While beer biz up 2.5% in supermkts YTD thru Jul 14 in big 11-county southern Calif mkt (population: 21 mil), according to IRI, look how strong hi-end is there. Grabbed over 30 share of volume YTD (about 10 share higher than US avg). Up fully 3.2 share, as imports and malternatives got most of gain. (Supers are big % of S Calif beer biz, but total mkt there down slightly.) Imports alone had nearly 1/4 of all supermkt beer volume in S Calif, up 11% YTD. That’s 32 share of beer $$$ in supers in region. Corona is #4 with 8 share of volume. Up 7% YTD even after price hike. Tecate and Heineken also in top-10, each up over 20% YTD; but avg price for each brand down about 90 cents/case. (Tecate sold for just a nickel/case more than Bud Light.) Indeed, among top-10 brands, 8 sold at avg lower prices YTD than last yr as scan-backs (discount given at cash register), other price discounts in effect. Prices paid for most premium brands down about .30/case. Even so, avg price paid for all beer up .17/case as consumers traded up.

While hi-end biz goin’ gangbusters, supbremium biz down double-digits (below 9 share), premium biz just flat. So AB and Miller both lost share of mkt in S Calif supers YTD. AB volume up slightly, but less than mkt growth. Avg price paid for AB product dipped a dime/case. Bud/Bud Light prices down .30/case. Miller biz off 4.6% and it lost 1.3 share, but avg price paid for Miller product up slightly. Coors held share as avg price paid for Coors product down a quarter. Barton has 11 share in S Calif supers; Labatt USA has 6 share. Bud family lost 0.1 share YTD as Bud Light gain offset by Bud dropoff. Bud/Bud Light family has 30 share here vs 27 share nationally in supers. But AB total share (35) about 10 share lower in S Calif supers vs US avg as its sub-premium biz not nearly as strong. Miller share in S Calif (18) supers about 5 points lower than its US share; Coors share (15) is 4 points higher than avg in US supers. Better natl trend for Pabst not showin’ up in S Calif. Note: MGD outsells Lite in S Calif supers; Coors Original still a top-10 brand, tho down 5%; Coors Light up 6%. Smirnoff Ice is rockin’: more than doubled biz YTD, just below Nat Light for #11 brand; had 1.4 share YTD.

Interbrew will sell Bass in US after June 30, 2003 as it just bought back US rights from Diageo for $105 mil. The deal was expected. After Interbrew bought Bass in UK in 2000, it seemed only a matter of time and $$ before Interbrew would acquire US rights even tho Guinness Bass Import Co had agreement with Bass thru 2016. This gives Interbrew "operational control" of 7 of top 12 imports, it said. Question now is where will Bass brand go? If Interbrew attempts to integrate Bass into Labatt USA, it would undoubtedly face same challenge from FEMSA as it got on Beck’s (US Court of Appeals decision pending). Even if brands can’t be integrated, option of a standalone Beck’s/Bass combo would be "attractive," according to ceo Hugo Powell, because Interbrew keeps 100% of margin instead of splitting it 70/30 with FEMSA. Hugo also said 80% of Beck’s volume and 70% of Bass volume already in LUSA distrib network. So Interbrew would gain clout in house, whichever entity sells Bass and Beck’s, he said. Yet Interbrew also gets more headaches managing its distribution network, which is already much larger than its competitors.

Interbrew reported figure of 700,000 hectolitres, close to 600,000 bbls in 2001. Up 1%, INSIGHTS estimates. Guinness Bass Import Co shipped lotsa extra Bass to distribs this spring and absorbed much of carrying cost, seemingly so it could make its shipment-based target in its contract with Interbrew. (Indeed total UK beer shipments up 16% in 1^st half.) But part of agreement with Diageo is to "expressly avoid loading," Hugo said; in fact, the 2 agreed to take inventory down by next Jun. Gotta expect big shipments drop for Bass in 1^st half 03. Guinness Bass Import Co will of course change its name (tho it hasn’t yet decided to what), and will change chief exec again. Prexy John Replogle will leave GBIC to be gen mgr for all Diageo products in New Eng. New GBIC prexy is sr spirits exec Dave Eickholt. He is 7^th prexy in last 11 yrs.

