Following recent pattern, Gambrinus just appointed AB’s Boston branch as its 3d distrib for Modelo brands there in roughly same territory. Recall that AB had cited Gambrinus’s "great willingness to negotiate" with AB distribs at AB’s recent natl sales meeting. The other 2 Boston Gambrinus distribs, Burke Bev and Metropolitan, sell almost 1 mil cases of Modelo brands as dualled distribs. There are lotsa other dual import situations in Beantown, too. For example, Heineken has 6 there. This Gambrinus move follows others by Gambrinus to AB network in Jacksonville, Houston, Memphis. Plenty more in works. About Boston, Gambrinus had no comment. Meanwhile, Barton terminated statewide Okla network of 3 distribs selling 3.2 Corona Light in grocery stores (where most of biz is) and went with AB. Only Corona Light sold in grocery stores. No franchise protection in Okla. Barton prexy Bill Hackett told INSIGHTS: "Clearly, this was a decision based on non-performance in key Oklahoma market, which put us in a position to reevaluate our alignment statewide. But our (general) position hasn’t changed. We will always evaluate all options and align with the best option for us on a market-by-market basis."

AB added a 6-mil-case branch to its system: sunny San Diego. Of AB’s 14 branches, 5 are in Calif and they sell almost 2 mil bbls, over 20% of AB’s volume in nation’s largest state and about 40% of its Southern Calif volume. This is 1st new branch since August Busch IV added branches to his responsibilities. Former AB distrib Coast in San Diego also had about 250,000 cases of Guinness brands which AB tried hard to keep. But ultimately, Guinness went to Miller distrib Mesa (owned by Ron Fowler), which was already selling Smirnoff Ice. Meanwhile, another AB branch in Calif, Stockton, just added territory, when tiny Crescent City (about 100,000 cases) got terminated for non-compliance. This territory is not exactly contiguous: Crescent City is over 400 miles from Stockton. Crescent City was 1 of 3 Calif distribs that got termination notice from AB last Aug for non-compliance. (At least 1 of other 2 now in compliance.) Another recent AB deal: former AB region mgr Jim Zink just purchased AB’s 2.8-mil-case distrib in Indianapolis. Jim’s 2 sons, also longtime AB employees, will work with him too. And Dana Dist in NY bought out 400,000-case United Bev. That’s 2d Dana deal in less than 1 yr (bought 1-mil-case Raso last yr). Dana now about 3 mil cases in all. But in all 3 territories, Heineken had terminated these AB distribs as part of regional consolidation plan. Dana lost over 300,000 cases of Heineken. Finally, AB distrib Eagle Bev in Oswego bought 700,000-case Best Dist in Watertown in Jan. Eagle now slightly under 2 mil cases. In a number of AB deals in upstate NY in last yr or so, smaller distribs sold to make medium-sized ones.

While AB added a branch, Coors subtracted 1. At same time, a new Miller/Coors distrib formed. Coors sold its Okla City branch to a new entity Capital Dist LLC. Capital now owns Miller distrib there too. Capital will sell about 3.7 mil cases per yr. Majority owner is Warren Anderson, an Ohio businessman, whose principal biz is Anderson-Dubose, a transportation co. Allen Everette, who was Miller distrib there, retains minority interest in Capital. Coors now down to 4 branches. And speaking of Ron Fowler, in addition to Guinness in San Diego (see above), he also bought about 800,000 cases from Mariner Dist (including Corona) in northern Calif. Added this to Santa Rosa, about 2.8 mil cases. All Ron’s distribs will sell near 17 mil cases on annual basis.

NY distribs (Oak and 3 NY metro AB distribs which had Heineken) refiled suit vs Heineken in a different state court, adding Miller and distrib Phoenix (which got Heineken) as defendants. Basic arguments unchanged, but Oak now stresses Heineken "conspired" with Miller and Phoenix "to eliminate" Oak and "acquire the business for themselves." "Defendants carried out this conspiracy," Oak further alleges, "by having Heineken improperly terminate each of the plaintiffs and awarding each of their exclusive territories to Phoenix.... As part of the conspiracy, Miller agreed to terminate Oak’s Miller distribution rights and award those rights to Phoenix/Beehive." (No announcement of where Miller brands going if Oak doesn’t get injunction, but Phoenix seems a good bet.) Miller participated in conspiracy to reap the benefits" after "consortium" got Heineken. Similarly, "Phoenix used its superior market position and influence to exert pressure on Heineken to eliminate" Oak, which competes with Phoenix. Distribs still ask for almost $100 mil in damages and seek treble damages based on antitrust claim.

