Beer Marketer's Insights
SABMiller deal closed Jul 9 and went off without a hitch, but several signs point to tuff road that lies ahead. Most importantly, Miller still struggling to stabilize volume. In last qtr PM owned all of Miller, Miller down 2.5% almost 300,000 bbls domestically (tho intl volume up 15%). Means Miller beer brands down 5-6% in US in qtr, when you take out malternative intro numbers. Miller volume down every yr since 94, except 99 when it bought some brands from Pabst. In 1st half 2002, Miller down slightly again, about 0.5%. But despite lower volume and higher mktg costs, Miller oper income up $1 mil, 0.6% in 2d qtr, because of "better pricing trends...lower raw materials costs and higher contract brewing volumes," SABMiller said. Recall that PM took $23-mil charge against Miller earnings in 1st qtr for early retirement and "asset impairment." Factor that charge in and Miller income down $16 mil, 5.5% in 1st half to $276 mil. But reported revs up $180 mil, 7% to $2.6 bil as PM now including contract brewing in revs(up $40 mil in 1st qtr).
SABMiller?s 1st official statements weren?t particularly upbeat about Miller volume trends. Apr-May "characterized by disappointing sales volume, due to cooler springtime weather conditions? particularly in the Midwest and Northeast," it said. Then SABMiller ceo Graham Mackay told Sunday Telegraph in UK: "It is a question of the quality of the marketing, not the quantity" to turn around Miller. "It will be evolutionary rather than revolutionary? but it will turn around," he said. Graham "confident he can refresh Miller?s image and once again drive sales," Telegraph added, but "he admits however that it could be three years before anyone notices any change." Recall when deal announced, Miller prexy John Bowlin also said Miller now spending at competitive levels, but he called mktg "right on."
SABMiller global ambitions were dealt a temporary blow when it attempted to issue about $1 bil worth of shares to "maintain financial flexibility" and fund further deals, but had to halt proposal same day. There was lack of demand in current tuff mkt environment. "Basically, we have a pipeline of deals," SABMiller spokesman said, without naming names of its acquisition targets. Meanwhile, as part of this deal, Miller EBITA (earnings before interest, taxes and amortization) restated downwards by $88 mil to $422 mil. Why? That $88 mil allocated as central costs to Philip Morris. SABMiller sez it can save about half of that, but still earnings base for Miller lower than originally expected.
New INSIGHTS analysis of total high-end malt bev mkt in US shows why more and more brewer/distrib focus aimed squarely here. Two factors stand out: 1) high end grew far faster than overall beer biz, roughly 2+ mil bbls per year for each of last 5 yrs; 2) big brewers consistently lost share of this profitable, growing segment in recent yrs. High-end volume reached 39 mil bbls in 2001, we estimate. That?s about 19% of total US malt bev shipments. And high end jumped almost 3 mil bbls in 2001 alone; over half of gain was Smirnoff Ice. Since 96, high-end market expanded by 11.3 mil bbls, 41% and gained 5 share. Editor?s note: definition of high end depends on who?s definin?. INSIGHTS? first crack at total segment is expansive, including all imports (tho some sell at prices close to premium), all malternatives/hard lemons, all of old superpremium segment (mostly Michelob brands and Rolling Rock, ditto on price issue), and all craft beers.