Import shipments "slowed" to 567,000-bbl, 5.1% growth in 1^st half, including 78,000-bbl, 3.6% drop in Jun. (In 1^st half 2001, imports up 13%.) But Canadian shipments down 252,000 bbls, 13% as lotsa Smirnoff Ice production shifted to US. Even tho Mexican shipments off May-Jun following price hike, still up 480,000 bbls, 10% in 1^st half. Climbed to 44 share of imports, up 2 points. Dutch shipments up 188,000 bbls, 6.8% and over 25 share. UK and Irish shipments each gained at double-digit pace; up 83,000 bbls, and 38,000 bbls respectively. German shipments down 37,000 bbls, 6%. Beck’s brand depletions down 4%, Interbrew said, as "uncertainty resulting from a delay in the integration process" for Beck’s "has had a negative impact." Total LUSA imports up 7.7%: Tecate up 12%, Labatt Blue Light up 19% and Stella Artois "more than doubled" (on small base), Interbrew said. Diageo reported Guinness volume in US down 1% for 12 mos thru Jun.

Could AB and Maris actually do it all over again? Recall that grueling 3-mo trial last yr ended up in $50-mil verdict to Maris, plus $22.6 mil (and growing) interest. New trial is one possible outcome of AB appeal to Fla state court. AB would prefer that appeals ct "grant a directed verdict" in AB's favor, or dismiss Maris complaint altogether. (Of course, Appeals Court could simply let verdict stand). AB?s 67-page brief details lengthy list of errors (in AB?s view) made by trial ct and "egregious conduct" by Maris attys. AB focused on 3 major points. First, it argued "evidence was undisputed that Maris Dist Co engaged in continuing, widespread fraudulent conduct in dealing with AB and its products," primarily re-packaging overage beer and falsifying records. A dozen former Maris employees "testified at trial that they had intentionally repackaged or altered labels on overage AB products," AB noted, and five supervisors "testified that entries in their" sales call records "were false." Tho Maris attys claimed company owners unaware of conduct and therefore did not breach contract, AB sez that?s no protection under law. Cited previous cases where distribs were found responsible for same practices. AB also claims trial court compounded error by "incorrectly instructing the jury" that corporation not responsible if employees were not part of mgmt and were acting "solely in their own interest." That is "exact opposite of the correct rule," argued AB. Second, the "egregious misconduct" of Maris attys throughout trial "denied AB a fair trial," it claims. Some details: Maris attys were cited for contempt 5 times during trial, and judge kicked out lead atty Willie Gary on last day; "introduction of a fabricated newspaper article" that 2 Maris witnesses claimed to have read; "frequent and blatant defiance of court orders?. Continuing attacks on the integrity and credibility of AB?s lawyers"; repeated references to other AB distrib disputes they weren?t supposed to discuss; claims that Maris "family" injured when plaintiff was corporation, and much more. Misconduct "was so pervasive and egregious," AB sez, "that the cumulative effect was to poison the entire proceeding and deny AB a fair trial, thus requiring reversal." "Countless Florida decisions have reversed for new trials based on conduct that pales in comparison to what happened here," according to AB. Finally, AB sez lower court erred in calculating prejudgment interest.

