Here are a few more odds and ends from BI mtg.  AB ceo Luiz Edmond shared great phrase, that “beer is the original social network.” He added: “Social media is an enabler for better beer occasions.”  As lowering or holding fed excise tax remains top priority, Luiz reminded that when beer taxes jumped 200% in Russia, volume subsequently fell 18%.  In Ukraine, when taxes boosted 180%, volume fell 17%.  MC ceo Tom Long returned to theme he’s sounded in past about improving beer per capita consumption.  As Americans reach “age of ascension” (21) “not enough are adopting beer.”  If the industry doesn’t “get them from [age] 21-25,” it won’t get them at 25-30.  And “if you don’t get those first 5 years, they drink half as much beer the next 10.”  Net-net: beer biz “needs to recapture a generation.”

What’s #1 on ceos’ wish lists?  HUSA’s Dolf van den Brink: “Netherlands winning the World Cup.”  (Luiz just patted Dolf’s back and shook his head.)  Luiz said “grow the industry.”  Constellation Brands Beer Division’s prexy Bill Hackett: “I’d like to see the industry unite, get our act together.”  Message from Congressional staffers and DC vet, said Bill, “couldn’t be any clearer: ‘get your act together before you walk in here.  Otherwise you are an open target.’”  Tom wants to “collectively ensure over the next 5 years to” make beer the “clearly preferred beverage of choice for 21-25 yr-olds.  If we do that” there will be “another decade of growth.”

Panel of DC insiders was remarkably skeptical of anything being accomplished by Congress over next few years, tho current debates, especially over tax policy, will set up eventual resolutions.  So brewers and their allies need to “stay vigilant and stay involved.”   Read some of their comments: 1) “there’s no momentum for tax reform right now”; 2) tax equalization is “absolutely something to worry about since it raises revenue.”  Congress will have a target and “anything that brings in revenue we’re throwing against the wall and see what sticks.”  There will be willingness to “hit a lot of industries to bring [tax] rates down.”   3) On prospects for major legislation during balance of this Congress, “a voice of optimism doesn’t look good right now….  Not a lot of optimism for the next Congress,” so “next real opportunity” for major legislation is 2017.  “Compromise is a negative word in DC right now.”  Kinda puts industry bickering in different context.  Lots more details in beer marketer’s INSIGHTS.

Consumer price index for beer was up 1.6% in Apr vs a yr ago, per latest govt stats.  Beer pricing was up same % for 3 consecutive months following gain of just over 2% in Jan.  CPI for general inflation jumped ahead of beer in month of Apr at +1.9%.  Beer pricing much healthier than spirits (flat) and wine (-1%) in latest month.  YTD thru Apr, beer CPI is still ahead of general inflation, up 1.7% vs 1.5%.  CPI for spirits is up 0.5% but wine prices are off 0.4% YTD.  

Constellation Brands Beer Division apparently continued its torrid growth pace in Apr, following double digit gain in Q1, at least in its biggest states.  Up more than 15% in Fla and SoCal in Apr.  But Constellation already starting to run into out-of-stock issues as it’s growing much faster than anticipated.  Has to make for some very interesting discussions between it and ABI regarding supply.

Even with brewery expansion in Piedras Negras costing nearly $1 bil, or $400 mil or so more than originally projected, Constellation Brands still expects to reach $1 bil in free cash flow by 2017, cfo Bob Ryder told Goldman Sachs Global Stables Summit in NY earlier this week.  He explained previously announced reasons for cost jump -- outsourcing, cost of expedited labor to finish project in half the time, etc -- and noted that “generally speaking” the brewery is costing about $100 per hectoliter.  That price “is appropriate by industry standards and should be used as a benchmark if STZ needs to expand the brewery capacity further,” said analyst Judy Hong. 

Constellation still doesn’t have “100% of the bids” in on Piedras Negras brewery and current workforce of 600 working on construction will swell to 2,000 eventually.  Constellation plans on meeting Dept of Justice timeline of 3 yrs to be independent of ABI. “Frankly the last thing we want” is to have to request a 12-mo extension, noted Bob.  Constellation is still getting 100% of its glass supply from ABI too but is “getting bids” from global glass co’s now.  Constellation “could participate in that investment” with glass manufacturers if investment looks good, added Bob.   

