Beer Monopoly




    International Reports







Posted November 2014

Belgium – Tax avoidance sans frontières

Multinational tax dodging has finally become a top political issue across Europe. The European Commission is probing the terms of tax deals granted by Luxembourg, the Netherlands and Ireland to multinationals, including Apple and Starbucks, media reported in early November 2014.

The Commission’s President Jean-Claude Juncker will be relieved to see that after Luxembourg’s sweetheart deals for multinational companies were widely condemned, (incidentally under his leadership as prime minister, Luxembourg offered generous tax breaks to around 340 multinational companies, allowing them to save billions of euros in taxes), the media have now zoomed in on the Netherlands for providing similarly preferential deals.

The German newspaper Frankfurter Allgemeine Zeitung wrote on 15 November 2014 that Starbucks, IKEA, Google and brewer SABMiller amongst others have set up companies in the Netherlands for tax reasons. It needs to be said though that SABMiller owns the Dutch brewer Grolsch. Still, in 2011, a report by the Organization for Economic Cooperation and Development (OECD) reckoned that more than USD 2.6 trillion flowed into Special Purpose Entities, also known as “letter box companies”, in the Netherlands – which amounted to three times the size of the Dutch economy – and about USD 3 trillion flowed out.

Tax authorities have also begun to home in on multinational brewer AB-InBev. Read on


Germany – Jim Koch receives Bavarian Beer medal

At the opening ceremony of Brau Beviale in Nuremberg on 11 November 2014 Jim Koch of the Boston Beer Company gave a thought provoking presentation on Samuel Adams. Mr Koch was one of three Bavarian Beer Medal winners and in his key note address he went on to tell the tale of his life as a craft beer pioneer.

Mr Koch was in his usual fine form – from serving himself a glass of his own beer to making his usual self-depreciating jokes – but two of his remarks did not exactly go down well with the audience: one, he forgot to mention Fritz Maytag of San Francisco’s Anchor Steam brewery as one of the founding fathers of the U.S. craft beer revolution (he only acknowledged Ken Grossman of Sierra Nevada brewery); two, he called the German beer purity law a form of “artistic censorship” which needs to be opened up. According to Mr Koch, a brewer should be like a chef, who is not restrained in the choice of his ingredients.

Mr Koch may have a point here (although the German brewers in the audience begged to differ) but his omission of Mr Maytag was deemed somewhat petty and not worthy of a man of his stature and achievements.


USA – AB-InBev buys another craft brewer

It must be a fun job being a business scout for AB-InBev. All you have to do is visit craft breweries and drink lots of beer in order to sweet-talk their owners into selling their brewery. Or so I imagine. The latest craft brewer to have succumbed to an offer by AB-InBev is the 10 Barrel Brewing Company, located in Bend, Oregon.

Being one of the country’s fastest-growing breweries, 10 Barrel was one of only four U.S. breweries to win three medals at this year’s Great American Beer Festival, the largest beer competition in the world, it was reported. Read on


Switzerland – Discretion isn’t the word

An Espresso Stout by a craft brewer would not be worth mentioning were it not for the lesson taught: that craft brewers need to go ahead with various projects and spread the word about the how-to. Because that’s how they can build their brand and make consumers love their beers.

Collaboration brews have been all the rage among craft brewers for quite a while now, as have been various crowd-sourced beers like the vinbär beer by Swedish craft brewer Poppels that used local volunteers this summer to pick currants in their gardens which then went into the brew.

The Basle craft brewer Unser Bier (“Our Beer”) is doing something similar with its espresso stout. It has asked a local coffee academy which trains baristas to supply them with 2,000 espressos which are required for Unser Bier’s 20 hl espresso brew.

It will probably take four guys at four machines the better part of a morning to produce the required amount of coffee, but, hey, that’s what baristas do: work the coffee machine at great speed. Read on


Gaza – Coke factory to be built in Gaza

Construction of a Coca-Cola plant in northern Gaza has begun in early November 2014, potentially creating hundreds of jobs for Palestinians. Israel hopes that the new factory can drive economic growth in the strip with an estimated population of 1.8 million people, and decrease terrorism, Israeli media reported.

