Graham Mackay, one of the principal architects of global consolidation in brewing, passed away earlier today at  64.  Graham became ceo of SAB in 1999, moving from South Africa and leading a listing on the London stock exchange. He went on to build a mighty business empire, through many acquisitions large and small, including Miller, Bavaria, Foster’s, and many more. “He had the foresight to see what the future held for the industry,” former SABMiller chairman Meyer Kahn  said as quoted in Bloomberg, “and had the courage to join what we called the dance of the elephants.” Today, SABMiller has annual revs of about $35 bil and its stock price has multiplied by 6x since its London listing, according to various reports.  Graham was operated on for a brain tumor back in April, resumed his role as chairman briefly in September, before becoming too ill again.  He leaves behind a wife and 6 children.  It is a shocking sadness that for all that he built, he will never get the opportunity to relax and enjoy the fruit of his labors.  Our heartfelt condolences go out to his family and co-workers.

Graham was one of the most impressive business leaders we’ve ever met, described in various obits as a “pioneer” (Financial Times) a “titan of the beer industry” (Bernstein’s Trevor Stirling) and more. Recall, Harvard Business Review earlier this year named Graham the 16^th Best Global Ceo out of 3000 across all industries and #1 in Europe.  “Those who knew him describe him as cerebral, inspirational and thoughtful,” noted Financial Times, “an ‘old school gentleman’ who preferred one-on-one talks to mass presentations.” 

INSIGHTS had the pleasure of a couple of extended meals/conversations with Graham and they were memorable.  Graham was indeed one of the most “cerebral” ceos.  Strikingly, in this day and age when so much is a soundbite or a talking point, he had the confidence in his own perceptions to simply speak his mind.  And what he had to say was almost always more interesting for that too.  Here is a link to our article on the last conversation we had with him a little more than a year ago.  He was one of a kind and he will be sorely missed.  

 Longtime exec editor Eric Shepard has sounded off on our blog with a lengthy essay describing the volume ills and $$ strength of the beer biz in recent yrs, including charts.  This piece is perfect for our recently launched blog.  It’s a deep dive that goes into more detail than we had room for in our publications, but it’s jampacked with interesting info.  And available for INSIGHTS readers here.  Check our blog for more posts in 2014 and beyond.  We welcome your comments.     

“The economics have changed” for smaller importers, noted Latis co-founder and ceo David van Wees. It “costs more to get a point of distribution,” there is “less loyalty” and lower “through put.” But instead of taking “defensive” approach, Latis and Radeberger decided to combine sales forces and go on offense, in what David characterized as “100% a sales agency agreement.”  The two cos “will continue to operate independently on all other aspects of their respective business,” said a joint release.   So they will combine to have 25 sales people in US under Radeberger Gruppe name, selling Radeberger’s estimated 900,000 cases and Latis’s approx 400,000 cases.  The sales force will be led by Anthony Giardina, “a former Latis executive” who will become exec veep of Radeberger Gruppe USA.  Key focus brands will be Palm, Clausthaler NA, Radeberger Pilsner, Schofferhofer Grapefruit and Rodenbach. 

Premium Plus category has been strong on premise most of 2013, up 5.3% in 13 weeks thru Sep. However in last 3 mos the category has suddenly taken a hit on-premise.  Segment was flat 4 weeks thru Oct 6, down 8% 4 weeks thru Nov 3, and down 10.5% 4 weeks thru Dec 1, according to GuestMetrics data.  Premium light beers have continued to decline at double digit pace on-premise.   Cider still up over 40% in each of those 4 week periods, however slightly slowed compared to recent mos due in part to decline in overall traffic.    

“Volume sales of on-premise craft beer decreased each of the last 3 months an average of 6 percent versus a year ago,” reported Restaurant Sciences LLC earlier today.  Whoa there.  That would be something, perhaps first big chink in armor of craft revolution.  But another data source, GuestMetrics immediately countered with its own on-premise data that showed craft still up, tho definitely slowing on-premise.  Craft up 1.9% for 4 weeks thru Oct 6, up 4.1% for weeks thru Nov 3 and and up 1.7% for 4 weeks thru Dec 1, sez GuestMetrics.  Craft was still up 6% in 2d qtr of 2013 on-premise, but up 2.5% in 3d qtr in GuestMetrics data.  Slowdown seems more likely than a sudden plunge to a 6% drop. 