In same 5-yr period when total high end jumped 11 mil bbls, AB?s high-end brands actually declined slightly: from 5.5 mil bbls to 5.3 mil bbls. More important, AB?s 20 share of high end in 96 eroded to 13.5 last yr. (Gotta note these figures don?t include AB?s 50% stake in Modelo brands, since AB doesn't control them in US. If you include half ownership of Modelo, AB?s high-end volume kicks up to 9 mil bbls and growing.) AB remained largest volume player in high end in 2001, but not by much. Most of AB?s high-end business is Michelob Light. It sold 2.9 mil bbls, which puts it behind only Heineken and Corona among high-end brands. But once-mighty Michelob slipped to 1.5 mil bbls, or just 4% of high-end volume, less than Smirnoff Ice. Time was, Michelob alone had over half of high end. Miller?s high-end biz dropped from 2.8 mil bbls to 1.1 mil bbls last 5 yrs, though most of drop was because Miller divested Lowenbrau and Molson brands. So Miller had just 2.8 share of high end in 2001. Miller?s high-end presence is imports-- Foster?s and Presidente-- and Leinenkugel. Coors passed Miller in high end by losing less. Each of its high-end brands down last yr, including a double-digit drop for Zima. (Coors? 2001 data does not include its Molson USA partnership.) Coors built a little high-end volume 96-2001 to 1.3 mil bbls, but lost a share. Net-net: in 96, top-3 brewers had over 1/3 of high-end biz, but in 2001 they had under 1/5 of much-larger segment.
Meanwhile, top 4 importers grabbed nearly 45 share of the high end and were very close to each other in 2001: Heineken USA (12.3 share), Gambrinus (11.4), Labatt USA (10.6) and Barton (10.1). Since 96, Gambrinus picked up 3.1 mil bbls; Barton gained 2.3 mil bbls. Behind strength of Corona and other Modelo brands, those 2 importers grabbed almost half the high-end gain since 96. And they doubled from 11 share of high end to 21.5. But biggest gainer in 2001: Guinness-Bass. Riding spectacular intro of Smirnoff Ice, it jumped almost 4 share of high end, from 4.8 to 8.5, even tho GBIC?s import beer biz down.
Other players in high-end segment much smaller. Boston Beer also got about 3 share, Beck?s and Molson got about 2 share each. Each lost share last 5 yrs. Mike?s came out of nowhere to grab 2 share of high end too. Sierra Nevada is only other player that grabbed more than 1 share of high end. All other micro and specialty brewers (over 1000 players) claimed another almost 10% of high-end market. But as group they lost about 3.5 share of high end in last 5 years. In all, specialty brewers lost 5.5 share of high end since 96, faring little better than big domestic brewers. All Other imports were another 3 share of high end, down from 5 in 1996. And all other malternatives, (including fast-fading wine coolers) about 4 share of high end. More detail and accompanying chart in our just-released 2002 Import/Specialty INSIGHTS.
"There seem to be signs" malternatives "are peaking," AB CFO Randy Baker said in conference call Jul 24. AB sees "nothing there that supports further significant growth," Randy added. YTD thru Jul 14, malternatives had 3.1 share of supermarket volume, according to IRI, up 0.8. Several Wall St analysts echo Randy. "We continue to expect malternatives to peak in the 3Q and forecast a 3.5% share for this segment, basically a niche segment similar in size to the craft or microbrewers," Morgan Stanley’s Bill Pecoriello wrote recently. (In 2001, micros had 3 share, malternatives had 2.5 share.) "We believe that the FAB category is going through a period of accelerated brand rationalization (akin to that of the wine cooler, ice beer, craftbrew, etc) as a result of recent disappointing FAB introductions such as Captain Morgan Gold and Sauza Diablo. We believe the lack of traction by these products have made wholesalers and retailers hesitant to stock up their shelves with new brands," Caroline Levy at UBS Warburg wrote. Biggest disappointment so far: Captain Morgan Gold, which Diageo supported heavily during 2d-qtr launch. The brand just did not sell. In fact, Diageo already pulling some excess inventory from distribs. At presstime, Diageo announced Smirnoff Black Ice intro in UK "to lure men" to RTDs, wrote Dow Jones. Black Ice coming to US in 4th qtr too, we hear.
Malternatives are still big talk of the biz, tho buzz less positive lately. One reason: BATF recently laid out agency’s new thinking about malternatives that could radically change way these products are sold/marketed in a year or so. Key: BATF may require that spirits "flavoring" can contribute at-most 0.5% of final alcohol volume. Turns out BATF found 90%+ of alcohol comes from flavorings in some of these products. Brands that don’t meet new standard would be considered spirits products and be taxed, regulated as such. That immediately would make ‘em more expensive/less profitable, far less available to consumers and take ‘em off network tv. In effect, BATF doing an about face after years of clearing labels/brands that don’t have much resemblance to beer. Per usual, BATF ain’t exactly barreling down this road tho. First step is "notice of proposed rule-making" by end of 2002. Then a 60-90 day comment period to give everyone from suppliers to CSPI chance to weigh in. Then BATF adopts final rule; it’s talking about Jan 2004. If suppliers don’t like new rules, they can go to court or legislature.
