Beer Marketer's Insights
After declining in 12 of 13 years from 1987 thru 1999, the estimated number of alcohol-related traffic fatalities in highway crashes in the US rose slightly for the 2d-straight year in 2001, according to the federal government?s first estimates. The total number of traffic fatalities rose slightly for the 3d-straight year. In 2001, 17,448 people died in alcohol-related crashes, up 0.4%. (The government deems a crash "alcohol-related" when a driver or "non-occupant," typically a pedestrian, has a BAC level of 0.01 or higher.) On a more positive note, while fatalities increased, the number of people injured in alcohol-related crashes dropped significantly, from 310,000 in 2000 to 275,000 in 2001, an 11.3% decline. That was a sharper decline than in the total number of injuries, which was off 4.9%. The National Highway Traffic Safety Administration (NHTSA) made two key revisions to the data that limit analysis until it provides more details. First, NHTSA changed the way it calculates alcohol-related figures from data samples, which appears to have pushed up the fatality number by 700-800 per year. But so far it has only provided specific numbers for 2000-2001. Second, NHTSA now breaks out alcohol-related figures at above and below .08 BAC level, not 0.1, presumably since most states have .08 BAC limits.
In any case, key long-term trends continue to show progress in reducing drunk driving. The number of alcohol-related fatalities declined by about 1/3 over the last two decades, while total crash deaths declined by only 4% during the same period. That meant alcohol-related crash deaths declined from nearly 60% of all crash deaths to just over 41%. At the same time, figures for deaths (alcohol-related or not) per mile traveled, per-registered vehicle and per- population are still at all-time low levels and continue to decline.
It could have been much worse. Given the immense pressure on state budgets in 2002, the fact that only 2 states (Alaska and Tennessee) and Puerto Rico raised alcohol beverage taxes is quite an achievement by industry lobbyists. Legislatures in 15 states plus Puerto Rico considered increases in 2002, according to a tally by Anheuser Busch. Twelve states rejected increases and one bill in California is still pending. Two of the 2002 tax increases were substantial: Alaska jumped its tax by approximately 7 cents/ drink (the original proposal was a dime/drink); Puerto Rico jumped its wine and spirits taxes by nearly 40%, its beer tax (on non-local beers) by 50%. In Tennessee, taxes increased about 10%.
As industry members gird for next year?s inevitable battles, they may face yet another pro-tax study that recently surfaced from a pair of well-known tax advocates, Philip Cook and Michael Moore. In an article for the journal Health Affairs, Cook and Moore don?t specify an amount by which excise taxes should be increased, but they conclude: "Current excise-tax rates are too low, both nationally and in every state. The rates are far less than the average social cost of each drink consumed. Raising the excise tax would be in the public interest, despite the fact that it lacks precision." They suggest an attempt to vary tax rates by "risk levels based on beverage type and location of sale." The only example they give is higher taxes for on-premise sales "because they are more closely linked to traffic injuries than package sales are." Clearly, the authors missed the research cited above that questions the oft-assumed bar/DWI link.
Indeed, it appears the industry will be facing many of the same old arguments in state tax challenges, from the supposed benefits of earmarking to offset alcohol?s "social costs" to the appropriate price "elasticities" of beer (the point where higher prices deter consumption and possibly over-consumption). One flaw that Cook and Moore (and other pro-tax advocates) repeat: they assume that state beer taxes are meaningful indicators of "average prices" and therefore consumption levels and therefore levels of problems. But yet another recent study pointed out that "state alcohol taxes are not good indicators of beverage prices" since they?re typically only 3-5% of retail prices and that beer taxes in particular "are especially poor indicators of prices." What?s more, as INSIGHTS has reported in the past, state beer taxes have no correlation with per capita consumption levels, much less with levels of abusive drinking. Looking at data for 2001 for example, among the ten states with the highest beer taxes, only 1 is among the 10 states with the lowest per capita beer consumption rates. But just as much of the public continues to resist the science that shows the benefits of moderate drinking, many policymakers may still be willing to buy the pro-tax advocates? arguments. Ref 2
While most alcohol researchers conclude that beer, wine and spirits all confer health benefits to moderate drinkers, several recent studies have found positive effects primarily among wine drinkers. First was the study that found wine drinkers had lower risk for the common cold. More recently, studies found white wine drinkers had better lung function, and red wine drinkers (who were also obese) had reduced risk for cardiovascular disease. But the authors of both studies suggested other "lifestyle factors" might have played a role. A third study concluded: "the apparent health benefits of wine compared with other alcoholic beverages?may be the result of confounding by dietary habits and other lifestyle factors."
