Beer Marketer's Insights
Two other parts of Miller biz, contract and international, amounted to 15-20% of Miller revs. Miller contract-brewed 8.327 mil bbls in 2001, and its international biz, including licensed beer, was 2.764 mil bbls. Miller had revs of $548 mil from contract brewing in 2001 for Pabst and other suppliers, down slightly from $556 mil in 2000 as it picked up more of Pabst?s declining biz. It got avg of $4.79 per case from Pabst and others. Profits not broken out for contract biz. In 1st qtr 2002, Miller?s contract revs up $40 mil, 33% to $162 mil as it now brews all Pabst volume. Miller?s contract brewing agreement with Pabst is for 10 yrs. Miller exported $97 mil of beer, plus had $27 mil in revs in "rest of the world" (mostly licensed). Miller?s intl biz grew EBITA (earnings before interest, taxes and amortization) from $3.6 mil in 96 to $24 mil in 2001 with "a business presence in over 65 countries." Gen Draft is in 53 countries. Meanwhile, Miller cuttin? Pabst lotsa slack. Recall Miller took $19 mil charge "to fund certain Pabst expenses" in 2001. Back in 2000, "amounts receivable from Pabst became overdue." So agreement restructured "which resulted in the conversion of overdue trade debtors into a $23 million promissory note, bearing interest at 8 percent," maturing at end of 2003. As Pabst "continued to experience financial difficulties? Miller established a $15 million provision in respect of notes receivable" from Pabst. And finally, when Miller bought acquired brands plus Tumwater brewery in 1999 for $193 mil, part of purchase price was assuming $11 mil in liability. Ninety Miller employees elected to take early retirement in Feb 2002 and Miller took an $8 mil charge. Miller also took a $5 mil pretax loss on "equipment that was no longer used in the business."
Fascinating 280-pg shareholder circular issued by South African Breweries on eve of deal gives lotsa insight into Miller?s biz, including detailed brand breakout. Shows about 69% or 27.5 mil bbls of Miller?s US biz in 2001 in "core-brands": mostly Miller Lite at 15.688 mil bbls (slightly lower than INSIGHTS had estimated), High Life "franchise" (including Light and Ice) at 5.628 mil bbls, Gen Draft (including Light) at 5.518 mil bbls and Foster?s at 685,000 bbls. "Miller plans to continue to invest in and grow its core brand families through increased marketing and improved packaging initiatives," wrote SAB. About 70% of Miller?s direct mktg budget in 2001 "was allocated to media-related projects." Ad, mktg and promo $$ at $608 mil in 2001, up from $512 in 99. But in 1st qtr 2002, Miller ad, mktg and promo $$ declined $13 mil, 9% from $143 mil to $130 mil.
"Budget brands and other" volume at 8.1 mil bbls, 20% of biz. By far biggest piece is Mil Best franchise (including Light, Ice) at 5.855 mil bbls followed by Red Dog at 834,000 bbls, Magnum 493,000 bbls, and Hamm?s brands at 296,000 bbls. In budget segment, "Miller plans to remain competitive and manage these brands to optimize profitability." Smaller "other" brands: Southpaw Light 192,000 bbls, Sharp?s 151,000 bbls, Presidente 89,000 bbls. Remaining 10% of biz in "regional" brands: Icehouse about half of that at 1.98 mil bbls, Olde English at 1.025 mil bbls, Mickey?s at 379,000 bbls, Leinenkugel at 333,000 bbls and Henry?s at 291,000 bbls.
Miller distribs reduced from 631 in 94 to 485 by end of 2001, document sez. That?s a 23% drop in 7 yrs. But Miller also "services" 54 Foster?s distribs and 167 distribs of acquired brands. Miller?s highest volume states: Tex, Calif, Fla, Wisc and Ill; about 40% of Miller volume. Miller?s top 12 retail accounts "accounted for 15% of total" US volume. At end of 2001, Miller had "approximately 600 full-time salaried sales personnel." Miller had approx 6408 employees at end of 2001, compared to 6462 in 2000. Over 60% of employees represented by 11 unions. Miller has capacity of 54.7 mil bbls, and avg "utilization rate" for 2001 was 88%.
Six-mo streak of taxpaid shipments gains ended in May: taxpaids down 100,000 bbls, 0.6%, estimates Matt Hein of Beer Inst. That?s a slow-mo especially given new round of malternative rollouts, plus May 2001 was flat. Yr-to-date, taxpaids still up 1.1 mil bbls, 1.5%. But for 12 mos, taxpaids up 1 mil bbls, 0.6%. Meanwhile, imports followed 1st qtr slowdown (+6%) with 16% jump in Apr. Brought YTD trend back up to +600,000 bbls, +9%. Leading the charge still: Mexican imports. Up 584,000 bbls, 21% for 4 mos. Corona price increase went into effect beginning Mar-Apr in most of US. But while Barton Beers, mostly Corona, revs up 14% Mar thru May, its depletions down slightly, cfo told analysts. Only other double-digit import gain YTD from major source: Irish shipments up 16% following big drop last year. Dutch shipments and UK shipments each ahead 6%, but German shipments off 6%, and Canadian shipments off 15% as lots less Smirnoff Ice being made in Canada this year. Two numbers to watch: Czech imports (mostly Pilsner Urquell) up 15% on small base; Belgian imports (mostly Stella Artois) doubled on even smaller base.
