For 1^st time in 2 years, AB, Miller and Coors each posted shipments gains in same qtr. Each up 0.4 to 1.6%, tho none gained share. AB and Miller numbers boosted by malternative rollouts. Including import estimate for March, looks like US shipments up about 1 mil bbls, 2.1% in 1^st qtr. Puts industry up 0.8% for 12 mos. Available 1^st-qtr retail trends even better than shipments. Supermkt volume up 6.8%, according to IRI, and $$ sales up 10%. C-store $$ sales up 6.8% thru Mar 16, volume up 3.5%, reports ACNielsen.

AB gained 350,000 bbls, 1.4% Jan-Mar, following 0.4% shipments gain in 4^th qtr 2001. Good chunk of 1^st qtr gain hadda be pipeline for Bacardi Silver. AB up 1% for 6 mos, 1.1% for 12 mos. Means AB gained at most just 0.1 share (of shipments) for 12 mos. AB actually lost a little share of shipments last 6 mos. AB?s STR trend continues to outpace shipments tho: up 2.1% in 1^st qtr following big 5% bulge in 4^th qtr 2001, but going against just 0.3% STR gain in last yr?s 1^st qtr. Miller gain followed 7 down qtrs, and a near-gain in 4^th qtr 2001. Miller up 130,000 bbls, 0.7% for 6 mos, but still off 1.1 mil bbls, 2.7% for 12 mos. About half of 12-mo dropoff was Molson brands Miller no longer sells. Including just currently-held brands, Miller?s 12-mo dropoff closer to half-mil bbls, 1%, a big improvement. Coors up just 20,000 bbls, 0.4%, following 3% gain in 4^th qtr 2001. Ahead 180,000 bbls, 1.7% for 6 mos, but off slightly for 12 mos. Coors said STRs up 1.4% in 1^st qtr. Pabst dropoff rate reduced to single-digits, we estimate. Modelo and Femsa reported 1^st qtr exports (primarily to US) up 17% and 9% respectively. And Boston Beer up 5%. All other domestic brewers, including contract brewers making malternatives, and startup of Diageo?s Pennsy plant, up at double-digit pace.

Pabst hasn?t been on anyone?s radar screen much, and yet it has quietly improved trends. Turns out, Pabst down only about 3% yr-to-date (INSIGHTS had estimated 7% drop in 1st qtr). So INSIGHTS estimate nearly 100,000 bbls too low. This follows several yrs of double-digit declines on these brands. In supers, Pabst down 2.8% thru Apr 21, according to IRI. Several brands actually up in supers, including oldies but goodies like Stroh, Pabst and Old Style. Colt 45 up double-digits in supers. Correction II: EBIT is earnings before interest and taxes.

Consultant Mark Rodman typically provocative at recent distrib convention. Suppliers’ strategy of pushing distribs to invest more and more to "enlarge and upgrade" operations, while at same time they "fiercely oppose" a free market when distribs want to sell is "irrational," in Mark’s view. "Rather than inspiring reinvestment and attracting fresh capital with pledges of market level returns," sez Mark, "suppliers pursue strategies to constrain and deflate the size and opportunity for capital gains for wholesalers who’d invest their lives and personal resources to bring beer to point of sale." How to get out of this "counter-productive" cycle? Suppliers might consider two options, suggests Mark. First, "restructure [the] ‘approval of transfer’ process" to "allow all prospective bidders for" a distrib, "not just the neighbors" so they can "engage in what is in effect an auction of the rights." Suppliers can "pre-qualify" parties, to "eliminate tire-kickers," match highest bid if they want, Mark suggests, but "the higher the auction price, the higher the exit prices others get, the more incentive an existing wholesaler has to invest, execute and focus." 2d option: "offer wholesalers performance-based stock options to assure" as supplier succeeds, "so do its wholesalers." That incentive is a "tax-deductible expense," Mark adds. Are suppliers really ready to "throw out the rule book" to "guarantee" distrib’s value grows with the company’s "street value"? Who knows, but once again, Mark’s thinkin’ outside the box.

These were the expected AB mgt moves, the orderly transition, the generational shift, but it still seems momentous. As of Jul 1, longtime leader August Busch III (who will be 65 by then) will no longer be prexy of AB Cos. He?ll stay for 5 yrs as chairman at board?s request, but "it?s time for me to step aside," he told press conference just after annual shareholder?s meeting. Pat Stokes, 59, who has been ceo of brewery since 1990 will become prexy/ceo of entire co and the 1^st one outside family to take over top slot. August Busch IV, 38, the next generation of family leadership, will become prexy of brewing co.

