Beer Marketer's Insights
Final face of 2013 shipments taking shape. It ain’t a pretty picture, but it got a lot better in final qtr. Dec taxpaid shipments by domestic brewers up 100,000 bbls, 0.8%, estimates Lester Jones at Beer Inst. So Q4 taxpaid trend eked out tiny, tiny 14K-bbl gain. (Flat is the new up 2!) Recall too, imports up double-digits in Oct-Nov. Dec import number will be available in a coupla weeks. For the yr, taxpaids down 2.5 mil bbls, 1.4%. Imports were -1.2% yr-to-date thru Nov. So we’re still lookin’ at a final US shipments figure of down about 1.3-1.4%.
Join us for the 2014 Beer INSIGHTS Spring Conference at the Ritz Carlton in Chicago. The Spring Conference will once again primarily be devoted to the dynamic and growing high-end of the US beer biz. Reserve your seats early as the last 2 conferences were completely sold out. This yr's program will also feature the return of consultant Mike Mazzoni, whose last presentation at this venue on product life cycle of big beer brands was one of the best we've ever had, still being debated and discussed. Also on the program, a guy Mike hired 30 yrs ago, one of the most successful beer industry execs over the decades; the inimitable Crown prexy Bill Hackett. He has led Crown to an enviable growth position. And our program will also include the hottest of craft brewers, Lagunitas founder Tony Magee, who is on the verge of opening his 2d brewery in, you guessed it, Chicago. You won't want to miss this unique event. Join us for what's sure to be a jampacked day. For more info, click here. To register, click here.
VT Hard Cider Continued Decline Amidst "Distributor Transition" and "Increased" Competition
C&C reported that "volumes from VHCC (Vermont Hard Cider Company) declined" in qtr thru Nov "as ongoing distributor transition and increased levels of competition impacted sales," the co said in interim statement for 9 mos thru Nov 30. No further details on US biz it bought last yr in interim statement. But recall, Woodchuck brand slowed to up 3% for 6 mos thru Aug, while Magners (-28%) and Hornsby (-33%) brands each took a big hit in US. In previous report, C&C mostly attributed losses to the "complex process of consolidating distributors across most of the US states." This time, it also mentions "increased levels of competition" as issue.
C&C's international biz up big - volumes up 89.7%, revs up 92.5% - mostly because of its Vermont Hard acquisition. But its UK biz, where cider is more developed, has taken shot in 2013. UK Cider volume down 13.5%, revs down 17.5% in 9 mos thru Nov. Top brand, Magners, down 11% in that time, "driven by the multiple retail channel; on-trade volumes by comparison remained relatively steady." It's revs in Republic of Ireland up 176%, but if you exclude recent acquisition of Gleeson's, revs up 3.7%, volume up 3.5%.
MC STRs Off 1.9% in Q4; Revs and Tenth and Blake Slowed; Better 2d Half STRs; Coors Light Soft
MillerCoors closed out yr with 1.9% decline in sales-to-retailers in Q4, same trend as in Q3. So 2d half drop was 1.9% while Jan-Jun depletions declined close to 4%. Meanwhile, shipments to wholesalers off 2.2% in Q4. That left full calendar yr down 1.75 mil bbls, 3%, as we estimated in last issue of beer marketer's INSIGHTS. Rev gain not as strong in Q4 as Q3, +1%, tho SABMiller cited "positive sales mix and higher net pricing," plus "portfolio evolution towards above premium driven by the Redd's franchise."
Brand trends didn't change too much, with one exception: Tenth and Blake slowed to low-single-digit gain, dragged down by Henry Weinhard. Tenth and Blake had been running up high-singles to double-digits Jan-Sep. Coors Light down low-singles again, so it took rare loss for yr, following 8 straight yrs of gains. Miller Lite continued down mid-singles as in Q3, following high-singles decline in 1st half. In premium regular, Coors Banquet again up mid-singles but offset by double-digit Gen Draft decline.
