Wow!! What's this? Sane pricing in Chi, scene of some of bloodiest discounting wars in beer biz. Have to see if it holds in peak selling season, but discounts on 24/12 package reduced by 80 cents in Chicago in Feb. Move initiated by AB, even tho it's not #1 there; other brewers followed. All brewers had raised their prices last summer following state tax increase. So that means prices actually up twice in a 12-mo period. And featured discount price for a suitcase now $12.99, up from $9.99 just 2 yrs ago. Meanwhile, in other market where Miller is #1, Wisc, Miller notified distribs of Apr 3 50-cent price increase on premiums, including front-line jump and discount reductions. Recall Wisc got price increase on subpremiums in fall. Earlier, AB had led with price increase on premiums originally scheduled to go into effect at end of Feb, but it rescinded in absence of Miller move. No other brewer has announced yet if it will follow Miller’s price increase.

Coors volume up nearly 400,000 bbls, 8.1% in 4th qtr. That was Coors’ biggest single-qtr bbls and % gain, by far, since 2d qtr 92. What’s more, domestic trend even better (closer to +9.5%); Coors execs told analysts export biz slowed in 4th qtr as Puerto Rico trend came down to earth. Meanwhile, Coors STRs up 7% in 4th qtr; distrib inventories increased "modestly in response to strong retail pull and in anticipation of incremental Y2K demand," CFO Tim Wolf told analysts. He attributed big numbers in part to 3 factors he doesn’t expect to recur: "unusually warm weather" throughout US, "pantry loading" for Y2K and "one-time volume shifts as some consumers traded down from import beer brands that raised prices dramatically during 1999." That’s first time in years we’ve seen US beer exec talk about consumers trading down. Even if those factors don’t recur, gotta note Coors up 5.5% in 2d half 99. Each of Coors top 5 brands gained in qtr, including mid-single-digit gain for Original Coors. Writing about Coors "blowout" qtr, Skip Carpenter of Donaldson Lufkin & Jenrette, said Coors Light up "about 8%," Orig Coors +5-6%, Killian’s +7-9%, Zima +11-12% and Keystone Light +7-9%. Coors rev per bbl up 3.6% to $94.08 in 4th qtr. About half of increase from higher revs in domestic biz, rest from intl price increase, shift to higher rev products and import sales at Coors branches, Tim told Wall St.

For the yr, Coors shipped 21,954,000 bbls, up 767,000 bbls, 3.6%, almost 2X industry growth rate. Rev per bbl up healthy $4, 4.5% to $93.68, while cost of goods sold per bbl up just 60 cents, 1.1%. Means Coors expanded gross profit margin from 39% to 41%. And even tho Coors raised mktg, gen admin spending by $2.50 per bbl, operating income jumped 20% to $148 mil, and oper and net income each up $1 per bbl (before special charges/ credits). Since 95, Coors more than doubled operating income per bbl from $3.20 to $6.73 as it held cgs/bbl to just $1 increase, jumped mga/bbl $6.80, 27%. These numbers suggest that even as AB "raised the ante" to compete in mktg beer, Coors still in the game. Looking ahead, Tim told Wall St that 1st qtr 2000 will be "adversely affected by wholesale inventory levels in 4th qtr 1999," but recall that Coors shipments up just 0.9% in 1st qtr 99. Coors increased front-line prices "about 3% on a little over half of our domestic volume" over last 5 mos, Tim said. Coors expects "modest" CGS increase in 2000 with packaging costs up slightly, raw materials costs down slightly.

Since AB’s upbeat yr end report, AB’s stock dropped 10 points, 14% to 62, a 52-week low. As stock fell 3 points on Feb 14, AB put out statement that it was "surprised" and "aggressively" buying back shares. Back on Feb 4, AB had told Wall St almost all good news it seemed, including upping its volume estimate to 2-3% (had been 2%) for 2000. AB reiterated that pricing environment "most favorable" in many yrs, that rev per bbl in 2000 expected to be up 1.5-2%, not including potential 4th qtr 2000 price increase, that it’s "comfortable" expecting double-digit earnings gain in 2000. But WHAMMO! Stock slumped anyway. One factor affecting AB: "sector rotation" away from consumer goods stocks to tech stocks. Supporting that thesis, Coors stock also hanging out near 52-week low, despite great 4th qtr (see below).

