Comments from MillerCoors ceo Tom Long to Beer INSIGHTS Seminar and on Q3 conference call show that Tom's key talking points over last coupla yrs seek to explain both mainstream volume decline and oppy to regain it. For example, MC's new emphasis on "intrinsics" and "quality" of premium light lagers, as opposed to previous focus on "extrinsics" of humor/ lifestyle, aims to "elevate" big brands that have lost sales frequency and shed volume to craft. At same time, such extrinsics (and pricing actions) drove down per capita beer consumption lost to wine and spirits. Shift provides oppy, in Tom's view, to "shape the future," not simply be "passenger" on "pre-ordained destiny" of continued decline.

Yrs ago, big brewer mindset was gaining market share "at all costs" and beer pricing trends stayed lower than wine/spirits, Tom said at INSIGHTS Seminar. "That dynamic changed," he acknowledged. At MC, earnings are #1, then net rev and volume is 3d. No doubt, "value has been created" as result, said Tom. But new dynamic "gets problematic when you don't have weekly drinkers" and lose "share of mind." At same time, "significant" price hikes from AB and MC created "price umbrella for smaller entrants to emerge" an oppy being exploited by craft brewers. That in turn led to "fragmentation" of brands, explosion of SKUs that pressure industry infrastructure. Tom didn't talk specific pricing strategy going forward. But MC did get less price in 3d qtr than previous 4. Rev/bbl up 2.5% vs 3.5% avg for 12 mos. MC responded in part to AB discounting aluminum pints, he said on call. Recall too, AB got just 1.2% rev/bbl hike in Q3, while MC data shows Constellation got 3.6%, HUSA 2%, "unusually high" for them. Suggests AB/MC may be more cautious about taking price going forward. AB's Luiz Edmonds implied as much in his comments in NY.

Also in Q3, MC held draft pricing. Draft strategy came about, Tom told NY audience, as MC saw American lagers losing "a lot of taps," which also contributed to lower per caps. Lots of "really big customers" were saying "you guys have milked the on-premise business. . . taking price well above off-premise. That's insulting." If by holding price, "we win some more ties" and get taps back, that's a good thing. And tho strategy has cost MC and its distribs, MC sez it's gotten back about 3300 taps since Spring.

Fragmentation Hits Tipping Point when SKUs Simply Churn Amid lotsa talk lately about inevitability of SKU proliferation, Tom suggested "current infrastructure can't handle" 20,000-SKU future floated by MC's Tom Cardella. So, "tipping point" comes when distribs say there's "no incrementality" and they're "just churning SKUS," not selling more beer, not making any more money even while "costs to serve" increase. Retailers may come to same conclusion. Only solution is new distribs emerge to handle the SKUs or distribs "will put a lid" on proliferation because "new entrants can't effectively get to market." At consumer level, when buyer spends 20 minutes in beer aisle and decides to buy one 6-pack, "that's not good." Pondering beer choice is fine, but industry needs that shopper to take 15 minutes and grab "a 12-pack and three 6-packs." That's when per caps pick up.  

In what was likely one of his last lengthy public discussions before moving Jan 1 to become ABI's global chief sales officer, ABI North American prexy Luiz Edmond reflected at Beer Insights Seminar on his "6 amazing years" at the helm of AB 2008-2014, yrs of dramatic transformation and huge profit hikes as well as volume declines amidst tuff economic times. "Cost was a big play for us," acknowledged Luiz, tho "not without noise. . .. I wish we had some tailwinds to help us with the volume." While in 2014, beer biz "difficult to read. . . up and down all the time," overall," it seems to be improving." Luiz one of several speakers at Seminar who pointed to prospect of improving biz.

Going forward, "our biggest opportunity is to grow topline" volume, Luiz said. With AB's "revenue management" strategy (Editor's Note: AB increased pricing ahead of inflation for several years tho not this yr), AB able to "grow topline revenues" but not volume. That "was based a lot on the strength of our brands that we could stretch in terms of the price." But AB doesn't "see that as the agenda going forward." To "grow is the number one priority" in his new position as well, with "new global framework," where ABI will be "leveraging best practices." What about next North American prexy João Castro Neves, who will replace Luiz? "People will love him. He has a great track record. He can bring people together." And he "goes big," "commits to the big transformational things."