In the lung research, "total alcohol intake was not significantly associated with lung function," the authors wrote. But "we observed that both recent and lifetime intake from wine showed a positive association with pulmonary function." In addition, "the association between lung function and white wine was slightly stronger than that for red wine." Among a sample of 1555 adults from Western NY, wine drinkers had significantly higher levels of two key measures of pulmonary function, the authors found. The authors noted: "there is a large body of evidence that wine has antioxidant properties" and that "our data indicate that these antioxidant properties might exist and could have positive influence on lung function." Finally, while the link between wine and better lung function held after adjustment for smoking, weight, micronutrients and socioeconomic status, the authors speculated that "wine intake may be associated with other healthy lifestyle characteristics" that contribute to the benefit.
"Mild to moderate alcohol consumption, especially red wine consumption, in obese subjects is associated with lower fasting homocysteine concentrations. This may reduce cardiovascular risk and help explain the ?French paradox.?" So concluded a group of Australian researchers after tracking the drinking habits of 350 "severely obese patients" about to undergo "gastric restrictive surgery." Red wine drinkers had 17% lower concentrations of homocysteine?an amino acid found in the blood that raises risk for cardiovascular disease, and possibly Alzheimer?s disease?than non-drinkers. The red wine drinkers were 80% less likely to have homocysteine levels above recommended level than those who didn?t drink red wine. Beer and spirits drinkers had slightly lower levels of this amino acid than non-drinkers, but the difference was not significant. In fact, red wine consumption "was an independent predictor of lower homocysteine concentrations when modeled with sex, age, weight, smoking, frequency and quantity of alcohol consumption and serum folate and vitamin B12 concentrations," the authors found. Still, they pointed out "there may be other lifestyle or dietary factors that differ with the choice of beverage."
The third study, of 4,435 adults in North Carolina, supported the other researchers? speculations. The NC study found that "subjects who preferred wine had healthier diets than did those who preferred beer or spirits or had no preference." Wine drinkers, they pointed out ate more fruits and vegetables, less red/fried meats, and had diets higher in fiber, lower in cholesterol and saturated fat. Interestingly, they also found nondrinkers in general "were less likely to exercise regularly and had a higher mean body mass index" than drinkers.
Issues surrounding potential beverage-specific differences came up again recently after the Wall St. Journal (finally) reported NBWA?s June 5 press conference about the benefits of moderation (see June INSIGHTS). After the WSJ emphasized suggestions that beer may be "even better for you than red wine," a CNN follow-up disputed the claim and concluded "alcohol is alcohol is alcohol," reflecting the position that beer, wine and spirits all provide benefits. Ref 3
In this new book, Henry Wechsler, the director of Harvard?s School of Public Health and well-known researcher of college drinking trends, has reached beyond the academic journals in a big way. "Dying to Drink" is written for a mainstream audience, and proposes to be a "call to arms" to students, parents, university officials and communities to deal more seriously with binge drinking on college campuses. The 322-page book combines personal anecdotes, interviews with hand-picked "experts," and data from Harvard?s College Alcohol Studies with plenty of rhetoric. Wechsler wrote the book, he explains, "because I could not turn a blind eye and allow this problem to be swept back under the rug." Who?s doing that? The alcohol beverage industry, he suggests, along with some college administrators who are "trying to convince themselves and the public that college binge drinking is not such a serious problem after all." The industry, or "Big Alcohol," as Wechsler and co-author Bernice Wuethrich refer to it, is guilty of funding education and responsibility campaigns on college campuses. The authors continually single out "social norms" programs, and the industry?s role in funding them, for criticism and blast the "myth" of social norms for being based on "unproven assumptions."
Naturally, the authors defend the use of the oft-criticized term "binge" drinking, a term which Wechsler has done more than anyone to promote. Along the way "Big Alcohol" is mistakenly portrayed as a monolithic, all-powerful and united entity as if there were no differences between brewers, vintners and distillers, not to mention between tiers. The authors also bemoan the "saturation" of college campuses by alcohol advertisements and promotions. Opposing binge drinking by college students, they insist, "requires changing the drinking environment?limiting the accessibility and underpricing of alcohol and ending the industry?s predatory advertising and promotions." Despite tacit acknowledgements that "students are responsible for their own binge drinking and the problems its produces" that?s basically the book?s policy bottom line.