More highlights of AB’s report to analysts: AB expects its brewing and packaging costs to increase 2% per bbl in 2000, but also expects productivity gains of about 50 cents per bbl. Domestic beer advertising should be up 5-6% in 2000, wrote Skip Carpenter at Donaldson Lufkin Jenrette. In 99, each brand family up for AB. Bud/Bud Light up combined 3%. Mich family "up slightly" as Michelob Light up "strong." Subpremium brands up "mid-single digits." Industry volume up almost 2% in 99, which AB pointed out is around 5x avg industry growth rate in 90s. AB taking price up in just 20% more of its volume in 1st qtr 2000 (following price hike in 43% in 4th qtr 99). While AB lost $20 mil internationally in 99, expects $20 mil profit in 2000. It also said Modelo should provide $180 mil of equity income in 2000, up from $158 mil in 99. Mixed signals in early 2000 data: AB off to fine start in supers: gained more than 1 share of $$ and volume with cases up 7%, $$ up 9% thru Jan 30, according to IRI. But total AB sales-to-retailers less robust as Bud Light reportedly up single-digits and AB down big in Calif in Jan.

Taxpaid shipments by US brewers up 100,000 bbls, 0.7% in Jan, estimates Matt Hein of Beer Inst. That’s pretty good given 3-4% Nov-Dec 99 gains. Feb 2000 has 1 extra shipping day, but recall that Feb 99 shipments posted 3.4% increase and Mar 99 was up whopping 9%, as AB built inventories in case of possible labor problems. Meanwhile, supermkt volume up 2.2% for 4 weeks thru Jan 30, according to IRI; $$$ sales up healthy 6.3%. AB and Coors carried late-99 momentum into Jan. Their volume up 6.7%, 7.5% respectively in Jan, each about 1-2 points lower than 13-wk trend. Miller slowed more; off 4% in Jan, doubling 13-wk dropoff trend (tho Miller Lite, Gen Draft up). Heineken USA and Barton/Gambrinus each up 10-11% in Jan, a slight slowdown for each from low-teen gains for 13 weeks.

AB sales veep Mike Brooks recently wrote dozens of distribs, telling ‘em to get their act together before Aug 1, 2000 deadline for compliance with impact-selling and other provisions in AB equity agreement. Three versions of letter varied depending how far distrib still had to go to be in compliance. Mike told those who ain't in compliance they have only 3 options by Aug 1: "to become compliant," "sell your business" or "be subject to deficiency termination proceedings........ Corona will spend $25 mil on natl tv in 2000, double 98 budget; introducing Corona in cans in Calif; and will have $1 instant redeemable coupons in Fla Apr-May. AB and Miller in ongoing coupon battle in Fla....... Recently closed deals formed Miller/ Coors distribs in Tex, NC, and Wash. In San Antonio, a nearly 7-mil case Miller distrib Halo just bought 1.75 mil case Coors of San Antonio....... In important Tex case, distrib Willow and Heineken have each filed partial motions for summary judgment. Original trial got postponed....... Clarification: Each of dozen deals we wrote about 2 issues ago in valuation article was "vertical," in-market deal, which pushes prices up, consultant Joe Thompson told INSIGHTS...... Correction: Portland Brewing acquired rights to Saxer brands; not a merger. Tho Portland lost $$, sez it’s "cash-flow positive."

