Some very testy negotiations on Smirnoff Ice in some key Guinness mkts, including Fla and Calif, 2 states where Guinness Bass Import Co does over 1/3 of its volume. While a large number of distribs still haven’t signed agreements at presstime, GBIC prexy Tim Kelly assured INSIGHTS that 75% of volume in country will be signed up by Jan 1, including in Calif and Fla. Guinness has negotiated elements of contract in lotsa situations, but not budged from $2.00 per case mktg support by distribs. GBIC has already made its media commitments and brewed product. Orders for 1 mil cases already in place, sez a Guinness source. But Smirnoff Ice will reportedly not debut in Chi or NYC Jan 1.

Best Wishes for Merry Christmas and the Second Yr of the Millennium; Hope for Lots More

Lucky me, us! All my life, I’ve been lucky. I was lucky picking my parents, lucky when I was a GI 1-1/2 years in Europe during World War II and no one even shot at me, lucky when my mother introduced me to my lovely wife, and lucky when I had the chance to start Beer Marketer’s INSIGHTS 31 years ago when I was a kid of 45. Wow!!! On top of that, everyone in my family, my wife, my children Benj and Glen and their spouses and my grandchildren, is healthy! That’s luck. Can’t ask for more.

So now in this Holiday Season, I write once again in happy awe. All of us here at Beer Marketer’s INSIGHTS, Benj the boss man who busts his back running the company and leading the editing and writing of our publications, our MVP Eric Shepard who more of you are getting to know and respect, and others on the staff, my wife Irene, Gerry, Jimmy, and Adam, so important in getting our work done, wish you the best for the coming year. While Benj does everything well, I like to joke that you gotta admit that when I ran Insights the publication was better.

We all know that while many of our friends and readers in this industry face a blue sky with some clouds, others face an uncertain future. A time of such change isn’t easy. But whatever happens to their beer industry investments and careers, we all know that new opportunities abound away from all the challenges of the beer biz. I’m reminded that I luckily began Beer Marketer’s INSIGHTS after I got checked out of my major public relations accounts, was essentially out of my p r biz. So guys and gals, daylight is ahead! To those of you who face the coming changes, I wish you as much luck as I had, most of all at home, then too in your business life. Those we’ve gotten to know and enjoy and who leave the industry, we’ll miss you. And for all others, the many friends we have who will stay in this industry, I expect to enjoy conversations with you for another 16 years. Remember, I told Benj my retirement date is Jan 1, 2017. Stay well. Best Wishes --- Jerry

Lotsa Long, Sometimes Dicey Negotiations on Smirnoff Ice; Brand in Most of Country Jan 1

Some very testy negotiations on Smirnoff Ice in some key Guinness mkts, including Fla and Calif, 2 states where Guinness Bass Import Co does over 1/3 of its volume. While a large number of distribs still haven’t signed agreements at presstime, GBIC prexy Tim Kelly assured INSIGHTS that 75% of volume in country will be signed up by Jan 1, including in Calif and Fla. Guinness has negotiated elements of contract in lotsa situations, but not budged from $2.00 per case mktg support by distribs. GBIC has already made its media commitments and brewed product. Orders for 1 mil cases already in place, sez a Guinness source. But Smirnoff Ice will reportedly not debut in Chi or NYC Jan 1.

Odds and Ends: Soft industry vibes in mid-Dec. One reason is tuff comps with Dec 99, but there's more to it. No one sure what's going on. Follows tuff 3d qtr for Miller, when sales-to-retailers down 6.3%, according to PM. STRs down 1.6% for 9 mos, 3.5% excluding acquired brands.... "Coors Light is growing among key entry level beer drinkers," according to a hi-up Coors exec, who disagreed with Sanford Bernstein’s Bill Pecoriello (see last issue). Bill had based his statement about Coors Light on MRI data, a service that includes general info on 500+ product categories. Coors source sez it uses more precise proprietary research designed for beer category. And analyst Andrew Conway just wrote "demographics and consumer tastes could disproportionately benefit Coors going forward," as consumers "continue to favor premium light beer." Andrew expects Coors net rev per bbl to be up 2.7% next yr, as AB provides "necessary cover." Said too Coors has "sufficient flexibility" at brewing/packaging plants to cut costs and "provide significant operating leverage." Next issue in 2001, either in 3 or 4 weeks.