What did Luiz mean by his comments to distribs at NBWA about them seeing "ghosts" and "threats"? When ABI first came to US and changed so much, "I don't think we did a good job in communicating where we're going. . .. Worse, we did not react fast enough when we did something that was creating some collateral damage to the system," noting that the ABI way created "big disruption." In ABI culture, "it's better to move fast and fix whatever you need to fix." But "we didn't have a communications plan to keep up with that pace. By not communicating we allowed people to create their own ghosts. I say ghosts because they don't exist." That's why AB's wholesale "panel was so critical for me," added Luiz, and had a "big impact." Talking more to panel "created that trust" and "we were able to understand each other." So Luiz came to "understand we had to fix" these issues.

In q&a, Luiz was asked how come AB can't improve relations with its distribs? "That's not what I heard," responded Luiz, pointing to many positive comments he received after AB's "very good" SAMCOM meeting with distribs. But "volume is a good solution for the problem, especially in the wholesaler business. . .. We did not find solutions to grow volumes," added Luiz. "Once we solve that, relationships will become better." What about rumblings AB will renew focus on maximum effort clause in its contract? "We've been working with the panel to see how we can manage it better." While "vast majority of our wholesalers provide best efforts for our brands. . . in certain instances people cross the line big time." Luiz referenced meetings with ceos of top retailers where AB hears "one of our wholesalers is preaching against our portfolio. That's not acceptable," said Luiz. Distribs have brands exclusively and in perpetuity, so AB deserves "best efforts." But any AB scrutiny won't be on "picky things, not the small things that are irrelevant."

Recall that of 72 AB distrib transactions since 2008, 6 became branches. While AB most frequent single acquirer of its distribs, "that's more of a coincidence than anything," said Luiz. Vast majority of transactions (over 90%) are still distribs buying other distribs. As for distrib consolidation, Luiz noted: "I wish it would have been faster." But AB is not forcing anything. When ABI first got to US, branches did not perform "better than wholesalers. . .. That was one of the first targets we put to ourselves." Today "on average we outperform. . . clusters" of surrounding distribs. "More than 75%" of branches "outperform. . .. I think we can do better," asserted Luiz.

When INSIGHTS suggested AB had "major increases" in sales and mktg spend this yr, Luiz questioned whether they were major, noting AB "didn't have them the first few years. We're very conscious how we spend our money." AB historically invested most in sports seasons, particularly football, "not in the summer." So AB had "gap we had to close. We like the investment" and "returns on investment," pointing to "very encouraging summer" for Bud Light. AB also upped game on-premise. "We added a lot of resources. . . in partnership with wholesalers. We will continue to add more resources." Some on-premise activations (World Cup, Whatever USA) were "game changing." Whatever USA generated 200,000 consumer videos. "You'll see more and more of these kinds of executions."

What about ABI innovations? "Some worked, some did not," said Luiz. "Some will disappear, some will double in the next 5 years." When INSIGHTS brought up "sophomore slumps" of many and mentioned Ritas, Luiz called that a "bad example." Tho some Rita flavors down, overall Ritas "continue to grow," up more than 20% last few mos. The Ritas margins "are much better than craft" or "any other high end brand that we have." But Bud Black Crown was "something that did not stick" and "part of the experimentation."  

When biggest beer distrib in US entered Fla mkt with Schenck purchase in 2011, it called its co there Florida Distributing Co and we asked: "Can a name telegraph ambition?" Answer: Yes. Reyes Bev Group has just signed blockbuster deal to acquire 27-mil-case Gold Coast (which will keep its name), also one of largest Constellation and Heineken distribs in US, pending supplier approval. Deal expected to close in Jan. If numbers we're hearing are accurate, then this deal blows away Meritage deal for Columbia (also in 2011) as the biggest beer distribution deal of all time. That one was for over $600 mil. Wow!

With this purchase, Reyes Bev Group will total about 150 mil cases on annual basis. That alone is amazing number. But Reyes reportedly has ambition to be more like 250 mil cases down the road. Meanwhile, 2d biggest distrib entity out there: collectively would be AB branches, over 130 mil cases. RBG and AB branches already go head-to-head in much of SoCal. The 2 combined are already about 10% of beer industry volume. How big can they get?

