Beer Marketer's Insights
Even as AB includes more entertainment spending in its mktg plan, sports remain paramount. Almost half of AB media spending will be on sports, including over $110 mil on NFL alone, vp global media Tony Ponturo said. A few key #s tell why sports still so important: 96% of male drinkers are fans of 1 or more sports, 93% watch sports on tv, and 58% attend sporting events. AB has exclusive in 23 of 32 NFL stadiums. But AB is also punching up entertainment component: primetime spending up 162% in 03. Tony also put finer point on AB mktg shift from natl to local media. In 03, 55% of AB spending will be local. While Bud family gets 70% of approx $600 mil media and mktg plan, over $100 mil will also go to Michelob family, over $150 mil if you include Bacardi Silver and Busch.
"We must work to create a selling culture that looks and acts like one organization to our retail customers," sales veep Mike Owens said. Brewer and distrib "must operate as one, not knowing where one of us ends and the other begins." In last 12 mos, AB has extensively "reshaped" its sales team "to put more resources into direct-selling." AB integrated retail mktg, branches, military, corp affairs, corp relations and community outreach into selling organization. "Overall, we have redeployed 25% of our personnel to direct selling and sales support positions" aimed at key accounts, shelf-space, ethnic mkts, etc. As part of reshaping, AB "took a hard look" at "job responsibilities" for mkt mgrs, looking to free up more time for selling. Since compliance with equity agreement at very high levels, field sales execs will spend less hours on "assessment process." Distrib will be assessed for compliance 2x a yr, "giving our market managers as much as 27% more time to work on business opportunities in your market," Mike said.
Shelf space is AB
Price/value relationship in beer biz is "healthy," said AB prexy August IV, and pricing environment "remains very favorable." Beer still "more affordable" than 10 yrs ago (i.e. up less than CPI), so AB must only "maintain a reasonable approach to our revenue strategy." AB
"Especially in light of all that happened," including a "weak economy," down stock mkt, and intl "instability," AB had a "tremendous performance" in 2002, said AB ceo Pat Stokes at AB
These aren’t best of times for defenders of state franchise laws. In wake of Wash state Sup Ct tossing law there (see last issue), members of panel discussion at NABCA pulled no punches. Gen counsel for Canandaigua, world’s largest wine co owned by same folks that own Barton Beer, hammered franchise laws as "special interest legislation designed to protect the economic interests of one tier of the 3-tier system at the expense of the other two." The stated reasons for typical franchise law "range from the preposterous to the pious," he said. That ain’t all. "These statutes prohibit competition despite their stated objective to promote it, make entry effectively impossible for new wholesalers... and tend to increase consumer prices," Ron claimed. A parting shot: for poorly performing wholesalers, he suggested, franchise laws are "commercial affirmative action." Told stories of distribs sitting on brands, forcing lengthy and expensive legal battles and "extracting" payments for brands. Suppliers no longer terminate distribs "lightly," Ron assured, but simply seek to get distribs’ "share of mind." (Recall Barton Beer intro’d more demanding contract in west last yr, got some pushback, and now rolling it in east.)
Ron was just a warm-up for free-market economist/prof Ken Elzinga, who has provided expert testimony for Microsoft, Wal-Mart, big brewers and others. Ken gave equally chilling view of franchise laws. Only economic justification for any govt regulation, in Ken’s view, is if there’s "market failure" caused by "negative externalities," like drunk driving, or "information asymmetries," like underage and/or uninformed consumers who need to know potential dangers of drinking. That means a state law that truly promotes temperance is fine, in free mkt view, but if it doesn’t "it probably has something to do with protecting incumbent distribution channels." Protecting distribs "with onerous termination requirements, at-rest requirements, differences in the treatment of in-state and out-of-state vendors" are examples of regs that "have no connection to remedying market failure," said Ken. They "have nothing to do with promoting temperance," he added, even if they serve to raise price. Rather than enhancing economic growth, franchise laws simply split the financial pie among industry players, he suggested. Interestingly, Ken is not necessarily anti-exclusive territory. In fact, he testified against the NY AG’s attempt to prohibit territories years ago, tho he said he’d also be against mandated territories. Such relationships should be driven purely by biz concerns, not govt regs, in his view. A final, provocative thought: "Some people worry that the so-called ‘middleman’ –- the second tier of the holy trinity of 3-tier distribution—-will be eliminated if market forces hold sway. But the middleman is not really eliminated if alcoholic beverages do not come to rest in some wholesaler’s warehouse. What is happening is that the middleman function gets internalized within the parties to the direct-buy transaction." Not surprisingly, Ken’s presentation drew some sharp reaction. Atty for Kans wine & spirits distribs, Tuck Duncan, reminded that "Jesus was a middle man" and that most franchise laws came about after "horror stories" of suppliers mistreating distribs. Asked about the recent European Union proposal to eliminate control states, Ken responded that he "didn’t see the logic" that control states are necessary; alc bevs like other goods.
