Miller "is back on the offensive," prexy John Bowlin told natl sales conference. "It is again time to grow our business.... to be the industry innovator again and launch new products," he added. At closing session, John announced 3d malternative alliance with Jack Daniels producer Brown Forman and paid tribute to departing sr sales veep Jim Mortensen, who is moving up in PM. Jim got standing ovation (can't remember last Miller exec to leave on such an up note). Indeed, Miller numbers have improved, including in 2002, execs showed. "Our brands demonstrated improved performance in each quarter of 2001," reminded John. Programs for core brands are "working" with "improved momentum." "We now have a strong foundation," he said, including mktg investments "again at competitive levels" and quality of mktg "significantly improved. "We've taken 6 days out of inventory," "discontinued over 30% of our SKUs" and will spend over $100 mil on flavored malt beverages, "incremental to our base business spending."

"We expect the Miller business to grow," echoed PM chief operating officer Bill Webb, who will retire this yr. Bill threw some cold water on deal rumors. He read incoming ceo Louis Camilleri's entire recent quote which started: "Our focus hasn't changed. Our focus has been on the turnaround plan," but also said PM would "consider any option" on Miller to build shareholder value. Then Bill said: "I know that the press made a lot of hay by pulling a few select words from that answer, especially when coupled with tired old rumors." Added: "Now...you know there is no issue." Bill described how when Miller team presented their biz plans to PM in Jan, he was "prepared to hear about additional fundamental fixes and reduced volume and profit expectation." Instead, Miller execs presented "an aggressive plan for growth" that was "based on the same basic sound strategies John laid out nearly 3 years ago." Now Miller team "nailed it pretty damned good." Talked about tuff decision to change mgt 3 yrs ago, "remarkable progress" made and closed by saying it's "incredibly gratifying to see it all come together."

Miller and Coors "now in a more difficult position than they have ever been in their history," said group vp August IV, and have "struggled to maintain their volume base." What’s more, Miller "team now dealing with distraction of a possible sale." In addition, consolidated Miller/Coors distribs have "divided loyalties," according to AB. Several AB execs emphasized advantages of exclusivity and that competing distribs with lotsa brands lose focus, create big opportunity for AB to pick up volume. "Is it working?" prexy Pat Stokes asked AB distribs about AB’s exclusivity initiative. He then listed AB accomplishments since AB urged AB distribs to be exclusive in 96: AB gained 3.1 share, rev/bbl up 8%, earnings per share averaged 11.4% annual gain, mkt value jumped 123% to $45 bil. During same period, AB held its premium-and-above mix at 75% as it invested "aggressively" in brands. AB will increase focus on hi-end segment in 2002: veep Bob Lachky made hi-end brands 3 of top 5 mktg priorities. AB will spend more to market Michelob brands, invest "significant dollars" behind Amber Bock, and Bacardi Silver will have $60-mil mktg budget.

At AB ?download? meeting with distribs in Chi last week, AB attributed recent total beer biz slowdown in part to better distilled spirits trends among core demographic, 21-27 yr old males, especially on-premise where spirits folks have glitzy promos. That?s 1st time AB has acknowledged this. AB talked of plans to do somethin? about it; not many details available at presstime.

"AB outperformed all other DSD companies" for 4th straight yr and "made "incremental improvements in 3 out of 4 retail segments," according to Natl Retail Monitor survey of retail execution, pointed out group veep August Busch IV. Here are details by channel from sales veep Mike Owens: AB up 0.7% in off-premise independent channel in 2001, up 4.1% in chain supers, up 4.1% in on-premise chains, off 0.9% in on-premise independent channel. AB share in chain supers flat, but convenience store share up 1.9 to "incredible" 62.1. AB has 43-share lead over closest competitor in c-stores, 3X share of #2, and 18 of top-20 packages. Imports only 4.4 share in c-stores, and all competitors "taking aim" at building biz in that key channel. Some early 2002 trends, according to AB: AB grabbed 46.8 share of supermkt volume Super Bowl week (highest week ever); Bud Light had higher share than Miller Lite, Coors Light combined; AB?s c-store share up 0.4 YTD.

