Flurry of recent activity suggests little peace in the valley for beer biz as 2014 ends. First, Beer Inst and NBWA ratcheted up their disagreement with Brewers Assn over fed tax policy. Both orgs sent letter to Hill for 1st time urging members not to support any successor to Small BREW Act supported by BA. As 114th Congress hasn't started yet, these preemptive strikes by Beer Inst and NBWA likely to inflame small brewers. Previously, BA had open playing field with virtually no public opposition. BA called BI action "regrettable" and said it would continue to support BREW as "fair, fiscally responsible and focused on small American brewers." Why this move? BI continues to support only fed tax reform (like the BEER bill) that gives break to all brewers and importers, not just US brewers that produce 6 mil bbls or less. Neither BI nor NBWA support notion that 6 mil bbls is "small." Redefining "small" to 6 mil bbls "potentially affects state laws governing the structure of the industry," sez BI, i.e. self-distribution, franchise law protections and more. Why now? BI and NBWA reportedly felt need to clarify their positions, especially amidst constant tax reform/spending chatter, even during lame duck period.

After months of talks over compromise bill, and recall a single tax bill strongly urged by several govt consultants back at BI mtg last summer, efforts bore no fruit. BI and BA apparently agreed on language, including formula to give tax relief to all proposed by BA, we hear. But BA backed off, in large part because importers included in tax relief, a position not palatable to BA's board. Could be too that many BA members don't like optics of any compromise with big brewers, especially if they believe BREW can pass on its own. Now, long-time DC players BI and NBWA forcefully against relative newbie BA, which still has no official DC presence. Hard to see BEER or BREW moving forward in do-nothing Congress, while industry unity takes step backward. BA members like to define themselves as "different" from big brewers. This tax tiff now marks ground zero for brewer (dis)unity.

Distribs vs AB in Ida and Ky Meanwhile, Idaho beer & wine distrib assn seeking judgment that AB can't run brewpub now operated by 10 Barrel Brewery in Boise. 10 Barrel is Oreg-based brewer AB announced deal for in Nov. Ida allows only brewers under 30K bbls production to own brewpubs (and self-distribute). AB said it plans to continue running brewpub. But distribs insist if law interpreted to allow "world's largest brewer" to own brewpub and "provide beer directly to retailers," that would be "complete destruction of Idaho's three-tier system." Backdrop: Ida passed anti-branch bill in 2014, but not clear whether AB plans to use 10 Barrel to challenge that. Ida situation parallel to Ky, where AB also in battle with its own distribs over Owensboro deal. Latest development there is lengthy letter from malt bev director of state ABC (very) reluctantly complying with judge's order to give AB conditional license approval. Deal supposed to close Dec 12. In 6-page letter, supervisor detailed long list of "concerns" expressed by distribs, small brewers and others who unsuccessfully challenged deal. At very least, letter provides "Exhibit A" for any legislative effort by distribs next yr to limit/ban branches. Expect that.

Learning Lessons in Fla? These skirmishes suggest key players in beer biz 2014 remain unwilling or unable to resolve admittedly thorny policy/legal issues in private, even knowing that nasty public battles rarely advantage either side. One group that has learned this lesson appears to be Fla Beer Wholesalers Assn. Recall FBWA ? one of two distrib assns in Fla, representing primarily AB wholesalers ? tried to link legalization of standard 64-oz growler there to closing some loopholes in retail options for brewers in legislature last yr. That turned into huge, ugly, public brawl. Now, FBWA and other distrib org (Beer Ind of Fla) have taken public position of supporting standalone growler law and leave separate issues separate. FBWA does want some labeling, sanitary standards adopted. Have small brewers learned same lesson or will they balk at those?  

