AB dressing up Michelob to “make it look like it belongs on the high-end import shelf,” brand mgt veep Bob Lachky told USA Today. Changes include new $50 mil ad campaign, slope-shouldered longneck bottle replacing traditional tear-drop bottle and Michelob Ultra rollout.  “The brand is trying to get young and urban and have ethnic appeal” in new ad campaign, Bob added.  “We had to get young very quick,” Bob told St. Lou Post Dispatch.  “The biggest reason Michelob has been underperforming is that we haven’t been very consistent with marketing support,” Bob noted.  Bob also said: “I’m not sure we can compete against imports that have been here for 40 or 50 years….  But we need to put our best foot forward.” 

So concluded SG Securities in mid-Aug report that  downgraded SABMiller stock to “underperform.”  Following unsuccessful Jul effort to raise $1 bil in stock offering,  SG concluded “the holding company has very little or no capacity to gear up for an acquisition” and is “stretched because of its US dollar denominated debt.” ($2 bil it assumed from PM).  Chart shows that as holding co, SABMiller owns less than 100% of most of its several dozen subsidiaries, which means that “the holding company does not have access to subsidiaries cash flow to finance activities outside that legal entity.”  Has to rely on dividend payments.  SABMiller (part-owned by PM) does own 100% of Miller.

Imports alone have 24 share in 11-county area in southern Calif, including San Diego and LA, according to IRI data. Micros and malternatives at 3 share each. Interestingly, avg prices up 17 cents, 1% to $17.74/case but price increase is all from trading up. In fact, among top-10 brands, 8 sold at lower prices on avg YTD (30-90 cents/case), as scanbacks, other price discounts in widespread effect. YTD thru Jul 14, AB had 34.6 share (-0.6), Miller had 18 share (-1.3), Coors even at 14.7. Barton had 11.2 share, up 0.3. Biggest gainers: Tecate (a 4 share brand in this data) and Heineken each up about 25% with 80-90 cent per case price reductions.

State court reversed 2001 decision by state alc bev control board that Kirin had acted in bad faith and didn’t have good cause to terminate Virginia Imports when Kirin shifted brands to AB distrib.  Story convoluted but turns out court found Kirin followed rules.  It notified VI of deficiencies, but VI erred by not sending important letter to ABC board to say it was curing deficiencies and ask for hearing.  After specific time elapsed, Board told Kirin it was free to move brand (in fact, Kirin never actually terminated VI).  But then Bd backtracked, held hearing and whacked Kirin.  Court sided with Kirin down the line.  Not only said its actions legit, but said Bd “erred” by ruling Kirin’s termination “without good cause.”  Pointed out Kirin had plenty of reasons to terminate, and “no evidence” Kirin acted in bad faith.

Missed analyst expectations by wide margin, but reiterated full-yr expectation of double-digit earnings growth. First half EBITDA dropped 79 mil Euros, 12% to 573 mil; analysts had expected Interbrew to be even with yr ago. (Remember Interbrew had all of Bass last yr, but only what it didn?t sell to Coors since Feb this yr. Beck?s included since Feb.)

Tho Coors held share in supers in Southern Calif, according to IRI data thru Jul 15 (see last issue),  total Coors Southwest FBA (including Ariz) down 3.6% yr-to-date thru week 33.  Just a few  distribs showin’ slight pluses (2 up more than 1%) and majority down.  In LA cluster of distribs, Coors down 11% for 13 weeks, and 8.5% YTD.

At Labatt USA, first half import depletions up 7.7%, and “new marketing mix for Rolling Rock is beginning to show positive results,” reported Interbrew.  LUSA import growth  led by Tecate up 11.7%, and Labatt Blue Light up 19%, Interbrew cfo said during conference call. Stella “more than doubled,” albeit on small base.   Rolling Rock down 1% thru Jun compared to 7% drop in 1^st half 01.  But “uncertainty resulting from the delay in the integration process” for Beck’s  “has had a negative impact" there as Beck’s US depletions down 4% in 1st half.  Beck’s depletions “did improve in July and August," said Interbrew.

Interbrew will pay Diageo $105 mil for rights to sell Bass in US and take over Jun 30, 2003.   Interbrew will have “operational control” of 7 of top 12 import brands and 24 share of imports in US, it pointed out.  Question is will Bass sell thru Labatt USA or Beck’s North America?Interbrew ceo Hugo Powell told analysts it depends on US Court of Appeals decision in FEMSA lawsuit.  Hugo noted that even if brands can’t be integrated into LUSA, option of a standalone Beck’s/Bass combo would be “attractive” because Interbrew keeps 100% of margin, instead of splitting 70/30 with FEMSA.   Part of agreement with Diageo is to “expressly avoid loading,” in fact will “build inventory down” by next Jun. 

