After better sales in recent mos, scan data took a dip in most recent 4-weeks, down 1.5% in Nielsen all-outlet data thru Nov 16, including 1.9% drop in foodstores and 2.5% drop in c-stores.  Premium beers down 4% and subpremiums down 5%, but imports still up 2.8% and crafts up 11.6%.  FMBs and ciders still flying.  Above-premium segments gained 3 share of $$ last 4 weeks.  And pricing remains healthy; up 68 cents 3.3% on avg across all beers.  Large portion of that price increase is mix shift as premium beers still up less than 1.5%, near premium up 1% and budget up almost 2%.   

Mazzoni called them “happenstance” brands, i.e. ABI happened to own them and would much rather have them in its own distribution network.  But it’s not like Spaten and Franziskaner are getting a big push or anything.  Trends are soft enuf to make one wonder about these arbitrators’ valuations.  Nationwide, Franziskaner Hefe sold 45,000 cases yr-to-date thru Nov 3 in IRI multichannel + convenience. That’s down 21%.  Spaten Premium sold 37,000 cases, down 27%.  Spaten Optimator Dark also sold 37,000 cases and that’s down 25%.   

 In 2 arbitrations, distribs paid over $1 mil for brand rights for tiny volume of declining Spaten/Franziskaner brands. But consultant Mike Mazzoni (expert for AB distribs in KY) argues that total payment not nearly as high as it appears.  “By the time you factor in expert witnesses, legal fees and arbitrator fees, notwithstanding the aggravation for all parties involved, the true # is probably less than 4x GP,” said Mike.  “So,” he asks, “why don’t we wake up and start being more reasonable in the way we approach brand transfers?”  

Turns out, in a very similar situation in Kentucky, an arbitrator ruled that same Spaten/Franzikaner brands should sell for approx 5x GP from Beer House to AB network there. AB distribs will pay Beer House about $400,000.  That arbitration pitted consultant Andy Christon vs consultant Mike Mazzoni as experts.  Andy had argued for valuation of 6.6x, Mike for 3.5-4x.  The arbitrator said both consultants valuation methods had some credence and he couldn’t wholly reject either, but he afforded 1/3 weight to Andy’s methodology and 2/3 weight to Mike’s. 

When AB InBev got rights to import German Spaten/ Franziskaner brands, it sent letter to big Indiana MC distrib Monarch that it intended to move ‘em to AB distribs in state.  Monarch and 7 AB distribs could not agree on fair mkt value of brands, so they went to arbitration.  Decision came down earlier this week.  Per usual, turned out to be battle of experts, in this case consultant John O’Connor of OMAC Bev Advisors for AB distribs, Geoff Westapher, former Warsteiner prexy and distrib, for Monarch.  Arbitrator hadda decide two things: base year and appropriate multiple.  He ruled 2011 was base year since it was “last operating year where a normal course of business occurred” for Spaten brands.  He didn’t pick 2012 because “there were no promotions, discounts or incentives” that yr and already known in 2012 that brands likely to move. 

On key issue of multiple, arbitrator didn’t find John’s discounted cash flow model to be “persuasive” because he disagreed with 2 of John’s “principal assumptions,” that “customers would be lost in the transition” and Spaten declines would continue.  John also used sales comparisons, but after reviewing “evidence and credibility and background of the expert witnesses” arbitrator found John’s GP multiple – 3.45X, we understand – to be too low.  Instead, he found “persuasive” Geoff’s opinion that “imports would continue to be profitable” and that craft success would not blunt import sales.  Also, “based upon the recent Spaten Brands sales to other distributors (albeit precipitated by AB’s acquisition of Spaten), the strength of the import market, the reputation of the Spaten brands…the trend of existing sales, and the ability of AB to promote and incentivize” its distribs, arbitrator found “appropriate GP multiple is 5.5.”  As result, 7 AB distribs paid total of $640K (from low of $2K paid by Greenfield Bev to high of $381K paid by Zink Dist, rather than $401K under John’s suggested multiple.  One other point: entire process took from Mar 1, 2013 when AB informed Monarch it would move brands, to Nov 19 when arbitrator ruled.   

Crown Imports will be changing its name next March to Constellation Brands Beer Division, it announced today.  The new name reflects the “scope and scale of who we can be” and “leverages the opportunity of being Constellation,” Crown ceo Bill Hackett told INSIGHTS.   For technical and regulatory reasons, Crown Imports will still be used for importing beer in the US and will still appear on the labels and ad tags.  Even corporate name Crown Imports LLC is not changing, but it will become a “d/b/a” (doing business as) so Crown can refer to itself in the trade as Constellation Brands Beer Division.  So what’s in a name?  Why the change?

