Join us for the 21^st annual Beer Insights Seminar, Nov 9-10 at the Waldorf=Astoria in NYC.  This year, we have already lined up an exciting program featuring some of the industry’s top execs.  We are proud to announce MillerCoors ceo Tom Long, Constellation Brands ceo Rob Sands, Heineken USA prexy Dolf van den Brink, plus craft pioneers Brooklyn co-founder Steve Hindy and Deschutes ceo Gary Fish.  The Beer Insights Seminar is one of the industry’s premiere events. You won’t want to miss it.  Sign up today to take advantage of special early bird registration.  Click here for more info.  Click here to register.  

“There is nothing wrong with the system that exists,” said outspoken Lagunitas founder Tony Magee, responding to the recent Boston Consulting Group report on benefits of 3-tier system for craft brewers.  BCG’s analysis “puts the stink on” the notion of the need for franchise reform.  Indeed, those advocating for franchise reform are “preying on the weakness and the fear of the smallest” who “don’t yet completely understand their own futures or what it is they’re giving up” in carve outs.  What are they giving up?  Distrib motivation, according to Tony.  If small brands can up and go “easily,” then “the wholesaler will be less motivated to invest… thereby depressing the distributor’s asset valuation of those smaller craft brewers… that value will be transferred to and increase the value of the larger craft brewers. That value change would appear in the multiple used for carve-out brands.” So smaller brands will get lower multiples for changing hands and larger brands will get higher ones. Indeed, larger craft brewers “appear to be closing the door behind them,” said Tony.

But another craft brewer, who preferred to remain anonymous, said that while BCG’s analysis a “sound argument for the 3 tier system… I do not believe the franchise laws are necessary (for small brewers), nor can I even fathom how some can build an argument that they are good” for those brewers.  Among this brewer’s reasons that “franchise laws are causing more harm to craft than help:” 1) “too many first hand examples of distributors holding brands hostage to believe this is a rarity,” 2) “franchise laws are why distributors are filling their books with ANY brand that comes along,” hoping for the next big thing, which “has created a total cluster f***” wherein distribs “handle up to a hundred small craft brands – selling none of them – only distributing to…beer museums,” 3) the laws “were enacted in a very different time” and “today we have a very uneven playing field,” and 4) they’re “just un-American,” whereas “contractual relationships,” like those governing “many business relationships,” could be a better fit.

Fast-growing retail chain Total Wine front-paged its “Brewery District” in latest NJ flyer for revamped River Edge store with ad that showed AB especially getting aggressive on some pricing.  What Total Wine calls “your everyday favorites” skew heavily to AB products. You can get a Natty Light 30-pack for $16.09 or a Beck’s 12 pack for $11.49 or a Michelob Ultra case for $18.99 (avg price almost $25 per case in Nielsen).  Below that a longer list with Bud and Bud Light at $16.99 per case, a buck cheaper than Coors Light (Yuengling just above Bud at $17.09).  Busch also featured at $17.09 per 30-pack compared to High Life at $17.99. These prices are statewide in NJ, sez source.  Then too, Total Wine heavily features craft, bragging that it has “largest selection” of craft, sells 2500 beers. Top of ad features pictures of various craft or craft-like beers starting with Yuengling at $4.99 per 6-pack, going up price ladder to Blue Moon and Sierra at $7.99, Sam Lager at $8.49, Dogfish Head 60 Minutes at $8.99, Lagunitas IPA at $9.99 and Stone IPA at $10.99.

Giant Columbia Dist has deal to purchase 225,000 case Mid-Columbia Dist in Hood River, Oreg, closing next week.  This deal tho small is significant for several reasons.  It is the first by Meritage since the original Columbia purchase in 2012.  It is a MillerCoors consolidation as Mid-Columbia principally a Miller, Pabst and Deschutes distrib (that’s about ¾ of its biz, INSIGHTS hears).  Then too, there just haven’t been many distrib consolidations at all this yr.  Columbia is about 18.5 mil cases, almost half the volume sold in entire state of Oreg, but its share in Nielsen even higher than that.  

Last qtr, Tenth and Blake had its 1^st ever dip, but T&B “is performing well” and “strengthening into the balance of the year,” prexy & ceo Tom Cardella told INSIGHTS, day after he announced he’ll be leaving MillerCoors at yrend.  Tenth and Blake is up about half a point in Nielsen all-outlet thru mid-Jun, including 4% gain last 4 weeks. And Tenth and Blake has “great plans” for remainder of 2014 and “exciting” new brands for 2015, said Tom.  He’ll be leaving T&B in “good shape” for successor, with top sales and mktg execs Dave Reny and Ashley Selman.  

