NBWA convention shocked on 2d day by terrorist attacks on World Trade Center and Pentagon. At truncated Tuesday program, Coors chairman Pete Coors made poignant remarks about "price of freedom." That night, Miller prexy John Bowlin opened Miller’s reception to all distribs, brewers and supplier personnel. Provided all major suppliers’ products too. Classy....... NBWA’s 1599 active distrib members represent 86% of all distribs, it figures. That’s up from 73.5% in 96. (Gotta be well over 90% of US beer volume). For first time, NBWA has signed on every distrib that meets its "maximum dues" level: $50+ mil annual sales. That’s good news. But consolidation takin’ its toll. NBWA figures it lost 76 cos in last yr to consolidation, as # of active distrib members dipped from 1654 to 1599. But dues $$ up $229,000 to $4.1 mil, up from $3.4 mil in 96....... Nice moment: NBWA gave lifetime service award to NY distrib Hap Boening who’s always been active politically and who has battled in court with Heineken for last yr. Hap got standing O....... Best line: NY state exec Mike Vacek got industry service award for his work reducing state excise tax, and advancing state franchise protection law. Mike said he was surprised he got plaque, was "expecting a bulletproof vest so I could go to the supplier hospitalities" ....... Bad news: lotsa states expect to face excise tax hikes, according to state distrib assn execs and brewer govt affairs execs, as more and more states face budget shortfalls....... Smirnoff Ice was brand buzz of convention, natch. Lotsa reports of distribs not getting enuf product for Labor Day, leavin’ $$ on the table. Diageo announced $30-mil expansion of Chi-area production plant in part to beef up Smirnoff Ice capacity. Expected completion date: spring 2002. Meanwhile, plenty of Smirnoff Ice (and Mike’s Hard Lemonade) still comin’ from Canada....... Subject that seemed most on distribs’ mind: consolidation. Many deals in the works.

Guinness-Bass Import Co’s (GBIC) termination of Milwaukee-area distrib Beer Capitol in Jun 2000 was legit even tho without good cause, US Dist CT just ruled. Fed judge said Wisc Fair Dealing Law (WFDL) didn’t protect distrib, and rejected other distrib claims that GBIC breached contract, and that GBIC was "unjustly enriched" by termination. Turns out Beer Cap never got penny for brands, after refusing GBIC offer of 1X net. Fed judge’s thinking and background make case interesting, especially to distribs of GBIC and other smaller-volume brands, even tho case Wisc-specific.

Recall that GBIC terminated Beer Cap when it consolidated southern Wisc biz, moving it to AB distrib Beechwood. Beer Cap sued, but judge said general state franchise law (WFDL), which bars termination without good cause, doesn’t apply. Why not? Tho Beer Cap had 8-yr relationship with GBIC and exclusive territory (in practice), judge ruled other key factors "weigh heavily against" Beer Cap being covered. First, no contractual obligations existed; there was only ambiguous oral contract. 2) Second, GBIC was only 8-9% of Beer Cap’s rev ($2.7 mil of $31.3 mil in 99), not enuf to automatically trigger WFDL (ain’t clear what % does). Judge looked solely at GBIC sales as part of Beer Cap’s total revs, not as share of profit or specific segment like on-premise biz. Third, Beer Cap’s personnel, equipment, other spending over years were not "sizeable sunk investments" or specific enough to GBIC brands. In fact, the $79,000 Beer Cap spent on promotions for GBIC brands in 99 and 2000 were, judge wrote, "discretionary investments" which Beer Cap itself profited from. Judge rejected Beer Cap argument that since GBIC brands had higher margins, it had to increase sales of lower-profit products to cover loss. Ruled further Beer Cap’s investments in selling GBIC brands over years did not "unjustly enrich" GBIC: "Although [GBIC] no doubt benefited from the parties’ distribution relationship and advertising, there is no evidence in the record that it retained a benefit that in fairness must be returned." Nor was GBIC "unjustly enriched" by its Jun 2000 offer, refused by Beer Cap, of 1X net profits from GBIC brands for previous 12 mos.