After Miller gave 90-day termination notice to Oak (see last issue), Oak sued in US Dist Court to stop termination. Seeks permanent injunction. Uses many of same arguments which didn’t work in state court complaint against Heineken. After Heineken succeeded in terminating Oak, Miller said it "would like to try and negotiate an assignment of Oak’s rights to Miller," according to Oak principal Hap Boening’s affidavit. Miller’s offer: $2.98 per case for Miller brand rights (about 1.2x gross profit), which Hap termed "insultingly low." Further "eroding" Miller’s "low" offer, according to Hap, Miller also "required Oak to provide certain indemnifications and to be responsible for certain post-assignment obligations." What did Hap want? $10.00 per case, including damages. Miller prexy John Bowlin had told Hap "that Miller’s offer was ‘just a starting point,’" according to Hap. But when Miller met with Hap, it "absolutely refused to budge off its previous offer," sez Hap. At end of Mar meeting, a Miller rep "handed me an envelope containing the termination notice," signed by sr veep Jim Mortensen, who didn't attend meeting.

Jim’s letter said Miller "is implementing a regional policy of consolidation in its New York metropolitan market," citing same NY law that Heineken used. Miller "has been concerned for some time with the total coverage of the Miller family of brands in the New York metropolitan market," Jim wrote. Miller "has enjoyed the benefits of the consolidation of distributors" in other mkts and "attempted to employ a similar strategy" in NY metro. Miller "hopes to work with you to establish a framework for you and Miller to determine the compensation for the loss" of Miller brands. "Miller and the Boening family have enjoyed a long rewarding relationship," so Jim hoped for "an expeditious and reasonable resolution ... including a continuation of our current discussions."

But Oak is fighting for its life. "Simply put," wrote Oak, "unless this court enjoins the termination ... Oak will cease to operate." Heineken and Miller were 86% of Oak’s biz, 3 mil cases and 1 mil cases respectively. According to Oak, Miller is part of "Consortium" that includes Heineken and distrib Phoenix that conspired to get Oak’s biz without paying up front (see below). "When Oak’s demise is complete," charged Oak, "the Consortium will have completed their ‘acquisition’ of Oak’s entire distribution business, an asset worth ... in excess of $80 million, without having paid anything to Oak." Oak argues that Miller didn’t have "good cause," that its termination "not pursuant to a regional policy of consolidation," that Miller didn’t notify everyone it needed to 90 days in advance, and acted in "bad faith." "Miller apparently believes," wrote Oak, "that all a brewer need do in order to legally terminate a distributor is tack on the label of ‘consolidation,’ regardless of its motivation." Miller’s "claim is particularly suspect in light of the fact that Miller’s ‘consolidation’ consists solely of the termination of Oak," Hap sez in affidavit. Moreover, "the actions of Miller and Heineken were not independent," said Hap. Hap points to Miller prexy John Bowlin’s purported statement to Hap’s daughter Debbie (Oak veep) that "’Miller had deeded New York to Heineken’ and there was nothing he could do." Hap concludes: "It is inconceivable to me that a statute which was designed to protect the rights of beer wholesalers can be so corrupted as to permit this result."

Buzz among beer distribs about lousy Mar volume confirmed, at least in important supermkt channel, according to IRI data thru Mar 25. Four-week volume trend: –2.2%. Off 0.5% for 13 weeks, dead even yr-to-date. How much of a trend change is that? Supermkt volume was up 3.5% in 2000, 2.2% in 99. On positive side, pricing had held thru Mar and consumers continued trading up, so dollar sales up almost 3% in Mar, nearly 5% YTD. Volume softness in part a cycling issue. Mar 2000 volume had been up very healthy 6.7%. Yet Jan-Mar 2000 trend, +4.2%, not that much higher than the 3.5% gain for the yr.

Each top-4 brewer down in Mar. AB had best numbers: down 0.9%, but gained 0.6 share. Jan-Mar, AB only gainer of top-4: up 1.6% with 0.7 share gain to 44.6. Miller down 7% for 4 weeks, down 4.6% YTD. Miller lost 1.1-1.2 share each period. And IRI does not include Molson brands either year. Coors down 4.2% in Mar; off 0.4% YTD but held share. Even several importers slowed. Only Heineken maintained double-digit gain pace in Mar. Up 11-12% for 4 weeks and YTD. Barton/Gambrinus up mid-single digits. Labatt up 9% YTD, but just 3% in Mar. Guinness-Bass up 10%; 6.6% in Mar. Among top-20 brands in supers, only 7 up YTD. Bud Light up 7.3%. Miller Lite eked out 0.3% gain. Other gainers: Busch Light, 9.9%; Corona, 4.2%, Keystone Light, 5%; Heineken, 11.6%; Natural Ice, 9.5% (imports and subpremiums). Light beer volume up 1.1% Jan-Mar, imports up 9% (import light segment up 17%). Micro volume up 2.5%. Smirnoff Ice grabbed 0.4 share of volume, 0.7 share of $$$. Avg price over $28 per case, $1.50 higher than Heineken, almost $4 per case higher than Corona. Amazingly, Smirnoff Ice and lemon-flavored brews up 1.4 share of $$$ YTD.

