Interbrew’s complex biz model and multibrand portfolio in its US arm Labatt USA leading to some problems. Most significantly, FEMSA, brewer of Tecate and other brands, filed suit in US District Court to block Interbrew integration of recently-acquired Beck’s into its Labatt USA subsidiary. LUSA is 70% owned by Interbew and 30% by FEMSA (Interbrew also owns 30% of FEMSA). LUSA can’t go forward with its Beck’s plans at least until May 10 hearing on legal issues (day after our deadline; more next issue). FEMSA also took highly unusual step: asked court to seal its complaint; court complied. So details unavailable at presstime. Most likely, FEMSA seeks injunctive relief to stop LUSA from going ahead with integration. Meanwhile, peak-selling season is fast-approaching; distribs INSIGHTS talked to have little sense of where Interbrew headed with Beck's.

Tensions between Interbrew and FEMSA had been building. For some time, FEMSA felt it didn’t get sufficient attention in LUSA and that its US growth could be better, especially given huge gains racked up yr after yr by its chief competitor Modelo. Adding Beck’s to LUSA portfolio exacerbated these tensions. Meanwhile, FEMSA brands up 9% in US in 1^st qtr, faster than 2001 growth rate of 7%. (But avg price paid for a case of Tecate down slightly in supers while volume up double-digits, according to IRI.) Total LUSA biz up 9% thru Apr, prexy Steve Cahillane wrote employees on May 3 (didn’t say if that included Beck’s for Mar-Apr). Gave almost no details about lawsuit but said: "we are still in amicable discussions with our Mexican partners." Another complex situation for Interbrew: its Bass brand currently imported by Guinness Bass Import Co. GBIC recently loaded distribs with lotsa extra Bass on favorable terms and Bass price significantly lower at retail. Looks like GBIC trying to live up to volume-based provisions in its importing agreement based on Diageo fiscal year which ends June 30^th. Finally, avg price paid for Beck’s also down in supers yr-to-date, and it has big nationwide rebate promo coming. To recap, avg prices paid for Beck’s, Bass, Tecate all are down in supers.

Tho Interbrew has played role of global consolidator to hilt, it is not interested in buying Miller, headlined Reuters. "We don’t want to participate in the mainstream market" in the US, ceo Hugo Powell told Reuters after shareholder meeting. "Our policy in America is to focus on the premium import business," he added. On top of it, "there are no contacts at all" between SAB and Interbrew, he told Dow Jones, tho he wouldn’t rule out a future bid. In US, Interbrew will "concentrate on boosting sales" of tiny but fast-growing Stella Artois, wrote Dow Jones.

That was $11.1 bil in sales in 2001 according to ACNielsen data. At 10% of all dollar sales in c-stores, beer behind cigarettes (39%), non-alc bevs (11.7%) and food service (11.4%). Yet beer sold in just 75% of c-stores in US. C-stores sold an avg 116 cases per week for avg of $2300 in revenue. Top pkg was 12-pk cans with 20.7 share of dollars. Followed by 12-pk bottle (15.7 share), 6-pk bottle (15.5 share) and singles (14.3 share). Top-10 beer SKUs at 26 share of volume in c-stores. Flavored alc bevs (counted separately) sold another $341 mil for 2.8 share of all alc bev $$ in c-stores. All data reported in Miller Brewing's annual book, "Beer is Volume with Profit."

Another busy period for world’s largest distiller.  Let’s see, in last week or so Diageo announced $2.2 bil sale of Burger King, consolidation of wine & spirits distrib network to 1 distrib each in little states like NY, Calif, and Fla, and next major RTD intro: Smirnoff Black Ice.  Distrib consolidation is just “phase 1” as Diageo calls it, involving about 30% of its volume basically handled by 2 distribs, Southern Wine and Spirits and Peerless.  “The consolidation of our brands in these distributors is only the first step in implementing new ways of working with” distribs, wrote prexy Paul Clinton.  Doesn’t affect beer and malternatives.  And as it intros Smirnoff Black Ice, Diageo takes another crack at getting guys to go for RTDs.  Big push in UK this fall, supposedly coming to US too.

Miller “reallocated” Gen Draft ad $$ to Miller Lite “until the agency gets its creative on track,” Ad Age wrote in front-page article this week about increasing pressure on agency J. Walter Thompson.  “We’ve really been pushing [JWT] to get the right execution,” a Miller spokesman said.   Gen Draft down 4% in supers yr-to-date, according to IRI.  

Imports up 7% in supers, but gained only 0.2 share to 11.6 for 4 weeks thru Jul 14, according to IRI as total beer category up 5.5%.   Several top import brands grew slowly while others up strong double-digits.  Number 1 Corona up just 3% for 4 weeks, apparently still feeling effect of  price hike.   Labatt Blue up 4% and Foster’s down 1% during this period.  (Yr-to-date, Corona up 8%, Labatt Blue up 3% and Foster’s up 3%).  Yet other top import brands had hot summer sales so far: Heineken up 14% for 4 weeks, Tecate up 24%  and Corona Light up 18%.  For 4 weeks, Corona Light  #3 import in supers. Each of those 3 brands (ranked 2, 3 and 4 among imports in supers) up 15% or more in supers yr-to-date. 

Once again, no share change for microbrews in supers in 2002.  They’re up,  but less than total beer biz in supers (3.7% vs 5.5%) thru Jul 14, according to IRI.   None of top 4 brands is setting world on fire.  Sam Adams Boston Lager is down 2%, Sierra Nevada Pale Ale is up 3.5%, Shiner down 5.5% (recent trends affected by Tex floods), Redhook ESB up 5%.  Meanwhile, Fat Tire up 36% YTD, tho up just single digits last 4 weeks.  And Widmer Hefeweizen shows vital signs: up 20%.   Top 2 Deschutes brands up 25-30% too.  Throw in all Sam Adams products, including Light, and brand family up 7.5% yr-to-date.

