Expensive and very public class action suits on rise against alc bev suppliers and not likely to let up. Last week, a Calif firm slapped MillerCoors with suit alleging deceptive marketing of its Blue Moon brand, on behalf of a San Diego “beer aficionado.” That’s after handful filed against AB (on Rita’s, Beck’s, Kirin) and even more in spirits world. In this case, plaintiff claims he was misled by Blue Moon’s labeling, its “advertising, its placement among other craft beers, and the premium price it commanded.” He paid “up to 50% more” for Blue Moon, believing it “was a microbrew or ‘craft beer,’” but learned later that it was a “macrobrewed, or mass produced beer.” Plaintiff uses Brewers Assn’s definition of “craft brewer” multiple times in suit.  Many of arguments made against MC sound much like charges against the co and Blue Moon that we’ve heard from small brewers. But “there are countless definitions of ‘craft,’ none of which are legal definitions,” MC spokesperson Jonathan Stern wrote in statement about suit he called “without merit.”  

As suit filed in Superior Court of Calif in San Diego, strict state laws against deceptive marketing in play. Indeed, that’s just one of many considerations that make these cases against alc bev cos more likely, as laid out in presentation by atty Chris Cole and MC atty Shelly Watson during state alc bev regulators conference, NABCA, last month (see March 18 Express). Indeed, that prescient presentation reads like case study of Blue Moon complaint, including arguments against “taste plus” claim (“craft,” here) and alleged injuries from higher price points. Chris also pointed out that alc bev cos “have a target on your head” and reminded that getting a big settlement is often the goal for plaintiffs’ attorneys all along. In the meantime, these stories tend to pick up big mainstream press placements and lotsa social media noise, all planting plaintiffs’ claims in more consumers’ minds.

“Diageo is examining plans to offload some of its wine brands,” as there is growing pressure on ceo Ivan Menezes from investors and analysts following Q3 declines, reported Sky News over weekend (and others since).  Diageo board “had not made a formal decision to sell its wines business,” and a deal could still be far off, claimed sources described as “close” to co.  “We are sure there are many people who would love to own our wine businesses and we have received expressions of interest over the years,” a Diageo spokeswoman responded.  “As you would expect we have a duty to consider any such interest carefully,” she added.   Its wine biz only accounts for 4% of Diageo sales and isn’t considered part of Diageo “core.”  As Diageo faces numerous challenges, and considers selling wine brands, one has to wonder anew if its US beer unit DGUSA, also about 4% of revs, would ever be considered non-core.  Tho currently running up 5% yr-to-date in IRI on strength of Guinness Blonde intro, DGUSA volume in 2014 was 2.275 mil bbls.  That’s 1 mil bbls, more than 30% below its 2006 peak. 

You’d think  working for such a dynamic industry as US beer biz in DC for its natl assn would be a plum job and rare openings would be filled quickly.  But Beer Inst now has four positions open on already lean staff, two sittin’ around for many mos.  That’s lobbyist job left by Rick Goddard in late-2013 and economist position that opened up when Lester Jones left for NBWA in mid-2014.  Last month, Christina Hartman, who handled alcohol policy issues, left.  And communications veep Chris Thorne just announced he’s leaving as of May 29.  Chris will be around as consultant to BI and prexy Jim McGreevy to help wrap up some current public affairs projects.  But BI needs some bodies to fill neat new digs it moved to earlier this yr.

Leading up to ABI Q1 report tomorrow, ABI and its biggest shareholders took more than their usual share of knocks.  ABI stock (BUD) downgraded from outperform to underperform by CSLA’s Caroline Levy which led to 2.5% stock drop yesterday, Warren Buffett got several tuff questions about partnering with 3G (including largest ABI shareholders) at Berkshire Hathaway’s shareholder meeting over the weekend, and Bud Light’s mktg gaffe continued to get bad publicity.  Caroline was on CNBC for about 3 minutes, describing her reasons for downgrade.  “Talk about a buzzkill,” began CNBC reporter.  Caroline referenced “problem with beer” in US, with consumers switching to craft, challenges for Bud and Bud Light.  And with what she called a “marketing gap” on Bud Light campaign, going into summer, “I don’t think it’s going to get much better.”

