Distinguished Brands International Street Talk, Vol VI Issue 12

CHINA – On June 5th, Anheuser-Busch InBev completed the deal to sell its remaining minority share in China’s brewery Tsingtao. The final share sale to Chen Fashu, a Chinese national and private investor, was announced last month. Fashu paid $235 million for 91.6 million shares. Remember, too, that AB-InBev earlier in May had completed the sale of a 19.9% stake in Tsingtao to Asahi Brewers Ltd for $667 million. This last stake in Tsingtao sold to Fashu equated to about 7%. It is well known that AB-InBev is selling off some of its assets in order to pay off debit it incurred for its $52billion acquisition of St. Louis based Anheuser-Busch late last year.
INDUSTRY – Trade data suggests off-trade boomed during April – Trade data suggests that the volume of beer sold through the off-trade rose by 19.5% in April, compared with a rise of 2.8% in the on-trade. The off-trade took a 44% share of all beer sold and, with New Year’s Eve (and increasingly many Friday’s) already lost to the off-trade, this could be taken as a sign that both Easter and the first warm weather of the year may be going the same way.

INDUSTRY — New Vine Logistics, known for assisting wineries with shipping direct to consumers, suspended operations on May 29th and informed winery clients via email that it would not be processing any new orders. This came as a shock to many investors and customers. There was intent for Amazon.com to enter into the wine business and to partner with New Vine once the new website was launched. This was originally thought to happen in October 2008 but then was changed to later this summer. New Vine spent millions to upgrade their technology and hire employees over the past 18 months in order to meet Amazon’s needs but there was never any formal launch date set. It was implied that Amazon felt the deal was never solid enough for them to move forward. With the closing of New Vine, it’s now looking like Amazon will not be entering the wine business at all or at least no time in the near future. New Vine tried to off set al the costs by laying-off a big chunk of its employees and cutting salaries over the past couple of months. This effort proved to be futile. New Vine has around 200 wine shipping customers and of those the small wineries will take the biggest hit since they rely more on direct to consumer shipments.
On the other hand, some people don’t feel this is the end of New Vine. Jason Eckenroth, chief of Ship Compliant, spoke to Wines & Vines and was quoted stating “I think this took everybody by surprise.” But he believes they are “not out of business. They are looking for more capital. It’s not a dead horse.”

UNITED KINGDOM – Molson Coors (UK) and Cobra Beer have joined together to form a new joint venture, Cobra Beer Partnership Ltd. The new company will own, produce and market the Cobra Beer brand. As part of the agreement, Cobra Beer Partnership Ltd will own the rights to Cobra Beer, but Molson Coors (UK), which holds 50.1%share of the new joint venture, will manage the company. Cobra beer was originally launched in 1989 and marketed as an “exotic, less gassy beer”. It is currently one of the UK’s fastest growing brands, at 200,000 barrels, and can be found in over 6,000 restaurants. Lord Karan Bilimoria, Cobra founder, will chair the new venture while the board will be primarily made up of Molson Coors executives. Adrian Davey, formerly MD Molson Coors Off-trade, is appointed as Managing Director of Cobra Beer Partnership Ltd.

MAINE – Bill HB696 would allow Maine residents to order wine directly from in-state or out-of-state wineries – up to 12 cases per year and it would allow Maine wineries to take advantage of direct out-of-state shipments. The bill passed easily through The House of Representatives on May 28th by a 107 – 39 vote. Only wineries licensed to do business with Maine residents would be allowed to ship direct to consumers, and the packages will have to be conspicuously labeled and must only be delivered to someone with a valid id showing they are over the age of 21. HB696 is now waiting for Governor Baldacci’s signature before becoming a law.
US & SOUTH KOREA – According to reports, Kohlberg Kravis Roberts & Co (KKR) may be searching for investors to sell a minority stake in Oriental Brewery. This comes just weeks after finalizing a $1.8 billion acquisition of the South Korean company from Anheuser-Busch InBev. The Financial Times quoted sources as saying that KKR fund investors and other private equity firms had been offered the opportunity to co-invest in the deal, in order to take on part of the financial burden. These sources also added that any potential sale would depend on a suitable price being agreed upon by KKR and any other party. As South Korea’s second largest brewery, Oriental Brewery has one of the country’s two beer licenses and a 40 per cent share of the market.

INDUSTRY – Reuters reported earlier this month that MillerCoors, U.S. second largest brewer and brewers of Miller Lite and Coors Light, expects beer sales growth to decline less rapidly during this economic downturn than wine and spirits. They are projecting the U.S. annual beer market growth to decline only 0.3% (0.6% from 0.9%) in 2009-2012 compared to 2004-2008 while they expect spirits growth to decline 1.6% (1.1% from 2.7%) over the same period.

Tom Long, President and Chief Commercial Officer of MillerCoors, stated their premium light beers Miller Lite, Coors Light and Miller Genuine Draft 64 have increase market share by 1% point over the last nine months, and its Blue Moon beer is now the leading craft beer in the U.S. market. In addition, the group’s two economy brands Miller High Life and Keystone Light were both gaining share as the trend of consumers trading down to cheaper brands continues. Early in May, MillerCoors reported their first-quarter net profit was $68.5 million with a net sales increase of 3.8%.

NEW YORK – Anheuser-Busch InBev recently signed a 10 year lease for over 31,000 square feet, the entire 2nd floor, at 250 Park Avenue. The current rental rates in that particular building run $90 per square foot, equating to roughly $2.84 million per year. AB-InBev is stating that this space will become the company’s day-to-day management office. But they clarified again… the space is not the company’s global headquarters (located in Belgium), nor is it a North American regional headquarters (located in St. Louis).Anheuser-Busch InBev has said in the past that it wanted a New York office because more than 40 percent of the combined company’s revenues come from the U.S.

