No wonder so many distribs and brewery execs had smiles at NBWA/Brewers Legis Conference. At least one key measure—beer sales in big supermkts—shows industry got off to great start in 2000. Yr-to-date thru Mar 26, case volume up 4.2%, $$ sales up 8.6% as avg price paid for case-equivalent up 60 cents, 4.2% to $14.88, according to IRI. Three of top 4 suppliers posted double-digit dollar gains Jan-Mar: AB, Coors and Barton/Gambrinus. At same time, Heineken $$ sales up 21%, Guinness up 20%. Import and micro segments gained 1.4 share of $$ YTD to over 20. And get this: each top-8 brand family and 19 of top 20 brands built dollar sales YTD. Most recent trends even better. For 4 weeks thru Mar 26, $$ sales up 11%, volume up 6.7%. AB dollar sales up 12% for 4 wks, Coors up hard-to-believe 19.2%. Miller improved 4-wk $$ trend to +4%, much better than 1% YTD gain.

Beer biz is starting new millennium off with a bang, judging by most distribs INSIGHTS talked to at NBWA/BI spring legislative conference. Lotsa distribs, large and small, AB and non-AB, up big in 1st qtr. Haven’t seen such an optimistic bunch about total beer biz in many a moon. But there’s new threat on horizon: OSHA’s ergonomic regs, which would cost distribs 30 cents a case, according to recent study by Denver Mgt. Whoa! This threat mobilized lotsa distribs so that spring legislative conference had 2d-best attendance ever with close to 1000 people. NBWA prexy David Rehr said these regs are "like a freight train out-of-control," but regs also affect other industries which are fighting against 'em too. Current strategy: enlist Congress and/or OMB to slow down OSHA, come up with more accurate cost estimates (OSHA sez regs would cost total $4.5 bil, other estimates many times higher than that). If that's not successful, could end up in court.

Boston Beer’s core volume up 22,000 bbls, 8.4% in 1st qtr, following 15,000-bbl, 5.6% gain in 4th qtr 99. (That includes iced tea and all Boston beer volume except contract biz out of Cinci brewery.) So Boston up 37,000 bbls, 7% for 6 mos and posted first back-to-back quarterly gains since 96 when Boston peaked at 1.2 mil bbls. Core-brand depletions up 5.9% in 1st qtr. Boston got boost from BoDean’s iced tea, Sam Adams Lager shipments up 9.2%, and seasonal brands even in 1st qtr, but other "year-round styles" down. Apr/May orders "suggest" 18% shipments gain in those 2 mos, Boston sez. Sam Adams brands expected to be up 5.4% and BoDean’s goin’ national same period. Meanwhile, Boston’s per-bbl revs, costs and income holdin’ steady. With revs and cost of goods sold each up very slightly at $152.60 and $67.63, respectively, 1st qtr gross profit per bbl and operating income per bbl virtually the same as last yr’s 1st qtr at $85 and $19 respectively.

Lotsa interesting data and analysis in just-published extensive report on beer biz from Sanford Bernstein’s Bill Pecoriello and Javier Escalante. Their analysis shows that for "every incremental 1% price increase," AB gets 4% bump in operating profits. But a 1% volume increase means just 2% profit growth. Pricing benefits Miller and Coors even more: Miller gets 7% oper profit boost with 1% price increase compared to 3% boost for 1% volume growth. At Coors, 1% price increase means 14% oper profits jump; 1% volume growth means 6% profit increase. So, they reason, economics of raising price "far outweigh" a "volume-driven" strategy (thru discounting). This analysis and other factors lead them to believe current healthy pricing is "sustainable." They wrote also that AB is gaining share even tho it sells at premium to Miller in many mkts, showing AB doesn’t need to hold or lower price to grow. AB left "easy money" on the table late 99/early 2000 by not raising Bud/Bud Light prices in core mkts. So, AB can "easily" increase prices in those mkts in late 2000, early 2001. Miller won’t be "price disrupter" by discounting, they further believe, because it "bought" 2 yrs with Pabst contract biz to "fix" its own biz. Miller’s profits from Pabst biz reduce "incentive to steal volume essentially from itself." Besides, Miller has raised price on core brands in key mkts, and discounting could ruin Miller’s "end-game" option to sell or merge (if it doesn’t return to growth), because discounting would hurt premium image, they say.

Other interesting data from Bill and Javier: Coors has 50% of its biz in its top-5 mkts, compared to 35% for AB, 39% for Miller in their top-5 mkts.... Market research data suggests to them that Coors Light losing "acceptance" among 21-24 yr-olds, tho still strong among 25-34 yr olds.... Their data show Coors Light has gone from selling in supers at a premium to Bud Light in its hi-share mkts to selling at a discount over last 5 yrs.... AB, Miller and Coors average $47.44 gross profit per bbl, $25.44 oper profit per bbl on super-premium brands. That compares to gross/oper profits of $39.20/$19.64 for premiums, $21.56/$11.06 for sub-premiums.