Biggest beer story of year developed late: with 1st half shipments volume up only slightly despite easy comp and AB inventory load, most expected another loss for yr, continuing doldrums that started in 2009. But a funny thing happened on the way to a 5th dropoff in 6 years. It's not happening. Strength of Mexican imports and craft ? each about 16 mil bbls in 2013 and each up double digits in 2014 ? offset softness elsewhere. That's near 20% of biz that should be up 4-5 mil bbls in 2014. Unless there's Nov-Dec disaster, looks like a modest shipments increase for US beer biz, 2d in last 3 yrs. Supports notion that beer would "come back" with stronger economic numbers, especially employment/wages. Still lotsa skepticism, particularly about mainstream, but math may be changing.

Meanwhile, trade up/price hikes keeping beer $$ sales ticking up 3%+ in scan. And while beer still losing share of stomach to wine/spirits, not much, and it's holding share of wallet. At same time, top 2 wielded less pricing power in 2014, especially in mainstream. Premium segment prices up less than 1% in IRI scans thru late Nov. Could less price realization be factor in better volume (see below)? But what will that mean for profits? Another difference in 2014: AB shifted more attention to core brands while MC played more in new brands than previously. Yet neither really moved the needle on overall volume trend.

Key Brand Highlights; Only 3 Top 10 Brands Up On plus side, hot Constellation portfolio, driven by Modelo Especial, which will pass Heineken as #2 import and join top 10 brands overall this yr. Only other top-10 brands up: Corona Extra and Michelob Ultra. Busch Lt flat in scans. Then there's Boston portfolio, driven by still-unreal Angry Orchard pace. At same time, craft kickin' it at likely +15-18%, a gain of 2.5-3 mil bbls. In premium lights, still about 1/3 of volume, Bud Light and Lite trends improved, tho still down slightly; Coors Light dropoff steepened. Premium lights improved marginally. Subpremiums still takin' it on the chin, but growing high end benefits virtually all players.

A Coupla Mega Distrib Deals; A Number of Craft Deals; But No Big Global Brewer Moves There were deals of almost every description in 2014. INSIGHTS tracked 16 distrib deals so far in 2014, about same as 2013, but slightly less than normal yr. Two blockbusters: Reyes buyin' Gold Coast in Fla and Manhattan-Phoenix JV in NYC; 72-mil cases between 'em. Yet by far most attention given to one of smallest deals of yr: AB buying 800K-case Owensboro to create 2d branch in Ky and lots of friction. In craftland, deal pace clearly picked up. We tracked 7 craft transactions. AB bought Blue Point and 10 Barrel, several other deals involved private equity/family offices buying part or most of craft brewers, and one craft brewer bought another. More in works. Increased dealmaking is altering craft landscape, but it's certainly no rush for exits. Still, that could change with rich offers, growing pains (and costs), plus any kind of volume slowdown and/or succession issues. On big brewer side, incredible amount of speculation about deal that hasn't happened: ABI-SAB. SABMiller made unsuccessful bid for Heineken in Sep, but subsequently strengthened its ties with Coke in Africa. Some say that makes SAB even stronger target for ABI. But it also "complicates" any tie up. For now, dance of the elephants in slow-step mode.

Mostly Quiet on Legislative, Legal Fronts For Now At Craft Brewers Conference in Apr, craft brewers aggressively voiced desire to erode franchise law protections. Topic drew tons of attention, but very little legislative action. Expect more in 2015. Meanwhile, many states tweaked treatment of craft brewers, mostly to broaden retail rights. One more state, Ida, banned brewer branches; Calif banned coupons and scanbacks. But nothing earthshaking. In courts, Ohio's unique "diminished value" statute got tested. Dispute "won" by brewer NAB which paid distrib modest multiple for moving brands. Interesting antitrust suit surfaced in Miss, where c-store chain sued AB distrib, claiming distrib used "monopoly power" (70+ share) to harm its biz. Case slated for jury trial. A unique circumstance, but could this be precursor in age of distrib consolidation?

