Besides bucket metaphors, Jim Koch laid out “facts and realities,” in his view, of current state of franchise reform during conversation with Bill Hackett at Beer Insights Spring Conference yesterday (see above).  First, there’s “a lot of rhetoric,” but “we should all just chill,” Jim recommended, as there are “great interdependencies” between brewers and distributors, “natural allies” in his view.  Second, “it’s not going away,” as 30 years ago when he started in biz, wholesalers were working to gain franchise protections and rhetoric was just as high then.  Struggles will continue and the “business is better for it.”  Meanwhile, existence of franchise law “takes out between a half and a third of the exit value” of small brewers, he argued.  Next, “the balance of power in the industry is shifting.”  Craft brewers are “going to be more powerful” and will “probably prevail,” just “as the wholesalers did,” according to Jim.  But “this is a public policy issue,” so small brewers likely to keep conversation public because “they generally benefit from it.”  Finally, “most states are going to have franchise law carve-outs,” Jim predicted: “It might take 5 years, it might take 10 years,” but it'll happen.  He suggested that an exception or exemption from a state’s franchise law will likely include a production cap based on the size of the “largest brewer in that state.”  We’d note that if legislators aren’t careful and merely accommodate in-state players, that logic could easily run afoul of Granholm decision.  But policymakers in at least a few states have already examined current production of in-state brewers before deciding on size caps for carve-outs.

Bill countered that some craft brewers are “going to market before they really know what they want to be when they grow up.”  He suggested having a “stronger game plan on the front end...before they make decisions on who they want to go with.”  Jim offered that carve-outs would “put an end to some of the whining,” but noted that the industry has “the benefit of a pretty damn good regulatory environment.”

Shades of May 2008?  That’s when leak appeared in the Financial Times about impending ABI deal, just prior to it actually happening.  Yesterday, same newspaper printed speculative piece about “rumors…doing the rounds” that “bankers have been putting together a syndicate to raise around $60 billion of debt, which would fund the cash component of a European takeover.” FT then noted that SABMiller “among the stocks to benefit from the speculation,” adding that it has been “rumored for more than a decade to be a possible target for Anheuser Busch InBev.”  SABMiller, ABI and Molson Coors stocks all jumped following the piece.  Molson Coors stock now up almost 40% from Feb lows and at new all-time high.   Bank of America raised it to a “buy” today.  Recall, Stifel’s top pick is TAP, largely because of increased likelihood of deal.  ABI-SAB would have combined revs of $76 bil and EBITDA of approx. $30 bil, said Stifel’s Mark Swartzberg yesterday. That’s a lot of moolah.

This FT report has a bank syndicate, an amount of debt, and a timeframe (pretty much the present), but didn’t actually say deal is for SABMiller.  There ain’t all that many possibilities at that kind of level. So is it for real this time, or just a more intense speculation? Stay tuned. 

AB just dropped its price on 18-packs in Calif from $11.70 to $11.30 for 1 week a month for at least next several mos.  That promo price almost as low on per unit basis as 30-packs.  Purpose is reportedly to help shore up Bud Light in independents on core package, sez source.  Calif environment overall pretty benign so far this yr, with great weather, industry growth.  Unknown at presstime whether MillerCoors or Heineken USA (Tecate) will follow AB’s pricing action. 

High-flying Lagunitas could finish the year somewhere north of 650K bbls, founder Tony Magee told Beer INSIGHTS Spring Conference yesterday.  That would mean growth of 250,000+ bbls  in 2014 alone and 550,000 bbls in last 4 yrs.  Its Petaluma plant is currently running at 650K-bbl per yr pace, “completely maxed out,” said Tony.  Recently-opened Chicago plant (ribbon-cutting with Mayor, Governor next week) working on “back-filling all the inventory” left open by capacity-constrained Petaluma.  So “650 might well be the number” for 2014, and it “might be a little bit north of that if we’re really able to make Chicago play.”  In another couple months, the Chicago brewery will already be up to about 500K bbls of capacity.  Lagunitas has been trying “to put the reins forward on the horse, just relax the bit and see what it would do on its own without kicking it at all,” Tony said.  But “every time we do that a little bit we end up having to pull back pretty hard because certain markets will grow kinda quickly...and soak up...whatever capacity we just put online.”  

Looking further forward, Tony also revealed that his Lagunitas Development Company has far broader ambitions.  It is already scouting out a 3d possible site that would likely be needed in next 2 yrs.  And further down the line?  “We should have 5 breweries,” Tony thinks, “inside of the next six to ten years.”  But “they don’t have to operate at full capacity” to help Lagunitas “make deeper affinities with different parts of the country” or be profitable.  Lagunitas builds breweries more inexpensively and runs them more efficiently than many of its craft brethren, Tony sez, which means that his breweries can find profitability at much lower capacity utilization than traditionally considered.  And if Tony not able to make all those breweries work down the line? “If I’m not winning, somebody else is, and I’m sure that I can sell it.”  More in Craft Brew News.   