A handful of Miller/Coors deals in last couple of mos, including some major metro areas. Biggest in Tampa where JJ Taylor Dist (owned by John Taylor, 2d biggest Miller distrib) bought 3-mil-case Sutton Dist. Taylor will now be over 9 mil cases in Tampa and St. Pete, well over 20 in all its operations (Minneapolis, Miami and Cape Cod). This marks Taylor’s debut as Coors distrib. Yet another Fla Miller/Coors is imminent too. In Mich, another large Miller distrib, Powers Dist (near Detroit), just bought 600,000 cases of Coors and Molson from Oak Dist. That’ll put Powers over 5 mil cases, mostly Miller. But in 3 other recent deals, Coors distrib bought Miller distrib. Most notably, RMC Dist just purchased Zulanas Dist in Colorado Springs. RMC is run and partly-owned by ex-Coors exec Pete Betka. With acquisition of Miller brands and some imports, RMC is now about 2.7 mil cases. Recall that Zulanas family sold in Chi area and bought up most of Colo just 2.5 yrs ago. But it has now scaled back. Meanwhile, Dal Clark on move again. He’s quietly been an active acquiror in recent yrs. Already owns several distribs in Ky and Miss, some Miller, some Coors. But Dal recently bought approx 1-mil-case Mid-State Dist Co, Miller distrib in Lexington to combine with his Coors distrib there. In Calif, Capital Coors Co of West Sacramento went northeast to Chico and purchased R&R Dist, about 700,000 cases of Miller, imports, Pabst. Capital already sells Coors out there. One other notable recent deal: Miller got back to where it once belonged in Beantown. Burke Dist bought back 2.2 mil cases of Miller volume from Metropolitan, 6 yrs after it sold those brands to Metropolitan. Burke had once been largest US Miller distrib at about 10 mil cases; sold Miller amidst lotsa labor problems, but continued successfully as import/specialty distrib, including 1 mil cases of Boston Beer. All told, Burke will be about 5 mil cases again.

AB is taking Feb price increases in big Calif and Tex, nearly 20% of US beer mkt. In Calif, AB suggested that prices to retailer should go up 40 cents in Northern Calif, 45 cents in Southern Calif. Going up on Bud, Michelob and Natural Light families, but not on Busch. No widespread draft increase. In Tex, AB going up at end of Feb, 45 cents on Bud, Michelob, Busch and Natural families in 12-oz packages, 60 cents on quarts. AB also suggesting $3.00 increase to retailers on draft in Tex. And in NY, distribs expect increase on some smaller packages, and discount reductions on some larger packages but no official word yet. In Conn, AB raising Michelob and draft prices. AB also announced price increase in Minn. Where Miller is #1 (Wisc and Chi), Miller announced price increases too. Suggested 45 cents to retailer, no draft. So broadly speaking, looks like another round of price hikes going thru.

What a story! Hap Boening, prexy of Oak Bevs and Boening Bros, told his side in lengthy affidavit filed in suit vs Heineken. Background: Boening is "oldest continuous" Heineken distrib in US, started in 1947: 21 family members own stock, 9 work in co, 4th generation already running Oak. Boening also sells 1 mil Heineken cases on Long Island (not subject to termination in these proceedings). Family’s other co Oak got Heineken in 86, sells 3 mil Heineken cases in metro NY. Oak is "the crown jewel", sez Hap, "and Heineken’s concerted activities represent nothing more than an attempt to steal the crown jewel." Reminder: this is Hap's side, Heineken's will be in future issues.

Here’s some of what Hap alleges: back in Sep 98, Heineken’s then-prexy Michael Foley told him that Heineken wanted to consolidate NY-area biz. But issue died down until Apr 99, when sales veep Peter Dadzis told Hap that Heineken wanted to buy him out lock, stock and barrel for $75-90 mil. Implied termination if no deal done. Hap had "absolutely no desire to sell," Hap sez, but felt he had to consider offer, especially as Heineken threatened termination. Over next 17 mos, Hap and Heineken negotiated. Hap finally agreed to $62 mil net for both distribs, including all assets. Buyer was to be "consortium" of Heineken, Miller and neighboring distrib Phoenix/Beehive, Heineken’s largest distrib, which already sells 5 mil cases of Heineken in NY metro.