Boston Beer said 4th qtr 99 core biz (excluding contract brews) shipments up 5.6%, following 6 straight down qtrs. Fourth-qtr depletions up 1.8% and Boston Lager depletions up 5%. What’s more, Boston sez "orders in hand suggest" 9% gain in 1st qtr 2000 shipments. Most of that will come from intro of BoDEAN’s Twisted Iced Tea as Boston joins alternative alc bev race. In 99, Boston shipments off 53,000 bbls, 4.3%, but about half of that was contract biz. Boston core biz off 29,000 bbls, 2.5%. That’s still about 100,000 bbls below Boston peak in 96. Note too: Boston’s 99 $$$ trends stayed strong. Net rev per bbl (including contract biz) up just $1 in 99 to $150.60, but Boston cut cost of goods sold by $6 per bbl. So gross profit jumped from $77 to $84 per bbl. Ad, promo, selling costs bumped up $5/bbl, but gen, admin spending down a bit. So Boston’s operating income was $14.37 per bbl, up from $11.90 and it added $3 per bbl at net income line to almost $9.50. That’s about $5 more than Coors netted per bbl, about $5 per less than AB.

Miller got into another legal fight -- this time with biggest wine and spirits distrib in US: Southern Wine & Spirits. In contrast to fights in Minn and Va where distribs sued to stop Miller from forcing them to either sign Acquired Brands Contract, sell brands or be terminated, Miller took first legal step vs SW&S. Sued in US Dist Ct in Las Vegas a couple mos ago. Sought judgment that SW&S had to sign agreement immediately or Miller could terminate. Used same argument as in Minn and Va, that under old Pabst, Stroh, and/or Heileman contracts, Miller could issue new agreement to distribs that had brands Miller acquired from Pabst/Stroh as long as new contract went to all "similarly situated" distribs. SW&S had balked at new agreement, insisted it could continue selling acquired brands under old contracts. When Miller asked SW&S to sign acquired brands contract last yr, SW&S sent it back with recommended changes, all of which Miller rejected before renewing threat to terminate. Then Miller filed suit in fed court. SW&S countersued in fed and state ct. Argued that Miller actions violate Nev franchise law which sez supplier needs "good cause" to terminate or make distrib sign new agreement. Southern claims case should be tried in state ct since "intrastate distribution and sale of liquors is specifically reserved to the jurisdiction of the various states" and "the states have extraordinarily wide latitude in regulating all aspects of liquor." Like in Va, part of Miller’s argument is that Nev franchise law conflicts with Commerce Clause, Contracts Clause and other constitutional provisions. Tho SW&S points out that Nev Sup Ct has not ruled on state franchise law, it sent 1997 document to Miller that showed state AG concluded Nev franchise law "cannot be evaded simply by a restructuring or change in ownership of the supplier or by the transfer of the right to distribute a brand of alcoholic beverage from one supplier to another."

Final figures: import shipments up 1.45 mil bbls, 8.8% in 99. Followed 2.1-mil-bbl, 15% gain in 98, 1.8-mil-bbl, 14% gain in 97. In fact, 99 was 1st yr since 95 that imports missed double-digit gain. Still, 3d biggest bbls gain ever and 9% increase ain’t bad, especially since imports' share grew 0.6 to 9% of US beer biz. Came out of gate quick: up 1.249 mil bbls, 21% Jan-May. But picked up just another 200,000 bbls Jun-Dec; up just 1% in 2d half following price increases. Dec shipments off slightly, 0.7%.

