Beer Marketer's Insights
AB Inventories Are High Again
AB projects inventories at 21-23 days in Region 3 throughout the 4th qtr, AB’s veep logistics Pablo Gonzalez wrote distribs yesterday. “We expect inventories to be slightly above 2012 levels, and this plan will provide a stable framework to protect against out-of-stocks and provide flexibility for innovation.” Lagers have 110-day shelf life and AB looks to have minimum of 8 days of inventory and max of 28 days, but that “may increase or decrease slightly due to shelf life, production frequency and cooperage availability.” Or perhaps to make better numbers. AB inventories were over this targeted level, more than 30 days in Fla at the beginning of Oct. And that’s following the implementation of a price hike. True, there was less buy-in than usual, partly because retailers also had to use available funds to buy in Crown and HUSA too. But over 30 days is high inventory on domestics in a top state, even for 1 week. AB forecasts inventories to come down quite a bit in Q4.
Mixed NBB Network in Ohio, Leans MC
New Belgium’s OH network will be led by MC’s largest distrib Superior, which gets NBB brands in 3 of Ohio’s top 5 cities, Columbus, Cleveland and Akron, plus Canton. Another MC distrib, Stagnaro will get it in Cinci and Bonbright gets it in Dayton. The other largest distrib in state, Heidelberg gets the NBB brands in outlying parts of Columbus and Dayton where it has AB, and also in Toledo where it is Coors distrib and Lorrain. Several other AB distribs got NBB brands, including Classic Brands, Choice Beverage, Matesich, Muxie and Spriggs. Deschutes will also enter Ohio next yr.
Ohio was about a 112-mil-case market in 2012. That’s down from 119.5 mil cases in 2008. AB and Miller Coors lost 13.5 mil cases, 13% of their volume (almost 1 mil bbls) and over 6 share between ‘em in just that 4 yr period. And they’re down again there this yr. Biggest portion of AB and MC drop came with Yuengling intro in late 2011-12. While NBB and Deschutes won’t hit with the force of a Yuengling, the two combined do expect to get about over 1 mil cases and about 1 share, INSIGHTS understands. Recall that Great Lakes is the only highly-developed local craft brewer in Oh, tho of course natl player Boston Beer also has a brewery in Cincinnati.
This is a new and potentially game-changing twist that we haven’t seen before, certainly not in such a big way. And it could set a far-reaching precedent. NBB asked for and got big money from distribs up front as part of the agreement to get the rights to sell its brands. This is not a per case marketing fee; that’s in addition (75 cents a case). But the number in agreement to get brand rights is eye-popping: 3x Gross Profit of first year sales, we understand. That’s like $18 per case. HOLY ____!!!! NBB expects to sell near a million cases in Oh. Presuming that’s across board, and agreements reportedly very similar for each distrib, that would be $15-20 mil from Oh.
“This is not significantly different from the way we’ve gone to market in the past,” said New Belgium co-founder Kim Jordan. NBB has always asked for upfront commitments based on everything that it spends in new mkts, including training, kick-off parties, staffing, heavying up on media, truck paint etc. Kim would not go beyond that, citing NDAs (non-disclosure agreements) that New Belgium and distribs signed. Tho there have been upfront commitments in past, differences that INSIGHTS has heard about are both that $$ are larger than before and also not structured as mktg commitment but rather as part of agreement to get brands. This brand rights charge is based on conservative yr 1 volume estimates and ROI is within 4 yrs or so, sez source.
Yet several distribs we talked to around US thought this development sets a terrible precedent, and even is a “nightmare scenario” as 1 put it. This invites many other craft brewers (or perhaps even other suppliers) to ask for the same. One can bet that AB/MC and other suppliers will not be happy with this situation, since they give distribs new brands without charge. Current Oh law bars brewer interest, direct or indirect, “in the establishment, maintenance or promotion in the business of any” distrib (AB branches excepted). Would this fee be considered such an interest?
