Things are heating up. Very unusual Mar 19 letter to all AB distribs from sales veep Mike Owens revealed escalating tensions between largest brewer AB and largest distiller Diageo. Also added pressure to those AB distribs who sell Diageo’s Guinness Bass Import Co brands. Mike said that "Diageo and its Guinness USA (sic) unit... have identified" AB and distribs "as their primary competitive target" in US. (In early Mar, Guinness UDV North America prexy Paul Clinton had told Reuters: "We're no longer competing with Allied Domecq" in US "as much as" AB.) Mike pointed to GBIC sales conference when Guinness prexy "called for a moment of silence to celebrate the late great Anheuser Busch." Mike continued: "This action was not only unprofessional but also shows a lack of respect" for AB distribs who attended. AB and its distribs have "worked too long and hard to succumb to the arrogance of this statement.... It is incumbent upon the company and every AB wholesaler to respond in the marketplace." Mike also quoted August Busch III from AB’s sales conference: "Diageo... is well financed. Made up of young, aggressive, well-educated managers, who are out to take our share of ethanol. Just that simple. We are not going to let them do it." "Diageo and Guinness would like nothing better than to see" AB and distribs "divided," Mike added. "If we stand united, we will not only maintain our leadership... but continue to grow our share of ethanol as well," he concluded.

There are many different battlefronts between AB and Diageo; equivalence, share of alcohol, tv ads, malternatives, exclusivity, a Federal lawsuit filed by Diageo over Red label Budweiser, these recent statements, etc. Just before this letter went out, Mike Owens called many AB/Guinness distribs and encouraged them to sell off their GBIC brands. This wasn’t first time AB asked for this, and probably won’t be the last. AB is pushing harder to increase its number of distribs who are exclusive. At same time, in several different recent Miller/Coors deals, AB distribs who were already E distribs acquired non-aligned brands such as Sierra Nevada, Sam Adams and Scottish & Newcastle. It will be fascinating to watch this dynamic play out, especially in mkts where imports are strong.

Coors execs put lotsa emphasis on improving performance in convenience stores. C-stores account for 34% of off-premise beer sold in US, said sr veep Carl Barnhill. Currently, Coors at just 8.5 share in these accounts while AB dominates with 61.9 share, Miller at 19.8. If Coors just got to its natl share of 11, that's 20-mil-case opportunity, said Carl. C-stores a "primary channel" for trial among beer drinkers, said Dennis Kamper, natl category mgr-convenience. To succeed in c-stores, gotta be big player in single-serves, said execs. Yet Coors only at 5 share of single-serves. Coors’ best selling package in c-stores: 24-oz Coors Light can. But it's only available in 70% of 90,000 licensed c-stores. Coors adding 24-oz Coors Light long necks this summer, even tho it has a 22-oz Coors Light long neck. Why? Because 70,000 convenience stores "either don’t handle" 22-oz or "legally restricted from selling it," explained Coors exec. In Tex alone, the 24-oz long neck "offers us more than 13,000 placement opportunities," said Dennis. Only Corona and Heineken offer 24-oz long neck and each sold over 1 mil cases in c-stores in 2001, he added. Interesting stat: 45% percent of Coors c-store volume comes from just 5 states: Fla, Ga, Tex, Ariz and Calif. Expanded distrib service in c-stores will also be key to growth, according to Coors, especially since 50% of beer sales in c-stores take place during 50-hour period from Friday afternoon to Sunday evening. So distribs can no longer afford not to deliver and merchandise c-stores on weekends, said Scott Nelson, natl acct sales mgr for c-stores. "If you don’t get there and service these stores during peak selling periods, somebody else will," said Scott. Research showed if the store was out of Coors Light, 50% of Coors Light drinkers would buy another brand, 21% will try another store and another 23% will buy different package of same brand.