That wasn’t only data disconnect, highlighted by GuestMetrics ceo Bill Pecoriello.  While Restaurant Sciences sez” number of craft beers sold on-premise has decreased 19 percent versus a year ago,” GuestMetrics data shows number of brands at 6595 in 3d qtr, up 30% from a yr ago.  And Restaurant Sciences points to possibility that consumers “balking at price increases in the three to seven percent range this fall across restaurants, bars and night clubs.”  But GuestMetrics data shows that highest priced beers are the ones growing the most.  Only beers priced $5.25 or lower on premise are flat to down thru 9 mos.  Beers priced from $5.25 – $5.55 are up 6.8%, and above $5.55 beers are up 14.3% thru Sep, sez GuestMetrics.  

This one’s been brewing for a while.  Monarch Bev, Indy’s biggest beer distrib, has been trying to get legislature over several sessions to change state law that bars beer distribs from wholesaling liquor as well.  (Wine distribs can sell both, plus beer.)  Legislature hasn’t budged.  So Monarch went to fed ct in Oct.  Suit charges Indy law (only one like it in license states) that bars it from adding liquor license is an “anachronistic classification” going back to post-Prohibition era, is “entirely illegitimate,” has no purpose and violates equal protection rights under US Constitution.   Not surprisingly, wine and spirits distribs assn – representing heavy hitters like Southern Wine, Republic National and Glazer’s – has weighed in to defend law.  And distrib assn that represents AB wholesalers – Indiana Bev Alliance – supports wine/liquor distribs against Monarch, reports Indianapolis Biz Journal.  Why?  Monarch has MillerCoors in 69 of state’s 92 counties, IBA prexy Marc Carmichael told paper, and is statewide for some craft brands. “It’s a zero-sum game for the Legislature to make a change that dramatic because all it would do is shift business from some wholesalers to Monarch.”   Net-net: AB distribs don’t want Monarch getting even bigger/stronger.  Those distribs – 18 of ’em compete vs Monarch in its MC territory – much smaller than Monarch.

Wine/liquor distribs assn argues that Indy law does not violate Monarch’s equal protection rights.  Moreover, the beer/wine/liquor distribs “are not identical in all relevant/material respects” (i.e. beer distribs have franchise protection) and if ban overturned that would violate their equal protection rights.  What does state say?  In its very limited answer to Monarch’s complaint (details likely to follow), state alc bev commission denies Monarch allegations and insists Monarch rights haven’t been violated.  Indy alc bev laws are constitutional, ABC sez, “are rationally related to a legitimate government interest and are not discriminatory or irrational.”  

Monarch begs to differ, of course.  In complaint, Monarch said system goes back to 1935 when law first banned beer wholesalers from carrying liquor.  As it played out, in Monarch’s view, county politicians doled out beer licenses (capped in number) and state politicians doled out liquor licenses.  But “rewarding politicians and their patrons is not a legitimate governmental purpose,” Monarch argues.  What’s more, ban on beer distribs from carrying liquor: 1) does not protect retailers (other laws do that); 2) isn’t aimed at promoting competition, since wine wholesalers can sell liquor and there is “no relevant difference between beer and wine wholesalers”; 3) has “no effect on consumer behavior” or temperance since wholesalers don’t sell to consumers. 

Wine/spirits distribs assn counters that Monarch “actually seeks preferential treatment that would put Monarch in position to dominate the wholesale tier” of the Indy alc bev market, to detriment of its members. Howzzat?  Over last 80 yrs, “entirely different set of ground rules have developed” for beer and liquor/wine distribs, including franchise protection for beer, none for liquor.  Monarch win would create “uneven playing field” since it would be “entitled to compensation if beer brands it presently distributes moved” to a liquor house, while “Monarch would have no reciprocal obligation to compensate” liquor distrib who loses a brand. 

Meanwhile, a trucking co owned by Monarch is also suing the state, arguing that the same ban Monarch is challenging is illegally preventing it from providing transportation and warehousing services to liquor wholesalers.  That violates fed transportation laws, trucking co sez.        

MillerCoors ceo Tom Long spoke to packed house of over 400 people last Friday for Milwaukee Business Journal’s Power Breakfast, including the Mayor and other local big shots.  Tom talked about MC’s “commitment to Milwaukee” and how it is “maintaining a Milwaukee-centric approach with ventures like Tenth & Blake,” wrote the Biz Jnl (which ran 3 separate articles on the talk so far).  Recall, MC purchased a 110,000 sq foot warehouse behind its existing 30,000 sq ft brewery and will start operating there in early 2014.  “We’ll bring some new beers in there and use that space for more packaging facilities,” said Tom.  MC is taking the “when we grow, then we’ll add jobs” approach, because its breweries are the right size, notes the Jnl.  “While the volume of some of our beers is going down, the capacity (in the breweries) is being fully absorbed by these beers that take more time to make,” said Tom.   

