Our most recent employee is David Steinman, who represents the 3d generation here at BMI.  Check out the latest entry on our blog to see some of his impressions of his early experience in the beer biz and at our company so far.  

Japanese distiller (and conglomerate) Suntory has struck deal to buy Jim Beam for $13.6 bil, plus the assumption of debt in a deal valued at $16 bil, one of biggest deals of any kind so far this yr.  Deal will make it the 4th largest global spirits producer, according to Shanken News Daily (3d largest, sez Financial Times).  Suntory will have to take on a lot of debt to get deal done and Moody’s is placing Suntory debt under review for a possible downgrade, reported NY Times.  “Moody’s said the acquisition would result in a high ratio of 6 times adjusted debt to EBITDA.”  But recall, borrowing in Japan has been incredibly cheap in recent years.  Some questioned whether Suntory would be viewed as yet another foreign co purchasing a US icon, tho others said that Suntory long-savvy about US mkt.  

After media spending on economy brands was “significantly curtailed” for both ABI and MC last yr, ABI looks to up investment on Busch brand with new “Busch Heroes” campaign in 2014, reported Ad Age.  The campaign, “which includes the tagline ‘Here’s to Earning It,’ continues a long tradition of beer ads playing off of a work-reward theme.”  Recall, MC revealed plans for natl TV ads with Miller High Life and Keystone Light at Sep mtg too.   

But “initially” no TV for ABI to kick off Busch campaign. ABI will limit media buys “to digital (including videos), print and out-of-home,” with “Sporting News and CBS Interactive,” noted AdAge.  ABI “is ‘continuing to evaluate’ its media buy,” tho “last time Busch ran TV ads was in 2011,” Edison Yu, VP of value brands at ABI, told mag.  Last year “Busch ran most of its advertising during the spring season,” with fishing promotions.  This yr “the brand will run more ads year-round, even as it continues its fishing promotions,” noted AdAge.  “We ran our models which indicate that the business is going to respond with incremental investment, and that is why we are putting incremental money in it,” Edison told mag.  ABI only spent “$2.1 mil in measured media on Busch in 2012,” according to data from Kantar Media.  

Busch is ABI’s 5th largest brand and it dropped 775K bbls, -12% to 5.65 mil bbls from 2008-2012.  Busch finished 2013 with volume down 5.4%, to just under 42 mil cases in IRI multi-outlet + c-store thru Dec 29.  Busch Light volume up 1% to 54.5 mil cases, and Busch Ice up near 21% to 3 mil cases in scans for the yr.  

Lots of digital and liquid ink has been spilled as Colo’s experiment with legal pot sales continues, with numerous articles about prices, long lines, supply issues and more since those sales began on Jan 1.  But the most interesting coverage we’ve seen yet is a long think piece from the website PandoDaily by David Sirota that mixes his buying experience with a deep dive/discussion with lead pot advocate Mason Tvert of the Marijuana Policy Project.  MPP spearheaded the Colo initiative, which was named, recall, “The Regulate Marijuana Like Alcohol Act.”  The key insight from Sirota’s 5500-word analysis, which covers many angles of the Colo experience: while Tvert and MPP stress the argument that pot is safer than alcohol, they also seek to draw strong parallels between pot and alcohol culture, especially beer. Here are some highlights:

“The number one indicator of whether or not you support marijuana being legal is whether you recognize that it is safer than alcohol,” according to Tvert’s mentor at MPP.  So the strategy in Colo became not to increase the percentage of those who thought pot should be legal but “we simply tried to increase the percentage of people who understand marijuana is less harmful than alcohol.”  That would “naturally” increase support for legalization, said Tvert.  

Buying pot at retail, Sirota found that the staff’s “explanation of the chemical content, sourcing and organic profile” of the different strains “is much like the typically detailed lesson you receive when you get your growler refilled at one of this state’s many craft beer breweries.”  That “analogous experience,” he believes, helps explain why legalization happened first in Colo and not elsewhere.  The combination of craft’s huge success in Colo, the Great American Beer Festival, plus the long history of Coors’ presence in the state, he adds, indicates a tradition of embracing “drug tourism.”  Plus, Colo is a locale where “the “alcohol culture…destigmatized and commodified adults’ core desire to recreationally consume mind altering substances.”  This accepting culture was why the pot-alcohol connection was what Tvert again said was “the most important element” in the successful Colo campaign.  While support for legalization in other states tended to drop as election days neared and voters “erred on the side of maintaining the status quo” due to questions about safety, support did not wane in Colo, Tvert believes, because they had sealed the safety argument in the voters’ minds.  

Some advocates (as well as industry members) criticized MPP’s message comparing alcohol-pot safety.  Some said it made both substances seem “bad.”  Some thought it a mistake to “disparage” alcohol and/or upset the industry.  “But here’s the thing that can’t be ignored: this message has been incredibly successful,” insists Tvert.

Sirota walks into a growing room and is “instantly hit with a burst of humid air and a fragrance that I could swear smells not like weed, but like beer, more specifically, a skunky IPA.”  Tvert points out that cannabis and hops are “kind of related.”  