The supplier with most at stake, Diageo, is already trying to head off any BATF move to reclassify malternatives. It sent 6-page, single-spaced letter detailing why BATF shouldn’t change status quo. Diageo’s major points: it has already spent millions based on BATF’s current policy of allowing flavors without limit if alc content under 6%; consumers don’t care if alcohol comes from flavors; there’s no compelling public interest to make change; history and current definitions of beer/malt bevs under FAA Act and internal revenue code give brewers needed flexibility to use flavors. BATF also already received letter signed by 9 Congressmen asking it not to reclassify malternatives. They’re "concerned that ATF’s proposal…will effectively end this category of product, disappointing consumers, destroying jobs, harming the brewing industry and reducing excise tax revenues." Gotta note asst director Art Libertucci’s response to comment that new rules would kill category in Jul 25 conference call. Producers could continue malternative products, Art told industry execs, just not as cheaply or easily. Why is BATF changing its mind? Industry complaints, taxation issues and calls from the states, said Art. Indeed, Tennessee’s alc bev commission not waiting for feds to act. It’s very close to final ruling that malternatives with sprits flavoring are spirits products (urged on by wine & spirits distribs there who want to sell ‘em). Tenn ABC holds hearing Aug 19.
As Coors struggles to return to US volume growth, its earnings growth picking up steam. For 2d qtr in a row, Coors beat Wall St consensus earnings estimates by a wide margin even as US volume remained stalled. Fueled by its UK acquisition and progress reducing US costs, Coors oper income jumped about $48 mil, 66% in 2d qtr to $121 mil, excluding special charges. In Americas, oper income jumped $4.8 mil, 7% to $79 mil even tho volume down 0.7% and rev per bbl down 1.5%. (That?s $12.37 per bbl oper income, up 82 cents per bbl from a yr ago.) Coors? cost reduction efforts "gained momentum" in 2d qtr, said prexy Leo Kiely, with a 2% reduction per bbl after factoring out branches it sold last yr. Coors mktg, gen and admin costs up 2.5% in 2d qtr, but mktg up mid-single digits, while overhead flat. Rev per bbl up 1% apples-to-apples in US. (The branches Coors sold last yr had higher rev per bbl because they sold imports so Coors reported rev bbl down 1.5%.) That 1% far less than AB?s 3%. Why? Negative mix shift away from higher priced brands and no malternative intro. Coors got 2% rev per bbl from domestic price hikes and reduced discounting, cfo Tim Wolf told analysts (similar to AB) offset by 1% of "negative mix shift." Zima, Killian?s, Original Coors and exports each down, while Coors Light up slightly and lower-priced Keystone up "mid single digits." Coors got $51 mil of oper income from its UK operations in 1st half on $542 mil of net revs. Total Coors corporate revs over $1 bil in 2d qtr.
While Coors has "not yet seen significant lift" from new ads, Leo told Wall St, Coors still believes ads "on target" with "very encouraging diagnostics." While Coors Light grew slightly overall, Tex and Calif "continue to have their own challenges." Total beer biz "very soft" in Calif, and Coors in 1st yr of some Tex distrib consolidations which is "toughest" period and "certainly a factor." Analysts questioned Leo if Coors is spending sufficiently, given AB and malternative media onslaught, and share gains. "We really don?t feel disadvantaged" on spending, Leo said, adding that Coors at "critical mass" on spending. Coors Original "already showing signs of stabilization" with new ads.
