AB not happy with share and volume trends lately and so it announced a “Q4 Blitz” late last week, according to distribs. Actually, AB’s volume trend a bit better in scan over summer (down about 1%), but its $$ share loss has gotta be concerning. Down 0.95 share of $$ last 4 weeks, compared to 0.51 yr-to-date thru Aug 11 in IRI multichannel + convenience. In conference call with distribs last Friday, AB sales veep David Almeida said AB will push hard on initiatives in Q4, many originally planned for 2014. Some of plans involve 25-oz cans, 16-oz resealable cans of above premium items like Platinum/Black Crown/Shock Top, Stella Cidre on draft and big incentive on Goose Island draft too. As he had to INSIGHTS last week, David conceded on call that Bud Light mktg not where it should be, but that wasn’t main emphasis, even tho that certainly is key focus for distribs. AB still focusing much of attention on hi-end. One distrib characterized new initiatives as welcome, but “all bark and no bite. All push and no pull. We need the bite,” meaning more impactful messaging on Bud Light.

Early reads but there seems to be unusually wide variations in trends for distribs in Aug, with some having a weak mo (after better Jul) and some ok, especially since there was 1 less selling day. Beer volume up 1.3% for 4 weeks thru Aug 24 in Nielsen all outlet data, continuing the somewhat better scan trends of last 2-3 mos. Labor Day was not sunny in Northeast and 1 brewery exec said there would be lotsa beer sitting in stores. Just in time. Because purportedly price hikes coming and retailers always look to load up in advance of new pricing.

Yet price increases are seemingly in flux in some key mkts. While AB had told distribs it was going up in most states, we hear AB not happy with competitive response or lack thereof (lesser, delayed, etc) in some big states. And so whether increase sticks is still TBD. “I don’t know whether we’ve ever gone so deep into a year where there hasn’t been a clear strategy on whether AB is going up across the board,” said Yuengling coo Dave Casinelli. So AB and other suppliers may not realize all the incremental revs anticipated in Q4. That also could be true for another reason. AB has also shifted somewhat more to a share focus (see below).

Key industry issue in Pennsy pivoted last week from privatization to franchise reform. Recall a reform bill was floated during summer. That bill intro’d last week and first hearing already held. Per usual with proposed franchise reform, plenty of interest. Hearing included presentation from craft brewer Bill Covaleski (Victory and Brewers of Pennsy); Yuengling’s coo Dave Casinelli and counsel were there, as well as other small brewers. Distribs represented by Fran O’Brien (general counsel of Pennsy Beer Alliance), and distribs Matt Funchion (Penn Dist) and John Beljan (Stockertown, mostly crafts/imports). Also in the room: NBWA’s genl counsel Paul Pisano, which shows national interest in franchise reform. Then too, Brewers Assn submitted comments, we’re told. For now, Pennsy brewers support law (big brewers silent) while distribs opposed.

Key issues in bill and brewer/distrib positions laid out in Jun (see Express #78) haven’t changed. New bill came out of small brewer interests in revising franchise law and in part to fix “Granholm problem” since Pennsy law allows only in-state brewers to self-distribute. Brewers and distribs agree that problem needs to be addressed, but disagree on how. New bill: 1) eliminates distinction between in-state/out-of-state brewers; 2) allows all brewers to self-distribute up to 75K bbls, even megas; 3) allows brewers to terminate distribs without cause if its brands less than 20% of distrib volume, as long as distrib gets fair mkt value; 4) requires re-negotiation of all contracts every 5 yrs; 5) provides for brewers to get 10% of transaction value when wholesalers buy-sell brands between themselves. New bill also bars suppliers from “unnecessarily” withholding approval of distrib brand sales, loosens Pennsy residency requirements and drops requirement that distrib territories be contiguous.

