For 2d straight yr, $$$ sales increased for every top-10 brand in supers in 2000, ac-cording to IRI. Smallest % gain: Bud, up 3.7%. Bud Light, Corona, Heineken each up double-digits. Only 2 top-20 brands down in $$$ last yr in supers: Old Mil and Mil?s Best. Icehouse flat. Each of top 10 brands gained volume: Bud Light, Corona, Heineken and Natural Ice each scored double-digit gains. Keystone Light almost did, too; up 9.6%. Bud up 2.1% in supers last yr; so down in other channels. Five top-20 brands lost volume: Mil?s Best/Light, Icehouse, Old Mil, Michelob.

AB?s income before income taxes on its domestic beer biz jumped $222 mil, 9.7% in 2000 to $2.49 bil. But rate of income growth slowed to 5% in 4th qtr as volume growth slowed to 1%. AB also earned $200 mil net from its investment in Modelo. That was up $42 mil, 27%. Even AB?s international beer division went from a $20 mil loss in 99 to $33 mil income before taxes. AB?s rev per bbl up 2.6% for 4th qtr and 2.5% for full year. Given these strong financial results, AB?s earnings per share jumped 15% in 4th qtr and for full yr. It has 12% EPS target for 2001. Lion's share of AB's biz still in domestic beer, and that's good for AB. Compare these margins (pre-tax income as % of net sales): domestic beer, 26%; international beer (excluding Modelo), 6.1%; entertainment, 13.7%; packaging, 7.2%.

While beer biz growin' faster in supermkts than other channels, supers losin? ground to other types of retail outlets, NBWA panel of retailers showed. Supers feeling crunch from global consolidation, which forces "more centralized buying," said Nick Lake of ACNielsen. He cited emergence of other shopping outlets such as supercenters, wholesale outlets and dollar stores. "Customers are going and shopping in other channels and putting pressure on traditional retailers," according to Nick. He pointed out in past 4 years traditional supermkts "have lost 10 trips" annually per person per year. Avg shopper now hits supers 75 times per year, down from 85. Meanwhile supercenter visits up from 14 to 18 trips per yr. That?s a lot of lost dough considering avg mkt basket in supers is about $36 per trip according to Bump Williams of IRI. Bump told beer distribs they must remind supermkt buyers how important beer is to their store; mkt basket avg jumps to $56 per trip when beer in basket. Beer is currently 4^th-largest selling category in supers behind soft drinks, milk and bread/rolls. But distribs ain?t effective enuf at selling to supers, panelists pointed out. Consultant Tom Fox of CM Profit Group recently did survey of 50 natl & regional chains; findings were "frankly alarming," he said. Distribs (and brewers) "don't get good grades" at understanding our customers? business. Retailers say they "constantly take away" category captain status from one distrib and give it to another because "they were way too selfish" and "too subjective taking way more than they should." Need more objectivity. Panelists urged distribs to use fact- based selling methods. "I don't think they (store mgrs) have the time to sit down," noted Bump, to go thru all the data to figure out what drives category. Bump added, "That's why I think it?s on your shoulders" to decipher data for them. Reminded distribs to get face time with "key decision makers" at retail. If you can?t get to them, "you're in trouble?if you sit back and wait for them to come to you, that game is over," he said.

Almost 1600 attended NBWA convention in Beantown, with NBWA?s best content in yrs. NBWA makin? progress on public relations efforts, outgoing chairman Ron Strickmaker showed, citing lotsa tv, print articles following NBWA?s press conference on beer and health. Meanwhile, neos getting more "shrill," said NBWA prexy David Rehr. Warned of upcoming Natl Academy of Sciences report on underage drinking from "stacked panel" likely to support tax hikes, counter ads etc? NBWA membership has declined 6% in last yr as consolidation taking toll. Number of distribs who belong to NBWA dropped from 1597 to 1501. Those still in the assn gave more: NBWA revs increased $170,000, 4% to $4.5 mil in 2002. NBWA PAC also raised $1.1 mil from 1202 individuals; and number of those who gave $5000 or more jumped from 67 to 107. In 2003, NBWA will adjust dues structure for 1^st time in over a decade. Distribs mostly seemed in good spirits (no pun intended) as modest growth, trading up and price hikes continue. Yet there were tensions behind scenes; what to do about malternatives, how to manage suppliers in a consolidated house and some deal logjams.