Miller’s 2d qtr even softer in US than –2.5% that PM reported; Miller had loaded distribs toward end of 2d qtr, distribs say. Altho July better for some distribs INSIGHTS talked to, Miller well below its budgeted target in Jul too; its most recent malternative intros are not selling well. Meanwhile, Miller "confirmed it has reallocated spending on" Gen Draft, wrote Ad Age in front-page article, "until the agency gets its creative on track." That spending shifted to Miller Lite, according to spokesman. Gen Draft, Miller’s 3d biggest brand, down 4% yr-to-date in supers. At Miller distrib council meeting in mid-Jul, a notable absence: prexy John Bowlin, who was on vacation. But a key SABMiller exec did attend: Pete Lloyd. Pete’s official title "organization development director" doesn’t do him justice. He is SAB’s key transition exec and "man-in-charge," according to several sources. He raised some eyebrows with talk of exceedingly lean SAB corporate hq. Tho SABMiller execs have said it's biz as usual, many expect big changes at Miller. Already, one of 9 most sr execs, sr veep corp strategy and international Dick Strup, will leave in next several mos.
While total AB sales-to-retailers up 2% thru 1st week in Jul, Bud and Bud Light "slightly exceeded total growth rate," according to Randy. Michelob family "slightly less," as Michelob Light and Amber Bock had "solid" growth, Ultra did "very well" in test and Michelob brand down. (Ultra at 0.8 share in supers in 1 test mkt, wrote UBS Warburg's Caroline Levy.) As trading up continued, Busch and Natural families flat. While AB "pleased" with Bacardi Silver, Randy noted new malternatives generally are "getting trial," but "not penetrating traditional 21-30 male beer consumer to any significant extent." (See more below.) AB up 20%+ in China in 2d qtr and had "substantially higher profits" there. A few days after 2d qtr report, AB announced strategic alliance with #1 Chinese brewer Tsingtao. AB will increase its stake above 5% it now owns of Tsingtao.
AB’s recent outperformance underscored in latest supermkt data. AB up 8.2% for 4 weeks thru Jul 14 in supers, while total beer biz up 5.5%, according to IRI. So beer sales in supers continue growing faster than in other channels. AB the big winner over Jul 4th holiday. Gained 1.1 share of volume in period compared to its 0.5 share gain yr-to-date. Miller volume up 1.5%, but it lost 0.9 share for 4 weeks, 0.6 share YTD. Coors also lost 0.2 share over Jul 4th period even tho volume up 3.8%. Down 0.1 share YTD. While Miller and Coors relative performance weakened in most recent 4 weeks, Pabst improved: volume up 1% and share down 0.2, compared to 0.4 share loss and 3% volume drop YTD. Interestingly, import share growth slowed in most recent period: up just 0.2 share for 4 weeks (0.3 YTD). Other big gainers: malternatives. Got nearly 4 share for 4 weeks, up 0.7.
Bud Light drove all of AB share growth and more: Over July 4th, up 14% and gained 1.3 share for 4 weeks. More than half of Miller share losses in Lite (0.2) and Gen Draft (0.3); Coors Light held share for 4 weeks; up 0.1 YTD. Coors lost 0.1 share each on Coors Original and Zima for 4 weeks. Modelo brands held share but Corona Extra volume only up 3% for 4 weeks. And while malternative segment up 30% for 4 weeks, check out these brand trends: Smirnoff Ice up just 8%, Mike’s Hard Lemonade down 9%. Meanwhile, SKYY Blue sold slightly more than Bacardi Silver for 4 weeks (each had 0.4 share); no other new malternative intro got 0.1 share for 4 weeks.
While overall malt bev biz in US trending up 1%+ so far this yr, AB continues to outperform major domestic competitors. Total US shipments up estimated 1% in 2d qtr, 1.5% for 6 mos. A lot of that increase: malternatives, especially Smirnoff Ice and new-brand rollouts. Traditional beer biz barely up so far this yr even as imports gained estimated 6-7% (up 7% thru May). For 12 mos, US biz still up less than 1%; imports up 5.5%.