August Busch III has had a remarkable run as top exec of world?s largest brewer. In 27 yrs since he became ceo, AB gained 25 share of mkt, almost 1 share point a year. What?s more, AB gained over 65 mil bbls during period while total industry gained 50 mil bbls. And profits jumped from $80 mil to $1.8 bil. That?s a record that?s gonna be tuff to beat. Meanwhile, Pat Stokes continues his long steady ascent at AB, now to the very top. He was hired in 1969 by consultant Bob Weinberg (then an AB veep) fresh out of Columbia Business School. Bob sez the day he hired him he told his wife that he had hired a future prexy of AB, "smart as hell?hard-working as hell" and "tougher than the others," as he recalled young Pat to St Lou Post Dispatch. In a speech some yrs back, Pat described how he had been August?s assistant 30 years ago, that since then the titles have changed, but not much else. And August IV has also steadily taken on more responsibility, making his early mark in marketing, adding sales some yrs ago and finally gen mgt responsibility last yr as he took on the $1 bil branch biz and a seat on AB?s strategy committee, the group of execs that runs the co. Speaking of strategy committee, another promotion and new member announced yesterday: Francine Katz becomes 1^st woman ever to sit on strategy committee and vp and corporate communications officer. In last 2 or 3 yrs, AB has "transitioned more than half" of strategy committee to execs in their 40s, prexy Pat Stokes told INSIGHTS. "That?s the next wave, the next 20 years," Pat added.

In 1996, August Busch III told Fortune mag "I?ll be retired by 65." He turns 65 in June. And yet it has been tuff to imagine him leaving entirely, even after his quadruple-bypass surgery 2.5 years ago. And so the changes that were announced played out pretty much as many thought they would. In short-term, company will undoubtedly continue very much on path it has been. But next generation of AB leadership faces industry undergoing major change. When August III became ceo, he took over in face of perhaps even greater challenges: PM mktg onslaught, rapid Schlitz growth at time and the beginning throes of industry consolidation. Now beer biz is consolidating on a global scale as large well-funded intl players (one of them AB?s partner-Grupo Modelo) making some inroads into American mkt at same time AB strives to gain larger share of intl mkt.

This 800-pound gorilla is dominating grocery sales even more than you think. "Wal-Mart?s resounding success selling groceries is sending shock waves through a staid industry," Fortune mag just wrote about what is now #1 food retailer as well as largest US corporation of any kind. Wal-Mart "continues to spread its price dominance across the land," wrote Progressive Grocer mag. Wal-Mart sells more than 10% of groceries in US, up from 6% 6 yrs ago, according to Bear Stearns. That amounted to about $46 bil in 2001. But that?s only about 20% of Wal-Mart?s total revs which hit $220 bil in 12 mos ended Jan 31, 2002. Amazingly, Wal-Mart total revs up $100 bil in just 4 years. Similarly, Wal-Mart oper income also almost doubled from $5.7 bil to $10.7 bil in just 4 yrs. And Wal-Mart growing faster in groceries than its other bizzes. "We expect Wal-Mart to double its food sales within the next 5 years or so," wrote UBS Warburg analyst Neil Currie, who also has "reduce" ratings on two of big public supermarket chains, Safeway and Albertson?s. "Our overriding concern for conventional supermarkets is that Wal-Mart will continue to add significant numbers of supercenters and further encroach into grocery market shares," Neil added. To compete, big supermarket chains are cutting costs, closing stores, streamlining. Yet typical mkt basket at Wal-Mart is 20-30% cheaper than other stores, according to recent survey. Number of Wal-Mart supercenters has jumped from 260 to 1060 in last 5 yrs, wrote Fortune and could quadruple again. What?s it mean for beer? Wal-Mart is already AB?s #2 customer, growing rapidly. AB has a team that just services Wal-Mart hq in Bentonville, Ark. Other brewers and importers aren?t quite as focused on this burgeoning behemoth. Yet. About 1400 Wal-Mart outlets sell alc bevs. If Wal-Mart is winner in this key channel and it wins by offering lowest price, this will put pressure on distribs? margins; and brewers and distribs will need to find new ways to add value to 3-tier system.

Once again, light beer, imports and malternatives were the growth segments in the US beer biz in 2001, while shipments of regular domestic beer—at any price—-continued to erode. So did shipments of ice beers, malt liquors and no-alcohol brews. Specialty beers just held even. Growth in light beer segment slowed a bit from 4.5-6% range of recent yrs to still impressive 3% in 2001. Light beer shipments increased 2.6 mil bbls to 88.9 mil bbls, and picked up another share of overall beer market to 44. Premium-priced light beers (including Michelob Light) were about 69 mil bbls, up 2.5 mil bbls, 4%, and grabbed 34 share. In last 5 yrs, premium light beers up 16.8 mil bbls, 32%; gained 7 share.