AB prexy Pat Stokes gave 2001 brand trends for sales to retailers by family: Bud family up +2.1%; Michelob family ?1.2%; Busch +1%; Natural up 3%+; malt liquors +5%; Doc "held volume." Meanwhile, 264 distribs had positive Bud trend in 2001. AB gained 2.3 share of sub-premium mkt in 2001, "without growing category volume." AB still lookin? for imports: "We have not forgotten that a viable import brand still represents a key objective, an unfinished piece of business for AB," prexy Pat told distribs. "Given the consolidation of competing imports, usually within non-AB wholesalers, there is good reason for foreign brewers to assess their route to market," he added.

Growing tension between beer and liquor interests turned up a notch by AB chairman August Busch III at natl sales mtg. "Recently the debate over alcohol?s role in society was made more complicated by the aggressive stance of one of our colleagues in the distilled spirits industry," said August, without naming Diageo/Guinness UDV. "This company wants to establish so-called equivalence from both the taxation and social acceptance perspective. They are committed to blurring the long-held distinctions between hard liquor and beer.... Tax equivalence is an old argument, and it ignores the fact that beer and liquor are fundamentally different products, a fact that?s always been recognized in the tax system.... In addition... our distilled spirits colleague actively pushed for spirits advertising on network television, proposing a new ad code that includes banning advertising until after 9 PM. This company further says that this code should apply to beer. Fortunately, only 1 of the 3 networks" accepted spirits advertising "and it has received a lot of criticism for ending a 60-year self-imposed policy against liquor advertising. The other 2 networks and majority of local stations recognize the significant difference in alcohol concentration in beer vs hard liquor." August told story of meeting with Congressional chairman of "big committee" who suggested alc bev taxes should be the same. August asked the waitress to bring 3 martinis and 3 Bud Lights and suggested the Congressman drink the martinis while he drank the beers and "see what happens." The point was made, said August, and "the discussion ended." Distributors need to "make this same point with your constituents and legislators," August advised, "to help ensure that our freedom to advertise our products is not jeopardized by the self-serving efforts of this distilled spirits company who seeks to blur the clear lines of difference between our products." Recall at 2001 Beer Inst meeting, prexy Pat Stokesinsisted brewers would "ensure that the special advantage of beer" vs spirits "by the American public is maintained."

Back-to-back decisions on Mar 19-20 resolved--at least temporarily--a couple of thorny beer-spirits line-blurring issues. First came BATF announcement on Mar 19 that as of Sep 1 producers of malternatives/RTDs/flavored alc bevs will no longer be able to include label description using words "vodka," "tequila," "rum" etc. Spirits brand names are still allowed. That defused some state-level concerns whether malternative labels mislead consumers, at least for now. Labeling issue may not be totally resolved for a few states that have strict definitions of what can be in a malt bev. Stay tuned. Day after BATF dealt with malternatives, NBC quite suddenly pulled plug on spirits brand ads, just 3 mos after it made deal with Diageo to run ‘em. Apparently, political heat got to be too much. Diageo didn’t say much, but distiller assn DISCUS rapped "misguided critics" that forced NBC’s hand and took opportunity to push equivalence, and push it hard. Ad mags hit NBC pretty hard too, for caving; Ad Age editor picked up equivalence theme and sided with distillers: "Liquor marketers deserve a level playing field." Meanwhile, MADD held press conference to advocate stricter limits on all alc bev advertising and called for Congressional hearings despite NBC pull back. Questions for now: Will distillers continue to play equivalence card? If so, how and to what effect? Will backlash against all alc bev mktg linger? Or will issue recede to pre-Dec 19 status quo? Given increased aggressiveness of distillers in general, and Diageo’s repeated statements about increasing "access" in particular, hard to believe we’ve heard last word about liquor ads.

