In Fla state court battle over whether AB was justified in terminating 4.6-mil-case distrib in 97, only 2 witnesses testified in first 2.5 weeks. So it's going to be a long slog. Trial very contentious with lotsa atty bickering. Maris opening statement focused heavily on "secret" Adkins consolidation plan (see last issue) to "wrongfully" terminate and takeover Maris. Maris atty Madison McClellan said plan was AB "attempt ... to recoup many of these distributorships with an intent to reward family members, friends and former executives." He and lead Maris atty Willie Gary used explosive words like "fraud," "coverup," "unjust enrichment," "abuse of power," etc. Said Maris had 64 share and 2d best AB growth rate in state, but "their thriving made them an incredible target for AB" because what AB wants "is control ... they want it all." MET evaluations and deficiencies found were a "pretext" because AB wanted Maris biz, according to attys. Maris side also focused on many errors in MET survey; cited "bogus allegations" and "trumped-up" charges. Maris statistical expert will call this "the most corrupt survey he has seen."

AB atty Peter Moll fired back: Over 30 employees of Maris Dist, including Roger Jr "admitted that they were repackaging overage beer." "Customers were constantly complaining" about Maris’ service, Peter said. Maris was "grossly understaffed" with an "enormous amount of turnover" and the warehouses were "filthy inside." Maris was "trying to coast along." When Maris "engaged in fraudulent conduct and failed to fix massive deficiencies and breached the contract repeatedly," AB "had no alternative but to terminate.... The quality of Anheuser Busch’s products is at stake here and nothing is more important." As for Adkins plan, "evidence will show there was no secret plan," it was a "theoretical study" with "no basis in reality," done by a "low-level employee." Peter said to jury "you’re going to get the Adkins study .... See if you can find anything about termination in that study. It ain’t there. That word’s not there." On cover page, it sez "this study does not reflect the view of" AB mgt. Peter said "half" of "mistakes" in MET survey "favorable to Maris," so "they are a complete wash."

First witness Deborah Earley had been field sales secy who testified she had seen "secret" plan to terminate and "takeover" Maris. But document was actually a notification that MET team would go into Maris mkt (that wasn’t even sent at time). Turned out too she had been troubled employee who was put on probation, later sued AB at least twice (both dismissed), took numerous extended leaves, etc. Second witness, ex-Coors/Stroh distrib Greg Margerum on stand for over 40 hours. Testified out-of-code beer utterly commonplace: "I don’t care where you go, you’ll find out-of-code beer just about anywhere." Said too age didn’t really matter, since taste change "very gradual," beer doesn’t go "sour." When beer gets close to code date as distrib, "you find a home for it, that’s just part of the game." He also focused on "over 900" errors he found in AB surveys which caused him to find results not "valid or reliable." While Greg testified freshness not a big deal, AB atty Peter countered: "Do you like stale bread?" "Not particularly," answered Greg. Greg admitted he had made his own employee pay for 25 cases of old beer that Greg had found on his route. Peter used cross-examination of Greg to introduce into record many blistering retailer complaints (over several yr period) as well as numerous letters from AB execs to Maris about what Maris needed to do to improve. Peter also showed that Greg didn’t read key depositions of AB mgt; so his research "one-sided." Greg even said he "had an opinion to start with," that Maris an "excellent" distrib. AB atty Peter brought up that Maris Dist had no African-American employees out of 90, even tho Gainesville 18% African-American (2 of jurors and Maris lead atty are African-American), and that Rudy Maris had testified he was unable to find any qualified African-American. Finally, Peter also brought out that Adkins plan had called for reduction of Fla distribs from 23 to 12, but none of that had happened. Only 1 distrib rated "below average" on AB's Fla map: Maris. Greg testified that he had seen "a Miller map... that was somewhat similar."

