Imports actually declined 71,000 bbls, 1.3% in 3d qtr, and that’s 1st qtrly drop for imports since 92. Is it coincidence that this slowdown comes at same time as 1st recession in 10 years? Some of import dropoff related to bringing shipments more into line with depletions, especially Mexican shipments. Mexican shipments actually declined 177,000 bbls, 7% in 3d qtr. They’re still gaining share of imports though, up 712,000 bbls, 11.4% YTD. (Gambrinus Modelo depletions up 18% thru Oct—-see last issue. Barton depletions up double-digits too.) Dutch shipments also slowed in 3d qtr, but still up 387,000 bbls, 10% YTD. (Heineken has said that its US shipments will only be up 5% in 2001, as it reduces inventories, so expect a slow 4th qtr for Dutch shipments.) And Canadian shipments also slowed to 370,000-bbl, 15% growth YTD. But that includes several hundred thousand barrels of Smirnoff Ice and Mike’s Hard Lemonade made in Canada. Factor that out, and imported beers only up mid-single digits.

It’s basically a wash. Domestic taxpaid shipments down about as much as imports are up so far in 2001. So US beer biz remains very, very flat. Oct taxpaid shipments dropped another 373,000 bbls, 2.6%, estimated Matt Hein at Beer Inst. That steepened 10-mo decline to 1 mil bbls; 12-mo dropoff now 2.3 mil bbls, 1.3%. That includes Miller inventory reduction and 8% Dec taxpaid dropoff last yr. But even tho Nov-Dec 2001 have easy comparisons with last yr, great growth not likely. AB sales-to-retailers strong in recent weeks, but AB has already said it doesn’t expect much shipments growth in 4th qtr 2001 and it’s half the biz; Miller, Pabst, Coors each doing better, but none setting world on fire. Imports up just 1.8% in Sep. That put them up 1.2 mil bbls, 8% for 9 mos but....

Imports actually declined 71,000 bbls, 1.3% in 3d qtr, and that’s 1st qtrly drop for imports since 92. Is it coincidence that this slowdown comes at same time as 1st recession in 10 years? Some of import dropoff related to bringing shipments more into line with depletions, especially Mexican shipments. Mexican shipments actually declined 177,000 bbls, 7% in 3d qtr. They’re still gaining share of imports though, up 712,000 bbls, 11.4% YTD. (Gambrinus Modelo depletions up 18% thru Oct—-see last issue. Barton depletions up double-digits too.) Dutch shipments also slowed in 3d qtr, but still up 387,000 bbls, 10% YTD. (Heineken has said that its US shipments will only be up 5% in 2001, as it reduces inventories, so expect a slow 4th qtr for Dutch shipments.) And Canadian shipments also slowed to 370,000-bbl, 15% growth YTD. But that includes several hundred thousand barrels of Smirnoff Ice and Mike’s Hard Lemonade made in Canada. Factor that out, and imported beers only up mid-single digits.

Striking development breaks new ground in several ways. As Guinness UDV North America (a subsidiary of Diageo) buys 3+ mil-bbl Lehigh Valley brewery in Pa, this becomes most significant foray by any international supplier into US beer biz since Alan Bond bought Heileman for over $1 bil in 1987. Makin’ it even more important: buyer is not only big brewer, but #1 world spirits co with over $2 bil in alc bev oper income. And it’s pushin’ branded spirits names in malt-based products. In fact, Guinness actually needs capacity to brew Smirnoff Ice and other malternative/"ready-to-drink" brands to come. Parent co Diageo is bettin’ big bucks that Smirnoff Ice and whatever else follows are not merely passing fancies. It paid $30 mil for this brewery and will spend about $15 mil to retrofit it. Also paying $30 mil to expand Chi production facility that can make Smirnoff Ice. Could Guinness UDV NA become contract-packing force for other suppliers too, or brew its own beer brands in US? No answers to these questions at presstime. But this move suggests game is changin’ and points to further blurring of lines between beer and spirits. Deal also immediately improves Pabst finances. Pabst got $30 mil from UDV and $19 mil from Miller (mostly related to plant closing costs). Recall that earlier this yr, Pabst was out-of-compliance with debt covenants.

