Lots goin’ on in Indy. Extensive new language in just-proposed state Senate bill is characterized by Indianapolis Biz Journal as Indy Bev Alliance’s (AB distrib assn) intent to “remedy the trade group’s ongoing quarrel” with AB.  Indeed, IBA prexy Marc Carmichael called the bill “my turd in the punch bowl.”  Here are some of the key new provisions in Senate bill:

$1·         Distribs must have licenses and “bona fide distribution agreements” with each of their “primary sources of supply.”

$1·         If supplier plans price hike, must notify distribs “at least 30 days in advance” and can’t raise prices again for 180 days after an increase or reduction.

$1·         Supplier discounts can’t be communicated to retailers before it notifies distribs.

$1·         If supplier/distribs offer discount, supplier has to “bear at a minimum, the same ratio of the cost of the discount to the total cost of the discount” that it got as percent of most recent price hike.

$1·         Suppliers cannot fix or maintain distribs’ resell prices, ship or charge for beer distribs didn’t order, withdraw money from distribs’ accounts before beer “received and accepted” by distribs, “retaliate” or “penalize a beer wholesaler in any way for distributing competing products.”

$1·         Suppliers must offer new and/or acquired brands to their current distribs in existing territories.

$1·         Suppliers can’t require new or amended agreement as result of brand transfer or as result of sale, purchase or merger of distributor if the other distrib has agreement with same supplier.

$1·         Suppliers must approve transfer/sale of biz to buyer if buyer already has distrib agreement with supplier and “if the other beer wholesaler meets the material and reasonable qualifications required by the supplier of all beer wholesalers.” 

$1·         Supplier has to approve succession plan if successor meets “material and reasonable qualifications required” of all successors/mgrs.

$1·         Law defines “good cause” for termination, requires notice of termination for cause, oppy to cure. 

$1·         Small brewers – 30K bbls or less production for sale in Ind – can terminate distrib agreements with at least 60-days’ notice and must purchase all unsold beer at laid in price.  If distrib had brand less than 1 yr, brewer pays 1X gross profit; if distrib had brand between 1-2 yrs, payment is 2X GP for most recent yr; if 2 yrs+, brewer pays 3X GP for most recent yr.

Recall too, big MC distrib Monarch suing to get right to add liquor to its biz, a move opposed by Indiana Bev Alliance and liquor distribs in state.  One apparent  move to block Monarch is that proposed bill sez if any provision of state law is held invalid, “the remaining provisions…must be construed in accordance with the intent of the legislature to further limit rather than to expand commerce” in alc bevs and “enhance strict regulatory control” thru alc bev commission and 3 tier system.  Both Indianapolis Biz Journal and Monarch’s Phil Terry view that as attempt to stymie Monarch’s lawsuit.

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.  

Latest acquisition for Reyes Holdings unit Reyes Beverage Group of big SoCal distrib Allied Bev scheduled to close today.  Gate City’s Mark Smith will become prexy.  All suppliers sticking with RBG, except Mendocino.  

AB had conference call with distribs in Midwest today about building inventories (voluntary) as precautionary measure.   Several distribs say inventories could get to almost 30 days between now and end of next mo.   AB reportedly meeting with Teamsters next week in St Lou.  

ABI in “advanced” talks to reacquire Oriental Breweries from KKR for $4.5 bil, reports CNBC, citing the proverbial “people familiar with the matter,” expecting to reach agreement by end of Jan.  Nothing official from ABI at presstime. Recall, ABI had to sell off some assets to reduce debt back in 2008.  Sold theme parks, breweries and more.  Private equity firm KKR bought South Korean brewer Oriental then from ABI for $1.8 bil.  But ABI had right to buy back in 5 yrs.  And it looks like it has begun the process of doing so, tho no guarantee deal will get done.  KKR grew Oriental earnings considerably, so now it’s worth about $4.5 bil to ABI, reportedly.   ABI also in talks to buy Ginsber brewery in China for about $630 mil, according to various reports.  Recall, AB also just struck deal to buy Morgan Dist in Portland. And in recent mos, INSIGHTS has frequently heard that AB looking to add to its arsenal of US craft brewer holdings.  Don’t forget that just last yr, ABI spent $20 bil to buy Modelo and it is in process of deleveraging to under 2x net debt to EBITDA.  Then it will be ready to do its next big deal.  In meantime, think of all these transactions as “onesies and twosies.”  Such is its financial might.  At same time, ABI and its distribs still get into sometimes heated debates about financially driven decisions on such issues as package integrity and difficulty getting promo rebates. 