Import beer segment slowed a bit too last yr: up 1.8 mil bbls, 9%, following double-digit gains in 3 of 4 previous years. (Gotta note: import figures below for 2000-01 tease out our guesstimate of malternatives imported from Canada; that volume included with malternatives.) Import beers reached 21.4 mil bbls and 10.6 share of the US malt bev mkt. For first time, consumers bought more imported beer in the US than popular regular brands. As recently as 96, popular regular segment outsold imports by 17 mil bbls. Since then, import beers up 8.9 mil bbls, 72% and picked up 4.1 share of US shipments. Big news in 2001: malternatives. We estimate shipments reached 4.8 mil bbls, including Zima, coolers, hard lemons and about 400,000-500,000 bbls shipped from Canada. Smirnoff Ice grabbed over 1/3 of malternative volume, Mike’s Hard another 17. Add ‘em up and growing segments--premium lights, imports and malternatives—-grabbed 47 share in 2001, up 2.6.

All figures are BMI estimates for US market only.

"Regular" beer took it on chin again in 2001. Shipments of premium regular brands declined another 1.5 mil bbls, 3.5%. That’s a slightly sharper dropoff than in 1998-2000. Looks like every big segment impacted by malternatives last yr. Since late 80s the premium regular segment lost about half of its share of US beer biz, dropping from 40 to 20.7. Popular-priced regular brands fared even worse: down 1.8 mil bbls, 8%. These brands slipped to just 10 share of US mkt, a loss of 5 share in 5 years. Look at tuff 5-yr trends for regular beer: premium biz off 7.7 mil bbls, 16%, popular-priced biz off 8.5 mil bbls, 29%. Domestic specialty market just even in 2001, following modest gains in 1999-2000 and a flat 98. (INSIGHTS previously estimated 1.6% gain.) Ice beer segment (domestic brands only) dropped 400,000 bbls, 5.4% in 2001, worst trend in yrs. Malt liquor volume dipped to 5.5 mil bbls in 2001, and was just 2.7 share of shipments. Down 4 mil bbls in 5 yrs. No-alcohol brews dropped another 60,000 bbls, 4% in 2001.

That was slightly faster than Modelo?s 5% in 2d qtr. But for 6 mos, FEMSA up about 7% compared to double-digit increase for Modelo. In court papers, Labatt USA said its projected growth rate for FEMSA brands in 2002 was 6.3%. Seems to be on target.

British papers today jumped on unusual new study that found  “substantially increased risks of all cause mortality can occur even in people drinking lower than recommended limits, and especially among younger people.”   Medical statisticians advised men under 34, women under 44 to limit consumption to 1 unit/day.  That’s less than 1 “standard” drink in US.  More details later, but gotta note alarm of Brit press: “A study published today…makes it clear that there is no such thing as a safe alcoholic drink—at least until you’re over 65.”  One headline: “’Moderate drinking’ is harmful to younger people, says study.”  And read the lead: “Men under 34 and women under 44 should drink no more than one glass of wine or half a pint of beer a day if they want to avoid an early death, research claims today.”  Ouch!

 

Big, big BATF changes in guidelines for malternative products in works. BATF investigation showed most of alc content in many malternatives comes from spirits flavoring, rather than malt base. So BATF considering a limit to 0.5% of total alc content of product that can come from flavoring. Products that don't meet new standard would "default" to classification as distilled spirits. Taxation, mktg & mkt access of malternatives could change drastically. BATF's Art Libertucci discussed guidelines yesterday in 2 conference calls. During Q&A, one listener complained proposed changes would end category. Art countered that producers could continue malternative products, just not as cheaply or easily. As always with BATF, any changes will take time: BATF will draft proposed regs Nov-Dec, then official comment period, final decision in Sep '03, and effective date 2-3 mos later. Producers could also go to court and/or legislature.

"There seem to be signs" that malternatives "are peaking," AB cfo Randy Baker told Wall St. There?s "nothing there that supports further significant growth," he added. Wow! That?s quite far from some of bold statements other industry execs made a few mos ago. Media winds appear to be shifting this week too. A lengthy Washington Post feature quoted various consumers and bartenders, who mostly dissed malternatives except in gay community and concluded "results so far show that it?s easier to imagine an overwhelming trend than to create one." A Slate.com taste test by group of 20-somethin? guys and gals was downright nasty, including many quips like "I?d rather walk the plank than drink this."