“These are the kind of changes we’ve been talking about, that have been coming for years,” said consultant Joe Thompson. “If you were getting it from another distributor, you’d pay for it,” noted atty Drew Jaglom. But he asked: “Is there a logical reason why the first distributor should get it for free and every successive distributor should pay for it?” Any distrib agreeing to such an arrangement would have to “make sure it makes economic sense” from standpoint of “anticipated profit.” Recall, that consultant Andy Christon had argued that such investments would be necessary 2 yrs ago: “Distributors who want to remain competitive may find it necessary (and should be willing) to invest ‘skin in the game’ to acquire profitable growing brands that would enable them to continue their profitable growth,” he wrote at the time. We have not seen NBB’s new agreement and how it structures the “new way” brewer and distrib “mutually invest” as 1 source put it. In some other states, this practice would run afoul of tied-house statutes, sources say. Stay tuned for more info on fascinating situation.
More parents are being asked to assist with educating students about alcohol and other drugs. The NIAAA's College Task Force worked late in the summer to encourage parents to "help prepare" students "by talking with them about the consequences of excessive drinking." Stanford sent parents of incoming students a letter asking for conversation on this topic and found that 70% of incoming freshmen had one. Stanford also upped other educational efforts, like passing out "New Red Cups" to help students properly measure the alcohol they're imbibing and hosting more alcohol-free programming. Alcohol-related emergency room transports declined last year at the school, for the first time in 5 years, but there's "more work to do."
Both Yale and UPenn are awaiting recommendations from dedicated research and policy-development groups, "stemming in part from national trends among college administrators," the Yale Daily News wrote. Large-scale parties on campus have been scaled back at Yale, but hospital transports are up just as "the severity of the cases has been increasing." Yet one administrator reminds of the conflation of "increased binge drinking" and "increased reporting." The school's alumni magazine focused instead on a new "online alcohol education course" for incoming students, similar to a "recently implemented" UPenn program. George Washington University recently enacted a policy that forces student groups "to hire insured vendors with bartenders and require food be served alongside any alcoholic drinks" at registered events, according to the GW Hatchet. Both Bucknell and Temple Universities canceled long-running campus-wide parties. Penn State worked to keep bars from serving alcohol during "State Patty's Day," according to the Philadelphia Inquirer. EMS calls "involving alcohol" during Orientation Week at Duke University dropped this year, according to the Duke Chronicle. The school's student EMS director encourages students to stick together when drinking and to remember the school's "medical amnesty clause."
Amnesty policies, which leave students free of punishment when calling for medical attention for themselves or others, have become increasing popular, as long as institutions are clear about their parameters. Marquette University enacted a "Good Samaritan Policy" that protects the student caller that may have been drinking, but "what happens to the individual in need of medical attention?" asked a student in the Marquette Tribune. Tufts University enacted a similar policy protecting students from punishment for breaking alcohol policies, but not "other misconduct" that might also occur, such as vandalism or violence. But "people are really unfamiliar with the policy" still, one student told the Tufts Daily.
Some institutions are pulling back on amnesty. Rice University amended its amnesty policy to align with a general policy change that prohibits underage "possession and consumption of hard alcohol," but not beer or wine. As such, "amnesty does not apply to other prohibited conduct," which now includes giving "hard alcohol to persons under 21," according to the Rice Thresher, which acknowledges student confusion and hopes that they "would have been part of the discussion." The paper printed that its editorial staff is "concerned" that the amended policy is "potentially endangering student health" and that it "hopes the administration will consider student opinion more." That's just as Lafayette College's athletic director announced that the school's Good Samaritan policy would not be extended to student-athletes. The "550-plus" student-athletes, or about 20% of the college's student body, "should be held to a higher standard," the director told the Morning Call, leaving students wishing they had "some say in the new policy."