“We recommended this” to Constellation ceo Rob Sands, said Bill.  Rob would have been fine with keeping the name Crown Imports, Bill added.  But Crown Imports no longer encompassed what the co has become following the deal to buy Piedras Negras from ABI, according to Bill.  Now Constellation/Crown owns a brewery, has offices in San Antonio related to managing that brewery, plus “the handcuffs are off” and Crown can be “more than just an importer,” said Bill.  He added “our book is wide open.”  The company “can potentially scale up” and represents an attractive “vehicle to market” through its Gold distribution network for any number of potential partners. “Nothing is imminent,” said Bill, but “we have had conversations.” 

Then too, the combined power of Constellation makes for more “leverage” at retail, noted evp Bruce Jacobson. He gave as an example a recent “top-to-top” meeting with Kroger’s with both beer and wine, tho INSIGHTS unclear why that will work better if it’s Constellation Brands Beer Division than if it’s simply Crown owned by Constellation.  New name “will take some getting used to,” acknowledged Bill.  But evp mktg Jim Sabia quick to note that from a consumer standpoint, this won’t even really be visible.  Co has gone from Barton to Crown to Constellation Brands pretty seamlessly, so this just “opens up another chapter.”

Meanwhile Crown biz has stayed strong (recall Constellation reported 7% Crown depletions gain in latest qtr thru Aug).  Crown up 14% for 13 weeks thru Nov 3 in IRI multichannel + convenience and up 8% yr-to-date.  And for last 4 weeks, avg prices up 3% and it still maintained that 14% growth rate.   It’s still “really early days” to gauge effect of Crown’s price increases, some of which didn’t go into effect until early Nov, said Bill, but so far Crown likes what it sees.  Crown execs no longer able to give up-to-date all-channel depletion trends, citing the dreaded “quiet period” that virtually all big public companies routinely invoke in between quarters.  (Constellation market cap now near $13 bil, having gone up 3.5x in last 18 mos and now 1.3x bigger than Molson Coors.)  Yet it’s clear that Crown sales have kicked into a higher gear in recent mos.  Modelo Chelada is “far exceeding our expectations,” noted Bill.  Brand is in restricted supply, noted 1 sizable distrib. “We aren’t getting what we ordered.”  Recall, Modelo Chelada is over 1 share in latest 4 weeks in 1 large c-store chain. 

How’s Crown getting along with ABI in production agreement?   “It comes down to putting together a deal that’s workable for both parties,” said Bill. ABI is “doing everything they committed to.  They’ve been very supportive and accommodating of our requests.”

Craft Brew Alliance promoted Andy Thomas to ceo from prexy of commercial operations position he has held for 3+ yrs, effective Jan 1.  Current ceo Terry Michaelson, in ceo role since 2008, will become sr advisor thru 2014.  At same time, CBA also announced a number of other changes to its exec mgt team that will serve to “flatten” the organization, Andy told INSIGHTS, and which will lead to faster decisions.  That expanded exec mgt team has over 125 yrs of beer experience, Andy reminded.  He characterized all these moves as a “logical progression” and “next chapter” after “fantastic ride” that Terry had as ceo. 

Ken Kunze, just recently hired as chief marketing officer (also served in that role under Andy at Heineken USA) is also now in charge of Restaurant & Retail operations.  That’s “logical” sez Andy, since those are “marketing weapons.”  In sales, Dan Partelow is gen mgr west and Peter Schauf gen mgr east. Both still report to Andy, but since he’s now ceo that effectively will eliminate a layer. Another longtime sr exec, exec veep brewing Sebastian Pastore, who’s been with the company for more than 20 yrs, will also leave CBA.  His responsibilities will be split between brewing ops veep Scott Mennen and veep supply chain and logisitics John Glick, both of whom had long tenures at AB.  And CBA also named (sales vet) Derek Ham chief of staff, a new role, encompassing human resources, admin and corporate affairs. 

 “The Board has planned carefully for this succession,” said co-founder Kurt Widmer, praising both Terry’s “exceptional leadership” and Andy’s “instrumental” role in CBA’s success in recent yrs.  Depletions up 14% in latest qtr. But strong as its volume results have been recently, recall that its gross margins challenged in latest qtr.  Making progress against that is #1 priority for 2014, Andy reaffirmed.

