Molson Coors distribs on pace to do 2x the typical number of deals in 2020.  In an avg year, MC distribs do 10-12 deals, yet INSIGHTS tracked 12 Molson Coors deals in just first half, including 4 in Jun (most reported first in our INSIGHTS Express).  Why such a stepped-up pace?  As usual, big are getting bigger, Miller and Coors-only legacy distribs still consolidating and some smaller distribs are deciding to get out. Further insight on what’s changed below from longtime former MC veep who worked on deals, Tim Owston. Deal pace in striking contrast to AB network, where we only reported 2 deals in 1st half.

SipSource’s Dale Stratton added some details to its wine/spirits depletion data for 12 mos thru Sep 30 on conference call yesterday (see Monday’s Express).  Dale again highlighted “dramatic” divergence in wine vs spirits trends and “very dramatic gap” opening between ’em.  Recall, while spirits depletions up 3.2% for 12 mos, wine down 2.2%, for 5.4-pt gap.  In previous yr, gap just 2.2 as spirits +2.4%, wine +0.2%.  More channel detail from Dale.  In off premise, spirits +3.4%, wine -2.2%.  On-premise, spirits +2.3% (we mistakenly reported that # on Monday as +1.9%), wine -2.3%.  Spirits growing across almost all channels of trade, wine down in most.  Two more notes of concern for wine: 1) depletions down 3.5% in dining channel, “always the domain of wine” in past, said Dale; 2) wine $$ sales still up 1.7% (trade-up to $11+ bottles still happenin’) but that lags overall CPG trend (+2%), another change from the past.  Nielsen, a SipSource partner, confirms that widening spirits-wine gap, said sr veep Danny Brager, tho gap not quite as wide in Nielsen figures (it measures retail sell thru, not depletions).  Danny also put a little more color to where hard seltzers sourcing sales.  About 2/3 of seltzer sales incremental to category, he said, and “significant portion” of remaining 1/3 from wine and beer, not so much from spirits.  And just as hard seltzers flying (mostly via cans) so are canned pre-mixed cocktails, Danny said.

“Focus Wins over Scale,” Sez Brown-Forman CEO  Current edition of Beer Marketer’s Insights quotes recent comment from distiller Brown-Forman ceo Lawson Whiting that “I don’t necessarily think that… the seltzer phenomenon has really had much of an impact on spirits at all,” confirming Danny Brager’s point above.   Speaking at Citi’s Global Consumer Conference last week, Lawson made some other notable points that may resonate with beer folk, reported by Citi.  While flavored vodka got lotsa attention (and significant share), flavored whiskies doing well too.  Indeed, new Jack Daniel’s Tennessee Apple expected to boost Brown Forman’s top line by full point in fiscal 2020, matching size of another JD flavor, Honey. 

In general, Brown Forman “comfortable” with current portfolio, but, like other alc bev suppliers, B-F will consider smaller “bolt-on” acquisitions, focused on higher-priced brands, possibly rum, but not likely vodka or wine, giving competition level in former, difficulty of building brand loyalty in latter.  “Focus wins over scale,” Lawson said several times, citing steady 5-7% rev growth with BF’s current brands.  Brown-Forman sees lotsa growth oppy in intl biz, he also said, primarily through switching to its own distribution system in Europe. Controlling distribution, Lawson said, allows it to offer broader array of its products.  Finally, pricing tuff in spirits, Lawson acknowledged; 10-yr CAGR of Jack Daniel’s pricing a measly 1%.  Even so, “Whiting mentioned that the pricing environment today is actually healthier than it was a year ago, and if tariffs environment eases, demand should improve a little and help pricing,” Citi reports.

 New Belgium ESOP officially approved of sale to Lion Little World Beverages subsidiary of Kirin Holdings, co announced late yesterday. “This result moves us one step closer towards New Belgium Brewing officially joining Lion Little World Beverages,” and “we’re excited about the next chapter for NBB and continuing to prove business can be a force for good,” stated CEO Steve Fechheimer. So pushback from human rights groups due to Kirin ties to “military-run company” in Myanmar ultimately did not sway collective ESOP decision to sell.

