Lately INSIGHTS had heard lots about grapefruit flavored beers coming on (tho obviously still very small) and so we noted with interest Tampa Bay Times article yesterday: “Grapefruit brew has made it to the big leagues.”  Jake and Dick Leinenkugel are big baseball fans and were in town (Tampa) for spring training. Leinie’s Grapefruit Shandy rolled out Mar 1.  Grapefruit Shandy is Robin to Summer Shandy’s Batman, prexy Dick Leinenkugel told Times.  They’re brewing 40,000 bbls of Grapefruit Shandy, compared to 540,000 bbls of Summer Shandy, said Dick, but he “believes there’s plenty of room for growth.”

Grapefruit beer market “grew triple digits  in 2014,” MillerCoors ceo Tom Long told Mil Biz Jnl.   Both Forbes and Bon Appetit “identified grapefruit as one of 2015’s trendiest flavors.”  Alchemy & Science’s Illusive Traveler Grapefruit Ale was best received of Traveler shandy line, according to one large distrib.  Meanwhile, Radeberger reportedly has surprise minor hit with Schofferhofer.  Again, all these are small.  Also flying and at least as significant: Ballast Point’s Grapefruit Sculpin.  It’s almost ¼ of the size of the regular Ballast Point Sculpin in SoCal, according to 1 large distrib and accounts for almost 40% of total Sculpin growth there (nearly doubling YTD).  There’s many more.  Grapefruit, check it out. 

The Marketing Agencies Assn in the United Kingdom called for a strike Apr 7 against ABI, citing “despicable” practices “imposed on its members,” according to Bloomberg.  In an e-auction, ABI asked agencies “how low they would go on their ratecard, how many hours’ work they would offer for free and how much longer they would extend” past current 120-day term, plus looked for how much over minimum 5% rebate clients would give to ABI’s responsibility program called BetterWorld, reported campaignlive. “What would make this a ‘better world’ would be for AB InBev to stop screwing agencies over payment terms,” said MAA’s managing director in statement.  ABI has around 5 agencies in UK.  “Payment terms are always set as part of a broader commercial negotiation,” said ABI spokeswoman.  “As part of the process, we ask all potential partners to provide details on many dimensions of their service so we can evaluate in a fair and objective manner the proposals we receive.”   

With plaintiffs’ attys “running out of targets” in food biz, focus shifting to alc bevs to bring cases over perceived mislabeling and/or deceptive ads, atty Chris Cole told NABCA legal symposium earlier this week.  So “you have a target on your head.”  That’s especially as producers now selling “taste plus” attributes like “natural,” “handmade,” “organic” etc.  Indeed, two well known liquor brands – Tito’s Handmade Vodka and Maker’s Mark bourbon – already facing lawsuits charging their use of “handmade” is deceptive. And AB faces allegations that its Bud Light Lime Rita brands deceive consumers regarding calorie/carb counts.  Then too, with so many new brands and brewers spawned by craft explosion, MillerCoors atty Shelly Watson said marketers are “pushing buttons to differentiate products” and it’s “challenging” to develop points of difference.  While AB and other alc bev producers have relied on their labels passing TTB muster and thus argue these suits pre-empted, not clear courts will agree or whether label approval will extend to protect advertising claims.  TTB will review industry ad material too, but no pre-clearance necessary as with labels and as Shelly noted, brewers (MC included) generally don’t pre-clear ads with TTB. Presenting mandated specific info on label is one thing, but ad clearance from single compliance office likely to carry “less weight” before a judge, Chris suggested.  Similarly complaints resolved under voluntary ad codes adopted by industry assns, even if reviewed by “outside experts,” not likely to carry much weight before judges, Chris and Shelly agreed.

Food co’s have been “under attack,” said Chris, noting about 200 lawsuits over food ads/labels, from claims of “natural” to “health benefits,” use of GMOs, ingredient verification (a dietary supplement issue) and more. Food cases have been settled (often plaintiffs’ attys’ goal all along), said Chris, for $40 mil or more.  Copycat cases abound.  And alc bevs may be entering similar situation, in his view, citing the recent round of cases in liquor/Ritas.  Strict labeling claims may be fairly clear cut, Chris points out, but “implied claims” in ad copy is a greyer area.  Issue has even hit US Sup Ct, where Chief Justice Roberts separated potential consumer confusion (over how much pomegranate was in Coke product) from FDA regulation (which Coke insists it met.)  That’s a  reason to keep eye on whether AB gets case about Ritas dismissed due to TTB’s label approval. 

