While 2013 has been “sluggish” yr for alc bev stocks, including AB InBev, Santander’s Anthony Bucalo sees 3 reasons why ABI poised for better 2014.  First, Europe is not a “drag” on ABI as it is for some others, at only 10% of ABI’s EBIT.  Second, ABI’s “profitability metrics and profit execution remain best-in-class.”  Third, AB’s mkt shares in top beer profit pools “remain unchallenged and should get stronger in Brazil and Mexico.” 

Tony “strongly disagrees” with notion that US beer mkt starting to look like Europe’s.  Aggregate volume across Eastern/Western Europe down 12% since 2008 and outlook “not good.”  In US, dropoff not as severe and will be down about 2% this yr vs estimated 5% drop in Europe.  Tony doesn’t predict US trend for next yr, but “Europe will likely remain difficult.”  Then too, US “inherently more profitable due to greater consolidation… and a distribution and retail trade more protective of margins” than in Europe.  Cost savings at ABI and MC added “at least an incremental $3 bil” over last 5 yrs.  Meanwhile, ABI likely to retain its big lead in profit margins, volume, mkt share and profit/bbl vs global competitors.  Its $40 EBITDA/hl is “well in excess of competitors’ and nearly 30% higher than the industry average,” Tony points out.  ABI also achieved higher EBIT margin increase over last 5 yrs (330 basis points) than Heineken, Carlsberg or SABMiller. 

ABI “on the proper strategic course” in each of the top 5 profit pools, Tony believes: US, Brazil, Mexico, Canada and Russia.  In US, ABI’s “premiumization strategy” has cost share but “resulted in greater profitability and is on trend” compared to previous owner’s “over-reliance on value and mainstream” domestic brands.  Lotsa potential in Mexico, Tony (and others) believe.  He also sees “rebound” in Brazil next yr, driven by World Cup.  ABI #3 in Russia but has shifted from volume to value strategy.  And ABI remains leader in Canada, a “highly-profitable and defensively regulated” mkt.  Add it all up and you get “three reasons to buy ABI now ahead of next year,” in Tony’s view.    

Current challenges big brewers now facing from inside (craft success) and outside (“newly aggressive liquor brands”) are subject of front-pager in Advertising Age by EJ Schultz.  AB and MillerCoors “are being battered by a new wave of competition” from craft/liquor and are “starting to lose their grip,” wrote EJ, noting 8 of top 10 beer brands lost share at retail for 52 wks thru mid Aug (from IRI), and beer has seen its total share of US alc bev mkt fall to under 49%, citing DISCUS $$ sales estimates.  Mag called situation “grim, but not irreversible,” as top two still hold near 74 share and have had “early success with new brands,” such as the Ritas that “blur the line between cocktails and beer.”  But can big beer spend its way out of tailspin?  Beer is still biggest alc bev ad spender by far (near $1 bil in 2012).  While liquor spending is way up, still small in comparison at $243 mil in 2012, per Kantar Media.   

Beer ads have not helped sway consumers of late either.  Only 1 campaign (Dos Equis’ “Most Interesting Man”) “has achieved pop-culture acclaim” over last few yrs, according to EJ.  Former AB chief creative officer Bob Lachky, who oversaw some highly successful ad campaigns, blamed approach of his former co.  “It’s almost impossible to get a breakthrough idea through a system that may be overanalyzing in the pre-test stage,” he told mag.  “Once in a while, you have to take a chance.”  Current mktg veep Paul Chibe countered:   “Everything I am running on air is an ad that has been tested to drive purchase intent and persuasion.” Then there’s the question of whether any commercial could be good enough to “heal the light-beer category.”  Ad Age cited recent Consumer Edge Research data that found some consumers losing their taste for it.             

Interesting to note contrast in two views of US beer biz out today.  Ad Age front-paged the “battering” big brewers are taking.  But Santander analyst Anthony Bucalo accentuated the positive profit picture here, especially for AB, and not-as-bad overall volume trend vs Europe.  Read on.

Interesting to note contrast in two views of US beer biz out today.  Ad Age front-paged the “battering” big brewers are taking.  But Santander analyst Anthony Bucalo accentuated the positive profit picture here, especially for AB, and not-as-bad overall volume trend vs Europe.  Read on.

