NBWA now has 1,649 beer wholesale company members. Lost 92 co’s due to consolidation in 2000, but added 72 through recruitment efforts. NBWA now represents 85% of distribs, has been increasing by 1+ point per year. As distribs get bigger, NBWA dues up $240,182, +5.8% in 2000..... NBWA PAC closin’ in on magic $1-mil figure for 2000..... A number of speeches focused on alcohol issues as NBWA beefs up its efforts in this area. Rick Berman, prexy of ABI assn that represents big, on-premise chains, made provocative suggestion: drop messages that say "don’t drink and drive," since they play into hands of MADD and other anti’s who want zero tolerance for any drinking and driving. NBWA has set up new education foundation to spread word about progress against drunk driving/underage drinking, fund medical studies about benefits of moderation, fight anti’s, and research 21st Amendment issues.... "Death of the death tax is now only months away," said NBWA prexy Dave Rehr.

In 1st speech in yrs to industry-wide audience at NBWA, AB Chairman August Busch III celebrated 1999 volume gain ("strongest in 9 yrs"), and expectations of 1.5% annual growth next 10 yrs. "Times are very, very good," concluded August. Other positive biz trends: "Current strengths of the high-end category offer tremendous opportunity to increase volume and revenue with premium and above-premium brands" and "new products are sourcing volume from outside the beer category, offering additional opportunities for growth for all of us." Another reason for optimism, in August’s view, as industry prepares for "critical" political and legislative opportunities ahead: "There is a new spirit of cooperation among the trade associations that represent the various tiers of our industry." What opportunities? "We must also keep pressing for a beer tax rollback," stressed August. "Depending on the outcome of the elections, next year may well offer a prime opportunity to move these efforts into high gear."

Ain’t agreement on everything tho. Lookin’ at FTC’s recommendation that industry set up independent 3d-party review of complaints about beer ads, August took shot at Coors (without naming it). While AB believes that voluntary industry ad code is effective, "unfortunately another brewer has taken the opposite position and is actively working to promote 3d-party review with legislators, regulators and the advertising groups that would administer such a program. Had it not been for this division in our industry, 3d-party review would be behind us." Majority in industry, said August, "firmly believe that an outside review board would add nothing to the stringent self-regulatory code already in place. At best, it would add an additional layer of redundant activity and create more bureaucracy. At worst, it could allow one brewer to hinder other brewers’ campaigns. In addition, it would give anti-alcohol groups a forum for a continuous stream of groundless complaints." On another alcohol issue, August broached sensitive topic of minimum age without explicitly endorsing law change: "We need to listen to those who say that a law that makes it illegal for college students to drink a beer is wrong and that it results in the very behavior that we are trying to fight.... Instead of pretending that Prohibition on college campuses is realistic, we should be investing in helping those young people learn to make healthy and responsible choices."

Finally, August reiterated AB support of "a vibrant 3-tier system.... We firmly believe that effective and efficient and profitable... wholesalerships are critical to our success.... That is why we oppose franchise laws which unduly restrict the business relationship between brewer and wholesaler, thereby weakening the system.... Franchise legislation where brewers and wholesalers have too often been at odds is not good for us or the industry. It is time to revisit this issue with a spirit of cooperation, understanding and an open honest communication. We need to work together to arrive at business arrangements that provide mutual advantage and mutual profitability without the hindrance of restrictive legislation."

Industry shipments heated up finally as August domestic taxpaid shipments up 700,000 bbls, 4.4%, according to estimate by Matt Hein at Beer Institute. That followed small shipment declines in 4 of last 5 mos. Taxpaid shipments up 1 mil bbls, 0.8% yr-to-date. That’s almost on par with 0.9% gain in all of 99. But domestic shipments pace will be tuff to sustain: Sep 2000 has 1 less shipping day than last yr and domestic taxpaids up 750,000 bbls, 2% in 4th qtr 99. What’s more, there will be at least 1 less day in Dec 2000 too. A tuff target. Meanwhile, imports passed significant milestone in Jul: shipped 2 mil bbls for 1st time in 1 mo. Imports gained 131,000 bbls, 7.5% in Jul; yr-to-date gain rose to 934,000 bbls, 8.6%. Shipments from each of top 6 countries up at least 5% this yr. Dutch shipments up 350,000 bbls, 13.6% and Mexican shipments up 237,000 bbls, 5% yr-to-date. Imports from those 2 countries accounted for 62% of import gain YTD, compared to 83% in all of 99. Shipments from Ireland (+22%) and Canada (+5.8%) each up over 100,000 bbls YTD too. UK and German shipments each up 7% thru Jul. In available domestic and import data, US beer biz, including imports, up nearly 2 mil bbls, 1.6% so far.