The year 2001 was a "wakeup call and we’re better off for it," prexy Leo Kiely said at natl sales conference. After slow start, Coors "improved" in 2d half as Coors Light showed "renewed strength." Still, Coors made "impressive progress" amidst lotsa big changes in 2001, including its deal forming Molson USA, Carling purchase, operations initiatives and key exec changes, pointed out Leo. Going forward, Coors and distribs have to be "willing to change anything, everything if necessary in order to win." Beer biz at "key juncture," added Leo, given supplier and distributor consolidation, "pressures, distractions and opportunities generated by more and more brands, especially imports and malternatives. And our biggest competitor [is] continuing to strengthen the commitment and focus of its wholesaler system." "We all need to be bigger and smarter," said Leo. "You have some big decisions to make," Leo told distribs, "decisions that determine whether you’re going to fold, survive or win." In just last 5 yrs, 15% of distrib principals are new, Leo pointed out, and there are 10% fewer principals in Coors system. Coors expects another 25% change in next 5 yrs. Meanwhile, Coors at 55 share in Puerto Rico, Leo said, and grew double-digits in Canada. Molson USA is "beginning to turn," said veep Ed McBrien. In fact, Molson biz up almost 1% yr-to-date in US. Molson Canadian and Canadian Light up 23% last 6 mos. Those 2 brands now 30% of Molson USA, on track to be 40% by end of 2002. Coors "making steady progress" consolidating Molson network. Closed over 120 deals to bring Molson into Coors houses, including bigger Molson mkts, like NY, Boston, Cleveland. Molson’s biggest US mkt, Buffalo, up 16% YTD.

Coors sr veep mktg Ron Askew on board just a few short mos, but has already made huge changes that were at heart of its natl sales convention. Coors #1 challenge, Ron said, is "to keep our brands growing with the 21-25 year olds. There’s never been a top-5 beer brand that didn’t have this group as its volume base." How relevant are Coors’ brands now to this target? "In the ballpark, not in the bullseye," said Ron, and Coors needs to "address this situation strategically, executionally and immediately." His "mission": "to improve our relevancy with the 21-25 year-olds" and "to forge an emotional bond with our drinkers." Then showed hi-energy new Coors Light ads and wholesalers went wild.

Even tho Coors flat in 2001, it aims to get back to 5% growth (had 5% depletions growth for much of 99-00), several execs said. "We must grow our business 5% every single year and you’ve got to have this growth mindset to make it happen," said sr sales veep Carl Barnhill. Coors must "fight to regain the momentum we lost" and Coors Light must "never, ever cool down again," he added. In last decade, Coors Light up 40%+ while Miller Lite lost 3 mil bbls, he said. Meanwhile, Bud Light more than tripled since 88. As for malternatives, they "might not even be here in 5 years," according to Carl. Coors execs showed that AB biz up more than total beer biz in 33 states in 2001 (US beer biz up 0.7% in 2001), Coors in 23 and Miller in just 5. Miller down in 44 states, Coors down in 26, AB down in 13. Coors up in NEast from Me to Md except Pennsy, but down in most of southern US, including Fla and Tex, and Calif. Also up in most of midwest.

Most top Coors execs got modest pay hikes, but smaller bonuses and fewer options in 2001. As result, most made less than yr before. Chairman Pete Coors salary up 4.6% to $760,500, but his bonus slashed 20% to $452,000. So Pete’s package almost $80,000 less than in 2000. Pete was awarded options of 125,000 shares, 46,000 fewer than yr before. Unlike Pete (and other top execs), prexy Leo Kiely got big salary boost: up 20% to $686,456. Leo’s bonus shaved 5% to $407,000. Leo passed $1-mil mark for 1st time. And he was awarded 120,000 options—16,000 more than in 2000--the only top exec to get bigger options award. CFO Tim Wolf got salary of $371,000, bonus of $164,000, up 3%, down 13% respectively. So Tim made $15,000 less than previous yr. Similarly, senior veep sales Carl Barnhill’s salary/bonus of $343,000/$128,000 netted out to $46,000 less. And ex-sr veep mktg Bill Weintraub got salary/bonus of $364,000/$136,000, a $43,000 cut from previous yr.

Lookin’ at prospects for 2002, Coors remains "cautiously optimistic" it will achieve "long-standing goal of growing our unit volume 1%-2% faster than the US beer industry." (Editor's note: that ain't 5%.) Pricing "continued favorable" in late 01, early 02. But "geographic and product mix continued to have a modest negative impact on net sales per bbl late in 2001, with sales shifting toward lower-revenue geographies and products." Coors’ sale of branches will reduce rev-per-bbl gains for 1st 3 qtrs of 2002 and Coors expects higher labor, mktg costs. But otherwise, Coors sees "encouraging" outlook for costs as it: 1) picks up "significant operating efficiencies"; 2) sees stable pkgng, fuel, commodities costs; and 3) expects mix shifts--to long-neck bottles--will affect costs less than in past yrs. Coors’ total ad costs were $465.2 mil in 2001, off slightly from $477.3 mil in 2000, but up from $443.4 mil in 1999. Proceeds from sale of Anaheim, San Bernadino and Okla City branches: $59.4 mil, for pre-tax gain of $27.7 mil. Coors net loss on Molson partnership in US in 2001: $2.2 mil.