Beer Cap bought distrib rights to GBIC brands in 92 for $82,000. Increased sales of GBIC products 10-fold between 92 and Apr 2000. GBIC was Beer Cap’s 3d or 4th biggest of 30 suppliers "in recent years." Beer Cap claimed loss of $500,000 in 2000 after it no longer sold GBIC brands. But judge determined Beer Cap "experienced little if any reduction in sales or gross profits" since losing GBIC brands. Looking at $82,000 original investment, judge said Beer Cap "does not suggest it did not recoup this investment during the 8 years" it sold GBIC brands and added "for a company that does over $30 mil" annually, "a one-time investment of $82,000 is modest." Beer Cap had claimed that, at GBIC’s request, it invested in "specialized" draft beer equipment for retailers. But GBIC "asserts that this expenditure cannot establish any cooperation or investment because it was illegal." Beer Cap "retreated from any real reliance on this expenditure," judge wrote, and added it was "unsubstantial amount." What about goodwill? Beer Cap argued that growth of GBIC brands in territory was "evidence of goodwill," but judge wrote Beer Cap "was compensated for its increased sales" and no evidence that "the goodwill it generated was so great as be equivalent to a sunk investment," necessary for Beer Cap to be covered by Wisc law.

Miller jumped spending on major brands by $42 mil, 111% in 2d qtr and by over $50 mil in 1st half. In these 6 mos, Miller spent $25 mil more than Coors and $25 mil less than AB. In same period last yr, Miller spent only half what AB did, and 20% less than Coors. Miller Lite was easily most heavily advertised brand for 1st time since 97, with spending up $32 mil, 69%. (Data in chart below, compiled by Competitive Media Reporting on spending in 11 media, includes major brands and brand-associated public service announcements, but not all brewer spending. Some say these figures are low.) Interestingly, AB spending on major brands down $5 mil, 7% in 2d qtr, following flat 1st qtr. In 1st half, AB dropped spending $14 mil, 17% on Bud, but jumped it $6 mil, 12% on Bud Light. (Bud Light spending down $4 mil in 2d qtr.) Meanwhile, Michelob family spending also up at double-digit pace in 1st half. Miller pumped lotsa extra $$ into several brands besides Miller

Lite; Gen Draft spending up $11.5 mil, 59% and High Life spending quadrupled to $12 mil. Spent $1.7 mil, 26% more on Foster's than it spent on all Molson USA brands last yr. But Miller whacked almost all spending on Icehouse and Mil’s Best. Coors outspent AB and Miller in 2d qtr, always a heavy spending period for #3 brewer. Jumped spending $7 mil, 8% to $93 mil in 2d qtr. Put Coors spending up $3.5 mil, 3.5% for 1st half. Coors Light spending up $2.7 mil, 4% in 1st half; at competitive levels with other top beer brands. But Coors spent nearly $39 mil in 1st half on Original Coors, Zima and Killian’s, which accounted for 3.1 mil bbls in all of 2000 and are each down in 2001. So Coors spending well over $20 per bbl on those declining brands.

Meanwhile, top importers continued to pour it on. Heineken spending up $11.5 mil, 48% in 1st half to $35.6 mil. Corona spending up $4 mil, 33% in 2d qtr; up 18% in half. Labatt similarly had big hike in 2d qtr; now up $1.9 mil, 26% YTD. But biggest boost for Guinness Bass Import Co, mainly Smirnoff Ice. Spent $17.7 mil in 1st half, up $14.3 mil and more than importers spent on Corona brands. Mike’s too spent $9.6 mil. Those high-end cos upped spending $39 mil, 80% in 1st half.

Judgment vs AB jumped to $72.6 mil as judge added $22.6 mil interest on top of jury verdict. AB plans to appeal, saying judge jumped gun by entering judgment before all issues resolved. Meanwhile, Maris re-filed defamation suit vs AB. No figure stated in court papers, but Maris attys have said they’ll seek $1 bil damages. Suit cites lengthy list of statements by AB execs, employees and "agents" made to retailers and media that: 1) Maris engaged in "fraudulent conduct"; 2) Maris didn't perform to AB standards; 3) lotsa retailers complained about Maris. These statements all "false and defamatory," Maris alleges, and made "with the intent and for the purpose of injuring Maris’ image and reputation in the community, and particularly with Maris’ customers, in order to facilitate AB’s plans to force an ownership transfer" of distrib. AB hasn’t responded in court yet, but AB group vp Steve Lambright said: "We are confident that there has been no defamation."