Changes at BI and BA; Fed Front Cedes to States? Lookin' at natl assns, both Beer Inst and Brewers Assn made change at the top. BI named new leader, Jim McGreevy, who came over from soft drinks. At BA, Bob Pease promoted to ceo role, tho Bob already handled many aspects of job. BI and BA remain sharply at odds over fed tax bill and jockeying over issue of who speaks for brewers (more below). NBWA has no fed issues on front burner, but acting more in support role for states to defend 3-tier system. Indeed, key legislative action all happening at state level these days. In DC, BI busy with issues like aluminum availability/prices, spent grains and new Know Your Drink program aimed at combatting distillers' equalization efforts. But even as BI tries to maintain distinctions between alc bevs and beer's advantaged policy treatment, blurring lines between alc bevs continue apace in the market. That's likely to drive interesting policy debates going forward. Given better numbers in 2014 and improving economy, but increasing tensions, 2015 already shaping up to be another fascinating year.  

A number of recent AB personnel changes and layoffs became public in fits and starts. At the tail end of a tough year, (EBITDA down 2% for 9 mos), ABI laid off at least "many dozens" (St Lou Biz Jnl) if not "hundreds" (estimated unnamed source to Wall St Jnl). AB did not quantify the numbers. "We are reorganizing certain work that displaces some positions," acknowledged people veep Jim Brickey. "The reductions were minimized as much as possible." This round of workforce reductions kicked off with outsourcing of media buying function, handled for decades in-house by Busch Media Group. Most BMG employees lost their jobs. Many in mktg lost jobs too, over 20 according to St Lou Biz Jnl. AB closed its Charlotte field sales office, as it restructures sales. Several dozen let go from IT, added St Lou Biz Jnl. But AB didn't communicate this in coordinated way. That led to increased speculation about how far the "bloodletting" extended, as one AB employee put it, and a sense of unease among distribs and employees.

AB also will change 3 of its 7 region veeps (used to be 8), has many new sr hires for its hi-end unit in Chi and a new exec working with distribs. Changes suggested AB will run even leaner in key areas, several of its most senior salespeople won't have US beer experience, and AB will build up staff in areas it believes warranted. Of AB's 3 new region vps, none were promoted from within AB field sales or indeed have any US field sales experience at all. "This sends a very bad signal," said knowledgeable source, because existing AB field sales personnel feel as if they have little to no chance of getting promoted. Regardless of the credentials and achievements ABI execs bring from other parts of the globe, they will face a learning curve about US mkt.

But change that hit home most for distribs was announcement that vp of wholesaler and biz development Don Johnson would leave after 35 yrs with AB. Many distribs retained a strong personal connection with Don as a link to what was best about the old AB. His replacement Bob Tallett (formerly a region veep) has also long produced results for AB but he has a more hard-driving style. As ABI builds out its hi-end biz unit with dozens of people, it named Andy Goeler ceo of craft, Michael Taylor veep of finance for unit. AB also promoted Ricardo Melo to veep of sales strategy and wholesaler development.  

"Our strategy is all about total beverage alcohol," Rob Sands declared at Beer INSIGHTS Seminar a coupla weeks back, echoing similar sentiments as Diageo execs in past. But Constellation much bigger in beer and expects to double its beer biz over next decade, which makes Rob's remarks even more notable. Interesting that Rob so focused on consumers increasingly "drinking across categories," retailers buying across bevs and lines blurring between the actual beverages themselves. That's while Beer Inst and big US brewers insist on maintaining sharp distinctions between the products on policy basis. But Rob also assured that current tax scheme, for example, should stay "as is" without any increase in beer excise tax.

Distrib networks have developed separately over yrs, he noted, but "not much else different" beyond that. Just a tiny % of drinkers now consume just beer (10%), or just wine or spirits (3-4%). And at buyer level at retail tier, often same purchaser. Constellation Brands, Rob said, "extremely well positioned" to exploit these trends, with slightly over half of its biz in beer, the rest split between wine/spirits. Distrib networks did develop as "distinctly different" with "vastly different geographic footprints and levels of concentration" which make them unique to each bev. Constellation has "thought about" selling wine and spirits thru beer network, but "in general, no." New Casa Noble tequila will be a "hybrid," Rob pointed out, marketed by beer division, but sold by wine and spirits sales division and thru wine/spirits wholesalers. Constellation's Beer Div asked for tequila some time ago, said Rob, and co plans to "co-promote, co-advertise and co-merchandise beer with tequila."