In their NBWA remarks, Pat Stokes and John Bowlin emphasized their roles as brewers of beer. Indeed, in their speeches Pat, John and Dave Rehr repeatedly drew very sharp lines between beer and spirits. But gotta note that while there are real differences between beer and spirits, every day AB, Miller and most distribs help to blur the lines by selling flavored malt bevs. AB and Miller have partnered with distillers who are members of DISCUS, an assn which is enthusiastic supporter of equivalence. Beer guys are selling and heavily marketing highly profitable flavored malt bevs with spirits-branded names that in most cases derive most of their alcohol content from spirits "flavors." According to BATF, of 114 FMBs it analyzed, 105 "derive between 76 and 99% of their alcohol from added flavors" and in 95 of those products, the "fermented malt beverage base" is "less than 25% by volume." Is that beer? Up to now, BATF has approved labeling and sale of these products as malt beverages, so they can be taxed, distributed and advertised as such. But that may change down the road. If BATF reclassifies the most popular FMBs as spirits products, and producers don?t subsequently figure out ways to produce them as malt bevs, what happens to the category? Diageo clearly has a huge bet on FMBs, and isn?t likely to back off. AB has a far smaller bet on FMBs. Miller?s in the middle with 4 brands; Miller execs told distribs at NBWA that FMBs were a significant part of Miller's current mktg focus. Some distribs have big stakes in category too, and many are truly in middle between big US brewers and Diageo. (Gotta note, some distribs sell wine and/or liquor too.) Just in case distribs hadn?t noticed they were in a hot seat, Pat and John reminded them of that at NBWA. With such important tax, advertising and accessibility issues at stake, the temperature?s rising.

Global perspective shows malternatives are "not a flash in the pan," Diageo prexy/CEO North America Paul Clinton insisted to distribs at NBWA. Pointed to long-term success in UK, Australia where flavored malt bevs (Paul called 'em "FMBs" instead of RTDs throughout speech), have 8 share, 15 share of beer biz respectively (tho products are spirits-based in those countries). Smirnoff Ice was off about 5% in US supers for 4 wks thru Sep 8, Paul acknowledged, but up 151% YTD in supers, 165% in c-stores. FMB category now near 6% of overall beer $$ in supers, and FMBs were 25% of YTD volume growth, according to IRI.

Paul also distinguished between wine cooler craze and FMBs. "Appealing taste and accessible price drove high trial levels" of wine coolers, Paul said. Decline occurred after "flood of me-too products" which had "very low investment in brand support...a decidedly non-masculine image, little brand strength and a cloying sweet taste profile," according to Paul. In contrast, FMBs "based on strong brands, and are getting strong investments, especially from us," said Paul "including some $340 mil" in mktg support since intro of Smirnoff Ice. Parent brand "credentials" keep FMBs "more masculine," he suggested. Light beer segment "pioneered on strength of one brand and grew on the basis of a key consumer insight that masculinized a low-calorie product," said Paul. Diageo doesn?t expect FMBs to get same share as light beer, but "we do see them reaching the kind of share that we see in other countries where they have a longer history." Corona "had a faddish-looking beginning" too, Paul reminded. But its subsequent growth "can be attributed to 4 characteristics that bode well for FMBs: a solid consumer base, meeting a clear consumer motivation, strong marketing spend and consistent brand positioning and imagery." Captain Morgan Gold "has not met expectations," Paul understated, but coming brand entries "will be true to their brand heritage, they?ll have broader appeal to male drinkers and they?ll drive growth." Paul criticized BATF proposal to reclassify FMBs as spirits products, which he said "would effectively define the category out of existence." Praised "Flavored Malt Beverage Coalition," made up mostly of distiller-suppliers (AB, Miller, Coors aren?t members), trying to persuade BATF to keep current rules.

Domestic brewers? taxpaid shipments up 1 mil bbls, 0.8% thru Aug, according to Matt Hein of Beer Inst. Add 780,000-bbl, 6% gain for imports thru Jul and YTD industry shipments up 1.8 mil bbls, 1.3% including malternative intros. Nine-mo gain likely to stay 1%+ as comparisons fairly easy: imports going against very soft Aug-Sep 2001 shipments (-3%), domestic shipments up 100,000 bbls last Sep. While YTD shipments trend holdin? in 1-1.5% range, recent shipments trends not so hot. Domestic shipments down in 3 of last 4 mos after posting gains each mo Jan-Apr. In fact, May-Aug taxpaids down 200,000 bbls, 0.3%. May-Jul import shipments up just 3%. Looks like Barton beer shipments off 4-5% in Jun-Aug qtr, but its STR?s still up 5%, according to parent co Constellation. For 9 mos thru Aug, Barton?s net rev up 14%, so beer shipments up 10% or so. Meanwhile, Gambrinus up 12-13% YTD thru Aug. Labatt USA's import biz up 13% thru Jul, it told distribs. Rolling Rock up 1%, reversing ?8% trend. With Heineken USA also outpacing import shipments trend, smaller importers as group flat at best.