Negotiations weren’t exactly smooth, according to Hap's affidavit. Heineken presented him with different draft agreements that Hap calls "an abomination... ridiculously one-sided... ludicrous... incredibly inequitable... wholly unacceptable." Heineken repeatedly agreed in letters and discussions to "cornerstone business terms," like hiring all of Hap’s people and assuming critical "brand transfer risk." But then didn’t put those clauses in draft agreements, Hap sez. Then too "right of cancellation effectively only belonged" to buyers, not Hap; there was "complete lack of symmetry between assets purchased and the liabilities assumed"; Heineken wouldn’t say at first who buyers were, then "acknowledged to us that they did not have sufficient funds," according to affidavit. And tho both sides signed "confidentiality agreement," Hap claims Phoenix/Beehive people spread rumor of a deal that created lotsa problems for him. Unable to get draft from Heineken attys he could accept, Hap had his atty draft a proposal in late Aug 2000. But Heineken rejected that agreement on Aug 30—-Foley’s last day at Heineken—-and broke off all negotiations. Heineken then terminated Oak (but not Boening on Long Island) Oct 16.

That’s only part of it. Hap's affidavit asserts all of the following: Heineken "not only acted in bad faith," alleges Hap, "but with actual malice" as part of "carefully planned scheme between Heineken and their joint venture partners Miller and Phoenix/Beehive" to get Oak "for as little money as possible." The "partners" tried to "erode" Oak’s profits by dragging out negotiations and "continually spreading rumors" about deal, according to Hap. What’s more, Hap alleges Heineken helped Phoenix/Beehive transship Heineken into Oak’s territory by supporting price break that Phoenix/Beehive gave to a big "home D," NY’s 4th tier. Heineken abetted transshipping even tho it’s "expressly prohibited by Heineken in its distribution agreements," according to Hap. In fact, Hap charges based on "information and belief" that Heineken actually "directed" transshipping, and made "direct payments" to the home D. One detail: Oak had monthly promo allowance from Heineken of about $40,000. But Hap believes Phoenix/Beehive was getting $150,000-200,000 per mo, in effect lowering its price to Phoenix/Beehive. Hap also described "bottle bill scam" during which Oak was redeeming deposits for literally "millions" of extra Heineken bottles per mo that were being shipped in from out of state to a recycling center in NY. Turns out Phoenix/Beehive sat on board of this recycling center and didn't have same problem as Hap, Hap asserts. Hap sued recycling center and home ds. Even tho suit thrown out, NY AG’s investigation continues and "dumping of empties" ended. "At best Heineken turned a deaf ear on Oak’s pleading to put an end to the redemption problem," Hap claims. Oak suffered "millions in damages" from "scam," Hap sez. Finally, Hap sez Heineken and Phoenix/Beehive spread rumors about deal and interfered with Hap’s labor negotiations. Oak had to re-negotiate its contract with drivers in middle of battle to avoid strike. Keep in mind that all this time, Oak/Boening trying to sell beer in fiercely competitive NYC.

Terminations, distribs charge, are not as Heineken claims "pursuant to a regional policy of consolidation" allowed under NY state law. That’s a "pretext." Rather, terminations are "a response to a failed attempt to coerce Oak and its affiliate to sell... to a consortium comprised of Heineken, Miller... and a competitor wholesaler Phoenix/Beehive/ Lobo." Heineken acted in "manifest bad faith," distribs charge, citing numerous tactics "to reduce Oak’s profitability and pressure Oak and Boening to accept Heineken’s inequitable" purchase offer. Charges include: "commencing and supporting a price-war between Oak and... Phoenix-Beehive," "supporting the transshipping of Heineken products into Oak’s territory," "failing to enforce" Heineken’s distribution agreement with Phoenix/Beehive and much, much more. (Some details below.) Good faith a necessary precondition to terminate and to trigger NY law that allows termination for policy of regional or national consolidation, argue distribs. They also allege: Heineken "failed to give appropriate and timely notice to all affected brewers and affected wholesalers," including AB and home Ds (NY’s "4th tier" which sells to retailers and consumers); Heineken’s region "doesn’t qualify as such" because "it is wholly intrastate"; and Heineken cannot demonstrate "a compelling business purpose" necessary under statute. At presstime, Heineken hadn't yet responded to distribs' lawsuit. We'll report Heineken's side in-depth in future issues.

 

Distribs memorandum of law points to Heineken vp sales Peter Dadzis' affidavit that said Heineken’s "policy of regional consolidation" began in 98. Distribs also point to now-famous affidavit by ex-prexy Michael Foley in Tex case. He had said Heineken has natl consolidation plan but needed to keep it under wraps so distribs wouldn’t develop "siege" mentality. Yet distribs point out Heineken didn't give 90-day notice until Oct 2000, just 6 weeks after Heineken negotiations to buy Oak and Boening broke down. Peter sez goal of regional consolidation is to reduce # of distribs. "As a result of these terminations," Heineken "reduced" distribs in region "from eight to one.... Most of its competitors had either one or two distributors for the same area," said Peter.