Then too, Florida Distributing Co will be around 40 mil cases following this acquisition. All non-AB volume in state is only 80 mil cases, and many AB distribs have Constellation Brands beer portfolio. So with this deal, Florida Distributing Co will be over half of non-AB distrib volume in 3d largest state. Don't forget, RBG also has almost 65 mil cases in SoCal. Another point; Gold Coast sold over 7 mil cases of Constellation Brands last yr. Reyes sold over 23 mil cases, and getting big growth this yr with Constellation in most operations. Means RBG well over 30 mil cases of Constellation Brands alone-over 15% of volume for biggest growth supplier.  

AB has rapidly overhauled mktg approach this yr under new mktg veep Jorn Socquet and consumer connections veep Lucas Herscovici with much more to come. AB has become increasingly focused on "penetration" during last 4 weeks as a key metric; that's % of consumers that tried brand during period. An extensive study of 353 brands in 21 categories found that "penetration has the highest correlation with market share growth," said Jorn. AB has traditionally focused more on increasing "frequency" with "loyalists," but while that's "important for large brands," it's "secondary. . . We must recruit new drinkers to our drinks," said Jorn. "If we don't, we will not grow." Hence the huge emphasis AB now placing on sampling, events, venues, and of course on-premise (AB will double brand-activation managers or BAMs), in addition to digital and traditional media.

AB used to spend 90% of mktg budget on traditional media, mainly so it could reach "loyalists" with repeat messages, noted Lucas. But millennials now up to 36% of volume, yet only 2% of 'em are "loyalists." Also, music and food are as important to millenials as sports, Lucas said. This change has already affected when and how AB spends. AB used to spend most of its mktg during football season. This summer, AB invested 4X more of its Bud Light budget in digital than in previous yrs. Result: "both market share and penetration on Bud Light grew for the first time in 36 months," according to Lucas. AB will "become much more analytical and selective in our investments" with "more rigor," said Lucas. For example, "all sports activation should have positive ROI" and "predefined activation goals." As part of effort to achieve that, AB wholesalers "will need to co-invest" for NFL and Major League Baseball properties, and for NBA and NHL properties that are "less expensive." Then too, switching to media-buying agency Mediacom, AB "can buy media at much lower cost than AB pays today," noted Lucas. Mediacom, which works with many other big CPG cos, buys more than 40x the media Busch Media group bought. So AB will be able to act "faster" and "spend smarter." For wholesalers, "your media costs will go down," but distribs will be able to "increase media pressure in your market."  

AB SAMCOM mtg had lotsa energy, extensively detailed plans and improved tone, even while AB still searching for that elusive volume/share growth. "We are determined to deliver topline growth," vowed outgoing prexy Luiz Edmond, who will still be working on US plenty in new role as global chief sales officer. "In the US, our biggest gap and source of value creation is topline growth," said ABI ceo Brito. "We need to resume topline growth" and ABI "totally committed" to that. ABI is spending to get that growth -- US sales and mktg spend up 37% in last 3 yrs, added Brito. Next yr, it will up spending big time again. Editor's note: Last yr, AB said stopping share erosion was top priority. Tho AB share trend improved over summer, AB hasn't stopped share loss yet. Brito praised Luiz as "very dynamic leader," who "did amazing job of integration, culture change and value creation," adding that he's "very happy to have" Luiz "back by my side" in NY office and global role. Luiz, who hasn't always had smoothest relations with distribs but has gained respect of many, received standing o. New North American prexy João Castro Neves "has big shoes for sure to fill," said Brito, but he did "amazing job" in both Argentina and Brazil and "has done it before," i.e. filling big shoes, since he replaced Luiz in Brazil. In brief remarks, João stressed that at AB "we need to be more nimble, faster" and "manage complexity." He closed: "Let's grow guys."