This wasn’t the way beer industry pricing was supposed to work in 2001. On Apr 2 Miller deepened discounts in its largest market. Recall that Miller first led with a 45-cent front-line increase in Feb. Then Miller rescinded that, but said it would get same effect from discount reductions. But now, with deeper discount, $12.99 prices to the consumer (for a case) will be more commonplace, even some $11.99. Can’t read too much into Chi, because it’s historically 1 of craziest, most competitive beer mkts on price. But this isn’t good sign heading into peak-selling season. On top of it, "Miller adjusting prices a bit lower" in Apr in select mkts, wrote Sanford Bernstein analyst Bill Pecoriello, after surveying 114 retailers in 38 mkts. Besides Miller’s Chi move, Bill also cited "readjustments" in New England and South Texas. Nationwide, Miller Lite was at a 4% premium to Bud Light in Mar, but at a 10% discount in latest Sanford Bernstein survey. Other recent developments: in a feature ad in major NY paper, Miller Lite 30-packs at $11.99 across 60 home-ds compared to $13.99 for Coors Light; Miller will drop Lite and High Life 30-packs in Oh $2.00 starting Apr 30. Meanwhile, finger-pointing has begun. At NBWA Spring Legislative meeting, AB sales veep Mike Brooks told AB distribs that AB had recently seen some step-up in discounting by its key competitors. Elsewhere, AB and Miller execs have increasingly pointed to Coors as instigator in select mkts. Also at NBWA, Miller sr veep sales Jim Mortensen told distribs at Miller party that Miller sees some signs of "softening" pricing; i.e. AB and Coors had higher discount levels than Miller over Super Bowl weekend, same pattern as Memorial Day last yr, according to Jim.

Price of playin’ poker is going up. More and more, beer biz is big-brand, media-driven mktg game. In 2000, AB, Miller and Coors spent approx $744 mil on media, up $96 mil, 15% compared to 99. (Data in chart below, compiled by Competitive Media Reporting on spending in 11 media, includes all brands and corporate public service ads.) Each top-3 domestic brewer increased media spending at double-digit rate in 2000. Heineken boosted spending by a third; more than tripled media support for Heineken/Amstel last 2 yrs to $57 mil. Spending on Modelo brands (primarily Corona) about same. Total media spending by brewers/importers reached $910 mil in 2000, up $110 mil, 13.7%, according to CMR. Whew!

AB upped media spending $36 mil, 11%. Almost 2/3 of increase went to Bud; spending up $21.5 mil, 16%. AB spent about 33 cents/case on Bud media last yr, up a nickel/case compared to 99, while Bud sales continued down slightly. Meanwhile, Bud Light continued to gain 10%+ with just a 3% increase in media spending in 2000. AB spent about 25 cents/case on Bud Light media, down from 36 cents/case in 98. Makes you wonder: how much does Bud Light benefit from Bud ads? AB jumped ad support for Busch by almost $11 mil, 150% (over half in 4th qtr alone), increasing support from 6 cents/case to about 17 cents/case. Michelob family spending (mostly Mich Light) up $4.8 mil, 14% to about 60 cents/case. That’s up from just a dime per case as recently as 97. While AB spent over $300 mil on Bud, Bud Light, Busch and Michelob Light in 2000, AB sold over 15 mil bbls of Busch Light, Nat Light and Nat Ice with virtually no measured media support. Miller cut 4th qtr media spending on major brands by 16%, but spent $26.5 mil, 16% more for the year. Miller increased Lite support by $7.3 mil, 9% last yr, but cut Miller Genuine Draft spending $3.7 mil, 13%, and High Life support by $4.2 mil, 30%. Per-case, Miller spent about 40 cents on Miller Lite in 2000, down from about 70 cents in 97. MGD got about 34 cents/case media support in 2000, down 50 cents from 97 level. Big chunk of Miller spending increase in 2000: Miller spent $8.4 mil to promote Miller "Get/Goods" on-line auction. Despite increase in 2000, Miller media spending still about 12% below 98 spending, 27% below 97 spending. Coors upped total media spending $34 mil, 20% in 2000. Spent $111 mil on Coors Light, up $17 mil, 17%. That was $4 mil more than AB spent on Bud Light and $21 mil more than Miller spent on Miller Lite. Coors continued to spend much more heavily per-case than AB or Miller. In fact, Coors Light spending per-case more than double Bud Light’s, about 30% higher than Lite’s. That ain’t all. Coors put whopping $41 mil behind Original Coors in 2000, up 46%, and reached almost $1.70 per case. Spent over a buck/case for Killian’s, over $2 per case for Zima. Coors outspent Miller by almost $9 mil in 2000; difference in 99 was $1.6 mil.

