Another busy period for world’s largest distiller.  Let’s see, in last week or so Diageo announced $2.2 bil sale of Burger King, consolidation of wine & spirits distrib network to 1 distrib each in little states like NY, Calif, and Fla, and next major RTD intro: Smirnoff Black Ice.  Distrib consolidation is just “phase 1” as Diageo calls it, involving about 30% of its volume basically handled by 2 distribs, Southern Wine and Spirits and Peerless.  “The consolidation of our brands in these distributors is only the first step in implementing new ways of working with” distribs, wrote prexy Paul Clinton.  Doesn’t affect beer and malternatives.  And as it intros Smirnoff Black Ice, Diageo takes another crack at getting guys to go for RTDs.  Big push in UK this fall, supposedly coming to US too.

Miller “reallocated” Gen Draft ad $$ to Miller Lite “until the agency gets its creative on track,” Ad Age wrote in front-page article this week about increasing pressure on agency J. Walter Thompson.  “We’ve really been pushing [JWT] to get the right execution,” a Miller spokesman said.   Gen Draft down 4% in supers yr-to-date, according to IRI.  

Imports up 7% in supers, but gained only 0.2 share to 11.6 for 4 weeks thru Jul 14, according to IRI as total beer category up 5.5%.   Several top import brands grew slowly while others up strong double-digits.  Number 1 Corona up just 3% for 4 weeks, apparently still feeling effect of  price hike.   Labatt Blue up 4% and Foster’s down 1% during this period.  (Yr-to-date, Corona up 8%, Labatt Blue up 3% and Foster’s up 3%).  Yet other top import brands had hot summer sales so far: Heineken up 14% for 4 weeks, Tecate up 24%  and Corona Light up 18%.  For 4 weeks, Corona Light  #3 import in supers. Each of those 3 brands (ranked 2, 3 and 4 among imports in supers) up 15% or more in supers yr-to-date. 

Once again, no share change for microbrews in supers in 2002.  They’re up,  but less than total beer biz in supers (3.7% vs 5.5%) thru Jul 14, according to IRI.   None of top 4 brands is setting world on fire.  Sam Adams Boston Lager is down 2%, Sierra Nevada Pale Ale is up 3.5%, Shiner down 5.5% (recent trends affected by Tex floods), Redhook ESB up 5%.  Meanwhile, Fat Tire up 36% YTD, tho up just single digits last 4 weeks.  And Widmer Hefeweizen shows vital signs: up 20%.   Top 2 Deschutes brands up 25-30% too.  Throw in all Sam Adams products, including Light, and brand family up 7.5% yr-to-date.

In memo to all distribs about possible BATF reclassification of malternatives, Miller reassured that "no changes would take effect until 2004 at the earliest." Noted Miller has "long history of a solid working relationship with the BATF" and expects to work together in "constructive manner" to "explore other options." Remember: BATF is thinkin? seriously about reclassifying malternatives as spirits products if more than 0.5% of alcohol comes from spirits flavor rather than malt base. Miller noted too that SKYY Blue is now #24 brand among all malt bevs, ahead of Bacardi Silver, Rolling Rock, Amstel Light, Beck?s and Michelob. Added: in supers malternative category had 8.2 share of dollars for week ended 7/20, ACNielsen data shows. In fact, average share was 7.9-8.3 for 8 wks thru 7/20, Miller spokesperson told INSIGHTS.

Until now, Barry ran Pilsner Urquell USA for SAB.  Will take over as Miller’s sr veep strategy and run Bevco (SAB’s Honduras beer and soft drink unit).   In his new role, Barry will be in charge of stepped-up efforts behind all the brands that SABMiller now imports into US, including Foster’s, Pilsner Urquell and Presidente.

If Labatt USA is able to someday complete integration of Beck’s (see above), LUSA calculates it would have 775 distribs, more than any other supplier in US, according to court papers.  “Probable appropriate range”: 470-540 distribs.  To get there, LUSA “must choose best wholesaler in each of 75 Beck’s/LUSA pairs” and “manage consolidation of another 150-200 relationships without Beck’s lever.”  That’s “a big consolidation challenge” that “will require an active approach from LUSA,” with “scale, pace and degree of LUSA involvement…all beyond historical precedent.”  No doubt.         

Just as another wave of new malternative products hits mkt, many suppliers, including Miller and Coors, are concerned about improving performance in consolidated houses and fear loss of focus. "It’s like the early years of a shotgun marriage," said consultant Joe Thompson about Miller/Coors consolidations. "They didn’t get married because they wanted to, they got married because they had to" (in order to compete more effectively with AB). So suppliers still learning to live with each other in consolidated houses. Yet they also demand more and more from consolidated distribs before approving a deal to insure they get theirs. "Beverage suppliers know they are at the point of maximum leverage the moment before they approve a transfer of ownership," Joe wrote recently. "Most use this leverage to make sure for the first several years moving forward they get their share of emphasis. They have the leverage and they squeeze," Joe added, while noting too some demands "are wrong, expensive and harmful to a wholesaler's overall organization."