AB sales-to-retailers "rebounded" so far in 2d qtr, AB prexy Pat Stokes told analysts at May 15 St Loo Wall St confab. Apr-May STRs up 2.7% thru 1st 2 weeks of May; pushed yr-to-date gain to 1.1%. Had been up just 0.3% in 1st qtr. Pricing outlook still "very favorable." While increased discounting activity by competitors "always a risk," "we haven’t seen it yet" on widespread basis. Strikingly, Chairman August Busch III said: "We do not necessarily want to see a weak Coors or Miller." AB’s plan calls for 0.5 share gain per yr and "we are very happy" with that and with recent price increases, said August. "We don't want to disrupt that balance," he added. Yet, AB has 65-70 share and still growing in some states. "We don’t see a ceiling in foreseeable future," said August.

AB spends about $1 bil on mktg (not including what distribs kick in) and about half of that is media, group veep August Busch IV said. AB’s 5-yr plan calls for 3-5% spending increases on mktg, a little more than inflation. AB’s scale advantage gives it "highest share of voice" on advertising and "lowest cost per bbl." AB fielded lotsa questions about how it planned to go after high-priced segment. August IV said: "We are working very closely right now" on unnamed European import opportunity (Beck’s we hear), and 50-50 chance it will get done over next 3-4 months. AB had stated that import brand needs 2 mil bbls to have critical mass to justify heavy mktg (only Corona and Heineken qualify), but a couple of Wall St analysts speculated that AB-Beck’s alliance would quickly boost Beck’s volume (about 840,000 bbls in 2000). Modelo brands moving to AB distribs at "ever-increasing rate" in Gambrinus territory, while AB "still working with Barton" on West Coast "opportunities." Interestingly, Corona drinker "mirrors" Bud Light drinker. Meanwhile, AB will up media spending on Michelob family 20% this yr, plus distribs kicking in incremental $14 mil. Michelob Amber Bock volume up 30%. AB looks to move Michelob price to $1.00 over Bud per 12-pack in next 2 yrs. "We are accelerating our pricing" on Michelob, said August IV, adding that Mich "family" now has "good momentum." August also said Smirnoff Ice has max of 1 share in IRI data in test mkts and 0.5-0.6 nationally with "very little presence" on premise. So far, AB doesn’t see Smirnoff taking from regular beer. Best growth still in premium lights, up 6% and 4 mil bbls each of last 2 yrs. AB has 50 share of premium lights overall, but "close to 60 share" of premium lights in key 21-27 yr-olds. Coors Light "appears to be decelerating," August IV said. Demographics for both Coors Light and Miller Lite are "aging," said August, and Bud Light picking up "lion’s share" of entry drinkers. In all, AB’s "competitive advantage has never been stronger."

Mixed news. Apr taxpaid shipments by domestic brewers down 500,000 bbls, 3.3%, estimates Matt Hein of Beer Inst. That’s 3d straight down mo, and 5th drop in last 6 mos. Yr-to-date taxpaid shipments off 750,000 bbls, 1.3%, according to Beer Inst. And that’s while AB and Coors built inventories, Smirnoff Ice rollin’ out. For 12 mos, taxpaid shipments down 1 mil bbls, 0.6%. Even with big import gain, US shipments up just 0.5-0.6% for 12 mos. And it doesn’t get easier soon: last May was good gain, up half-mil bbls, 3%. But better retail trends in Apr. Volume up 1.7% for 4 wks thru Apr 22 in supers, drug stores, mass merchandise channels, according to IRI, following 1.1% drop in 4 wks thru Mar 25. YTD, volume up 2% in those channels with AB up 0.8 share, while Miller down 1.3, Coors holding, Pabst down 1. Implies "All Others" gained 1.5. Other good news: avg price paid up 4.6% per case YTD.