"We haven’t and we won’t waver," Miller prexy John Bowlin told its distribs at NBWA convention. "We are on the right track and making significant progress," John said, detailing several commitments to distribs that Miller has kept. Miller has stuck with "premium beers at premium prices.... In the short run, it’s been tougher on our volume than we originally projected, but we are not backing off our strategy." He added: "We could have blinked this summer and reinstituted excessive price promotions but we didn’t." John also told distribs: "We said we’d improve our service to you, our most important customer. We’ve begun to rationalize SKUs, we’re doing a better job of getting you the products you want when you want them and importantly we’re paying our bills on time." John also thanked distribs "for working so hard during this period of transition." That period now "over," John said, "I think you’ve waited a long time.... For all of us, myself included, we can no longer tolerate mediocrity."

At same meeting, Miller also showed new ads that got good reception from distribs. "Best meeting in years" a number opined. Miller Lite is up in 41 of 50 states, said John, with 3 states (Pennsy, Kans and Md) up about 10%. In "key markets" like Fla, Wisc and Ill, Miller Lite up 4-5%. Lite is up in over 400 distribs with double-digit growth in 90. Miller Gen Draft volume up 1% in core mkts too.

Sr veep sales Jim Mortensen detailed Miller’s plans for SKU rationalization and how to manage it. Miller has over 2000 SKUs, including contract production, 3x as many as 10 yrs ago. (AB has about 740 and Coors 270, Miller figures.) Over 40% of Miller SKUs produced only once a month and another 30% only 2x a mo. Miller plans to eliminate 25-30% by Apr 2001, including contract brands. "We can in fact eliminate 25-30% of the SKUs we produce with little volume loss." Miller has already eliminated 118 Miller SKUs including Miller beer, Icehouse Light, some Hamm’s, Southpaw Light and Henry’s SKUs. By end of Dec, Miller will eliminate 33 more SKUs (Phase II) including more Henry’s and "very small packages" within MGD, Icehouse and Lite Ice family. Sr veep Bob Mikulay intro’d new ads and also told distribs that Miller added plastic capacity, that plastic won’t be on allocation any more, that "all plastic orders will be filled from now on."

Just days after Congress voted to pass .08 mandate, it enabled state prosecutors to go after direct shippers in fed courts. The vote for .08 mandate was a switch. When House-Senate Conference Committee first took up bill, vote was 10-7 against mandate, sources say. But that turned into 10-7 loss after Chairman Frank Wolf threatened to make it a public fight. This turnaround reminds of key points made at NBWA convention by retailer assn prexy Rick Berman. First, when drunk driving issue goes public some "friends" decide they "can’t be with you." Second, Rick had said industry could not win a "public vote" on .08 in any state legislature. Turns out, couldn’t win in Congress this time either. Only consolation: states now stand to lose $$$ if they don’t pass .08 than originally proposed.

Congress also passed "21st Amendment Enforcement Act" which allows state attys gen to use fed courts to prosecute direct shippers. Wine & Spirits Wholesalers Assn playing up passage as "beginning of the end" for illegal direct shipments; it noted passage of bill followed on heels of US Ct of Appeals decision that upheld Ind law banning direct shipments. But Wine Inst called law a "narrow? statute that does not grant states any additional power," but maintains approach that 21st Amendment has to be "balanced" with other Constitutional amendment, presumably the Commerce Clause. With or without this law, looks like direct shipment issue headed for US Supreme Ct.

Calif Gov Signs "Compromise Equity Agreement" for Distribs; Vetoed "Trinkets and Trash"

Distribs just got some franchise protection (even if not full-fledged) in largest state where there had been none. Calif gov Davis signed law which sez "notwithstanding the provisions of any agreement," no distrib "shall be terminated solely for a beer wholesaler’s failure to meet a sales goal or quota that is not commercially reasonable under the prevailing standards." This provision seemingly aimed at Heineken’s agreement which calls for meeting mutually-agreed annual biz plan with volume targets, etc. Law also sez that distribs should get "fair market value" for brands in transactions and that suppliers cannot "unreasonably" withhold consent on deals or they face compensatory damages. Top 3 brewers worked with distribs to pass this, tho their support had been questionable at first. In fact, AB chairman August Busch III met with Calif AB distribs about bill. But distribs convinced top AB mgt to work with them on it. Also, key in effort: strong support of powerful state senator John Burton. Brewers (especially AB) also wanted law that would up their spending limit on giveaways (also known as "trinkets and trash") at retail from a quarter to $1.35 per item. But gov vetoed this bill. Sacramento Bee had front-page headline: "Small brewers feel mugged: They say bill to raise freebie limits may put them out of business." Such negative publicity could have influenced outcome.

