BMI Archives Entry
MillerCoors sales softened over summer of 2014, with sales-to-retailers down 3.7% Jul-Sep, SABMiller reported. What’s more, this hit happened even with high profile new products like Coors Light Summer Brew, Miller Fortune, Smith & Forge Hard Cider. Means that MC base biz likely down over 5% in qtr. MC’s shipments down far more modestly; off 1.7%, suggesting some inventory build in qtr. For the 6 mos of SABMiller fiscal yr so far, MC STRs down 2.5% while its shipments down 1.7%. Yet MC able to report net revs up 2% because of “higher net pricing and positive sales mix.” Shipments down 2.1% for 9 mos, while STRs down 2.7-2.8%.
While MC premium lights down low singles, its premiums and subpremiums down mid singles. “Total above premium STRs grew by high single digits,” reported SABMiller, “driven by the Redd’s franchise and innovations such as Miller Fortune and Smith & Forge Hard Cider, together with continued growth of Leinenkugel’s.” No mention of Blue Moon. “Growth within the segment was partially offset by double digit declines of strategically deprioritized brands.” Meanwhile, SABMiller global revs up 3%, while total volume down 1% in qtr, including its soft drink biz up 9% and beer volume down 3%, wrote Reuters.
Per usual, SABMiller ceo Graham Mackay had some interesting comments on status of US (and global) beer biz in remarks following report of half-yr results last week. For example, he doesn’t think premium lights “show any sign of going back to their dominance” of category growth in US. Indeed, “I think the industry would be doing pretty well if they were able to stabilize premium lights and perhaps grow them slightly as the economy improves,” he said. “No doubt,” he added, “for the foreseeable future most of the action in terms of growth is at the higher levels in crafts in particular and also perhaps in some imports.” Even so, MillerCoors “acquitting itself extremely well in premium lights,” with Coors Light “by far the best performing brand” in the segment and MC “probably taking share right now.” MC’s “business operating problem” is that it under-indexes in the high end and over-indexes in subpremiums, Graham said, echoing top MC execs. MC makin’ progress in “re-orienting” portfolio to high end, Graham pointed out, “but there’s still quite a long way to go.”
Despite lotsa talk of beer losing ground to spirits in US, Graham said that outside China, “it is still true that beer is outperforming spirits as a whole,” tho spirits a strong competitor and has been “innovating particularly well.” Then too, innovation in beer has “changed quite dramatically” over last 3-4 yrs, Graham believes, and “now on a worldwide basis is far busier and perhaps more effective than I’ve ever seen it in my career in beer.” Innovation is improving beer’s image, he said, and “bringing interest back…in many developed markets.”
As noted (Express 127), Craft Beer Guild Dist of Calif (the Calif unit of L Knife and son) is up-and-running. Their product offerings include Hangar 24 in South County San Diego only, plus several smaller Calif craft brewers on draft only, including Latitude 33, New English Brewing, Ironfire, Hillcrest and Figueroa Mountain. Breckenridge & Boulder and others listed as coming soon. Correction and Addendum: L Knife’s product offerings do not include Green Flash, unlike what UTSanDiego.com reported (and we then cited). In fact, Reyes Holdings distributes Green Flash in all its SoCal territory. Reyes just bought about 70,000 more cases from Wine Warehouse, then sold off areas outside its own territory to a half dozen distribs.
Of Nielsen’s top 10 growth brands (measured in volume share growth latest 4 weeks) in all outlet data thru Nov 20, only 2 are at basic premium ($19.25 to $19.75 per case) or import pricing ($29.00-29.30 per case), where the majority of industry volume is still priced. Those two brands are Coors Light and Dos Equis; both hot brands for yrs. But most of industry’s biggest share growth brands in 2012 are differentiated in price.