Stakes very high in tiny courtroom in Gainesville, Fla as Maris trial crawls thru its 5th week, with no end in sight to Maris’s arguments, let alone defense. Winds keep shifting thru testimony and lotsa fascinating sidebar arguments as Maris tries to build case for hugh damage claim and AB argues termination justified. Only 6 witnesses have testified thru almost 5 weeks. About 6 days spent on testimony of Rudy’s son Bart Maris. Bart an atty, who worked for Maris Dist starting in 1990 as an administrator. Rudy shared office with 4 of his sons, each with title administrator and each made about $200,000 in 96, including profits from ownership stake. During cross-examination, Bart frequently sparred with AB atty Peter Moll. While Maris atty had Bart tell how Maris Dist built volume, share and profits as it outperformed most distribs in state, AB atty challenged Bart on repeated communications from AB about "deficiencies" and how Maris Dist didn’t fix ‘em.

Two of AB’s most sr execs, group veep Steve Lambright & exec veep John Jacob, are there every day as well as veep Steve LeResche, other communications and legal execs, not to mention all that outside counsel. Amount of sr mgt time invested here graphically depicts importance of case to AB. On Maris side, atty Willie Gary rated 1 of most successful plaintiff attys in recent yrs (Forbes estimated he made $12 mil in 2000). And he’s there every day, as well as at least 2 of his key partners, and others on his staff and a buncha Maris family members. So this is big showdown, albeit at a snail's pace.

As trial has gone on, AB especially has raised tons of objections, scoring points, but overruled many times too. AB tried to exclude former AB distrib Bob Reed as witness, but judge allowed Bob tho he can’t talk about his own termination or lawsuit. (Bob had not yet appeared at presstime.) Here’s 1 example of lengthy sidebar argument: AB had filed documents with SEC 2 yrs in row that listed August’s half brother Peter Busch as having ownership stake in Ocala. AB sez it was "mistake," and irrelevant, seeks to exclude that evidence; Maris side argues that it's germane to its theory that AB chairman August wanted friends and family to get Maris distrib. Judge said: "All right, guys, I'm going to drop back and punt," saying if document could be used at all, it would be as rebuttal evidence. There’s lots, lots more, but we don’t have space this time.

Lotsa pressure building on 3-tier system, especially supplier-distrib relations, alc bev atty Cris Hoel stressed in speech to INSIGHTS Consolidation Conference. Key "pressure points": new brewer-distrib agreements; shrinking number of suppliers/brands; uneven playing field between suppliers and distribs; weak distrib assns; declining regulatory enforcement; consolidation itself. With no "controlled, sensible, moderate release" currently in sight, in Cris’ view, you have a "recipe for legal upheaval," and potential for plenty of lawsuits down the road.

"The truth is, sometimes it’s hard to square" recent round of supplier agreements "with the 3-tier system in general and with a lot of laws in particular," Cris said. Some of these contracts, he added, are "both-feet-over-the-line unlawful" in some states. He singled out: termination provisions, unilateral modification provisions, control of which brands wholesalers can handle and how to handle them, exclusivity payments, inducements, pricing, most-favored beer requirements, and inventory and volume requirements. Tho 3-tier system designed to prevent control of distribs, new contracts "have really blurred the lines" separating suppliers and distribs "if not obliterated them.... A lot of wholesalers have signed away a lot of their flexibility, a lot of their freedom and a lot perhaps of the protections" that 3-tier laws were designed to give them. This pressure point compounded by brewer consolidation. Then too, distribs still "relatively unsophisticated" compared to big brewers (and big retailers). Many are still family bizzes, very small compared to suppliers, and have poor advisors and low resources. "That’s probably why they signed" brewer agreements "without looking at them... or understanding them." At same time, distribs are "very unorganized." NBWA has taken a "purposeful shift to the sidelines" on supplier-distrib issues, Cris believes. He finds this "hard to understand." Meanwhile, state assns for most part are either inactive or "badly outgunned." Some are "pulling back and relying on state laws" that may not hold and state regulators who "have largely abandoned the field." Very few state regulators understand the principles that underlie the 3-tier system, Cris believes. No help from feds either: "ATF has essentially checked out. As long as you pay your taxes, they don’t give a damn about anything. It’s not an attractive picture if you believe that alcohol is different" and should be regulated differently from other products. All this creates "disparity of bargaining power," between suppliers and distribs and "fault lines for problems down the road." Distrib consolidation adds to these pressures since it has led to "involuntary departures," and "depressed" distrib values as suppliers have reduced the "universe of available buyers or bidders" and/or "pressed buyers to hold down their prices and sellers to accept reduced prices.... Even the winners are worried," according to Cris. They’re worried about their leverage, their financing, "supplier control of their business" and about whether "they may be the next one to walk the plank." Result: more friction.

