Distinguished Brands International Street Talk Vol VI Issue 11

ALABAMA – Stronger beer is now legal. Gov. Bill Riley signed legislature allowing beer up to 13.9% alcohol by volume to be sold in the state of Alabama. The new law is effective immediately, so new specialty and imported beers should available for sale by the summer. Brewers will still have to go through the normal processes to assign distributors and register the brands with the state ABC.

JAPAN & PHILIPPINES – As of May 22nd, Japanese brewer, Kirin Holdings, completed its 48% stake purchase of Philippines-based San Miguel Brewery (43% purchased from San Miguel Corp and the additional 5% from publicly owned shares). The deal also included the rights for Kirin Holdings to negotiate exclusively with San Miguel Corp. over sale of the group’s beer assets beyond the Philippines.

INDIANA – On May 18th, the U.S. Supreme Court decided to NOT hear a case challenging the state’s face-to-face purchase requirement for alcohol. The face-to-face law gives the right to those selling alcohol to require identification in order to ensure those purchasing alcohol are at least 21 years old. NBWA President, Craig Purser, stated this decision was a “victory for state-based alcohol regulation.”

INDUSTRY – Morgan Stanley analyst, Michael Steib, has rated AB-InBev and SABMiller, the world’s two largest brewers, as the industry’s best positioned due to the fact that the majority of their sales is done in the United States versus Carlsberg or Heineken whose sales are mainly in the European markets. Before interest and taxes, Heineken’s earnings from the U.S. are only 7%, while AB-InBev’s and SABMiller’s is 40% and 15% respectively. Over all, he states, drinking hasn’t suffered as much in the U.S. as it has in Europe where beer volumes are falling faster.

BELGIUM – Belgium’s competition authority ended the informal probe into AB-InBev’s supply chain practices. The probe was initiated when suppliers complained that the brewer was abusing it’s dominance in the market to force supplier to accept unfair terms. AB-InBev has already confirmed that they will change their payment deadline to suppliers to 120 days from receipt of invoice.

INDUSTRY – The Nielson Company recently presented results from a new U.S. consumer survey that show more than half of consumers (56%) are opting to eat dinner at home versus dining out and more than one third (37%) are going out to bars and night clubs less often. Though alcohol is many times viewed as recession-proof, new consumer trends of stay at home entertaining versus going out, and leaning more toward value brands versus premium, will surely have some impact.

ILLINOIS – Legislative leaders are considering increasing the tax on beer by 2.6 cents per six-pack to raise $1 billion for a proposed multibillion-dollar statewide construction program. This will be the first increase in ten years. Also, under consideration will be increased taxes on liquor and wine, 80 cents and 13 cents per bottle respectively.

INDUSTRY – SABMiller PLC has announced it plans to reduce investment expenditures and increase cost cutting after posting a 7% decline in annual profits. According to CEO Graham Mackay, capital spending will be reduced 30% to $1.5 billion and some Columbian distribution depots will be closed saving $37 million annually by the year 2011. Mackay states that the company is taking appropriate short term measures in certain countries to cut costs in order to offset less consumer demand.

MEXICO – Combined beer exports for Grupo Modelo and FEMSA, for Q1 2009 have decreased 5%, to 3.866 million hls, the lowest level since 2003. The decline can be attributed to not only the suffering economy, but from the strong competition from the U.S. market as consumers are looking for more mainstream brews versus premium selections.

UNITED STATES – How will President Obama’s $1.2 trillion healthcare plan be funded? Some recommendations from a Senate Finance Committee included reducing tax exemptions on employer-provided health care benefits based on employee incomes or value of their plans – or both. Another suggestion was to eliminate or put a limit on the amount employees can contribute to tax-free flex spending accounts. Inevitably, there were tax suggestions tied to healthier behavior. For example, a proposal to increase tax on alcohol, eliminate the tax variances between wine, liquor and beer. It was also proposed to begin levying tax on sugary drinks such as sodas, energy and sports drinks, fruit and vegetable drinks, as well as iced teas and iced coffees. Sounds like the only item on the non-taxable list are drinks sweetened with no calorie sweeteners.

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