All last yr INSIGHTS heard Chi mkt had its challenges; data in IRI foodstores for 52 weeks thru Jan 5 likely shows just some of ’em as trends far softer on-premise.  Still paints vivid portrait of one of largest US mkts and one of most rapidly changing.  Total beer fell 225,000 cases, 1.7% to 13.2 mil cases tracked in IRI foodstores for 52 weeks.  But MC alone dropped 246,000 cases, 4%.  Yet it retained a dominant 45.1 share of volume (37 of $$).  Here’s another major metro where AB stuck under 30 share.  Volume down 93,000 cases, 2.7%.  Share off a quarter point to 25.8 (24 of $$).  Even Crown volume suffered here in its hometown; down 46,000 cases, 4% and off 0.2 share to 8.2.  HUSA down just slightly, off 0.5%; share inched up to 5.8.   So top 4 suppliers at 85 share of volume.   Pabst almost 5 share of volume, but down 7% in Chi, Diageo Guinness USA down 8% and Mark Anthony down double digits. Those 7 cos at 92 share of volume, 87 share of $$. Lost 3 share of $$.  

Lotsa action and growth with mostly much smaller craft cos, especially on $$ sales.  Boston Beer and Lagunitas led the charge.  They were 2 biggest $$ share gainers of all in this big metro mkt. Boston Beer $$ sales up 25% and it gained 0.56 share of $$ to 3.2.  Up 52,000 cases, 22% and at 2.1 share of volume.  And Lagunitas gained 43,000 cases, 456% as it started to sell more in chains.   It gained 0.67 share of $$ to 0.8.  Four other hi-flyers gained 0.2 of $$ share each: Bell’s, Revolution, Craft Brew Alliance and Deschutes.  Bell’s $$ sales up 43% and jumped 0.2 share of $$ to 0.7. Revolution (new in chains) jumped $$ sales 393% and 0.2 to 0.25 share.  Deschutes brand new grabbed 0.2 share.  And CBA also almost all incremental in Chi foodstores, gained 0.2 to 0.3.  So those 6 craft players alone gained 2 share of $$.

The biggest brands were the ones that gave up the most share with exception of Coors Light, which grew 3%.  Miller Lite off 8% in volume, near 6% in $$ (INSIGHTS understands drop deeper in all channels).  Lost 1.3 share of $$.  Bud Light volume down 4% and it lost 0.3 share of $$.  And Corona, tho up nationwide, down double digits in Chi foodstores and lost 0.6 share of $$.  Heineken also down double digits in Chi (-14%) and lost 0.6 share of $$.  So those 4 megabrands lost 2.7 share of $$ in Chi foodstores last yr.  Mkt is changing rapidly.  Gotta note that most of Corona loss picked up by Modelo Especial, up double digits and gained 0.5 share of $$.  Most of brand Heineken volume loss offset by Tecate, up 53% in Chi foodstores, but at lower price so it only gained 0.3 share of $$.  

Tho not specifically relying on the 21^st Amendment’s grant of states’ rights to fashion 3-tier system, in effect US Appeals Ct for 6^th Circuit joined several others in supporting those rights.  That’s even if some bizzes are treated differently than others.  Kentucky grocery store Maxwell’s Pic-Pac and assn of similar retailers challenged state law that barred stores that primarily sold groceries or gasoline from obtaining wine/liquor licenses.  That’s even while state allows drug stores that sell minor amount of groceries to obtain such licenses.  That discrimination, they charged, violated equal protection rights.  US Dist Ct agreed there was no rational reason to explain “why a grocery-selling drugstore like Walgreens may sell wine and liquor but a pharmaceutical-selling grocery store like Kroger cannot.”  But the Appeals Ct sided with the state ABC, which defended the distinction, and reversed the fed ct.  So the law stands. 

Law did not violate equal protection, Appeals Ct ruled, because the state “indisputably maintains an interest in reducing access to products with higher alcohol content.”   What’s more, “reasonably conceivable facts support the contention that grocery stores and gas stations pose greater risk of exposing citizens to alcohol than do other retailers.”  A state legislature could “rationally believe” that consumers spend more time in grocery stores/gas stations than other outlets, since they need groceries/gas.  Same logic holds for minors, Appeals Ct observed, since more minors work at such outlets.  Grocery stores also get more traffic, Ct noted, “allowing minors to more easily steal wine and liquor.”  Gas stations being near highways “suggest an even greater danger in allowing alcohol sales.”  Then too, Ky otherwise limits access to wine/liquor by capping the overall number of stores that can sell it.  Just as Ky can limit the number of stores, “the state can also reduce access by limiting the types of paces that supply it – just as a parent can reduce a child’s access to liquor by keeping a smaller amount in the house and by locking it in the liquor cabinet.”  Interestingly, the Ct did not rely on the 21^st Amendment directly to toss the equal protection claim, because the law passed muster under “rational basis review.” But it did note that the 21^st Amendment’s grant of authority to the states “if it means anything in this context, provides legitimacy to the state’s interest in restricting access to alcohol,” citing the Granholm decision.

