Wow, these guys are good. Just a few weeks ago A-B was talking about their earnings dip like the sky was falling, running around doing anything they could think of. “Pick up more imports” (Grolsch), try to buy up some microbreweries, “create an ad campaign to celebrate beer” (Here’s to Beer), and “introduce new products” (Michelob Ultra Amber). Well I guess it was all worth it because yesterday it was anounced that Anheuser-Busch was “restoring sales and earnings momentum.” Whew, I’m glad that’s over and we can all relax.

Of course, I can’t help but wonder what “Restoring Sales And Earnings Momentum” actually means. Just on a purely semantic basis, how can you restore momentum? Merriam-Webster defines momentum as “strength or force gained by motion or through the development of events.” Is it even possible to “restore” so quickly something that by definition takes time. Momemtum must be gained slowly, it’s not like a race car weaving through the business landscape. But that’s propaganda for you. Frame something in a positive light and the facts or common sense hardly matter.

Frankly, if I were a shareholder I’d be concerned about these wide swings. First we’re up, then we’re down, now we’re up again all in the space of a few months. You’d think people would be more concerned with fixing any problems (not that any have been admitted, it’s always someone else’s fault) on a long term basis so they wouldn’t resurface. But shareholders are apparently a finicky bunch afflicted with a economic form of ADD. They want growth and earnings and they want it now dammit, or they’re selling. It’s the adult equivilent of play-my-way-or-I’m-taking-my-ball-and-going-home. They’re not in it for the long haul. So it’s not terribly surprising to see A-B float some small positive numbers and then spin it so they’re magically back on the road to recovery. Nothing will really change, but the share price goes up and everybody’s happy.

From the press release:

Through a number of new sales initiatives, the company restored its domestic beer volume and market share growth in the second half of 2005. Anheuser-Busch’s wholesalers’ sales-to-retailers increased 0.8 percent in the second half and grew 2.7 percent in the fourth quarter (both on a comparable selling day adjusted basis). Anheuser-Busch brands gained six-tenths of a share point at the consumer level in both the third and fourth quarters, according to IRI supermarket data. The company’s sales momentum has carried over into 2006, with wholesalers’ sales-to-retailers up 2.9 percent through mid-February.

Watch out any time you hear the euphemistic “new sales initiatives” which most likely means lowering prices. Most beer companies already do this a bit more in January and February, because they are traditionally the slowest months for beer sales. But lowering prices also has the curious effect of raising volume but lowering profit, and wasn’t that A-B’s problem in the first place?

And check out these numbers they’re crowing about. People tend to read headlines and maybe the first paragraph, studies have shown. So it’s no surprise the actual numbers that indicate restoring of momentum are in paragraph two, where it’s finally revealed that “wholesalers’ sales-to-retailers increased 0.8%” and “grew 2.7 percent in the fourth quarter (both on a comparable selling day adjusted basis).” Woo hoo. Now I know in terms of dollar amounts, because A-B so large, that even small percentage gains probably equal millions, it’s still not exactly the sort of numbers you expect people to start sending out press releases about. But also look at the paranthetical information. “Comparable selling day adjusted” is basically a trick to compare periods of time that have different numbers of days in them, that is it’s another way to potentially lie with statistics or at least show things in the most favorable light possible.

More from the press release:

Restoring cost stability is expected to take longer than restoring volume and pricing. Over the last three years, the domestic beer company has experienced substantial increases in commodity costs, most recently from aluminum, glass and energy. Commodity cost pressures continue in 2006. Commodity costs tend to be cyclical over the long-term and the company is actively working on a number of productivity initiatives to improve the cost outlook.

Just as an aside, I love the language that corporations use. Craft brewers use ingredients, supplies, etc. A-B uses “commodities.” Small brewers pay higher electric bills, big corporations experience substantial increases in commodity energy. That just cracks me up.