"We’re exactly on track," said GBIC prexy Tim Kelly at natl distrib mtg to achieve goal of 14% growth to 25 mil cases and $440 mil in revs for its current biz in fiscal yr that ends June 30, 2001. In addition, GBIC targets 10 mil cases for Smirnoff Ice intro in 1^st half 2001. (Editor’s note: Smirnoff Ice is malt-based 5% alcohol product. It enables parent co Diageo to advertise a product with Smirnoff name on tube.) GBIC also plans to spend $120 mil on mktg in fiscal yr on current brands and Smirnoff Ice; over half of that on media. That’s almost $1.75 per case of expected volume; about 7x per case what AB spent on media in 99. GBIC will also hire about 25 more people, Tim said, as it increases focus on national accounts, category mgt etc. New sales veep Ron Neugold, who came from Pepsi, said convenience stores "one of greatest opportunities" because Guinness under 15% distribution there, compared to 65% for Corona and Heineken. Smirnoff Ice is a way to gain in convenience stores. Ron also pointed out that 20% of $$ sales in wholesale clubs are imports.

"We aim to create a brand new category" with Smirnoff Ice, Tim said, which "will be displayed and promoted like a regular beer," but which "generates more than $5.00 per case gross margin" for distribs. Distribs getting brand new contracts too, 1 for Smirnoff Ice and 1 for rest of GBIC portfolio. And while, "vast majority" of existing GBIC distribs will get Smirnoff Ice, GBIC "not exactly" going to "replicate" current network. In US, test mkt results for Smirnoff Ice "outstanding," said Tim. For example, in Austin, it outsold Corona in big convenience chain in month of August, a Guinness exec said.

Guinness Bass Import Co will retain "separate and distinct sales force, marketing and distribution network" in US, prexy Tim Kelly told, even as Guinness/UDV integrated into 1 biz. "We don’t expect this to change, because very simply it works." Not only that, but beer network gets Smirnoff Ice even tho spirits network "would perhaps have been the obvious choice." GBIC network got it because "we believe we can sell more together." Smirnoff vodka distribs who don’t get ice will get benefit from uptick in vodka sales, Tim suggested. Tim took on other recent rumors. "We’ve had the Bass business for over 50 years... It’s our declared objective to keep it here for many years to come..." Tim also said: "We clearly recognize the value of our wholesalers, to work with you and through you. We have no plans to make any national alignments." Altho Diageo CEO Paul Walsh, unable to attend, Tim read his remarks: "Guinness is not for sale." He added that Diageo just 5.4% of worldwide alc bev biz, that it will have "significant cash" after selling Pillsbury, spinning off part of Burger King. So Diageo is "keen on acquisitions".

"We had been attention-deprived as a brand," Molson ceo Dan O’ Neill told financial analysts in conference call as Molson agreed to buy back its US biz from Miller for $133 mil or almost $9 per case. Deal is expected to close by yr-end. In 99, Molson sold about 1.25 mil bbls in US; down at double-digit pace in 2000. According to IRI, Molson Ice down 22% and Molson Golden down 16% in supers yr-to-date thru Sep 17. Molson franchise now less than 2/3 of peak 94 total, when Molson Ice first intro’d, and it had hit 1.8 mil bbls. It's now only slightly larger than when Miller bought it. Here's quick financial recap: back in 93, Miller paid $273 mil for 20% of Molson Cos in Canada and unspecified net book value plus royalty for Molson USA. Molson bought back 20% Miller owned for $306 mil in 97 and now will pay $133 mil for rights to brand in US. So PM ended up making out pretty well financially in deal, even while brand floundered. But loss of Molson will reduce Miller volume by nearly 3% and Miller also will lose some volume as it eliminates lotsa SKUs. So Miller faces tuff volume comparisons in 2001. Miller will keep approx 650,000-bbl Foster’s brand; Foster’s renegotiated its deal with Miller. Foster’s had become disgruntled with prior deal that mandated Molson get $3 of spending for every $1 on Foster’s brands. Foster’s exec Richard Scully told Bloomberg News that it expects a 60% increase next 5 yrs in US. Meanwhile, Molson won’t go it alone in US, Dan told analysts. Its new partner will be announced in about 45 days, presently narrowed down to 3 contenders. Coors is obviously 1, since Molson and Coors have successful joint-venture in Canada. Is Barton another, since most other major importers already have other Canadian brewer ties? Molson will "sign new five-year commitments" with US distribs, Dan said, according to Toronto Globe and Mail. Yet Molson’s press release also stated: "There are no plans to change our present relationships" with distribs. Stay tuned.