Distribs Turned “Shield” of Protection from Big Brewers into “Sword” vs Small Brewers, Sez Craft Brewer Currently, Pennsy law “creates a state-mandated middleman monopoly,” said Bill Covaleski, giving them “exclusive rights, in perpetuity.” Distribs can’t be terminated without “good cause,” Bill added, tho that’s not defined by law. Distribs differ with this assessment and apparently “perpetuity” issue came up at hearing last week. Distribs say perpetuity appears nowhere in franchise law and that law does indeed define good cause. Yet any termination attempt, Bill said, “typically translates into expensive litigation,” noting recent case where a BoP member – Yuengling, tho not named – ended termination effort that costs “hundreds of thousands of dollars in court costs.” Also, some distribs have sat on brands after acquiring them and “acted unilaterally to sell their rights” without brewer consent, said Bill. Consolidation at brewer and wholesale levels have changed nature of biz, he added, and “nearly all the wholesalers in Pennsylvania are larger than the Pennsylvania breweries they represent.” Tho franchise law adopted to protect distribs from natl brewers back in the day, “that shield has become the sword utilized by wholesalers to maintain the brand portfolio without regard to their performance.” Some proposed changes, he argued, were recommended by state legislative committee earlier this yr. And other states have amended their laws to deal with Granholm issues. Revised law includes language that will allow distrib consolidation to continue and provide for brewer consent, but “failure to consent would not create a private cause of action” for distribs to sue. “In consideration of consenting to such a transaction the brewers propose that we would receive 10% of the brand rights’ value exchanged between” distribs. Brewers should be compensated when “their own good will” is exchanged, in Bill’s view.

Distribs Criticize Self-Distribution, Termination, Other Provisions Distribs who spoke objected to each of the major proposals. Fran O’Brien of distrib assn said brewers provided “no rationale” for allowing all brewers to self-distribute up to 75K bbls. Allowing “true small brewers” self-distribution rights might be acceptable, he suggested, but “correct cut-off point” is 2K bbls of production. Fran also questioned 10% “tax” on distrib deals, as he called it. “By this logic, the wholesale distributors should be entitled to 10% of the purchase price if the brewer of the brand is purchased by another brewer.” Distrib assn also has “very strong objection” to proposal that allows termination without cause, tho there “may be a need for some changes to the process for terminating agreements for cause,” Fran acknowledged. Penn’s Matt Funchion said Pennsy’s 3-tier system is working and wondered why suppliers seek to fix something that ain’t broke. Any “arbitrary self-distribution or termination without cause” provisions would “severely impact” distribs’ ability to do business, and the 5-yr required re-negotiation of contracts would “diminish trust.”

John Beljan’s key point was that distribs and especially smaller suppliers “work together, we grow together, we succeed together”; proposed changes would “destroy the symbiotic relationship.” Self-distribution on scale proposed would be a “dismantling and potential eradication of the 3-tier system.” Few of his suppliers approach that 75K-bbl cap and John asked how state would enforce it. Allowing termination without cause with the 20% threshold could lead to arbitrary “tactical termination” by suppliers and/or encourage them to ensure their brands never get to that point in any given house. Distribs in turn might attempt to “protect themselves from ‘brand bleed’ by culling” their own portfolios to ensure remaining brands stay below threshold. Smaller brands could then lose access. Like Matt, John believes that re-negotiation of contracts every 5 yrs “would create an environment that does not foster growth and productivity, but rather inhibits and obstructs growth and productivity.” Separately, Pennsy beer atty Rich Lefchak asks what the re-negotiation requirement, as well at the 20% threshold for termination without cause and other proposed changes will do to current “fair market value” of distribs’ bizzes. Net-net: brewers and distribs far from on same page at this point. There will be more hearings this fall.