Fundamentally different perspective between major suppliers in US beer surfaced in recent weeks.  Recall that at BI mtg last month AB North American ceo Luiz Edmond and MC ceo Tom Long both basically said #1 “wish” going forward was to grow total industry volume, tho they put it in different ways.  At Beer Insights Spring Conference yesterday, comments from Boston Beer’s Jim Koch and Constellation’s Beer’s Bill Hackett suggested far different priorities.  Jim created his “first slide” for an industry presentation: picture of a “leaky bucket.”  That bucket is 2/3 of US beer biz, “mass domestic brands,” as Jim called ’em, premium and subpremium priced, that have already lost mils of bbls and which he believes “as a group will probably never grow again.”  Drops from bucket falling to everything from craft beer to cider to wine/spirits, non-alcs, you name it.  This phenomenon is “complete sea change,” in Jim’s view, and his strategy is to “get under the bucket and fill our thimbles” and perhaps “get an espresso cup every once in a while.”  (Jim still loves to portray himself as tiny player.)  But there’s gold in them thar thimbles.  Leaky bucket has created “chaotic” situation, Jim acknowledged, with SKU proliferation, blurred distinctions between bevs and differentiation but “an ability for everyone to make money.” 

Bill very much on same plane.  Noted premium light segment peaked in 2007/2008 and that segment already lost 130 mil cases and “will continue in decline.”  What Jim called chaos, Constellation sees as oppy for those in craft and rest of high end to pick up volume.  Constellation projects industry to be flat thru 2020 (consultant Mike Mazzoni had tuffer forecast; no one’s talkin’ optimistically about return to growth).  And “fallout” from premium lights – call it a sub-bucket – is “where we are targeting growth, share and volume.  That’s where the consumers are going.”   As we’ve noted before, while AB and MC gotta push buttons across the board to build healthier environment, competitors have luxury of targeting their efforts and taking their biz.       

US cider biz grew 71%, to 398,663 bbls thru Q1 2014, reports Beer Institute’s chief economist, Lester Jones.  All that and more comin’ from domestic brands, collectively up 88% to about 375,000 bbls.  Yet imports declined 29%, 23,700 bbls, to a mere 6 share for the qtr.  That’s a 22 pt drop in share in just 3 yrs for Q1.  However Apr cider imports saw a 40% boost in shipments, which brought em’ back to only -11% for the yr.  Recall, C&C’s Magners down 17% and Hornsby down 40% 12 mos thru Feb. That’s driving tuff import trends, tho perhaps have improved thru Apr.  Indeed, nearly all of import decline comin’ from Ireland (-51%) and UK (-22%) thru Apr, yet for the mo UK up 13% and Ireland improved to down 14%.  Editor’s note: Hornsby’s sales still off in scanner data (see above article), but Magners top brand up solid 27% (only +4,000 cases tho).  Strongbow, based out of UK, could be partly responsible for imports trend swing in Apr too, with new golden apple brand kickin’ in 32,400 cases in scans thru May 25.  And incremental Stella Cidre imports (majority of Belgium’s +11,400 bbls thru Apr) have kept total imports from falling even further.  

Angry Orchard is still on a tear in scans, more than doubling again and climbing ranks rapidly to boot; flagship Crisp Apple brand  up 1.35 mil cases, 138.5% in IRI multi-channel + c-store thru May 25.  (Total cider about 3.25 mil cases yr-to-date in IRI.)  Crisp Apple already jumped 22 ranks since the end of 2013 to now the 40^th top brand by volume (thru May 18), ahead of Lime-a-Rita, Shock Top Belgian White, and Sam Seasonal to name just a few.  You know what that means.  That’s right, Angry Orchard Crisp Apple Ale is now Boston Beer’s #1 brand in scans – 92,700 cases, $4.5 mil ahead of Sam Seasonal and about 155,700 cases, $7.4 mil ahead of Boston Lager YTD in IRI. 