Recent data from federal drug use surveys and a new batch of data from the extensive annual Monitoring the Future Surveys (MTF) are cause for both optimism and alarm. While the MTF surveys for 2012 had shown a rare increase in drinking rates among some junior and senior high school grades, the just-released National Survey on Drug Use and Health (NSDUH) showed that the drinking rate among 12-20 year olds continued to decline. Meanwhile, new data from the MTF for the years 2005-2011 looked at rates of "extreme binge drinking" among high school seniors, 10+/15+ drinks per occasion. It showed declines during this period, but the rates would be considered distressingly high by most observers/policymakers.
The NSDUH data showed drinking rate declines across age groups over the last decade and in the most recent year. Among the youngest students, age 12-13, current alcohol use declined nearly in half since 2002 (4.3% to 2.2%) and there was a 0.3 pt decline in 2012. Current drinking among 14-15 yr olds fell from 16.6% to 11.1% over the decade; among 16-17 yr olds it fell from 32.6% to 24.8%.
The new MTF data showed that over the 6-yr period, 20.2% of high school seniors admitted to drinking 5+ drinks at least once during the 2 weeks prior to the survey, 10.5% said they'd had 10+ on at least one of those occasions and 5.6% said they'd had 15+ drinks. Another way of looking at this, provided by the authors: "among high school seniors who report consuming 5 drinks or more in a row, more than half reported consuming 10 drinks or more in a row and among those who reported consuming 10 or more drinks in a row, more than half reported consuming 15 drinks or more." The modestly good news: the percentage who drank 10+ fell from 10.5% in 2005 (and a peak of 12.6% in 2006) to 9.6% in 2011. And the percentage who consumed 15+ slipped from 5.5% in 2005 (and a peak of 7% in 2006) to 4.4% in 2011.
Not surprisingly, males were 3X more likely than females to drink at the 10+ rate, almost 4X more likely to have 15+ drinks. White students were significantly more likely to binge at higher levels than black students (12.5% vs 3.2% for 10+). Hispanic rates were in between. Extreme drinking (15+) was more popular in the Midwest and among rural students than among those living in the northeast or west or those living in large metro areas. Interestingly, students whose parents had at least some college education were more likely to binge at the 5+ level, but less likely to do so at the 15+ level. Predictably, odds of drinking at each binge level rose among those students who cut classes, smoked cigarettes, used pot, perceived that more of their friends get drunk and spent more nights out with their friends. Counter-intuitively perhaps, "high school grades and college plans did not predict binge drinking at any threshold." These findings may make it challenging to target "extreme" drinkers, but also suggest that such targeting should be attempted. Ref 2
Wisconsin Court Refuses to Extend Liability to Bar that "Relied in Good Faith" on Fake ID
Last issue, we reported that a Maryland Appeals Court refused (for the 3d time) to extend commercial host liability to bars in that state, ruling that it was a matter for the state legislature. Wisconsin's state court of appeals refused to extend liability to a bar that had been sued by a patron injured by an underage drinker (a friend of the plaintiff) who had used a false ID. Wisconsin law does not immunize retailers if they knowingly sell to minors or should have known the drinker was underage and if the sale was a "substantial factor" in an injury. But "when a provider relies in good faith on a false identification," the court pointed out, "immunity is retained if the minor's appearance is such that an ordinary and prudent person would believe that the minor was 21 years of age."
The bar had a "custom, practice and habit" of: 1) asking for IDs for anyone who appeared to be under the age of 35; 2) rejecting "visibly altered" IDs and; 3) not selling to anyone who appeared under 21 regardless of the ID. It also had an "iron clad" policy of firing bartenders who sold to minors. The woman who injured her friend after a night of drinking had apparently used the ID "dozens of times" at different outlets and testified that her appearance on the night in question "would lead a reasonable person to conclude [I was] the age of 21." Her injured friend did not provide "any evidence supporting her arguments that" the ID was "noticeably false," that the bar was careless or that the woman did not look 21. Ref 1
Meanwhile, not all states are loosening their liability laws. New York legislators are considering a bill that "seeks to add the makers of fake IDs to the list of those liable for drunk driving accidents," reports Digital Journal.
