Predictions for 2011

FILED JANUARY 3, 2011

Dear Client:

Here we are three days into the new year, and as is our custom we are offering a few predictions -- like peering through beer-soaked foggy binoculars. Only this year, the binoculars seem particularly foggy, and I find myself somewhat at a stand. Beer volumes, pricing, three-tier, regulation, consolidation -- the interconnected parts of the industry could go in a wild variety of directions. So I'm offering fewer predictions this year than I normally do, so that there are fewer chances to be wrong. But I'm sure I will be wrong on some, so take them with a grain of salt.

1. Because unemployment will stubbornly stick at around 9 to 10%, and the economy doesn't look like it's going to go gangbusters anytime soon, I think we can expect 2011 shipment trends to be similar to 2010s, only inverted. We have easier comps in the first half of the year, and tougher ones in the second half. Volumes will be down -1% to flat.

2. Distributor consolidation will heat up again, particularly in the red system. A few reasons: oil prices to go up again like they did a few years ago, breaking $105 a barrel with fuel and diesel going up along with it, putting distributor profits under some stress. Also, as the business gets more corporate (read less fun), some folks may elect to leave. And the brewers will continue to encourage consolidation.

3. We will see the merger/acquisition of two decent sized geographically complementary craft brewers.

4. Yuengling will acquire a brewery (although not necessarily the Memphis plant, owner is being cagey) and expand west, but still not nationally.

5. Pabst Brewing will see slowing sales as they take pricing up on their sub-premium brands and the price gap between sub-premium and premium narrows.

6. NBWA will re-introduce the Care Act, but with altered language that is acceptable enough for the brewers not to fight the bill (but not Discus or the wineries who will continue to fight it). Accordingly, distributors and big brewers and craft brewers will have a better relationship in 2011.

7. Accordingly, in return the NBWA will help the craft brewers with their federal excise tax relief bill, which will gain bi-partisan support and ultimately pass.

8. Tenth and Blake will acquire at least one indie craft brewer.

9. Rumors will circulate out of London that Diageo is selling Guinness, but ultimately the rumors will turn out to be false (I can predict this because it happens every year).

10. Brewers will take up pricing, particularly in premiums, more aggressively in 2011 than in 2010, based on the fact that commodity prices (grain, aluminum, cardboard, and fuel) will go up more than in 2011.

11. On-premise sales will improve toward the end of the year as people starting going out again after consumer confidence improves.

12. Craft beer sales will continue to explode, with 10% growth in 2011 on a larger base, particularly large format bottles, fueled by a rash of positive press in the general media. SKU proliferation and style versus brands will continue to be hot button issues for retailers and distributors.

13. Import trends will continue to be positive.

14. But wine and spirits will also continue to take share from beer, taking share out of domestic premium and sub-premium beer.

15. A major retailer will make another run at deregulation at the state level -- perhaps another attempt at a ballot initiative to privatize -- and there will be a control state that privatizes, but will later regret it.

16. There will be more craft brewer collaborations, and perhaps some sharing of brewing capacity to cut freight costs as fuel prices go up.

17. Warren Buffett's McLane will attempt to make an acquisition of a beer distributor, testing brewers' resolve not to have public ownership of distributorships.

18. Despite pressure, Modelo will remain an independent company, resisting the urge to sell the rest of its stake to ABI. But eventually Modelo will succumb, just not in 2011. So ABI will deploy purchasing resources elsewhere.

19. There will be a lot of management turnover in the industry this year.

What are your predictions? Ping me at hs@beernet.com.

BEER-30 ADDED DISTRIBUTORS IN 2010, NEW BRAND IN 2011

The contract brewed sub-premium Beer-30 secured 110 New beer distributors across the country in 2010, bringing its representation to 275 beer distributors in 42 states, including a 3.2 version for Utah. Partner Jeff Ciesco told BBD that they also secured new chain authorizations for the brand, including Rite Ade, Casey's General Stores, Total Wine & More, and Wal-Mart.

Jeff indicated that this year they will introduce a retro beer from the 1960s and 70s called Wiedeman Light and Wiedeman Lager.

BEER BRIEFS:

WE REGRET TO REPORT THAT Charles "Chuck" Daniels Jr., legendary former northern California distributor, House of Daniels, passed away last week. He was 84. Mr. Daniels was an early subscriber to BBD, and in those early years he would often fax me advice and opinions on the current issues in the beer business, which I found invaluable. He will be sorely missed.

DIAGEO IS PUSHING HARD for the TTB to rule on the so-called "serving facts" label, which it supports while the beer industry does not. It sent out a press release on the issue before New Year's, which was picked up by the Washington Post. Some see the pushing for the serving facts panel as a "stalking horse" for equivalency.

NC DISTRIBUTOR CONSOLIDATION. R.A. Jeffreys Distributing Co., a large A-B distributor based in Greenville, NC, has acquired 7 million case Harris Wholesale, based in Raleigh. That brings Jeffreys to about 18 million cases, putting it in the top 10 of A-B distributors nationwide.

COLORADO CRAFT BREWER Ska Brewing announced that they have brewed more than 15,000 barrels of beer in 2010, moving them from the "microbrewery" designation to the "regional craft brewery" designation. Says Ska: "This change means that Ska is no longer the largest microbrewery in the United States, and instead has just become the nation's smallest regional craft brewery."

BBD SAFETY TIP. We know you love your BBD in the morning. We also know that many of you get BBD on your phones while you're driving to work. Your safety is important to us, so we would hate for anybody to have an accident because of BBD's fantastic content. Several readers with Blackberry's have let us know that they use Drivesafe.ly, an app which will read your emails and text to you aloud while you're driving or exercising.


Until tomorrow, Harry



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BEER SUMMIT - Join us at the Fontainebleau Hotel in Miami on March 6 - 7, 2011 for our annual beer industry confab. More info here: http://www.beernet.com/beer_summit.php

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