Mike’s Hard Lemonade Co up 6% to about 22 mil cases in 2014.  That’s 2d yr in a row of solid mid-single digit growth even with 35-40 mil cases of Ritas and Redd’s as new competition.  But that competition has also brought many, many millions more new consumers to the FMB segment (about 20 mil, Mike’s estimates).  Mike’s would have been up 9% without overhang of about 1 mil cases of pouches that disappeared very rapidly.  Indeed it had anticipated double-digit growth last yr, but pouches “got in our way” and yet “we still had a good year,” Mike’s prexy Phil Rosse told INSIGHTS.  Interestingly, Mike’s had 6 of top 100 malt bev brands in IRI multi-outlet + convenience last yr.  That’s a lot for a co its size.  Total Mike’s up near 5% in IRI.

But make no mistake, Mike’s growth last yr driven by Mike’s Harder franchise.  Depletions up 43% in 2014, said Phil and it is now half as large as original Mike’s Hard franchise.  Mike’s Harder didn’t even exist 5-6 yrs ago.  “By the end of 2016, the Mike’s Harder brand can double again,” added Phil and “be as valuable to our distributors as the core Mike’s Hard brand.”  Another growing piece of its biz: Cayman Jack’s up 25.6% in 2014. That meant original Mike’s Hard franchise didn’t see much growth in 2014.  In 2015, Mike’s will be focused against both Hard and Harder, but Mike’s also has something new up its sleeve. 

In Apr, Mike’s will intro Palm Breeze, “the biggest new innovation launch since” original Hard Lemonade first entered US mkt in 1999, said Phil.  It’s the largest FMB brand in Canada, where Palm Breeze sells 2 mil cases in mkt 1/10^th size of US. It’s a 1 share brand of the total malt bev mkt there, and has 30% of FMB segment, said Phil.  So Mike’s has big expectations here in US too. Palm Breeze coming in 2 flavors, Ruby Red Citrus and Pineapple Modern Orange and has ABVof 4.5%.  It’s aimed primarily at female millennials and will be priced slightly lower than Mike’s as it is in Canada. 

Mike’s “positioned to accelerate our growth,” according to Phil, again projecting a return to double digit growth (now targeting mid-teens).  As “more consumers are coming in” to FMB segment, Mike’s can “go on another really big run,” with its “best performance yet to come,” said Phil.  Taking a page out of Constellation’s playbook (“the Gold Network”), Phil praised Mike’s “lemon network” of distribs, as “excellent” partners. 

Fascinating deep dive into SABMiller’s prospects going forward by Redburn’s Chris Pitcher and Chris MacDonald focuses almost entirely on developing mkts but it has some resonance with impact of price on consumption in the US.  Key conclusion from the Chrises: “SABMiller has to price below inflation to realize [the] huge volume growth potential” in developing beer mkts, most importantly in Africa.   They looked at 126 intl mkts, tracking per capita consumption trends over 50 yrs to identify where growth more than doubled from under 20 liters/yr to over 50 liters/yr.  They then picked out 10 “big examples,” including Japan, Spain, Russia and a few countries in Africa.  Each of these countries shared such issues as “political upheaval, social reform, economic growth” and a growing middle class that now characterize Africa.  “But in all cases, where we could find the data or research, beer pricing lagged inflation on average by 70%.  Beer had become more affordable.” 

US Beer Per Caps Fell As Relative Price Rose  The Redburn guys don’t mention it, but when US beer per capita grew by over 30% in the 1970s, the CPI for beer lagged general inflation by about 36%.  From 2000-2010, when US beer per capita fell by 5%, the beer CPI matched inflation.  Since 2008, when beer per caps slipped nearly 10%, avg consumer beer prices rose about 30% faster than inflation.  So it’s not just emerging mkts where relative price matters to per capita consumption.

Back to Redburn  SABMiller’s own statements in recent yrs about beer trends highlighted “pressures on consumers’ disposable income from inflation, the removal of subsidies and the adverse impact of currency weakness,” the analysts note.  That means “affordability has become an increasingly important consideration.”  With squeeze on disposable incomes, “the responsibility falls on the brewer to improve affordability” via more value brands/packages or holding price hikes below inflation.  Added competition in emerging mkts only adds more pressure to keeping beer affordable, in their view.  Good news: SABMiller can achieve better than avg volume growth in these mkts via improved affordability.  Bad news: that puts pressure on rev/bbl, profits and margins, at the same time that SABMiller’s growing (less profitable) soft drink biz will do the same.   Even so, combo of “production and distribution efficiencies” will give SABMiller enough “operating leverage” for it to expand margins, Redburn believes.  As noted, Chris and Chris focus on developing mkts, but they do point out that in a highly developed mkt like Australia, where beer has become less affordable during period of “limited real wage growth” (sound familiar?), beer per capitas have declined steadily, beer has lost “share of throat” to wine and spirits and price competition has “intensified recently,” depressing margins.  Interesting.          