The state vs local control issue is playing out day by day across the country. In Michigan, the state Court of Appeals recently supported local control, at least for that state. Maple BPA challenged a local zoning ordinance in Bloomfield Township (amended in 2010) that ultimately banned all sales of alcohol beverages from gas stations. Maple argued that the narrower local law was pre-empted by state law, which it claimed gives the state Liquor Commission "exclusive control over the sale of alcoholic beverages." State law does not bar alcohol sales at gas stations. But both the trial court and the appeals court ruled that "state law did not preempt the ordinance as amended." Nor did the law violate Maple's constitutional rights to due process or equal protection. The Appeals court rejected each of Maple's arguments:
- The court had previously ruled that "the Legislature did not intend to preempt the field of liquor control" and that in fact "local communities possess 'extremely broad' powers to regulate" alcohol beverages via their "general police powers." In addition The Liquor Control Commission "explicitly recognized local authority" in this area.
- Though Maple argued that the zoning law was in "direct conflict" with state law (since state law does not specifically bar alcohol beverage sales from gas stations) the Appeals Court ruled state law had not "expressly spoken" about sales at gas stations, so there was no "direct conflict."
- Maple argued that the zoning was not "uniform," since it singled out gas stations for the ban. The Appeals Court ruled the law was uniform since "it applies to all" of them.
- Finally, the Appeals Court ruled that Maple did not meet its burden on the constitutional claims since it could not show: 1) that there was no relationship between Bloomfield's goals in reducing alcohol-related deaths and injuries and its ban: 2) why the ban was "arbitrary and unreasonable."
In California, Sacramento County officials proposed a ban of single sales of beer and small bottles of spirits at new stores in unincorporated areas of the county. Existing stores and those in "incorporated cities," are excluded, reports the Sacramento Bee. So are large mixed-goods stores, like Walgreens. But big liquor stores are included and a "major expansion, a change in liquor license type" or change of address "would trigger a new county review." The county board was interested in "having more options beyond its ability to recommend approval or rejection of a state liquor license request." Under the proposal, "new bars and liquor stores would undergo at six-month review by the county that would cost approximately $13,500, the paper reported. "Approval is likely to require no single sales of beer, restricted hours of operation and bottle size for spirits. Additional requirements could be put in place based on neighborhood concerns."
In New York, legislators proposed a bill that "would require the State Liquor Authority to consult with local police precincts and obtain complete records for every business that holds a liquor license in New York City," reports The Daily News. The bill is aimed to "make it easier for communities to voice their frustration, and it will streamline the information process," according to one of the sponsors. "The measure could have a significant impact" in some neighborhoods, the paper explained, "where civic leaders have been fighting for years to close down…troublesome clubs."
In Massachusetts, Boston's city councilor and several mayors in the area "are pushing to overturn the states 'antiquated' liquor license law by lifting caps and wrestling control away from the state to give it to local communities," according to the Dorchester Reporter. The state can override its quota system of liquor licenses via special bills, but proponents of the change "argue the current system is arbitrary and inequitable." Some local areas want to build the restaurant businesses. Others wish to add beer and wine to grocery stores. In a familiar refrain, "proponents of giving communities authority to grant their own licenses said local officials have a better handle on their neighborhoods than the state," the paper reported.
