Ain’t often (more like never) that health experts suggest that not drinking could be "risky." But read Eric Rimm from Harvard School of Public Health: "The evidence indicates that the association between moderate alcohol consumption and lower risk of cardiac heart disease (CHD) is causal and that abstaining from alcohol could be considered a risk factor for CHD." Rimm wrote too: "evidence that moderate drinking reduces CHD risk is overwhelming and consistent, and with the exception of the link between smoking and lung cancer, few other associations are so uniformly reported in the literature." Wow! He was commenting on German study that found beer-only drinkers had much lower CHD risk than wine-only drinkers. Compared to abstainers, beer-only drinkers cut their risk of CHD in half. But wine-only drinkers reduced their CHD risk by only 5%. Risk reductions were same (45-46%) for those who drank over 10 drinks per week and those who drank under 10. (Only a few heavy drinkers in study.) Studies now "remarkably consistent," wrote authors, "and support the suggestion that the beneficial effects of alcohol consumption also apply to subjects who exclusively or predominantly drink beer."

That ain’t all. Spanish docs found drinkers much more likely to report themselves in good health than non-drinkers. In fact, only 15% of heaviest beer drinkers said they were in fair, poor or very poor health, compared to 40% of abstainers........ Two new studies from US just reported that frequent moderate drinkers cut risk of type 2 diabetes (90% of all diabetes cases) by 40-50% compared to non-drinkers. Interestingly, study of males found they hadda drink almost every day to get risk reduction. Those who drank only once or twice per week didn’t get benefit. What’s more, "group with the greatest risk reduction consumed considerably more alcohol as beer or liquor than wine....... Finally, big US study found "moderate drinkers were almost twice as likely as abstainers to display a physically active lifestyle," far more likely to exercise regularly than abstainers and to exercise with more "intensity." Details on these studies have appeared in Alcohol Issues INSIGHTS, published by Beer Marketer’s INSIGHTS.

As AB reaffirmed its double-digits earnings growth target to Wall St, didn’t mention any belt-tightening to help ‘em get there. But some recent AB moves suggest a bit of that. First, AB announced to distribs that it will "consolidate" to 9 regions. That meant it’s closing 2 region offices. AB didn’t speak of cuts; instead it said it would "redeploy" sales folks to "critical areas" of "regional key account management" and "space management." Then too, 3 AB veeps (non-sales) leaving; staff reductions in other areas.

Tho Seagram put its spirits biz on block in Jun 2000, and by Dec Diageo and Pernod Ricard had agreed on deal to carve it up, it took FTC almost another yr to put kabosh on whole deal. Leaves Seagram in limbo, tho top execs like Edgar Bronfman Jr (remember him?) claim deal will still get done by end of yr. Some say Diageo will sell off key Malibu rum brand to get FTC OK. FTC ruled deal would create anti-competitive rum duopoly between Bacardi and Diageo (which could have #2 and #3 brands, Captain Morgan and Malibu) with 80% of rum mkt. "Proposed merger" would "create a dangerous likelihood of reduced competition and higher prices for consumers," said FTC official. Substitute the words "light beer" for rum and it’s clear that FTC’s rationale for nixing the deal threw some cold water on Miller and Coors getting together (hoped for by many). Light beer is a much bigger part of beer biz (43%+) than rum is of total spirits biz (10%) and if Miller and Coors were to combine, then top 2 brewers (including AB) would control about 95% of segment. But other implications too: "The FTC has a long history of rejecting mergers when also-rans take on the leader," wrote Biz Week. Cited recent deal between #2 and #3 in baby food. FTC nixed Heinz/Beechnut deal even tho #1 Gerber had over 60 share and growing. That stance didn’t change when Bush elected as some had hoped. If govt looking increasingly askance at duopolies, could this thinking be applied at distributor level?

Labatt’s import brands up 10% Jan-Jun, new prexy Steve Cahillane told distribs at recent sales conference. Labatt brand family up 10.5%: Blue Light up 34%. Mexican brands up 9.6%: Tecate +9%, Dos Equis +15%. European brands up 8%: Stella Artois up 89%. But Rolling Rock down 10.9% Jan-Jun. Domestic superpremium full-calorie segment "continues to experience difficulty in achieving growth," Steve noted, and LUSA "guilty of taking our eye off the ball in our home field" when it picked up Rock volume in expansion mkts. "We’ll fix it. We’ll do better," he promised. Tho Steve didn’t give overall trend, looks like LUSA total volume up 4-5% 1st half. Labatt expects to outperform import category in 2001 and going forward, and has "pledged significant efforts and resources" to "refocus" Rolling Rock, return it to growth, said Steve. Rolling Rock ads had "drifted to radio," but now headin’ back to television, said brand director David van Wees. New Rock ads got lotsa applause, even whistles from distribs. Ad weight, said David, "will be at least at Foster’s level, if not greater."