AB chairman August Busch III got a $3.3 mil bonus in 2001, up 10%. That followed a 33% bonus hike in 2000. Similarly, prexy Pat Stokes’ 2001 bonus up $200,000, 10% to $2.2 mil, following a 60% bonus jump in 2000. August’s salary hike again modest: up 2% to $1.2 mil. But Pat’s salary increased 17.5% to $1.06 mil, first time Pat cracked $1-mil mark in salary alone. While bonuses didn’t increase as much for August and Pat as in 2000, each was awarded a bigger increase in number of options in 2001 than 2000. And each recently sold lotsa shares. August was awarded 1.083 mil stock options (at $42.95—share price at presstime is $52), an increase of 183,000 shares over his 2000 award. Pat did even better options-wise. AB awarded him 1.354 mil options in 2001 (25% more than the chairman got), up 604,000 shares. As of Jan 31, August beneficially owned 7.775 mil shares (including 2.9 mil subject to exercisable options) worth about $362 mil that day. Pat’s 2.7 mil beneficially owned shares (1.9 mil subject to exercisable options) worth about $126 mil. But both August and Pat have either sold or filed big "planned" stock sales since Feb 1: August filed to sell $28 mil; Pat $13.4 mil. Don’t know what August, Pat or execs below paid for shares they’re now selling, but August exercised options during same period for 339,000 shares, at avg price of $16-20 or about $6 mil.

Third highest salary at AB was exec veep communication John Jacob. His 2001 salary: $605,000, up 10%. John’s 2001 bonus: $645,000, up 29%. AB awarded John 270,900 more stock options, but a smaller increase than in 2000. Group veep August IV made list of top-paid execs for 1st time. August IV’s salary/bonus was $510,000/$565,000 up 16%/9.7%. Both John and August IV have been doing some financial planning too. John sold or planned sales of $28 mil worth of AB shares since Feb 1, while exercising options for about $7 mil. August IV sold or filed planned sales worth $7.2 mil. Exercised options worth $2.4 mil. So, since Feb 1, top 4 AB execs sold or proposed sale of approx $76.6 mil of AB stock, exercised options for about $15 mil. Veep/CFO Randy Baker made a half-mil salary in 2001, up 5.2%. Randy’s bonus: $550,000, up 10%. Other execs sold plenty of shares too.

Data on beer sales to distribs with family connections to board shows Southern Eagle (Ft Pierce, Fla, owned by August’s half-brother Peter), bought $29.7 mil of beer from AB in 2001, up 6.8%. But sales to Tri-Eagle (Tallahassee, Fla, owned by August’s daughter Susan), up less than 1% to $23.5 mil. And sales to City Bev (Kent, WA, Steve Knight, son of bd member Charles), bought $16.5 mil, down 2.5%. Best trend of bunch: Classic Bev (Lawrence, Kans, Stephen Lambright Jr, son of group veep Steve), bought $9.3 mil of AB products, up 10.5%. Other tidbits from recent AB filings: advertising/promo expenses for AB in 2001: $722 mil, compared to $728.3 mil in 2000, $722 mil in 99, $642 mil in 1998.... AB’s 13 branches sold 6% of AB volume in 2001. AB’s WEDCO subsidiary now invested in 7 distribs.... AB has 23,432 full-time employees, down 200-300 last 2 yrs....

By early Apr, Corona price hike will be in effect virtually throughout US, but Heineken increases more selective. So in some key mkts, Heineken trying to reduce spread between Corona and Heineken, following 4% Heineken brand growth in US in 2001. Corona typically up 4-5% to consumer, tho some variation by mkt. That’s $1.25-1.50 per case. In NY, Corona prices go up $2.00 to consumer. In neighboring NJ, Corona only up $1.00 and even less in Philly. No word yet from Heineken in any of these 3 key states. Or in Calif, where Barton already up. Price points will be "big thing" this summer, acknowledged Heineken USA prexy Frans Van der Minne at Credit Suisse global bevs conference. Corona’s $1-1.50 per case increases "give me some room to maneuver," Frans added. At same conference, Heineken CFO noted that Heineken prices up in Fla and some other southeast mkts, "likely" to raise elsewhere too. In Fla, Heineken followed Corona, but went up less. Gave distribs 50-50 split while Gambrinus split at 70-30; AB distribs who acquired Modelo brands last yr had modeled their cash flows on 50-50 split. So this misunderstanding created some friction between Gambrinus and its new AB distribs. In Illinois, Heineken will follow Corona tho a couple mos later.