Tom had reportedly been contemplating his retirement for some time.  He’s been prexy of Tenth and Blake since its inception.  During almost all of Tom’s tenure, Tenth and Blake grew rapidly and shone as one of the few consistent bright spots for MillerCoors volume.  But it was sometimes unclear what was T&B and what was the larger MC corporate entity.  This also led to some jockeying for position and internal friction.  Then too, T&B never quite became the M&A platform originally envisioned, purchasing Crispin Cider and a stake in Terrapin.  And there’s been a lot of turnover at or near top.  Three execs were named when Tenth and Blake launched in early 2010 (Tom, Jeff Colbert and Jeff White).  All are or will be gone.  T&B is also on its 3d sales vp in 4 yrs and 2d head of mktg.    

Still, T&B frequently featured in MillerCoors quarterly conference calls and is important public face for co’s high-end aspirations.  It remains prime example of MC ability to play in the high end.  More recently corporate focus has shifted more to products like Fortune and Redd’s.  But Tenth and Blake still a key building block for MC and so Tom’s successor will be a significant hire in terms of how T&B and MC’s high end evolves. 

As for Tom, he’s had long and varied 35 yr career including stints at Miller, Labatt, as Beck’s prexy, as Miller’s exec vp of sales, as MillerCoors sales prexy in east and at T&B.  He’s about 60 and it’s time to kick back for a while.  Tom is rare exec who almost always had good relations with distribs.  He also understood craft phenom and expects craft to double in next 5 yrs.  Tom will remain active on various boards (including Green Bay Packers), play in a couple of bands and will no doubt somehow continue to keep his finger on beer pulse.

The most comprehensive report on the US beer industry – chock full of data, analysis and graphs in over 400 pages – is now available from beer marketer’s INSIGHTS.  The 2014 Beer Industry Update includes key industry shipments figures for 2013: total shipments, brewer data, state and regional trends, brand data, segment data, retail trends and much more. Per usual, we also have supplier shipments in 42 states, a review of recent global developments, demographic details, media spending and packaging trends.   This year’s edition features: 1) full 5-yr trends of brand and reporting state data – 2009-2013 – since the AB InBev and MillerCoors deals were done; 2) new maps to illustrate state data trends; 3) five-year series of every top craft brewer that shipped 100,000 bbls or more in 2013.  Click here for more info.  Click here to order and we’ll send out your 2014 Beer Industry Update immediately. 

Recall that Beer Inst intro’d its “Know Your Drink” campaign for inside the beltway at annual mtg last mo.  KYD aims to counter distillers’ decades old  “drink is a drink” efforts “to blur the line between beer and hard liquor,” and lead ultimately, brewers believe, to equalized taxes and breakdown of other commercial freedoms/advantages that beer has.  Took some time, but distillers’ assn DISCUS has responded to BI and its attack on the notion of a “standard drink” that’s 0.6 oz of absolute alcohol in 12 oz beer (5% ABV), 5 oz wine (12% ABV) and 1.5 oz cocktail (40% ABV).  Spokesperson Lisa Hawkins gave us this statement today:  “The definition of a standard drink is well-established in the science and medical community and taught by federal, state and local government agencies as well as by consumer and public health organizations across the country.  To the Beer Institute’s point, there are many different types of beer, wine and spirits products with varying alcohol content and sizes -- including growlers, pints, kegs and the new trend of higher ABV beers. This variety in the marketplace underscores the importance of knowing the definition of a standard drink. It helps adult consumers calculate the amount of alcohol being consumed and follow the Dietary Guidelines.”  

Craft brewers are big beneficiaries of “open distribution system,” sez Boston Consulting Group, including indie distribs’ franchise protection.  Open system “has helped small brewers gain access to the market because they do not have to build their own networks….  Thanks to piggybacking on independent distribution networks supported by the economics of large domestic and import brewers, small brewers avoid much higher distribution costs.”  BCG has “studied direct store delivery (DSD)  across multiple categories for more than 20 years, often in conjunction with the Grocery Manufacturers Association,” it said.  In most categories, “suppliers enjoy significant benefits of local scale” that “combine into significant competitive advantage.”  Those benefits include “more frequent deliveries, reach smaller stores, introduce new products more quickly and setup in store displays to name just a few.”  BCG contrasts such scale DSD systems to beer, where “distributors are independent from brewers…. They have certain franchise rights in perpetuity, protected by the state, for the brands they distribute.  These protections prevent breweries from using their scale to extract advantages from the distribution system the way that DSD suppliers do.” 