As pressures build, Cris suggested possible "legal safety valves" to lessen them. One alternative: a new form of distrib assn made up of increasingly bigger, stronger distribs of single suppliers. Cited assns of Burger King franchisees, single-chain hotel operators and others who go "toe to toe" with suppliers to negotiate contracts, defend their own interests, etc. These groups not necessarily antagonistic to suppliers, Cris reminded, but can work with ‘em to strengthen partnership. Another possibility: the law (and lawyers) may find distribs have full-blown "franchises." Most in beer biz haven’t viewed distribs as "franchises" since no fee paid to suppliers, but Cris reminds that distribs very much like franchises in other ways and that "payment" to supplier "can take a lot of forms." With "more control, more of a system...with operating standards, punishment for non-conformity," distribs and attys could make case that distribs are franchises and therefore protected by disclosure requirements and other franchise laws. Last resort, said Cris, is litigation. Lawsuits are a "terrible way to resolve disputes," Cris believes, but sometimes "only way to go" if "unfair capitulation is the only other option that is available to you." If suppliers/distribs don’t find ways to reduce growing frictions, Cris sees more and more termination disputes and post-termination disputes down the road, as well as suits over succession, biz transfers, and approvals, especially as distribs get bigger and more money at stake.

Miller/Coors distribs may be a "highly imperfect solution" to improving distrib network, Coors sr veep Rob Klugman told INSIGHTS Consolidation Conference, with "obvious negatives" but "it’s the only way to get to economic viability in a lot of" geographies. There are now situations, said Rob, where even the 2d (and only other) wholesaler has "questionable" viability. That’s a striking development and not something Coors forecast even a few yrs ago, Rob said. So distributors "have to make these changes quickly... gauged by AB growth" and share. Rob’s key question to distribs: "Can you establish a house that can compete with AB before AB gets" to an "outrageous share" so that "nobody can compete with it?" In most mkts, distribs "can get to a competitive share," but "what are you going to do with it?" Economic viability is "a necessary but not sufficient condition for the wholesaler network." That’s why it’s "terribly important" to run new houses well. Pointed out that buyers routinely "have underestimated the difficulties of merging 2 companies quickly and successfully. It’s real, real hard."

Coors has found "huge amount of difference in practices" between those distribs who do a good job of running multi-brand houses and those who don’t. Rob added: "The talent to run a large complex sophisticated distributorship is a different set of talents than many of us have needed in the past." "We’re avidly looking for people" with mgt skills to do this. Coors is also trying to identify good practices and spread ‘em around. For example, Coors looks at several aspects of organizational structure that "may seem small, but we think they make all the difference" in how distrib gets to mkt. Those include "a relatively low supervisor to pre-salesman ratio and a relatively high merchandiser to pre-salesman ratio." Coors also "increasingly believes in channel-specific structure." And "competitive call frequency, obviously." Another important process: "Identifying your priorities" (fewer than 10) on a monthly basis. "Drill those down to an account-by-account prioritization of what needs to be done." Won’t be "all Coors things or all Miller things," he acknowledged. Compensation system should be tied to accomplishing these priorities so "an appreciable amount of compensation is at risk," said Rob. Having good processes "starts with knowledgeable committed ownership" who "may or may not be on site every day" but supplies "direction" and "right resources through good years and bad" and hires "right people" who have "authority" and "resources to make things happen," said Rob.