National Advertising Division of Better Biz Bureau has non-binding process to review ad claims between competitors, and AB and MC have both used NAD process (recall “President of Beer” and Miller’s “taste protector” ads), but Chris views NAD as “risky” since it often looks for way to “make both sides win.”  Here’s another caution.  Producers like to use informal surveys of consumers to see if they’re getting the right message in labeling or ad copy.  But “litigation research is very carefully controlled,” Chris advised. And the threshold for unacceptable level of deception is pretty low.  Indeed, if as few as 15% of consumers appear to be deceived by a producer’s “implied claim,” the plaintiffs’ claims against the producer “can move forward.” 

Shelly gave interesting example of where MC slipped up on one label, then fixed the issue in a subsequent brand.  Leinenkugel Cranberry Ginger Shandy was a seasonal beer (no longer in mkt) and got approved label, but it was flavored beer and did not have cranberry or ginger. But label copy on Leinie Grapefruit Shandy clearly discloses it’s a shandy with “flavor of citrus,” a traditional wheat beer “combined with grapefruit flavors.” 

Net-net: lotsa reasons why alc bevs are in “crosshairs of plaintiffs’ attorneys”:  1) those attys running out of food targets; 2) alc bev co’s have “deep pockets” (most important criteria according to one well-known plaintiffs’ atty); 3) producers now “saying more” about their products to differentiate them (“taste plus”);

4) regulatory uncertainty; 5) lack of clear definitions of pre-emptions; 6) alleged injuries from higher price points invite claims (key is difference between what consumer paid for given product and what he or she would have paid if they were not deceived by an implied claim); 7) permissive legal environment (Northern Dist of Calif now known as “the food court”). 

The 2015 Beer INSIGHTS Spring Conference, focused on the exciting high end of the beer biz,  will take place May 11-12 at the Ritz Carlton in Chicago.  Just added: Revolution Brewing’s managing partner Josh Deth will join Firestone Walker co-founder David Walker in a wide-ranging panel discussion moderated by BMI’s Benj Steinman.  Also, on Monday afternoon, Goose Island will host a special event for conference attendees, visiting their barrel warehouse and brand new tap room in Chicago, before the opening reception.  The conference program on May 12^th will feature presentations and interviews with the industry’s leading high-end players, plus top craft execs, keen quantitative analysis, actionable insights and much more.  Get up-to-date with the latest high-end trends and network with your peers at the Beer INSIGHTS Spring Conference. Space is limited. Click here for more information and click here to reserve your spot.

Strongbow is launching its 2d natl TV ad campaign, which will feature actor Sir Patrick Stewart (Star Trek and X-men), Heineken USA announced today.  The new commercial “will air in two versions with alternate endings” as 15 second spots “supported through a mix of traditional and paid media, digital, PR and experiential marketing” (the second version “will debut later this year.”).  Strongbow is featuring cider poured over ice, which is a “unique” position in the US, co noted at its Natl Distrib Conference late last mo (see Mar 3 issue).  Gotta note, it’s not typical to see a brand as small (by comparison) as Strongbow get a natl TV campaign (first campaign “Bestest” launched in Oct last yr). Yet Strongbow family comin’ off a strong 2014 and HUSA repeatedly emphasized its belief in US cider category and willingness to invest big $$ in Strongbow at its NDC.  Last yr Strongbow family of brands doubled its biz to 479,800 cases in IRI multi-outlet + convenience data, as revamped Gold Apple Hard Cider and new Honey brand more than made up for phase out of older Strongbow Apple brand.  Total Strongbow depletions up 20%, but took off in Q4.  Also recall, HUSA added two new Strongbow flavors, Red Berries and Ginger, to its portfolio this yr as part of its new variety pack (see Mar 3 issue).  The variety pk will be “sold nationally” and is “available year round,” sez co.    

Just prior to MillerCoors convention last week, INSIGHTS had our first opportunity to sit with new Molson Coors ceo Mark Hunter, who just took over in Jan.  Asked how Molson Coors might change under his leadership, Mark said there would be “no left turn or right turn,” rather that Molson Coors “path” is “consistently forward.” Mark worked closely with former ceo Peter Swinburn for many yrs and will continue executing plan in place, with perhaps an “accelerated” push of “international brand development agenda,” said Mark.  Coors Light doing very well in many mkts, such as Mexico, UK and Ireland.  When INSIGHTS pointed to what many analysts and media reports called a tuff Q4 for Molson Coors with some 2015 “headwinds” and “vulnerability,” Mark pointed to Molson Coors earnings power (EBITDA at $1.5 bil in 2014), low debt levels, and #1 or #2 positions in many of its top mkts. “Beer is a long game,” said Mark and Molson Coors will “not be distracted” from executing its game plan by one qtr.  Further taking long view, Mark pointed out that Coors, founded in 1873, and was “Colorado’s original craft brewer.”

