Miller added lotsa media "weight" in 1st qtr as it upped support for Miller Lite and Miller Gen Draft by $16 mil, according to Competitive Media Reporting, which tracks spending in 11 media. Miller spending on top brands up $12.4 mil, 42% to $41.7 mil. That was still $11-13 mil less than Miller spent on top brands in 1^st qtr 97 and 98. AB upped spending a modest $4.1 mil, 5%. Coors boosted spending $2.5 mil, 19% to $15 mil. Coors generally spends relatively little in 1st qtr (recall that Coors had outspent Miller full-yr 99). Big importer spending trends mixed.

AB jumped Bud spending by over $10 mil, 25% to $51.6 mil (lotsa Whassup), but cut Bud Light spending $8 mil, 24%. Busch/Busch Light spending up modestly. Michelob (family) spending hiked $4.2 mil, 69%. Even with big Miller and Coors spending increases in 1st qtr, AB outspent Miller by more than 2 to 1, outspent Coors by nearly 6 to 1. Miller brought Lite spending back up to same $27 mil it spent in 1st qtr 98, a $9-mil, 51% hike. That was still $11 mil less than Lite support in 1st qtr 97. MGD spending jumped $6.7 mil, from $2.6 mil to $9.3 mil. That was $6 mil less than Miller spent on MGD in 1st qtr 98. At same time, Miller sharply cut support for Molson USA brands, Icehouse and High Life. Coors held spending on Coors Light; jumped Original Coors support $2 mil, 73%, and made big % jumps in spending for Keystone and Killian's.

Barton/Gambrinus spent a little over $2 mil on Modelo brands in 1st qtr, quintupling what they spent in 1st qtr 99. Heineken USA held spending at $11.1 mil; Heineken brand got 4th highest spending of any brand. Guinness and Labatt USA made big % reductions.

Boston, Redhook and Pyramid—about 1/4 of specialty market--each put together pretty good string of volume gains last few qtrs. Each up in 2d qtr 2000. Boston up almost 9% for 6 mos (including tea); Redhook up 11%. Twelve-mo trends okay too. Pyramid running 2-3% ahead after being down in 97 and 98, up slightly in 99. Boston and Redhook each down in 97, 98 and 99. Boston has continued to make money all along. Redhook and Pyramid each had operating profits in 2d qtr 2000 following 7 (Redhook), 11 (Pyramid) straight money-losing qtrs. Each still booked operating loss for 6 mos, tho that’s before key 3d qtr.

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Distrib protections under Wisconsin Fair Dealing Law are being tested again. Not long after Beer Capitol challenged Guinness termination, General Bev Sales, an All Others distrib, sued 3 suppliers and 4 distribs, including Beer Capitol, in separate action in state court. German brewers Bitburger and Erdinger, suit charges, sent letters terminating General in early June, and Scottish & Newcastle gave "oral notice" later in Jun that it would terminate. None of these suppliers had "good cause" to terminate, sez General; none gave 90 days notice and none gave 60 days to cure deficiencies as provided by Wisc Fair Dealing Law (assuming General considered a "dealer" under that law). General claims distribs "acted in concert" with suppliers to violate franchise law. This "conspiracy...is evidenced by the overt acts" of the terminations "at the same time as" the suppliers appointed the other distribs "to replace General Beverage," suit alleges. Adds that distribs interfered with General’s agreements by "inducing and assisting" the suppliers in violating General’s rights. General seeks injunctions to stop terminations, plus damages. General has sold Bitburger, Erdinger and S&N brands for "several years," it sez, but doesn’t say how many cases. Recall too that distribs also battling each other in Wisc over changes to tied-house rules, and that Miller terminated a dozen Wisc distribs who had brands Miller acquired last yr. Gotta make state assn mtgs lotsa fun.