Different forces in the beer industry will hail this decision for different reasons.  Brewers in general will embrace the fact that the Appeals Ct supported treating “high alcohol products” differently.  NBWA and other distribs advocates will really embrace the fact that the Appeals Ct repeatedly cited Toward Liquor Control, the 1930s study of alc bev regulation that they favor as a “bible” or “blueprint” to what eventually evolved as the 3-tier system.  That book’s authors also argued strenuously that higher alc products should be more highly restricted than beer.      

 ’Tis the season of fresh starts in form of personnel changes. For Beer Inst, for AB and now for Florida Ice & Farm Co’s NAB unit too. Recall, FIFCO bought NAB in 2012 and promised to double its biz here in 3-5 yrs.  It then endured a 4.6% drop in 2013, following several yrs of growth under previous owner KPS.  And FIFCO paid $388 mil.  So that’s probably not what was in the plan.  In meantime, it worked extensively with consultant Bain & Co reviewing every facet of co.  But no substantive changes in direction announced in 2013. 

Today, NAB announced departure of ceo Rich Lozyniak who came to NAB in 2009 and mktg veep Peter Bodenham, who had been with co for nearly 20 yrs under various owners.  Rich will stay on until new ceo named.  “A national search is underway,” said NAB.  FIFCO ceo Ramon Mendiola credited Rich with “building the organization from the ground up,” wrote NAB.  “Rich has been a tremendous leader in a time of great transition,” said Ramon. “He is an expert at building organizations and navigating change,” Ramon added.  He credited Rich with doing an “excellent” job.  Clearly Rich capably led NAB for KPS to turn co into a very saleable asset.  But Rich “recently expressed a desire to find an opportunity to do what he does best, which is to build and turn around companies,” said Ramon.  Meanwhile, NAB sales veep James Pendegraft stays on and now heads up mktg as well; in new role James “will lead all facets of commercial operations.”  NAB’s sales meeting in Costa Rica in early Feb should be very interesting.  

Asked about timetable for a new BI prexy, interim prexy (and MC veep) Tim Scully said:  “We’d love to have someone in place by the annual meeting” in May as new Beer Inst prexy.  “I want my interim to be as interim as possible,” he added.  This is Tim’s 2d stint as interim prexy; also served in Jan 2010 after then-prexy Jeff Becker passed away and before Joe McLain came on board.  “We’ve started a search,” said Tim, retaining same headhunter which brought in legal veep Mary Saunders and communications veep Chris Thorne as well as Joe McLain.  “We won’t miss a beat,” promised Tim, who insisted that his basic role will just be to “make sure the trains are running” that the day-to-day blocking and tackling is getting done.  BI has a “solid plan,” “capable staff” and “great support” from the board, noted Tim.

BI has “sound strategy for 2014” echoed communications veep Chris, with full plate that includes ongoing tax, aluminum, spent grain, pot legalization and other issues.   On pot legalization, Tim noted that key in Colo will be how regulatory framework is enforced.  There are “so many unanswered questions.”  BI has to figure out “when to be reactive, when to be proactive” or when to be back “in the weeds” (no pun intended).  BI also preparing campaign as part of Brand Beer to directly challenge distillers’ tax equivalence efforts.  “We’re tackling that in a number of ways,” said Tim.  “We know we’ve got to change the dialogue.  Know Your Drink goes a long way towards doing that.” (See below.)

Chris also cleared up some potential “misunderstandings” surrounding BI’s Brand Beer efforts over last year.  While some in industry viewed Brand Beer as broad, consumer-facing strategy to build beer’s image and perhaps help regain some momentum from spirits, efforts so far very focused on “DC decision makers,” to “engage with those with the influence to shape our industry,” Chris reminds.  That includes legislators and policymakers who make rules/regulations and the “echo chamber” inside the beltway.  Not just govt types, but also media, think tanks, etc.  BI is “not building a Taj Mahal-style effort, but rather a very, lean, mean machine.” 

Results so far, in Chris’ mind, “exceed early expectations,” as BI has reached out with paid ads, sponsored events and has gotten “earned media” (coverage not paid for).  All in, BI calculates it’s gotten 63 mil media impressions over last 12 mos.  Key messages are around excise tax issues, beer’s contribution to economy, jobs.  Tax issue “not going away,” Chris assures.  Equalization of beer tax with liquor and a hike were part of Congressional Budget Office report in Nov, he reminds, and “we have to make sure that does not end up in the tiny print” in any budget that emerges from Congress.  That said, BI “really happy with where we are,” added Tim, acknowledging that taxes “less of a threat” than last yr.  Still, “I don’t think the problem is going to go away.”  Then too, ongoing trade talks are implicating, possibly threatening, small brewer tax break, unavailable to foreign brewers.   