Tho "All About" TBA, Constellation Bullish on Beer; Expects 7% CAGR; Build Brewery? Expansion of Nava plant on sked, said Rob and he reiterated Constellation goal to double its beer biz within 10 yrs. If it achieves that goal, means it will have to eventually "build or buy" new brewery, since doubling gets Constellation to over 26 mil bbls. That's way more than fully expanded Nava can handle. Doubling in 10 yrs means compound annual growth rate of about 7% and Constellation is "planning accordingly." If Constellation gets that growth, suggests additional 6-7 share in relatively flat industry. This is "a deal that won't stop giving" in terms of profitable growth for Constellation, its distribs and retailers, said Rob. "It's benefiting everybody…. It would be a mistake for us not to continue to invest."

Also, in about 18 mos or so, Constellation will be back to a debt-to-EBITDA ratio in the 3s and ready for M&A. Rob did not get specific but did note most of its recent buys were smaller, "tuck-in acquisitions." As he expects craft to continue to grow, "we have to be interested" in category. M&A game has "changed" in recent yrs, Rob suggested, from buying big brands to question of whether "you incubate" new brand or buy one that's "already incubated." So "it's less like M&A and more like innovation with a buy or incubate twist," like AB's purchase of 10 Barrel.

Rob on Handling SKUs and ABI Distribs and retailers have "found their way" on SKU proliferation, Rob believes, as no one can tell which 10-20% will be most successful. Besides, alc bev category is "healthy"; it's the most profitable and only growing large category for retailers. So, "I don't think that anybody is sitting around worried or complaining about SKU proliferation when you've got a pretty hot and very large and very profitable category. They're thinking more about continuing to optimize the situation."

What about ABI as "challenger" in Mexican beer space? Constellation has "competed against them for as long as I can recall," and been successful. Then too, AB brands could lift entire Mexican category; that would benefit others, Rob pointed out. Asked whether Constellation will move its brands from AB branches, Rob said again his only concern is with best distrib in each market; in some cases "that could be [an AB] branch." Can beer get back to outperforming wine/spirits? Rob does not see "dynamics of the industry changing" as millennials and multi-culturals will continue to drink across categories and big domestic premiums brands will continue to lose volume, in Rob's view.  

Calif beer shipments up 175,000 bbls, 1% for 9 mos, according to Beer Inst data, which almost certainly doesn't capture full effect of over 500 Calif craft brewers. If trend sustains thru final qtr (Oct was strong), that would be 3d straight yr of 1%+ growth in nation's largest beer mkt. That's pretty healthy, especially since it followed drops in 3 yrs prior to that. Calif beer biz also remains Exhibit A for huge ongoing shift in US beer biz: In 1992, AB and MC peaked at 85 share of shipments in Calif. That dropped to 60 share in 2013. Each losing share again this yr. And their share of $$ even less.

Constellation Brands Beer Division has long term objective of getting to 20 share of $$ nationally. It is already close in Calif. Constellation $$ sales up 15% yr-to-date thru Nov 2 in IRI multi-outlet +convenience. And it gained 1.6 share of $$ this yr to 18.7, while AB lost 1.8 to 32.6 and MillerCoors lost 1.2 to 22.9. At this rate, one more yr and Constellation should pass 20. (It does even better in non-scanned accounts, sez source.) In 2 more yrs, it could pass MC, unless trends change. Wow!