The project was green-lighted by Israel's defence establishment and by the Palestinian Authority. The man behind the Coke venture in Gaza is the Palestinian entrepreneur Zahi Khouri, a founder and the Chairman of the Ramallah-based National Beverage Company, solely licensed for Coca-Cola in the West Bank. His company already operates Coca-Cola factories in Ramallah, Jericho and Tulkarm. The National Beverage Company, whose shareholders include other Palestinian firms and Coca-Cola Co. itself, made the decision to build in Gaza two years ago, Mr Khouri told Israeli media.

He is no relation to Nadim Khouri, who founded the Palestinian Taybeh brewery near Ramallah in 1994 (see Brauwelt International 1/2012).

The only enemy of extremism is good jobs,” said Zahi Khouri. He expects construction of the Coke plant will take six months. Bringing Coca-Cola to Gaza will occur in two-phases, Mr Khouri explained. Read on


USA – A symbolic victory for anti-sugar campaigners

Voters in both San Francisco and the neighbouring university town Berkeley went to the polls on 4 November 2014 to decide whether they wanted a tax on their Cokes, Pepsis and other sugary soft drinks. San Francisco’s proposition would have added USD 0.02 per ounce on sugar drinks such as sodas, energy drinks, iced tea and juices, while Berkeley’s scheme asked for a USD 0.01 levy or USD 0.20 per can.

In the end, Berkeley’s voters scored an overwhelming victory in favour of the tax, whereas San Francisco’s voters defeated the proposition.

Supporters hope the tax will influence consumers’ soda consumption habits much the same way the tax on cigarettes ultimately decreased smoking.

Since no U.S. city has adopted a soda tax yet, it is not known how it will affect beverage sales. But evidence from Mexico, where a similar tax was instituted in January this year, shows that sales of high-calorie beverages have dropped and the consumption of low-calorie beverages and water has increased.

U.S. media reported that the beverage industry has spent more than USD 9 million (EUR 7.2 million) to defeat the San Francisco and Berkeley initiatives. In Berkeley alone, the American Beverage Association and its members have spent at least USD 2.1 million, or about USD 27 (EUR 22) per eligible voter, to fight this ballot measure.

So far, the USD 76 billion beverage industry, which has been struggling with declining sales, has managed to prevent sugar taxes. In the past four years, 30 bills to levy or raise taxes on sugary drinks have failed thanks to big money ad campaigns funded by various groups, it was reported. In New York City, the state's high court this summer struck down the city's ban on super-sized sodas.

However, to some tax supporters, even the debate around the issue is a win.


Mexico – Sugar tax makes soda sales drop

How much of an impact will Mexico’s controversial “junk food” tax have on the sale of Coke this year? Initially, Coca-Cola FEMSA expected sales volumes in Mexico to drop between five and seven percent this year as a result of the food tax which levies 1 Peso (USD 0.08) per litre tax on soda. The tax was introduced in January this year.

During the first half of 2014 carbonated beverage sales for Mexico’s biggest soft-drink bottler, Coca-Cola FEMSA, fell 6.4 percent compared with the same period of 2013. Fellow Mexican Coke bottler Arca-Continental saw soda drink sales drop 4.7 percent during the same period, it was reported.

The purpose of the tax is to curb soda consumption in Mexico, where some 69.5 percent - compared 69.2 percent in the U.S. - of the total population over the age of 15 is either overweight or obese. This ranking gives Mexico the dubious distinction of being the country with the worst weight problem in the world.

Coca-Cola FEMSA has an estimated market share of about 50 to 60 percent, which implies that a value added tax can have an impact on the market. Read on


UK – Beer sales are growing again

Phew. Beer enjoys year-on-year sales growth for third consecutive quarter, the British Beer & Pub Association reported in November 2014. Annual beer sales for the year ending 30 September 2014 were up 1.4 percent on the previous year, the third quarter to have reported an increase in sales, after 29 (!) consecutive quarters of decline. Read on


Ireland – Diageo swaps Bushmills Irish whiskey for Don Julio tequila

When Irish eyes are smiling, the old saying goes, everyone is happy and the world is a wonderful place. But what happens to Irish eyes, when they see that the world’s number one drinks company Diageo is willing to trade its Irish whiskey Bushmills for full control of Mexico’s Don Julio tequila brand as was announced on 3 November 2014? Do Irish eyes well up with tears?