In weeks prior to AB SAMCOM meeting, some talk that AB would revisit Exhibit 9 of its Equity Agreement and sometimes thorny issue of companion brands. But relationship issues with distribs were more deftly handled at SAMCOM, tho glancingly referred to by Brito and others. Brito referred to "sense of urgency" that would be necessary for AB to grow and "idea of best efforts in growing and supporting our brands," noting that "when we are aligned, performance is better." He added that "more often than not, we are aligned" and "our future is totally interconnected." Brands ABI and distribs "develop" together are "ours forever." He urged AB distribs to "be smart about brands we choose." Overall "our relationship is very good," Luiz told distribs. And wholesaler profitability is "at or close to all time high." While "much attention" is paid "to the differences we experience from time to time, we are partners," Luiz added. So "let's work together" instead of fighting each other "wasting time and money" in battles where AB and distribs "lose focus on the work." Later, outgoing wholesaler panel chairman Don Klopcic echoed Luiz and urged distribs/AB not to "get sidelined by a difference or two. Our differences are few. . . At times, it seems we are fighting each other instead of fighting the competition." Don also praised Luiz for his "willingness to listen" and "openness to the panel process." Don detailed issues panel and AB had made tangible progress on together, including package integrity, inventories, reduced number of surveys and more.  

Even while Boston booked its 9th-straight qtr of double-digit depletions gains, 6 of 'em 20%+, and operating margins expanded so far this yr vs a squeeze last yr, top execs not exactly treating trends like Utopia yet. Indeed, Boston release and conference call, while full of positive trends, also marked by many notes of caution. First the numbers: 9-mo depletions up 25% and still up 24% thru mid-Oct, including still hard-charging Angry Orchard (over 55% of cider in scans), despite new competition from AB, MC, HUSA, etc. Beer and tea volume up too. For 9 mos, shipments up 647,000 bbls. That trend outpaces all other top beer players by at least 2.5X, and well ahead of overall craft growth.

At same time, cost hikes kept more in check this year, at least thru Sep. So Boston expanded operating margin 1 full point for 9 mos to 16.7, banking $115 mil in operating profits, +36%. Judy Hong at Goldman Sachs expects EBIT this yr to be $142 mil, jumping to $170 mil on over $1 bil in revs next yr. Also, Boston "completed a number of significant capital and efficiency projects" to build capacity, said ceo Martin Roper. So Boston sees lower capital spending this yr than previously expected and next year's capital spending to be $60-70 mil less. That's serious money. Plus, Boston plans no big new brands next yr, but rather will focus on "second year growth" of this yr's launches. Still, Boston did not change profit guidance for 2014 and Martin cited margin "pressures" on the way.

Martin again pointed out that IPAs and cider are lower-margin items than others in Boston portfolio given higher costs to produce, so "at the gross margin level" Boston "under pressure just from mix trends and drinker interest." In general, Martin more cautionary than celebratory on the call. How so? Tho depletions up 24% thru mid-Oct, that rate not expected to continue thru end of yr and Boston stuck to volume growth guidance of 20-24% for full yr. Scan data shows recent slowdown and Boston "does not have the benefit of introduction of a new seasonal" in Q4. Angry Orchard "going up against much larger numbers," said Martin. Meanwhile, 4th qtr earnings will also be impacted by "some inventory . . . reduction on wholesale that has to happen," (a coupla days) plus timing of ad, promo, selling costs shifting into Q4. Boston plans to continue "high investment levels" in brands," and Martin noted "big brewers adding sales people . . . and stepping up their investments too." Another cost headwind: freight, "and we suspect that's going to continue into next year." And even while Boston "hopes" dropping gas prices will ease costs, "availability and the driver hours seem to be a much bigger inflationary factor right now."

Boston Expects Double-Digit Growth to Continue in 2015 Despite these cautionary notes, Boston still expects volume growth of 10-15% next yr (that would be big slowdown). For craft beer segment, Boston said low double-digit growth "likely" and it seeks "reasonable share," with "high single digit" gain. Chairman Jim Koch agreed that craft brewers "very optimistic about multiple years of double digit growth." Unlikely that cider will continue current "momentum," said Martin, but "we do think that it is running over the next 5 years for the cider category to double or triple maybe in a 10-year time period." Tea "remains healthy, just chugging along slowly, steady growth" and he hopes for similar trend next yr. Final note: while beer biz clearly more healthy off premise than on, Martin said "we aren't really seeing too much difference in trend" for Boston.  