While Oak insists these terminations not part of regional consolidation, Heineken insists they are. "Heineken’s well-established regional policy of consolidation in the New York Metro Area is an issue of undisputed fact," Heineken argued in motion for summary judgment in other state court. Its plan goes back to 98, Heineken acknowledges, citing same Peter Dadzis affidavit that Oak quoted. NY law does not specifically define "national or regional policy of consolidation," Heineken continues, and no indication in law that words should be read in any way but "their usual and commonly understood meaning." Yet distribs got two NY state Senators to file affidavits stating Heineken misapplied NY statute by terminating NY-only distribs. Point out NY law "designed and implemented to protect" distribs; NY law "very specific," they claim, and any consolidation policy "must involve multiple states and must have interstate commerce implications." Consolidation provisions "certainly were not included to provide brewers with a loophole which would enable them to terminate wholesalers simply by stating by rote, that a proposed termination is pursuant to ‘a national or regional policy of consolidation,'" said Senators.

Dramatic swirl of events in NYC metro. Oak Dist (owned by Boening family, led by prexy Hap) and 3 AB distribs fought back. Went to court to try and stop Heineken from going thru with its planned termination in Jan 2001. Also sued and collectively seek a whopping $100 million in damages ($85 million to Oak) and another $100 million in punitive damages if termination goes thru. So far, distribs got temporary restraining order. Then state court judge extended TRO until Dec 18. Meanwhile he reviews distrib motion for preliminary injunction to stop terminations and Heineken's response. Decision on injunction should be very early 2001. Heineken had already gone to different state court to get declaratory judgment to determine what damages Oak only should get. (Editor’s note: Wanna bet Heineken will argue less than $85 mil?) Both sides seek partial summary judgment. Heineken also filed motion to consolidate 2 cases into 1. Heineken stopped shipping beer to these distribs in early Dec. But court said Heineken must fill orders in accordance with its agreement to historic "levels of demand" while termination proceedings underway. Heineken had terminated these distribs as part of purported regional consolidation.

Everything on the line for Oak. Oak sells 3 mil cases of Heineken, 2/3 of its total volume. Without Heineken, "the likelihood of Oak surviving is highly questionable," wrote Oak. Oak also sells about 1 mil cases of Miller, but Miller too "will almost certainly terminate Oak," Oak asserted in court document. Oak also sells nearly 400,000 cases of Guinness, about 125,000 of Boston Beer and another 125,000 cases of other suppliers. Oak expects other suppliers to walk too if Heineken succeeds in termination.

The other distribs suing Heineken sell AB brands. They sell 600,000 cases of Heineken brands. For each, Heineken represents significant % of gross profit $$. Dana Dist had purchased neighboring AB distrib earlier in 2000, buying its Heineken volume. Dana prexy’s affidavit describes his "shock" when he got termination notice, since Heineken had approved purchase just 6 mos earlier. Dana charges: "Heineken approved Dana not only knowing that Dana’s termination was imminent, but because Dana’s approval was simply a means for Heineken to hedge its risk of not concluding a deal with Oak." (See below.)

Distiller-backed org Century Council will advocate for .08 laws in states, it recently announced at press conference that included MADD prexy Millie Webb. (Recall that AB, Beer Inst will no longer oppose .08 laws.) CC also hired high-profile lobbyist, ex-Rep from NY Susan Molinari to head org. "While we do not see eye-to-eye with the distilled spirits industry on all issues," Millie said, "this legislative effort is one that we can all agree on as a measure to help save lives and prevent injuries."

In 1 of his last briefs for Maris, former Maris atty Bernard Dempsey gave details about 14 AB distribs who Maris charged were forced out by AB, most of them in the 90's. While containing lotsa wild accusations and casting AB in harsh light, gotta note this brief part of Maris attempt, rejected by judge, to get RICO claims before jury. Describing 3 of those northwest situations in Tumwater, Vancouver, and northern Idaho, a familiar name recurs. That's Charles Cindric, region veep there. He was also key AB witness who said he found repackaged beer in Reed case in Jacksonville and he called on Maris too. In 1 NW situation, a distrib testified he found 2 very qualified people for successor-position, one al-ready mgr of a larger AB distrib, but AB rejected both. Elsewhere, in Wisc, AB rejected AB employee distrib appointed as successor-mgr, then later okayed same guy?s appointment at another distrib. Failure to get right successor was one of the reasons these distribs eventually sold, Maris argued.