At same time, a much smaller brewer, AZ’s Barrio, announced plan to transfer 100% of biz to ESOP, implementing 5-yr plan to transfer ownership from founders Dennis and Tauna Arnold. Craft brewers remain undeterred by eventual fates of NBB and Full Sail ESOPs ultimately needing to resell to large strategic brewer or private equity. Cos over 100K bbls like CO’s Odell, OH’s Great Lakes and Rhinegeist as well as up and comers like OR’s Breakside, CA’s Modern Times and VT’s Switchback continue to choose ESOP route in recent yrs. Key difference for Barrio and others vs NBB – NBB was in midst of building $150-mil brewery in Asheville shortly after transferring ownership to the ESOP and right as trends began to fluctuate; Barrio’s current production facility was built in 2006 and co expects ~15K bbls this yr, all in AZ and up 3X since 2014.

Bud Light Seltzer will get a test run in an unusual place prior to its national rollout early next yr. Starting today, Dec 18, Bud Light Seltzer is available in Seltzer, PA, a tiny town in eastern PA, about 2 hrs northwest of Philly with population of just over 300 folks total. AB’s hosting a “ceremonial first taste” at a local account, bringing residents, wholesaler personnel, local media and more to generate some buzz leading up to the big launch, Bud Light brand vp Andy Goeler told INSIGHTS. There are “lots of inquiries about when seltzer’s rolling out,” and Andy could foresee “people making their way over” to Seltzer, PA for an early taste prior to Jan 1 natl launch. “We’ll have some fun” and “get some talk value,” he added.

Meanwhile, AB “just finished” developing Bud Light Seltzer ad campaign with Wieden & Kennedy, set to air “as soon as we get done with the holidays,” Andy shared. Ads will be “typical Bud Light fun” done “in a very Bud Light tone,” while “providing some important info about the product.”  Bud Light Seltzer ads will not be part of Bud Light medieval world. It’s meant to be “separate campaign” that’s “just as fun as the medieval world” but in “a separate environment,” sez Andy. Recall, AB set to spend over $55 mil in 2020 on Bud Light Seltzer. Indeed, BL Seltzer launch is “vital to our 2020” and there will be “significant resources” and “emphasis” on brand. But core Bud Light (“Bud Light Blue”) will “continue to get the majority of resources” in Bud Light family, he added.

Priced “Comparable” to Leading Brands; Standalone Displays; “Complement and Supplement” Then too, Bud Light Seltzer price will be “above core Bud Light Blue” and “comparable to the leading [hard seltzer] brands,” Andy shared. It will “complement and supplement” Bon & Viv and Natty Seltzer, as well as Bud Light family, in his view. AB lookin’ to place BL Seltzers with other seltzer brands at retail and co even lookin’ for standalone displays away from core Bud Light. Natty Seltzer is “different value proposition” and Bon & Viv is different brand and flavor proposition. Tho gotta note, Bon & Viv trends have slowed, losing share of seltzer segment. And Natty Seltzer launched at an 80 index to White Claw and Truly (~$26 per case), tho already has been spotted at prices more comparable to rest of core Natty family, ~$15-16 per case (see Nov 14 issue). With additional focus on Natty Seltzer and Bud Light Seltzer comin’ next yr, will Bon & Viv be able to sustain its position?

