World’s #1 distiller Diageo meets constant speculation that it may (or should) sell its beer biz with constant expressions that it remains committed to beer, especially its global Guinness biz.  That was message again from recent mtg with analysts. Diageo “sent a message that [Guinness], together with the mainstream beer business in Africa, are not for sale,” wrote Nomura’s Ian Shackleton.  But ceo Ivan Menezes “did not rule out pruning some non-core brands,” Ian added, speculating possible sale of Red Stripe.   In US, “the (Guinness) brand is picking up some steam on the back of its ‘Wheelchair Basketball’ commercial, which (our opinion), might be one of the best television adverts ever made,” wrote Santander’s Anthony Bucalo.  Guinness Draught $$ up 1.6% yr-to-date, and +2.3% in latest 13 weeks in IRI multi-channel data thru Nov 3.  Guinness Extra Stout +3.6% for 13 wks, +3.5% YTD.  Total DGUSA trends improved too, tho still down.  Diageo Guinness USA volume down 7.5%, $$ sales down 7% yr-to-date thru Nov 3, yet improved to -3% for 13 wks.  In 2014, “line extensions of Smirnoff Ice and Parrot Bay are intended to combat the success of” Bud Light Ritas, reported Stifel’s Mark Swartzberg.

Ivan stressed half-dozen must dos for Diageo goin’ forward, including accelerating premium core brands, winning in highest end (where avg gross margins are 75%) and innovation.  Diageo does not need to buy Jim Beam (or other big bourbon), said Ivan.  Rather, Diageo intent on “expanding its existing whiskeys and launching new ones,” wrote Mark.  Current whiskey portfolio is growing, said Larry Schwartz, head of US biz.  He also “indicated price increases are coming on the North American whiskey portfolio, while vodka price increases may be put on hold due to increasing competition.”   Diageo and National Basketball Association (NBA) just announced a new multiyear marketing partnership that will make Diageo exclusive spirits partner of the league, leading with Ciroc and Crown Royal brands.

While beer volume challenged across developed mkts in US, Europe, Australia, SABMiller chief exec Alan Clark noted “trading environment is quite different.  In the USA for example we are able to get pricing and we don’t see the same level of price competition” as in Europe.  MillerCoors rev/bbl up 3% for 6 mos thru Sep “as a result of firm pricing and favorable brand mix” from growing above-premium biz, SABMiller reported today.  “We’ve been able to trade our portfolio up,” Alan noted, which has “helped to drop profit to our bottom line.  So overall I think a better environment for us in the USA.” 

SABMiller reported 1% volume gain across its global biz for 6 mos.  Organic rev/bbl up 2% and brewer booked “constant currency EBITA growth of 7%,” but depreciation of foreign currencies knocked reported EBITA gain back to 4%.  SABMiller got organic rev/bbl increases in 5 of 6 regions (all except Asia Pacific), organic EBITA margin growth in 5 as well (Europe was outlier).  

Anytime IPA will compete against All Day IPA (Founders) and Daytime IPA (Lagunitas) next yr in the increasingly coveted and crowded session IPA space, surely a big battleground for craft beer in 2014 and beyond.   Anytime IPA label from the Just Beer Project (one of Alchemy & Science’s initiatives for Boston Beer) appeared on BeerPulse late yesterday.  Asked if that was a new brand, Alchemy & Science’s Alan Newman said it’s the “same great beer as Just IPA, just a new name – one to better communicate ‘sessionability.’” 

That word has become something of a mantra among craft brewers these days.  Could that be the next step in craft’s ascent? More and more craft brews play in spaces somewhat more similar to big brewers’ beers and look to source further volume from them.  Yet sessionability is also a word that big brewers use to distinguish their beers from craft beers.  Now that Lagunitas has more capacity, it will be ramping up production of its Daytime IPA.  And Founders All Day has quickly risen to become that fast-growing brewer’s #1 brand. 