Normally, when supply costs go up you’d expect that prices to consumers would also rise. And while there have been modest increases, A-B and to some extent the other big breweries (because they’ve had to align their pricing with A-B to stay competitive) have minimized these as much as possible due to perceived consumer resistence to paying more for beer. Over the years this has kept big beer prices relatively low, especially compared with craft beer (which is generally much more expensive to produce). So their complaints about costs seems more like whining to me. They could raise prices to a percentage of actual supply costs anytime they wanted, but over the years they’ve trained their customers to expect low prices and now this strategy is starting to backfire. Plus, of course, profits would also suffer further indignities.

The other effect of keeping their prices artificially low is that the gap between a six-pack of Bud and a six-pack of something with flavor is necessarily higher. This has been a bone of contention of mine for quite some time. If A-B’s pricing reflected the same markup as craft brewers then the difference between their beer and something worth drinking would be substantially lower, making it much more possible for craft brewers to persuade consumers to trade up to their beers. But any consumer that is driven by price alone needs a lot more education about what he’s buying before he’ll be willing to change his buying patterns.

But the general meaning of this latest missive from Anheuser-Busch is, I think, yet another attempt to change their recent fortunes. When I wrote earlier that big companies will do anything to get the share price up, this is one of those “anythings.” I think we’ll see a lot more of these smiley face upbeat press releases over the next few months. We just have to remember to take them for what they really are: propaganda.

We’d been hearing the rumors for a couple of weeks now but today the Brewers Association made it official. They announced today that the craft beer industry is showing excellent growth for the second consecutive year. This on the heels of Anheuser-Busch’s announcement of 4th quarter revenue having fallen 54.7% (before taxes) on February 1. Unnamed sources had previously told me the 9% figure was primarily in regional players and there was uncertainty how the smaller local brewers had fared. It appears now that these brewpubs and local brewers had another good year, as well, at least based on these numbers. This is excellent news for the industry and further signs that it has truly become a mature, stable industry.

From the press release:

Boulder, CO — February 16, 2005 – America’s craft brewers sold 9.0 percent more barrels of beer in 2005 versus 2004 making craft beer the fastest growing segment of the US beverage alcohol industry for the second consecutive year, according to the Brewers Association, the Boulder, CO-based trade association for US craft brewers.

“Craft beer volume growth far exceeded that of large brewers, wine and spirits in 2005,” said Paul Gatza, Director of the Brewers Association. “And even though imported beer grew nicely in 2005, craft beer grew at a faster rate.”

The Brewers Association estimates 2005 sales by craft brewers at 7,112,886 31-gallon barrels up from an adjusted total of 6,526,809 barrels in 2004, an increase of 586,077 barrels or 8.1 million case-equivalents.

Compared to craft beer volume growth of 9.0 percent, spirits volume increased at 3.3 percent in 2005 and wine volume was up 2.9 percent. The import segment of the beer industry rose 7.2 percent in 2005 while non-craft domestic beer volume declined slightly for the year. This establishes craft beer as the fastest growing segment of the US beverage alcohol business for the second year in a row.

“Consumer enjoyment of the flavor and diversity of craft beer continues to fuel healthy, steady growth in this segment,” said Ray Daniels, Director of Craft Beer Marketing for the Brewers Association. “Small brewers lead the entire industry by offering flavorful, interesting beers.”

The craft beer segment includes more than 1300 small, traditional and independent breweries which produce primarily all-malt beers. It includes both brewpubs which sell beer primarily at their own pub or restaurant and packaging breweries that distribute beer in kegs, cans and bottles to a wide range of retail outlets. The Brewers Association has tabulated industry growth data for these breweries annually since 1985.

One year ago, the Brewers Association reported craft segment growth of 7.2 percent for 2004, a year in which wine (2.7%), spirits (3.1%), imported beer (1.4%) and non-craft domestic beer (0.5%) all reported substantially smaller growth rates.

“The strong growth by craft beer in 2005 is especially impressive because it comes on top of strong performance in 2004,” said Gatza. For each of the last two years, craft beer growth has been stronger than in any year since 1996. He also noted that 2005 is the third year craft beer growth rates were stronger than those for imports. “Craft beer clearly leads the beer industry in consumer appeal.”