Import growth accelerated to 20% and gained 2 share of $$ to 17 in supers for 13-week period thru Sep 17(some lemonades included with imports), according to IRI. Meanwhile, AB and Coors share of $$ stalled at 41.3 and 11.4 respectively, and Miller share down 1.3 to 20 for 13 weeks. And while avg price paid for leading domestic beers moving up, leading imports actually cost a little less in most recent period. In 4 weeks thru Sep 17, avg prices paid for each of top 3 imports down: Corona 22 cents lower than same period last yr, Heineken 10 cents lower and Tecate 36 cents lower. That’s while avg prices paid for AB, Miller and Coors beers each up 2-3% for 4 weeks and yr-to-date. Yr-to-date, import prices also up 77 cents, 3% to $23.46 (Corona and Heineken price increases were in spring and summer of 99). Still, imports scored impressive 1.7 share gain to 16.4 of $$. Barton/Gambrinus at 6 share of $$ YTD, up 0.5 and Heineken at 2.9 share of $$, up 0.3 YTD.

Compare $$ and volume trends. While AB gained 1 share of volume to 44 as its volume in supers up 7%, its share of $$ up just 0.1 to 41.5 YTD. So it had 2.5 share less of $$ than volume. And Coors volume up 9%, gained 0.4 share thru Sep 17 to 11.3. Had same share of $$. Meanwhile, Miller volume down 1.5% YTD and its share of volume down 1.5 share YTD to 23.7. That’s over 3 points higher than its share of $$, which are also down 1.4 YTD. Pabst also lost 1.4 share of volume YTD and almost 1 share of $$. At same time, all lemonades and lemon brews trackin’ at 1 share of $$ YTD.

A few brand notes: Bud Light up a whopping 16% and gained 1.4 share of volume YTD and 1.1 share of $$ too. No other top 20 brand gained more than 0.3 share of volume or 0.2 share of $$. Coors Light volume up 9.5% in supers YTD; gained 0.3 share of cases, 0.2 of $$. Miller volume and share up on Miller Lite in supers: up 6% and gained 0.1 share. Gen Draft volume up 4.4% and share unchanged. Bud volume up 4%; but share of $$ down 0.4, largest share loss of top 20 brands. Corona volume up 11% and Heineken up 22% yr-to-date.

In video deposition, AB’s sr assoc general counsel Royce Estes laid out AB’s justifications for public ownership ban: 1) AB equity agreement is a "personal service" contract, distrib is AB’s "face" in the community, and AB "relies heavily" on distrib’s local presence. 2) Since "risk and responsibility" rest with distrib owner, he or she has "personal accountability" to provide all-important "local, day-to-day selling efforts." 3) Ban is compatible with state laws which prohibit some individuals from being distribs. AB’s gotta know who distribs are, so licenses stay intact, and has to make sure no "competitor" or "criminal element" is AB distrib. 4) Public distrib might have secondary stock offering and simply pocket proceedings or give ‘em to shareholders, not re-invest in mkt. 5) AB wants distribs to concentrate on selling beer, not focus on SEC laws, "blue sky" laws, etc. Maris atty Manuel Socias forcefully challenged each reason (all this on video). 1) Pre-97 equity agreements that Maris operated under didn’t specifically require personal service of owner, he noted and Royce agreed; mgr could be the "local face." Also, it’s the retailer, not distrib, who really has consumer contact, argued Manuel. Royce responded: distrib can do local promotions, tastings, etc. Added that locally-owned distribs can react more quickly to competition. 2) AB is publicly owned, has branches, which are in effect publicly-owned. Has public ownership "hampered" AB? No, said Royce. 3) Is AB concerned about losing its license to sell beer, Manuel asked. No, said Royce, since it can control its own actions. Lotsa publicly owned cos, including big suppliers and some of largest retailers, get and keep licenses, Manuel noted. He tried to tar one AB distrib as having committed crime too, but judge wouldn’t allow question. 4) On potential for secondary stock offering, Manuel suggested AB doesn’t want distribs to be successful, that it has one standard for AB shareholders, another for distribs. Royce said there are other ways to be successful selling beer than by "pocketing" funds from secondary offering. 5) If AB so interested in owner having day-to-day contact with retailers, why didn’t it simply require that in earlier equity agreements, Manuel asked. Pounded theme too that large retailers are publicly owned, that day-to-day operations can be accomplished by a "well-paid local manager," and asked what is "pressing justification" for privately-owned distribs if both suppliers and retailers are public co’s. Royce stayed on message: selling beer is "personal" biz, private owners have more "incentive" than public cos, that "there’s no substitute" for private entrepreneur, he insisted.