Two of Nielsen’s 3 biggest growth brands are priced at industry’s hot price point right now: premium plus, i.e. an index of about 1.25-1.3 to premium. Those would be 2012’s biggest share gainer, Bud Light Platinum and red hot Modelo Especial, up 27% yr-to-date in scan. Two more are priced 10-20% above Corona: that’s 2 of this yr’s left field hits, Angry Orchard and Bud Light Lime-a-Rita. Yup, Angry Orchard is 1 of top 10 growth brands in latest period. Two more are sorta tweeners; Michelob Ultra priced between premium and premium plus and Leinie Seasonals between premium plus and import. Finally, even the 2 below premium “hot” brands in latest period are priced above biggest brands like Natty, Keystone, Busch etc. Both Pabst Blue Ribbon (still up strong 27% YTD) and new Icehouse Edge are priced higher.
Coca-Cola is moving its popular Minute Maid Enhanced Juice and Juice Drink line into single-serve format next yr, putting Pomegranate Blueberry, Pomegranate Lemonade and Strawberry Kiwi flavors into12-oz shrink-wrapped bottles. New packs,
due in Jan, will buttress current 59-oz multiserve pack . . . Kraft Foods has updated its venerable Crystal Light powdered-bev line, putting it into 1-quart packets to make it easier for consumers to customize amount and dilution, adding clear window to front of canister and shedding 250 tons of packaging each yr. New look debuts in canister good for 8 quarts, at $3.29, and 10-12 quart size at $4.59.
AB has made multiple and several significant mktg moves, including new mktg veep, new positions and now, brand new "dedicated" high-end unit that Luiz Edmund specifically told INSIGHTS is "not Tenth and Blake." Then too, AB significantly upping mktg spend. Sales and mktg expenses up 16% in North America in 1st half. Meanwhile, MC mktg leadership unchanged with Andy England firmly in charge, tho many changes below. Tenth and Blake leader about to change, but MC has shifted some focus to high-end brands not under T&B: Redd's, Fortune and Smith & Forge. Note too: while AB juicing mktg spend, MC's MG&A cut $24 mil, 3% for 6 mos. Another split, tho not mktg: MC appears more oriented to aligning with distribs, while AB in hi-pressure mode (at least from distribs we've talked to).
AB and MC doin' some of same things. Each talks of premium light as top priority and each using pkg innovation as key part of strategy. Coors Light got early success with blue mountains (tho that's moving in other direction) and now with Lite in white. AB pushin' aluminum bottle hard and Bud Light trends improving. (In flip, AB downplayed new brand innovation this yr and Bud Light improved; MC dialed it up, and even put out rare brand extension on Coors Light and its mainstream biz suffered a bit.) Then too, AB and MC each making bigger bets in high end with FMBs and ciders than in big new craft plays. Yet craft segment at least 2X bigger than flavored malt bevs and 10X bigger than cider.
Tho ABI makes almost 4x as much as MC in US mkt, that gap is narrowing slightly as 2014 marks 3d yr in a row that MC profit trend better than ABI's. In 1st half 2014, MC operating income up $55 mil, 7.9% to $747 mil, while ABI reported US EBITDA (a somewhat different measure) up 0.7% to $3.187 bil. Why? Two main reasons: MC reduced mg&a costs while AB's mktg and sales costs thru the roof (see below). And MC getting much better rev per bbl increase, with all its new higher priced brands. MillerCoors reduced mktg, gen and admin costs $24 mil, 2.7% in 1st half. And MC boosted rev per bbl 3.6% in 2d qtr, fully 2 points more than AB's 1.5%. In Q2, MC got 170 basis points from mix shift and 190 basis points from front line pricing.
MillerCoors heavy emphasis on new products in 2014 has added about 2 points to its trends, according to IRI data. That means its base biz is down more like 4% than reported 2.2% STR trend overall. And next yr it will have to cycle this yr's new products. But this yr, new brands are a plus: MC's new products added 6% to domestic revs in 1st half, said MC prexy Tom Long in conference call. Redd's remains biggest success among recent new launches by far. Redd's sold 5.8 mil cases in 1st half, Tom said on conference call. And Redd's franchise more than doubled in Q2, with new variety pack accounting for 21% of growth. Now here comes 8% ABV Wicked; natl tv debuts in Aug. Meanwhile, Miller Fortune has seemingly stalled out at just 0.2 share, despite $40+ mil spent on launch. When MC picked up distrib costs on some of excess Fortune inventory, that led to TTB investigation (still ongoing) over whether MC followed govt rules on consignment sales. Partly because of that, MC apparently less willing to pick up costs on excess Summer Brew out there; some low, low prices poppin' up. Could make distribs less willing to accept MC's forecast on next launch. But in 2d half, MC will take "conservative approach," said Tom regarding "strategic choices and allocation of resources." It won't be "spending significant amounts of money on new blue ocean strategies."
