Molson Coors Canada to Make Labatt for US

FILED AUGUST 18, 2010

Dear Client:

In a surprise twist, North American Breweries has inked a deal with Molson Coors in Canada to contract brew Labatt products for the US market. NAB chief Rich Lozyniak shared the news with distributors yesterday in a conference call. Recall that in accordance with the Department of Justice mandate when Labatt USA was sold to NAB, NAB had three years to switch Labatt's US sourcing away from AB InBev's Labatt breweries in Canada. In a discussion with BBD as he was boarding a plane, Rich said that they had launched a "pretty intensive investigation of the options, including building a brewery in Canada, buying a brewery, or contract brewing." They had actually made a few attempts to buy a brewery there that didn't pan out. So, "rather than putting resources into physical assets, the contract solution allows us to reinvest funds back into the brands," said Rich. Molson Coors presented a viable option. It will be invisible to consumers, and won't say anything about Molson Coors on the packaging. It will also be brewed with the same recipe and taste the same, and NAB and Labatt brewmasters will supervise the brewing at Molson Coors.

Of course, John Labatt is probably spinning in his grave with the notion of his namesake beer being brewed in a Molson brewery. It'd be like making Budweiser in Milwaukee. But times they've changed, haven't they? If we've learned anything in the beer business over the past few years, it's that anything is possible. Rich said that they will start transferring production to Molson Coors in the fourth quarter with test batches, and "hopefully within 9 months" the transition will be complete. Rich plans for the transition to be seamless for distributors with minimal disruption. This solution allows Labatt to "maintain its Canadian heritage" and still be imported from Canada. Brewing the beer in the US (at Rochester for example) posed risks that may have hurt the brand, since progeny and source-of-country is still important for most imported beers from a consumer standpoint (unlike the spirits business).

BREWERS PUSHING FOR FEDS TO LIFT LONGHAUL WEIGHT LIMITS

In a development which could dramatically reduce freight costs, several large consumer goods companies, including Kraft Foods, Coca-Cola, and MillerCoors are pushing for Congress to increase the 80,000 pound weight limit on trucks rolling on interstate highways. That weight limit, set in 1974, doesn't allow most long haul trailers to be full since beer is so heavy, particularly with bottles. As glass has increased its share of beer packaging over the past ten years, the issue becomes even more important.

One bill in Congress proposed by Rep. Michael Michaud (D., Maine) would allow states to raise the weight limit to 97,000 pounds on interstates for trucks that have a sixth axle to compensate for the extra weight, says the Wall Street Journal. For brewers, that would mean fuller trailers, which means fewer trips, fewer demand for trucks/trailers, lower fuel costs, and lower carbon emissions. I'm certain that any savings from such a change would immediately be passed on to distributors in the form of lower FOBs (that's a joke).

Separate from that bill, there is also a push by a group of 19 Western governors to allow for more "doubles" and "triples", multiple trailers hitched together than can span up to 120 feet on Western interstates. Current federal law only allows trailers up to 53 feet, which forces anybody shipping on doubles or triples to take state highways exclusively, adding time to trips.

These changes are not without their detractors, including road safety folks, some truckers who fear they'll have to buy heavier rolling stock, and of course the railroads which don't care for the extra competition.

But the railroads are also pushing for approval for longer trains, with one testing a three mile long behemoth in California. Also, of interest to some importers, new massive cargo ships 300 yards long will be able to traverse the Panama Canal once its widening is finished in 2014. So we may see lower shipping costs in beer's future.

BEER BRIEFS:

CONSUMERS STILL CAUTIOUS, SAYS WAL-MART. "The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending," said Wal-Mart chief Mike Duke in a statement. That's after the retail giant posted its fifth-consecutive quarterly drop in U.S. same-store sales. They are now back to their "everyday low prices" strategy after trying a new tactic of offering short term, steep discounts. Execs say it will take some time before same-store sales improve in the US.

Until tomorrow, Harry

"The squeaking wheel doesn't always get the grease. Sometimes it gets replaced."
-Vic Gold

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