IRI has started to report separate data on brand families from its multi-outlet + convenience database (MULC).  Eleven-month data thru Dec 1 actually shows most top brand families (ranked by yr-to-date $$ sales) to be fairly healthy.  Of course, not so hot for biggest family of all; Bud very much under the weather.  Bud premium brands shed 17.7 mil cases, -5.6% yr-to-date, and $$ sales down $313 mil, -4.6%.  That’s a 1.8-1.9 share loss.  Toss in higher priced Bud “specialty brands” and Bud subpremiums (they’re the 11th and 22d largest brand families, respectively, on their own) and that’s another loss of 2 mil cases, $41.2 mil.  That pushed total Bud share losses to 2 points.  Coors brand family down too, but not as sharply: -2.8 mil cases, -2.5% and -$26 mil,

-1.1% YTD.  Banquet up slightly, but that’s offset by Coors Light losses.  Meanwhile, Busch brand family volume off just 0.5%, $$ up $18 mil, +1.3%.  So, it’s (slightly) outperforming the segment and losing just 0.2 share overall.  Only other brand family in top 10 that’s down is Heineken: volume dipped 325K cases; $$ just in the black at +$554K, +0.1%.

Then it gets much more positive.  Michelob brand family #2 in $$, just ahead of Coors, Corona and Modelo brand families.  Michelobs (driven by Ultras, natch) tacked on 13.6 mil cases, +19% and added $393 mil, +20% offsetting Bud losses by $39 mil in IRI MULC yr-to-date.  (Bud volume losses still offset Michelob gains.)  Coors, Corona and Modelo families in tight $$ race yr-to-date, separated by just $121 mil, but momentum clearly with Modelo.  Corona volume +1.4 mil cases, +2.1%; dollars +$74 mil, +3.4%.  Modelo’s already slightly ahead in volume, just slightly behind in $$.  And Modelo brands +10.3 mil cases, about 18%; $$ +$358 mil, almost 20%.  Then comes Miller Lite, an orphan.  Volume +0.6% in IRI MULC, $$ +1.6%.  Only one other brand family over $1 bil YTD – Natty – and it’s solid.  Volume up 4.6 mil cases, 5.9% and $$ up almost $100 mil, 8%.

Fastest movers, as we’ve reported previously numerous times: White Claw and Truly.  White Claw already #9 in $$ ($745 mil), more than quadrupling and larger than Heineken family.  Truly is #18 ($339 mil) +178%.  Elsewhere below top 10, trends all over the place. Keystone, High Life, Dos Equis, Yuengling, Mike’s Hard and Blue Moon families each down 2-4% (volume).  Pabst down about 10%.  But Twisted +17%, Smirnoff brands +13% and Mike’s Harder brands +9%.  Stella family eked out 0.5% gain, Sierra Nevada +2.1%. 

MillerCoors made distribs’ season a bit brighter with a coupla recent communications.  First, sales prexy Kevin Doyle and distrib council co-chair Phil Meacham notified distribs on Dec 13 that MC’s “2020 freight and fuel surcharge will be $0.077/ce, a reduction of $0.067/ce from our current surcharge of $0.144/ce.”  That’s almost double the reduction Kevin flagged at Sep distrib mtg.  Why the bigger than expected reduction?  “Continued favorability in the freight market through the back half of 2019, reduced freight and fuel inflation forecasts for 2020, as well as increased distributor shipments utilizing intermodal and rail boxcar,” Kevin and Phil wrote.  “Last year’s increase in freight and fuel rates was unprecedented and posed a significant challenge to distributors and MillerCoors,” they continued.  “We’re excited about the reduction this year as it represents an opportunity to reinvest behind our brands so we can drive our collective businesses in 2020.”

Second, e-mail from Kevin yesterday to distribs cited fed excise tax break MC got in 2017 tax bill, $2 per bbl on first 6 mil bbls.  “In the spirit of partnership and consistent with the revenue-splitting approach of our economic model, we once again are passing on 30% of our savings to you.”  That’s $3.6 mil for distribs.  MC got its reimbursement for 2019 and distribs “can expect to see your payment in your accounts soon.”  Kevin also noted 1-yr extension agreed upon in tax deal Monday night, adding that “a permanent extension will remain a priority for our efforts in Washington, D.C., next year.”