Once again, no big step up in discounting during key holiday period, even following softer sales earlier in May. Avg price paid for a case of beer up 46 cents, 2.9% for 4 weeks, about same as it was yr-to-date. Interestingly, Miller prices up most. Avg prices up 3.8% for 4 weeks, tho Miller Lite's price only up 1.2%. It?s that malternative mix shift. Coors prices up least among top 3 brewers, less than 1%, as its hi-end brands declined and avg Coors Light prices up 1%. Avg prices paid for AB brands up 2.3% for 4 weeks, slightly less than YTD, but avg Bud and Bud Light prices up about 1.5%.
Tho all eyes on malternatives, #1 brand Bud Light was biggest share gainer in supers; volume up 11% and it gained 0.9 share for 4 weeks and YTD. But Bud biggest share loser in supers; down 0.5 yr-to-date and volume flat. Corona had very strong Memorial Day in supers; up 15% and 0.3 share for 4 weeks (that's triple Corona's gain pace last 13 weeks) with avg prices up 2%. Heineken rocked too during holiday period; up 17% for 4 weeks and gained 0.2 share, but avg price paid actually 7 cents lower than last yr. Coors Light held share over Memorial Day; Miller Lite down 0.1. Coors Light share passed Miller Lite in supers YTD, 7.4 to 7.3, as its share up 0.2 and Miller Lite down 0.1. Fastest-growing domestic light is Busch Light; up 15% and gained 0.3 share YTD. Each of leading import light beers (Corona, Amstel and Labatt Blue) continue up 18-24% YTD.
Other brands that gained 0.2 share or more during Memorial Day period were malternatives. But looks like segment beginning to mature. Here?s how it shakes out so far: Smirnoff Ice up 35% and 0.2 share to 1.1 for 4 weeks; avg prices paid down about 4% as it shifted biz to 12-packs. It?s up 89% YTD and got 1 share, about same as it had last summer. SKYY Blue and Bacardi Silver are pretty much in a dead heat at 0.4 each. They?re puttin? pressure on Mike?s Hard Lemonade, down 7% for 4 weeks. Mike?s line-extendin tho, so its total biz up. Meanwhile, other malternatives collapsing; Zima down 22%, Tequiza down 26%, Doc Otis down 35%, Rick?s Spiked down 58%, Hooper?s Lemon down 46%, etc. Seven of top 15 malternatives down 20% or more YTD. Branded-spirits names increasingly control segment: Smirnoff Ice, Bacardi Silver and SKYY Blue are 56 share; too soon to say much about other new spirits-branded entries.
Legal Flash
Largely on strength of Sam Light expansion, Boston Beer shipments surged 61,000 bbls, 21% in 2d qtr and 75,000 bbls, 13.6% in 1st half. Sam Light still in less than half of country, rollin? national by yrend. But shipments way ahead of depletions in 1st half, 63,000 bbls, according to prexy Martin Roper in conference call. And Boston Beer oper income flat in qtr, down by 1/3 in 1st half to $9 mil. Boston ad, promo and selling expenses up $13 mil to $46.3 mil and the co expects similar spending jumps in 2d half. Its stock dropped nearly 10% day after earnings announced. So far Boston Beer makin' big bet, but getting best volume growth since craft heyday. Orders-on-hand suggest Boston Beer up about 8% in 3d qtr too. In New Eng, where Boston does over 20% of its biz and is over 3 share, "we?re clearly getting repeat but we don?t know how stable it is," Jim Koch said. In Me and RI where it was intro?d last summer, "numbers appear to be holding up pretty well?. The 12 month number makes me feel pretty confident that we do have repeat drinkers that are going to become long-term Sam Light drinkers." Thru May, Boston Beer up 42% in RI, 39% in NH, and 3% in ME. In Mass, Boston Beer up 42% thru Apr including 10,000-bbl gain in Apr. Jim said distribs and retailers see Sam Light as brand with "long-term potential" while "they?re increasingly skeptical about all the malternatives that are coming in that beginning to look to them like the wine cooler phenomenon of the 80s."
Tex Light Beer Battleground: Bud Light 30 Share, Miller Lite Off 15%, Coors Light Down 8%
In Tex, by far the biggest beer light mkt and 2d biggest beer state overall, all light beers have over 60 share and still growing. Wow! Some shocking shipment and share shifts in Tex thru mid 03. Bud Light still flying. Up 192,000 bbls, 9% thru May; Gained 3 full share to 29.6. But Miller Lite fell 148,000 bbls, 15% and Coors Light fell 60,000 bbls, 8% for 5 mos. That?s on top of 9% hit to Miller Lite and 5% drop for Coors Light in 02. Those 3 brands at 49 share of biz in state. Total AB biz up 166,000 bbls, 4% (Bud brand down 5%) thru May while Tex mkt down 2%. Miller down 209,000 bbls, 13% YTD. For 12 mos, AB share climbed 2.3 to 55.2 while Miller declined 1.8 to 19. Coors only lost 0.2 share. It is down much more modestly overall than on Coors Light. Off 26,000 bbls, 2.5% for 5 mos. That?s because Keystone Light on a roll. Up 29,000 bbls, 13%. Keystone Light at 3.2 share in Tex, roughly 3x its national share. Meanwhile, Mich Ultra under 1 share in Tex: shipped 64,000 bbls thru May. Top malternatives declined 62,000 bbls, 34%, including 64% drop for SKYY, 49% drop for Bacardi and 20% drop for Smirnoff. At same time, Corona flat and Heineken up 7% thru May.