“While I am basically on the sidelines, the more attention this issue of franchise reform gets, the better for the brewers,” said one craft brewer who wished to remain anonymous. “It is an antiquated system that insulates wholesalers from competition,” he added.   “Of the three tiers, they are BY FAR the least competitive. I welcome the op-eds, attention, debate and change.  The status quo is what wholesalers want.  The debate is the best way to break that.” 

He continued:  “Whenever the press or legislators that are not PAC recipients are educated about this, the response is always the same, amazement that the system exists as is. Wholesalers have done nothing but give lip service to this issue. For more than a decade. I have warned them about this coming battle in the press…. It was avoidable with common sense franchise law carve outs. Instead there will be an intra-mural battle of who has more power in the state houses. Eventually brewers will, and the laws will be less advantageous to wholesalers than they would have been. C’est la vie. Regrettable and very predictable in my opinion. I have spent a good deal of my time on this behind the scenes to try to avoid what is going on but I can tell you that the brewers are doing what they need to in the face of wholesalers not budging an inch. 

It’s PACs vs op-eds.  Let the best man win!”

In many different conversations with a broad spectrum of industry folks in recent weeks, it’s clear that emotions still running very high on franchise issues.  And there remain many points of contention and grievances on both sides.  But “one of the things” that this debate about “and that needs to be talked about more” said consultant Joe Thompson: “It’s over money.”

“Craft guys see franchise laws as affecting their value.  And it does,” sez Joe, reminding of comments by Boston Beer’s Jim Koch, Rob Sands and others that distributor footprint issues are a “dis-synergy” and therefore value-reducing in any potential craft deals.  On other side of coin, distribs valuations are also higher because they have franchise law protections, as Joe and others have noted.  Such fundamental and opposite effects on enterprise valuations make issue that much harder to resolve. 

For years, beer execs have countered distillers’ claim that “a drink is a drink is a drink” and implication that taxes should be equalized.  But it hasn’t been a prominent public/policy stance.  That’s about to change.  At BI mtg in DC today, communications veep Chris Thorne laid out “Know Your Drink” campaign as part of Brand Beer efforts among DC elites and policymakers to raise industry’s reputation and “win policy debates” over taxes, regulatory issues and “defeat efforts to blur the line between beer and hard liquor,” Chris said. Specifically, KYD aimed to counter notion of standard drink and familiar graphic that 0.6 oz of alcohol same in a beer, glass of wine or mixed drink.  After all, “if a drink is a drink, then an ad is an ad – and a tax is a tax.”  Behind it all, BI wants to protect commercial freedoms and tax advantages that beer still enjoys vs spirits. (Not much said about wine.)  For now, effort focused on DC elites: policy makers, fed agencies (BI wants to get standard drink out of fed dietary guidelines, other fed agency materials), staffers, media, think tanks, etc.  No consumer component yet, but BI has tested “Know Your Drink” message with positive results.

Distillers have 20-yr start with “standard drink,” Chris acknowledged, and majorities buy into concept, plus notion that all alc bevs should be treated the same.  But these “are not strongly held beliefs,” Chris sez, and when flaws of “standard drink” explained, people “know it doesn’t make sense.”  BI set out to build “credible, fact-based case” to distinguish between beer and liquor, collected solid research evidence to “disrupt and displace” standard drink.  Key facts: 1) 80% of beer is served in 12-oz at 4.6% avg ABV, so “customary drink” (keep that phrase in mind) of beer actually lower in alcohol than “standard” drink claim; 2) those who drink cocktails typicallyget 50-300% more alcohol than so-called “standard” 0.6 oz.  So BI put together new graphic (this concept floated at AB distrib mtg at last NBWA convention) that shows “customary” mug of beer with one dot to represent alcohol, then “customary” glass of wine with dot and a half, up to martini with 3.5 dots and notation that every mixed drink is different and may contain even higher levels of alcohol.  BI relies heavily on notion that KYD is “fact-based and data driven” and shows “if you’re drinking anything but a beer, you really don’t know how much you are drinking.”  And, again, testing indicates both elites and consumers find message “much more credible than ‘standard drink’…. It’s common sense and it works.”  Given head start liquor has, and inevitable backlash from distillers, can KYD change hearts, minds (via policy/regs) and drinking patterns?  Stay tuned.   