One key to slower year: Mexican shipments gain "slowed" to 932,000 bbls, 16%, following 30%+ gains in 97 and 98 (1.2-1.4 mil bbls). Following hefty price hikes, Mexican shipments down 220,000 bbls, 9% Aug-Dec. But even with off 2d half, Mexican beers built share of import mkt from 35 to 37.3; up 12 share just since 96. While Mexican shipments lost momentum, Dutch shipments (mostly Heineken) had best yr since 96. Up 380,000 bbls, 9.6%. Built share of import mkt for 1st time since 92; up 0.2 to 24.3. That’s still about 6 share lower than at beginning of 90s. Imports from all other major source countries slower in 99 than in 98. Canadian shipments down for 3d time in last 5 yrs; off 37,000 bbls, 1.2%. After peaking at 3.2 mil bbls in 94 during brief ice beer bonanza, Canadian shipments off over 100,000 bbls since (even tho hot Foster’s brand comes from Canada). Since 94, Canadian imports lost 13 share of import mkt, from 30 to 17. In 99, imports from Mexico, Netherlands and Canada were just under 80% of all imports to US. German shipments up mid-single digits for 3d straight yr, but dipped below 7 share of all imports. Had almost 13 share in 90. Imports from UK up 77,000 bbls, 8.5%, following 7 straight yrs of double-digit gains. Irish shipments flat in 99, following 76% jump from 96 to 98. Another key to slower yr: Import draft biz flat in 99 at 1.574 mil bbls. Import draft biz had grown steadily in 90s, even in 92 when import total import biz down 10%. Had been up 19% in 97, 16% in 98. Draft biz flat or down from most major importing countries, including 14% drop in German draft. Draft from UK up 2%, but Irish, Canadian and Dutch draft all flat. UK and Ireland are 55% of all import draft biz.

Labatt will intro its own distrib agreement in 2000, "grounded in the yearly development of mutually agreed upon business objectives." Its agreement is "not" an "oppressive tool to bully our wholesalers," an "unenforceable contract of adhesion," or "a document that makes structural demands on how a distributor conducts their business and organizes their people," Steve emphasized. "Instead, we focused on business objectives." Asked that distribs "act with your own economic self interest in mind. Then we will both win because you will focus against high-margin brands that are providing growth -- Labatt USA brands." "We will earn the share of mind we expect," closed Steve.

"Our internal analysis indicates that ... wholesaler margins improved by 4.2%" on avg on Labatt brands, Labatt USA prexy Marc Portelance told distribs at its national sales meeting. While that’s "good progress," that’s not "where we want to be, or should I say, where we want you to be.... All of us are very comfortable with trading some short-term volume for stronger margin," Marc pointed out. While Labatt USA up 11% in 99 and gained 0.5 share of import/specialty (by its own measurement), its "aspirations were not met," Marc said. Lotsa Labatt brands did well: Labatt Blue up 15%, Blue Light up 43%, Tecate up 17%, Dos Equis up 16%, Sol nearly doubled to just over 1 mil cases, and Rolling Rock up 4%. But 2 factors affected short-term growth rates: internal reorganization and "general upward pricing" in 2d half of 99. Nielsen pricing data showed that Labatt USA pricing up 4.7% in 99, Marc said, while import/specialty pricing up 3.8%. Labatt USA still has goals of 7.5 mil bbls by 2002, 20 share of import specialty, Marc reiterated. (Ed. Note: that would be a doubling of LUSA volume in 3 yrs.) He noted that "some minor adjustment" might be needed on "time frame," but "lofty" goals are "most definitely attainable."

Labatt USA pumping it up: spending lots to accelerate volume growth. Will add about 40 people to its sales force in 2000. That’s on top of adding 60 people last yr, sales veep Steve Cahillane said. Field sales will have almost 250 people. Much of increased resources will be devoted to national accounts, which Labatt has "targeted" as a "strategic imperative." In largest off-premise channel, convenience stores, imports have only 3 share, said Steve. Labatt’s national account volume up 60% last yr, but Labatt has only "scratched the surface" in national accounts and has to "get beyond low-hanging fruit." Labatt will also add 25% to marketing budget, which has tripled since 1997, according to mktg veep Tom Cardella. "All in all, we’re spending close to $25 per barrel to build our brands long-term," he asserted. Labatt’s targeted price points: 50 cents above Bud for Rolling Rock, Tecate and Labatt Blue in expansion mkts; Corona prices for Dos Equis; "above" Bud for Labatt in core mkts. Labatt brands will get $15 mil in media, while Rolling Rock gets $12 mil.