Earlier, after uncharacteristically brief Aug 29 hearing, judge turned down every post-trial motion. Nixed AB’s request that he throw out $50-mil jury award and/or grant a new trial. But he also refused Maris’ bid to require that AB pay the additional $89 mil jury had awarded to Maris for "lost sales" and rejected Maris’ claim that AB was "unjustly enriched" by terminating Maris' "valuable distribution rights" (basically another attempt to get the additional $89 mil). Tossed both sides’ charges of "deceptive trade practices" under Fla law. That’s important because either side may have been able to win big atty fees if those charges went forward. In fact, Maris atty told Gainesville Sun he estimated Maris atty fees at $20 mil+. That includes estimate of Maris’ "costs of all litigation against AB," Maris spokesman later told INSIGHTS. Maris atty said Maris side "disappointed" with judge’s decision but "had no expectations" that judge would "change his mind" about the $89 mil. Maris will appeal to District Ct of Appeals in Tallahassee. AB veep John Jacob told G’ville Sun on Aug 29: "We’re not totally surprised that we’re paying some amount of money in this transaction. It’s certainly not what we would have liked to have paid." But John added it was "a very good day" for AB since judge ruled it didn’t owe Maris any more $. (Gotta note this was before judge added interest.) "The book has been closed on this piece of the case," John said, "and now that it has been closed, we want to sit down and see whether or not we want to reopen it."

Inevitable but noteworthy: Bud Light became #1 brand in US, AB group veep August Busch IV told analysts at Sep 5 Prudential conference. Bud Light passed Bud in US in 1st half, but Bud still #1 globally, August said. In 2000, Bud Light sold estimated 31.35 mil bbls in US while up double-digits 9 yrs straight. Bud sold estimated 34.05 mil bbls in US last yr, down avg 1-2% last 5 yrs. In 2001, Bud Light up about 8%, Bud down 2%. Hard to believe but just 10 years ago, Bud outshipped Bud Light by 37 mil bbls. In 90s, Bud lost 14.4 mil bbls in US while Bud Light zoomed nearly 20 mil bbls. At same Prudential conference, August pointed to "advantage" for AB arising from Miller-Coors distrib consolidation because these houses create "diffusion of focus," especially on Coors Light and Miller Lite. In fact, the 15 share of mkt held by those 2 brands now "more vulnerable than at any time in the past," August asserted. Imports and Smirnoff Ice may be distracting distribs too, he said. AB estimates 61% of Smirnoff Ice is sold by Miller/Coors houses, that those distribs putting "disproportionate amount of focus" on that brand. That creates "opportunity" for AB to make competitive gains in light beer segment, in AB view. AB has "closely studied" Smirnoff Ice in original test mkts, August said, and IRI data suggests "there may be some seasonality ...some softening" of Smirnoff Ice, "stabilizing" at 1 share. August and group veep Randy Baker made other interesting points. AB’s margins on Nat Light/Busch family are now same as margins on Bud 2 years ago; 61% of AB volume now sold thru exclusive distribs, up from 41% when 100% "share of mind" adopted. August expects that share to increase as more AB distribs buy Corona brands. AB’s promotion costs per bbl have declined each of last 3 years, down 8% Jan-Jun 2001. Both August and Randy acknowledged industry volume not growing at anticipated 1.5%, but said then they expected pick-up thru end of yr, and pointed out consumers still trading up to imports, other higher-priced brands, unlike in previous economic slowdowns.

Gov Pataki signed one of country’s strongest beer franchise laws on Sep 19. Parties agreed to a "chapter" amendment down the road, but most important provisions remain. For example, a terminated distrib must get "fair-market value" for brand distribution rights. Law defines that as "amount a willing seller, under no compulsion" would accept and "amount a willing buyer, under no compulsion" would pay. Now a supplier policy of regional consolidation must be multi-state, reasonable, "essential" disclosed-in-writing, etc. And a supplier who wishes to terminate now must pay first, the so-called "pay to play" option. This franchise law is "first to make unqualified recognition that a distributor has a protectable property interest in distribution rights," sez consultant Mark Rodman. In last yr, 2 of 3 largest states, NY and Calif have expanded franchise protections for beer distribs. Gov signed bill just as more interesting developments near fruition regarding Heineken’s NY metro distribution.