Boston getting more serious about competing in IPAs more generally as its Rebel IPA is expected to roll to many markets in 2014.  That brand reportedly takes direct aim at Lagunitas IPA.  Lagunitas is the fastest growing craft brewer in recent years, jumping from just over 100,000 bbls in 2010 to over 400,000 bbls in 2013.  Big 2, AB and MC, have not yet made serious push into IPA space, though Goose Island’s IPA up 165% on small base in IRI and Goose expected to have more IPAs coming in 2014.  Total IPA $$ sales up 44% yr-to-date thru Nov 3 in IRI multichannel + convenience and gained 3 share of $$ in craft segment to 18.  

Modelo Especial Chelada grabbed over 1 share of $$ in last 4 weeks thru Nov 3 in Southwest in scan data in 1 leading c-store chain.  And Modelo Especial still grew $$ over 25%, gaining 1.9 share of $$.  Bud Light dropped 1.6 share and Bud 0.8 last 4 weeks in this chain.    

AB will “probably get less pricing overall next year,” wrote Liberum Capital’s Pablo Zuanic, especially because of expected policy change in value segment.  Whereas before AB “had increased prices more than for the rest of the portfolio…. Now it will be more about ‘tweaking’ and standardizing premiums,” Pablo added, following AB Investor Seminar.  “We’d say this means little pricing will be taken” in value, concluded Pablo. 

Top ABI execs gave very detailed insights into how ABI has remade pricing here in US and its next steps at Investor Seminar last week.  After ABI took over AB,  “we changed almost everything we had” on pricing, said North American prexy Luiz Edmond, “first by taking a much more disciplined approach… and centralizing all price and promotion decisions.  A very strict number of employees can touch price in the US now.”  INSIGHTS has always heard that ABI had far more centralized approach to pricing (also in contrast to MC’s gm model), but ABI execs provided confirmation and lotsa fresh looks at its approach, which has led to far more profitable US beer biz in last 5 yrs.  It’s also a smaller biz, but AB maintains that’s not because of its pricing strategies, but rather almost entirely because of reduced labor participation.

Lots of Tools in Pricing Toolkit; Revs Up Near 5% Since 2008, Rev Per Bbl Up 14%  “We have invested and continue to invest heavily in understanding price,” said Luiz, including “developing state-of-the-art and proprietary tools” as well as increasing use of “big data.” AB has “moved from pure price increase to revenue management where mix, innovation, pack price became part of the tool kit.”  Result: AB was able to grow “net revenues by almost 5%,” about $600 million from 2008 to 2012, said Luiz, and “create $1.7 billion in additional revenue” even as volume declined (Correction: Beer Marketer’s INSIGHTS yesterday wrote revs grew about 4%).  Net rev per bbl up 14% those 4 yrs.

How AB Countered Tradedown During Recession  When ABI had arrived in US, “pricing decisions at AB had been largely decentralized,” explained sales veep David Almeida, but in other mkts ABI had noticed that “decentralization often leads to more aggressive strategies.”  At that time, price to consumer gaps got greater between premium and value segments, so “value share was growing within our mix, to some degree undermining our premium portfolio.  This phenomenon accentuated after the start of the recession,” added David.  “Consumers started to trade down fairly aggressively.”  So AB implemented revenue strategy in “methodical, thoughtful way” so that “price to consumer increases” were “lower than our Net Revenue per HL (hectoliter) increases.  This has helped minimize the consumer impact from our consumer strategy” and “improve our mix trends.”

As many recall, AB raised prices on subpremiums more than premium and grew its high end biz. “We resisted the urge to address macroeconomic weakness through discounting,” said David “and we feel we’re much better off as a result of this strategy.” But going forward AB needs to “sharpen our revenue management toolbox even more” if it is to grow rev per bbl “AND market share.” 

High End Price Compression from 160 Index to 133; Other Challenges  Lotsa challenges ahead, including “high end price compression” as leading import prices have not gone up while AB raised premium prices, which “lea to an erosion of the price premium those brands had” from “a 160 index to a 133 index” and that “puts some market share pressure on our premium brands.”  Another opportunity is that unlike in most other CPG categories “in beer 97% of promotions take the shape of a standard discount” off front-line.  “This is exactly how we promoted beer decades ago…. We are far behind best in class in this area.” 