Mark had some interesting perspectives on US issues.  The search for Tom Long’s replacement is a “work-in-progress.” MillerCoors “deserves a great new leader” and so the process will take “as long as is necessary,” Mark told INSIGHTs.  Later in day, at MC convention, he called search “#1 priority” during panel also featuring SABMiller ceo Alan Clark, adding “we’re on it.” What about having 2 pricing and 2 ordering systems?  Integrating that “involves a lot of heavy lifting” Mark told INSIGHTS, but “we’re going to get it done.”  AB has bought 4 craft brewers, while MillerCoors bought just ¼ of Terrapin. Does MC need to buy more craft?  AB is “running fast to catch up with us,” maintained Mark, because Tenth and Blake is “biggest craft beer” player.  MC seeks to “build, borrow, buy” to grow further in craft space.  “We will build our position.”   Molson Coors made UK and Canadian craft acquisitions that built its position in those markets.   Recall, “we do not expect to see margin expansion” at MillerCoors in 2015, Mark reiterated, but MillerCoors has “to play to win” in US beer. 

Over the yrs, lotsa industry execs/attys have lectured state regulators at mtgs like NABCA legal symposium about how they need to change “Prohibition-era laws” to accommodate their new biz model/tweak.  That wasn’t style of (very) young founder/ceo of Drizly, which coordinates home delivery of alc bevs via local retailers, in talk at NABCA mtg.  Far from it.  Instead, Nick Rellas insisted “disruption is foreign to us.  We’re not here to disrupt,” but rather to “be a friend to industry,” respect the 3-tier system and work within state laws.  His aim: “to help the industry and retailers use the power of social media” and ever expanding mobile technology.  Drizly never enters mkt without getting “explicit state approval” beforehand, Nick pointed out, and now working with 15 different law firms across country to obtain that approval.

Drizly’s driving fast.  Fulfilled its first order in Feb 2013, now in 14 states and adding another handful soon, said Nick.  Also just landed $70 mil in institutional venture capital.  It’s gone from 2 employees to 35 and will have 70 by end of this yr.  Unlike many tech companies, Nick quipped, Drizly understands that retail stores they work with “have to make money.”  Drizly app, he claims, has improved profitability for its partners and in some cities delivery has grown to upwards of 15-20% of store’s biz.

There’s growing number of delivery apps/systems out there, with different models.   Here’s Drizly’s.  “We never touch the money, we don’t process the [credit] card,” Nick notes.  Nor does Drizly “touch the alcohol.” The retailers they work with collect the money and deliver product. Drizly’s policy is to have retailers use a “W-2 employee” deliver.  That “keeps us straight and clear.”  So what exactly does Drizly do?  “We connect consumers with the local partner.”  Drizly provides the app consumers can use to order alcohol.  Order goes to retailer which processes the card and delivers.  There’s no mark up; retailer sets the price.  There’s a $20 minimum order and a $5 fee paid to the retailer. 

Drizly gets a licensing fee every month from retailer that varies depending on radius of service, the type of store, the geography and other factors. Fee does not “float” but is fixed for term of contract.  Nick describes Drizly as “fulfillment system” (like Uber) that provides best practices info to allow stores to “be efficient at delivery.” It also provides an “advanced ID detection” system used by drivers.  Where possible, Drizly app “blocks out” college neighborhoods so students can’t use system. Otherwise, Drizly designed to get delivery to consumers in 20-40 minutes.  Drizly believes 3 drivers per retailer “better than 9-10” and advises drivers should not have to drive more than 9-12 minutes in any direction and stores shouldn’t expect drivers to do more than 1.5-2 deliveries per hour. (Editor’s Note: not sure how that math works, unless each delivery pretty sizable.)     

How does Drizly pick its partners?  Key criteria include: technological sophistication, updated systems so consumers see accurate inventory and pricing, breadth of selection, cleanliness and what Nick called “management hierarchy.”  Drizly seeks access to hands-on store managers that understand and run the system. Does Drizly demand exclusivity (it being the only app store uses for home delivery)?  No. Can store employee reject a sale, say based on past problem at address or suspicion at point of delivery?  Yes, store has “final discretion over the sale,” drivers can refuse delivery, return alcohol to store and consumer gets $20 re-stocking charge.  (Gotta wonder how often that happens.) Naturally, Drizly’s developing lots of valuable data on its customers, who buys what and how much, tho now using data internally, not selling it back to vendors.