Wow! Spy games in beer biz: leaked documents, code names, murky motives and race to become world?s largest brewer thru consolidation. With most parties not commenting and no deal announced, unclear how far along any of these contemplated transactions are, or even if they?ll ever happen. But there?s lots of drama and stakes are high. Two possible rival deals outlined in document leaked to British press would form a brewer large enuf to challenge AB for #1 worldwide. One of deals involves Miller too. How?s that grab ya? Interbrew wants to buy or merge with South African Breweries, wrote several British papers based on leaked document, which was prepared by advisers Goldman Sachs and Lazards in Nov for presentation to Interbrew board. Interbrew?s response certainly didn?t rule it out but bid not imminent either. Interbrew acknowledged it did analysis of possible bid as part of annual review of leading international brewers, but insisted analysis at "very preliminary stage, may or may not lead to an offer for SAB." But "no approach has been made" to SAB "on the matter," Interbrew stated.

Document outlined benefits of Interbrew & SAB combo (code names "Ice" and "Zulu") to prevent rival combo codenamed "Scar." "Scar" described in papers as "merger between SAB and Scottish Newcastle Plc with the simultaneous acquisition of Miller," reported Reuters. A separate sheet talked of making offer for SAB after Dec 3 Interbrew board meeting. Only 1 problem: Interbrew had no board meeting scheduled for Dec 3, according to Reuters. At presstime, SAB refused to comment on deal, but announced $537 mil purchase of Honduras brewer. And Interbrew still hasn?t closed on buying Beck?s or selling Carling. What?s significance of Miller?s part in all this? While PM has said for yrs that Miller not for sale, PM has begun more serious discussions with international players in recent months about various options. Miller had no comment at presstime. At the least, these leaks bring into open a new level of possible deals discussed and desired in boardrooms around world in drive towards global brewer consolidation. Interestingly, the 44-page document was mailed anonymously to several British news orgs from Paris, according to the British paper Independent which asked: "Who leaked them and what was their motive?"

Interbrew agreed to pay a startling 13x EBITDA, $1.6 bil for Beck?s 5 mil bbls of beer (plus about 2.5 mil bbls of soft-drinks). That?s several hundred mil more than other brewers thought it was worth. Deal scheduled to close in Feb 2002, but must overcome regulatory hurdles (see below). What will deal mean in US? Last yr, Interbrew?s Labatt USA sold 2.85 mil bbls of imports, got 14 share of segment. Add Beck?s 840,000 bbls, 4.2 share of segment and LUSA would have sold more imports than anyone but Heineken in 2000. Next yr, with Beck?s in portfolio, Labatt USA will sell well over 4 mil bbls of imports and over 5 mil bbls total. Could be neck-and-neck with Heineken as #5 supplier in US. Acquisition of Beck?s 840,000 bbls in US finally makes Interbrew a player in European lager segment in US mkt, where Heineken has long held dominant position. As Labatt USA adds Beck?s to European portfolio of Stella Artois (fast-growing but tiny in US), Carlsberg and Lowenbrau, gets more scale. While Beck?s volume grew a bit in 90s, it dropped from 8.8 share of imports in 90 to 4.2 in 2000. Another interesting point: when deal complete, almost 10% of import biz will have changed hands in 1 yr period, including Beck?s, Molson/Coors joint venture, and US Bevs getting Grolsch.

Acquisition of Beck?s will also affect race between Interbrew and Heineken for #2 position worldwide, Depends on which Bass assets British govt will force Interbrew to sell and to whom. That?s 1 of fascinating angles of Interbrew deal to buy Beck?s. Recall Interbrew bought Bass last yr, but UK regulators put kibosh on deal. Interbrew might just have to divest part of Bass, according to latest rumblings in UK press. Decision expected soon. But Beck?s has 10-yr UK deal with Interbrew?s chief UK competitor Scottish & Newcastle. UK regulators will likely take a close look since Interbrew and S&N will be partners and top 2 competitors in same mkt. Beck?s deal also subject to regulatory approval by European Union and Germany. Interbrew recently bought another 1-mil-bbl brewery in Germany and seems intent on leading consolidation of fragmented industry there. However it all plays out, Interbrew again demonstrated its ambition as global brewing consolidator.