Rob reminded suppliers that if they make "incredible and sometimes unreasonable demands" on distribs, then distribs will "spend all their time fending us all off" and won’t be as effective. Consolidated distribs "are not going to be able to prioritize every one of our brands, much less Skus every month.... They are going to have to make decisions... based on what works best in their marketplaces.... That’s a price we’re going to have to pay for not having 50 share. That’s a price you’re going to have to pay as well."

More twists in metro NYC. US Dist Court judge didn’t allow Miller to go ahead with its planned termination of NY metro distrib Oak on June 22. Instead, he called for a hearing on Oak’s motion for preliminary injunction on July 11. So Miller distrib situation will be unsettled in #1 US metro area (tho far from Miller’s #1 area) during most of peak-selling season. Interestingly, Miller followed same procedure that Heineken had followed, but without success so far. It invoked NY law that allows supplier to terminate for purposes of regional consolidation as long as it pays distrib reasonable compensation for damages sustained. But while state court judge had allowed Heineken to terminate Oak back in Jan, this Fed Court judge wants to air out issues. Meanwhile, Oak not sitting still. After it got Yuengling (see last issue), it formed unusual alliance with Brooklyn Brewery (which is also a distrib) and small upstate NY distrib Gasko & Meyers. Brooklyn self-distributes and carries large line of micros and imports, notably Sierra Nevada. Gasko & Meyers has very similar product line. The 3 cos will remain independent but "standardize their accounting and distribution databases and cooperate on area-wide sales programming, promotions and shipping logistics for suppliers," noted Brooklyn. In another NY development, Heineken vp/cfo Dan Walsh will leave Heineken USA to become vp/gen mgr at Heineken's largest distrib Phoenix/Beehive, which got Oak's 3 mil cases of Heineken brands. Heineken is expected to eventually own a stake in Phoenix/Beehive.

Imports showed no signs of softness that afflicted domestic beer biz in 1st qtr. Shipments gained 592,000 bbls, 13.6% thru Mar. Up 2.4 mil bbls, 13% for 12 mos. Mexican shipments led the way yr-to-date: up 369,000 bbls, 22.9% (going against easy comparisons). Mexican imports were fully 40% of 1st qtr imports, up from 37% last yr. Dutch shipments growth more modest; up 69,000 bbls, 6% tho Heineken sales-to-retailers continued to gain at faster pace. Dutch shipments dropped to 24.6 share of imports in 1st qtr. Biggest surprise: huge 258,000-bbl, 37% gain for Canadian shipments. How can you explain this, especially when Molson off double-digits? Well, Guinness brewed a buncha product in Canada in 1st qtr, including Harp, bottled Guinness and lotsa Smirnoff Ice. That change is also only possible explanation for radical shift in Irish shipments trend: down 153,000 bbls, 49% YTD. Canadian shipments climbed to 17.8 share of imports. Top 3 importing countries over 80% of all imports. Up 4.4 share to 82.4. Shipments from UK also had very solid 1st qtr: up 47,000 bbls, 19%. But German shipments suffered 10,000-bbl, 4% drop. Top 6 importing countries shipped 96% of all imports in 1st qtr.

It’s a different story in this neck o’ the woods. Not a story of AB dominance. In 10 non-reporting states, DC and exports (mostly east coast mkts including Conn, NY, NJ, Pennsy, Del, Md, DC, Va, NC, Ky and Alas,) where about 26% of US beer sold, All Others gained a whopping 1.7 share to 21.6. Up almost 800,000 bbls while total volume essentially flat at 51 mil bbls. At same time, AB actually under 40 share in these areas (well under 30 in DC, Puerto Rico and Pennsy) and lost 0.5 share in 2000. Coors the other big gainer in this group: up more than 1/2 mil bbls and gained 1.1 share to 16. It’s not far behind Miller, which dipped 0.8 share to 16.8.