Heineken heiress Charlene de Carvalho gave first ever media interview in long interesting Fortune mag piece that popped yesterday.  Heineken revs have almost tripled (to $25 bil in 2013) in the decade-plus since she inherited control after Freddie Heineken passed away.  Heineken has spent more than $28 bil on 49 acquisitions in that period. It has operations in 71 countries, up from 39 in 2002, moving from dependency on developed mkts to a strong emerging mkt presence.  “Many people assumed we would sell the business or screw it up,” said Michel de Carvalho, Charlene’s husband, who is also vice chairman of Citigroup’s investment bank and on Heineken board. With “transition of control,” Charlene and Michel “called on the board to replace the then-CEO with a more aggressive leader,” wrote Fortune. That was Jean Francois van Boxmeer, still the ceo and “one of the world’s great CEOs,” said Michel.  Jean Francois completes his “third four year contract” in 2017 and Michel and Charlene “would be pleased if he renews.”  Would next CEO come from inside co? “Ideally, yes,” Charlene said. 

“Learning how to preserve the dynasty has become the de Carvalho’s most important mission,” wrote Fortune.  What about the next generation of the family?  Charlene and Michel have five children.  Advice they’ve gotten about passing control to next generation is “think hard and pick one,” says Michel.  “That’s the message we’ve been hearing,” according to Michel, from “other billionaire owners of family businesses,” said Fortune and others.  “But Charlene and I are not yet convinced that we could not have an odd number, perhaps 3,” Michel added, noting that ownership “may be a lonely job for one heir,” according to  Fortune.  “Had Charlene not been married to someone who has a strong interest in the business, it would have been a terrible burden.”

Their oldest son Alex is 29, an associate at Lion Capital, a London private equity firm. He’s on Heineken’s board and has “been interested in the family business since he was 8 years old,” notes Fortune.  “Heineken is the first thing I think about when I get up in the morning and the last thing I think about when I go to bed,” Alex told the mag.  His “parents are pleased that Alex wants the job of guarding and guiding the family business,” sez Fortune.  “But they’re not counting out younger son Charles, 23 who is working for an Internet retailer in Vietnam or oldest daughter Louisa, 28, who has worked in film production and is now with a spirits company in London.” Two other twin daughters are studying art and music “and may play roles in Heineken’s work on philanthropy and social responsibility.” 

Turns out one adviser for the de Carvalho family is Byron Trott, sometimes referred to as Warren Buffett’s favorite banker.  Recall, his firm BDT Capital is also 70% owner of large AB distrib in metro Chi, Lakeshore Bev.  Back in Sep, ironically enuf on same day that Charlene rejected SABMiller’s bid, the de Carvalhos “were in Chicago at a conference hosted by” Byron’s co.  “At the conference the de Carvalhos chatted with people who share the same burdens of wealth that they do ‒ people named Walton and Smucker and Koch.”  Gotta be some interesting side conversations at such meetings.  “We all have exactly the same problem,” says Michel. “But every family relationship is a little different.”   Click here to read Fortune article.  

NBWA economist Lester Jones picked up some new and familiar themes in presentation to Brewbound this afternoon.  One fresh slide, build on data from our Beer Industry Update, showed light beer segment growing from approx 38 share of US beer in 1997 to peak of just over 50 share in 2009 and slipping since then to about 47 share last yr.  Lester calls that a “lull” or a “breather” for light beer that coincided with recession and fact that 80% of households still haven’t experienced any income growth since 2009.  With a broader, “true” recovery just starting to happen, that will change the market again, he believes.  Then too, as Gen Xers and even millennials age, they might start thinking more about calories than they do now.  Those developments provide oppy for light beer to rebound, Lester believes. 