ABI's 3d qtr results produced headlines co mostly unaccustomed to getting: "Key Beer Markets Go Flat" (FinTimes), "Wide-Ranging Shortfall"(Bloomberg) and "Even the Mighty Stumble" (Bernstein Research) to name a few. So whassup? AB 3d qtr volume soft in each of its 3 biggest mkts, US, China and Brazil. Off 3.7% in US, up 0.2% in Brazil and down 5% in China. And volume dropped 20% in Russia and 10% in UK. It was a tough qtr. Mexico and Argentina remained bright spots. Interestingly stock unaffected, suggesting mkts basically shrugged off results and accepted ABI explanation that earnings miss a "one-off."

Globally, ABI EBITDA still up 1% in qtr, but that was 5-6 points behind consensus. ABI called the qtr "a one off in terms of EBITDA performance" which was "marked by a solid underlying commercial performance" in top mkts. What did it mean by that? ABI gained 1 share in Brazil, 0.7 share in China and cut estimated share loss in half in US (from 0.65 in 1st half to 0.3 in 3d qtr). Much of earnings shortfall driven by decision to bring US shipments and depletions in line in Q3. And US earnings bore the brunt: EBITDA down 7%, $112 mil in 3d qtr. US EBITDA down $67 mil, 2% for 9 mos on flat revs.

But other US issues kept cropping up on conference call, including pricing, sales and mktg spending, increased freight expenses. AB rev per bbl up only 1.2% in 3d qtr and 1.5% for 9 mos, largely because of 25 oz can intro. "This thing has lapped," said ABI ceo Brito (on call) about can intro. Starting in 4th qtr "what you see is a more normal net revenue per hectoliter in the US…. We have also recently taken a price increase in the US that is broadly in line with inflation," Brito added.

Brito repeatedly referred to Bud Light making "good progress," "gaining 1 share of premium light over summer" in IRI and "amazing" results from new campaign. But Bud Light STRs down 2% in qtr. That's a deceleration from 0.5% reported in Q2, albeit in softer mkt. ABI upped sales and mktg spend enormously in North America (vast majority US): +$191 mil, 13% for 9 mos. One analyst pointed to huge global bump in spending and overall not great results, asking: "How disappointed are you with this?" Brito: "We invested heavily behind Bud Light in the summer and this is the first time we did it in many years. . . And the results were amazing," according to Brito. Meanwhile, CLSA's Caroline Levy asked interesting question about margins and "moving parts" related to "transport costs." Brito acknowledged a "perfect storm" of sorts where ABI "had to buy some spot lanes outside of contracts because of some short supply" (at higher costs) and Montejo launch where several mos of inventory brought to US in 1 mo from faraway breweries because of "tight supply." ABI working on initiatives to "make transportation more flexible" and new software that will "allow us to play a little bit more with inventories than we do today."

What about move to new North American prexy João Castro Neves? "This kind of leadership change that we do is part of our culture," said Brito. "To create leaders or better leaders," continued Brito, "you have to… take them out of their comfort zones" every 5-6 yrs. "This strategy is a long term one, so it's not because when people change that we're going to change strategies," said Brito. But with "new set of eye . . . people come with new ideas and they challenge things that may be haven't been challenged . . . and that's always healthy," he added. Top priorities for João, as for Luiz, will be Bud Light, Hi-end, on-premise, Montejo and Bud stabilization.  

Look at lines for top 3 suppliers in table below: shows starkly how top 2 goin' in opposite direction of #3 player in US beer. While AB and MC shipments each down 1.7-2% for 9 and 12 mos thru Sep, Constellation Brands Beer Division (CBBD) up about 10% each of those periods. Meanwhile, collective "Others," driven by craft, also up double-digits each period. For 12 mos, CBBD up 1.3 mil bbls while AB off 1.7 mil bbls, MC off 1.2 mil bbls.