Two other big takeaways from MC's conference call: First, 2d half off to soft start, with Jul down mid-singles, and MC doesn't exactly know why, Tom Long acknowledged. He called it a "bump" not an "indicator." Second, while Coors Light has lotsa issues (as BMI featured last issue), Andy "downplayed" 'em, Ad Age noted. Coors Light this yr had "a bit of a hiccup," according to Andy. Beer biz presently is "two steps forward and one step back," said Tom. "It's really choppy out there."
AB's 2014 Share Losses; "Gradual Ticking Down" So AB lost 0.65 share of industry in Q2, it sez, and 0.55 in 1st half. Looking at scan data, AB's competitive performance softer yet. AB share down 0.88 of volume yr-to-date thru Jul 13 in IRI multi-outlet +convenience. And it's down 1.63 share of $$$. Recall, top ABI execs insisted that stopping US mkt share losses a "must" and "number one priority." Instead this yr, AB has lost more share. This came up as very first question on ABI quarterly conference call as Santander's Tony Bucalo asked about "the market share issues in the US" and "the gradual ticking down" of share "quarter after quarter." "Are you concerned that the pricing strategy and the premiumization strategy may have run its course," asked Tony. "We're very committed to share stabilization," responded ABI ceo Brito, but "we didn't put a date to this." With its pricing strategies, ABI "created a lot of value."
Improving Bud Light; Another Mktg Shakeup; New Hi-End Biz Unit Bud Light down just 0.5% in Q2 and flat in Jun, noted Brito. "Your main brand has to be your focus all the time," added Brito, and Bud Light's improving performance "shows that the investments that we're making behind our biggest brand are working." Yet that didn't mean there wouldn't be further shakeups in AB mktg. Bud Light veep Rob McCarthy announced his departure Sep 2; new Bud Light veep will be Alexander Lambrecht who worked on Stella in recent yrs where "he successfully led the brand's global communication efforts," said mktg veep Jorn Soquet (Jorn just joined AB this yr). Earlier this summer, Jorn already oversaw another key mktg change: promotion of digital veep Lucas Herscovici to vp digital connections, including old Tony Ponturo role, following departure of media, sports, entertainment veep Blaise D'Sylva. And in latest round of changes, AB just announced creation of new high-end business unit in Chicago headed up by Felipe Szpigel who was previously global head of trade mktg. New unit will aim to get closer to consumers in big urban centers. Hi-end mktg team that currently reports to Jorn will eventually transition to Chi and report to Felipe as will Goose Island. Felipe will report directly to Luiz.
Ritas Held at 1 Share of Volume, But Down 7.5% for 13 Weeks in IRI Brito lauded the Ritas "huge untapped potential." Even tho Rita family holding 1 share, and up 11.6% yr-to-date in IRI, Ritas collectively turned negative in more recent periods. Ritas actually down 7.5% for last 13 weeks in IRI MULC and 10% for 4 weeks. New flavors Raz-Ber-Rita and Mang-O-Rita not enuf to make up for 58% drop of Straw-Ber-Rita and 49% drop of Lime-A-Rita last 13 weeks. Next new flavor Apple-Ahhh-Rita to debut shortly. Meanwhile, ABI has huge discount program with Wal-Mart on Ritas, where it gave giant chain "margin enhancement," a worrisome trend to distribs. One sizable distrib called AB "discount-centric."