Editor’s note: Many of advantages listed for scale suppliers in closed systems are already accorded to big 2 in beer’s open system.  MillerCoors used BCG heavily, including on its business transformation initiative. 

Yet several BCG conclusions strike INSIGHTS as fundamentally sound.  The system is generally open and has broadly benefited craft brewers, though there are some outlier counter examples and rogue behaviors.

BCG also comes up with some compelling analysis using its “proprietary economic modeling approach to the costs of distributing beer to large format grocery stores.”  It found that in today’s “open distribution system” the avg delivery and sales cost for a distrib supplying craft beers, imports and major domestic to a large format store is $1.40 per case.  If a major natl supplier “were to build a dedicated closed system,” delivery and sales costs would only go up 14%. But if craft brewers “did not have the benefits of scale afforded by combined distribution… their distribution costs would be triple what they are today—that is $4.20 per case. And that’s not even including costs such as warehousing, administration and distributor margin.”  Given small brewers’ “moderate margins,” that “cost disadvantage would likely get passed through to the consumer, making many craft beers far more expensive and small breweries less competitive.”  Got comments?  Send to This email address is being protected from spambots. You need JavaScript enabled to view it.

Deal speculation reached near fever pitch Friday culminating in Mad Money’s Jim Cramer saying flat out on CNBC that “there’s a beer deal coming” and later in day that it’s “imminent.”  Why?  One reason he singled out: “something fishy” with Morgan Stanley upgrading Molson Coors from “sell” to “hold” following such a big runup in stock, sez Cramer.  “They never go from sell to hold unless they believe something is afoot,” Cramer added. Morgan Stanley’s upgrade predicated on greater probability of ABI deal for SABMiller and how that would benefit Molson Coors in what Morgan Stanley analyst Dara Mohsenian called a “greater strategic halo” that is “sustainable” in event of a deal. 

If SABMiller sells its 58% interest, “TAP would have first offer and last right of refusal,” Dara notes.  “Upon change of control at SAB, TAP has the right to immediately increase its 42% interest to 50% at a fair market value determined by an independent investment bank.”  But here’s the kicker:  TAP also has “last right of refusal” including “option to purchase the remaining 50% interest at a 5% premium to a 3d party offer.” So even if TAP gets outbid, it gets another bite of the apple at the end.

Here are Dara’s deal assumptions: purchase price of $10.7 bil, at 11.3x EV/EBITDA (about avg multiple over the last decade); synergies of $350 mil as MillerCoors and TAP Canada “are largely operated as separate entities”; debt of $8 bil financed at interest rate of 4.5%.  He believes this deal would add value of $23 per share to TAP.  Dara notes: “aside from press articles, we have no knowledge of a potential ABI/SABMiller deal, nor has TAP commented on such a transaction.  The analysis… is hypothetical.” 

This morn, Seeking Alpha published column called “Beer M&A on Tap?” that sought to throw some cold water on M&A speculation.  Reviewing different scenarios, author brought up Euro chatter about the $60 bil ostensibly being raised and syndicated across-the-pond “tied to A-B InBev and their desire to purchase SABMiller….  First reaction is to roll one’s eyes and stop listening” as such speculation around for yrs. “SABMiller might be too big a fish to go after,” author sez.  Tho deal “not impossible” it’s a “very complicated transaction.”   He explores yet another possibility; Altria getting SAB shares in MillerCoors in exchange for their SABMiller stake plus possibly some cash.   (But value way less than its stake in SABMiller, and Molson Coors gets first and last dibs.) Anyway, “at the end of the day we think a deal such as this is further down the road. Until we begin to hear rumors about investment banks being retained to study the logistics of any deal and whether it could get past regulators, we will continue to discount this rumor.”   Totally opposite view.  We’ll see who’s right.  Molson Coors Investors Day later this week should be very interesting indeed.  

While US beer shipments running down about 1% for 12 mos, control state volume trend is flip side, +1%, reports NABCA .  That’s been the case since mid-late 2013, when liquor volume slowed in control states from +2-3% trend.  Meanwhile, dollar sales in control states up about 4% for 12 mos thru May 2014.  Avg liquor prices in control states rose slowly from flat in 2009-2010 to +3% in mid-2013.  That’s while CPI data shows natl liquor prices at home remaining flattish since 09, tho on-premise prices shot up 2-4% each yr.