Guinness Bass Import Co (GBIC) decided to terminate 5 distribs and consolidate its biz in Milwaukee area with AB distrib Beechwood "for several reasons," declared regional sales director for Guinness in Beer Capitol lawsuit. These include: "Beechwood’s extensive penetration of grocery store chains," "Beechwood was part of the Sheehan family of distributorships" with "whom GBIC already does substantial business," and AB "distributors are widely recognized in our industry as excellent distributors from the standpoint of organization, customer service, market penetration, etc." Guinness further believed Beechwood "personnel would do a better job of promoting GBIC brands." Before the change, Guinness "had to deal with five different sales organizations and five different sets of personnel as well as five different delivery and billing systems." Arguing against granting Beer Capitol a preliminary injunction, he said that Guinness would be "substantially harmed" because Beer Capitol could use period of injunctive relief to "persuade its customers to replace GBIC’s brands with other products that Beer Capitol will continue to sell." In fact, he said Beer Capitol recently acquired rights to Newcastle which "competes head-to-head" with Bass, also imported by GBIC.

Imports have now cycled thru effects of most of large price increases in late spring, early summer 99 and are growing faster again. Import volume up 19% for 4 weeks, 18% for 13 weeks, 16.4% YTD in supers, according to IRI (not including Lowenbrau either yr). And as import growth rate gained steam, increase in avg price paid moderated. That is: up 92 cents, 4% YTD, up 82 cents for 13 weeks and 73 cents last 4 weeks. In fact, for 4 weeks thru Jul 23, avg price paid for #2 import Heineken 3 cents lower than last yr and for #3 import in supers, Tecate, 77 cents lower. Even avg prices paid for Corona up only 53 cents, 2% last 4 weeks, compared to 6% for 52 weeks. Look at trends for top 5 imports yr-to-date: Corona volume up 11%, Heineken up 21%, Tecate up 33%, Labatt’s Blue up 15% and Corona Light up 26%. Other imported light beers continued 20%+ growth: Amstel up 22% and Labatt’s Blue Light up 28%. Pacifico volume doubled, catapulting it to #10 import. Molson USA brands continued to underperform: only Foster’s up 5% in supers YTD. Molson Ice down 23% and Molson Golden down 15%. Beck’s also down at double digit pace in supers. Meanwhile, import $$ sales gained 1.7 share to 16.7 last 13 weeks. Corona at 4.9 share of $$, up 0.2 for 13 weeks, while Heineken at 2.4, up 0.3. Those 2 brands gained more share of $$$ than any other brand except Bud Light.

This is 2d important fed ct decision in a mo about distribution issues. In first case (see last issue), fed ct in Minn ruled Miller could not terminate distribs in that state to move brands it acquired from Pabst. But in this case, Wisc distrib Beer Capitol (BC) lost bid to stop termination by Guinness (GBIC) even tho US Dist Ct judge said BC would be "hit hard by the loss of this supplier." Judge’s decision raises questions about value of secondary brands, distribs’ ability to stop suppliers’ consolidation plans, and extent of state franchise protections, especially since GBIC has indicated it "may" use same approach elsewhere. Recall that BC sued GBIC in Jun after GBIC terminated it and 4 other Milwaukee-area distribs to create "the most efficient and effective distribution network in this market." It offered BC 1 yr net profits on GBIC brands.

Tho judge wrote this was a "close call," he refused to grant injunction to stop termination. Most important, he determined BC was not a "dealer" protected by Wisc Fair Dealership Law, which provides that dealers can’t be terminated without good cause. How can that be? Judge weighed lotsa factors, but in the end he ruled GBIC and BC didn’t share goals "more significant than in the typical vendor-vendee relationship," so BC not protected by Wisc law. A critical factor: judge considered BC’s GBIC biz "small." GBIC brands were 8.5% of BC’s sales in 99, about same as in 95. GBIC was 3d or 4th biggest supplier for BC each of those yrs. BC had built GBIC sales from $1.6 mil in 95 to $2.7 mil in 99 as its total sales grew from $19.6 mil to $31.3 mil (including non-alc bevs). BC claimed it made "gross income" of $455,0000 in 99 but $500,000 gross profit on GBIC brands alone, and would have been unprofitable without GBIC brands. BC also wanted judge to focus on GBIC biz as % of its malt bev sales. But judge didn’t buy either approach. "Such manipulation of the numbers," by looking at malt bev-only sales, "is not permitted," he wrote. "I must look at the whole business to see the extent to which this business is reliant on the supply" of GBIC brands. Judge dismissed BC’s analysis of gross profits as "suspect" and an "accounting technique." Note that a key contention of several beer distrib valuation experts is that big % of distrib profits can come from small % of sales.