At Beer Institute’s annual meeting this afternoon, incoming chairman Luiz Edmond (AB prexy North America) and outgoing chairman Tom Long (MC prexy) both commented forcefully if also at times a bit obliquely on recent industry controversies including those between craft brewers and distributors over franchise laws as well as different tax bills.  Beer biz players “have all seen attacks played out in the press,” said Luiz.  “As an industry we are better than that,” he added.  Beer Institute “supports and defends the 3-tier system” and as an industry beer “less effective when any one tier puts itself ahead of others.”  The 3-tier system “is finely tuned and imperfect” but “works well untouched,” he added.  Luiz expressed his hope that “cooler heads prevail” and that “we protect beer’s reputation in all cases.”

“If we break into factions,” echoed Tom, “especially if in so doing we make a spectacle of ourselves” then “we undermine the perception of our great industry among opinion leaders and the general public.”  There “is no better way to undermine the perception of beer – and put a target on our back in Washington – than to continue the unnecessary fights we have seen taken place recently....  Diageo and DISCUS couldn’t have dreamed up a better way to undermine beer.”  Tom also criticized what he called “xenophobic, jingoistic slurs” used by some “in support of tax breaks for themselves” and called that “wrong.” 

Tom talked about “inclusion” vs “disruption,” noting “I have struck out on my own” and “not been effective.”  Beer biz “has greater voice when together than alone” and “usually a third better way,” noted Tom, “comes from listening to others.”  As there is more “disruption,” said Tom “we have to be careful and guard this precious asset.... What we have is a system that works,” concluded Tom, meaning 3-tiers.  “It truly is a precious, precious thing.  We need people to bend.  But we cannot allow the system to break.” 

 Francine Katz’s discrimination suit enters its 3d week in St Louis today but is expected to be in jury’s hands later this week.  Before AB rests its case, former prexy Dave Peacock is scheduled to take stand for defense.  Francine’s attys wrapped up their case on Fri with video testimony of longtime board member Vernon Loucks and former AB atty Anthony Franks.  Loucks, who served on board’s compensation committee at time of Francine’s promotion, testified that despite “occasional” debate between compensation comm members, AB never made “major changes,” reported St. Louis Business Journal.  He testified he perceived Francine’s role to be PR and said her predecessor John Jacob was “sort of the alter ego” of Aug III for “every decision.”  While Loucks saw her work as primarily PR, Anthony Franks testified he worked extensively with Francine as she met with state AGs across the country over controversial Spykes brand. He said Francine along with AB gen counsel Lisa Joley recommended pulling it from the mkt.  Also on cross exam on Fri, Melanie Filas, former sr dir of global compensation, testified there was never an “off-cycle” compensation review of Francine’s salary “despite the fact that Katz” had asked for one on “multiple occasions.”  Melanie said it was not up to her to grant such a request and “she was never asked to do so by AB’s executives,” noted SBJ.  

These from Pennsy, including a Flyers Playoff Special.  Mail-in-rebate gives consumer $11.99 back on three 8-packs of Bud/Bud Light 16-oz re-closable aluminum pints.  That’s off $21.99 retail price, so $10 final cost for a case of 16-ouncers.  Same store has Shock Top Seasonal cases for $18.99, less than mainstream premiums we’re told.  Natl avg price for Shock Top Seasonal in Apr IRI multichannel scans was $29.70/case.    

While Constellation Brands Beer Division has all the freedom it needs to bring on new brands, and some expected it to pursue craft in US, execs there have not embraced the notion in recent presentations.  And ceo Rob Sands threw cold water on the idea in brief talk with CNN Money.  “People expect one of the big guys to get in and roll up the craft business, “said Rob, “but it’s not clear that’s a good strategy.”  Rob believes most craft brands remain limited to local interest: “Although the craft beer industry is growing very rapidly, it’s a very local business.  It’s not clear that these brands can be extended beyond their locale.”  That may be true of majority of craft brands in mkt, but brewers like Lagunitas, New Belgium, Dogfish Head and others have had plenty of expansion success.  Another key reason for Rob’s skepticism: state franchise laws, which create “significant dis-synergy,” via adding distributors that supplier may not really want but would have a difficult time terminating.  (Others have cited this as disincentive.)  As Rob put it: “You end up with a couple hundred more distributors for a small amount of business that could be very disruptive to your sales organization.”  Rob didn’t mention it, but “Gold System” of Crown distribs already heavily into craft biz.