Craft Brew Alliance stock is up over 3% again this morn, very near its 52 week high of $12.50. Stock has more than doubled in the last 10 mos. It was below $6 last Nov. Stock also getting more attention from financial community these days. Zacks downgraded to “strong sell” yesterday, while Roth Capital recently raised their target price to $12 (already surpassed), according to Zolmax.com. Zacks sez “there could definitely be trouble on the horizon” as it is now in “overbought territory” arguing investors could be “better off exiting this stock before it falls back to earth.” Yet yesterday a Motley Fool piece titled “Craft Brew Alliance Strategizing for Growth” praised its recent results, innovation, distribution alliance with AB, national sales force and more. Cited line from conference call: “For the first time in CBA’s history, CBA’s quarterly growth was propelled by growth in all brand families and across all CBA divisions.” CBA up 14.4% for 13 weeks thru Aug 11 in IRI multichannel + convenience data. Meanwhile, prexy and chief operating officer Andy Thomas sold 10,000 shares last week for avg price of $11 and total value of $110,000 but bought same # of shares for $7.79 each. Following NBWA, CBA will have its first ever natl convention for distribs, which it’s calling CBA-Con “designed to give you a deeper understanding of the drivers behind our record breaking growth, access to our senior leaders and an exclusive peek at our 2014 brand plans, retail distribution strategy and innovation programming,” CBA said in note to distribs.

Quality Bev in Taunton, Mass announced last week that it had acquired the remaining 40% of Consolidated Bevs in Auburn that it didn’t already own from partner David Fields, who will stay on as consultant until yr end. Quality made its first investment in Consolidated back in 2007. Quality is about 5 mil cases and Consolidated 3.2 mil cases. Now both will be Quality Bev in 2 separate divisions. Between the 2 operations, Quality will sell almost 30% of AB’s 26 mil cases in Mass. AB down over 2 mil cases, 7% since 2008 in Mass and down again so far in 2013.

Recall, Quality is owned by the Wetterau family, which also owns Golden State Foods, the giant food distribution/food processing/liquid products co, currently about $6.5-7 bil in sales. Golden State Foods is the 2d largest McDonald’s distrib, after Martin Brower, a division of Reyes Holdings, which is of course also the largest beer distrib.

The acquisition is “driven by Quality Beverage’s corporate strategy,” said ceo Conrad Wetterau, “focused on gaining efficiencies, consolidating geography and bringing into our fold a company that shares our values.” At Golden State Foods, 100 employees own 28% of the co, Conrad told INSIGHTS. And similarly, key employees own a piece at Quality as well, which Conrad said is a “great motivating factor…. We like to share.”

The 20th annual Beer Insights Seminar will be held Monday, November 11th at the Waldorf=Astoria in NYC. Join us for one of the industry's premier events. You don't want to miss this year's seminar, featuring a top-notch program and plenty of oppys to network with industry peers. Just added to the program: new Pabst president and chief operating officer Kevin McAdams will bring a fresh perspective and some keen insights on the value of subpremiums, the power of local brand equity and more. Other speakers include AB sales veep David Almeida, Heineken USA president Dolf van den Brink, and Harpoon ceo Rich Doyle. Also on tap are two panels: one moderated by consultant Bump Williams with MillerCoors chief customer officer Kevin Doyle, Crown exec veep sales Bruce Jacobson and Boston Beer sales veep John Geist; the 2d will provide unique insights into industry data from several leading data experts, GuestMetrics ceo Bill Pecoriello, IRI principal alc bev insights Dan Wandel and Nielsen sr veep Andrea Riberi. As always, BMI's Benj Steinman will present an overview of industry trends. The seminar is $1150 per person. Sign up for what's sure to be a jampacked and insightful day. Seating is limited. Click here for more info. Click here to register.

ABI owners and execs getting lotsa ink lately. Another long biz feature appeared this morn in Bloomberg Businessweek extolling the financial brilliance of Brazilian billionaire Jorge Lemann (this follows Fortune just naming ABI ceo Brito as ceo of its fantasy exec league). Lemann and his two partners "now control three icons of US consumer culture: Heinz ketchup, Burger King, and … Budweiser beer. The combined market value of the companies they run is $187 billion-larger than that of Citigroup." Lemann became richest man in Brazil last yr "worth some $20 billion" and is a "business class hero in Brazil," sez Biz Week. "He carried out a revolution in the way people think about business," sez Arminio Fraga, who used to work for him, later served as central bank chief and now runs one of Brazil's largest asset mgt firms. One of Lemann's two key partners, Carlos Alberto Sicupira sez: "Costs are like fingernails. You have to cut them constantly."