In his own presentation, Tuck had argued that franchise laws benefit both suppliers and wholesalers. Suggested too, as others have, that relationships between suppliers and distribs may come under general franchise laws, and that, 21st amendment aside, franchise laws can be considered "a reasonable exercise of the states' police powers" to regulate matters of "public health, safety, morals or general welfare of the citizens." Veteran supplier atty Vince O’Brien acknowledged franchise laws resulted from "abuses on the supplier side." Called for reasonable statutes, especially in context of consolidation where there’s a need to protect "compelling equities" of 3 groups: suppliers who spend heavily to purchase brands, suppliers’ current distributors who reasonably expect to get new brands, and the brands’ original distributors who invested to build those brands.
Status quo of state regs, traditional 3-tier structure and spirits-wine-beer distinctions of alc bev biz under increasing pressure from many angles. That was key message at legal symposium held by Natl Alcohol Beverage Control Assn (NABCA, the control states). Some pressure points: 1) Courts. They
By now, almost everyone knows that Joe Coors, father of Chairman Pete, brother of Bill, passed away. 85 years old, Joe hadn
Top AB execs reap handsome rewards as AB sales, earnings, margins, you-name-it, march on. Add it up and top 5 execs pulled down $3.9 mil salary in 2002, $7.7 mil bonus and "value realized" of $57 mil pre-tax from exercising options. Note too: August Busch III, August Busch IV, Pat Stokes and Steve Lambright each sold shares worth at least $10 mil each in 2002, tho in some cases used those sales to fund option exercises. Prexy/CEO Pat Stokes got 25% raise to $1.325 mil last yr and his bonus bumped up $900,000, 41% to $3.1 mil. On top of that, Pat was granted another 1.35 mil options at $49.91. In 2002, Pat built net worth too by exercising options to pick up almost 400,000 shares for pre-tax "value realized" of $13.5 mil. And he
While NBWA has come a long way in last decade to become an effective DC lobbying organization, the officers and board should do more to confront mounting threats to the 3-tier system. Among those threats: direct shippers have gained momentum in the US courts; judges in the state of Washington recently threw out the beer franchise law; power retailers are becoming increasingly demanding; and as markets globalize, international trade treaties challenge traditional state control and 3-tier regulations. For the most part, NBWA has remained on the sidelines of these issues, focusing its efforts on issues like estate tax. The time has come, INSIGHTS believes, for NBWA to make a concerted effort to combat these challenges. One idea: create a team with legal and economic expertise to build arguments to present to courts, legislators, regulatory authorities and the media. INSIGHTS doesn
Key Tex battleground tells a lot about industry’s recent history. Since 1992, Anheuser Busch gained nearly 4 mil bbls there as its volume up almost 2/3. (AB total shipments up 15.7 mil bbls 92-02; so Tex over 1/4 of growth tho less than 10% of volume.) AB’s share in Tex jumped 17 points last 10 yrs, including 2 more last yr to 53.9. And AB’s volume in Tex reached 9.9 mil bbls in 02, easily passing Calif as AB’s new #1 state. AB up another 459,000 bbls, 4.9% in Tex in 02. That growth fueled by explosion of Bud Light. Ten yrs ago, Bud Light sold less than 1 mil bbls in Tex. In 02, sold over 5 mil bbls. Up another 439,000 bbls, 9.5% and 2 share to 27.7 in 02. Meanwhile, Miller lost 11 share in Tex since 92 and 1.4 mil bbls, 28%. In 02, Miller lost another share point and dropped 229,000 bbls, 6%, including 9% drop in 2d half. Note too: Miller shipped 87,000 bbls of various malternatives in Tex, so beer trends even softer. In fact, Miller Lite down 209,000 bbls, 8.7% in its largest state last yr. Miller Lite lost nearly 900,000 bbls, almost 30% of its volume in Tex since 92. Coors Light also had rough 02 in Tex; down 90,000 bbls 5%. Coors Light volume even with 10 yrs ago in Tex. In 02, Coors Brewing down 54,000 bbls, 2% in Tex as Keystone Light surged 56,000 bbls, 12% and made up for some of decline of other brands. But that’s not a tradeoff that Coors wants. Meanwhile, Pabst only down 9,000 bbls, 1.5% in 02. But Pabst down to 3 share. Back in 92, 2d tier brewers were over 12% of state shipments. Between Shiner and Modelo brands, Gambrinus sold 637,000 bbls compared to Pabst’s 566,000 bbls last yr. Ten yrs ago, Gambrinus sold less than 100,000 bbls while 2d tier brewers over 2 mil bbls.