Pot’s enemies and alcohol’s enemies (in public health) make the same argument: “People who are scared of marijuana think all use is abuse and we are trying to get them to understand that there is a very big difference.  

Some people use marijuana much like they have a glass of wine.  It’s not abuse and it’s not a problem,” says Tvert.  This use-abuse distinction is one the alcohol beverage industry has stressed for decades in policy battles. 

Net-net: even while Tvert will no doubt continue to push the “pot is safer” argument, in the end, his hope is that people will view pot as “no more shameful than – and just as acceptable as – beer and wine

Got a call from AB mktg veep Paul Chibe, who took exception to our report, which he said “made a bunch of assumptions” that “are not real.”  The coming Bud Light work from BBDO is “amazing” and “doing exactly what we want,” he asserted. “We’re making the progress I said we would make.” (Editor’s note:  Paul said AB had “cracked the code.”)  “That’s what is being developed,” Paul continued, “and what will be shown on the Super Bowl and throughout the year.”  Then why is Paul leaving? “My wife and I are not from here,” he said (they’re from Chicago), and the work means he’s on the road all the time, with young kids and both sets of grandparents far away.  “It wasn’t right for me,” Paul contended. “It’s not always about money.”  ABI North American prexy Luiz Edmond “was very cool about it.”  INSIGHTS noted that there’s disconnect between words like “cracked the code” and then leaving just as these purportedly breakthrough ads debut. Timing had nothing to do with Super Bowl ads, according to Paul.  “The world does not revolve around the Super Bowl,” he said. “There are other internal tempos and cycles.”  He’s “seeing the stuff through” (i.e Super Bowl and more) and then moving on to look for his next opportunity.  

Meanwhile, two financial analysts commented on Paul’s departure today.  Stifel’s Mark Swartzberg saw the news as “negative in that it signals corporate lack of confidence in plans to improve US share trends.  However, we also consider this typical of the ‘get it done’ culture of ABI.”  Earlier this week, Mark had forecast 1.3% growth for AB in 2014, in part on basis of better Bud Light trends.  And Liberum’s Pablo Zuanic did not see Paul’s departure as “a significant issue.”  Pablo would like to see ABI innovate far more aggressively and acknowledge the marketplace has changed. “We think the focus has to be on more (new) brands more than fixing the advertising for Bud Light. Yes, of course, the latter will be welcome, but we are skeptical that new ground breaking ads will make a change in Bud Light (base brand) trends,” citing success of Ritas and Modelo Especial without much in way of advertising.  

 Following Constellation’s killer qtr, several analysts came out with bullish reports, upgrading estimates.  Perhaps most interesting report was from ISI’s Robert Ottenstein (who used to be ABI investor relations veep).  He asked if Crown’s beer biz is “the best beer business in the US?.... The market is starting to realize that STZ/Crown may have the most attractive beer portfolio in the US,” he said.  Why? Here are some of his reasons: Crown’s avg price of $29 per case compared to $20 for mkt leader ABI; Crown’s “customer base is the most loyal,” 50% Hispanic; Corona is the largest “gender neutral” and largest “high end beer” both by “a wide margin; Modelo Especial “probably has the strongest brand health among Hispanic Americans”;  Crown’s sales “overindex to California, Florida and Texas, three states with perhaps the best growth demographics in the US”; “significant pent up draft beer demand”; Modelo Especial “probably only has 65% of the distribution that Corona Extra enjoys”; “every distributor” that Robert spoke to at NBWA meeting “was upbeat about the Crown portfolio…. We believe most investors underestimate how important distributor support and enthusiasm is in driving a brand’s success and garnering increasingly tough to get retail shelf space and placements.”   He gives a number of other reasons as well.  

Time has apparently run out for Southern Wine & Spirits to appeal its loss in 8^th Circuit fed appeals ct last fall to US Sup Ct.  Recall, that 8^th Circuit decision upheld Mo’s residency requirement for distribs of “intoxicating liquor” (alc by weight of 5%+) to operate in state.  The opinion, as well as earlier US Dist Ct decision that it upheld, had plenty of pro-states’ rights language (see Sep 25, 2013 Express).  Indeed, 8^th Circuit basically endorsed view of distrib advocates that states have broad rights, even under Sup Ct’s Granholm decision, to fashion middle tier.  Ruled it is “beyond question” states can require in-state presence of middle tier “without running afoul of the Commerce Clause.”  Appeals Ct also embraced distrib advocate’s position that Granholm’s restrictions on discrimination only apply to producers and products, not the other tiers. Gotta note, this isn’t huge blow to Southern’s national prospects, tho it may affect jockeying in Mo that’s seen distillers moving brands around, perhaps in anticipation that Southern would eventually be player there.  Southern still operates in 35 states, according to its website.