Next step in tax battle will be specific response to “misconception that ‘a drink is a drink’ which will be based on real data of what is really in a drink” Chris told INSIGHTS.  BI sr staff reportedly held webinar with small brewer members and suppliers back in Nov to outline this counter to distillers’ “equivalence” efforts.  Campaign called “Know Your Drink” still a work in progress, aims to make “real world” distinctions between beer and spirits in “customary” drinks and be easy to grasp for fed and state policymakers.  BI chairman/ MC ceo Tom Long vocal in urging early movement on much-discussed plan.  Small brewers Steve Hindy and Jim Koch also among supporters, we understand.  AB distribs got a peek at some early ideas for this campaign back  at AB mtg in Vegas during NBWA convention.  More to be seen soon, we’re told, but Chris promises “this is something everybody in the beer industry, from brewer to distributor to retailer, should be able to get behind.  It’s common sense.”

In related move, Beer Inst filed comments with Dept of Agriculture regarding upcoming revisions to Dietary Guidelines.  BI argued that Guidelines should drop current drink definition (0.6 oz of absolute alcohol) and revise comments on moderation.  While BI has broader, consumer-facing campaign “under consideration,” nothing decided yet.  Some in industry may have expected a campaign along lines of “Got Milk” or “Pork, the other white meat,” but Chris reminds: 1) those promotional campaigns were for “unbranded commodities”;

2) brewers are out there promoting beer via their branded marketing every day; 3) there are limits on what trade assns can do to advance a given product.  Top 5 global brewers did launch joint, pro-beer effort in UK called “Let there be Beer,” including consumer ads, but the first televised effort from these savvy brewers to build beer’s image ran afoul of UK advertising standards and the ad had to be pulled.    

Several notable aspects of AB’s 2014 Super Bowl work.  Most important:  debut of new campaign for its largest brand, Bud Light.  But AB also buying 1 minute less time on Super Bowl than last 2 yrs.  And it is only advertising its flagships Bud and Bud Light.  No big new brands.  AB is also using its coveted post kickoff spot to feature its new cool-twist aluminum bottle for Bud Light, a technology which AB has invested $150 mil in. That’s “bigger than anything we’ve done,” said mktg veep Paul Chibe, from an investment standpoint.  The opening ad “really does sell the features,” said Bud Light veep Rob McCarthy. 

New Bud Light campaign is “very big idea,” sez Rob, with a new slogan: “the perfect beer for whatever happens.”  NY Times columnist Stuart Elliott compared it to “Open for Anything” slogan Yellow Tail wine used for a couple of yrs between 2009-11.  In comparison, Bud Light slogan longer, more multisyllabic. Compare also to beer slogans like “This Bud’s for You” and “Here We Go” etc.  New campaign will be intro’d  in 2-part ad titled “Epic Night,” a 30-second and 60-second ad that forms one continuous 90 second ad that will “feel like one cohesive story,” said Rob.  Includes a lots of unnamed “a-list” celebrities, Rob told Ad Age.  

AB will also have a 30-second and a 60 second ad for Bud, featuring tried and true themes, shown in a new way.  One spot will be a longtime Bud staple, a tribute to returning troops, both a salute and a thank you.  That’s dubbed “hero’s welcome.”   The other spot will be a Clydesdale ad (AB won USA Today’s Ad Meter last year with a Clydesdale spot), featuring the unlikely friendship between a Clydesdale and a puppy.  

In all, AB is buying 2 less Super Bowl 30 second units than each of last 2 years.  It bought 7 this yr, compared to 9 in 2012-3.  At a rack rate of $4 mil per 30 seconds, that’s a considerable savings.  Yet AB will be increasing its overall investments in 2014, it said at SAMCOM.  And AB’s Super Bowl exclusive gives it the flexibility to “right size the number of units” in any given yr, said Paul.  It has bought anywhere from 2 minutes to 6 minutes worth of advertising time, so it’s in the “middle of the range,” said Paul. 

Notably, AB is not debuting any big new brands on the Big Stage as it did in 2012 (Bud Light Platinum) and 2013 (Budweiser Black Crown and Beck’s Sapphire).  Arguably, the $10+ mil it spent launching Black Crown and Sapphire last yr didn’t deliver big returns.  So AB focus on flagships could well be right move.  Just Bud and Bud Light.  That’s “where the innovation is,” said Paul, citing the new “cool twist” aluminum bottle and the new Bud Light campaign.  Then too, those are also “the brands that are challenged” as Paul told NY Times.   Meanwhile, AB intro’d lotsa new brands in last couple of yrs, brands that Paul told INSIGHTS are still “young brands” like Platinum, Black Crown, the Ritas, Stella Cidre etc.  Also later this yr, new Rita variants as well as AB’s more mainstream cider play Johnny Appleseed.  This weekend, AB will have some teaser ads for the new Bud Light campaign on the NFL conference championship games.