MC’s Local Strength; But Sales Soft in Wisc MC announced in Oct that it would lay off 27 salaried workers in Milwaukee, but MC still employs 1600 people in Wisconsin.  MC pays $175 mil in wages and benefits statewide, purchases $700 mil of goods from Wisc cos and invested $100 mil in its brewery there.  What’s more, MC still has its highest share in the US in Wisc (state #s not part of presentation).  At 44.2 in 2012. 

It’s under lotsa pressure there tho, including loss of 3.5 share points in last 4 yrs.  MC lost 206,000 bbls, 11.6% in Wisc between 2008 and 2012.  And MC down another 56,000 bbls, 5% thru Jun 2013.  So Tom’s show of local strength and commitment took on added meaning against that backdrop.  He did also note that Wisconsin folks “are drinking more Coors these days,” according to the Jnl.

MC Digital, Mobile Spending Up 20-30% Per Yr; MC’s Strategy; “Holding” Co of “Authentic” Breweries  MC, like other brewers, shifting more of its marketing budget to digital media and consumer experiences, MC ceo Tom Long told Milwaukee Biz Jnl’s Power Breakfast.  Digital and mobile media spending up 20-30% per year in recent years, said Tom. “Digital and mobile is a huge platform.  Remember, these are all just pipes—and content needs to go through the pipes, whether it’s television advertising, whether it’s our presence at Lambeau Field, whether it’s mobile applications.”  MC also spending more on “experiences” like its Brewers Unleashed event.  “We’re having to bring more experiences to people,” said Tom.

Finally, Tom “highlighted the company’s business strategy as it adapts to new consumer preferences” with many smaller brands.  MC is “really a holding company of authentic breweries,” Tom said, including Coors Brewing, Miller Brewing, Blue Moon Brewing and Leinenkugel.  “It lets us compete effectively with small brewers and big brewers…. The notion of a parent company—with many brewers underneath it—brewers that are real places with real people and (have a) real heritage is the difference for us,” said Tom. “We can’t be the biggest, we want to be the best,” Tom concluded.  

As of Tuesday, Heineken became the biggest shareholder of United Breweries in India.  At almost 39%, it has just surpassed “flamboyant Indian billionaire tycoon” VJ Mallya, reported the Financial Times.  Mallya still has 37.5%, but has already seen “his airline grounded” and his spirits biz is now “controlled by Diageo,” notes FT.  With Heineken purchasing an additional 1.4% stake of United from Citicorp Finance, it is now biggest shareholder.  “It is yet another sign that Mallya’s booze-to-planes empire is crumbling one company at a time in the wake of the disaster of Kingfisher Airlines,” noted FT. 

Other VJ Mallya companies own stake in longtime craft brewer Mendocino, but Heineken reportedly does not have stake in that US craft brewer, which is declining.  Recall, Mendocino sales down 14% thru Sep and has $7 mil working capital deficit.  

Extensive profile earlier this week on Allentown PA’s Banko Beverage, the $100 mil (annual revs) distrib that’s “the largest wholesale beer distributor in the region, extending north to the Scranton area and east into New Jersey,” and only getting bigger, reported Lehigh Valley Business (LVB).  The 80 yr old distrib will move into its “new headquarters next spring that will nearly double its size.”  Banko is investing $7 mil into the new hq, and “expects the move to occur in March,” Banko vp and general manager, Tom Lynch told paper.

Currently co “has 131 total employees, 50 of whom are union members.”  Biz was started by Frank Banko Sr., who had emigrated from Yugoslavia in 1908, and “added Schaefer Beer to his soda bottling operation,” in 1933.  Frank Banko Jr then took over for many decades.  His daughter Mary Ellen (Banko) Racz is current ceo.  “Everything Mr. Banko touched was a good brand, whether it was Genesee, Miller, Schaefer,” Dick Yuengling told paper in recent interview.  “He bought 17,000 cases from the guy who was previously our wholesaler and he got it up to almost a million cases a year,” he added.

Tho total on-premise biz soft, Hotel/Lodging operators are projecting food and beverage sales to grow over 4% in 2014, according to Technomic’s BarTAB Report.  Adult beverages are becoming “increasingly important” to hotels which are focusing on growing their bar biz more, noted Technomic.  Hotel/Lodging accounts represent 7.2% of on-premise beer sales; 7% of spirits and 16% of wine according to analysis.  Half of hotel operators indicated their alc sales grew this yr.  Report notes that “a greater proportion” (33%) of 21-34 yr- old consumers visit hotels at least once a month vs just 14% of those 35 and older.  Hotel operators are realizing “a creative and operationally-sound drink program executed across the various outlets of a hotel property can add value and enhanced experience elements for guests, as well as high-profit sales,” noted David Henkes, vp of Adult Beverage Practice.