AB was sole gainer among top-4 brewers in 2d qtr and only major brewer ahead for 6 mos and 12 mos. Up 550,000 bbls, 2.1% Apr-Jun. Picked up 900,000 bbls, 1.8% for 6 mos. AB reported sales-to-retailers (STRs) up 2% YTD thru 1st week of July to tease out effect of Jul 4 "timing differences" this yr vs last yr. (Buy-in was earlier last yr.) For 12 mos, AB up 1.3 mil bbls, 1.3% and up 0.3 share to 48.8. Miller trend reversed in 2d qtr: shipments down estimated 260,000 bbls, 2.3%, following 150,000-bbl gain in 1st qtr, flat 4th qtr 2001. For 6 mos, Miller off 0.5% despite rollout of 3 malternatives; its beer biz down estimated 2-3% during period. PM didn’t report Miller’s STR trend in 2d qtr, but STRs down 2.6% in 1st qtr. For 12 mos, Miller lost about a half-share to 19.5.
Coors’ US/export biz nothin’ to shout about either. Down slightly Jan-Jun. And Coors STR trend softened in 2d qtr: it was flat (adjusting for Jul 4) following 1.4% gain in 1st qtr. Coors shipments off 190,000 bbls, 0.8% for 12 mos; share off 0.2. Dipped back below 11. Since string of 4 qtrs when Coors averaged 6% growth (4th qtr 99 thru 3d qtr 2000), Coors down 200,000 bbls, 0.5%, over last 7 qtrs. (Coors worldwide volume, including UK acquisition, up 3.9 mil bbls, 33% Jan-Jun to 15.4 mil bbls; Carling biz growin’ in UK.) Pabst dropoff in 2d qtr similar to 1st qtr: off estimated 3% so far this yr. "All Other" domestic brewers down slightly in 2d qtr, up about 2% for 6 mos. That includes Boston gain (75,000 bbls for 6 mos) and malternative production at Diageo’s Pennsy plant. Import growth slowed to mid single-digits in 1st half, we estimate, as Corona price increase kicked in. Modelo 2d-qtr exports from Mexico up about 5%; FEMSA exports up about 6%. Modelo gained double-digits for 6 mos vs 7% for FEMSA.
Shipments(000) |
Chg Shipments(000) |
Chg Shipments |
Chg |
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| 2d 02 | 2d 01 | bbls | % | 6mos 02 | 6mos 01 | bbls | % | 12mos 02 | % | |
| AB | 26,850 | 26,300 | 550 | 2.1 | 51,700 | 50,800 | 900 | 1.8 | 101,325 | 1.3 |
| Miller | 11,190 | 11,450 | -260 | -2.3 | 20,915 | 21,025 | -110 | -0.5 | 40,453 | -1.7 |
| Coors | 6,371 | 6,413 | -42 | -0.7 | 11,501 | 11,519 | -18 | -0.2 | 22,725 | -0.8 |
| Pabst | 2,490 | 2,600 | -110 | -4.2 | 4,640 | 4,800 | -160 | -3.3 | 9,190 | -6.6 |
| Other Dom | 3,679 | 3,712 | -33 | -0.9 | 6,904 | 6,761 | 143 | 2.1 | 12,362 | 0.7 |
| Dom Total | 50,360 | 50,265 | 95 | 0.2 | 95,250 | 94,515 | 735 | 0.8 | 185,235 | 0.2 |
| Imports | 6,700 | 6,283 | 417 | 6.6 | 11,974 | 11,262 | 712 | 6.3 | 22,603 | 5.5 |
| Total | 57,060 | 56,548 | 512 | 0.9 | 107,224 | 105,777 | 1,447 | 1.4 | 207,838 | 0.7 |
| (Exports) | 1,200 | 1,240 | -40 | -3.2 | 2,150 | 2,235 | -85 | -3.8 | 4,465 | -3.4 |
| US Total | 55,860 | 55,308 | 552 | 1.0 | 105,074 | 103,542 | 1,532 | 1.5 | 203,373 | 0.8 |
| Note: Brewer figures are shipments in US plus taxfree/exports. Coors excludes UK biz. | ||||||||||