AB’s 3P Framework Going Forward   AB has developed a “3P framework” including “Price-to-consumer excellence,” “promotion optimization or Promopti” and “pack price.”   AB has observed that “poor price positioning… leads to share loss.” If gap between premium and imports grows by 10 points or more, “premium brands gain 2 market share points.  Conversely, in accounts where that price gap has eroded by 10 points or more, we lose 0.8 market share points.”  Good news, according to David, is that “the data is on our side…. A greater gap between” imports and premiums leads to “better sales trends” overall for retailers. This is because of “higher price elasticity” of premium brands, so that “promoting our brands is more effective for retailers,” according to David.  “We will use these insights in a big way in 2014,” promised David. 

Promotion optimization involves better communication of promotion details, which in turn drives higher lift.   Pack price “is about utilizing competitive advantages in packaging to offer value to our consumers and protect key price points,” said David.  Two big bets in 2014: “the 8 pack 16 oz recloseable aluminum bottle will offer a better out of pocket price” than MC’s similar package “while maintaining a similar price per serving.”  The 2d bet will be the 25 oz can, which “offers 4% or more value to the consumer when at the same price per unit as our 24 oz can.” Early results “show a 9% volume lift on the 25 oz can vs the 24 oz can, indicating consumers are responding to the extra value in the package.”  

While beer’s poor performance on-premise has been well documented (-3.7% YTD), premium light beer volume trends much worse, “down a concerning 10.4%” yr-to-date, according to GuestMetrics data .   “Evolving consumer tastes” are partly to blame, GuestMetrics’ Bill Pecoriello notes, but “other underlying factors in play.”  A big key: a “sharp” decline in late night traffic of -8.8% has contributed to premium lights falling 16.7% during that key part of day.  “While late night accounts for 24%” of the segment’s on-premise volume, it’s “responsible for more than 40% of the total volume lost by the segment,” noted Bill. 

Decline in late night traffic is signal that “broad consumer base remains under significant economic pressure,” Bill added.   This trend hasn’t hurt craft which gets its greatest volume share during dinner hours, but that boost for craft could be hurting premium lights and beer segment overall.  “While difficult to prove definitive causality,” Bill pointed out, craft strength during day, and “its lower degree of sessionability,” could be “causing many consumers to switch out of the beer category altogether during late night to spirits/cocktails.”  Gains for spirits are reflected in latest control states data which shows case sales up 1.5% in both Oct and last 12 mos.  Spirits dollars up 4.7% in Oct; 4.5% for 12 mos.    

Following ABI’s all day investor day yesterday that focused entirely on US, media invited to Breakfast with Brito and other top ABI execs, including prexy North America Luiz Edmond and mktg veep Paul Chibe.  Brito again expressed key goal of “share neutrality” in US in 2014 as Luiz had emphasized at SAMCOM meeting w/ distribs.  Brito noted that tho ABI doesn’t like losing share, it’s sometimes “ok for 1 or 2 years” as in US where ABI pursued other objectives under difficult mkt conditions.  But when that has happened elsewhere and now here in US, situation reaches a “balance point” where ABI must at least maintain its share in “sustainable and profitable” way, said Brito.  “We are not playing the market share game at the expense of profitability,” added Luiz.  So as AB adds investment in many areas, it will “move money around,” “ask wholesalers to invest” (as in on-premise program), and “reallocate resources” to keep overall costs in check.  

One of its biggest bets will be the $150 mil it has spent on new “breakthrough technology” for its 16 oz resealable aluminum Bud Light bottle that has rolled out in Calif and will be going natl in coming mos, said Luiz.  AB only had 20 share in this space, but its new bottle is “big opportunity to recover some of the share we lost” in this package.  AB now believes it has competitive advantage to MC as its aluminum bottle tested higher on quality and refreshment cues and uses less aluminum.  So AB will drive this innovation hard.  Shock Top and Bud Light Platinum will be available in 11.5 oz versions of same package. 

Cran Brr Rita  AB’s newest Rita line extension, Cran-Brr-Rita, went from 0 to 80% distribution in just 4 days.  Not bad.  Bud Light Platinum got over 90% distribution in 4 weeks.  AB sez it has 70 share of all cases on display at retail.