All in, SABMiller reported lager volume up 1% globally in Q4, net producer revs up 4% and rev/bbl +2% on "organic, constant currency basis." Better trends in Africa, Lat Am and China offset "continued weakness in consumer sentiment" in US, Europe, said chief exec Alan Clark.
| Soon after the ANPHA report appeared, DrinkWise Australia, a group funded by the country's alcohol beverage industry, started running a provocative animation campaign aimed at young people. <u>The ads feature a suave male character advising viewers that when they drink they should "do it properly."</u> Familiar themes of knowing one's limits and when to stop and behaving appropriately are advanced via advice not to "drink like an amateur," as well as some very strong language. How strong? As in "don't get "s%*#faced" and to respond to adamant pressures to drink more than you want to by saying "please f%&* off." The animation includes some depictions of inappropriate behavior by those who have over-consumed. Predictably, <u>a public health advocate immediately called for the ads' removal, calling the campaign "pretty much the most irresponsible advertising I've ever seen" and "appalling."</u> The campaign, he said, "shows yet again that the alcohol industry should have no part in alcohol education." Other commentators made similar criticisms, claiming that the ads encourage drinking. | |
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| DrinkWise's chief executive defended the ads, noting <u>"we needed to talk with young people in their tone and their language</u> - acknowledging the reality that young people will continue to drink." The campaign "asks young people to start a process of self-reflection - to look at how their poor drinking choices can impact on how they see themselves in the context of their peer group." Young people reject ads that tell them what to do, he said, and view fear-based campaigns as "far-fetched." The DrinkWise ads also kicked off a familiar debate on the Crikey website over whether the industry can and/or should be involved in reducing alcohol abuse. Diageo's CEO Ivan Menezes addressed this same theme recently at the Impact Marketing Seminar. We'll have details in a future issue. | |
Advertising Issues Bubble Up Down Under
As noted, while the FTC report (see above) embraces self-regulation, activists and government officials elsewhere are often skeptical. Recent debates in Australia have a new tweak, but also a familiar ring. In February, the Australian National Preventive Health Agency (ANPHA) put out a report to evaluate Alcohol Advertising: The Effectiveness of Current Regulatory Codes in Addressing Community Concerns. Not surprisingly, ANPHA determined that Australians are "now exposed to an extensive amount of alcohol advertising" via traditional and digital media, plus sponsorships. Adolescents are "exposed to almost the same level" of these ads as adults age 18-24, it determined. Current regulatory arrangements, a combination of industry self-regulation and government oversight, need to be tightened around both placement and content, ANPHA advised. Among its recommendations:
- Remove an exemption for "free-to-air" television that allows alcohol advertising before 8:30 PM as part of live sports programming on weekends and public holidays.
- Seek public comment on whether alcohol ads should be barred between the hours of noon and 3 PM on school days.
- Restrict alcohol ads on subscription television between 5 AM and 8:30 PM.
- Find a mechanism to restrict alcohol ads in cinemas between 5 AM and 8:30 PM.
- Create "effective sanctions" to enforce billboard restrictions regarding placements near schools and increase the distance of such advertising to 500 meters from schools from 150 meters.
- Review and revise guidance in the Alcohol Beverages Advertising Code (ABAC, which has industry and government representatives on its management committee) on alcohol branded merchandise and sponsorship of sports, music and other events.
ANPHA also recommended more independence on the ABAC management committee, more monitoring of ads and more clarity on the issue of when ads appeal to youth. Specifically, the report advises that if an ad has "strong or evident appeal to children," it should be found to violate the code "irrespective of whether the marketing is also appealing to adults" or whether it is "deemed not to be directed to children." The Code should also specifically prohibit ads that use: "identifiable heroes or heroines of the young," cartoon characters that appeal to children, "childhood motifs" and any names or packaging that could "lead to confusion" of alcohol with soft drinks. Ref 4
The Australian Medical Association immediately embraced the report "calling for immediate action" in the wake of this "damning report… showing young people are being exposed to unprecedented volumes of drinking ads." Existing regulations which are "voluntary, limited in scope, poorly enforced" and lacking meaningful penalties "fail to protect young people from continuous exposure" to alcohol marketing, according to AMA's president. The AMA is also calling for a National Summit to create a "comprehensive strategy to reduce alcohol-related harm, of which" exposure of youth to ads "is but one part."
