Beer Marketer's Insights
NBWA News and Notes
Pretty good vibe at convention, especially considering mediocre sales, recent controversies and raft of challenges that go to heart of 3-tier system. Hey, there was even an uncommon graciousness among competitors who are trying to beat each other’s brains out in marketplace. For example, AB hosted a party for all at Sea World. Even provided competitors’ products. On greeting line, August Busch III reportedly said to Pete Coors, "Hello Senator." AB brass at Sea World in force: August Busch III, August Busch IV, Mike Owens and several other senior execs. NBWA gave August III its first Excellence in Leadership award. Miller prexy Norman Adami opened his speech by tipping hat to August as "great" industry leader. "No one has done more to mold the state of today’s beer industry," Norman added, citing August’s "vision, drive — and, yes, great competitive spirit."
And yet there was also lots of buzz and controversy at meeting concerning recent Miller/ Coors contract conflict (see above), AB efforts (seemingly on hold) to set up separate assn in Ky and more. Lotsa Miller distribs upset with Miller about its contract amendment just at time when focus should have been on improved sales. Meanwhile, a number of state execs lamented loss of institutional memory at AB govt affairs, where most of senior execs relatively new to their roles and many key vets gone. Several state assn execs described situations where AB proposed legislative initiative that appeared to be driven by mktg/sales, and when state assn balked at supporting, AB talked about how its distribs’ interests might best be served elsewhere. We’ll write more on this down road.
While NBWA active distrib membership declined slightly again in 04 from 1463 to 1425, associate members grew from 411 to 441. Total revs from dues increased to $5.3 mil. Impressively, NBWA was 2d biggest donator of PAC money to fed candidates in current cycle through June 30, 04. Coulda changed since then or by time election rolls around, but only realtors ahead of NBWA thru Jun. PAC contributions at a record $1.4 mil.
For 2d mo in row, domestic brewers’ taxpaid shipments flat in Aug, estimated Beer Institute. Up 1.3 mil bbls, 1.1% for 8 mos. So following a soft summer (see STR snapshot below), total industry gain pace moderating as yr goes on. Yet import shipments picked up steam in recent mos. Imports up another 138,000 bbls, 6% in Jul. That was 3d straight solid gain. Up 537,000 bbls, 4% yr-to-date. In available data, US beer biz up 1.8 mil bbls so far in 04. If it can just hold that, will finish yr up about 1%. Meanwhile, Mexican shipments totally dominated Jul picture: up 193,000 bbls, 19% for mo and grabbed 50.5% of total imports for mo. Whew! Now up 487,000 bbls, 8% YTD. But shipments from other leading import countries down in Jul. Tho Dutch and German shipments still up yr-to-date, Canadian shipments down 116,000 bbls, 6%.
Retail picture filling in too. SABMiller said its Miller STRs up 2% from Apr thru mid-Sep. Since Miller STRs up 2.8% in qtr thru Jun, implies slight gain (about 1%) since then, while AB said its 3d qtr sales-to-retailers down 1.2% thru Labor Day. Since those 2 cos over 2/3 of biz and Coors/Pabst STRs also declined over summer, likely that beer biz down slightly at retail during peak selling season. Not good. At least, Sep bouncing back, according to several sources, helped by later buy-in on Labor Day this yr. One thing’s for sure: it’s been a bummer of a summer in supers. Beer down 4.2% for 13 weeks in supers thru Sep 5. That’s scary, but clearly much worse than total biz.
Miller stirred up a hornet’s nest with its amendment to its distrib agreement (see last issue). Tho some had hoped for rapid resolution between Miller and Coors, Coors wrote distribs again Sep 22, noting that contracts conflict, it’s talked with Miller and "there is nothing further to discuss." Meanwhile, state assns advising distribs not to sign until contract resolved, some distribs sent letters to Miller telling ‘em they won’t sign without resolution, and other suppliers feeling caught in middle. That’s just for starters. While Miller claimed contracts not in conflict, that’s definitely a minority opinion. At presstime, Miller sr veep Mike Jones said: "Miller does not believe, nor ever did, that the exclusive negotiation rights contained in the Coors provision ever applied to the Miller Brands. It is becoming increasingly apparent that Coors is taking a highly aggressive interpretation of a contractual matter in order to exert unjustified control over the broader business of distributors."
At NBWA, Miller execs seemed stunned by swiftness and magnitude of response to what it had presented as no big deal. Based on "feedback ... it is clear we did not thoroughly communicate our intentions behind the changes contained" in amendment, Mike Jones wrote distribs Sep 15. "We are talking to Coors to iron out apparent inconsistencies," Miller said then and would be talking to distribs about "movement toward clear resolution" in "coming days." But just 1 week later, Coors veep Tim Owston wrote distribs: "We have had limited conversations with Miller on this issue" but "Miller appears to not recognize the impossible conflict" the amendment "creates for distributors.... Having once granted the right, it cannot be granted a 2d time."
So nothing is happening to fix the situation yet. Coors not willing to give up right of "exclusive negotiation" that it states has existed in "current form" since 97 agreement. Even with this "right," over 100 Coors distrib "sales transactions" have occurred, many including Miller brands, Tim wrote. Meanwhile, Minn atty and assn exec Mike Madigan is coordinating efforts of state execs to get Miller to move its position and to come up with compromise language. He told INSIGHTS that he’d talked with Miller attys who expressed "genuine interest in trying to address our concerns." Mike suggested some alternative language which Miller said it would "explore."