Not to rain on the parade just as the marching band strikes up the first tune (Roll Out the Barrel, no doubt), but I do feel compelled to point out that while this is great news and worth celebrating, by the numbers the craft beer industry is still just a drop in the kettle compared to overall domestic beer production.

I mention this simply to remind myself — and everyone else — that while we may have won a nice victory, the war still rages on. Anheuser-Busch has already been showing concern about the craft beer industry, despite our small overall numbers. Big corporations cannot accept any erosion of their market share or profits, so even our small gains they consider a taking from them. And believe me, this is not just about their pathetic “Here’s to Beer” campaign. There have been recent persistent rumors that A-B is approaching (or in some cases having their distributors approach) a large number of regional and local breweries about acquiring them. Let that sink in. Bud is looking to buy up a bunch of breweries, and is starting perhaps with the biggest and most influential. That would be a catastrophic event for the fledgling craft beer industry. (I know I just suggested it was mature and stable, but not as compared to the giant 100-plus-year old corporations.) If they are successful in waving carrots in front of enough beleaguered, overworked brewery owners then the jig could well and truly be up. And A-B has bigger, deeper carrots than all of the craft beer industry combined (I confess I made that last statistic up, but intuitively it feels right).

I’m reminded at this point of New Belgium Brewing co-founder Kim Jordan’s impassioned keynote speech at the New Orleans Craft Brewers Convention several years ago where she argued for solidarity among the industry to reach the lofty goal of 10% of the market. And while I may have concerns about New Belgium’s own business practices in this regard, I think her words resonate just as strongly today. This is exactly what we need to do. We need to close ranks right now. For those of you who are fans of American football, think about all of the post-victory locker room speeches. It doesn’t matter what team, the coach makes the exact same speech. Enjoy this moment, your win, but don’t rest on your laurels. Take tomorrow off, but then it’s back to work the next. This is just one victory, there’s another battle next week. And that’s true here, too. Let’s enjoy this moment. I for one will open a special beer tonight. But let’s also remember the war is hardly over and there is much to do. But for now, congratulations to all the brewers and breweries.

The folks at the Beer Institute, themselves now essentially advertisers of beer, have created the Code Compliance Review Board (CCRB) to review complaints by consumers about beer ads, whether the ad itself or the appropriateness of its placement, that have not been satisfactorily resolved by the offending brewery.

From the press release:

Jeff Becker, president of the Beer Institute, announced today the implementation of an independent review board to assess complaints filed with the Beer Institute about the content or placement of beer advertisements. The board will address situations where the proponent of a complaint is not satisfied with the response received directly from the brewer that sponsored an ad. The decisions of the board will be based on the Beer Institute’s Advertising and Marketing Code.

The press release blathers on about self-regulation which, in my opinion, has never, ever worked. No business in the history of mankind has ever intentionally disciplined itself or found itself guilty of any wrongdoing beyond that which required a slap on the wrist. To me, the real question here is what kind of complaints cannot be resolved by the brewery? Who’s being stubborn? I’m not being rhetorical, I really want to know. Are the unresolvable complaints coming from neo-prohibitionists who won’t be satisfied until alcohol is illegal again? (Their motto: if if it didn”t work before, try it again.) Or are the breweries the unreasonable party here, putting up billboards across the street from schools or creating mascots like Joe Camel that appeal primarily to children? I’m sure both of these strategies have been employed, and not just by breweries but by companies selling tobacco, liquor, etc.

So I’m not quite sure what the angle here is, though I’m sure one will emerge. The press release is vaguely silent about what the CCRB will actually do to resolve compaints or what authority it has, especially if the complaint is regarding a non-member brewery. Are they just trying to assuage hardcore complainers with an axe to grind or do they really want to change how beer is advertised and reduce the number of complaints before they occur. Is that even possible? Or desirable? I honestly don’t know. It will certainly be interesting to see what develops.