Pete Pens His Farewell, Pledges to be Molson Coors’ “Biggest Cheerleader”   Distribs also heard this week from Pete Coors, Molson Coors Bev Co vice chmn, in an eloquent letter penned as he prepares to retire Jan 1 after 49 years from what was then Adolph Coors Co, and since evolved to Coors Brewing Co, MillerCoors, Molson Coors Brewing Co, now Molson Coors Beverage Co.  2019 was “quite a year,” from “unprecedented competitive attacks to a new marketing vision to big innovations to improving sales trends,” noted Pete.  Decision to close Denver office “extraordinarily difficult,” he wrote, and “gut wrenching” since “it affected good people.”  “At 73, I made it way beyond the time most people decide to step away from day-to-day responsibilities,” wrote Pete, who will remain on board as vice chmn. “But I want you all to know that I am committed to supporting the decisions of [ceo] Gavin [Hattersley] and the board and doing whatever I can to make these changes successful,” he added.  

“We cannot live in the past. No matter how much we love and support our traditional portfolio, the future will feel and look different,” he acknowledged. “Change has been the norm throughout our industry’s history. Even while we continue to do everything to protect and grow our legacy brands, we must look to build the future in a new competitive environment.”   Pete will retain an office in Golden, CO, “where you’ll always be welcome.” “I will relish my new ‘job’ as our company’s biggest cheerleader,” he assured in closing.   

Experts in Nielsen’s alc bev division look ahead to next year.  Here’s what they see in the off-premise:

·      Health & wellness focus will continue, especially among younger drinkers.  That will impact “drinking quantities and preferences,” interest in label transparency and innovations.  Expect more lower-ABV beers and spirits, more non-alcs. Also: “Active, lifestyle-oriented drinks that tie into consumer interest in their active routines.” 

·      Brewers, especially big ones, will expand offerings beyond beer, including both spirits and wine. “Brewers of all sizes will invest and innovate in ready-to-drink cocktails and even traditional spirit products.”  They’ll also experiment more in cannabis space. The seltzers are coming, the seltzers are coming, in droves. Expect “sub-segments” in seltzer based on different ingredients, flavors, ABVs, etc.     

·      State regs slow e-commerce in alc bevs, natch.  But “2020 will represent a turning point in the industry’s efforts.”  Investments will expand as consumers buy more online, avoid brick and mortar.  Related: convenience is king, as in slim cans and other alt-packaging, prepared cocktails, not necessarily c-stores.    

·      Spirits will continue to outperform, thanks to “advantage of a versatile product range with multiple drink types, flavors, styles and mixing opportunities − meeting the desires of the cocktail culture, and appealing to a broad consumer base (age, gender and race/ethnicity).” 

In the on-premise, not such a good sign that Nielsen focuses almost entirely on spirits, with barely a mention of beer oppys.  What do they see?  More low- to no-alcohol options; vodka tapping more into “better for you” (editor’s note: even as seltzers aim at vodka-soda occasion); more hard teas, kombuchas, coffees, etc; more innovation in whiskey; “gin and tonic could (finally) have its moment”; potential “tequila turbulence” given shortages of blue agave; wine innovations to fight vs snobbery, gain relevance in challenged segment.  

In beer, local will still matter and that “will prove a challenge for ambitious craft beer brands who want to develop outside of their geographic heartland.”  Finally, and of course: “Creating memorable and unique experiences for consumers is an enduring trend which will continue to make waves and move the on-premise market. Game bars, authentic experiences from other global regions, seasonal activities and elevated hotel bars will continue to attract and engage American bar goers.”  Have fun, everyone!

Beer maintained momentum going into final month of the yr.  With 4-wk volume thru Dec 7 +2.8% in Nielsen all-outlet data, yr-to-date trend now +0.9%.  Dollar sales jumped nearly 5% for 4 wks and +3.7% YTD.  FMBs flyin’ high at +54% in most recent period, nearly 20 pts ahead of YTD trend.  Craft still flattish.  Premium trends improved, tho still down.   Ditto AB and MC trends.  In fact, AB volume nearly even for 4 wks (-0.1%), with YTD trend now -1.9%.  MC reduced dropoff rate to -1.3% for 4 wks; -2.9% YTD.  Bud Light, Coors Light and Miller Lite all posted much better trends for 4 wks than YTD. 