Overall, total US shipments in the black each of these periods, boosted by imports into US (gain is all Mexican and Belgian) and strong taxfree trend (mostly exports). Taxpaid domestic shipments currently on course to be down for 5th year in last 6. Off 800K bbls, 0.6% thru Sep, Beer Inst estimates. What about calendar 2014? Q4 is not easy comp; taxpaids flat, but total shipments up 1.5% in Q4 last yr riding big import gain. Still, as NBWA economist Lester Jones notes, total biz has shipments momentum with 4 straight qtrly gains. Also: gas prices have plummeted and unemployment and housing pictures improving. Gotta note disparity in industry shipments vs depletions. While shipments number suggests yr-to-date gain, AB sez total industry STRs down 0.8% for 9 mos. Final 4 mos for imports which always bounce around, could be key. Net-net: tuff to call the yr right now.

In Q3, AB shipments down more than 3% for 2d-straight qtr, following Q1 boost in case of labor strife. That brought yr-to-date shipments and sales-to-retailers in-line. Shipments off 1.7% for last 9 mos and 12 mos. That's about a point better than AB's calendar 2013 trend. MillerCoors shipments off about 2% for 3, 9 and 12 mos. But that's slightly ahead of depletions, down closer to 3% so far this yr. MC booked 3% shipments declines in 3 of last 4 yrs; 2014 shipments look a little better so far, as innovations lessened decline rate. Over last 12 mos, AB and MC combined lost 2 full share of shipments, we estimate. As noted, Constellation sticks out as star among top 5, runnin' up 10%. The last time a top-5 brewer put up a double-digit shipments gain for 12 mos, without an acquisition: Crown and HUSA each up 14-15% way back in 2006. HUSA number is tricky to estimate. Heineken doesn't give much color on shipments; it said HUSA depletions "positive" in Q3 and outperformed US biz. But HUSA getting incremental volume from Strongbow cider. We still try to exclude cider, and it moves the needle for HUSA trend. In any case, we estimate HUSA malt bev shipments up slightly this yr. Pabst down near 3% for 3, 9 and 12 mos, as PBR trends softened, other brands not picking up the slack.

Below top 5, Boston reported shipments still running up 26%; that includes cider. Boston's malt bev biz up low double-digits for 9 mos, we estimate, about 275,000 bbls. Yuengling up 6-7%, thanks mostly to adding 3 New Eng states, another 135K bbls or so. Rest of 2-mil-bbl "Others" gain shared across craftland, up in mid-high teens. Scan data suggests Diageo and NAB shipments each down mid-high single-digits.  

Starkly different spending strategies adopted by AB and MC this yr to deal with soft volume shows up in media spend data provided by Nielsen Adviews service, which tracks major media and internet $$. Tho each reduced overall spending, AB ramped up on core brands while MC pumped lotsa $$ into new brands. Overall industry spend off $7 mil, 1% Jan-Jun. Keep in mind, individual suppliers have challenged media spend reports in past, especially when they show cuts. But Nielsen still provides interesting peeks inside the media tent. AB really beefed up Bud Light and Bud support in 1st half: +$24 mil collectively, a 22% boost for Bud Light, 9% for Bud. But AB cut big $$ from other brands, including: still-solidly growin' Mich Ultra (-23%) and Stella Artois (-55%). AB re-directed most of Stella cut to Cidre intro. AB also saved a ton by eliminating Bud Black Crown support from big $23-mil splash last yr to just $600K this yr. Ritas took more modest cut. All in, AB spend was down $14 mil, 5%, according to Nielsen. That's while AB InBev reported 16% increase in total sales/mktg costs in North America in 1st half. So increased spend not reflected in these reports.

MC went big behind new brand intros while slicing premium light $$ by plenty. Three big intros -- Fortune, Smith & Forge and Coors Lt Summer Brew -- drew whoppin' $32 mil in media, 17% of overall spending for 1-2% of volume. Innovation sure ain't cheap. Meanwhile, Redd's grew sharply despite a third less dollars from intro last yr. MC cut $29 mil combined from Coors Light, Miller Lite budgets, -17% and -24% respectively. Bud Light spend was more than 3X Lite's, 2.75X Coors Light's. Meanwhile, MC jacked High Life support, tho on tiny base, and popped Coors Banquet support. Big cut in "Other" spending from 1st half 2013 was mostly Leinenkugel Summer Shandy, we understand. MC had also intro'd Third Shift and Batch 19 last yr. For 6 mos, MC total media $$ down $19 mil, 9%. Corona and portfolio-mates benefited from additional $21 mil, 44% in media support in 1st half, as Constellation fueled the fire. Similarly, Boston volume blazed and media $$ jumped 40% to nearly $25 mil Jan-Jun. HUSA bumped up media $$ by $6.7 mil, 12%. DGUSA whacked media spend by $14 mil, 74% (ouch) and Mike's moved virtually all of modest mktg support elsewhere.  