Arthur Emanuele III filed suit in US Dist Ct this week charging that MillerCoors infringed his patent on a “vent opening mechanism” that MC turned into its punch top cans for Lite/MGD.  Seeks finding that MC infringed patent, permanent injunction to stop MC from “further infringement” and damages worth “no less than a reasonable royalty,” plus treble damages.  Claims that he signed on with engineering/feasibility firm called Newlogic in Apr 2010.  And despite confidentiality agreement, Newlogic allegedly “disclosed” his invention/mktg plan to MC.  At same time, he discussed invention with can maker Ball Corp in 2010 and 2011 which told him it didn’t “fit with its business focus.”  When MC announced punch top can in May 2012, Emanuele claims to have called MC’s Andy England, but Andy allegedly “hung up the phone without responding.”  He also sent cease and desist letter to MC counsel around same time.  Meanwhile, there a s 2d suit vs MC’s punch top can, filed last yr in Conn ct, reports Law 360.  

Today in Wyoming, which has by far the lowest beer tax in the US, lawmakers will discuss a proposed hike, and perhaps even eliminating the tax altogether.  The tax has been at 2 cents per gallon since 1935 (avg state excise tax is 27 cents/gal) and “I thought it was time to take a look at it,” said Senator Ray Peterson, co-chair of the Joint Revenue Interim Committee, reported the Tribune-Eagle in Cheyenne earlier this week.   He seeks to at least double the tax, which would still keep it below the next lowest in the US (Missouri, at 6 cents/gal), to pay for substance abuse centers and health programs.  Distribs will testify against the hike.  “The reality is if the tax goes up, the price just gets raised, and Joe Sixpack pays the price,” Pat Higgins, owner of Orrison Dist in Cheyenne, told Caspar Star-Trib.  At same time, head of House Rev Comm told AP he wants to look at cost of collecting beer tax (state averages just $265K annually from tax) and suggested that collection costs may not warrant the levy.  “In my opinion, you can either raise it or get rid of it,” he said, according to AP.  

While liquor and wine have expanded availability in multiple mkts in recent yrs, beer will be sold in more outlets in Oreg soon.  State liquor control commission (OLCC) deemed test of adding beer to 4 state liquor stores was a success and will expand that program to more of its 248 stores going forward.  Money talks.  Turns out sales at stores that sold beer rose 12% vs 8% increase statewide.  Up to individual “agents” who own/run stores to decide and they have to obtain licenses.  (Stores are privately owned, but licensed and tightly regulated by OLCC.)  But liquor control board member said “clearly there are no known negatives,” adding “my feeling is, we should move forward and open it to any agent who wishes to apply.”  There have been rumblings of privatization push in Oreg too, and OLCC lookin’ at other “modernization” options, reports The Oregonian. 

Pabst Brewing looks to enlist consumers “in the wake of a recently announced sponsorship deal that threatens to displace Old Style beer from Wrigley.” Old Style is “mounting a grassroots campaign” the co sez “to help consumers preserve a beer drinking tradition” that goes back over 60 yrs.  Decision about which beers will be poured “rests with the Cubs concession management partner Levy restaurants.”  Pabst started www.KeepOldStyleinWrigley.com which goes to Old Style website where there’s online petition that sez: “Judging by their reaction to this news on social channels and through the numerous inquiries we’ve received, fans want to make their voices heard.” While Old Style began sponsoring the Cubs in 1950, last week AB struck deal to become “exclusive beer sponsor in 2014 and beyond.” Tho AB is exclusive beer sponsor, not all beers served will be AB.

AB reportedly spent $14-15 mil per yr for Wrigley sponsorship in deal that may last as much as 10 yrs.  Recall, back in 2006, AB signed exclusive with Blackhawks/Bulls in United Arena.  That sponsorship about $10 mil per yr for 10 yrs.  So think about it: ABI will spend about $25 mil per yr on 2 sports sponsorships in 1 of few mkts where it’s not #1 player.   Wow! 

Longtime MillerCoors veep of brewing research and innovation David S. Ryder provided a window into extensive new research on consumer activity yesterday.  He also revisited MC’s “Flat, Fractured and Fast” picture of the industry in presentation at Tammarron Consulting’s Supply Chain and Operations Leadership Conference in Fort Collins. David shared video that compiled results of studying 800K consumers in 3 countries over 10 yrs.  Concluded that traditional demographics such as age, income or social groups may be less useful than identifying simply “Two Planets” of consumers: Traditionals and NEOs.  Traditionals comprise about 52% of consumers who focus solely on chasing the best deal in town.  Conversely, NEO, or New Economic Order, consumers “search for the extraordinary.”  

Associated consumer behaviors were only exacerbated by the Great Recession, according to the research.  Tougher times convinced Traditionals that spending was “unsafe,” so having the “second best offer” isn’t good enough, “as anyone who’s tried to compete with WalMart has found out.”  Meanwhile, NEOs continued to invest in “design,” “authenticity,” “provenance” and “discovery.”  Apple’s success during the last few years is the prime example of a company that attracts NEO spending.  About 93% of those considered “big spenders” live on the NEO planet, which accounted for about 77% of overall consumer spending and “almost every dime of profit businesses make.”