AB gained share almost everywhere in 40 states where data available and complete thru 2000. (AB share down in mid-Atlantic and other non-reporting states -- see below.) Its share up in 37 reporting states, including gains of 2 share or more in 5 states and 1 share or more in another 18 states. AB gained big share in largest states: up 1.4 share in Fla, 1.9 share in Tex and 1.4 in Calif in 2000. AB’s weakest region was again New Eng: lost 0.8 share in Vt, 0.1 in RI, no change in Mass, slight share gains in NH and Me. AB’s biggest share gains in Mont (5.1) and Ida (3.4). AB has over 60 share in 11 of these states and gained share in every one of ‘em. Most of the 60+ share states are in southeast (Tenn, SC, Miss, Ala, WVa) while several others are in midwest (Ia, Mo, Neb). AB climbed over 65 share in 3 states in 2000: Miss, home state Mo and WVa. AB also reached 60 for 1st time in Ariz and Ia in 2000. AB share over 55 in 10 more states, including Mich and Fla and over 50 in 4 more. AB’s lowest shares are in Miller strongholds Wisc and Ill, at 30.7 and 34.8 respectively.

Miller lost share almost as pervasively as AB gained in 2000 (numbers include Molson in most states). Share dropped in 35 of 40 states, including 15 states where it lost more than 1 share. Miller lost lotsa share in several of biggest states: dropped 2.2 share in Calif, 1.8 in Tex, 1.2 in Mich and 1.1 in Ill in 2000. Down 2.1 share in Mass and 1.9 share in Ariz. Miller also lost significant share in Fla, Ga and Oh; each down 0.5-0.6. Down 0.2 share in home state Wisc. Miller gained share in Wash and Oreg, with incremental volume from acquired brands. Up 6 share in Oreg. Also gained 2.2 share in ND. La and Kans were unchanged, but that’s it. Miller share over 25 in 5 states. But it’s under 15 in 11 states. And 4 more states between 15 and 16. Miller’s highest shares in Wisc and Ill, at 46.4 and 38.1 respectively. Lowest: Vt at 9.8 and Wyo 10.1.

Coors gained share in most states where data available, but not much. While its share up in 31 of 40 states, gained 0.5 or more in just 7 states and didn’t gain 1 share in any of these states. Gained 0.5 in Mass, NH, Oreg, La, Ark and SD. Gained 0.6 in Ind. In biggest states, Coors share up 0.2 in Tex, unchanged in Fla and down 0.3 in Calif. Coors lost 0.7 share in Nev and HI; lost 0.5 share in Ariz. Coors share over 20 in just 1 reporting state: Ida at 28.1. It is over 15 in 6 more, mostly in west. But Coors share under 10 in 19 states, including 5 under 5. Big midwest states like Mich, Wisc, Ill and Minn all between 3 and 4 share. Pabst share down in every one of these states except tiny Vt, unchanged at 1.4 share. Pabst has over 10 share in just 2 states (Wisc and Mt) but lost 2 or more share both of those and in 6 other states too.

All Others (suppliers below top 4) gained 2 or more share in 6 states and 1 or more in another 7 states. While All Others gained share in 36 of 40 states, look at performance in biggest states: up 1.4 in Calif, 1.4 in Fla and 0.9 in Tex. All Others gained 1.4 share or more in 4 of 5 New Eng states including Mass, where share jumped 1.7 to 26.9. That’s bigger than Miller/Coors combined. A-O also up to 23 share in big Calif and over 20 in specialty strongholds Oreg, Wash and Colo. All Others lost share in 4 relatively small states, mostly Mountain (Ut, NM, Mt and WVa). Biggest share for All Others: 29.2 in Vt. Smallest: 3.1 in Ia.