Diageo has swapped its Irish whiskey Bushmills with Casa Jose Cuervo, a Mexican drinks company owned by the Beckmann family. In exchange, Diageo will gain full control of Don Julio, a high-end tequila brand that sells upwards of USD 45 (EUR 36) per bottle, which Diageo has jointly owned with the Beckmann family. Under the terms of the deal, which were not fully disclosed, Diageo will buy the 50 percent of Don Julio that it does not already own and on top of that will receive a pay cheque for USD 408 million (EUR 327 million).

It will also gain the right to distribute Don Julio and its Smirnoff vodka in Mexico, boosting its position in the country.

Diageo acquired Bushmills in June 2005 for about USD 365 million (EUR 292 million).

In a statement, Diageo said that Casa Jose Cuervo had a “proven commitment to its people and to valuing the history and heritage of its brands”, hinting that no jobs would be lost at Bushmills as a result of the acquisition, and that the Old Bushmills Distillery in County Antrim will continue to operate as normal. Diageo added it was confident that Jose Cuervo will continue to nurture Bushmills in the future.

This transaction delivers two key objectives for us,” Diageo's CEO Ivan Menezes said. “We have secured our position in the growing super and ultra-premium segments of the tequila category and further strengthened our global footprint by expanding our leading position in Mexico where the growth of spirits has great potential.”

That’s an interesting turn. Hadn’t Diageo previously set its eyes on the much larger Jose Cuervo tequila brand which it distributed outside of Mexico? When the distribution deal was about to expire, Diageo tried to buy the brand outright, but talks with the Beckmann family broke down in 2012 and Diageo stopped distributing Jose Cuervo although it maintained its stake in Don Julio.

Buying Don Julio, Diageo appears to want to create the impression that it never really craved for Jose Cuervo since it does not qualify as a high-end brand. How strange. Read on


USA – AB-InBev wants to move into distribution in Kentucky

Kentucky seems to be the latest in a string of states where AB-InBev has sought to grow into distribution through buying up willing distributors. In August this year, AB-InBev applied for a distributor's license in the city of Owensboro, Kentucky. The licence request came out of a deal to acquire Budweiser of Owensboro, a distribution company owned by Tennessee-based Hand Family Companies.

However, several independent distributors, wholesalers and brewers are fighting the move and state regulators are considering whether to wave it through or not. Hence AB-InBev filed a lawsuit in Franklin Circuit Court at the end of October 2014 in an effort to expedite that process. A prehearing conference has been set for 21 November 2014.

For years, AB-InBev has tried to move into distribution to wring more profits out of the value chain. Despite the Three Tier System, which by law separates companies that make beer, ship it, and sell it to consumers, these kinds of acquisitions are legal in about 20 U.S. states.

In Illinois, AB-InBev tried to buy Chicago-based distributor City Beverage in 2009. After years of court battles, Illinois’ legislators forced the company to unload its share in City Beverage in 2013. Who was the buyer? The very same Hand Family that is now trying to sell its Kentucky operations to AB-InBev.

Also last year, AB-InBev tried to buy C&G Distributing Co. in Lima, Ohio, but the move was also blocked by the Ohio Legislature – “after wholesalers poured boatloads of money into legislators' campaigns”, newspapers wrote.

This year, AB-InBev got lucky when in January it managed to buy a distributor in Portland, Oregon, for an undisclosed sum.

AB-InBev has always denied that it is trying to take over beer distribution, noting that it owns merely 17 of the 500 distributors across the nation which sell its products. In AB-InBev’s lingo they are called “branches”. It’s been estimated that these branches already represent between 8 and 10 percent of AB-InBev’s beer volume.