What's more, red hot Modelo Especial passed Bud with a bullet this yr to become #4 brand in Calif. It's closing in fast on Corona itself for #3 slot. In fact, Modelo passed Corona in Calif $$ sales last 13 weeks. Modelo Especial $$ sales up 30% in Calif and it jumped 1.35 share to 7.2 (or about as big a share as Bud has nationally). Constellation Brands had 14 share of Calif shipments in 2013, 14.8 in 1st half 2014. With double digit growth, should pass 15 for full yr.

AB Pulls Back Price Hike in Chains AB recently rescinded Calif price hike on key chain 30- and 36-packs for Bud and Bud Light barely a month after implementing them. Why? Because Constellation didn't go up on Corona, and AB didn't want 'em to further narrow gap, one smart brewery exec suggested. Others said it was because AB "freaked out" about Modelo Especial growth and feared losing features and displays if prices went up. At same time, AB also implementing its PromoOpti deep discount on draft for select brands like Goose Island IPA, Shock Top and Bud. Even its highly-touted Montejo brand already seen at $6.00 12-packs in Calif Walmart. AB clearly less confident it can move price up in Calif.

There's another shadow hanging over AB and a lot of other brewers and importers in Calif. Many face big volume hurdles next yr with passage of AB 1928, law that bans instant redeemable coupons and scanbacks starting Jan 1. Many brewers and importers relied heavily on them and could get hit hard when/if they can't match last yr's price points in chains. But others who didn't scan (or scan much) could be further advantaged. That includes Constellation, Sierra and some other key craft players, sources say.

Craft Killin' It in Calif Craft generally is also giving Big 2 fits in Calif in 2014, almost as much as Constellation. Craft $$ sales up 22% in Calif. Five craft players gained another 1.7 share of $$ in IRI; Boston up 0.5 (but that's mostly Angry Orchard), Lagunitas up 0.5. Firestone Walker, Ballast Point, Sierra and Stone collectively gained 0.7. Several established players still flying in Calif; Lagunitas $$ up 68%, Firestone Walker up 69% and Ballast Point up 140% YTD in IRI. Many other cos up strong. And there's still a new craft brewer opening every week in Calif. What's more, Calif craft still has lotsa room to run as segment only at 10.9 share of $$ in Calif scans, up 1.5, while imports at 31.9, up 1.15. Cider more than doubling, over 1 share, up 0.7.

So it's a brave new world in Calif beer sales. Last week at Calif Beer and Bev Distribs Assn meeting, one source noted that if you have Constellation in Calif, you're having a good yr. If not, more likely meh. Hispanics are 38% of Calif population, almost half of drinkers turning 21 there, MC ceo Tom Long showed in speech to Calif distribs. Hispanic population also growing almost 3x faster than total population. (Up 28% between 2000 and 2010 compared to 10% growth in Calif overall pop.) Clearly, Hispanic drinkers are gravitating towards Mexican beers. So far, Calif Hispanics ain't really big craft drinkers, tho even that's starting to change (like with en fuego Firestone Walker 805). All this suggests urgency for AB and MC in their attempts to figure out Hispanic drinkers. MC ceo Tom sees hope in steady influx of new legal age drinkers every year. It's oppy to start fresh. "If we want to change the game, let's try to learn how these drinkers think and give them what they want." In particular, every yr 680,000 drinkers turn 21 in Calif and 48% of them are Hispanic. So that every January 1st, "it's like a gun goes off," said Tom. "We've got a new race" to capture those emerging drinkers.  

Numbers suggest real improvement for beer volume as 2014 winds down. Dollar sales remain solid in scans. And some key economic trends look better too. At least 3 positive numbers emerged last 3 weeks. First, Nielsen data showed near 3% volume pop for 4 wks thru Nov 8 in all outlet + convenience scans. That's best 4-week trend of the yr. And confirms what we'd been hearing anecdotally about a pretty strong Oct. Then too, Oct taxpaid shipments by domestic brewers up 0.5%, estimates Beer Inst. That's not huge, yet in right direction. And 3d, import shipments stayed strong in Sep, +17% for the mo and +8.6% yr-to-date, BI reported. All in, US shipments up 1.1 mil bbls, 0.6% yr-to-date in available data. For 12 mos, US biz ahead 1.8 mil bbls, 0.9%.