The Brazilian billionaires are applying similar principles to acquisitions subsequent to ABI. Burger King is already worth 2x what Lemann investment firm 3G paid for it in 2010. And after Heinz purchase in Jun, a familiar playbook already unveiled. New Brazilian ceo "fired 600 members of the Heinz's office staff in the US and Canada," 9% of workforce, wrote Biz Week. "Then he started knocking down the walls between offices to create an open air plan and promote communication." Interestingly, Jorge is a teetotaler, sez Biz Week. He didn't like whoppers much either, trying his first after he bought Burger King and finding it too large, according to Brazilian book about him called Sonho Grande. One final familiar point is that "once they've streamlined away a company's efficiencies… the only way to keep growing is through acquisitions," according to Brazilian web entrepreneur. And so Heinz expected to be a "platform for acquisitions," according to former Board member. And a onetime partner of Jorge's sez "he'd bet money that Lemann will try to take over Pepsico."

You can always find crazy price specials. We just happen to look for 'em over the big holidays. And we found some in grocery/liquor store flyers/ads/on-line lists for Labor Day. Lowest premium price we found was a net-$2.40 per 6 pk for Miller Lite at Albertsons in Los Angeles. Here's how it works. You buy a 20-pack for $14.99, but that gets you sausage worth $6.99, which brings 20-pk to $8 and voila, $2.40/sixer for the beer. Similar deals for Bud Lt and Coors Lt (with chips, water) brings those prices down to net $3.15, $3.60. You can also go to Binny's or Dominick's in Chicagoland and grab a 30-pack of PBR for just under 12 bucks or $2.40 per six. Even a coupla relatively crazy prices on craft brands. Tho $6-$7 sixers increasingly rare, they can be found in several stores below, tho you'd often have to buy 12- or 24-packs. But for 1-day only for 5 bucks you can grab a sixer of Redhook in San Diego Vons or a sixer of Widmer in San Fran Safeway. Didn't find a lot of mail-in rebates, but Tops in Buffalo NY has MIRs of $4 and $2 on domestic premiums and top imports, bringing prices to $15.99/30-pack (also $3.20/sixer) and 11.99 per 12-pk respectively. Then there's the $50 rebate on a home theater/DVD system you can get up in Portland, OR at Fred Meyers if you pick up a pair of Bud family 18-pks. (In table, ME=Modelo Especial, 21A=21st Amendment, Lag=Lagunitas.)

Bud Light Ritas featured in many ads this week; Redd's made a couple too. Blue Moon still hangin' in at craft pricing in most mkts and also in many ads. Craft, not premium domestic, mostly featured at Fla ABC Fine Wine and Liquor chain. Modelo Especial priced pretty close to Corona, Heineken in many mkts. Indeed 12-pk of Modelo bottles priced the same as those brands, as well as Shiner Bock, at Houston's HEB.

Consultant Tim Coughlin and his colleagues at DMG Financial are looking to build database on bev industry in US -- alc and non-alc, all tiers -- with extensive Cost of Capital Survey designed to be completed in 15-30 mins. DMG “seeks private company respondents who have the authority to approve acquisitions, large capital expenditures, loans and other investments, and respondents who have knowledge of the company’s financial decision-making process,” i.e. the owner, prexy, gen mgr and/or cfo. They’re not looking for detailed data on the biz; survey is anonymous unless you choose to provide contact info. With the data, DMG hopes to build and report on an info resource that will provide value to US bev industry and those who invest in it. To go directly to survey, click here.

In wake of WSJ intern misreporting story on craft brewer bills in Mich earlier this month (see Express #100 and #101), paper ran two letters on Friday, one from Mich Beer and Wine Wholesalers Assn prexy Mike Lashbrook and one co-signed by Dave Engers of Founders Brewing and his distrib Kim Gary of Alliance Bev. Mike ripped article’s “glaring one-sidedness,” pointed out that distribs supported legislation writer claimed they fought and charged that the article “puts at risk the good faith” brewers and distribs worked to build. Dave and Kim said article painted picture that was “as outdated as it is untrue.” Brewers and distribs have worked together to build thriving craft biz in Mich, they wrote. Alliance “helped get Founders out into the marketplace” and continue to “work hand-in-hand building our brands.”