Lester also laid out some key industry challenges for next 5 yrs.  There are 4 mil more consumers in 21-34 yr-old range than in cohort ahead of them, Lester pointed out, and Hispanic share of population growing fast.  What these folks decide to drink will be key, natch, so demographics/immigration will drive more change.  So will competitive dynamics between beer, wine and spirits as they battle, along with other products, for consumers’ “share of wallet and share of mind.” And just as Constellation ceo Rob Sands emphasized at INSIGHTS Seminar last mo that he runs a “total beverage alcohol” company, “blurring of the lines” between beer, wine and spirits poses another challenge to brewers.  Similarly, craft brewers are “broadening” the biz as well, by becoming distillers, adding taprooms, concert venues, etc in ways “core brewers” didn’t used to. 

As he’s said in past,  Lester doesn’t think there is craft beer “bubble” on way to bursting so much as a market “starting to overshoot” in terms of the number of players who can succeed.  Question is: “How much capacity can you build before it’s too much?”  He doesn’t know the number, but if it’s BA goal of 20 share, there’s still some run room. Small brewer mergers and big brewers buying small brewers pose other challenges, as current players need to balance need to stay local and maintain credibility while at same time build scale.  Finally, blurring lines between 3 tiers and “cutting holes” in the system can “put at risk” what’s now a great beer mkt, Lester sez.  As other NBWA leaders have, Lester compared soft drinks biz to beer.  Typical soda aisle is 71 ft long, with 142 choices, but Coke and Pepsi have 67 feet of that aisle, all others get only 4 feet since little guys can’t pay for shelf space.  But a typical 71-ft beer aisle now has 245 choices in cold box alone and 18 separate stacks on the floor along the cooler.  “If everyone does what they do best, we will succeed,” Lester did predict. 

Interesting report from Santander’s Tony Bucalo upgrades Heineken to buy citing its “clear progress” over last 5 yrs in “transforming” from a “somewhat sleepy Europe-focused brewer to a more global entity gradually entering the ring with its two largest peers,” SABMiller and ABI.  To get there  took “at times painful cost savings” of 2 bil Euros since 2006 as well as deals Tony was originally skeptical about (FEMSA and Asia Pacific).  But Heineken has moved % of its biz in emerging mkts from 36% to 60% since 2006, grown its margins from low teens to mid and become a more attractive investment in Tony’s view as “large scale cost savings and M&As have buoyed brewer growth.”

And big brewers are where it’s at, compared to food and bev peers, Tony shows in interesting series of charts.  “We think the large scale brewing model has proven its potency over the past five years,” wrote Tony. “Global brewers are pulling away from the pack” compared to other food/bev cos  in terms of stock price, earnings power, growth rates over last 5 yrs.  Stock mkt capitalization of ABI has CAGR (compound annual growth rate) of 21.9% since 2009, while Heineken at 15.5%, SABMiller at 14.4%.  But Diageo only 10.8%, Pernod 8.8% and Carlsberg is the laggard at 4%.  Similarly, ABI has expanded its EBIT margin by 5%, SABMiller by 4.5% and Heineken by 3.9% last 5 yrs. Compare to Diageo, which has expanded its margins by 2 points, Pernod up 0.6% and Carlsberg margins actually declined -1.2%.    

Early reports on beer volume in 2015 from a number of sources are more sluggish than not, tho a few more upbeat.  A lot depends on the comps.  And while no one should be overly exercised about just a couple of weeks anyway, these reports of doldrums are in contrast with analyst reports showing increased optimism following recent industry meetings. Then again, improved volume trends in late 2014 at least in part spurred by less of an increase in pricing.

Recall, AB already rolled back pricing on bigger packages (like 30- and 36-packs) in Calif. Now AB just went deeper on 18 packs to $11.50 in Calif.  In Mass, AB also recently rolled back 30-packs and went deeper on 18-packs, sometimes getting to that same $11.50 price point. That 18-pack seems to be emerging as fighter package in number of areas. Plus AB’s using its Promo-Opti pricing to get low, low draft prices in many parts of country. And MC rolled back some of its prices in Chi. Plenty of MC and AB rebates of $5-10 already showing up tied to food or fuel purchases.  It’s still early days, but not good signs on pricing so far.

Last week, govt stats indicated little price realization on top brands in Dec. And latest Nielsen also shows pricing for premium lights iffier early in 2015.  Tho total beer biz avg prices up 2.4% last 4 weeks, premium light pricing up just 0.8% for 4 weeks thru Jan 10 in Nielsen all outlet + convenience. And just 0.5% in supers. No wonder volume trends for premium lights a little better. But they ain’t a lot better. Premium lights flat in Nielsen.  ABI said on its 3d qtr conference call that rev per bbl increases would be normalized in 4th qtr, but available evidence suggests it’s getting tuffer and tuffer for premium light brands to realize price. 