Meanwhile, all is change at Diageo as usual.  Guinness Bass Import Co will change its name and get another new prexy, sr spirits exec Dave Eickholt, the 7th in last 11 yrs.  Meanwhile, John Replogle, who ran GBIC for 1 yr, becomes gen mgr for all of Diageo brands in New Eng.   More in Beer Marketer’s INSIGHTS.

Litigation ain’t cheap. Maris wants AB to pay $23.3 mil for Maris atty fees, plus $3 mil "costs" (for experts, copying, etc). That’s just for state trial. Maris sez it will file separate request to recover some of its fed antitrust trial fees too since "much discovery" applied to both cases. Look at some atty bills: 1) Bernie Dempsey, Maris atty in fed trial who was off case when state trial started, billed over 7000 hours for state trial at $275 per, for $2 mil. Others at his firm billed additional $4.2 mil. 2) Atty Manny Socias’ fee was $1.1 mil, $165/hr. 3) Willie Gary, billin’ at $750/hour, lookin’ for $1.3 mil, Madison McClellan ($450/hr) wants $929,000. Other Gary associates seek another $2.9 mil and they asked court to triple entire Gary firm bill for "contingency risk" to total $15.4 mil. (That’s about 30% of $50-mil verdict.) Maris’ "trial experts" not bashful either. Economics consultant billed $1.2 mil. Operations guy billed $353,000. Maris argues it deserves the $26.3 mil because it was "prevailing party" on "the core facts" both sides relied on. Impossible to apportion fees among various claims, Maris argues, so Maris "entitled to its attorneys fees for the entire case." Meanwhile, AB argues since judge tossed a bunch of Maris‘ claims, AB entitled to its own atty fees/costs defending those claims. Also wants Maris to pay for "special master" investigation of atty misconduct. AB didn’t specify amount it seeks. Note: 1) atty fee issue may not be resolved until "all appeals exhausted"; 2) if AB has to pay Maris fees, and doesn’t recover any of its own, means bill for this case closin’ on $100 mil, plus its own legal and exec costs. Ouch. AB did get $13 mil from distribs who acquired rights to sell in Maris territory.

Last yr it looked like 21st Amendment "on the wane," but after a series of 2001 direct shipping decisions that affirmed states' rights to regulate alcohol, it’s "very much alive and kickin’" Marc Sorini, a partner at DC law firm McDermott, Will & Emery, told small brewers. "What a difference a year makes!" he emphasized. Another area of law undergoing change in Marc’s view is antitrust. That took "somewhat of a backseat" over last 20 yrs, but could be "creeping back in" with "new relevance," he said. The driver for renewed antitrust scrutiny? You guessed it: consolidation. In a recent merger between large spirits distribs, antitrust concerns reportedly caused "at least 1 major brand" to get cut out of deal, he said. This industry "on cusp of such consolidation," said Marc, that "antitrust is going to surface again" as some will think there’s less competition. But he also pointed out that AB had won fed antitrust suit against Maris, and that class action suit by various micros against AB "remains stalled."

Maris jury verdict against AB in state court "not really very much of a precedent," Marc said. Viewing case as "watershed... in general overplays significance." Since it was jury verdict, he said "not surprisingly" the "small, warm and fuzzy" Marises prevailed over "very large corporate defendant" AB. Verdict of $50 mil split the $60 mil Maris wanted and $20 mil AB offered. When jury "split the baby," also "not surprisingly" it "went a little towards the plaintiffs," Marc added. Decision does "reaffirm that AB is not invincible" and that litigation, especially against AB is "horribly expensive." (No kidding! See below.) Verdict is "important," but not a "sea change."

Marc saved his harshest assessment for NY wine and spirits distribs who recently used hackneyed neo-prohibitionist arguments in direct shipping lawsuit. "It’s really unbelievable when you read this stuff and realize it was bankrolled by industry," said Marc. Thinks they "embraced" positions "they don’t really believe" in effort to win case, but this could have "significant implications in future." These "damaging assertions" in NY case could have "one of worst long-term implications on liability" and "bad implications for entire industry," Marc also said. What’s Marc talkin’ about? Battlin’ direct shipments in NY lawsuit, a group of wine & spirits distribs, a retailer assn and state alc bev commn got affidavits from leading neos which claimed, among other things: 1) "Rates of drunk and disorderly behavior, homicides" and car crashes are "higher in areas where there are more alcohol outlets"; 2)Increasing hours and days of sale are "associated with more" crashes, "more domestic violence and more drunkenness"; 3) Excise taxes on alc bevs "affect the rate of fatalities from alcohol-related auto accidents." Not only are these claims bogus, but alc bev industry has been fightin’ ‘em for decades. In another strange twist, same groups claimed that wine, not beer, is "beverage of choice among young drinkers as well as older ones." In US last yr about 6.2 bil gallons of beer sold compared to 577 mil gals of wine.