Predictably, "Dying" provides plenty of advice, nearly 60 pages in fact of specific action points for students, parents, college officials, communities and even "Big Alcohol" itself. It?s not likely "Big Alcohol" will agree with recommendations to support higher, equalized excise taxes, a total prohibition on college marketing, health warnings on all ads, etc. It will be interesting to see whether this latest control-oriented "call to arms" finds an audience among the public, legislators and/or college officials. Ref 4
While a few years ago many in the alcohol beverage industry assumed alcohol would be the next big target of plaintiffs? attorneys for liability suits, that has not been the case so far. Instead, trial lawyers appear to have set their sights on "Big Food"-- the fast food industry. And the media has picked up the cause. Both Newsweek and US News & World Report recently ran cover stories on the problem of growing waistlines in the US. "An army is mobilizing in a war against junk food," that is being pushed by "doctors, lawyers, preachers and moms," Newsweek reported. That sounds like a familiar group of adversaries. And the parallels don?t end there. Note the focus on youth: Doctors alarmed by the dramatic rise in child obesity rates are pointing the finger at fast food and soft drinks. "Diseases that used to be associated with retirement homes, atherosclerosis and type II diabetes, are now commonly diagnosed by pediatricians," wrote Newsweek. "Fat kids are to the junk-food industry what secondhand smoke was in the war against tobacco," a Yale professor told Newsweek. Recall too the RAND study concluded obesity had a "stronger association with the occurrence of chronic medical conditions, reduced health-related quality of life and increased health care and medication spending than smoking or problem drinking."
Already, lawyers have filed class-action lawsuits on behalf of obese clients who charge deceptive marketing tactics of fast-food industry caused their obesity. Lawyers and politicians are also condemning the amount of money spent on advertising by food companies, the 2d-biggest advertisers in the US behind automakers. These "Big Food" suits include demands for warning labels similar to what tobacco and alcohol companies have had to put on their products. There are almost 100 lawyers interested in filing similar suits against the fast-food industry scheduled to attend a strategy session at Northeastern University this fall, reported Newsweek. Parents and politicians are also stepping in to demand schools limit or ban the amount of "junk food" served in cafeterias. In addition to targeting fast-food, activists have blamed soft drinks for high levels of child obesity. Fifty percent of school districts in the US have "pouring rights" contracts with soft drink companies, according to US News; 37% have drink "quotas" they must achieve to receive payment.
Note too: on both sides of this building issue are some very familiar faces to the alcohol industry. On one side, CSPI is battling against food giants while on the other side is Richard Berman, executive director of Center for Consumer Freedom. Berman battled .08 legislation on behalf of chain restaurants. His trade group also represents soft drink companies. So far, the alcohol beverage industry has been very successful in convincing the courts that its products are not "inherently dangerous," and that the dangers of abuse are common knowledge. It will be interesting to watch how these arguments with regard to food play out in the courts and in the public arena. A final thought: while some in alcohol beverage industry might welcome this targeting of fast food (instead of alcohol) it represents another step back from consumers being responsible for their own behavior.
"No Easy Solutions" To Direct Shipping, Consolidation, and Liability Issues In Beer Biz
"There are aspects of the 3-tier system that just don't make sense from a market-efficiency point of view," Holland and Knight atty Richard Blau told Beer INSIGHTS Seminar in thought-provoking overview of legal issues in beer biz. That's why direct shipping "goes to the very heart of the viability of the 3-tier system in the 21st century," he added. Since "courts and judges at the state and federal level don't share your knowledge" of beer biz, particularly purposes of licensing or 3-tier system, etc, they have a "propensity" to simply look at direct shipping "like they would any other commercial case." It's a thorny issue for lawmakers, too, sez Richard. "How do you enforce a state law... that strengthens the 3-tier system within the state when the alleged violator never sets foot in the state" and arguably has no "personal jurisdiction that would allow the court to exercise control?" So far, courts "have been splitting" on issue of jurisdiction, Richard said. As for latest "solution" to direct shipping problems, 21st Amendment Enforcement Act, "it remains to be seen whether this will be an effective tool for regulators because it only provides injunctive relief."