Key for how calendar-yr turns out: 1) how much of import gain sticks thru final qtr as there is some Corona and Montejo inventory-build in those #s; 2) how taxpaids fare vs modest comp of +0.2% Nov-Dec last yr. Looks like AB drew down inventory it built up earlier in yr, but MillerCoors shipments still ahead of depletions thru Sep. If US shipments end up in plus column in 2014, that will be 2 up years out of last 3. That's a much different picture than 2009-13, when shipments down 4 of 5 yrs.

Adding to brighter view: steadily improving employment picture (under 6% unemployment), much reduced gas prices and 3.9% 3d qtr GDP growth. As MC chairman Tom Long put it at our Beer INSIGHTS Seminar a coupla weeks ago: "If you look at jobs in America, if they increase, it's got to be good" for overall beer. And decline in gas prices "is fabulous. Anything that puts 40 bucks in every American household's pocket is great for beer," said Tom. "That's beer money." Such "headline elements are really good for beer and I think that's why we're seeing a little bit of an uptick." Tom didn't overplay improvements. Also pointed to "lots of puts and takes in the industry," called it "a dogfight," adding "one guy's success is another guy's decline." Recall, AB's North American prexy Luiz Edmond similarly cautious, suggesting US biz "seems to be improving." No revolution perhaps, but a little better for sure. We'll take it.

Industry Economists More Optimistic than Top Execs Brewers Assn economist Bart Watson more upbeat than Tom and Luiz and not only about craft growth, which he figures will come in "mid-to-high teens for the year." Bart also cites recent Nielsen data that suggests "it really looks like craft is a net positive for [industry] volume these days (i.e. it's not just sourcing volume from premium beers)." Combo of craft's "internal growth and new buyers to the beer category entering through craft are helping volume." Another reason to be cheerful: following three straight "huge cohorts of 21-yr-olds, the three most common ages in the US right now are 23, 24 and 22, with 25 and 21 also in the top 10." (Tom Long made same point in speech to Calif distribs-see below. It's on brewers' minds.) Upshot is there are still tons of millennials for brewers to target.

Over at NBWA, economist Lester Jones has also pointed to improved economic factors, early and often. "As 2014 comes to a close, the economy is showing signs of improving for all beer drinkers. Declining unemployment, falling gas prices and rising home values will all make consumers pretty happy for the end of 2014 and beginning of 2015." But Lester also suggests why suppliers might be a little more cautious, as "impacts are a lot less clear. We have more brewers, rising inflation, rising interest rates and a global slowdown that may prove challenging in 2015."

Robust Growth At Handful of Mega Distribs Another indicator of healthier overall environment: Some big distribs having exceptional yr in 2014. In fact, we don't ever recall hearing about such strong growth at some of largest distribs. At least four 20+ mil-case distribs growing 3.5% or more. Columbia's Chris Steffanci said Columbia up 3.5% in 2014 on panel at Beer Insights Seminar. That would be over a million cases of growth. Reyes reportedly up a very similar % in SoCal on 60+ mil cases. Meanwhile, JJ Taylor trucking along at about 5% growth in Fla (on 20 mil cases) with combo of craft and Yuengling growth. And the L. Knife group of cos likely up high single digits on base near 30 mil cases, led by intro of Yuengling in Mass and Bell's in NY, plus vibrant growth of overall craft portfolio. Some common characteristics among at least most of these distribs: robust craft and/or import growth, i.e. the right portfolio, and many are also located in right mkts currently experiencing growth.  

AB will buy hot 10 Barrel in craft centric Oreg, which also has thriving brewpub biz that AB keenly interested in. 10 Barrel on track to sell 40,000+ bbls in 2014. AB bought Blue Point earlier this yr.