In her written report, Caroline gave 3 key reasons for downgrade of ABI stock: 1) “ABI trading at the high end of its five-year relative PE range”; 2) “deteriorating Brazilian economy”; 3) “ongoing weakness in its US beer trends.”  Indeed, Brazil is 30% of ABI’s profits, and on top of “worsening economic slowdown,” co faces tuff comps against sales during last yr’s World Cup.  In North America there’s continued “trade away from mega-brands” and “mixed results” from “efforts to reverse” Bud and Bud Light declines, “including two social media gaffes as part of its ‘Whatever’ campaign,” Caroline noted.  Then too, “price/mix gains have leveled off to 1-2% and are not enough to offset volume declines.”  Caroline now only expects 1% three-year average reported EPS growth, including effect of currency.  All in, “we see too many macro headwinds for ABI,” sez Caroline.

Berkshire Hathaway’s annual meeting is often dubbed the “Woodstock for Capitalism,” as 40,000 people descend on Omaha, Nebraska to hear words of wisdom from investment wizard and Berkshire chairman/ceo Warren Buffett, including 5-hour q&a.  This yr was Berkshire’s 50^th anniversary yr.  First question came from Tex shareholder who said he was “suffering heartburn” because of 3G’s “brutal” practices with cos it acquires, which doesn’t square with Buffett’s rep as a “more benevolent buyer” of bizzes, according to Bloomberg Report.  “Efficiency is required over time in capitalism,” responded Warren, in one of several defenses he gave of his partners (at 3G) in Heinz and Kraft acquisitions. 

“We found it notable that journalists asked several questions related to 3G,” wrote Evercore ISI’s Robert Ottenstein “and in each case they noted that they had received dozens of questions on 3G.”  Top ABI investor and lead 3G partner Jorge Paolo Lemann was in room. “General tone of questions was critical of 3G and Berkshire’s association with the group,” Robert added. His take: “at this point, we don’t think that Buffett will think twice about doing another deal with 3G,” but “some aspects of 3G have touched a strong nerve” with a “significant minority” of shareholders. Should “these concerns spread,” then Buffett “may start to weigh the risks to his public reputation.”  Then too, it’s “increasingly important” for 3G and “3G-related” cos like ABI “to show that they can grow their businesses, that they are not just about cutting costs, in order to keep public opinion from becoming too negative.”  Here he pointed to ABI’s “global success” with Bud as “notable.”    

Imports slowed from torrid +17% Jan-Feb gain pace, but still up 180,000 bbls, 7% in Mar, reports NBWA economist Lester Jones from Commerce Dept data.  And Q1 gain came in +860,000 bbls, +12.9%. Mexican imports continue to lead the parade, +10% in Mar and +617,000 bbls, +15% in Q1.   Dutch shipments took a tumble in Mar, but +68,000 bbls, +6% yr-to-date.  Belgian shipments continued up 9% and Canadians stayed strong: +10% for 3 mos.  German shipments eked out slight gain in Q1 and Irish shipments up 20%, but UK shipments down 7%.  So a good start for imports.  Looks like Q1 import gain offset about half of domestic brewers’ taxpaid loss, but we’ll know for sure when Beer Inst reports Mar estimate tomorrow.

Five yr lockup period on FEMSA selling its 20% stake in Heineken ends today.  “For the time being, we’re very happy with the investment,” FEMSA cfo said on conference call, as reported by Financial Times.  “We don’t foresee any need to sell those shares,” he added.  But he noted co has “responsibility” to assess alternatives, reported FT. “In the short term, we will keep our stake in Heineken,” cfo added. 