A review of drinking surveys shows how stark the differences in drinking rates are. The most recent National Survey on Drug Use and Health from the US Government shows that while 61.2% of white adults reported "past month drinking," only 47.6% of black adults did. Similarly, the National Health Interview Survey, reports that 57.3% of white adults are "current regular" drinkers (at least 12 drinks in the past year) compared to 39.4% of black adults. And the annual Monitoring the Future surveys have found that among high school seniors, 11.3% of black students report drinking at "binge" levels at least once per month compared to 25.7% of their white counterparts.
Tamika Zapolski, the lead author of the Bulletin article, points out also that "African Americans report later initiation of alcohol during adolescence" (considered to be an important protective factor against later problems) and "generally lower rates and levels of use across adulthood." Under the control of consumption theory, these practices would predict fewer drinking problems in the African American population. But, "despite these findings," she points out, "African Americans appear to experience more negative social consequences from drinking, experience more alcohol-related illnesses and injuries and to some extent, are more likely to report alcohol dependence syndromes and/or diagnosis." They're also more likely to experience more legal problems as a result of drinking than white Americans "even at the same levels of consumption." Where the research is lacking is in finding explanations why African Americans drink less but experience more problems. Several other key findings:
- African Americans tend to disapprove of both "heavy use and intoxication" which reduces heavy use and support for that behavior.
- Abstention and/or restrictions on drinking are traditional norms for African Americans, creating both social and religious disapproval factors.
- This culture of disapproval may reduce drinking, but also means that the practice "is viewed as more of a problem" which in and of itself "results in more negative social consequences."
- Similarly, since African Americans "experience a higher response to alcohol at lower levels," they may drink less but "moderate drinking may result in signs of intoxication," presumably triggering the same disapproval and subsequent negative consequences.
In this case, 3 current inmates jailed in Idaho and a former inmate sued brewers AB, Miller and Coors, plus Gallo, and American Brands, RJR Nabisco and PepsiCo (though not all of these companies produce or sell alcohol). They sought to differentiate themselves from previous Plaintiffs in similar cases by arguing that producers should specifically warn "people who are predisposed to the disease of alcoholism from those who are not," as the judge noted in his decision. They wanted the court to rule in favor of warning consumers that "a person could become addicted…even if he or she drank reasonably," if they had a "predisposition" to alcoholism, a predisposition that is not commonly known. Specifically, they asked the court to create a duty to warn consumers that "a) alcohol has 'dangerous properties' and b) 'if you drink this product you will get a disease.'" They sought $1 billion in damages and a new label requirement that alcohol is "habit forming and addictive."
But the judge rejected all of their arguments; the Plaintiffs got none of this relief. Like every other court that "has rendered a final decision upon this particular issue," he ruled that the dangers of alcohol are "obvious" and broadly known, and indeed, that the "obviousness of the dangers associated with alcoholic beverages" have been "known to mankind for ages." While the judge dismissed the case with prejudice, not allowing it to be amended ("amendment would be futile," he wrote), it has been appealed to the 9th Circuit Court of Appeals. Notably, not only were some of the Defendants not alcohol producers and most misspelled in the original complaint, but the lead defendant - Miller Brewing - was never actually even served with the suit, according to a report in Law 360.
The language in the court's opinion is as strong as any we've seen in these cases. The judge points out that while a few lower courts have "proposed an expansion of duty" of producers to "answer to different types of alcohol abuse…no highest level state appellate court has upheld such an expansion," relying again on the "obviousness" of the dangers. It would also be "impracticable," he noted, to "draw subtle distinctions" among those dangers. In fact, "it would be next to impossible to create an effective warning label that would warn of the myriad of combinations of alcohol use and human characteristics that might contribute to alcoholism."