What’s it all mean?  “Lemonade out of lemons,” suggests NBWA general counsel Paul Pisano, who is “celebrating a win.”  Since Granholm, he points out, 4 Appeals Ct Circuits have deemed 3-tier system “unquestionably legitimate” and endorsed view that Granholm only applies to producers and products.  States have right, he notes, to fashion 3-tier system as they deem fit, “as long as they have policy reasons for doing so.”  And it sure looks like those reasons could include treating in-state and out-of-state distribs/retailers differently.  Another potential upshot:  gotta wonder whether same reasons that prevented Southern from setting up in Mo (3-yr residency, etc) would prevent AB from having branch in Mo unless it only wants to sell beer under 5% alc by weight.  Or would AB be able to install resident owners?

Hadda happen sooner or later.  Import shipments busted out with big gain in Nov, +360K bbls, 20%, reports Beer Inst’s Lester Jones, based on Commerce Dept data.  Shipments from Mexico, which had been lagging known Crown/HUSA Mexican brand gains all yr, exploded in Nov: +404,000 bbls, 48%.  This suggests there may have been a reporting issue for a few mos, including period of govt shutdown.  Then too, Nov shipments up from Canada, Belgium and Ireland. 

Nov rebound cut yr-to-date dropoff by more than half.  For 11 mos, imports off just 320,000 bbls, 1.2%. 

Mexican shipments startin’ to make sense: +482,000 bbls, 3.4% Jan-Nov.  But shipments still down yr-to-date from each of next dozen largest source countries, including 7% drop in Dutch beer, 5.3% decline in beer from Canada, 5% each from Ireland and Germany, etc.  Even Belgian shipments still off 2% for 11 mos.  Finally, last comp of yr pretty easy: Dec 2012 imports were off 8%.  Still, imports would need another 18% gain to break even for yr.    

Guess he didn’t “crack the code” as mktg veep Paul Chibe had boldly asserted about  AB’s upcoming Bud Light Super Bowl work back in early Nov at AB’s SAMCOM meeting.  If he had, AB wouldn’t be announcing Paul’s departure just 3 weeks before the Super Bowl.  That seems virtually certain.  Paul will stay on “for the next few weeks to assure a smooth transition” with new mktg veep Jorn Socquet “on important marketing initiatives such as the Super Bowl.”  But Paul has “decided to leave Anheuser Busch,” AB announcement said.  Earlier this week AB  contacted media about upcoming interviews with Paul in preview of AB’s Super Bowl work.  Just this afternoon, Ad Age posted article about Justin Timberlake “breaking up” with AB, saying the pop star “will join forces” with Jim Beam.  It also included statement from Paul Chibe about “amazing partnership.” But Bud Light Platinum sales have tailed off markedly since its initial splash.

Now what?  Wholesalers had become increasingly vocal about their unhappiness with Bud Light commercials over the course of 2013.  “Bet he had some help with that decision to leave AB.  Must mean the Super Bowl stuff is bad,” wrote one distrib.  Even if AB mktg improves markedly going forward, it is not starting 2014 firing on all cylinders, following a tuff 2013.  Paul’s replacement will be Jorn Socquet. who’s been ABI veep of mktg in Canada since 2010. While a very smart guy, according to one informed source, he does not have much experience in US mkt.  But he has grown Bud and Bud Light rapidly in Canada. Jorn will be the 5^th exec to lead AB mktg in the US in the 5+ yrs since ABI bought AB in Nov 2008.  For all ABI’s financial prowess, it has still struggled to get mktg right here in the US.  

Guess he didn’t “crack the code” as mktg veep Paul Chibe had boldly asserted about  AB’s upcoming Bud Light Super Bowl work back in early Nov at AB’s SAMCOM meeting.  If he had, AB wouldn’t be announcing Paul’s departure just 3 weeks before the Super Bowl.  That seems virtually certain.  Paul will stay on “for the next few weeks to assure a smooth transition” with new mktg veep Jorn Socquet “on important marketing initiatives such as the Super Bowl.”  But Paul has “decided to leave Anheuser Busch,” AB announcement said.  Earlier this week AB  contacted media about upcoming interviews with Paul in preview of AB’s Super Bowl work.  Just this afternoon, Ad Age posted article about Justin Timberlake “breaking up” with AB, saying the pop star “will join forces” with Jim Beam.  It also included statement from Paul Chibe about “amazing partnership.” But Bud Light Platinum sales have tailed off markedly since its initial splash.

Now what?  Wholesalers had become increasingly vocal about their unhappiness with Bud Light commercials over the course of 2013.  “Bet he had some help with that decision to leave AB.  Must mean the Super Bowl stuff is bad,” wrote one distrib.  Even if AB mktg improves markedly going forward, it is not starting 2014 firing on all cylinders, following a tuff 2013.  Paul’s replacement will be Jorn Socquet. who’s been ABI veep of mktg in Canada since 2010. While a very smart guy, according to one informed source, he does not have much experience in US mkt.  But he has grown Bud and Bud Light rapidly in Canada. Jorn will be the 5^th exec to lead AB mktg in the US in the 5+ yrs since ABI bought AB in Nov 2008.  For all ABI’s financial prowess, it has still struggled to get mktg right here in the US.