Goal of distribution consolidation, Richard pointed out, is "efficiency, but in alcohol what's important is regulation." Richard sees state franchise laws coming under more pressure as courts increasingly take more "narrow" view of them. There's lotsa "uncertainty about how these franchise laws... will play out in this new era economy with the internet, with e-commerce," said Richard. Consolidation poses "twofold" challenge. "There's the obvious challenge" of "conflicts between the supplier and wholesaler tier" which will become "exacerbated" as more and more distribs "wonder what their future is." But also, as consolidation picks up steam, shrinking number of local players in industry presents threat of industry "devolving from a major constituency to a special interest." When he was asked if brewers would sell direct to Wal-Mart and other big chains, Richard pointed to a need for a system that addresses underage drinking, taxation, and licensing concerns before a "solution is approved." But "companies like Wal-Mart really have their act together" and are very persuasive. It's another example of why this industry, at least at the wholesale level, needs to be very careful about how consolidation is affecting your status ... as effective advocates for legislation that benefits you.... There are tons of people who have no clue about... what the 3-tier system is here for."
On threat of product liability lawsuits against beer, Richard said: "The same very bright... very persuasive" plaintiff lawyers who have focused on tobacco and handguns are advocating "new theories of liability that historically... would have been rejected." But these theories are "beginning to become persuasive to courts who are looking to find somebody to pick up the tab for the injury that's done." Cited settlement in which MIT paid $6 mil to avoid lawsuit after student died from excessive consumption on University property. "That kind of liability is an important challenge," Richard said. He cautioned that since perception of American public is "as important as reality," industry must become more proactive in changing public opinion, sooner rather than later, as industry influence shrinks with consolidation.
Modelo’s current contracts with Barton and Gambrinus "are in place for a very, very long time," AB group vp August Busch IV told Beer Insights Seminar, but "we would hope...over time" AB's distribs would "purchase the rights to the Modelo brands." Those AB distribs carrying the Heineken brands, he further hopes, "would trade the Heineken brands for the Modelo portfolio and work" an economically viable transaction "with their competitive wholesaler." Currently less than 10% of AB distribs carry Modelo brands. AB’s margin on a barrel of Corona, August sez, is about 1/3 of what AB makes on a barrel of Bud sold in US. Asked how AB will play in imports in future, August said he could not comment on any potential transactions, but he noted because of AB’s 50% ownership in Modelo "we have a natural hedge." "Tequiza is not designed to be a Corona competitor; it's designed to compete with Mexican imports overall," August told INSIGHTS. The Michelob family, he added, "has shown a remarkable turnaround in the last 3 years." While AB’s international ventures are "marginally successful," he acknowledged AB has "a lot of work to do" internationally. AB doing well in UK and Ireland and "China is looking very, very positive," he said, as AB is about 3 years ahead of break-even. August said: "Perhaps the biggest factor" to impact industry in years ahead "will be the combination of technology, the Internet and e-commerce." Another issue "we will all face.... is a more sophisticated chain retail selling system.... The Internet will give us the opportunity to make our 3-tier system appear more 2-tier to big chain retailers...over the next 5 to 10 years." "Electronic funds transfer and other benefits and efficiencies we can bring to chain retailers" as technology improves "will be paramount to us being successful" with "those key customers," he added.
As Miller decided to bite bullet with greater than expected 5-day inventory reduction it said: "During 2001, we plan to keep inventories at this reduced level." Looks for 15-18 days inventory on "selected high volume packages." So like other brewers, importers, Miller committed to getting fresher beer out there. Miller also taking volume hit in 2000, preparing for better 2001. To help make that happen, Miller will ratchet up its mktg spending in 2001 by well over $50 mil, but that will still only put it at about 1998 levels. Meanwhile, Miller volume off 2.6% for last 13 weeks thru Nov 12 in supers, according to IRI. That’s steeper than 1.7% yr-to-date dropoff. But Miller lost slightly less share in period, as category did less well.
At first Beer Inst mtg in 5 yrs, Chairman John Bowlin stressed that BI needs to be "unified force, to work together in the public policy arena.... We can agree on 80-90% of issues," John thinks, learn how to "agree to disagree" on others, and "keep disagreements within the industry." Ain’t just brewers that have to get together: "We must constructively engage with all key stakeholders" on policy, said John, including other bizzes, community leaders, and the public. What’s the urgency? "The beer industry is not held in particularly high regard," John said. BI prexy Jeff Becker had presented polling data that showed: 2/3 of public think people who drink in front of kids "set a bad example"; over 60% think more restrictions against alcohol are needed; over 40% would ban beer ads from tv and nearly 40% would end beer sales in c-stores and grocery stores; over 1/2 agreed with statement that "I find myself becoming less tolerant of people drinking alcohol"; 1/3 don’t believe beer is part of "normal American life." John and Jeff pointed to data that shows once public becomes aware of brewer responsible drinking programs and progress against alcohol problems, public attitudes improve.