Tho Drizly is a consumer app, Nick contrasted it to Uber, which he said set itself up in opposition to (taxi cab) regulation.  But Drizly “does not have that fight…. The regulator is our friend.  We’re not working against them.”  Lotsa small competitors entering delivery field, but “they don’t do what we do.”  Nick’s most concerned about whether Amazon  or Google will enter field, since they are “overfunded, have an infinite investment horizon” and enough money to invest in changing laws to allow them to sell more, make more, and deliver faster and shut out smaller co’s like Drizly.   

On Mar 6, four distribs filed motion “for further relief” against Pabst in US Dist Court in Ohio, charging that Pabst’s Feb 3 termination notice (see Express Vol 17, # 22)  is just a redo of the same failed termination attempt that Pabst tried last time it  got bought (Metropoulos family in 2011).   Recall, Court threw out those terminations because Pabst didn’t provide timely notice.  “Yet despite the Court’s ruling, Pabst has recently attempted to terminate those same distribution contracts with the same Distributors based on the same justification—a change in the parent holding company that owns the stock.”   The distribs are Bellas Co d/b/a Iron City Dist, Tri-County Wholesale, R.L. Lipton Dist, Esber Bev Co.  They again argue that Pabst’s new ownership does not qualify as a “successor manufacturer” under Ohio statute and seek: “declaration that Pabst’s recent termination is unlawful and ineffective,” “preliminary and permanent injunctive relief prohibiting the attempted termination” and “an Order establishing an expedited schedule to resolve this dispute.” 

But Pabst sez  “plaintiffs overlook the fact that Ohio law regarding the termination of alcoholic beverage distribution franchises has evolved significantly since those briefs were filed,” in memorandum filed late last week.  Pabst points to 2 recent cases that “clarified” a “new owner’s” ability to “assemble their own team of distributors,” according to Court as long as they “provide timely notices and compensate those distributors who are not being retained.”  Moreover, plaintiffs “overlook the fact that the only issue addressed by the Court four years ago, i.e. whether Pabst violated the franchise agreements by failing to give 60 days’ notice of termination, will not be at issue now…. Because the recent terminations have nothing to do—factually or legally—with the terminations at issue four years ago, their motion should be denied.”  Distribs’ motion acknowledges that “defect in the notice was dispositive” 4 yrs ago hence “the Court did not reach Distributors’ other arguments.”  But Court “ideally positioned to address” other arguments, note distribs, especially since those arguments “previously briefed to the court.”

Pabst ceo Eugene Kashper told INSIGHTS:  “We are 100% supportive of the three tier system and value the role of distributors – where would we be without them?  But sometimes business requires difficult decisions - there are certain distributors who may have had rights to some of our brands for a couple of generations and we are truly grateful for their efforts over the years.  Ultimately, it’s a competitive industry so we need do what is best for our portfolio in each market, and we have no doubt that our actions comply with the law. ”

After showing growth of nearly 3% for one 4-week period earlier in yr, beer volume just level latest 4 weeks thru 3/7 in Nielsen all outlet + convenience.  What’s more, avg prices up 44 cents, 2%.  Trading up continues, but at slightly slower pace.  All above premium segments gained under 2 share of $$ (1.9) for 1^st time in awhile.  Hi-end led as usual by craft (which includes Blue Moon and Shock Top in Nielsen data).  Craft volume up 10%, $$ up 13%, gained 1 share of $$.  Cider “slowed” to 45% growth, but still gained 0.4 share of $$$. Biggest losses in premium lights. Premium light volume down 1.6%.  And segment lost fully 1 share of $$ in latest 4 weeks.  Below premium segments dropped 0.7 share of $$.  Interestingly, larger pack sizes challenged during period, especially 18-packs, as Nielsen noted.  The pack that Pennsylvania brewers fear the most, i.e. 18-packs, dropped 6% last 4 weeks and lost 0.8 share of $$ and cases.  That’s on top of 5% loss in 2014.  

Craft hit 11 share of total beer volume in 2014, Brewers Assn announced today, +18% for second year in a row. Recall, BA craft definition, and therefore craft stats, adjusted last year. Biggest change is inclusion of almost 3 million bbls of Yuengling volume for first time. So 22.2 mil bbls now under BA craft umbrella.  BA tracked 3,464 total US breweries last year, +19%. As usual the vast majority, over 3,400 count as craft for BA. And number of smallest breweries in US keeps gettin’ bigger and bigger. Once again, number of microbreweries (less than 15K bbls) grew fastest, +24% to almost 1,900 last yr. Number of brewpubs +10% to over 1,400. The BA counted 135 regional craft breweries that each produced over 15K bbls in 2014, up from 119 in 2013. Many more breweries opening than closing.  BA tracked 615 openings and just 46 closings.