Labatt brands expected to pass 1.6 mil bbls in 2001, +12%. Labatt Blue alone will outsell "entire Molson family," said brand director Devin Kelly. Big opportunity for Tecate too, said brand director Victor Melendez, since 13% of US population now Hispanic, 35.3 mil, and 21 mil of them Mexican-Americans. Labatt USA boosting tv budget for Tecate 52% next yr (89% of Tecate ads in Spanish language). Labatt aiming to make Stella Artois a "future power brand" and "gold standard" of Euro brands, "a slot we believe is up for grabs as Heineken seeks to broaden its appeal to maintain its trends," said brand director Stephen Ward. Stella hot (tho on small volume) in several big cities. Look at some 9-mo trends: NYC +105% (and over 60% of Bass draft volume there); Philly +48%; Boston +82%; Chicago +206%; San Fran +152%; DC +82%. Labatt will send Stella to Fla, LA, and elsewhere next yr. "If we come talk to you, please be prepared to discuss co-op investment... An opportunity like this doesn’t come along very often," Stephen told distribs. Key reason why LUSA focusing more on European brands: they're 50% of import margin pool, said Stephen.

Tho EU cleared Interbrew (LUSA parent) purchase of Beck’s while distribs at mtg and Beck’s hadda be on minds of many distribs, not much said about it there. "We expect that Interbrew’s acquisition of Beck’s will be finished in the 1st qtr of 2002," said Steve. What about US? "We will discuss with Beck’s management the best way to leverage our common skills and resources after the closing. The goals will be quite simple: maximize the growth of the Beck’s brand here in the US market. But again, those discussions will not take place until the deal is completed early next year." Bass deal "nearing conclusion," he added, "and a very positive one for Interbrew." But Steve reminded that "although Labatt USA has recently taken over the management of the Bass Brewers business in the US, the Bass brand in this country continues to be imported and marketed [under] the pre-existing contract with" GBIC.

Another strange qtr for Coors. Got upside earnings surprise as net income up tho Wall St expected it down in 3d qtr. That’s even tho volume stayed sluggish. Coors got better profits even while costs of goods sold per bbl rose faster than revs. Coors gross margins contracted in 5 of last 6 qtrs, noted Andrew Conway of Morgan Stanley. But Andrew sees "margin contraction" nearing bottom; raised rating on stock. Cost of goods sold per bbl up 2.8% compared to 2% rev per bbl hike in 3d qtr. So why are Coors earnings up? Well, Coors mktg expenses actually $19 mil below last yr for several reasons, including "timing of booking marketing-related expenses" vs last yr, wrote Coors. "Actual pressure against the market," said cfo Tim Wolf, "did not change" and "media spending virtually the same" as 3d qtr last yr. For 9 mos, Coors mktg, gen and admin expenses up 1%. Coors also had $18 mil of "special charges" related to outsourcing Information Technology, etc. But it got a $23.7 mil gain on sale of its 7-mil-case Anaheim distrib (that’s "gain," not what it got paid). Coors has sold 3 of 6 branches in last 2 yrs. Excluding special charges and gains on sale of distributorship, Coors oper income flat at $148 mil for 9 mos.

Coors STRs up "marginally" domestically in 3d qtr, exports down. Coors had "significant sales softness" for 2 weeks related to Sept 11 attacks, prexy Leo Kiely said. "Carve" those 2 weeks out of qtr and STRs up 1%, with Coors Light up 3%. Sales have "rebounded" since then in Northeast. Thru 9 mos, STRs "particularly soft" in Tex and southern Calif, noted Leo. Nationally, Coors Light and Keystone Light "growing" while Zima, Original Coors, Killian’s down. Coors Light "really has clawed its way back," said Leo. Trends on brands that are down "appear to be improving" too, tho "it’s too early to claim a solid turnaround," Leo added. Some "progress" on Molson, still down, but "some bounce" and "beginning to see slowdown in declines," following summer intro of programs. Coors sees "much more modest" rev per bbl growth in 2002, but "more confident on cost side."

Corona "could very well be labeled a financial engine of consolidation," Gambrinus prexy Carlos Alvarez told national sales conference. It provides "opportunity to make certain transactions possible." But Carlos cautioned against some distribs making "very creative use of Corona values" to "unrealistically and unreasonably manipulate" total transaction prices. This "can be seen very clearly" and Gambrinus will be "auditing those deals in very detailed form." This was as close as Carlos got to specifically addressing shift to more Bud houses in Gambrinus territory, but message was oblique. Sales director Don Lake addressed loss of focus in some mega-brand houses. "We need more attention," Don said. Wholesaler "alignments" have "weakened focus" but Gambrinus "not complacently accepting dilution of effort." "Most portfolio expansions" result in "diluted focus" that reaches "point of diminishing returns," Don said, pointing to distribs that carry 200+ brands. Distribs will have to "get rid of unproductive brands" as they have "finite resources" and "not all cases equal in value." "Where is your future?" Don asked. Gambrinus will be "aggressive," "demanding" and it will "ask hard questions." In "mega-houses," distribs "must consider" measures to "insure focus." Suggestions included Modelo "team sales leaders," reporting to Modelo brand development manager and sales efforts applied against specific trade channels or ethnic groups. Gambrinus now mandates "brand development manager" for all distribs that sell 400,000 cases or more.

