Quadruple whammy of higher taxes, smoking bans, soft economy and price gaps with off-premise has UK pub biz reeling.  A ton of UK press today for latest dismal figures: beer sales in pubs/restaurants tanked 9.9% in Q4 in UK (down 8.3% overall). That meant 2.2 mil fewer pub pints pulled per day Oct-Dec.  “Beer sales are sinking and many pubs are struggling to survive,” head of pub assn BBPA put it.  Brit beer taxes rocketed 18% in 2008 alone, and on tap for another 40% rise thru 2012 given scheduled increases, sez BBPA.  In separate article on Scottish biz, pub owners also hollerin’ about big brewers (AB InBev, Scottish, Guinness) hikin’ prices by 5%+, citing higher costs.   Overall, beer volume down 5.5% in UK in 08, following similar trend in 07.  Since 05, UK beer biz has shed approx 5.6 mil bbls, 12%.     

AB making moves to “sacrifice exclusivity for cheaper deals” in sports sponsorships, Ad Age reports. Where AB used to lock out other brewers, now takin’ different tack and will no longer be only sponsor of some pro hockey, basketball and baseball teams. As recently as 2004, 86% of AB’s sports deals were exclusive. That’s down to 56%, according to Dan McHugh AB InBev’s media, sponsorship and activation veep. Dan sez move away from exclusives has been goin’ on “for several years.” Also said AB spending on local sports will increase in 09. AB’s sports mktg budget: $365 mil in 07, according to IEG (co that measure/monitors biz), which also estimates exclusivity “costs about 33% more than a shared sponsorship.” But even if local sports spending will be up, a number of distribs report less local spending overall by AB in their mkts in 09.

Even with Bud Light Lime, AB sales not quite even, down 6,000 bbls, 0.2% in home state Mo in 08.  Lost 0.2 share to a still dominant 65.1.  Meanwhile, MillerCoors up 10,000 bbls, almost 1% and gained 0.2 share to 24.6.  So top 2 just shy of 90 share in Mo in 08. Legacy Miller down 2.5% and Legacy Coors up 10%.  That’s at least 4^th yr of double-digit growth for Coors brands in Mo.  Pabst #3 supplier in Mo and eked out slight gain.  At just 2.3 share.   Tuff yr for imports in Mo tho: Crown down 5,000 bbls, 6%, DiGUSA down 9,000 bbls, 16%.  But Heineken USA managed slight (less than 1%) gain.   Craft brands fared better by-and-large on much smaller base.   Boulevard, largest craft player (and #6 overall), up just modest 1600 bbls, 3.5% in home state.  But Boston Beer up 22% and St Lou Brewery up 18%.   

Nice taxpaid shipments pop in Dec: +720,000 bbls, 5.6%, estimates Lester Jones at Beer Inst.  With slight revisions to earlier mos, 12-mo total came in at 184.7 mil bbls, +2 mil bbls, 1.1%. Not bad, coming on heels of 1.2% gain in 07.  In fact, that’s 1st time in over 25 yrs that domestic brewers put up back-to-back 1%+ gains.  But imports pulled down overall shipments trend.  Depending on final Dec figure, looks like US shipments up 1.2 mil bbls or so, 0.6% for 2008.  

Interesting interview with SABMiller ceo Graham Mackay in Financial Times today.  Asked if SABMiller sees changes in consumer behavior as global economy reels, he sez “there’s a down trading happening in many markets.  That would be true of the US.  It’s true of South Africa, it’s true of Europe as well.”  While brewing industry “remains defensive” it is “not perhaps as defensive as some industries.”  It’s “pretty defensive at the top line” but trading down affects profitability as “relatively high fixed cost component” makes it harder “to make major cost adjustments in the short term.” 

Asked if AB InBev the “last big deal we are going to see,” Graham answers:  “I don’t think it’s the end.  There will be further consolidation, affected though by the fact that most of the brewing industry is in private family or foundation or other hands and therefore it’s very difficult to predict when assets will become available.”   Asked if further tie up with Molson Coors is just “a matter of time,” Graham replies: “No not at all.  The US market stands on its own…. We have a very strong number two position there and we’re very happy with that.” Asked if a tie-up with Coke is “unfeasible,” Graham sez:  “I don’t know that it’s completely unfeasible, but I don’t think it’s on the cards right now either.”  

Persistent rumblings in recent weeks turn out to be true.  Jim Sabia, a familiar figure to many Coors folks (spent 17 yrs there, rising to veep of mktg and media) just named as exec veep mktg at Crown, effective Feb 1.  Crown prexy Bill Hackett noted Jim will “oversee all marketing functions… reporting directly to me.”  Jim spent last 2 yrs leading mktg efforts for Constellation Spirits.  Recall longtime top mktg exec Tom McNichols left Crown abruptly in Nov.  Corona has hit a rough patch, down 2 yrs in a row.  Several distribs INSIGHTS talked to were mostly underwhelmed by just concluding Crown meetings.  So Jim will have his work cut out for him, but will undoubtedly hit ground running, and knows the category well.     