First time we've seen retailer charge that distrib used "monopoly" power to hurt its biz via delivery schedule, pricing and other actions. After 3 yrs, Mitchell Dist, which has 70+ share with AB in 17 Mississippi counties (AB still has 69 share in state), unable to get fed ct to toss numerous antitrust charges filed by Major Mart, a chain with 11 outlets in northern Miss. Judge did toss pricing charges under fed Robinson Patman Act, but kept alive Sherman Act, state antitrust law and tortious interference charges. Mitchell denies all charges, natch. Trial scheduled for Oct 20, but just postponed.

After over 30 yrs of dealing with Mitchell predecessor (Cash) and Mitchell, relationship with Major Mart "began… to deteriorate" in Sep 2010, judge understated in Aug opinion. Major claims Mitchell sent "5 different Everyday Low Price sheets" then, so chain "unable to correctly price" AB products and "lost profits." Then things got worse. Major sez Mitchell started to overstock its stores with unrequested items and charge different prices than other retailers got. Mitchell sez Major ignored "updated" pricing sheets. Major then gave additional space to competitors, lower prices on competing brands and banned Mitchell employees from storerooms. Mitchell then changed delivery days and cut back to once/week while continuing to provide "multiple delivery days to others." Mitchell sez it simply responded to "annual evaluation" of routes. Getting single delivery day, Major sez, meant AB products crowded out others and they missed out on cold beer for weekends. Major instituted limited "vendor hours" for Mitchell, gave competitors' priority and more.

In Apr 2011, Mitchell stopped delivering to Major's stores. Major got restraining order and "parties seemingly reached a resolution," but truce "fell apart" by mid-June. New round in battle included "new set of vendor rules," Mitchell providing coupons/giveaways to competitors but not Major and more. Major ran out of beer on Jul 4 weekend. Then, Major sez, Mitchell provided "short-dated beer." Mitchell denies any charges about short-dated beer. Mitchell again stopped delivering for short period, communications broke down and Major filed suit. Mitchell countersued, but charges dropped by "confidential agreement." Mitchell asked fed ct to dismiss Major suit, but it kept key charges alive.

For trial: 1) charges under Sherman Act that Mitchell "engaged in monopolization," using "market power to 'strong arm'" Major into "favorably pricing and displaying" AB products at expense of competitors'. Mitchell sez it's protected by State Action immunity and no antitrust injury, but judge ruled that alleged "anti-competitive activities" are "separate" from what's allowed by state franchise law. Also ruled activity had effect on interstate commerce defined by Sherman Act. Major also has expert claiming Mitchell has "monopoly power" in relevant geographic mkt (where Major sells)and product mkt in beer. "Question of fact" remains on monopoly issue: Mitchell's 70 share and "elements of its conduct…suggest attempts to maintain that market share." Up to "trier of fact" to decide. Also for tria1: 1) whether Mitchell's conduct aimed to "punish and exclude" Major from selling competing products, and were "tortious interference" via retaliation, or as Mitchell sez, result of legitimate business decision."

Since this Aug order, already another incident where Major claims Mitchell threatened to cut back deliveries if AB products lost space. Court postponed trial date past planned Oct 20. Case is reminder that state regulations can "practically insulate wholesalers from competition within a brand, but cannot shield a wholesaler from antitrust claims of misuse of market power bestowed by that state sanctioned 'monopoly,'" atty Marc Sorini points out. Conduct toward retailers that might otherwise be considered "rough dealing" in other contexts may invite antitrust scrutiny due to the "exclusive distribution relationship," Marc opines. Should be an interesting trial.