Announcing BMI’s annual Spring Conference May 11-12 in Chicago, another deep dive into the High End of the US beer biz, an engine of growth, opportunity and excitement.  Several leaders of high end segments will share their thoughts and answer questions: Dolf van den Brink (Heineken USA), Jim Koch (Boston Beer) and Anthony van Mandl (Mike’s Hard).  We’ll also feature Scott Whitley, who just took the reins of Tenth & Blake at MillerCoors and David Walker, co-founder of fast-growing craft brewer Firestone Walker.  Dan Wandel and Bill Pecoriello will dig into the off- and on-premise trends probing the extensive IRI and GuestMetrics databases.  BMI publisher Benj Steinman will provide his annual detailed review of the segment.  More speakers will be added.  Once again, we’re returning to the centrally located and appropriately high-end Ritz-Carlton in Chicago for a full day of thought-provoking presentations, Q&A and plenty of networking time, including two receptions.  Click here for more info.  Click here to reserve your seat.    

Tho she “disagrees” with Ky court conclusion that AB license application for Owensboro is “substantially complete” and with judge’s “denial of her statutory discretion to consider it,” director of Ky ABC malt bev division Stefanie Stumbo “conditionally approved” license on Nov 21.  Despite her continued reservations – detailed in 6-page letter – Stumbo wrote that “citizens of Kentucky are not served by a protracted legal battle at this time.”  Editor’s note: question remains whether there will be “protracted” legislative battle over Ky branches next yr.   

AB/Hand Plan to “Drop” 195 Brands  ABC’s “conditions” for final approval include lots of paperwork, some not yet filed, some “incomplete, inaccurate or unexecuted necessary documents.”  Among details needed: info on over 500 different brands of beer, liquor and wine that “must be registered, un-registered, moved to a new location, or dropped.”  AB and Hand Family (seller in Owensboro, but keeping another operation in Ky which will apparently handle some of the brands now sold from Owensboro) have indicated 195 brands will be “dropped” by AB and/or Hand as result of deal.  Many of these brands are wine/spirits.  Hand also sold small amount of Sierra Nevada, Magic Hat and Vt Hard Cider in Owensboro, brands which will reportedly be split among other distribs.  Plus, “dropped” brands include one-offs no longer sold.  In addition to these paperwork issues, Stumbo cites “AB’s refusal to provide information relevant to discretionary factors” as reasons why Ky ABC “has not considered the application to be substantially complete.”

Stumbo’s “Grave Concerns”; Antitrust, Access and More; “Most Controversial” Deal  That’s just the intro.  Granting AB application never “automatic” under Ky law, Stumbo notes.  ABC has no desire to “overregulate” and process not anti-AB, but she had to address “public interest” and biz issues. So her letter details numerous concerns about this “most controversial deal in Department memory,” picking up on many of the criticisms previously levied by other Ky distribs, craft brewers and others in state.  A “large producer’s apparent efforts to create a vertical monopoly in the state” could limit access for craft brewers, Stumbo points out, adding that AB’s mkt share has “already led to antitrust scrutiny” by US Justice Dept.  Net-net: questions here “not limited to whether there is a willing seller and a willing buyer” (as AB described situation all along), but “raised many legitimate public policy issues” deserving public debate and consideration (as judge himself had acknowledged).  They go beyond simply adhering to 1978 legal decision which allowed AB’s Louisville branch.  All things considered, Stumbo concludes, she “has grave concerns regarding the issuance of this license.”  Like what?  Like: 1) preserving Ky jobs/bizzes; 2) preserving consumer access to brands, especially since a reported 195 brands being “dropped” in Owensboro area; 3) assuring in- and out-of-state craft brewers get access to mkt, noting “Yuengling and several craft brewers have encountered barriers to gaining market access”; 4) protecting indie retailers/indie distribs; 5) preventing revenue loss. 

