to distributor profitability” and “beginning to reach a point…at which they will begin to undermine the image of beer.”  While declaring AB’s “attempt to use heavy discounting” a “failure” (without providing numerical backup), Doug added that “we continue to see no indication that pricing is either the problem or the solution, relative to the stagnation of the category.” 

In addition to  becoming “increasingly judicious in our use of scans, coupons and price promotions,” Doug added, “we will deliberately explore opportunities” to raise prices to “levels that will allow us to restore our traditional pricing routines.”  But, and there’s always a but these days:  “Rest assured that we will be closely monitoring the implications of our decisions and that we will be very quick and nimble in dealing with any unintended consequences, particularly relative to share swings.” 

Editor’s Note: This is where beer biz is right now:  everyone wants to pull back from the precipice, but looks warily over its shoulder at other guy, afraid anyone gets a price advantage by jumping over the edge first. 

Several more AB deals closed this summer.  A surprise: Kirk Lambright (son of former AB group exec Steve Lambright) sold approx 1-mil-case Classic Eagle in Lawrence, Kans, reportedly for about $14 mil to non-contiguous O’Malley Bev based in St. Joseph, Missouri.  That’s more than double price for a similar-sized AB deal that’s on table in South, as mentioned by consultant Joe Thompson in his NBWA presentation.  In that unspecified transaction, buyer offered $6.5 mil for just under 1 mil cases.  Kirk written up in St Lou Biz Jnl over summer as 1 of next generation of leaders of AB distribs, along with David Stokes and Suzie Busch. 

Out in Calif back in Aug, former AB exec Mike Carpenter sold his 70% stake in nearly 4-mil-case Sequoia Bev to minority owner Danny Bueno.  AB had first attempted to buy stake itself, but deal went to Danny who keeps about 600,000 cases of Modelo volume.  And finally another interesting deal in Md, where 1.8-mil-case Bees Dist Co split between 2 contiguous AB distribs.  Winner Dist in Baltimore adds about 1 mil cases and Wantz Dist in Hagerstown got a similar amount.      

Too bad it’s an Australian ad for Carlton.  But it’s a “Very Big Ad,” spoofing Lord of the Rings.  And it’s worth noting that 1) Foster’s ceo showed it at World Beer & Drinks Forum in Munich and got big laughs and applause; 2) Heineken sales veep Don Blaustein showed it in Ohio as example of good beer advertising; and 3) hard-to-please Ad Age critic Bob Garfield called ad a “masterpiece.”  Praised Carlton’s positioning as the “unpompous, understated self-deprecating beer.”   Such  widespread praise suggests this ad may point to some possible creative avenues for US brewers. 

Consultants DMG Financial surveyed several dozen distribs in Jul and found top 2 concerns were risks to 3-tier system a la Costco (37%) and rising costs (29%).  Had survey been taken in Aug, discounting mighta been higher than 5th (6%), suggested DMG’s Jeff Hjort at NBWA seminar.  He also presented case study of what happens to 1.5-mil-case distrib if Costco wins and gets beer direct.  This wasn’t big Costco mkt, but turned out distrib would take 4% hit in cases, gross rev and gross profit.  Gross profit dinged $135K, but cost saving by not servicing accts just $25K; impact on workforce insignificant. So profit whack was $110K.  Then too, if Costco wins, other mega-retailers (think big W) won’t sit on sidelines.  DMG also presented dramatic numbers that show how much margins/valuations suffer when volume flattens and costs rise and how rising risks of both factors makes buy/sell negotiations tuffer, exit strategies thornier. 

Interestingly, DMG’s overarching theme similar to presentation by Rick Berman to general session about distribs need to imagine possibility of worst-case scenarios.  Rick focused on alcohol policy, specifically drive to lower legal BAC again; DMG focused on biz issues.  So what do distribs do in time of rising risks? They can tighten up operations, ride tuff times out, sell or hope challenges are temporary, natch.  But DMG guys also suggested “strategic acquisitions,” noting too many distribs “not thinking beyond” contiguous buys, and they gotta “think outside the traditional in-market consolidation box.”   One key to making strategic acquisition work: not “surrendering” synergies to supplier.  Distribs often better at negotiating with sellers than with suppliers and they forfeit value by making new commitments to get deal done. And too many deals take “too long to extract value” as buyer hasn’t prepared mgmt team to “quickly assimilate” new biz. 

New listing pegs one of largest distrib’s wealth at $1.4 bil  (#235 on list).  His first appearance was in 1999 at $700 mil.  This yr John’s wealth listed as greater than Ernest Gallo’s.  John Sr also owns many other bizzes.  42, according to profile of him that appeared in a LA biz mag last yr.   One other distrib on list: Harvey Chaplin & family, owners of Southern Wine and Spirits, listed at $1.2 bil. 

Comments from Diageo’s Dave Eickholt differed enuf from his importer colleagues on NBWA panel to take note.  Questioned about potential Costco win, Heineken’s Frans van der Minne, Barton’s Bill Hackett and Inbev USA’s Simon Thorpe voiced unequivocal support for 3-tier.  Frans said there’s “no way an organization like Heineken USA can handle 500,000 points of sale,” adding “we would like to work with distributors” who build value, not “logistics providers.”  Diageo’s Dave Eickholt also insisted his co “staunchly” supports 3-tier, but added if Costco wins, Diageo “obliged to follow state law” and “cannot refuse to sell” to customers.  Yet Bill Hackett pointed out his co refused to deal direct when Price Club (Calif precursor to Costco) made approach years ago.  Barton went 5-6 mos without doing biz with ‘em.  Will current top import brands like Heineken ever be brewed in Canada for US?  Not for 10, 15, 20 yrs, predicted Frans, who called Miller’s moving Lowenbrau production to US a “classic mistake.”  But Dave pointed out that price/image of craft brands rivals imports and that moving production for BMW/Mercedes succeeded without “image slip.”  Moving imports out of home country “treacherous, but doable” in global society.  Didn’t mention Diageo/Guinness has brewed Harp in Canada for years for sale in US.  (Foster’s brewed in Canada too.) 