Beer sales perked up in Aug, at least in supers. Volume up 3.1% for 4 weeks thru Sep 2, sez IRI; $$ sales jumped 7.7%. Yr-to-date, volume up 1.3%, $$ sales up 6%. AB had best trend of top-3 brewers in Aug: volume up 3.3%, eking out 0.1 share gain. AB up 1.6% YTD. Miller trend improved: up 0.7%, for 4 weeks, still off 1.7% YTD. But Coors just even in Aug in supers, up 0.7% YTD. Imports up 7.3% in Aug, a point better than 6.3% gain YTD. Positive news for Pabst, Aug dropoff wasn’t double-digits, but it was close, down 9.8%. What about hot Smirnoff Ice? Grabbed 1.1 share of volume in Aug and run-up to Labor Day, 1.9 share of $. YTD, Smirnoff Ice had 0.8 share of volume, 1.4 share of $$. Mike's Hard had a half-share of volume, 0.8 share of $$.

Tho some feared ugly Aug taxpaid shipments dropoff since Aug 2000 was big gain, estimate came in down just 50,000 bbls, 0.3%, according to Matt Hein of Beer Inst. YTD taxpaid shipments off about 900,000 bbls, 0.7%. (INSIGHTS had reported bigger YTD dropoff thru Jul, but gotta note 2000 shipments total a moving target. It is constantly being revised as US govt updates "official" monthly figures for 2000.) And 12-mo taxpaid shipments down 2.2 mil bbls, 1.2% including tuff, tuff 9% drop in Dec 2000. Meanwhile, imports slowed in Jul: up 50,000 bbls, 2%; up 1.35 mil bbls, 11% YTD. If imports kept pace in Aug, means US beer biz up about 700,000 bbls, 0.5% thru Aug.

While domestic brewers’ shipments still sluggish, AB announced its sales-to-retailers (STR) trend improved: up 2.1% Jul thru Aug, up 0.9% YTD. Still expects 1.5% STR gain for full yr, which implies nearly 3% increase Sep-Dec. But that was before Sep 11, which puts all biz predictions/expectations on hold. Indeed, Heineken chairman said on Sep 12 he expected terrorist attacks to affect Heineken’s 2d-half earnings because of potential impact on NYC mkt (especially on-premise), US $ and global economy. Finally, beer volume up 2.2% in supermkts for 13 wks thru Sep 2, according to IRI; $$ sales up healthy 7% same period. No sign of increased discounting. Avg price paid for beer in supers up 70 cents/case 4.5% during summer mos to $15.82.

T. A. Zullinger sold in Pennsy, but it wasn't a Bud distrib (see 2 issues ago). Several smaller AB deals in Pennsy in last several mos include Bonini Tobacco and Bradford City Beers each selling to Crescent Beer, which even after 2 acquisitions is still about 750,000 cases. And Marcinek’s sold to Kleckner.

Coors-Miller distrib consolidation move in Mo led to recent arbitration decision affirming Coors’ contract rights. Coors/Stroh distrib HL Paul got purchase offer last yr from Miller distrib Bluff City, but didn’t meet with Coors to discuss potential sale, and "refused to engage in meaningful negotiations with Kohlfeld Distributing, the assignee of Coors rights," per Coors contract, wrote Mo arbitrator. These actions breached contract, he just ruled. Key point: Coors contract gives it exclusive first right to negotiate over sale of non-Coors brands as well as Coors brands, subject to other suppliers’ approval. "Any reasonable reading" of contract, arbitrator wrote, "shows that the term ‘Sales Transaction’ had to mean something different from Coors Business only." HL Paul "reluctantly conceded this at the hearing." Some thought Coors right vis-?-vis competing brands could be challenged. Not so in Mo. What happens now? Arbitrator gave Kohlfeld 15 days to inform Paul it wants to buy biz and get info "subject to appropriate Confidentiality Agreement." Then Kohlfeld gets 30 days to make offer and Paul has to negotiate with Kohlfeld in good faith. Can still sell to Bluff City if Kohlfeld’s offer "not equivalent in price and other terms." If Paul accepts Bluff City offer, Coors has to consider Bluff City’s application to become Coors distrib "in good faith." At recent NBWA seminar, wholesaler atty Michael Dady said only clause in suppliers’ contracts near impossible to beat is arbitration clause. If it’s there, distribs will arbitrate, according to Michael. Elsewhere in Mo, Miller-Coors consolidation proceeds. Miller distrib in Joplin (Frank Evans Dist) merged with Coors distrib in Springfield (Clear Creek) to form The Beer Co.