It’s particularly important for the industry to get "a seat at the table," John believes, in debates on alcohol policy issues "at every level, local, state and federal." Pointed to success last yr in pulling together coalition of industry, law enforcement and others in Wisc to back law aimed at hard-core drunk drivers. On other hand, brewers didn’t believe the .08 BAC federal mandate would ever pass Congress, John noted; but "we were wrong." That misjudgment shows importance of having seat at policy table, particularly because MADD has a 93% favorability rating among public, while the industry is about half that, John said. Brewers gotta be more out front too, said John. "We have to take chances" and act "much more aggressively in the public policy arena." Pointed to recent front-page feature article in Wall Street Journal on programs to reduce campus drinking as an "excellent example" of progress.
Non-AB Suppliers Gotta Change Thinking About Distrib "Focus" in Big Way, Urges Mazzoni
No distrib can give "more than 100% effort to satisfy 2, 3, 4, 5 suppliers, all of which want and demand more focus than the other suppliers in a given house," consultant Mike Mazzoni told Beer Insights seminar. As a result a major change in non-AB supplier thinking has to take place. His suggestion: "For consolidation to work, the distributor putting his money on the line to consolidate a market cannot and should not be controlled by suppliers in the traditional way.... Reality is that consolidating major brands" means that distrib will "operate differently than when the majority of his volume came from one brewery.... In the simplest terms, the suppliers' operating paradigm has to change because if 2, 3, 4, or 5 important suppliers are pounding on a distributor that distributor is going to lose efficiency and overall competitiveness.... Focus in the traditional sense simply cannot be part of the suppliers’ lexicon or expectations in consolidated operations. That's not a popular view among suppliers." Talk about an understatement! When the dust clears, in Mike’s view, "in a consolidated house the All-Others distributor will be more important than his suppliers," in contrast to distribs in the AB network.
Consolidation into a 2-house (AB and one other system), Mike believes, "is not only necessary, it's inevitable." (Consolidation, Mike defines, is "vertical or in-market combinations of 2 or more distributors selling competitive, primary, domestic brewer's brands.") The longer this outcome delayed, "the more difficult the playing field will be," in Mike’s view, for non-AB distribs because until consolidation complete, AB distribs will continue to make hay while competing distribs "perpetuate inefficiencies." But Mike pointed to "Achilles heel" in his own argument: suppliers haven't figured out how to make consolidation work. Key stumbling block "overhanging every potential consolidation" is issue of distrib focus on competing suppliers’ brands because "every supplier is just looking out for his own interests," Mike noted.
Mike’s perspective on consolidation comes from yrs of "reconfigurations" in mostly Miller’s system (putting together contiguous distribs to form bigger, ostensibly stronger distrib, but with same share disadvantage vs AB) that failed to make them more competitive. Economics made sense on paper, Mike said, but expected efficiencies more often than not "never materialized." They were "gobbled up by margin erosion, and sometimes, in fact more often than not, volume declines." In vast majority of cases "there was simply little or no money available" to build biz after reconfiguration, Mike acknowledged. "Much less was there any possibility of achieving any scale advantage against the larger distributors." Ouch! A "scary thought": for AB system, reconfiguration is "still an option.... It's sobering that AB and its distributors...can create the efficiencies Miller and Coors hoped for...simply by combining contiguous operations in many geographies, eliminating redundant costs...to beat everybody else over the head." Consolidation makes even more economic sense than reconfiguration did, Mike said. In fact, it "makes so much good economic sense that even outsiders are recognizing the advantages, and the industry is crawling with roll-up specialists" and investment capital guys hoping to benefit. Bottom line: "Survival. That's the real issue here... Consolidation in our industry should be recognized as a politically correct term for survival.... All of the suppliers out there who aren't lucky enuf today to be AB better rethink their positions and embrace consolidation. I think they should run to consolidation, and I think they should push their distributors in the process.... All non-AB suppliers" should realize that "who the distributor is is no longer as important as having just one distributor." Both Miller and Coors "see the need" for consolidation" now, said Mike. "They're frustrated not only with each other, but with some of the other suppliers out there because if you can't have a consolidation which results in a scale improvement, that belies the whole principle." Another question: Isn’t a Miller/Coors merger the only way to get around "Achilles’ heel?" It’s "not the only way," said Mike, "but it sure as heck would be terrific if it happened.... That would solve an awful lot of problems for distributors."