Other factors judge weighed: 1) BC had "no employees working full time" on GBIC brands; 2) no evidence of BC "contention" that its employees provided "more service" for GBIC brands than for others; 3) only 1 of 24 BC trucks had GBIC decals, and BC uniforms, stationery, etc made little use of GBIC trademarks. Several factors did suggest BC was a "dealer" protected by Wisc law: 1) BC and GBIC had an 8-yr relationship; 2) BC’s territory was 70% of GBIC’s sales in 7-county area; 3) BC spent $$ on co-op promos. But BC didn’t convince judge its "investments" in GBIC substantial enough to make it a "dealer." (BC had originally argued it provided retailers with "special tapping equipment," but after GBIC pointed out that practice illegal in Wisc, BC subsequently dropped "reliance" on that argument, judge noted. Whoops.) Tho BC claimed it would lose customers if it lost GBIC products that give it a "foot in the door" in certain on-premise accounts, judge said there was no backup for this "magnet brand" theory (another popular theory among some beer industry experts). Nor was there backup for BC claim GBIC products need more "time and effort" than other brands. Tho BC bought GBIC biz for $82,000 in 92, judge wrote that included some promo items and "cannot be considered such a substantial investment" to $30-mil co. In the end, judge ruled that any damages to BC would be "lost profits," which BC can recover without injunction. Distrib takeaway from this decision, according to consultant Mark Rodman: "Litigation is a crapshoot. And going for injunction to veto consolidation -- rather than bargaining dollars for an easy transition -- stacks odds against distributors. Indeed, now Beer Capitol must overcome the judge's sense distributor gets only 'lost profits' for secondary lines. Wholesalers can't depend on lawyers and state laws to bail them out of allegedly pro-competitive consolidation-terminations, except in states with the clearest, strongest beer-specific franchise laws or sympathetic judges."

Total beer volume up 6.2% for 4 weeks in supers, even better than 5% YTD trends, according to IRI. (Recall beer volume growing much faster in large supers than in all channels.) AB volume up 9.6% in supers for 4 weeks thru Jul 23, including weeks before and after holiday. It gained 1.4 share to 44.7 those 4 weeks. Bud Light up 20.2% and 1.7 share in same period. Imports also gained more than a share point in supers for 4 weeks thru Jul 23; up 19% and 1.2 share to 10.8. (These numbers don’t include Lowenbrau for either yr.) Coors up healthy 7.5% in supers, but gained just 0.1 share for 4 weeks. Meanwhile, Miller up less than 1% and lost 1.3 share for 4 weeks (same as YTD share loss). Pabst down 17% and lost 1.4 share. Despite good total biz in supers, lotsa distribs singing blues about their Jul sales because of 1 less selling day, lousy weather in much of country and much of buying for 4th of July weekend occurred in Jun this yr. Same buying pattern before Labor Day this yr too. So 2 out of 3 mos in 3d qtr face tuff STR comparisons.

First Word of AB Price Increases in Several Southern and Midwestern States

At presstime, AB had already notified distribs in several southern and midwestern states of Oct price hikes. Plans vary somewhat in each. In big states like Fla, Ga, and Mich, AB going up to distribs on most packaged beer but not on draft. Split is usual 70-30. Biggest increases so far announced in Mich, where AB suggesting 45 or 50-cent increases to retailers on most major brands and packages (even higher increases on single-serves) and further discount reductions. So for instance, AB went up 31.5 cents to distribs on 12-oz packages of Bud, Michelob family. In Fla, AB went up 24.5 cents to distribs on Bud family and 31.5 cents on most other brands. It suggested price increases to retailers of 35 cents on Bud and 45 cents on Busch, Natural and Michelob families. Most of AB’s recent growth in Fla from subpremium brands, so AB looks to close price gap a bit between premium and subpremium. In Ga, AB going up 21 cents to distribs and suggested increase of 30 cents to retailers on Bud and Michelob family. Ga distribs get no frontline increase on Busch, but some discount reductions. And Natural Light going up 45 cents to retailers. In NC, yet another twist: AB going up 75 cents on Bud family 12-packs (probably largest selling package), but no increase on suitcases. No increase on draft. In Kans, AB suggesting 35 cents across-the-board to retailer, with a 70-30 split. But AB suggesting $3.00 increase on draft to retailer, with a 50-50 split. AB held price on a few minor packages. In Colo, AB going up 21 cents across-the-board to distribs. No draft. Meanwhile, in big Tex, Pabst actually 1st out of box, believe it or not. Told its distribs that it expected to take a general price increase there in early Oct. At presstime, AB distribs in Tex hadn’t heard of any fall price hike to them.