In response, Maris attys repeated their long-held claim that AB unfairly targeted highly successful Maris Dist for takeover as part of a "re-alignment plan." They also responded point-by-point to AB?s arguments in 106-page reply. First, tho AB sez evidence of fraudulent conduct "undisputed," Maris attys argue the "credibility of the witnesses claiming to have engaged in fraudulent conduct was seriously challenged and there was much conflicting testimony." Those who repackaged overage beer "emphasized" that they did it "to hide it from Maris to avoid having to pay for it," Maris attys claimed. All but one of these employees were hired by, and many advanced to management and supervisory positions, with the replacement distributors after having claimed to have hidden overage beer from Maris," Maris added. In addition, sez Maris, AB?s evaluations of Maris performance were "farces fraught with deceptive manipulations. AB trumped up trivial instances of employee dishonesty into ?fraudulent conduct? after Maris filed suit and ambushed Maris with the allegations in its termination letter." Fact that jury found Maris did not breach contract "entails a finding that any overage beer was immaterial," according to Maris. And since jury found AB did breach the contract and acted in bad faith, AB "could not terminate Maris for fraudulent conduct." Judge "properly instructed the jury" on the issue of whether employee?s conduct can be attributed to employer since, in this case, Maris employees acted solely in their own interest, not mgmt?s, Maris sez. "Maris counsel did not engage in misconduct," they insist. What AB calls misconduct was "Maris? defense to Busch?s improper trial tactics" and a "mischaracterization of the record." While Maris attys cited for contempt 5 times, they acknowledge, "the court never suggested that the matters underlying the citations had been ?prejudicial?" to jury and that?s necessary to reverse verdict, they say. What?s more, an AB atty was cited for contempt too, and AB attys engaged in their own "hardball" tactics, according to Maris. For example, while AB sez Maris attys incorrectly talked about Maris "family" being injured, Maris attys point to numerous examples of AB attys focusing on how Maris family members were "milking the business" and acted improperly. Jury?s verdict, Maris states, based on "avalanche of evidence" not "isolated" statements by attys. Maris asked court to reject AB requests for reversal/new trial. Added that calculation of interest was correct. But in its cross-appeal, Maris seeks restitution of original $140-mil verdict handed down by jury. Recall that jury figured damages totaled $140 mil, but jury form broke out $50-mil fair mkt value and $89.6 mil in "lost sales." Judge called that award "inconsistent" and allowed only the $50 mil. Maris attys argue that breakout was "surplusage," irrelevant to verdict, that jury "made it clear that it had awarded Maris $139.7 mil" which "is supported by the evidence and must stand."

AB sales-to-retailers up 3.1% Jul-Aug including benefits of way Jul 4 fell this yr, prexy August Busch IV told Prudential conference Sep 4. STRs up 1.9% yr-to-date. (At same time last yr, AB STRs up 0.9% YTD, gained 1.9% Jul-Aug.) Sep STRs expected "strong" as well, added August. AB now "expects slightly more than 3%" rev-per-bbl gain for full yr, including "continuing strong pricing" and 4^th-qtr price hikes, cfo Randy Baker told same meeting. Over 1/4 of rev-per-bbl gain (.8 of 3%+) from Bacardi Silver, which got 0.4 share in supers and has "maintained a price premium" to Smirnoff Ice, said August. Another element of "very favorable" pricing environment: "we see no hints of either competitor [Miller or Coors] departing from their current strategy" on pricing, according to August. Indeed, Morgan Stanley survey of retailers over Labor Day weekend found "only modest promotional activity" in light segment and "robust" total pricing environment. At same Prudential conference, Coors CFO Tim Wolf said "pricing environment has never been better." And yet note of caution sounded a couple of weeks back by Deutsche Bank, which worried that such pricing not sustainable because other consumer goods cos not currently able to raise prices and beer prices up more in recent yrs than historical norm.

Next yr AB will implement other strategies to increase its hi-end focus and continue string of 15 straight qtrs with 2% or more rev-per-bbl gain. It will further "refine" its bonus plan, said August IV, to include "margin objectives" in addition to price and volume: higher bonuses will be paid for getting results on "higher margin brands and higher margin packages." AB also intent on re-inventing Michelob: changing package, ads, and price. AB looks to move Michelob prices "further away" from premiums and towards "lower-end of imports," August said. This yr Michelob Amber Bock up 20%+ for 5^th yr in a row, Michelob Light showing "good" growth and Michelob Ultra test mkts "extremely successful," he added. (Didn’t mention declining regular Michelob.) Total AB volume shipped to distribs should be up 2-2.3% in 2002, reiterated Randy. Meanwhile, AB prices going up 3% or so in 3 of 4 biggest mkts: Tex, Fla and Calif on Sep 30. AB sells over 25% of its volume in those 3 states.