You might assume a contract that calls for master distrib's "full time commitment to sales and marketing of Pabst/S&P company brands" would mean master distrib could only sell Pabst/S&P brands. In fact, that was US Dist Ct?s interpretation when it ruled last yr that ex-master distrib Southland breached its contract with Pabst when it sold tiny volume of other brands, and found Pabst justified in terminating Southland. As result, Southland lost bid for $3 mil in liquidated damages. But US Ct of Appeals just reversed key part of Dist Ct?s decision. Ct of Appeals agreed with Southland's argument that selling of non-Pabst brands (none competed directly with Pabst) "was done for the purpose of creating good will that would advance" sales and mktg of Pabst brands. What?s more, judge wrote that how Southland "chose" to "devote its full time commitment" was at Southland's discretion, wasn't detailed in agreement and wasn't necessarily "exclusive 'sale'" of Pabst brands. Indeed, turned out that Pabst chief at time (Lutz Issleib) "instructed" Southland to sell one of the non-Pabst brands! "It is not the time?devoted to the non-Pabst brands that controls," the judge ruled, "but the purpose of that activity to increase the sales of Pabst products." Turns out that during trial Pabst execs had conceded that distribs "often combine different beers together or other products of different prices and qualities onto a single palette for a 'package deal,' which helps move certain products that may be unrelated." Judge pointed out too that real reason Southland was terminated was soft volume, not sale of other brands. Pabst "did not even know about Southland's non-Pabst sales nor the actual contract itself," according to judge, "until after Pabst terminated its contract with Southland." Yet another unique factor: Southland was dubbed a "master" distrib, but didn't have warehouse or trucks. Southland was more like a contract sales force for Pabst/S&P in the southeast. Judge sent case back to US Dist Ct to resolve whether $3 mil "liquidated damages provision was otherwise enforceable," tho Pabst could try for rehearing at US Ct of Appeals.
In 2d-biggest beer mkt in US, malternatives (including coolers and Zima) shipped 249,000 bbls for 5 mos, up 64,000 bbls, 35%. Captured 3.1 share of Tex shipments yr-to-date. But new entries Bacardi Silver (35,000 bbls), Skyy, Sauza and Citrona from Miller (40,000 bbls, mostly SKYY) and Captain Morgan (12,000 bbls Apr-May) drove segment growth. Smirnoff Ice slowed to 6,000-bbl, 8% growth for 5 mos, including a 22% drop in May (not coincidentally that was pipeline-fill mo for Captain Morgan, Sauza and Citrona). Ice down 9% in Apr too. Mike?s remains underdeveloped in Tex, but up more than Smirnoff so far this yr; gained 6400 bbls, 76%. Meanwhile, new malternatives cutting heavily into coolers and Zima. Other malternative brands, mostly Seagram?s, Bartles & Jaymes and Zima (but also Doc, Tequiza, Rick?s, Hooch, etc) dropped 37,000 bbls, 35% for 5 mos.
At same time, all this action on new products ain?t slowin? Bud Light a bit in its biggest mkt. Up another 267,000 bbls, 15% for 5 mos. Bud Light gained 2.4 share to 26.6 of Tex shipments. Bud up 1% YTD too. In fact, AB up 345,000 bbls, 9% for 5 mos in Tex, while state shipments up 310,000 bbls, 4%. Miller down 56,000 bbls, 3% (including incremental malternative volume) as Miller Lite continued down 6% in its biggest state. Thru May, AB share over 53 while Miller share dropped to 20 in Tex. And Coors volume down 0.5%. Pabst actually up slightly in Tex. Gambrinus up 33,000 bbls, 21%.
Pabst cut dropoff rate by more than half over last 12 mos (see above) as several key brands turned around. Pabst Blue Ribbon, Lone Star and Colt 45 (about ? of Pabst biz, we estimate) each up yr-to-date. Supermkt trends show PBR family up 6.3% YTD thru Jul 14, Colt 45 up 5%, Lone Star up 9%, according to IRI. Stroh and Old Style trends positive in supers too, tho on tiny base. But Old Mil/Old Mil Light (about 30% of Pabst biz) still runnin’ down mid-single digits; Schaefer, Schlitz, other brand families still down double-digits in supers. Meanwhile, Pabst just hired mktg veep Alan Willner who spent time with Guinness and Coors. Former mktg director Gene Clark and 2 mkt mgrs left recently.