However, there are many questions surrounding AB-InBev’s desire and ability to acquire more distributorships. Most of these purchases are private transactions and little is known about the specifics of the deal and market strategy. The old Anheuser-Busch once stated that they buy branches where distributors are bankrupt, failing, or where there are no other buyers available.

This does not appear to be the case in Kentucky. Rather, this looks like a straightforward purchase for AB-InBev to gain greater access to the middle tier of distribution, which bigger companies like the Hand Family are exiting in their effort to focus on big franchises only.


UK – Diageo in trouble over ad for Parrot Bay frozen cocktails

Who’s hysterical? Because a single viewer had complained, the UK’s Advertising Standards Authority (ASA) banned Diageo’s TV commercial for Parrot Bay frozen cocktails on 15 October 2014. The reason given? It’s “strongly likely” to appeal to children. The TV ad, which showed a colourful animated parrot squawking while being frozen, must not be broadcast again in its current form.

Based on its Parrot Bay rum brand, Diageo’s Parrot Bay line of frozen beverage pouches was launched in the UK in 2013. At 4.7 percent ABV, the cocktails come in 250 ml pouches. These you put into your freezer overnight before squeezing the content into a glass to serve.

Sounds like fun, doesn’t it. But like all fun alcoholic drinks, it runs the risk of falling foul with the anti-alcohol crusaders. Read on


Australia - Competition brews with craft beer from Coca-Cola Amatil

What has become of Casella’s much touted Arvo beer brand which was launched a few years ago? Was it too mainstream to be considered craft? Or why would the erstwhile wine company Casella, now with the help of joint venture partner Coca-Cola Amatil (CCA), launch a range of beers under the Yenda brand? As Australian media write, CCA hopes the town of Yenda, which is home to Casella (Yellowtail brand), will soon become synonymous with beer.


Russia – AB-InBev sells Perm brewery for about USD 20 million

SUN InBev, the Russian subsidiary of AB-InBev, is selling its brewery in Perm, Russian media reported on 24 October. The sale of the Perm brewery was announced on the Rosrealt website. The assets include all the buildings on a total area of 60,000 square meters. The selling price exceeds USD 20 million.

That’s bitter. The Perm brewery was reportedly SUN InBev’s fourth largest in Russia with an estimated capacity of 2.0 million hl. According to Russian media, SUN InBev had spent more than EUR 100 million (USD 130 million) to upgrade and boost the capacity of this plant between 2000 and 2009. Read on


Korea – Pernod Ricard fined for tax evasion

The world’s number two drinks company, France’s Pernod Ricard, reportedly got slapped on the wrist by South Korea’s National Tax Service (NTS) and fined 10 billion won (EUR 7.5 million) for tax evasion, the Korea Times newspaper wrote on 10 October 2014.

The tax agency found that Pernod Ricard had inflated costs for advertising and other transactions so it could report lower profits and thereby avoid taxes, the newspaper said. Read on


Netherlands - Did a wet summer really hurt Heineken’s beer sales?

It’s such a well-worn excuse that the summer has either been too hot or too wet if brewers have to explain disappointing beer sales that it comes as a surprise that only now investors are finding it somewhat odd.

One commentator actually “smirked” after Dutch brewer Heineken blamed “poor weather” for a bigger-than-expected drop in beer sales in Europe during the July-to September period this year.

While it’s true that most of Europe enjoyed, well, suffered from unseasonably high rainfall, the weatherman also said that western Europe experienced “warmer than average” temperatures this past summer.

Don’t people like to drink more beer when it’s hot out? Maybe, but apparently not Heineken’s. The company reported on 22 October 2014 a 4.7 percent decline in beer volume in Western Europe during the July-to-September quarter, and a 6.6 percent drop in Central and Eastern Europe. Group beer volume declined 0.2 percent on an organic basis in the quarter. Read on


United Kingdom – SABMiller first-half revenues rise, beer volumes down

It did not only rain a lot in Europe, it was also pouring down in China over the summer, it seems. SABMiller reported lower beer sales for the past quarter (July to September) and for the six months on 14 October 2014. Fortunately, SABMiller could boast of a 5 percent rise in first-half revenues as higher prices offset the impact of lower beer sales. Read on



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