Here’s instance where distrib-brewer spat pulled in another big brewer and state assn. Last fall, Mile High Bevs sued Miller in Montana state ct over Miller’s distrib contract. Cited 22 specific sections and the Performance Standards, which it claims violate Mont franchise law. Mile High also said it signed contract in Dec 98 "under protest and coercion." Distrib’s primary beef: contract violates franchise law protection that distrib "is free to manage his business in the manner the wholesaler deems best," including right to set prices and "determine the effort and resources the wholesaler will exert to develop and promote the sale" of beer. Mile High claimed too that Miller sent it termination letter under those provisions. Sought declaration that contract includes "unconscionable and unlawful provisions," and asked court to strike them from contract. Miller responded that parts of Mont franchise law that Mile High cites are unconstitutional, and Mile High hasn’t suffered any "irreparable harm," only (potentially) money damages. Also said it postponed termination proceedings. At presstime, Mile High still selling Miller products.

At that stage, this suit looked like similar Miller-distrib hassles in Minn, Va and Nev, tho those cases involve acquired brands. But things got more interesting. First, Montana Beer & Wine Wholesalers assn voted to file brief in support of Mile High’s lawsuit. Then AB got wind of that decision. AB northwest region veep sent out tuff letter to AB’s Mont distribs in mid-Jan: "We profoundly regret that the MBWWA’s decision has placed you in a potentially adversarial position" with AB. Why’s that? AB sez Mile High’s "challenge to the Miller agreement is so overreaching that it may be construed as an attack on valid provisions" in AB contract. Letter didn’t specify which provisions. AB did write that it "may have no choice but to intervene in the lawsuit to protect its rights" and its contract. Also reminded distribs that AB contract had been vetted by wholesaler advisory panel, that distribs "willingly" signed it, and that the contract "was never intended to and does not threaten your freedom to manage your business." Also wrote it was "deeply distressing" to AB that its distribs might participate in legal challenge that could "invalidate" parts of AB contract, especially without discussing it with AB first. AB then had mtg with its Mont distribs late Jan. Subsequently, Mont distrib assn decided not to file brief in support of Mile High. At presstime, case pending, and so far AB hasn’t filed brief either.

A lot of action on Miller/Coors deals in top 10 metro areas. In fact, Miller/Coors deals occurred in DC, SF Bay area, part of Chi, and Houston in last 12 mos. Add San Antonio, Greensboro-Winston Salem, and Norfolk and Coors/Miller deals got done in 7 of top 50 in last yr. And deal in works in at least 1 more top 10 metro area. There are now Miller/Coors distribs in at least part of about 15 of top 50 metro areas. Top 10 mkt areas alone have over 30% of US population.

Most recent additions to Miller/Coors fold: In SF, Cal Bev sold 800,000 cases of beer (including Coors, Heineken) to Golden Brands, but Beck’s went to AB distrib Matagrano. In Tulsa, Larry Fleming bought Coors branch and Miller distrib Green Country Bevs, totaling about 1.6 mil cases. Larry also owns another Okla operation and Wichita, Kans distribs. In another deal, big got bigger. Jeff Honickman and Dominic Origlio bought 50% of Kramer Bevs in South Jersey, a 4 mil+ case operation. Jeff also owns 50% of Manhattan Beer (which sold over 20 mil cases in 1999) and owns 50% of A. Origlio, Inc (Dominic is his partner there) about 8 mil cases. So collectively, Jeff’s family has interest in well over 30 mil cases of beer. But that is smaller part of family holdings: Honickman family is also 1 of largest private soft drink bottlers. Next issue: a number of AB deals.

Light beer volume in convenience stores was up 12.6% compared to a yr earlier for 12 weeks thru Mar 18, and light beer case volume was almost equal to regular beer (domestic and import), data from ACNielsen Convenience Track in major mkts show. That light beer surge led to 6.5% jump in total beer sales. In same 12-wk period a yr earlier, consumers spent $108 mil more on regular beer than on light beer in convenience stores. But this yr, they spent only $37 mil more on regular beer. (Regular beer volume up 2.1%, $$ sales up 4.5% for 12 wks thru Mar 18.) At current pace, won’t be long before light beer outsells regular beer in convenience stores. Malt liquor volume off 9.4% in convenience stores, but big jumps in stout/porter and ale sales on tiny volumes.