Crisp Apple $$ sales now pulled ahead of #1 craft brand, Sierra Pale (to #33 overall), and Sierra Pale is only 20,000 cases ahead.  Pretty impressive for a single brand in a segment  that is just 1/8th the size of total craft.  Other top Angry Orchard brands – Angry Orchard Variety Pk (+476%), Elderflower (+1078%), Apple Ginger (+16%), and Green Apple (new this yr) – combined to grow another 410,400 cases, $13.5 mil thru May 25; most brands in just their 1^st or 2^nd yr.  Meanwhile, #2 cider co, C&C saw top brands down a collective 70,000 cases; Woodchuck top brands collectively down 33,400 cases and Hornsby top brands down 42,000 cases.  But a handful of big brewers’ new cider brands providing a solid pop in their 1^st yrs: MC’s Smith & Forge sold 124,700 cases, Johnny Appleseed 85,200 cases and Strongbow Gold 32,300 cases in IRI MULC thru May 25. Those 3 new brands grabbed 7.4 share of volume in volatile cider segment. 

 Ferocious New England battle continues as Yuengling launched in RI.  Lotsa pricing action and more.  First, came news that AB lowered its 30 and 36 pack prices in Mass by at least $1 for Memorial Day. Then Yuengling launched 12-pack prices below Bud 12-packs in RI.  And there’s reportedly lots going on in efforts to keep Yuengling out of accounts.  Here’s quick chronology and details, cobbled together from various sources.

In mid-May we started hearing about new lower Bud/Bud Light 30-pack PTRs of $18.79 and 36-packs for $21.79  in Mass.  An additional drop of a buck, reportedly.  MC followed apparently.  And sure enuf, lotsa ads over Memorial Day for $19.99 30-packs of Bud and Bud Light (liquors 44), Coors Light and Miller Lite (Kappy’s, Curtis) etc.  That compared to $17.99 24-packs for Yuengling, which is also pretty low, several bucks a case lower than it sells for say in Publix in Fla.   But that’s still about 50 cents a six higher than Bud, Miller, Coors.  The lowest prices we saw in Memorial Day ads in Mass were for Bud and Bud Light 36-packs at State Liquors for just $22.99.  Wow.  That’s just $3.83 per six-pack equiv.  Bud and Bud Light cases were also available for $15.99 in Austin Liquors. 

In Jun, Yuengling launched in RI with lower quantity discount prices on 12-packs than Bud.  At $17.49 PTR with purchase of 25 cases, compared to $19.15 frontline and for same quantity for Bud.  But recall, Yuengling doesn’t even have an 18 or 30-pack, which are big packages for AB.  So it was trying to get to a more competitive per unit price with 12-packs, compared to AB’s biggest discounted packages.  Not to undercut Bud, sez one source.  Furthermore, there’s a war going on out there in efforts to even get Yuengling placed, sources say.  Just like there had been in Mass.  So lots going on.   “The 4^th of July has come early because the Fireworks have begun,” said source close to action.  Meanwhile, with Mass boost, Yuengling sales have picked up.  Now up 6% yr-to-date thru May.  

The Beer INSIGHTS Spring Conference is coming up next week, June 9-10 at the Ritz Carlton in Chicago.  Don’t miss this premiere event, including Constellation Brands Beer Division ceo Bill Hackett, Boston Beer chairman Jim Koch, consultant Mike Mazzoni, Lagunitas founder Tony Magee and many more.  A few seats remain.  Click here to check out full agenda.  Click here to register.   

Extended comments in Wall St Jnl from Diageo CEO Ivan Menezes provide notable peek into leading spirits producer’s perspective.  They also resonate with beer biz.  On perennial question of “how committed” Diageo remains to Guinness/beer “in the long term,” Ivan reminded that he came from Guinness side and that he’s been “closely involved in it from my days” in mktg.  “Guinness has tremendous opportunity,” Ivan insisted, and Diageo’s “beer footprint in Africa is an enormous asset.”  Called oppys for beer and spirits in Africa among Diageo’s “most exciting avenues” over next decade.      

Ivan didn’t talk about flavored malt bevs, but pointed out that Diageo “invented flavored vodka” with Smirnoff extensions and broader consumer palates have driven flavored spirits. But he also warned that “when it comes to whiskey we will be very careful about flavors,” even while Sazerac’s Fireball is one of hottest liquor brands out there.  Indeed, “it’s highly unlikely you’ll see a Johnnie Walker flavor extension.”  Still, Diageo putting pedal to metal on trade up in spirits biz.  While move to high end spirits ongoing for long time, “luxury spirits is a new category, we’re early in the game and in the next decade you’ll see Diageo make a substantial shift in building a true luxury scale business.”  Over last 3-4 yrs, Diageo has put “tremendous amount of focus in expanding” luxury level.  “That cachet of having a scarce liquid that is beautifully crafted that people really want.  I mean, it is classic luxury.”   Lastly, on universal shift of focus/investment to social media from traditional, Ivan said “we will be moving about 25% of our media spending into the digital space” from around 17% in 2013.