MADD?s president Wendy Hamilton responded to NBWA?s letter, but not to the charge that MADD "prefers liquor to beer." Instead, she "reminded" NBWA that beer is over-represented in alcohol-impaired driving and alcohol-related crashes, that it?s the "drink of choice" for young people, heavy drinkers and binge drinkers and that underage drinkers drink a lot of beer. She reiterated MADD?s forceful opposition to lower beer taxes. In addition, Hamilton offered faint praise for some of the beer industry?s "educational campaigns" and credit to the Century Council and others who agree with MADD on .08 BAC laws "as part of a comprehensive approach to stop drunk driving." What about the distillers? efforts to roll back spirits taxes? "I will assure you that our silence was not intentional," she wrote. "We just recently heard about this legislation and from this point forward you will find MADD to be equally unwilling to accept the rollback of any alcohol-related excise tax. We will be vocal in our opposition to these efforts," she promised.

Tensions over marketing issues and equalization are popping up elsewhere. A recent Advertising Age editorial noted how Diageo is pushing the "hot-button issue" of equivalence with its deals to display signs for their liquor brands inside several NFL stadiums and continuing efforts to persuade television networks to run liquor ads. Ad Age suggested that by pushing the beer-liquor "parity issue," Diageo is "potentially opening the door to a wider public discussion" of alcohol beverage marketing that could go far beyond who puts up signs in stadiums. Newspapers across the US picked up a late-August Associated Press story about efforts to roll back beer and liquor taxes while some states are seeking to raise alcohol beverage taxes to address budget shortfalls. In late September, the Washington Post wrote up a new study that purportedly supports the activists? claims that youths are "often exposed" to alcohol beverage ads.

The beat goes on: activists continue to attack alcohol beverage advertising and push for higher taxes. In late August, MADD, CSPI and other groups, along with their House allies Reps Frank Wolf (D-VA) and Lucille Roybal-Allard (D-CA), once again requested the House Energy and Commerce Committee hold hearings "on alcohol advertising and its impact on children." A letter from 21 Congressmen to the Committee leadership asked for a review of "the appropriateness of alcohol advertising placement on television," and "whether voluntary alcohol and broadcast-industry advertising standards are effective in minimizing young viewers? exposure" to alcohol ads. In a separate letter to House members, MADD and the National Association of Governors? Highway Safety Representatives charged "many alcohol commercials appear to be directly aimed at teens and air during programs that are popular with youth." MADD and NAGHSR "are not opposed to alcohol advertising," they claim, they just want it to "be undertaken in the most socially responsible method possible." In addition, MADD believes "federal rules that apply to alcohol advertising should apply to all segments of the alcohol industry."

MADD?s increasingly aggressive stance on alcohol beverage advertising follows its public attacks on the beer industry for trying to roll back the 1991 excise tax hike and its cooperation with the distillers on some drunk driving issues. These positions prompted a tough letter recently from incoming NBWA chairman Chris Caffey to MADD?s president. Caffey wrote: "MADD?s recent legislative initiatives implicitly favor the liquor industry, support hard liquor consumption and reflect a three decade-old ?equalization agenda? serving the liquor industry?s interests." Specifically, Caffey pointed out that while MADD vigorously opposes the beer tax rollback effort, the organization "has made no statement? taken no public position, held no press conference?has lobbied no members of Congress against legislation that has been introduced to repeal" federal liquor taxes "back to the level paid in 1985." MADD also supports tax equalization, Caffey noted, which "continues to be a top priority of DISCUS, an organization MADD has embraced and worked closely with over the last 20 months." In fact, MADD has "repeatedly communicated with, met with, coordinated joint actions with and publicly endorsed liquor industry initiatives" over the last 18 months, according to Caffey, while "continuing to be highly critical" of the beer industry. This is "particularly troubling given the long and significant investment made by the American beer industry" to promote responsible consumption, and reduce underage consumption, alcohol abuse and drunk driving, Caffey wrote.

