ABI Announces Key Exec Changes

FILED SEPTEMBER 26, 2014

Dear Client:

ABI just announced that Luiz Edmond has been be moved to a global role, becoming ABI's Chief Sales Officer. Replacing him, João Castro Neves, currently Zone President Latin America North and CEO of Ambev, has been appointed Zone President North America. He will be succeeded by Bernardo Pinto Paiva, AB InBev's Chief Sales Officer.

ABOUT THE NEW GUY: Castro Neves holds a Degree in Engineering from Pontifícia Universidade Católica do Rio de Janeiro and an MBA from the University of Illinois. He joined Ambev in 1996 and has held positions in various departments such as Mergers and Acquisitions, Treasury, Investor Relations, Business Development, Technology and Shared Services. He was Ambev's Chief Financial Officer and Investor Relations Officer before being appointed Zone President Latin America South in January 2007. He took on his current role in January 2009.

Bernardo Pinto Paiva is Chief Sales Officer. He holds a Degree in Engineering from Universidade Federal do Rio de Janeiro and an Executive MBA from Pontifícia Universidade Católica do Rio de Janeiro. Mr. Pinto Paiva joined Ambev in 1991 as a management trainee and during his career at our company has held leadership positions in Sales, Supply, Distribution and Finance. He was appointed Zone President North America in January 2008 and Zone President Latin America South in January 2009 before becoming Chief Sales Officer in January 2012.

All of these changes will be effective January 1, 2015.

WHAT THREE-TIER SYSTEM?

Earlier this year I spoke to a group of independent bev-alc retailers in San Antonio. At the reception, several of them approached me to lament about the growing trend of craft brewers who are selling beer directly to the public via their taprooms on-premise and selling cases to the public at their breweries. They complained that in many cases these breweries didn't have to comply with as many regulations or licensing costs as they did, and felt they were getting an unfair advantage. One retailer thought it was over a million barrels a year sold directly to the public, which I remember thinking was high.

It turns out that wasn't high at all. And we're not just talking about brewpubs here. The Brewers Association's Bart Watson recently wrote that by his rough estimation, "brewpub sales are fairly flat (though they are up nationally), whereas sales directly from manufacturers to beer lovers (aka micro tap rooms) are booming." In fact, the microbrewery (less than 15k barrels annually) tap room is the "hottest business model in the brewing world."

Direct-to-consumer microbrewery and brewpub volumes could sell over 1.65 million barrels direct this year, or about 5% of total on-premise beer volume, Bart estimates. That doesn't even include larger craft brewery taprooms. Bart even suggests that total on-premise beer sales may not be nearly as bad as we thought, as the "data largely misses brewpubs and microbrewery tap rooms. Even though many micro tap rooms are small, the sheer numbers mean they are starting to add up to some real volume."

In Florida alone, Bart notes that the number of production brewer and brewpub licenses has been roughly the same in the past until around 2012, when production brewery licenses started exploding. Today there are three times as many production brewery licenses as brewpubs in the state.

This is clearly a big trend, and Bart cites changes in state legislation and the growth of food trucks as big drivers. MN, DC, TX, and NY are states with recent legislative changes easing direct sales.

Two other news items this week from my colleague Jenn show that larger brewers are getting bigger in the direct-to-consumer game. Dogfish Head recently purchased a restaurant, Finbar, adjacent to their Rehoboth pub, which they plan to expand. Brooklyn Brewery is working on a brewpub in the future at the JFK airport with "lots more retail opportunities to come." Brooklyn's national accounts exec Terry Matthews said direct-to-consumer Fresh Direct is their largest single account, and it could transform the industry. "One of the most interesting segments now is the online delivery business," Terry said. "Amazon Fresh is getting into this game; they contacted us. But our largest single account in the country is Fresh Direct in metro New York. They don't sell beer outside of New York yet, but they're now delivering in New Jersey, Philadelphia; they're going to DC and Boston in the next year or two . They're a half billion dollar corporation. And literally our biggest account, and very easy to work with."

And while much ink is spilled on A-B adding a branch in Kentucky, we are seeing many more craft brewers get into the distribution game. Expect more news on that in the near future.

We can expect a bigger push amongst craft brewers to change the laws at the state level to allow more self-distribution and direct-to-consumer sales. After all, the BA has a larger budget than the NBWA today, and every state now has a craft brew guild.

Having said that, 2 million barrels is only 1% of total volumes, so we're not in danger of becoming a tied pub estate like the UK.

AUGUST DOMESTIC SHIPMENTS COLLAPSE

The glimmer of hope we saw for domestic shipments in July faded quickly in the month of August amid high inventories and the loss of a sell day (and sluggish demand). The Beer Institute estimates that August domestic shipments were down 4.6%, losing 740,000 barrels and wiping out all of the YTD gains. This deterioration accounts for the worst performance by any month in the year so far. Year-to-date domestic shipments are now down 0.5%.

ED. NOTE: My little book of personal essays, Thank You For Drinking Beer, is now available via Amazon.com.

http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=thank%20you%20for%20drinking%20beer

Until Monday, Harry


"Never confuse movement with action."
- Ernest Hemingway


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---------- Sell Day Calendar ----------
Today's Sell Day: 20
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This month ends on a: Tues.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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