About Terry’s tenure as ceo: in 2009, CBA had $80 mil in sales and net loss of $33 mil in wake of Redhook/Widmer merger, Oregon Live noted.  By end of his tenure, sales will have doubled, the co is modestly profitable and stock is on a tear.  CBA stock price was under $2 in much of 2009 and about $6 as recently as a yr ago.  But CBA stock up 2.5x in the last yr alone and is currently trading at about $16. Stock market capitalization is $300 mil.   

Andy will get a base salary of $400,000 in 2014, plus he’s eligible for cash incentive bonus of $250,000 based on achievement of corporate and individual performance goals.  He also signed non-compete, meaning he’s “prohibited from accepting employment with a competitor” thru Dec 31, 2015.  Andy had base salary of $300,000 in 2012, plus he got stock and option awards. Then-ceo Terry Michaelson had base salary of $339,000, up from $270,000 in 2010.  Terry also has about 60,000 shares of CBA, including options, according to govt filings.

New blog started up in last week or so that’s worth a look from anyone interested in beer ads.  It’s written by Dan Fox who ran Coors Brewing’s advertising for many yrs at Foote Cone & Belding.  Dan “personally wrote the Pete Coors ‘Somewhere near Golden, Colorado’ commercials, designed the Coors NASCAR graphics, authored sales-convention speeches, and most important of all, formulated marketing strategy for virtually every Coors brand, including Coors Light, Keystone, Killian's Irish Red and more,” he sez.  This is a man who knows beer ads.

Entries have titles like “the ad strategy Budweiser rode to the top,” “‘seven deadly sins’ of beer advertising” and more.  Why’s he starting this blog? Dan sez he is “upset with what he sees as the accelerating, but avoidable decline of virtually every major beer brand in the country,” so “he set aside the hyper-competitive ethic of the beer business to campaign on behalf of the fortunes of all the big-beer brands.”  Please Don’t Let Bud Die is an unexpected title for a blog from a Coors loyalist, but then again Dan is a self-proclaimed “real beer guy.”  Tho out of the game for last few yrs, he makes many interesting and potentially still relevant points. His inaugural post was entitled “Why would a Coors guy give a damn about saving Budweiser.”  Check it out at www.plzdontletbuddie.com.  

_________________________________________________________________________________________

Consumer price index for beer increased 2.3% in Oct compared to Oct 2012.  That’s biggest gain since Jul.  Meanwhile, CPI for All Items up 1% in Oct vs yr ago, its lowest monthly gain in 2013.  Spirits prices up 1.7% in Oct while CPI for wine up just 0.1%.  CPI for beer up 1.6% yr-to-date  vs 1.5% increase for general inflation while spirits and wine up 1.1% and 0.7% respectively.  Households in general “are getting some extra cash to spend on other goods and services as fuel expenses cool,” noted Bloomberg.  

Interesting how different execs from different bev cos are looking at the biz these days.  At last week’s Beer Insights Seminar, MillerCoors’ chief customer officer Kevin Doyle said “real issue” for beer biz now is “per capita beer consumption is not growing.”  In fact, it’s declining, while spirits and wine per caps are growing.  “That’s something we all need to take care of.”  Then too, “one segment can’t drive the industry,” said Kevin, referring to strength of high end, while premium/subpremium volumes suffering.  AB’s David Almeida and Pabst’s Kevin McAdams stressed similar point, that industry needs balance across mainstream categories.  But #1 distiller Diageo’s chief exec Ivan Menezes had different perspective in comments to investors this week, according to Daily Telegraph.  “Our strategy is all about drinking better.  We don’t want people to drink more, we need them to drink better.” 

Another recent comment got our attention.  While Coca Cola execs in US have never been enthusiastic about selling alc bevs along with soft drinks, that sentiment not universal.  Indeed, Coca Cola Amatil’s chief down under, Terry Davis, called getting back to selling beer in Australia a “no-brainer.”  (CCA’s beer biz put on hold for 2 yrs in wake of SABMiller’s Fosters deal; Coke owns 29% of CCA.)   Davis cited Australia’s $1 bil beer profit pool, that beer a duopoly there with 2 cos making 30-35% margins and that his co has distrib network/technological platform in place to be “third force” in mkt, selling intl beers, reports AAP.  CCA has Australian rights to Molson Coors, Sam Adams and others.   Sales of intl beers there is “market that’s been growing at double-digit rates for the last seven or eight years so it’s a no-brainer.  We’ll have a bit of fun over the next three or four years,” he vowed.   Will Coke folk elsewhere around globe be seeking to have some beer fun down the road as well?