New Branch May “Radically” Reduce Jobs, Limit Access, Stumbo Sez; Ky Craft Jumps from 2 to 28 Brewers  Filling in some details, Stumbo points out AB has said it wanted to “eliminate full distribution services” from Owensboro and “conduct operations for the territory from” Louisville, specifically for Daviess County.  That would be illegal “warehousing,” in Stumbo’s view, plus result in Owensboro jobs being “radically scaled back or eliminated.”  Biz has changed lots since that 1978 court case, Stumbo sez, given consolidation of big breweries resulting in “only two main competing” distribs in most territories.  Then too, craft brewing biz in state has grown from 2 micros in 2002 to 28 now, and they need access.  She notes that craft brewers have “alleged anti-competitive practices” by AB: not selling competitive brands out of Louisville and “pressuring its AB aligned” distribs to do same. That will limit mkt access for Ky and out-of-state craft brewers in Owensboro and surrounding area.  Finally, brewer contracts give “certain approval rights” to brewer over future deals.  Echoing fears of some AB distribs in state, Stumbo points out that AB has “refused to provide information as to whether AB has strategic plans to purchase and consolidate other Kentucky independent distributorships to increase AB’s geographic territories.”  That could further limit competition. 

In the end, AB will get its license.  Those opposed to the deal got their criticisms publicly aired.  Stumbo has had her say, in effect endorsing those criticisms.   Should this turn into legislative battle next yr to limit any further AB branches, Stumbo’s letter is likely to be exhibit A for supporters of such a bill. 

The 21st Annual Beer Insights Seminar is a premier industry event,  that will take place Nov 9-10 at the Waldorf=Astoria in NYC. This yr’s seminar has a stellar lineup, including top execs from each of the top 4 US beer suppliers: AB InBev’s prexy North America Luiz Edmond, MC ceo Tom Long, Constellation Brands ceo Rob Sands and HUSA prexy Dolf van den Brink.  We’ve recently added what’s sure to be a lively panel on the “Changing Landscape in Beer and Beer Distribution,” including consultant Joe Thompson, Columbia Dist (Washington) prexy Chris Steffanci and now Yuengling chief oper officer Dave Casinelli. 

Beer Insights Seminar features topical talks, provocative panels, lotsa q&a, plus plenty of networking oppy.  We’ll also have an in-depth discussion with craft pioneers Deschutes’ Gary Fish and Brooklyn’s Steve Hindy, as well as a panel to explore one of the industry’s hottest topics: franchise law carve-outs for small brewers and other 3-tier issues.  Veteran industry attys Marc Sorini and Mike Madigan will be joined by Manhattan Beer’s coo Bill Bessette.  Seating is limited.  Click here for more info and click here to register.  

The 60-day time frame for state ABC approval of AB license application to purchase Owensboro, KY distrib from Hand family ran out Friday, in AB’s view.  So it filed suit in Ky court to “mandate and/or enjoin” malt bev admin for state ABC to grant the license.  AB also wants Franklin County Ct to require ABC to set a date for the appeal of the city-level approval of its application, which was granted Aug 25 and to grant AB’s motion to dismiss that appeal, which AB calls “frivolous,” again to clear license.  Ky law clear, sez AB that state malt bev admin Stephanie Stumbo had 60 days to rule on AB permit, which was “substantially completed” by Aug 18.  Instead of granting or denying license, she “waited until the very end of the statutory period to inform AB” she would not decide by Oct 17 deadline and needed more info.  But she is “unwilling or unable at this time to describe what information she needs.”  “In effect,” AB argues, “Ms. Stumbo has granted herself an indefinite extension from the 60-day statutory requirement.”  Stumbo told AB she was delayed by surgery and on medical leave during this period, but her staff worked on request during that time, AB points out, and she was also involved by working at home during the medical leave.  Meanwhile, the protests to AB getting Owensboro license, by Ky distribs and others, “have no merit, are contrary to Kentucky law and have been interposed only for the purposes of delaying and disrupting the transaction.” 

Deal between AB and Hand requires transaction close by end of yr. If it doesn’t, AB sez both parties would suffer “irreparable harm.” In lawsuit AB stresses it would be irreparably harmed, but in letter to ABC it said failure to approve deal would harm both AB and Hand.  While protests against AB getting license are “baseless” and include “misstatements of law and statements that disparage” AB, brewer also argues granting license “should have been a mere formality,” since Ky allows brewers to own a distrib license and AB has been distrib in Ky for almost 40 yrs. “There can be no question” that AB “meets qualifications of a new applicant,” AB insists.  Ky law also requires ABC to set hearing date for the appeal at city level “as soon as practicable,” but it has not done so.  It has only set a “pre-hearing date” of Nov 21 for the appeal, “well into the future,” AB notes.  That “virtually insures that the appeal will not be decided before the end of the year.”