Advertising, Tax Issues Simmer in DC; NBWA Charges MADD "Prefers Liquor to Beer"

The beat goes on: activists continue to attack alcohol beverage advertising and push for higher taxes. In late August, MADD, CSPI and other groups, along with their House allies Reps Frank Wolf (D-VA) and Lucille Roybal-Allard (D-CA), once again requested the House Energy and Commerce Committee hold hearings "on alcohol advertising and its impact on children." A letter from 21 Congressmen to the Committee leadership asked for a review of "the appropriateness of alcohol advertising placement on television," and "whether voluntary alcohol and broadcast-industry advertising standards are effective in minimizing young viewers? exposure" to alcohol ads. In a separate letter to House members, MADD and the National Association of Governors? Highway Safety Representatives charged "many alcohol commercials appear to be directly aimed at teens and air during programs that are popular with youth." MADD and NAGHSR "are not opposed to alcohol advertising," they claim, they just want it to "be undertaken in the most socially responsible method possible." In addition, MADD believes "federal rules that apply to alcohol advertising should apply to all segments of the alcohol industry."

MADD?s increasingly aggressive stance on alcohol beverage advertising follows its public attacks on the beer industry for trying to roll back the 1991 excise tax hike and its cooperation with the distillers on some drunk driving issues. These positions prompted a tough letter recently from incoming NBWA chairman Chris Caffey to MADD?s president. Caffey wrote: "MADD?s recent legislative initiatives implicitly favor the liquor industry, support hard liquor consumption and reflect a three decade-old ?equalization agenda? serving the liquor industry?s interests." Specifically, Caffey pointed out that while MADD vigorously opposes the beer tax rollback effort, the organization "has made no statement? taken no public position, held no press conference?has lobbied no members of Congress against legislation that has been introduced to repeal" federal liquor taxes "back to the level paid in 1985." MADD also supports tax equalization, Caffey noted, which "continues to be a top priority of DISCUS, an organization MADD has embraced and worked closely with over the last 20 months." In fact, MADD has "repeatedly communicated with, met with, coordinated joint actions with and publicly endorsed liquor industry initiatives" over the last 18 months, according to Caffey, while "continuing to be highly critical" of the beer industry. This is "particularly troubling given the long and significant investment made by the American beer industry" to promote responsible consumption, and reduce underage consumption, alcohol abuse and drunk driving, Caffey wrote.

Coors stock up about 2 points to 54 after it got a ?strong buy? rating from Skip Carpenter at Thomas Weisel yesterday. (Got recent upgrade from Morgan Stanley too.) Tho still down more than 1/3 yr-to-date, it?s up 20% in last mo. Boston Beer stock doin? even better recently: up 3.5 points, over 30% in last mo to about 14, easily highest level of last 3 yrs. In fact, Boston Beer stock up 60% yr-to-date. True, it bought back roughly 1/3 of its shares, but market cap at $230 mil, considerably higher than 1 year ago before buybacks. Meanwhile, AB stock also up 5%+ in last mo, still down slightly YTD.

So concluded study that analyzed drinking and unemployment rates between 1987 and 1999. Almost all of the dropoff, authors found, was from drinkers drinking less, not from drinkers quitting. Also, decrease ?concentrated? among heavy drinkers, not ?recreational? drinkers. That suggests fewer alcohol problems during tuff times. How big is effect? A 1-point increase in unemployment decreases probability of drinking over 2 per day by about 7%. Similarly, a $1K annual income reduction pre-dicts similar dropoff. Reduces so-called ?binge? drinking too. Finally, ?recent job losers, as well as those re-maining unemployed, cut their consumption when the economy deteriorates.? Study supports recent exec comments that soft economy one reason for less-than-expected growth.

One neat snapshot from data-rich presentation by Dave Williams, IRI sr veep, at Beer INSIGHTS Seminar last week: 40.1% of all households bought beer this yr in supermkts, drug stores and/or super centers. That?s up from 37.9% last yr. Note too: 11.6% of households bought import beer this yr, up from 9.9% last yr. Nearly 4% bought ?flavored alternative bevs? (like Smirnoff Ice, Mike?s Hard, etc), up from just 1.2% last yr. Interestingly, there was slight dropoff in % of households that bought micros, 4.6% to 4.4%.