Lotsa noise lately about a 2- or 3-way deal to merge Miller with Scottish & Newcastle and possibly SAB. Tho proposal  has been in air for several mos, publicly (and in BMI) since leaked Interbrew document referred to deal as “Scar,” it got tons of media play this week.  And tho Wall St Jnl downplayed deal in 2 different articles, discussions are more advanced and serious than the Journal portrayed.  A team of Miller execs has worked on deal for mos with PM.  Don’t know whether it will get done, but it has certainly been more than idle chatter about m&a possibilities. Two different media spins: “Miller may be merged into world’s #1 brewer,” Mil Jnl Sentinel headlined on Monday.  Said under proposed deal,which could be announced by Mar, PM would keep about 20% of combined co following merger.  PM would avoid huge capital gains hit of outright sale, and still get earnings stream from merged brewer.  Same day WSJ acknowledged discussions but called them “dormant.” Today, WSJ headlined: “Ailing Miller.”  Said: “Selling or Fixing it—Either Choice Is Tough.”  But sez no deal “imminent,” and quotes SAB that reports  are “speculation.”

Domestic “underlying” shipments up about 275,000 bbls, 3.2% to 8.7 mil bbls in 4^th qtr, reported PM.  Domestic “underlying” trend (excluding Molson and discontinued brands from 2000 figures) steadily improved as 2001 went on: down –5.3% in 1^st qtr, -3.5% in 2d, -3% in 3d and finally +3% in 4^th.  In 4^th qtr, Miller got gains on all core brands including Miller Lite and Gen Draft.  Its core brands were up 5.7% for qtr.  That’s even tho inventories reduced by a day and a half, sez PM.   Meant that even if you include discontinued brands and Molson from last yr, Miller shipped only about 1% less than 4^th qtr 2000.  That’s big improvement.  For full yr, Miller domestic “underlying shipments” down 2.4% to 39.6 mil bbls.  (Add in exports and you get 40.5 mil bbl total shipments.)  About 70% of Miller’s volume decline “incurred by below premium brands,” wrote PM.  Subpremiums down 7.7%, while premium brands off only 1%.  

In 1st conference call as incoming PM ceo  Louis Camilleri told Wall St: “Our focus has been on the turnaround plan” at Miller and that “hasn’t changed…. John and his team have actually done a terrific job… this time we’re actually seeing better numbers.” (See below.) With new products, etc “we’re hopeful that this year… we’ll finally show stronger performance from Miller.”  “Having said that,” Louis added, “we’re not oblivious to the consolidation within the brewing industry and we will explore any options that are in the best interests of shareholders and beyond that I can’t comment.”   That’s big change from chairman Geoff Bible’s vehement denials that Miller for sale. 

It’s not easy to write a year-end message about how wonderful my family’s life continues to be in this year of The Atrocities when the tragedy was so close to those we know, when we all felt such heart-searing grief. Actually, that day, we were nowhere near the World Trade Center, which is about 34 miles from our office and home; we were away for a family wedding in an area of a country where we then experienced no warfare and where life then appeared normal, Israel. But here we are nearing the end of an extraordinary year. Irene and I reached a milestone—our 50th wedding anniversary, a record because she stayed with me all these years, and it looks like she’s gonna stick around, aiming toward another 25 years. For the milestone our sons Benj, Glen and their wives threw a great party where we saw a lot of friends and even some relatives I wanted to see. In the office, the amount of work I do continues to decrease as Benj and Eric and the entire great crew continue to bust their backs to do the best they can (almost as good as when I was chief honcho). There is a fly in the ointment though: I didn’t get to see as many friends in the industry as I did in each of the previous 31 years because I didn’t travel as much to meetings and because I had to miss the NBWA meeting in Vegas to be at that wedding in Israel. My old buddies (they sure ain’t so young) and others should know that I miss those great bull sessions and camaraderie staying up as we did in years past (wasn’t so long ago) at the bar till 2 a.m. So to all those I miss and everyone else I wish I knew better, I wish all of you, in this tough, competitive, yet great congenial industry with so many wonderful people, a year of peace, of no terrorism, of personal and family health. Whatever problems America faces, we’ve all been lucky to be part of this industry and here in this country. I’m one of those guys whose parents immigrated here but could have lived in another country and I would have been me there. That’s how lucky I am. I’m here. Stay well. Be lucky and healthy all year long and for many years thereafter.