All 4 of Coors’ top premium brands "achieved solid retail momentum" in 1st qtr, prexy Leo Kiely told Wall St. Coors Light up "at a mid-single digit rate, while Original Coors up again" and Zima and Killian’s "maintained very strong growth trends," reportedly well into double-digits. Original Coors rebounded in its largest mkt, Calif, Coors execs said to analysts and Keystone Light also up in mid-to-high single digits nationally. That's 2d stellar qtr of retail sales growth in a row, but ceo Pete Coors cautioned that "we anticipate that sales-to-retail growth rates will moderate somewhat during the balance of this year." Cfo Tim Wolf focused financial analysts on benefits of consolidation: "Our domestic sales trends are also benefiting from our growing role in retail category management and from accelerating consolidation of our wholesale network. As our distributors combine with others-—particularly with Miller distributors, their economics improve, they can invest more resources behind our brands and they become more competitive with the market leader.... As evidence of this," he said Miller/Coors distribs "continued to outpace our overall network by a significant margin" in 1st qtr.

Coors prices increased 3% in about half of its volume since last fall and its mix shifted to higher-price beers. This mix shift, including "Zima exports to Japan and import beer sales by Coors-owned beer distributors," accounted for about half of Coors’ 3.6% rev per bbl increase in 1st qtr. As volume and prices up, Coors operating income up 15% to $21 mil even tho cost of goods up 5% and mktg gen and admin costs up 5.5%, $8 mil too. That $8 mil "almost entirely due to higher spending on marketing, sales, promotions" etc. Coors said increased cost-of-goods "primarily" because of "mix shift" to "more expensive products and packages" like Zima, long-neck bottles and imports sold by branches. Without the mix shift, Tim noted "cost of goods sold per barrel would have been virtually flat." Finally, Coors noted shipments "lagged" retail sales because it got double-whammy on inventories; high in Dec 99 because of pantry-loading and high in 1st qtr 99 because retail sales "particularly soft" then and Puerto Rico had "significant" inventories in advance of Apr 99 price increase. So Coors down in Puerto Rico in 1st qtr 2000, but told analysts it expects to get on track there in rest of yr. Canadian biz still up strong.

Tho Miller down slightly on its non-acquired brands in 1st qtr (see above), following gain in 4th qtr 99, profits still on track. Operating income up $17 mil, 12.5% to $153 mil. Revs jumped $58 mil, 5.9% to over $1 bil. Since contract brewing doesn’t show up in revs, implies nearly 4% increase in rev per bbl. Meanwhile, Miller Lite shipments up 1.3%, reported PM in 1st qtr, but Gen Draft "franchise was down." Icehouse and Foster’s "franchises continued to show good growth." Since retail sales of Lite up 3%+ in 1st qtr (see last issue), and 2-3% drop on Miller brands reversed 4th qtr gain, it looks like Miller built inventories at end of 99 too. The 1st qtr of 2000 was last qtr when acquired brands provided purely incremental growth for Miller (Miller started sellin’ em May 1, 99). But acquired brands reportedly still sinking at 20%+ rate. Miller cleaning up its specialty portfolio: sold Shipyard back to its founders and bought out rest of Celis. Each did most of its biz in home states of Me and Tex, respectively: Shipyard up 3600 bbls, 15% to 28,000 bbls in 1999 and Celis at 10,000 bbls, down 3600 bbls, 27%.

You know AB’s biz really healthy when AB ups its guidance to Wall St twice by end of Apr. AB now expects its "domestic" beer biz to grow 3% in 2000 and rev per bbl "almost 2%," not including 4th qtr price increase which it told Wall St is "increasingly likely." AB rev per bbl up 2.1% in 1st qtr. As AB earnings per share up 15% in 1st qtr, it noted that 1st qtr 99 EPS up 22% because of inventory build. So AB also upped its 2000 EPS guidance to an increase in "low to mid-teens." As Jennifer Solomon of Salomon Smith Barney wrote: "These guys are really conservative; they would not raise guidance unless prospects looked really good." AB had a particularly strong profit jump in 1st qtr too. Domestic beer earnings before taxes jumped $65 mil, 11% to $642 mil. AB benefited from "essentially flat" brewing and packaging costs in 1st qtr, AB cfo Randy Baker told Wall St. But AB expects higher costs going forward. Brewing and packaging costs should be up 2% for full yr. While total mktg, distribution and admin costs should be up 2.5% in 2000, Randy expects domestic beer md&a spending to be up "mid-to-high single digits." AB’s equity income (from Modelo investment) up 24% to $39 mil in 1st qtr; other international biz made a few mil, compared to a loss last yr. AB’s 2000 EBITDA "should exceed $3.5 billion."

Bud family up over 5% in 1st qtr 2000 as Bud Light continued up double-digits and Bud "improved." Michelob family up "mid-single digits" continuing "resurgence" that began in 2d half 99. Both Mich and Mich Light "advanced strongly" as AB upped spending on brands. AB subpremium brands up slightly, led by Natural Light. Noting "very favorable" pricing environment, Randy pointed out that all major brewers and importers upped prices "illustrating renewed emphasis" on competition "based on brand equity, not price promotion."