August 1, 2000 was key deadline for AB distribs to be compliant with 38 of 38 provisions in AB's Amended Equity Agreement and to be impact-certified. But date came and went and sources tell INSIGHTS a fair number of AB distributors did not meet the deadline. No comment from AB at presstime. While many distribs assumed August 1 was final deadline, instead AB reportedly sent tuff letters to non-compliant distribs; teams of AB employees will visit them soon. But so far, INSIGHTS is aware of no bombs that went off. Meanwhile, several AB distribs working on deals to sell not completed by August 1.

Odds and Ends Another big Miller/Coors deal in Carolinas; SC Coors distrib Chris J Yahnis Corp (about 2 mil cases) bought Miller distrib Schafer Dist Co (over 2.5 mil cases). Yahnis family acquired Miller, Heineken and Seagram in several mkts, including Florence and Myrtle Beach, where it’s already in biz with Coors, Corona, etc and Columbia, Orangeburg and Sumter where it’s not....... Genny talkin "exclusively" to mgt team that wants to buy brands and brewery, Genny board told Rochester Democrat and Chronicle. This followed news that Genny will get $6.5 mil loan and grant package from Uncle Sam.

No-return bottles gained 12 share to 37 of US beer biz from 1989 to 1999. Meanwhile, canned beer share fell from 60 to just 51, returnables fell to 3 share and draft to 9.5, according to Beer Inst data. Bottles---returnable and no-return--—now have larger share than cans in Nev, Calif, Colo, Mass, NY and DC and had an almost or equal share in Va, NC, Ga and Fla. In every state but 2, no-return bottles gained share from the can. And the gains, particularly in bigger-population states, were sizable: in Calif, n-r share jumped from 35 to 46 (gained 10 share in last 5 years); in Tex from 22 to 34; in NY from 35 to 43; in Fla 22 to 43 and Ill from 26 to 40. In only 2 large-population states a different trend: in NJ, n-r bottle share dropped from 37 to 31 (as draft volume grew) and in Penn, n-r share jumped just 1 point from 26 to 27. In these last 10 years, bottles gained 10 or more share in 42 states. Gained 10 or more in 17 states in just last 5 years. In southeast, once the haven of can manufacturers, n-r’s gained 12-24 points in each state. N-R bottles had biggest share gains in Ga 24 points, Me 22, and Fla 21. N-R’s gained 19 share points in Okla, NC, Ala Ind and Mich and gained 17 and 18 Va, SC, WVa. N-R bottles now have highest shares in DC 53, Nev 49, NC 47, Ga and Calif 46, NY, Vt, Fla, Mich and Va 43. Lowest n-r shares: Ia 16, Del 19, Wisc 23, Minn 26, Ida and Pa 27, Ark 28, Conn, Neb and NDak 29, NJ, NH, Ind 31. In most contiguous states, n-r shares are similar. For example, Oreg 32 and Wash 33; in Ariz 37, NM 35 and Tex 34. But there are exceptions. N-R share in deposit states varies widely. In Mich and NY, for example, 43% of beer is sold in n-r bottles; in Ia 16%; Mass 29%, Oreg 32%, to name a few.

In these last 10 years, the old returnable popularity slipped, tho it still had a presence in several states: a 16 share in Mass, 10 in Conn and Pa, 11 in Ia and 7 in NY, but 2% or less in 36 states. In Vt, returnable share slipped from 25 to almost nothing. Ia, Minn and Wisc are only states west of Mississippi where shares over 5.