Tho lotsa testimony at Maris defamation trial was repeat, one piece of new news.  Ex-sales veep Mike Brooks testified that AB sent METs (Market Evaluation Teams) to 10 distribs while he was sales veep from Sep 95 to 2002 when he left AB.  Recall that Maris attys tried to establish that once MET team sent to distrib’s area, it was finished, as in “once you’re crewed, you’re screwed.”  But turns out in 5 of those 10 instances deficiencies cured and distrib stayed on, Mike said.  Four distribs sold, one to AB.  Only 1 termination: Maris.  Maris atty tried to suggest that after Adkins plan came out, “some distributors started surviving” METs.

Long-running challenge by retailer David Trone (TFWS) to Md’s pricing laws grinds on.  In case with lotsa implications for state regs, 21st Amendment, US Appeals Ct just sent Trone’s challenge back to US Dist Ct for 3d time.  Trone challenged Md’s post-and-hold law and quantity discount ban.  Claims they violate fed antitrust law.  State sez they’re legit under 21st Amendment.  Cts have so far sided with Trone.  But US Appeals Ct told US Dist Ct to take closer look at laws’ effect on prices and consumption. 

NY Sup Ct ruled that 5 of 6 claims of Boening/Oak Dist suit vs Manhattan Beer Dist (MBD) go to trial.  They include charge that MBD “maliciously interfered” with Boening’s relationships with suppliers when Boening lost several brand extensions in 3-yr run-up to lawsuit.  Also going forward: charge that MBD interfered with Boening’s “prospective economic advantage,” plus “injurious falsehood,” “unfair competition” and “unjust enrichment.”  Judge did dismiss broad claim of “conspiracy” to reduce competition in NY metro.  In Boening’s view, guts of case go forward, specifically argument that distrib rights “are in the nature of intellectual property rights and that interference with those rights” supports charges under NY law.  MBD’s atty counters that case narrowed to “four very small niche brand extensions and new products,” 2 already discontinued.  MBD sought sanctions against Boening attys but judge rejected request. 

Finally, recall that Dennis Nauslar, ex-Coors distrib in Dallas (Willow), sued Coors in Jun 03 for nixing a 2001 consolidation.  (Willow sold to Miller of Dallas for $57.8 mil in Feb 03.)  But Dennis charged Coors violated Tex franchise law and “illegally refused” an earlier $65-mil deal.  Coors argued -- and judges in trial and appeals ct agreed – Tex franchise law only applied to distributorship (on behalf of which Dennis had signed a release of any claims vs Coors), not to Dennis personally or his investment co.  Not only did Coors get decision it wanted, but appeals ct judge tacked on atty fees for Coors.   

... Mid-sized midwest AB distrib seeks sales mgr; send resumes in confidence

Nothin’ written in stone, or on the books yet, but franchise protection issues poppin’ in at least 2 key states.  In NJ, bill prepared by AB and distribs passed state Assembly, tho other suppliers howled they were kept outta the loop, and didn’t like bill to boot.  At recent mtg with key committee member in Senate, those suppliers were told to put together counter-proposal by early Sep, we’re told.  AB and distribs confident their bill will pass, gov will sign...  In Calif, AB worked with leadership of distrib assn to fashion franchise law to go along with expanded bar spending, an AB goal.  Bill originally aimed to clarify tax treatment of FMBs became “vehicle for resolving conflicts among big brewers, such as AB and Miller, over regulation of so-called ‘beer-tasting’ promotions staged” on-premise, Sac Bee columnist wrote.  But negotiations stalled, “especially when beer distributors began pressing for including some ‘franchise protection’ that would require payments as brewers switched distributors.”  With others comin’ to table (and non-AB suppliers complained again that, as in NJ, they were kept out of process) “corporate difference on distribution and compensation packages... complicated that sub-issue and without virtually unanimous support from all elements of the industry, enacting a bill would be problematic.”  Current session ends Sep 8; expect more action.  

Ain’t just SABMiller stock getting kinder comments from analysts lately.  Merrill Lynch upgraded InBev (also down 10% or so recently) to neutral, saying its “global footprint,” “heavily incentivized” mgmt team should “unlock long term value.”  Western Euro prexy said reversing slowdown in that troubled region “a matter of pride.”  Dow Jones story noted “stringent cost cutting” intro’d in North America last yr being adopted in that region.  InBev cfo acknowledged at Milan conference that its zero-based-budgeting will cause some “disruption” among staff, but approach suits younger employees and all in interest of “best practices,” reports DrKW’s Matt Jordan.    

Elsewhere Barron’s Online reported “wet kisses” for Diageo and Tsingtao this week: in article called “Shares of Diageo Straight Up,” analysts cited strength of food and drink stocks as “safe havens,” plus possible dividend increases, pricing power, share repurchase and diversification of brands/markets as Diageo’s plusses.  Tsingtao faces cost pressures and heavy competition, say fund mgrs high on stock, but they like Tsingtao’s move to higher-end brands, cost containments, 5-10% annual growth trend and higher visibility it’ll get from Olympics.  China also stage of latest Foster’s shrinkage.   It just sold last brewers/brands it owned there as it continues to whittle away global beer ambitions.