DELAWARE – Rep. John J. Viola, D-Newark, is sponsoring a bill that will allow Delaware grocery stores to sell beer and wine in grocery stores. Currently Delaware is one of only five states that do not permit beer and wine to be sold in grocery or convenience stores. The bill specifically targets beer and wine sales only in stores with 6000 square feet or more whose primary business is food sales. Another caveat is that of the food sales, 90 percent would have to be food that is not immediately consumable – i.e. frozen food and canned goods. The bill has the potential to generate over $10million the first year alone via new alcohol licenses required. This license would have a one-time fee of $100,000 per store with a biennial renewal fee of $5,000. Viola has already been in contact with major grocery store chains and was pleased to find out that there was no opposition to paying the fee since it gives consumers additional choices while shopping in their stores.

GERMANY – After finding traces amounts of cocaine in Red Bull Simply Cola German authorities instructed retailers in nearly eleven states to pull the product from their shelves. A study was released on May 19th by the German state North-Rhine Westfalia after testing the drink and discovering minor amounts of cocaine. The cocaine levels found came from de-cocainized coca leaf extract which is commonly used as a natural flavoring in foods worldwide. The trace levels found are not enough to prove harmful or addictive but still qualify the drink to be considered a narcotic under German law. To calm any impending consumer fears, Red Bull had the product analyzed by an independent accredited institute which confirmed that alkaloids (cocaine) from the coca leaf are not detectable in the product. The German Federal Institute for Risk Assessment followed up by publicly confirming the ingredients in Red Bull Simply Cola present no risk to human health and absolutely no risk of potential narcotic effects.

ALABAMA — Less than a week after Gov. Bob Riley signed the a new law raising the alcohol limit on beer to 13.9% specialty, craft and gourmet beers are already popping up on store shelves. Harry Kampakis, president of Birmingham Beverage, stated he already had agreements with small breweries lined up well before Riley signed the law May 22. Once it was signed, he went straight to the state liquor agency for approval of the beers. Birmingham Beverage began distributing more than 20 new domestic and foreign beers to retailers in the Birmingham area almost immediately.

NEW ZEALAND – Constellation’s Nobilo brand seems to have landed the top spot when it comes to being the U.S.’s biggest selling Sauvignon Blanc. Constellation acquired the brand in 2003 and since then has developing its Marlborough vineyards and its associated infrastructure. Nobilo has reportedly surpassed Kendall-Jackson and Clos du Bois Sauvignon Blancs. Constellation NZ CEO Joe Stanton stated that Constellation is expecting to ship nearly one million cases of New Zealand wine, 90% being Marlborough sauvignon blanc, into the U.S. in 2009. This one million cases accounts for about 40% of New Zealand’s total wine exports to the U.S.

INDUSTRY – Based on Nielsen data sales in the United States of imported rosé wines increased by 42% for the 52-week period ending April 4. During the same period, sales for all table wines increased only 5%. This new data seems to support Vinexpo projections that worldwide consumption of rosé wines will continue to rise. They projected a 10% increase from 565 million bottles in 2008 to 620 million bottles in 2012. France currently produces 28% of all rosé wines by volume and still sets the standards for rosé wines

AUSTRALIA – More speculation on a Foster’s purchase has Credit Suisse analysts feeling that Pacific Beverages, the alcohol joint venture between Coca-Cola Amatil and SABMiller, would be the most likely acquirer of Foster’s. If Pacific Beverages did make the buy, the combined effort between the two companies could be considered a good thing because it could help ease some of the funding pressures. It is also thought that help from Amatil’s largest shareholder, Coca-Cola, could provide a little boost. Coca-Cola Amatil has said that it makes sense to combine soft drinks and beer, but recently said that Foster’s is not currently attractive because of its relatively high share price.
Credit Suisse previously turned its attention to Foster’s due to a dispute in the United States where there was the possibility of Grupo Modelo, the owner of the Corona brand, could fall under the control of AB-InBev. If that were to happen, it could affect Foster’s right to local distribution, but it also showed implications that AB-InBev may not be willing to allow rival SABMiller to maintain control of Corona in Australia. The broker estimates Foster’s rights to distribute Corona and Stella Artois locally is worth 50 cents per share to its $6.25 valuation of Foster’s, compared with 80 cents per share of potential cost savings from an Amatil/SABMiller merger.

ALABAMA – It’s official. The sale of draught beer has been approved in Muscle Shoals, Sheffield and Tuscumbia counties. As a result, restaurants are gearing up to be able sever their customers which means that distributors will have to gear up to meet the increased demand. This effort, though just approved recently, was initiated back in July of 2007 after the city of Florence got the approval for draught beer sales.

Kegs at the Budweiser Distribution Center in Muscle Shoals are stacked and ready to go. General Sales Manager, Greg Matthews, is expecting the recent approval in Muscle Shoals, Sheffield, and Tuscumbia will open up whole new distribution areas for the company and begin increasing sales immediately. Now that draft beer sales are allowed, local businesses aren’t wasting any time. Matthews says they’ve already received pre-orders that are substantially higher than expected. Sheffield businesses can immediately start selling keg beer; however, in Muscle Shoals and Tuscumbia, the ordinance will have to be posted or advertised before the law goes into effect.

NEW YORK – It has been well reported across the country and the world that consumers are trading down in their alcoholic choices. This trend is now being recognized in the Big Apple as well. Owners of retail outlets and wholesale distributorships say drinkers are more cost-conscience these days and are choosing less expensive value brands instead of premium brands. The cost cutting trend, however, does not necessarily equate to lower sales volumes. Most retailers and wholesalers say sales are running from steady to better than last year.