SABMiller CEO Graham Mackay extolled "benign dynamics" of US beer biz and "tremendous strength" of 3-tier system in his 1st meeting with Miller distribs immediately following NBWA convention. He characterized US environment (citing growth, profits, "firming" prices, "moderate" taxes, etc) as "worth fighting for" and "very, very unusual worldwide." Graham praised "entrepreneurial energy" and "community-connectedness" of distribs as well as their ability to "coordinate a united front" to face anti-alc forces and other threats. "Structurally and philosophically there is nothing that concerns me" about 3-tier system, Graham added. But he did express concerns about degree of consolidation among distribs. Consolidation has to be "managed wisely," he said, adding "how much [consolidation] is of concern." Below a certain # of distribs, middle-tier will "corporatize" too much, perhaps lose entrepreneurial energy. At same meeting, Miller prexy John Bowlin pointed out that 54% of Miller volume now goes thru shared houses with Coors and that Miller has to "work better" in shared houses. "Coors is not our friend, not our partner," John added. Miller will "earn focus" in consolidated houses, whereas in past "we demanded it." "We expect to be your preferred supplier," he emphasized. In Wall Street Journal, SABMiller spokesman said Miller's "opportunity lies in snatching market share from smaller rivals such as Coors." So tensions between brewers #2 and 3 appear to be on upswing as well.

Graham said SABMiller "couldn?t be more committed to Miller" as "we have in fact bet the farm on Miller." "In some months" or longer, he added, Miller will be "more vital, successful and highly focused." Miller will be "run from here by Americans for Americans." Global consolidation will continue on "slow burn" and SABMiller "fully intends to play an active role," but "you can?t M&A your way out of trouble," meaning SABMiller focused on fixing Miller. Prexy John characterized 2002 as "exciting" yr, "exhilarating at times, disappointing" at others. Over last 3 yrs under John?s leadership, Miller has "done a good job stopping doing stupid things, not as good a job aggressively competing in the marketplace." John talked about how Miller now adapting SABMiller?s "performance management system." Under this system, Miller "relentlessly raising bar" and "performance-based culture" will be "demanded." Miller "can no longer accept good enough"; previously "there was unacceptable lack of accountability."

Other highlights: Concerning SABMiller?s brand Pilsner Urquell, John said: "We?re bringing that into our system. We want it in your house," but "we?re not paying for it." About half of Miller distribs already have Pilsner, which sold about 100,000 bbls last yr. Exec veep Bob Mikulay showed lotsa new ads for Gen Draft, Miller Lite, etc; said Miller didn?t cut Lite spending as CMR 2d qtr data showed (see INSIGHTS Vol 33, #17). Data "doesn?t capture whole story," he added, like Miller?s spot-media spend. Miller High Life up 2.6% YTD and SKYY one of top 20 malt bevs overall. Jack Daniels Hard Cola has same "velocity" (sales per point of distribution) as SKYY, but much less distribution so far. To maintain heavy intro spending, Miller execs urged distribs to increase distribution. "We won?t spend against empty shelves," added John Bowlin.

Long-running battle between brewers and distillers over equivalence ran thru several NBWA presentations. NBWA prexy David Rehr set stage: "the distilled spirits industry," he said, "has stepped up its campaign to convince the public and policymakers that ?a drink is a drink??. DISCUS has publicly called for a ?level playing field.? But this is just merely code for their goal" of equal taxes, "the same advertising standards and the same consumer accessibility." Not long after David spoke, Diageo North America prexy/CEO Paul Clinton acknowledged there are "many areas" where "it?s difficult for various sectors" of alc bev biz "to find common ground," tho he didn?t mention specifics. But Paul ostensibly offered olive branch. Called for "summit meeting" next Spring of all segments, all tiers and all industry assns to discuss just 2 topics: "gaining better awareness and appreciation" of industry?s "joint commitment to the responsible use of our products" and "working together to prevent taxes on any of our products from being increased."