Miller-Coors distribs who sign amendment are "between a rock and a hard place if [they] have an intent to sell," Mike had said back at NBWA seminar. "Who are you supposed to negotiate with, Miller or Coors?" Mike said he and "many, many other" state execs would advise distribs "not to sign" until conflicts sorted out. But Mike also suggested way out. Language along lines of: "In the event...that a provision in another supplier’s agreement conflicts with the language herein, wholesaler shall not be required to act in a manner inconsistent with the obligations of other agreements."
In the meantime, Miller squandered some hard-earned good will with distribs and many wonder about Miller’s motive. Distribs were further upset because this amendment wasn’t aired out with distrib council. In another NBWA seminar, consultant Joe Thompson suggested "one of hidden purposes" of Miller’s amendment might be "to stop consolidation." Then he went further. What Miller "might want," added Joe "is to have a struggling Coors wholesaler keep going down" and thereby "devalue Coors Brewing." Stay tuned.
Boston Beer Had Summer Blues Too
Boston joined ranks of suppliers who softened over summer as shipments of core brands dropped 12,000 bbls, 3.6% in 3d qtr. Sales-to-retailers were down about 1%, a very similar trend to AB, Coors. For 9 mos, both shipments and depletions up about 1%. But Boston expects approximately 5.8% shipments gain in Oct-Nov. It is still projecting double-digit earnings gain for yr, even tho it upped ad and promo spending 5% in 3d qtr and faced increased “packaging material and utility costs.” Rev per bbl up 2.2% in qtr and 1.3% for 9 mos. Boston still has $57 mil in cash and no debt.
Long article in Journal of Commerce sez NY metro area “might be the toughest transportation market in the nation.” A study by NY Dept of Transportation found that mega-distrib Manhattan Beer “gets ticketed to the tune of $600,000 annually,” wrote Journal. By challenging fines in court, Manhattan gets fines down to about $300,000 per yr. That’s about a penny per case. Manhattan services over 20,000 accounts and has about 270 trucks.
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Almost all responses so far agreed with Miller distrib who suggested retailers will get tired of both freshness and taste-tests on premise, many emphatically. Sample quotes: “All brewers are way over-reacting to this On-Premise activity by Spirits,” which “has always been and will always be” liquor's “strength.” “I believe the on-premise focus will backfire,” wrote another, suggesting 3d party spirits promoters encourage overindulgence then leave town while beer distribs “live in the communities” and “tend to promote in a responsible manner.” But one Miller distrib said “retailers out there love the action a properly done taste test brings.” Keys: cash flow for retailer and “consumer has a fun experience.”
The Unkindest Qtr of All?
Jul-Sep qtr was challenging for US brewers, but you know times are tuff when your “2d qtr highlights” include: $172-mil impairment charge (a write-off of “fair value” of Molson's Brazil biz), $85-mil operating loss, $97 mil net loss, 34% cash flow decline, 5.8% net rev dropoff, 8.4% volume decline, and 2.8-share loss in your home mkt. Ouch. That’s what Molson reported (figures are US $$). Hard to find any silver linings here, but perhaps such ugly numbers will persuade non-voting shareholders that Molson needs a partner, and quick. Molson’s tuff qtr didn’t come up during Coors conference call yesterday; prexy Leo Kiely said he was still optimistic deal would get done. Yet Financial Post quoted investment co exec today: “I’m closer to thinking that Molson is better off on its own than with Coors.” Noted Coors Light down in US and Canada. Another cloud: growing sales of discount beer in Canada, which will “force down” Molson margins, one analyst said. "Does Coors Really Want a Part of This?" Bear Stearns asked in research note.
Good Numbers, Bad Numbers
Lotsa key beer biz figures reported yesterday. Most of 'em not so hot, but we’ll lead with good news. Modelo reported its export volume (vast majority to US through Barton & Gambrinus) up 7%+ for 3d qtr and yr-to-date. What’s more, with price hike, Modelo reported export $$ sales jumped 18% both periods. Coors 3d-qtr $$ nowhere near that that strong, but 3.4% net sales increase, 4.1% rev-per-bbl bump in Americas not bad, considering shipments off 0.6%. Operating income per bbl in US rose 8% YTD.
Soft summer further reflected in other numbers. US brewers’ taxpaid shipments down 200,000 bbls, 0.4% Jul-Sep after 1.5% Sep dropoff, estimates Beer Inst. And that’s goin’ against easy comp. Coors STRs down 0.8% in US in 3d qtr; Coors Light down low-single-digits again. But, for real bad news, gotta look at report from Coors’ prospective partner, Molson. Its Canadian brands fell nearly 10% in US in 3d qtr. Took big hit in key Mich mkt, -18%, and dropoff in hernia packs, 36- and 55-pack cans. But US biz tiny part of Molson’s problems. Read on.
Interesting note from a Miller distrib challenged both AB and Miller on-premise initiatives. He said based on “feedback,” he believes “that the retailers will grow very tired of these and tell us both to get the hell out of their accounts.” Agree? Disagree? E-mail us at
Here Comes Brutal Fruit?
Heard about SABMiller’s South African hit? It’s a sweet fermented fruit juice drink called Brutal Fruit, which it’s planning to bring to US next yr, sources say. SABMiller has registered trademark of Brutal Fruit and a cider called Redd’s, according to Ad Age article this week. Curiously Ad Age focused on neo’s predictable criticism (“alcohol on training wheels”) before product even arrives. Flavors include Sultry Strawberry, Kinky Kiwi, etc. In contrast to AB, prexy Norman Adami downplayed Miller new product efforts in recent speeches to distribs, talking instead about innovating on core brands.