While total beer $$ sales up nearly 4%, $982 mil in IRI multi-outlet + convenience yr-to-date thru Nov 2, the top-10 fastest growing brands up $761 mil, 10%. That's 77% of total industry $$ gain, from brands that represented less than 1/3 of $$. Not surprisingly, red-hot Modelo Especial remains #1 in $$ growth, up $128.6 mil, 26.2% yr-to-date. Its $$ growth more than another red-hot brand, Angry Orchard has sold in toto ($121 mil). Constellation's Corona Extra just moved up to #3, gained $84.3 mil, 7.9%. But #2 and #4 fastest growing brands are perhaps more surprising: a pair of sisters, Mang-O-Rita and Raz-Ber-Rita grabbed $191 mil of sales collectively in their intro yr. However the pair's growth largely offset by declines of last yr's models, Straw-Ber-Rita and Lime-a-Rita. In all, Ritas remain up 13% in $$ sales yr-to-date and grabbed nearly 2 share of $$ (1.74).

Two AB light lagers in top 10 $$ gainers; Michelob Ultra, up $81.6 mil, gaining more $$ this yr than behemoth Bud Light, +$70.1 mil. Tho Bud Light got 6th biggest $$ gain, it is the only top gainer that lost share. It is so huge that its $70.1 mil gain only up 1.4%. That's slower than industry. So it lost 0.45 of share of $$. Impressively, Angry Orchard makes the list at #7, doubling sales, up +$58.9 mil. It's #31 brand in scans thru Nov 2, just ahead of Bud Light Chelada. Two MC brands at #8-9, intro Miller Fortune (up $53.9 mil), and cont'd success of Redd's Strawberry ($46.9 mil). Dos Equis just passed Redd's Apple Ale to take #10 slot, up $46.2 mil. All Redd's variants together gained $121.7 mil, 107% yr-to-date, near Modelo Especial in total growth. Other brands in top 20 include intros like Modelo Chelada, Sam Adams Rebel IPA, and Coors Light Summer Brew. Leinie's Summer Shandy, Rolling Rock, Heineken, Stella, Miller Lite and Bud Ice round-out top-20 gainers.

AB and MC Have The Top 17 Declining Brands; Coors Light & Bud Only Mega-Brands on List Each of the top 17 biggest declining brands are either AB or MC. While AB has 4 of top 10 gainers, it has 7 of the top-10 declining brands in scans, including all of the top 4. MC has the other 3 in top 10. Bud Light Straw-Ber-Rita and Lime-A-Rita #1 and #2 biggest declining brands. Each down over $85 mil and 40% yr-to-date, while Bud Black Crown and Natty Light, #3 and 4, combined down well over $100 mil. Coors Light posted 5th largest decline in scan and lost more $$ than (#7) Bud. Down $43.1 mil, 2.1% compared to Bud $$ sales down $31.4 mil, 1.7%. Bud Platinum (#6) and Bud Light Lime (#10) also continue to slip several years in. At #8 and #9, Keystone Light and Miller 64 respectively. They collectively shed over $40 mil. Other top-declining brands include several in MC economy brands (Milwaukee's Best Light, Icehouse, High Life) plus still-falling MGD, and a handful of AB brands (Bud Select 55, Busch, Bud Select, Michelob Light). The only 3 top 20 declining brands that aren't AB/MC included a coupla HUSA brands (Newcastle Brown and Heineken Light) and Mike's Hard Lemonade.  

Reyes Bev Group has deal to acquire 27-mil-case Gold Coast in South Fla (which will keep its name) for eye-poppin' price of around $1 billion, sources say. Deal expected to close in early 2015, pending supplier approval. That price would make it by far the biggest beer distribution deal of all time. In fact, that's over 1.6x bigger than the previous biggest deal, which was the 2011 Meritage transaction for Columbia for over $600 mil. And it's also 30-40% bigger than the price just paid for 5th largest US supplier Pabst, which just sold for over $700 mil. Think about that: one distrib in 1 mkt is far more valuable than the 5th largest supplier in US that is over 2.5x as large by volume. Shows how much value still created in middle tier.