“Nearly flawless execution” of AB “acquisition and prompt addressing of its equity issuance and partial re-financing of its $7 billion bridge loan—although not ideal—show how focused and nimble ABI management can be when presented with a major challenge under pressure,” wrote Credit Suisse team, including Carlos Laboy.  But investors “should not perceive this company as solely a cost cutting restructuring story,” they wrote.  “We believe ABI is in the beginning stages of becoming the next great CPG leader,” they added.  While InBev “has fairly been perceived as a laggard in brand marketing,” Credit Suisse’s “last 2 meetings with management have indicated to us that brand building has finally become a top priority at the highest levels of the organization.” 

As for Modelo, Carlos and co still believe it is a seller: “We remain committed to the idea that the Mexican families were sellers during the AB InBev bid process and will likely be again at some point.”  But now ABI “cannot afford Grupo Modelo for cash, leaving an equity swap as the only realistic means for a deal, if one is to be done at all.”  And  they construct various possible scenarios to get it done.  About Modelo’s arbitration process against ABI, reiterated: “We expect Modelo to lose every round.”  Credit Suisse concluded: “Modelo’s leadership conflicts, inefficiencies, macroeconomic pressures and ABI’s agenda may accelerate the need for a potential equity deal sooner than expected.”   For Modelo, selling in 2009 would “put an end to the growing friction among the fragmented members of the Modelo family trust” which is “compounded by the slipping performance of Corona in the United States and the lackluster showing of Modelo in Mexico,” wrote Credit Suisse. 

Then too, since Modelo voting trust had agreed to sell, Mexico’s “macro picture and earnings potential has been cut” as several major parts of economy dealt “a major blow, the Mexican Peso has lost a third of its purchasing power” and “security risks have worsened.”  So tho Modelo valuation down, “we wonder why would any of the family members believe that they are worth the same today as they were six months ago or that  this combination of factors will help them create value.”  Given all these factors, “we believe a sale could be forthcoming.”  

This was not most-discussed asset sale, but had been on the list.  AB InBev sold 19.9% of its 27% stake in #2 Chinese brewer Tsingtao to Asahi for $667 mil, it announced today.  That was 14.2X estimated 2008 EBITDA, co reported, and “a premium of 38% against the closing price” of shares yesterday.  AB InBev retains 7% of Tsingtao.  Gotta recall many thought AB’s position in China – it also has 28.5% stake in Zhujiang and its own biz there – was a key strategic motivation for InBev purchase. 

AB InBev “has no current plans to sell any additional shares” of Tsingtao, it said, and “will review its strategic options as appropriate.”   In fact, AB InBev still holds #3 position in China, it sez, and still committed to China mkt, CEO Carlos Brito told Dow Jones.  “Our operations in Northeast and Southeast China are a key platform for our global growth strategy going forward,” he added.  “With strong local brands such as Harbin and Sedrin and global brands such as Budweiser, we are well positioned” in biggest global beer mkt (by volume).  So Tsingtao stake turns out to be first asset sale among expected handful.  While InBev initially aimed to raise about $7 bil in asset sales, up to $3.5 bil of its new $5 bil debt offering could be used to pay down that $7 bil.  That takes lots of pressure off.  

Lotsa pressure in lotsa states to raise excise taxes on alc bevs to cut state deficits.  Gov Schwarzenegger’s proposal to jack Calif taxes a nickel-a-drink featured in LA Times today.  Story hook: increase would raise price of popular “2 Buck Chuck” Charles Shaw wine over 2 bucks, to a still bargain-basement $2.29 to $2.49/bottle.  Big Calif vintners takin’ tax threat very seriously, LA Times reports, with estimates that it could cost Gallo an extra $18 mil, Wine Group $22 mil, etc.  (Proposal would jump wine taxes from approx 4 cents/bottle to nearly 30 cents, before mark-ups.) While vintners rallying – head of Wine Inst Bobby Koch called proposal “devastating” – big distribs Southern Wine & Spirits, as well as natl assn WSWA, “declined to talk about the issue.”  That echoes some buzz we hear in beer biz, where brewers seem lots more focused on tax threats than distribs.    

Gold Coast Bev moved quickly to fill void left by exiting ceo Art Friedman. Promoted from within. Exec veep sales Felix Williams named interim ceo and Eric Levin named interim prexy. Initially, Art was staying thru Feb, but now he will leave at end of mo.