As more and more Miller and Coors distribs consolidate (almost 40% of each of their volume sold thru consolidated houses), they do make more money, and often grow rapidly with high-end brands. Yet they also generally don’t do as well as projected, according to several sources. But distribs by-and-large ain’t complainin’ about consolidation even if some suppliers do. (Interestingly, AB believes Miller/Coors consolidation is a competitive advantage for AB.) "It works," said John Taylor, prexy of JJ Taylor Cos, one of largest distribs who consolidated Miller/Coors etc in Western Fla. And "it’s the right thing to do" even tho consolidation "is a lot harder than it looks and it takes more time than you think," he added. Consolidated distribs undeniably face numerous transition and organization issues and suppliers are trying to help distribs focus on these. "We have learned from over 100 transitions that some of the consistent challenges to accelerating the successful integration of an acquisition are adequate advanced planning time, blending of cultures and developing the right organization structure and staffing levels," Coors veep Tim Owston said. To minimize the initial drop in performance, Miller and Coors have teams that work with consolidated distribs in transition and have shown some good results. Both Miller and Coors are increasingly interested in finding top mgrs for distribs who can navigate between competing interests of various suppliers.

But in some mkts, underperforming suppliers (including Coors and Miller) also play the blame game: they blame "wholesaler execution" when sales don’t meet expectations. For example, in many mkts Coors and Miller flat to down, and high-end brands increasingly drive the bus for consolidated distribs. Big brewers are "not as important as they once were" to a consolidated distrib, one told INSIGHTS. "That’s what really pisses them off. Our business is growing, but theirs isn’t." Once-dominant big brewers (at least in terms of "clout in the house") have a difficult time coming to grips with that.

Complicating matters further: global consolidation of brewers. Every time global players switch alliances or do a deal, they rejigger and reconfigure their US distribution networks. When Molson USA switched partners to Coors, that led to over 100 changes, and many more to follow. And tho Interbrew hasn’t said what it will do with Beck’s, many expect that once it can go forward with integration (see below) it will try to get its brands aligned with 1 distrib in many mkts. Each of these changes frustrate still other suppliers who are trying to understand how their brands’ fortunes wax or wane depending on which brands are coming or going.

Finally, for 1^st time in many yrs, some All-Others distribs (those without a top-3 brewers’ brand), where they still exist, now believe they have a better shot of plucking brands from consolidated houses that can only do so many things well. "We are beginning to see a re-energizing of the ‘All Other’ third wholesaler in the market," Calif consultant Roger Hanney wrote (Calif a recent Miller/Coors hotbed). "All Other wholesalers with vision… are now licking their chops at the prospects of snagging some of the good brands that will inevitably become available," Roger added. This has happened recently in a couple of notable cases in Calif and NY, but whether All-Others distrib has scale to successfully compete with a significant brand remains to be seen. (To be continued)

The courtroom debate over commercial harm underscored battle for focus between global giants attempting to coexist in same co. FEMSA CFO Sergio Saenz said that "if Beck’s brands are added to LUSA on terms we were told they would be added," it would cause immediate and irreparable harm to FEMSA because of "loss of focus" and "deprioritization." Labatt USA has 21 brands, Sergio noted, more even than AB. Interbrew only planned to add 20 salesmen when it brought in Beck’s, Sergio pointed out, while adding 100 distribs. So there would be "same amount of time, more brands, more programs and more wholesalers." At earlier hearing, FEMSA had said that in 32 of 37 key mkts, FEMSA brands would be lower priority or off priority list entirely (based on LUSA’s top 4 brands by volume). Just before hearing, FEMSA attys got long-range plan for LUSA, presented in May to Interbrew, which showed plans to "focus on a few key brands" and "reduce sales force." Under the plan, no more than 3 or 4 brands would be priorities in a given mkt. FEMSA asked "why Dos Equis keeps getting bumped off the list?" Noted too that LUSA had "missed every projection in last 3 years" and that Carlsberg, Lowenbrau and Stella Artois had collectively brought losses of $8 mil to Labatt USA.

Interbrew atty argued that FEMSA’s complaint "an effort to get back control" of its brands, and "block Interbrew’s strategy of making Beck’s a global flagship." Said that FEMSA execs had acknowledged that if handled correctly, Beck’s integration could be good for Labatt USA and good for FEMSA brands. The brand prioritization document was a "preliminary cut," and LUSA is "still in midst" of its evaluation. And long-range plan a "draft," a "work still-in-progress." Interbrew had originally contemplated requiring FEMSA to pay some cash or reduce its share in Labatt USA because of increased profits post-Beck’s; it now sez it added Beck's without any payment from FEMSA. Interbrew showed that FEMSA brands grew at compound annual rate (CAGR) of 13% in Labatt USA 98-01 while on up-and-down path in Mexico. Then too, FEMSA brands were slated to receive over $20 per bbl of US ad spending in 2002 (compared to $18 per bbl for Labatt’s). And Interbrew had plans for 9% annual growth for FEMSA brands over next several yrs with "no reduction in marketing" or promotion. A brand ranking on a prioritization list "does not prove loss of focus," argued Interbrew atty. In that same brand-ranking list, he pointed out, Tecate #1 LUSA brand in 11 mkts before Beck’s integration, would still be #1 in 10 after.

Judge granted injunction because Interbrew denied FEMSA its "bargained-for" rights as minority shareholder. Specifically, ruled Interbrew subsidiaries Beck’s and LUSA agreed to combine bizzes and that triggered clause (in FEMSA agreement with LUSA) that gives FEMSA veto power to stop integration. Interbrew denied there was any such agreement between Beck's and LUSA. Said it’s all Interbrew-owned. Judge didn't buy it; relied entirely on 2002 Alcatel decision in 2d Circuit Court of Appeals (same court to which Interbrew now appeals). That case said "denial of bargained-for minority rights" in-and-of itself constituted "irreparable harm." Judge said he would not have granted injunction based on thesis that FEMSA suffered "irreparable" commercial harm, not compensable by $$ damages.