As AB cfo Randy Baker gave preliminary 2002 guidance to Wall St, said AB expects 2% shipments growth while industry grows 1%. Both are much better trends than so far in 2001. Add Randy’s name to list of sr execs puzzled by recent industry softness. AB’s model "overestimated" growth last yr or 2, he acknowledged. While portion of that softness explained by weaker economy and higher pricing (beer above CPI in 2001), "majority remains unexplained. We have been unable to come up with an explanation." AB sees no "fundamental change in drinking behavior," said Randy, so "eventually" 1-1.5% growth will return.

Tho Randy said on-premise biz "dropped sharply" in 2 weeks after Sep 11, AB STR growth has since rebounded. Up 2-3% so far in Oct. Even "on-premise sales have since recovered," he added. AB expects little shipments growth in 4th qtr as it ended 3d qtr with slightly higher inventory. Expects 1.2% STR growth for AB for full yr; in July it still hoped for 1.5%. Brand trends: Bud/Bud Light STRs slowed to 1.3% growth for 9 mos. Bud/ Bud Light gained over 3% last yr. Gained at least 2% each of last 5 yrs. Michelob family down low single digits, but Mich Light "showing growth." Busch/Natural up "low" single-digits.

AB volume grew less than expected, but its earnings strong and right on target. Why? Because AB rev per bbl up 3% in 3d qtr and for 9 mos. A 1% rev per bbl increase has 2x effect on earnings per share as 1% volume increase. Pretax income on domestic beer biz up $147 mil, 7.2% to $2.2 bil for 9 mos. AB also made $194 mil net on its equity investment in Modelo, up $36 mil, 22%. AB expects rev per bbl to grow 2-2.5% in 2002, slightly less than this yr. It took price increase in 4th qtr in about 40% of volume, slightly greater % than last yr, and competitors have followed. In 1st qtr 2002, AB will increase price of 25% of volume, compared to 35% last yr, wrote Bill Pecoriello of Morgan Stanley. AB expects to get double-digit earnings growth next yr for 4th yr in row.

Recent numbers and new insights suggest much slower import growth to go along with domestic slump so far in 2001. Import shipments dropped 150,000 bbls, 6.9% in Aug, following 2% gain in Jul. (Note: imports had 35% gain in Aug 2000.) So 2% Jul-Aug drop pulled yr-to-date gain down to 9%. Imports still up respectable 1.2 mil bbls, 8.6% yr-to-date. But even that?s misleading. To get accurate picture of import segment, several sources have suggested, one has to pull out Smirnoff Ice and Mike?s Hard Lemonade made in Canada. Our best guess, after numerous discussions, is that Smirnoff and Mike?s shipped several hundred thousand barrels from Canada yr-to-date. If you factor that out, that would mean import beer growth actually about 5-6%. And indeed imports are up 6.3% in supers thru Sep 30, according to IRI. Interesting to note how quickly even 12-mo trend can change: thru Jun 2001, imports were up 15% for 12 mos. Thru Aug, imports up 1.9 mil bbls, 10% for 12 mos, including Canadian malternative shipments.

Imports from each of 6 leading countries (over 90% of import shipments) down in August. But 3 still have double-digit gains yr-to-date. Mexican shipments were up 23% in 1^st half, but Jul-Aug drops brought ?em back to earth. Up a very healthy 786,000 bbls, 14.1% thru Aug. (Modelo reported 5% export drop in 3d qtr, while FEMSA exports flat, so Sep Mexican shipments probably no great shakes either.) Dutch shipments also up 374,000 bbls, 11% YTD. And Canadian shipments up 324,000 bbls, 14%. But take out Mike?s and Smirnoff, and these numbers suggest Canadian beer shipments not better than even YTD. Meanwhile, big Aug drops put both Germany and UK into negative territory YTD, down 33,000 bbls, 4% and 37,0000 bbls, 5% respectively. And Irish shipments almost cut in half; down 308,000 bbls, 46% for 8 mos. Some Guinness and all of Harp?s brewed in Canada now too, further complicating an already muddy picture.

US beer biz absolutely flat for 12 mos thru Sep 01 (see chart below). And that?s including at least 1.5 mil bbls of incremental malternative growth. Take out malternatives and US beer biz, including import growth, down almost 1%. Take out imports too and US brewers down almost 2%. No wonder top US brewers having tuff time reaching volume objectives. Look too at sales-to-retailer trends for top brewers thru Sep: AB up 0.8%, Miller down 3.5-4.0% (apples-to-apples), Coors down 0.9%. Means top 3 brewers collectively down at retail for 9 mos. Note: tho AB acknowledges minuscule 0.4% industry growth thru Sep 01, it still projects a return to 1% or better industry growth in 2002 and beyond.