AB Will Build Inventory in Jan  Asked if ABI had contingency plans in case there are labor issues as its Teamster contracts expire, execs again said that negotiations are off on right foot and expected to be “transparent” but “like any responsible company, we have our plans,” said Luiz, just in case.  And so AB will be “increasing inventory in the beginning of the year.”  Through Sep, there is about a half point difference between shipments and depletions trend (AB has shipped more than it sold), which INSIGHTS figures as about 400,000 bbls. ABI has often said shipments and depletions come in line with each other by the end of a calendar year.  Asked if that would still be the case given uncertainty going into next year, Luiz said “you will see the conversion” to make shipments and depletions trends come together, tho he didn’t affirm the number.

M&A? “We Don’t Comment on That”   Brito predictably declined to comment as Wall St Jnl asked about SABMiller as a potential acquisition target.  “We’re very focused on the business we have.”  But when WSJ asked about m&a possibilities in liquor, wine, csds, energy, Brito said that “we still see lots of opportunities in beer” and segued to talk of promise of “near beer” territory and innovations like cider or the Ritas.  More details on AB’s investor day, analyst reaction and this media breakfast in Monday’s Beer Marketer’s INSIGHTS.

New Pabst prexy Kevin McAdams, in charge now for 4 mos, added some detail to recent remarks to distribs at NBWA convention and laid out Pabst strategy at Beer INSIGHTS Seminar.  “I’m not a beer guy,” Kevin said right off the bat.  But he built system of 30+ Red Bull-owned distribs: “So I look at the world not only through a supplier lens, but I understand what it’s like to run a distributor on a large-scale basis.”   That experience, plus stints at Coke and Frito Lay, also showed him “great brands can do great things for an industry.”   

Echoing comments from MC’s Kevin Doyle and AB’s David Almeida earlier in the day, Kevin stressed importance of shoring up subpremium (and premium) biz: “to have a healthy beer category … in the US you need subpremium and premium growth…. It’s the only way the math works, especially for a distributor” and only way “for the P&L to really hum.”  Pabst “wants to take price in the industry,” Kevin said, noting 36-cent/ case hike this yr and sees “more room to do that in the future.”  As at NBWA, Kevin pushed Pabst Blue Ribbon’s affinity to craft: “A craft drinker is a PBR drinker; a PBR drinker is a craft drinker.”  Noted that study of one retail chain showed 78% of time consumer bought craft, he/she purchased PBR with it.  In best string of adjectives of day, Kevin claimed PBR is “strong, American, original, iconic, hip, authentic brand.”  Like lotsa craft brewers, Kevin also pushed importance of “local” to millennials: locally grown food, shopping at local stores, etc.  Among millenials, “90% had a drink at home last week, 80% had a drink in a bar last week.”  But PBR not always available in local store: distribution is now 58%, he said, on way to 60% by end of yr. 

At same time, handful of other Pabst regional brands performing “extremely well.”  Includes: Rainier (up double digits and will hit 1 mil cases for 1^st time in “I have no idea how many years”); Lone Star (up double digits), Natty Boh, Oly and Old Style.  In mind-bending blast from past, Kevin reminded that 40 yrs ago, current Pabst portfolio had 46 share in US.  (Quick fact check at BMI shows that # to be right on.  Same portfolio shrunk to 2.8 share last yr.)  Several questioned Kevin on why PBR has had so much success while other retro brands in Pabst portfolio haven’t.  He pointed to some “magical things” done on consumer side in recent yrs, “connecting with consumers really on their terms.”  Lotsa work to do on other brands (i.e. Schlitz), but Kevin confident Pabst can “go as far as we want to go with our historical brands.”  It won’t waste distribs’ or retailers’ time, but “more coming” and when “we bring one forward it will be accretive to the industry.”   

While Allied Beverages is the first MillerCoors distrib that Reyes Beverage Group has bought post-Chesbay (amidst much improved relations), it is certainly not the first beer deal.  That would be Windy City, the craft-centric distrib in Chi, which is growing at a 40%+ clip. Also, RBG release sez Allied sold over 12 mil cases.