OXXO Wants to Open 900 Stores in Tex  One clue why it could consider selling its stake: its c-store chain OXXO “wants to open hundreds of stores in Texas,” as Convenience Store and Fuel News reported. “Oxxo is prepared to make a major investment all across Texas,” execs recently told Tex House committee. “We plan to open 900 stores in the next 10 years… investing more than $850 million and creating more than 6,000 jobs.”  But FEMSA so far blocked from opening OXXO in Tex by 3-tier laws.  “The company’s leaders are asking the state legislature to repeal a law that prohibits retailers from being owned by firms with ties to the liquor industry,” wrote Convenience Store and Fuel News.  Recall, last fall, Tex appeals court upheld decision barring OXXO from obtaining a license.  Presumably selling stake in Heineken would open that door.

If FEMSA sells stake in Heineken, could present challenge as OXXO chain is by far Heineken’s largest customer in Mexico, around 20% of volume, sez source, and exclusive to Heineken.  A sale would open up possibility of letting Modelo into those stores down the road, or paying much higher price to maintain exclusivity. Heineken had 10-yr exclusive agreement, starting 5 yrs ago. 

After Boston Beer reported slower Q1, Goldman Sachs “downgrade(d) shares of Boston Beer (SAM) to Sell from Neutral with a new 12-month price target of $240” this morn, wrote Goldman Sach’s Judy Hong.  This was a more negative analyst take on Boston Beer’s Q1, compared to several mixed takes from others yesterday (see yesterday’s CBN).  But Boston Beer stock down 9-10% this week, including 1% today.

Two key reasons for Judy’s downgrade: 1) “renewed weakness in the core Sam Adams trademark is an underappreciated source of risk, as the Boston Lager brand has essentially flattened, while Seasonals growth has slowed to 2-3%.” Boston Beer’s beer sales decelerated to 5.2% for 12 weeks thru Mar 21 in Nielsen data (+2.9% for 4 weeks thru Apr 18), and “we believe growth could turn negative in the coming months as SAM fully anniversaries the launch of Rebel IPA,” sez Judy;  2) While Boston Beer’s had “tremendous success” with innovations over last couple yrs, “this year’s innovations are unlikely to be game changers,” since “Traveler’s Shandy faces TAP’s dominant Leinenkugel’s, while Rebel session and Double IPA lines show a much slower launch compared to Rebel IPA.” 

Indeed, “Traveler’s Shandy remains an X-factor”; it’s still “<1% the size of Sam Adams sales” tho Judy acknowledges it’s too “early” to tell what its full impact will be this yr.  Angry Orchard and Rebel IPA are certainly tuff innovation acts to follow, since Angry Orchard franchise has accounted for “60% of growth in the last 2 years,” and Rebel IPA “contributed 5pts to growth last year.”  And “it appears that Angry Orchard’s share [of cider] peaked last year at 63%,” as several “new competitors” from larger beer cos have entered cider space.  All in, there’s still some “optimism” since Boston Beer “remains a best-in-class operator with strong positions within its major categories (#1 craft beer, #1 cider).”  But this is a much more questioning outlook for Boston Beer than we’ve seen in some time.    

“Bud Light’s label gaffe has damaged the brand’s image just as it heads into the critical summer beer selling season and given critics a new reason to attack A-B InBev,” began long article this afternoon from Ad Age.  Turns out  Bud Light’s “buzz” score, as measured by YouGov BrandIndex which measures daily consumer perception of brands, “fell from 6 on Monday to zero as of Thursday morning,” wrote Ad Age.  Avg for domestic beers is 4.  “Among women, Bud Light fell from a 5 to -3,” Ad Age emphasized.  “The drop that we are seeing is statistically significant. It is meaningful,” YouGov’s ceo told Ad Age.  He noted that if story went away today, “I would expect Bud Light to bounce back within a week. But there is no guarantee that it will blow over starting tomorrow.” 

