NAB Promises New Strategies

FILED FEBRUARY 13, 2015

Dear Client:

On the ground in Tampa for NAB's second sales meeting since the FIFCO purchase. It's also the first meeting since new chief and Brown Forman vet Kris Sirchio has taken the reins. The theme here is a new NAB.

The promise from Kris: To move from a private equity model to "new strategic leader" in the industry. But "that takes time." Their brands are in the right spaces but "haven't all been growing."

Kris kept things real. "I am probably the 6th or 7th CEO in the last 15 years of this company," he admitted. "But I believe I'm the first CEO who is empowered to grow. We have all the pieces."

He ticked off progress to date and promises for the future. Here we go:

RECENT PROGRESS. "We were off 8.6% last year in the first half of the year," said Kris (easy comps). But in the October-November-December period they "started to trend positively; in January, we're up 3.5%" in shipments.

"We've taken a big focus on driving depletions, shipments, fundamentals," said Kris.

Adjusting inventories is part of the puzzle. Kris pointed out that just sequencing Magic Hat seasonal innovations better helped improve depletions +20% vs. year ago.

Kris made a lot of promises: "Pyramid has new liquids ... Labatt too," he added. He promised to grow Genesee, and craft. And Seagram's is still "growing market share" in the "very busy" FMB category. He promised they'd enter new categories, and expand geographically, among other things.

THE "60/10/20/3" INVESTMENT. This stuff won't happen overnight, so they've hatched a plan to help them get there: What they call their "60/10/20/3 investment", which outlines areas they'll capitalize on to push business.

The first portion of that plan regards their geographic strategy: "66% of our business is in four states: Michigan, Ohio, Pennsylvania and New York," Kris said. "That's a fantastic opportunity for us. ... But we're going to have to expand in our core markets, and in new markets very strategically."

For example, in Minneapolis, Madison, Grand Rapids and Cincinnati, Labatt has "tremendous potential." And it grew depletions overall by 0.5% from Sept - Dec.

Florida is a big expansion market for them, too, and that's where the "10" comes in: They've put 10 people the in state of Florida, their number one Seagram's market and number two for Magic Hat.

The 20 portion refers to the 20% capacity they've built out for Pyramid in last few months. They believe they can grow share in the PAC Northwest.

And the "3"? "Small batch is growing... we've gotta be able to produce quickly," said Kris. "So there are three pilot systems in all our breweries right now."

"A NEW NAB." The shift is majorly cultural, too. FIFCO CEO Ramon Mendiola had opened the meeting reminding the audience of his company's brand of holistic capitalism and dedication to a triple bottom line ("3BL"), maximizing shareholder performance but with an eye toward social and environmental stakes, too.

He described a "purpose quest" they did in the mountains with employees to help transform NAB into the company it will be tomorrow. (Yeah, the mountains).

"We will share the purpose with you as soon as we're ready," he said. "I know you'll see a different company than one we've seen in the past."

He promised "a new NAB," underscored by the "many positive changes" of the last year: Kris Sirchio as new CEO; a new management team, including a new VP of marketing in Glenn Tibbits and VP of Sales in Doug Smith; new "purpose and values"; and a new strategy and "3BL" (triple bottom line) approach.

Your thoughts? Ping me hs@beernet.com


DIAGEO GETTING INTO CRAFT BEER

In case you missed it in Craft Business Daily yesterday, Diageo is launching their take on craft beer in key markets with what they're calling Thump Keg Brewing Co. The brands' tie to liquor will be quite apparent as their beer styles will be created "by using the same foundation ingredients as its collaboration partner spirits brands ."

There won't be any distilled spirits inside the brews, of course, but they will contain the same "mash bill or grain recipes from the spirits products that inspires each of the beers in the Thump Keg line."

Thump Keg is set to roll out two beers at its onset: Thump Keg Rye IPA (6.2% ABV), which uses the "same underlying grains to create the mash bill as those used in George Dickel Rye Whisky mash." And Thump Keg Agave Amber Ale (5.8% ABV), which uses the same signature blue agave found in Peligroso Tequila.

Both brews will be available in 6-pack bottles and on draft and will launch in select markets, including Nashville, Austin, and the New York metro area. No word at presstime on whether the beers go through DGUSA network or W&S distributors.


KENTUCKY ANTI-BRANCH BILL ADVANCES TO FULL HOUSE, BUT FUTURE STILL UNCERTAIN

At first glance, yesterday's advancement of the Stumbo Bill to the full house on a 15-4 vote by the House Economic Development Committee appeared to be a win for those trying to block A-B branches. But a closer look suggests that the bill has made only a little progress.

Some of the legislators' decisions to advance the bill only came in hopes that extending the bill would usher in a compromise. Still, the two sides aren't any closer to reaching a compromise, according to Speaker Greg Stumbo, per Courier-Journal report . "They haven't played well in the sandbox together," he said. "As far as I know, they're still kicking sand at each other."

Indeed, there is still a bit of contention. Damon Williams, director of sales and marketing for A-B of Louisville, said the people that voted for the bill "took one of the worst votes you can take as a legislator - one that puts everyday Kentuckians in jeopardy of losing their jobs." He went on to say that the legislation "represents the worst kind of policymaking - that which is done at the behest of a handful of wealthy political contributors who want nothing more than to put a competitor out of business to suit their own self-interest."

Clearly, the sides are still at opposite ends and the only way Stumbo thinks they can meet in the middle is through is a grandfather clause, which would allow A-B to retain their two existing distributorships, but prohibit the purchase of any others. Although, A-B doesn't seem to be fond of that idea.

"We will not support House Bill 168 in its current form or its (potentially) amended form," said Damon. "We think we should be offered the same rights that are available to any successful business. ... It's not the option to buy more. It's the option to have the flexibility that's available to any business to grow, to have choices. And I think any cap or any liquidation is just wrong."

The future of the bill isn't any clearer knowing several members who advanced the bill did so only to "ensure more debate -- and hopefully compromise."

Rep. Dennis Keene, who chairs the Licensing & Occupations Committee, has "friends on both sides" and opted to 'pass' the bill instead of issuing a 'yes' or a 'no.' He noted that he may still lose friends over his neutrality but he hopes it can bring in the agreement everyone is looking for.

Even if A-B gave its consent for a potential grandfather clause, it wouldn't be over there. It could invite lawsuits.

"One of the reasons to force A-B to sell the existing distributorships is because it would be easier to defend in court under laws that government must give people or businesses in similar situations the same chance," he said. Adding, "The forced divestiture would better avoid claims that one brewer was getting preferential treatment by getting to keep two existing distributorships."

Until Monday, Harry

"The only thing that overcomes hard luck is hard work."
- Harry Golden

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