Lots of Issues; Sense of Urgency; Surveys; Shortfalls On conference call, Brito said he's "optimistic" on AB's US plan. But internally AB "reeling," field sales "under incredible pressure" with morale "at an all-time low," say multiple plugged-in distrib sources. AB apparently not making volume plan. That's subject of frequent top down sales calls that go down to regions then cascade ultimately to distribs. INSIGHTS talked to many distribs who express increased dissatisfaction with AB's endless surveys, tracking, pressure against KOD (King of Distribution) objectives that distribs say don't move the needle. Latest 3 objectives include Johnny Appleseed and aluminum bottles both on and off premise. Those represent tiny % of volume, say distribs. In some areas, AB has mandated weekly phone calls with distrib equity agreement mgrs to discuss shortfalls against objectives, with what at least one region calls "Sense of Urgency [an old AB term] Gap Analysis." Too much time and pressure against endless minutiae, distribs say. AB "losing the hearts and minds of front line sales people," said another, pointing to better relations enjoyed with some craft sales teams. Brito said ABI "very close" with distribs, thru wholesaler council and Ambassador of Excellence programs. But that's not what we hear.
Widespread fall price hikes coming in pretty much every state we've checked, including each of big 5, Calif, Fla, Tex, NY and Ill (top 5 states, about 75 mil bbls, 37% of volume) but several are modest or still in flux. And premium light draft isn't going up in any of 'em. That's a totally predictable result after MC announced it was holding line on premium light draft. MC's hold on draft one of several factors that set stage for what appears to be somewhat more challenging pricing environment generally this fall.
You can see pricing tightening up in off-premise scan data, especially on premium lights (as we noted last issue). Of the top 15 brands, only 3 averaged price increases of more than 1.5% in IRI multi-outlet + convenience yr-to-date thru Jul 13. All 3 were (healthy) higher priced beers: avg Corona prices up 2.3%, Mich Ultra prices up 2.1% and avg Modelo Especial prices up 4.1%. Meanwhile, prices of each of Bud and Bud Light up less than 1% yr-to-date, while Miller Lite and Coors Light up 1.2% and 1.5% respectively. Three of top 5 subpremiums (Natty, Busch and High Life) avg prices up only about 0.5%. And almost all of these brands continue to decline. These brands seemingly have less pricing power at a time when increased pricing on them arguably more necessary.
Total AB rev per bbl up just 1.5% in 2d qtr and 1.7% in 1st half. That's the least price realization it's had in ABI era, partly because of effect of 25-oz can and partly because AB getting less tradeup. On conference call, ABI ceo Brito said to expect more normal price realization in 4th qtr. On MillerCoors conference call, MC prexy Tom Long had noted some irrationality but expected "pretty reasonable" pricing environment.
At least, price increases are planned in all top 5 states this fall. Last yr, neither Ill nor NY got an increase (NY had one that fell apart) and Calif got its first in yrs. This yr, MC will lead on prices in Ill, described as "modest" by MC distrib. But MC Chi cluster of distribs (as well as MC) on edge about AB pricing tactics in Chi metro, including price advantages in some key accounts and efforts to dislodge Miller Lite tap handles with $65 kegs. So despite expected increase, pricing fluid and dicey there. In NY, with no increase last yr, AB looks to go up big on 18-packs, while holding line on key 30-packs, and no premium light draft. But AB reportedly casting a wary eye on coming MC 15-packs at low prices. In Calif, details still in flux at presstime. AB increase in Calif started out more robust and subsequently dialed back, say sources. One wild card in Calif: passage of law which made scanback and IRC coupons illegal. Some suppliers have been very reliant on scanback to get discounted prices. Their volume likely to take hit next yr, say sources. Tex increase also described as "modest" by distrib there, 40-60 cents to retailer on premium beers. In Fla, AB going up 2-3% on major premium packages, 4% on major subpremium packages. In another Southern state, price increases "huge" on Ritas and subpremiums, which distrib there suggested especially problematic given current $7.00 discounts on Ritas at Wal-Mart. In another top 10 state, Mich, an AB distrib expected only "minimal" pricing, especially after a couple of MC distribs went beyond holding the line and reduced price on premium light draft.