State vs Local Control; PIRE Updates Advocacy Guide; Consultants Criticize Community Focus
While state law generally controls most alcohol beverage issues, public health advocates continue to pursue local controls on sales, marketing and availability that they believe are more effective and achievable. The Pacific Institute for Research and Evaluation recently updated its fact sheet/guide "How to Use Local Regulatory and Land Use Powers to Prevent Underage Drinking." While local communities often view alcohol policy as "the sole province of state and federal lawmakers," authors Jim Mosher and Bob Reynolds point out that local "land use powers" (zoning, conditional use permits, etc) allow local officials to "determine where alcohol may be sold or consumed and how it is distributed and marketed." The authors include specific examples of restrictions on: the number and type of alcohol outlets, products, places, promotions, prices and access for minors. Indeed, virtually every aspect of the business. The fact sheet, prepared for the US Dept. of Justice's Office of Juvenile Justice and Delinquency Prevention, is available at www.udetc.org/publications.htm.
In California, "the trend is more local control and less state control," ex-state Alcohol Beverage Commission director/now-consultant Jerry Jolly told a group of industry lawyers last week at CLE International's "Wine, Beer & Spirits Law" symposium. That development, which began back in 1975 at the behest of a single advocacy group, is "the opposite of why the ABC was formed" and creates problems of both "consistency" of rules across the state and the rarely discussed opportunity for "corruption at the local level." Jolly's comments about creeping local control were seconded by current director of the Illinois Liquor Control Commission, Gloria Materre, who pointed out that in Chicago at least, the state commission is in "second place" when it comes to licensing issues, and city alderman, with the support of Mayor Emmanuel, are wielding considerable power/judgment to close down "bad actors" to increase safety in some neighborhoods. Retail consultants Michael Brewer and RJ O'Hara cited numerous examples of how "ad hoc," "NIMBY" and other neighborhood groups utilize zoning laws, "deemed approved" statutes and more to stifle licensing, raise costs and limit operations.
- In San Francisco, one national retailer was "blackmailed" into purchasing 2 licenses and cancel one to open a single outlet to achieve a "net reduction" in the neighborhood.
- "Deemed approved" statutes allow localities to place restrictions retroactively on existing licenses even while the (California) constitution is "clear that the state has the power" to regulate these licenses.
- "Preservationist groups" in Philadelphia are seeking "pre-signed agreements" with new licensees to restrict activities before they open.
These ideas, said Brewer, are "spreading like wildfire" in California and elsewhere as neighborhood groups meet and discuss tactics. New licensees, seeking to open on a timetable, will often accede to requests. The consultants also supported the corruption potential mentioned by Jolly. "I don't see corruption at the state level," said O'Hara. But there is "petty corruption in local areas" where accommodations being made are not considered bribes but "protecting a friend" who may also be in the business. Mark Arabo, president of the Neighborhood Market Association, which mostly represents independent Hispanic-owned stores in California, said the state ABC "does a good job," but he has "a big issue" with local municipalities doing minor stings or applying retroactive restrictions on his members, efforts driven by "local council members who don't know anything about the industry or its processes." His association is seeking state pre-emption in some instances and has filed a lawsuit to limit local groups' power. Also, "the smaller the city is, the more corruption" is likely, he insisted.
Join us for the 20th annual Beer Insights Seminar on Monday November 11th at the Waldorf=Astoria in NYC. It’s a premier industry event, jampacked with relevant content plus plenty of time for networking with industry leaders.
Our program includes presentations by AB sales veep David Almeida, Heineken USA prexy Dolf van den Brink, Pabst prexy Kevin McAdams and Harpoon ceo Rich Doyle. We also have two provocative and info-packed panels. One will be led by consultant Bump Williams on the evolving retail landscape. It includes MC chief customer officer Kevin Doyle, Crown evp sales Bruce Jacobson and Boston Beer’s sales veep John Geist. And a second panel, moderated by BMI’s Eric Shepard, will be a deep dive into data, including (for 1st time ever) all 3 leading beer info scanned data providers: IRI’s Dan Wandel, Nielsen’s Andrea Riberi and GuestMetrics ceo Bill Pecoriello. Ten Golden Rules ceo Jay Berkowitz will provide timely and actionable insights into the world of social media and internet marketing. And finally BMI publisher Benj Steinman will give an overview of industry trends. Seating is limited. Click here for more info. Click here to register.