In memo to all distribs about possible BATF reclassification of malternatives, Miller reassured that "no changes would take effect until 2004 at the earliest." Noted Miller has "long history of a solid working relationship with the BATF" and expects to work together in "constructive manner" to "explore other options." Remember: BATF is thinkin? seriously about reclassifying malternatives as spirits products if more than 0.5% of alcohol comes from spirits flavor rather than malt base. Miller noted too that SKYY Blue is now #24 brand among all malt bevs, ahead of Bacardi Silver, Rolling Rock, Amstel Light, Beck?s and Michelob. Added: in supers malternative category had 8.2 share of dollars for week ended 7/20, ACNielsen data shows. In fact, average share was 7.9-8.3 for 8 wks thru 7/20, Miller spokesperson told INSIGHTS.

Until now, Barry ran Pilsner Urquell USA for SAB.  Will take over as Miller’s sr veep strategy and run Bevco (SAB’s Honduras beer and soft drink unit).   In his new role, Barry will be in charge of stepped-up efforts behind all the brands that SABMiller now imports into US, including Foster’s, Pilsner Urquell and Presidente.

If Labatt USA is able to someday complete integration of Beck’s (see above), LUSA calculates it would have 775 distribs, more than any other supplier in US, according to court papers.  “Probable appropriate range”: 470-540 distribs.  To get there, LUSA “must choose best wholesaler in each of 75 Beck’s/LUSA pairs” and “manage consolidation of another 150-200 relationships without Beck’s lever.”  That’s “a big consolidation challenge” that “will require an active approach from LUSA,” with “scale, pace and degree of LUSA involvement…all beyond historical precedent.”  No doubt.         

Just as another wave of new malternative products hits mkt, many suppliers, including Miller and Coors, are concerned about improving performance in consolidated houses and fear loss of focus. "It’s like the early years of a shotgun marriage," said consultant Joe Thompson about Miller/Coors consolidations. "They didn’t get married because they wanted to, they got married because they had to" (in order to compete more effectively with AB). So suppliers still learning to live with each other in consolidated houses. Yet they also demand more and more from consolidated distribs before approving a deal to insure they get theirs. "Beverage suppliers know they are at the point of maximum leverage the moment before they approve a transfer of ownership," Joe wrote recently. "Most use this leverage to make sure for the first several years moving forward they get their share of emphasis. They have the leverage and they squeeze," Joe added, while noting too some demands "are wrong, expensive and harmful to a wholesaler's overall organization."

As more and more Miller and Coors distribs consolidate (almost 40% of each of their volume sold thru consolidated houses), they do make more money, and often grow rapidly with high-end brands. Yet they also generally don’t do as well as projected, according to several sources. But distribs by-and-large ain’t complainin’ about consolidation even if some suppliers do. (Interestingly, AB believes Miller/Coors consolidation is a competitive advantage for AB.) "It works," said John Taylor, prexy of JJ Taylor Cos, one of largest distribs who consolidated Miller/Coors etc in Western Fla. And "it’s the right thing to do" even tho consolidation "is a lot harder than it looks and it takes more time than you think," he added. Consolidated distribs undeniably face numerous transition and organization issues and suppliers are trying to help distribs focus on these. "We have learned from over 100 transitions that some of the consistent challenges to accelerating the successful integration of an acquisition are adequate advanced planning time, blending of cultures and developing the right organization structure and staffing levels," Coors veep Tim Owston said. To minimize the initial drop in performance, Miller and Coors have teams that work with consolidated distribs in transition and have shown some good results. Both Miller and Coors are increasingly interested in finding top mgrs for distribs who can navigate between competing interests of various suppliers.

But in some mkts, underperforming suppliers (including Coors and Miller) also play the blame game: they blame "wholesaler execution" when sales don’t meet expectations. For example, in many mkts Coors and Miller flat to down, and high-end brands increasingly drive the bus for consolidated distribs. Big brewers are "not as important as they once were" to a consolidated distrib, one told INSIGHTS. "That’s what really pisses them off. Our business is growing, but theirs isn’t." Once-dominant big brewers (at least in terms of "clout in the house") have a difficult time coming to grips with that.

Complicating matters further: global consolidation of brewers. Every time global players switch alliances or do a deal, they rejigger and reconfigure their US distribution networks. When Molson USA switched partners to Coors, that led to over 100 changes, and many more to follow. And tho Interbrew hasn’t said what it will do with Beck’s, many expect that once it can go forward with integration (see below) it will try to get its brands aligned with 1 distrib in many mkts. Each of these changes frustrate still other suppliers who are trying to understand how their brands’ fortunes wax or wane depending on which brands are coming or going.

Finally, for 1^st time in many yrs, some All-Others distribs (those without a top-3 brewers’ brand), where they still exist, now believe they have a better shot of plucking brands from consolidated houses that can only do so many things well. "We are beginning to see a re-energizing of the ‘All Other’ third wholesaler in the market," Calif consultant Roger Hanney wrote (Calif a recent Miller/Coors hotbed). "All Other wholesalers with vision… are now licking their chops at the prospects of snagging some of the good brands that will inevitably become available," Roger added. This has happened recently in a couple of notable cases in Calif and NY, but whether All-Others distrib has scale to successfully compete with a significant brand remains to be seen. (To be continued)