Heineken really poured on media $$ last 2 yrs: upped spending $15 mil, 35% in 2000. Spent about 90 cents/case, up from less than 40 cents/case in 98. Meanwhile, spending for Modelo brands about same $36-37 mil last 2 yrs. That was about 40 cents/case, down slightly in 2000 as Modelo brands grew at double-digit rate. Boston jumped spending 33% in 2000 after holding in 99. Labatt USA slashed media support by almost 25%, most of that cut on Rolling Rock. Guinness held spending at about $10 mil last 2 yrs, a big reduction from 98, as it was gettin’ ready to bet big on Smirnoff Ice.

Ex-AB Fla distrib Maris will ask jury in Fla court for $2.5 bil damages from AB (which terminated Maris in 97), in trial scheduled to start May 1. Judge threw out some of Maris’ charges, including RICO claims and claims vs AB distribs who got Maris territory and AB execs, but Maris’ claim that AB termination breached contract goes forward. AB sez it terminated Maris for fraudulent conduct and deficiencies. Maris disputes findings of AB teams that crewed Maris, sez many crew reports false. More important, Maris claims termination was actually part of elaborate AB scheme to consolidate distrib network. Key to this charge is AB internal document that "lists about 150 other distributors nationwide that the Marises believe were also targeted for termination," according to Wall St Jnl, which got document. This document was referred to several times at fed trial, but never detailed. WSJ wrote that one version of document dated April 96, and "includes a cover sheet saying it is preliminary and hasn’t received senior management approval," but it’s got 5-step process for "wholesaler alignment." Another version of same plan, according to WSJ, rated list of distribs "on their likelihood of selling out." Some rated "’tough’ because of ‘major ego’ or ‘kids, nothing else to do’." Others rated "‘easy’ acquisitions that may require only ‘some pressure, some incentive money.’" But for those rated "‘on the fence,’ executives ‘need to create incentive and motivation of heavy crew pressure.’" "It’s not just what they’ve done to" the Marises, their atty Willie Gary told WSJ, "but what they’ve done to others." .....Next issue in 2-1/2 weeks.

Coors' mixed 1st qtr results led to several downgrades from Wall St analysts and sent Coors share price down almost 6 points, 10% in 1 day. Share price down 33% YTD from $78 to $52. Coors earnings per share were up 23% in 1^st qtr and well-ahead of Wall St estimates. So what alarmed analysts? The 7-point discrepancy between shipments and sales-to-retailers because of 300,000-bbl inventory build means that 2d and maybe even 3d qtr are gonna be tuff. Prexy Leo Kiely told analysts that distribs, "will probably draw down virtually all of this extra inventory by early July." Acknowledged volume buildup "could shave 3-5 percentage points" off 2d qtr volume and 3d qtr may take hit too, but a "more modest amount," according to Leo. Inventory adjustment "could have a substantial impact on our gross profit growth this summer," said cfo Tim Wolf. Leo blamed Coors’ soft retail performance on "challenging comparisons" vs 1st qtr 2000, "unseasonably cold winter overlapping an unseasonably warm winter" and "generally weak economic conditions, particularly" in S Calif. Coors’ softness "settled in sometime last November," said Leo. He noted when Coors trends started flattening last November, it "represents Coors Light flattening out." Leo said Coors Light removals were "just off marginally" in 1st qtr so "Coors Light is virtually equal to a year ago." Meanwhile, "Original Coors is down a little more than that," according to Leo. Zima was "disproportionately challenged" during 1st qtr with "mid-high single digit drop". Killian’s "is actually holding its own very well" in face of AB red beer launch; Keystone Light trend "robust" but no indication sub-premium category overall is growing, Leo said. Coors rev per bbl up 1.6% in 1st qtr and cost of goods sold up 1.4% per bbl. Since Oct, Coors has gone up about 2.5% on 2/3 of domestic volume.

Just before Miller’s well-received natl sales convention (see above), Miller reported oper income down $29 mil, 19% in 1st qtr, "due to lower volume as well as double-digit increases in marketing spending" on core brands, wrote PM. All Miller’s top brands were down (including Miller Lite, MGD and Foster’s), "partially reflecting Miller’s decision to reduce distributor inventories." Unstated but also a factor in lower earnings: less than expected contract-brewing production for Pabst. Means that Miller oper income down $56 mil, 23% last 6 mos. In 1st qtr 2001, Miller dropped to under 3% of PM oper income as PM’s total oper income up double-digits to $4.3 bil. Interestingly, PM stock has more than doubled in last yr and was hottest stock on Dow in 2000. Upcoming IPO for 15% of Kraft expected to raise $5 bil, according to Fortune mag, and 1 of largest IPOs ever.