SAVE THE DATE!

Virtually all AB wholesalers are suffering major blows to profits and value in their AB biz since Apr 1. Tho losses only for 6 mos so far, this is already catastrophic for some, and a sea change for many, radically altering the health of their biz and outlook for the future. Emotional consequences can be just as devastating as generational wealth is rapidly disappearing in some cases. Distribs most affected have more debt (typically from an acquisition) or a greater % of their biz in AB volume. What's happening ain't good for anyone in AB network, but it's better or worse depending what % of portfolio is non-AB, i.e. how much of these losses they can offset with other brands. Huge impacts are happening on two levels, notes consultant Mike Mazzoni: loss of operating income and loss of enterprise value. How Much Value Lost? Lots; Quantifying Possible GP and OP Hits Working with Mike and others, INSIGHTS estimated how much AB system will lose in a 12-month period on AB brands. And it amounts to billions of $$, probably over $5 bil. AB distribs will make up some of that on other brands they sell.This analysis involves some assumptions, so consider these rough estimates, taking trends from Apr-Sep and projecting thru Mar 31, 2024. Recall, AB volume down 15% Apr-Jun and falling almost at same pace Jul-Sep in scan data. Slight improvement lately. In this exercise, we assume a 13-13.5% drop for 12 mos thru Mar 31. AB sold about 1.1 bil cases in 2022. That means it could lose 145-150 mil cases for 12 mo period, unless trend significantly alters between now and next Apr. No sign of that yet.Avg gross profit on AB brands around $5.50 per case, say Mike and others. That's $800-$825 mil in GP out the window for AB distribs on their AB brands. Worse, most of that hit, as much as 70%, goes straight down to operating income line, sources say. Only potential offsets: growth in other brands and cutting costs. But only so much cost can be cut and many AB distribs don't sell much of other brands. In all, likely to amount to a loss of over a half bil, $540-$575 mil, on oper income. Distribution businesses typically sell for 10x oper income, suggesting about $5.5 bil reduction in value of AB brands in AB distribution system.Important to remember that distribution is a scale business and AB distribs are rapidly losing scale. For decades, many have said that drop size, i.e. cases per stop is key metric. As AB distribs lose 15% of its biz, economics of cases per stop rapidly going south. Many smaller stops were already unprofitable. But now at least some AB distribs actually losing money per stop, as cost of delivery per stop exceeds GP generated. AB's relief package helps, but not enuf.Some Consequences INSIGHTS already hears of serious consequences arising for some distribs: reduced compensation and distributions (to family), significant layoffs, selling off non-beer assets, writing personal checks to meet debt covenants and even a closed facility. And winter is coming. Distribs in much of country make far less in winter even when biz good. If AB stays this soft in slower mos, situation will get far worse before it gets better. Recall, AB offered package of financial relief to distribs, but that only covers 20-30% of profit losses. And it's set to expire on Dec 31.On the Sunny Side of the Street A lot of what AB distribs lose, competitive Molson Coors/Constellation distribs gain. Far from all, but some Molson Coors distribs have seen huge increases in EBITDA, millions of $$. So in many cases, AB distribs are also looking at a loss of leverage at local level. It's not just profit but shelf space, service levels, mkt share. Distribs who gained will fight hard to keep what they gained. Doesn't help that this just exacerbates condition that already existed: in most top metropolitan areas in US, Molson Coors/Constellation wholesalers had much higher share of market and especially gross profit even before these latest developments.Meanwhile, AB intent on distribs maintaining their contractually mandated service standards but those are another drain on profits for many during tuff time. There are still 6 mos before AB and its distribs begin to cycle these huge drops. Come Apr 2024 and beyond, how much of these cataclysmic losses can AB and its system expect to claw back?Mazzoni Speaks: "Bud Light is no longer the key issue...tho it has morphed into an incomprehensible constant...the REAL ISSUE is the magnitude of the financial and emotional damage to the people who invested in the business, were good and loyal AB soldiers, and were an integral part of AB&#39;s long running success (even before InBev)...BUT, no one has focused on the distribs and I don&#39;t understand why - or, why not?...EVERY AB distrib has lost not only current gross profit and operating income; but, and probably most importantly, enterprise value (read net worth!)... In many cases the literal loss of generational security...earned thru several generations of investment, risk, and hard work...forget finger-pointing and who did what...the singular responsibility of AB is to acknowledge the damage and work to make it right&hellip;. With over 50 years in this beer biz, I&#39;ve known many of these families for that long...frustration, disbelief, resignation, helplessness, and, especially, ANGER, are palpable in every conversation with my AB distrib friends...they deserve better!"

AB Distribs Profit Hit; Valuation Down By Billions, Transfer of Wealth at the Local Level

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