Brewers and many distribs clearly remain dubious of Diageo?s motives. Shortly after Paul spoke, prospects for summit dimmed considerably in light of AB CEO Pat Stokes? brief comments after accepting award. While new products like flavored malt bevs/malternatives provide competition and are good for the beer industry, said Pat, distribs should be concerned about "fundamental differences" like "the concentration of alcohol in products. Beer, wine and spirits are all different products, which is why there are significant differences in taxation, distribution, media and marketing practices and regulation. Don?t fall for the equivalence argument. We?re selling beer, not alcohol." Later same day, when Paul?s summit idea was floated at Beer Inst board mtg (Diageo is a Beer Institute member), reception was cool, to say the least, from leadership.

Next day, Miller prexy/CEO John Bowlin added several more shots, rapping "distilled spirits and advocacy groups who claim ?a drink is a drink?" and who "put forth this idea of so-called ?equalization.?" "A malt beverage is not a distilled spirit," John continued, and industry has responsibility to "clear up the confusion." Then John picked up the hammer: "However, there is one player in the industry that has a very clear, defined and aggressive and well-funded agenda. An agenda that is aimed at changing the playing field?. Unlike most everyone in this room, this player does not have a beer agenda." John "challenged" distribs to "partner with brewers who may be making money on flavored malt beverages, but who reinvest that money to protect our mutual investments?. Partners who work to preserve the structures that allow us to go to market in an effective, value-added way." Distribs should "beware of partners who are helping you make short-term profits, but who re-invest their profit in ways that diminish or compromise the very structure that allows you to profit from your flagship beer brands? the brands that brought you here." (John's charge that "one player" is using malternative profits to undermine the industry "structure" is a new wrinkle in this long-simmering debate.) John stressed that brewers and distribs "must be vigilant about maintaining a very real distinction between beer and distilled spirits to protect our industry," retailers and consumers. (See page 3 for more on these tensions, the role of malternatives and questions they raise.)

This blunt conclusion from a 3-year survey of 7800 Californians should help slow activists? ongoing efforts to cap the numbers of retail licenses in given communities. For years, public health activists and like-minded researchers have tried to tie the number of alcohol beverage sales outlets (on- and off-premise) in any given area to drinking rates and an array of alcohol problems, including drunk driving, vagrancy and violence. Evidence of such an association would support limits on the number of outlets, as well as for other restrictions. But this recent study from the control- oriented Prevention Research Center in Berkeley won?t help the activists much. In fact, they found: "Driving while intoxicated is unrelated to outlet density which is consistent with the suggestion that DWI behavior may be different in kind from driving-after-drinking."

Interestingly, the authors found that high density of restaurants was associated with increased likelihood of drinking and driving (not DWI) and higher frequencies of alcohol consumption, but that higher densities of bars and off-premise outlets were associated with lower frequency of drinking and less likelihood of drinking and driving. As a result of these findings, the researchers make a pair of interesting observations: 1) "Finally," they conclude, "the results suggest that there may be no availability-targeted quick fix for DWI, the more problematic behavior" (compared to simply drinking and driving); 2) "Clearly, DWI appears to be less a function of the structure of alcohol availability in communities and more a problem of individual proclivities to engage in deviant behavior." Industry executives have made these same points for years in alcohol policy debates.

A second study from the same issue of the Journal of Alcohol Studies raises questions about another common assumption; that the large number of outlets in college communities, as well as drink specials and other promotions, cause students to drink irresponsibly. But it turns out different groups of students react far differently to these same environments. A study from the Pacific Institute for Research and Evaluation, another control-oriented group, found for example that white students with some college education are far more likely to be heavy drinkers than black students with college education. Indeed, 41% of white 18-25 yr-olds in this survey had consumed 5 or more drinks at least once in the 30 days prior to the survey, while less than 15% of black young adults did. (These figures echo similar findings about the differences in drinking rates between black and white teens from the federal survey cited in the July edition of INSIGHTS.) In sum, the authors found that "postsecondary education is associated with an increased likelihood of heavy alcohol use among young white adults but not black young adults." Why would the same environments have such different effects on black and white young adults? The authors did not answer the question, but further analysis suggested "reported level of friends? drinking" [social norms] "was found to be the most important" factor to "explain the statistical association between post-secondary education" and heavy drinking among white students. Other factors: "social support from friends and propensity for risk taking or sensation seeking." Meanwhile, "demographic and background variables ?explained very little" of the link between college education and heavy drinking among whites. Ref 1