Mike’s revved up to 115% growth in most recent period; Boston jumped 25%.  Constellation slowed just a bit, +9% for 4 wks vs +10% YTD.  Ditto Diageo, +14% for 4wks vs +15% YTD.  Pabst trend improved, but still down 7.5% for 4 wks.  But HUSA downturn steepened; brand Heineken -5.3% for 4 wks, softest trend among top above premium brands.  FIFCO even.  Michelob Ultra and Modelo Especial rollin’ at mid-high teens.  Seven of top 10 growth brands still seltzers/flavors.  Busch Light pickin’ up steam: +5.5% for 4 wks.  Natty Ice now a gainer for 4 wks too, tho looks like Natty Light gettin’ stung (-3.1% for 4 wks) by combo of Naturdays, Natty Seltzer and Natty Ice.  Since those 3 priced higher than Natty Light, AB probably doesn’t mind.

It took ’til the eleventh hour, but lawmakers included an extension of 2017 fed excise tax breaks for beer, wine and spirits for 1 year thru 2020 in the package of a dozen tax bills agreed-to last night.  But lobbyists won’t have long to breathe sighs of relief or high five.  Efforts to extend break beyond end of next yr, to make it permanent in fact, will ramp up in early 2020.  Those lobbyists built broad Congressional support for an extension, as well as media support.  Indeed, NY Times biz section front-paged some love this morn for craft distillers, published before deal announced.  Many small distillers never paid more than $2.70 per proof gallon and faced 400% increase on Jan 1.  Ditto many craft brewers who started up last 2 yrs; they faced a doubling of fed excise tax.  Many of these small bizzes invested in new equipment, jobs, etc.  “I’ve got 7,500 main-street members using that money to reinvest in their companies and their communities,” Brewers Assn ceo Bob Pease told the Times. 

Then again, a one-year extension doesn’t exactly give producers much security.  “The hard part for us is the lack of certainty,” Wine Inst prexy Bobby Koch told NYT (before extension announced): “To have it extended just one year makes it tough to plan.”  Also, Beer Inst ceo Jim McGreevy reminds: “In DC politics, it’s never over until it’s over,” and in this case that means until Pres Trump signs the bills.  Indeed, the tax extender bills “seemed dead 10 times just yesterday,” said Jim.  Right now, looks like House will take up full package and pass it later today.  Then it’s off to the Senate for Thursday debate, hopefully passage. Then to Pres Trump.  BI and its allies will be working the week to make sure bill signed, sealed and delivered.  Still, “this is a great result,” Jim said.  Chris Swonger, ceo of Distilled Spirits Council, dittoed.  “We are thrilled that lawmakers included a one-year extension of the federal excise tax reduction for distillers in the year-end legislative package.  While not yet a done deal, this is a significant relief for craft distillers across the country….  We will continue to urge Congress to do the right thing, support small businesses and pass this critical piece of legislation.”        

No Relief in Sight on Tariffs  On another critical issue, while Jim and other beer industry execs have gotten their position out on damaging aluminum tariffs and Midwest Premium, no relief in sight there for now. And distillers and vintners have tariff woes too.  “Latest salvo in the trade battle between the US and the European Union over EU aircraft subsidies,” Barron’s reported yesterday, “could spike tariffs on a wide range of European wine, whiskies and cheeses to 100%, a potentially crippling blow.”  Yup, the 25% tariffs that went into effect in Oct on some wines and whiskies on tap to be quadrupled and extended to broader array of products, including no-alc beers.  “100% tariffs would be devastating, absolutely devastating,” Rob Tobiassen, prexy of Natl Assn of Bev Importers, told Barron’s.  Impact of Oct tariffs just starting to hit the market and importers struggling to maintain prices, Rob noted, adding: “Jobs are being lost as we speak.” At producer level, Distilled Spirits Council’s Chris Swonger said: “US and European distillers are in lock-step” to get tariffs removed. “We want toasts, not tariffs.”