Rise of NEOs directly related to success of high end and “decline of the brand” in beer industry, David argued. After noting that overall industry “flat,” he guided audience thru each “fragmented” segment of industry and, like those companies selling to NEOs, the “fast” changing segments that are most attractive to NEOs are the ones that are up.  Earlier in the presentation David followed the “History of Premium Lights,” taking it all the way back to beginning of the universe, in light.  From fire, thru candles, gas lighting, Edison and “night lights,” David made the case for these “delicate beers” that are “not watered down products” but instead “designed to be sessionable.”  Touching on “symphony of flavor” and “concert of taste” brands like Miller Lite and Coors Light provide, he talked the difficulty of brewers ensuring that “happy, happy yeast” works to develop highly consistent beers.  David provided little detail about exactly how MC would “innovate” to capture the attention of NEOs, who are not sold thru traditional marketing either.  Yet the web of words David showed to conclude his presentation, including malt and hop varieties and non-traditional beer ingredients and flavorings, provided some clues as to the new “tools” MC is trying to add to its once “traditional toolbox.”

Longtime MillerCoors veep of brewing research and innovation David S. Ryder provided a window into extensive new research on consumer activity yesterday.  He also revisited MC’s “Flat, Fractured and Fast” picture of the industry in presentation at Tammarron Consulting’s Supply Chain and Operations Leadership Conference in Fort Collins. David shared video that compiled results of studying 800K consumers in 3 countries over 10 yrs.  Concluded that traditional demographics such as age, income or social groups may be less useful than identifying simply “Two Planets” of consumers: Traditionals and NEOs.  Traditionals comprise about 52% of consumers who focus solely on chasing the best deal in town.  Conversely, NEO, or New Economic Order, consumers “search for the extraordinary.”  

Associated consumer behaviors were only exacerbated by the Great Recession, according to the research.  Tougher times convinced Traditionals that spending was “unsafe,” so having the “second best offer” isn’t good enough, “as anyone who’s tried to compete with WalMart has found out.”  Meanwhile, NEOs continued to invest in “design,” “authenticity,” “provenance” and “discovery.”  Apple’s success during the last few years is the prime example of a company that attracts NEO spending.  About 93% of those considered “big spenders” live on the NEO planet, which accounted for about 77% of overall consumer spending and “almost every dime of profit businesses make.”

Rise of NEOs directly related to success of high end and “decline of the brand” in beer industry, David argued. After noting that overall industry “flat,” he guided audience thru each “fragmented” segment of industry and, like those companies selling to NEOs, the “fast” changing segments that are most attractive to NEOs are the ones that are up.  Earlier in the presentation David followed the “History of Premium Lights,” taking it all the way back to beginning of the universe, in light.  From fire, thru candles, gas lighting, Edison and “night lights,” David made the case for these “delicate beers” that are “not watered down products” but instead “designed to be sessionable.”  Touching on “symphony of flavor” and “concert of taste” brands like Miller Lite and Coors Light provide, he talked the difficulty of brewers ensuring that “happy, happy yeast” works to develop highly consistent beers.  David provided little detail about exactly how MC would “innovate” to capture the attention of NEOs, who are not sold thru traditional marketing either.  Yet the web of words David showed to conclude his presentation, including malt and hop varieties and non-traditional beer ingredients and flavorings, provided some clues as to the new “tools” MC is trying to add to its once “traditional toolbox.”

Southern Wine & Spirits, in last round of briefs before US Appeals Ct to get Mo’s residency requirement tossed, gets a little testy. Opens with quote from 1984 US Sup Ct Bacchus case that said “one thing is certain” about 21st Amendment: its central purpose “was not to empower States to favor local liquor industries by erecting barriers to competition.” That “resolves this case,” SWS insists. While state “puts all its chips” on 21st Amendment, that argument “fails twice over”: 1) legislative history shows residency requirements “enacted for the precise purpose of blocking competition”; 2) requirements “invalid” under more recent Granholm decision because “they discriminate in a way that is not inherent” in 3-tier system. Also, state “flatly wrong” when it argues states have “carte blanche to discriminate as they please” as long as they don’t discriminate vs producers. In fact, SWS claims, Granholm and other decisions “condemn discriminatory liquor regulation in broad, vehement terms not limited to producers.” Mo laws “slam the door on out-of-state residents who wish to start a” Mo co and compete as distribs, brief charges, but “such an attempt to play favorites cannot stand.” We’ll see.
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