What drove such a high price? First of all, earnings power. EBITDA reportedly well over $2 per case, somewhere around $65 mil. Gold Coast has huge import portfolio, high mkt share, scale etc. But even paying rich multiple on strength of that biz wouldn't get to $1 bil price tag. So what gives? Sure there's real estate, inventories, etc. But kicker is reportedly that Gold Coast a C-Corp and so faced double taxation in transaction. Only way to get deal done: Reyes bumped up price to cover that. Why would Reyes go for that? This is one of crown jewels of beer distribution. One of largest distribs, with one of best portfolios in one of best mkts. RBG has craved it for yrs. With their systems and processes, RBG will undoubtedly drive some additional earnings. What's more, RBG is now the #1 distrib in 3d largest state Fla as well as largest state Calif. After Gold Coast deal is done, RBG will sell half the non-AB volume in Fla. And Reyes Holdings has taken office space in Fla, with some talk that it could move hq down there. So worth premium.

Distrib Deal Pace Picking Up After a slow start this yr in distrib consolidation, pace really picked up this fall. We tracked 8 distrib deals in just last 2 mos, most first reported in our INSIGHTS Express. That included a couple of game-changing transactions, Gold Coast and the Manhattan/Windmill JV. Both of these in MC system, where consolidation further along and therefore slower than in AB system in recent yrs. But something changed. This yr, 3 deals consolidated Miller and Coors houses in Tex, plus this big NYC deal. MC system now finally 81% consolidated, ceo Tom Long told our Seminar, and could get to 84%+ when Manhattan and some other deals close.

In 6 of Top 10 Metro Areas, MC Distrib Top Dog Both Gold Coast and Manhattan deals in top 10 metropolitan areas. The top 10 US metro areas are almost 30% of US population, including key urban centers. In at least 6 of top 10 metro areas, the MC distrib is the big dog, with over 50% of margin pool in several cases. Those metro areas include top 3: NY, LA, Chi, plus Miami, Philly and DC. That's not mainly because of MC brands those distribs carry, but rather their full portfolios of imports and crafts. Also true in many other big metro areas in top 25 (SF, Seattle, Portland, Denver). And it's a big sweeping change. The decline of AB distributor dominance in so many top mkts has become an increasingly important issue for AB system, especially for branches that have no other brands. Interestingly, Reyes Bev Group has distributorships in at least part of 4 of the 6 top-10 metro areas where MC distrib is now top dog.  

Despite continued volume drops, MC still managing to build profits, while AB profits squeezed so far this yr. MC's operating and underlying net profits up 3.4-3.5% in Q3 and 9-mo operating profits +6% to $1.13 bil. MC continues to cut costs, another $31 mil in Q3. At Seminar, Tom explained big difference since JV formed. Before, Miller and Coors could not invest at levels necessary to build efficiencies. With JV, MC invests approx $400 mil annually. That used to just cover maintenance, now about half goes to improvements that are "much more efficient." And MC still has "some running room" on that. Then too, still "a long way to go" to improve mix (0.8% of 2.5% rev/bbl increase in Q3) as MC continues build share of above premium. Now 15% of revs.

Issue of beer and soft drink synergies at distrib level came up on conference call and at our seminar. Tom pointed to differences in logistics and "quality of the sales call" and merchandising. Putting more liquid on trucks is "just utilizing fixed assets better." But latter issue is "difficult." If workers have 60 hrs/week, splitting it between more tasks "not good, especially when you used to have 100%" of their time. "We like focus" especially on sales/merchandising. And beer and soft drinks "typically don't go well together. It definitely doesn't go well together when you do it with wine and spirits. Every single experiment" of when same sales people handle wine, spirits and beer "fails."