Lotsa talk about global consolidation by key execs from several of the world’s largest brewers at Credit Suisse/First Boston global bev conference. Interbrew, Heineken, South African Breweries (SAB), Carlsberg and Ambev--#2-#6 intl brewers which sold over 300 mil bbls between ‘em in 2001—plus a little co called Diageo all presented. (AB did not.) Interbrew CEO Hugo Powell reiterated position that Interbrew now focused on "organic growth," but said it will do more deals (Interbrew made 33 acquisitions since 91) if they "create value." SAB CEO Graham Mackay pointed out that tho everyone assumes Miller will sell, "I don’t know why Miller has to be sold." Mackay thinks global consolidation will occur "in fits and starts," in part because buyers "can’t drive profitability with prices high." Heineken CFO David Hazelwood pointed out Heineken sees "acquisition opportunities" in Latin America, Africa, Asia, Russia and "some selected" mature mkts (i.e. Germany), tho didn’t focus on deals in Heineken strategy going forward. Bluntest: Jim Grover, director of strategy for Diageo, said it’s "unlikely" that Diageo will make a "straight acquisition of a major beer company" anytime soon. Indeed, he said, may be "easier" to expand wine holdings than beer. Why? Diageo has internal criteria for any acquisition that investment has to hit break even by year 3, said Jim. Means it can’t "pay a premium price" and meet that criteria. Note: several of these execs cited high prices being sought by sellers. Diageo allowed that rule to "slip" when it bought Seagram because of "strategic importance" of deal. Instead, Diageo’s malt bev strategy is: 1)"attack" with RTDs; 2) develop Guinness brand; 3) develop smaller brands like Red Stripe. Carlsberg, with little presence in North America, included among strategic priorities a "concentration" on Europe and Asia. Brazil’s Ambev mentioned "opportunistic, accretive acquisitions in the region."

"We have never overpaid," Interbrew's Hugo Powell said, referring to its many acquisitions. (In past, Heineken and AB execs have strongly suggested otherwise.) He showed chart that Interbrew paid 5.9X EBITDA for Labatt, avg 6.0X EBITDA for "emerging market" brewers and 8.8X EBITDA in UK. (Figure is purchase price divided by EBITDA in 1st full year after acquisition.) He compared to S&N paying 12X for Hartwall, Heineken 14X for Bravo, and Molson 12x for Kaiser. Interbrew’s deals, he said, "look like bargains," and predicted in the end so will Beck’s. SAB valuation "extremely regrettably" lots lower than key competitors, said Mackay, in large part due to devaluation of rand (-50% vs US dollar since 97). Showed chart that valued SAB at 7X EBITDA, S&N at 8.8X, Ambev, Heineken, Foster’s between 10.7X and 11.2X, Diageo at 12.9X and AB at 13.8X.

Following mediocre 2001, beer biz off to much better start in 2002. AB sales-to-retailers up more than 2% for 1st 2 mos. And Miller shipments up 3.5% for 2 mos (some details below). Coors also up 2-3% so far this yr. Recall that Jan domestic taxpaid shipments up 3.7%. So what gives? Well, USA Today recently headlined: "US basks in one of warmest winters ever." Cited record temps in many cities. Then too, comparisons are easy: in 1st qtr 2001, AB STRs were up just 0.3%, while Miller down 5% and Coors down 1%. Ain’t tuff to beat those numbers.

In supers, beer volume up a striking 7% thru Feb 24, according to IRI. AB up 7%, but gained just 0.1 share, according to IRI. AB fueled by a 15% Bud Light gain, up 1.1 share. Even tho Bud up 3%, it’s still down 0.5 share yr-to-date in supers. Miller up 3.7%, but down 0.7 share thru Feb 24. Miller Lite held share and High Life gained share, but Gen Draft and subpremiums lost share. Coors up 6.3% in supers, but lost 0.1 share. Yet its motherlode, Coors Light, up 11% and gained 0.3 share YTD. Imports flying again in supers so far in 2002, especially Corona and Heineken. Corona/Corona Light up 20% and gained 0.4 share. Heineken up 19% and gained 0.2 share. And all flavored brews (as IRI now calls them) up 0.7 share YTD; both Smirnoff Ice and Mike’s still hot.