“The media coverage and social conversations about the label are understandably negative, and we are listening,” Bud Light veep Alex Lambrecht told Ad Age.  “As of today our research shows that consumers understand mistakes happen and remain loyal to the brand.” But he added: “We don’t take that for granted, and we also understand that there are some consumers who want to see us do better. And we will.  We’re looking at our creative again to be sure of it.”  Timing is bad, heading into peak-selling season, but especially so, Ad Age notes, with upcoming “Up for Whatever” campaign cornerstone “Whatever USA,” this yr taking place May 29-31 on Catalina Island.  Last yr, Whatever USA created tons of social media content, “including thousands of user generated content shared over social media, reaching 15 million consumers…. But in the wake of the bottle gaffe,” noted Ad Age, “consumers seem more willing to bash rather than boost Bud Light on social media.”  There were 45,600 tweets about Bud Light from 12 AM on Apr 28 thru 12 PM on Apr 30, compared with 3900 tweets during the same period last week, citing data analytics co Listen First.  Many were harshly negative, Ad Age pointed out. 

Bud Light “No” Line Passed “5 Layers of Approval The line that caused such an uproar “went through at least five layers of approval,” the Wall Street Journal reported. Language started at agency of record BBDO, a spokesperson reminded, then was cleared internally by employees on A-B’s marketing, legal, corporate social responsibility and ad code teams. The language is on less than 1% of Bud Light bottles.  The co stopped printing the labels Tuesday night, but will not do a recall, as “the label doesn’t pose a health of public-safety concern.” (It seems unlikely that bottles with this specific line could be feasibly isolated and pulled, we’d note.)

Amidst the many articles that appeared, another notable one had ex-AB exec Francine Katz sounding off on ABI’s corporate culture and its insensitivity towards women’s issues (recall, she had sued AB based on gender discriminatinon and lost).  Women make up less than 20% of A-B’s full-time salaried employees, the Washington Post reported. That number dropped to 17% in 2014, but was as high as 29% as recently as 2011. All but one of the co’s 14-member management team are men.  

“The brewers asking for an upfront payment for their brands are making a bad short-term decision and don’t often get the best distributor with this action,” wrote Bump Williams of Bump Williams Consulting in stinging section of his monthly letter.  A “smart retailer” told Bump that quickest way to “‘kill a brand during a launch was to have the brewer pick the wrong distributor.’” In Bump’s view: “Truer words were never spoken. I’ve assessed market launches when the brewer simply took the money from a wholesaler who was willing to pay for the brand and witnessed the ‘death’ of that brewery in the marketplace.”  Why? “The wholesaler that ponied up the $$$ for the brand did not have the best people, the best retail relationships… did not know how to sell craft beer and simply dumped cases into the marketplace to try and recoup their investments only to pick up old beer 3 months later because there was no business plan put into place to drive consumer demand.”  According to Bump: “Most times the distributor with the deepest pockets and the longest arms is NOT the best distributor to build brands for the long-term.” 

This highly controversial issue surged to forefront eighteen months ago when NBB demanded 3X GP from distribs upfront in OH and state officials weighed in. Since then, a number of brewers have continued practice, tho usually not simply labeling monies as upfront payments for brand rights, from what we hear. SweetWater, for example, asks for a whopping 4.5X GP and reportedly sometimes gets it.  

Hop and Wine is a near 1-mil case craft distrib in DC and VA.  Just signed agreement to sell off small % of its volume (less than 20%) tho most of its territory to downstate VA distribs Blue Ridge and Loveland.  Deal expected to close by end of May.  Totals less than 200,000 cases.  Hop and Wine website calls itself “Mid-Atlantic’s premier distributor of craft beer, wine and other libations.”  It represents such craft brewers as Lagunitas, Dogfish Head, Bell’s, Founders, Oskar Blues, Stone and many more in part or all of state.  Recall, Stone is building brewery in Richmond, which will presumably lead to much bigger presence in VA.