Importantly too, the court ruled that "society has placed responsibility in legislative bodies to regulate" alcohol beverages, not in the courts. Finally, the judge also concluded that producers' efforts to persuade people to buy their products with "enticing advertisements do not mask the obvious dangers of consuming alcohol and do not give rise to a higher duty" upon those producers. Ref 2
The FTC's key measure, per usual: how closely industry ad/marketing placements, across all media, reach the goal of an adult audience that's 70% or more age 21+. For this report, FTC looked at placement data for the first half of 2011 when the goal was 70%. The industry subsequently moved to a slightly stricter 71.6% threshold after new census data emerged, a move the FTC "commends." First the numbers:
- On the key focus of digital, FTC found "99.5% of alcohol ads that advertisers placed on sites owned by others - such as news, entertainment and sports sites - met" the 70% standard. So much for the "huge challenges" of adopting standards for the "wild west" of the internet. Since the industry's own websites for their products are "age gated" the compliance there is ostensibly 100%, though the FTC, and the companies themselves, acknowledge that visitors can lie about their age. (AII will dig into some of the more extensive comments about digital in future coverage.)
- On more traditional measured media, 93.1% of placements met the adult audience threshold. These figures ranged from 91-93% for radio to 99.4% for magazines; television was 95-98%.
- While placements were in the low-mid 90s for most media, the % of overall impressions that met the target hit 97.3%.
- Finally, "Over 85% of the aggregate audience for all alcohol ads placed during the study period consisted of persons 21+." In effect, that means the industry is already meeting the recommendations of many in public health, and some in the government, to ensure that audiences are 85% adult. Perhaps that's one reason FTC is silent on adopting an 85% placement threshold in this report.
Why FTC Supports Self-Regulation As important as the findings are, FTC's more general comments on self-regulation warrant attention. "The Commission continues to support self-regulation of alcohol marketing to reduce the likelihood that such marketing will target" underage consumers. In fact, FTC has "relied on appropriately monitored industry self-regulation to address a range of issues, and notes that the World Health Organization includes a role for self-regulation to address marketing concerns. Once again FTC points to several "advantages" of self-regulation:
- It "conserves limited government resources."
- It is "more prompt and flexible than government regulation."
- It is "an appropriate response" to concerns about alcohol marketing in the context of "substantial protections" under the 1st Amendment.
Still, FTC had some recommendations:
- Industry members should keep a close eye when placements fall below 90% compliance. If the reason is small sample size or big swings in audience composition, an even higher adult audience threshold should be considered.
- Industry members should look at a more recent rating system of radio (where more problems pop up) that looks at age 6+ compared to earlier systems that looked at 12+.
- Age gating systems on websites should require entry of birth date, not simply confirmation of adulthood.
- Beer Institute should adopt "competitor complaints" in its ad review process, like DISCUS and Wine Institute.
- Industry should continue to hold "cross-company efforts to facilitate code compliance." FTC singles out the DISCUS "Media Summits" for praise.
- In addition to urging interested parties to use the industry review board for complaints, FTC puts a plug in for its We Don't Serve Teens alcohol education material, widely disseminated by industry members in the past.
Deschutes Plans to Expand But Where, How? Estimates $50 Mil; Next West Coast Brewer Gone East?
Deschutes, "along with 10 Barrel and Epic Air" has pending application "for an enterprise zone incentive, which provides tax deferrals in exchange for job growth," Economic Development for Central Oregon (EDCO) mktg mgr Ruth Lindley told paper. It's "likely more expensive to expand in Bend," despite having no sales or business tax, compared to some other states that "may not charge Deschutes anything to develop and also offer the company incentives." Deschutes' application "calls for a $45 million project that would double its capacity," she added, and "could be the type of company" that can bring "discussion about trade-offs to the forefront." Since Bend now has max capacity of 460K bbls, Deschutes is looking at possible 900,000 bbls of capacity.
"The next limitation to our growth is going to be in packaging," sez Gary. Deschutes has gone through series of expansions that primarily added fermentation capacity at its current Bend location over past few yrs. Employees now own 8% of co after Deschutes made "its first contribution to an Employee Stock Ownership Program" last yr, noted paper. Deschutes plans to tack on 4 states in 2014 to their current 23 states, along with their increasing export biz where they've added Thailand, Singapore, Canada, and most recently Australia, New Zealand to their repertoire (see CBN vole 4, no 59). "Nothing could happen, or it all could happen," Gary said. "It could happen in a different place, at a different scale. Everything is variable at this point. We haven't locked down anything."