"Turnaround is the imperative," new Miller prexy Norman Adami bluntly stated at Miller

The hits just keep on comin’ in winter 03. Domestic taxpaid shipments dropped another 300,000 bbls, 2.2% in Feb, estimated Matt Hein of Beer Inst. Followed 400,000-bbl, 2.7% drop in Jan. Taxpaids now down 4 mos in a row. Off 1.2 mil bbls for last 4 mos. For 12 mos, domestic taxpaid shipments now dead even (compared to 0.7% gain in calendar 02). Adding insult to injury, even imports off 130,000 bbls, 8.5% in Jan. And that was 2d down mo in row for imports (1995 was last time imports down 2 mos in a row, notes Matt). Imports have another high hurdle in Feb; had jumped nearly 20% in Feb 02. Total of import and domestic drops so far meant US beer biz down nearly 850,0000 bbls, 3% in available 03 data. That’s worst start for beer biz in ages. Why? Weather, war jitters, the economy. Take your pick. But it sure is cold out there, especially in northeast. Tho US volume in supers still ok (see below), c-store volume dropped 1.6% for 8 weeks thru Feb 15, according to ACNielsen, and on-premise is reportedly particularly hard hit. Thru Feb, AB retail sales down high single digits in key on-premise markets like its Boston and NYC branches, we hear. Those are big import mkts too.

After Carling purchase, Coors sales and income up sharply, so bonuses for top execs really rose. (In 2001, Coors cut exec bonuses.) In 2002, CEO Leo Kiely got a $678,000 bonus, up 2/3. Leo's salary rose 10% to $755,000. Chairman Pete Coors got no pay hike

Treasury Dept finally proposed rule that vast majority of malternatives now on market will not be regulated as beer in future unless reformulated. "These products derive nearly all of their alcohol from flavorings containing distilled spirits," not from "fermentation of malt," feds found. Turns out Treasury stuck to 90-10 standard it floated last fall which sez that to be classified as beer, only 0.5% alcohol content in finished product can come from spirits flavors. That's even tho Diageo and others urged feds to keep status quo or adopt 51-49 "majority rule," and at times feds appeared to lean toward 51-49. But 90-10 standard squares with fed definitions of beer/malt bevs in Internal Rev Code and Fed Alc Admin Act, Treasury said. TTB (which has replaced BATF) acknowledged change "could have significant commercial impact." So as usual, it's not moving too fast. And it's leaving door open to consider more input on 51-49 rule. "This is just the beginning of the formal stage of the process," TTB stressed. Comment period is 90 days to Jun 20 and could be extended. There is no timetable after that for TTB to make final ruling. Treasury also "willing to consider a phase-in period" for final rule, to "prevent market disruption," according to Beer Inst. In addition to 90-10 rule, Treasury proposed new labeling and advertising standards for malternatives "to prevent any confusion between these products and distilled spirits." Keep in mind: Beer Inst and NBWA support 90-10 standard; Diageo, Mike's, others want status quo or majority rule.

Lots at stake here. First: $$$. Changing production to make brands malt bevs will cost plenty. It's also easier for big brewers to make transition than small brewers. Higher costs reduce everyone's margins. If suppliers don't alter products, tax zooms and margins thin. Second: taste. Beer-based malternatives can be made; Zima fits 90-10 standard. But Diageo and others not sure they can match current taste profile if required to alter formula. Third: access. As malt bevs, tax is low, access high and suppliers can advertise spirits-branded products on network tv. As spirits, brands would lose each of those key advantages. Fourth: brewer-distiller tension. No doubt about it, malternatives have "blurred" lines between beer and spirits. Brewers view that as step toward equivalence of both taxes and access, tho Diageo insists it's not pursuing tax equivalence. Fifth: a broader regulatory concern. Both Beer Inst and NBWA have suggested that proposed rule impacts states' rights to regulate beer. Recall that several states urged Treasury to act on malternatives. Beer Inst told Treasury "federal leadership on defining beverage categories is essential to an orderly and efficient US market and permits states to focus their efforts on industry integrity, proper sales practices and other important alcohol policy issues." In other words, this issue raises questions about who makes the rules, what they are and how they're enforced. If malternatives sales continue to lose steam, may blunt impact of proposed rule. Summer sales will be key to segment's future in US. But Diageo not likely to back off; it's convinced there's plenty of growth left in low-alc products that compete with beer.

While Heineken increased US prices by 2.5% in 02, "we don't have plans for further price increases" in 03, exec board member René Hooft Graffland told CSFB conference. "Despite the soft market in the US last quarter and in the first months this year," Heineken still sees "very healthy" pricing environment and big domestic brewers "not willing to go into the price game." (Heineken volume reportedly about even in US in early 03.) Heineken has "very consistent" pricing policy in US: looks to maintain 50% premium over domestics and 10-15% premium over Corona. Heineken does almost 2/3 of its biz in East: 39% in northeast, 24% in southeast. But biggest Heineken growth in recent yrs in southeast. Southeast was Heineken's smallest region in 98 at 13% of Heineken biz. But by 02, it had jumped to 23.9%, René showed. Meant Heineken almost tripled from under

Miller is "relatively weak and trending downwards," ever-blunt SABMiller ceo Graham Mackay told Credit Suisse First Boston conference. He claimed that Miller doesn't have a volume problem, but rather "a price/mix problem" with Miller brand portfolio "scattered all over the place." Three key issues: 1) "core brand health"; 2) route-to-market, "particularly in the aftermath of the coming together of Coors and Miller" distribs; 3) upgrade in "performance" culture, which Graham again described as "inadequate." Any way you cut it, turnaround will take a while. Graham said "indicators of change will show up 1 year from now." While there have already been changes in sr mgt, Graham noted probably "same number of other people to be appointed in the next few months."