AB InBev’s mktg chief and ZX Ventures leader Pedro Earp opened up to Wall St Jnl over the weekend, adding to comments last week to Adweek.  In addition to familiar comments on importance of portfolio, innovation, trading up and health & wellness, Pedro provided a few other insights into ABI’s mktg approach these days and other topics.

·      As consumers “much more savvy” now than in past, “true product differentiation became a much more important factor than emotional differentiation” (latter could be achieved by mass advertising).  Resulting shift in mktg is from “interruption to entertaining.”  Pedro cited examples of what ABI’s doing in Brazil (country music) and Mexico (Netflix soccer shows), tho nothing from US.

·      Asked about cannabis, Pedro said “in today’s world we have to be paranoid” about other products that might try to bring people together.  Still, ABI has no plans for US as cannabis still illegal federally, and “very early days” in Canada as edibles/bevs not on mkt until this Dec.

·      Hard seltzer addresses health and wellness, even with Natty Light’s higher ABV.  “Everything that breeds excitement and addresses a consumer need is good for the industry…. And hard seltzer actually brought growth back to the beer category.”

·      ZX Ventures set up as “almost independent organization…to drive innovation at an exponential rate,” rather than having innovation run out of the core biz, “without distracting from the focus on the big business.”  ZX helped ABI “catch up to craft” and “drive the craft revolution in a lot of these emerging markets instead of lagging behind.”  That drove ABI to “brand experience” and retail.  “In the past two years we have opened more than 500 beer bars with our craft brands all over the world.  These bars became a marketing channel that makes money.” 

·      Pedro called out Kombrewcha again as successful innovation in US and how its shows ABI believes “a great model for future innovation is a model of partnership.”

·      He also called out ABI’s dropped home brewing system, as a “complete, complete flop.”  There are “two types of consumers, the ones that love the crafting of beer and the hobby, and the ones that like convenience…. Nobody wanted the in-between solution.”  Failing fast, “that’s the trick.” 

·      Citing ABI’s work in “trends research,” Pedro pointed to Japan which is “very forward in terms of innovation.”  How forward?  “They have beer with collagen there,” as aging such an important cultural issue.  Echoing his comments to Adweek, Pedro concluded: “You try to look at the signals that are popping up here and there and that are a predictor of what is going to be big in the future.”

Ben E. Keith Bevs, one of largest beer distribs nationwide (around 40 mil cases), just bought small spirits distrib, Artisanal Beverage Distributor, with 20 suppliers, led by premium mixers, Liber, Iron Horse and more. On smaller scale, this move echoes when Ben E. Keith bought craft beer distrib C.R. Goodman back in 2008.   Back then, Ben E. Keith was just breaking ranks to become non-exclusive AB distrib; that train has long since left station.  Craft subsequently became significant part of Ben E. Keith biz.  But one difference here is that BEK already has statewide spirits distribution biz in TX, with Deep Ellum Vodka, Fort Worth’s Blackland Distillery and AB’s Cutwater Spirits.  With continued growth of spirits, Ben E. Keith clearly hoping that it can now better capitalize on that growth.  “This full scale move into the spirits market solidifies Ben E. Keith’s standing as a top wholesaler of premier beverages,” said BEK prexy Kevin Bartholomew, “and provides a dedicated and focused department to growing our spirits business throughout Texas.”  Kevin added: “This strengthens our foothold in the space and complements” AB’s “growth into spirits.” 

Looking in depth at Molson Coors in advance of this week’s results, Consumer Edge’s Brett Cooper said “importance of 3Q results is minimal” but “earnings call is all about commentary and details on future plans.” Brett reiterated that “bold and significant change is needed,” especially since 18 of MillerCoors’ top 20 brands in IRI (92% of sales) “losing share…. The level and pervasiveness of share declines implies ongoing volume weakness.”  In 21 of 31 states where Brett has data, MillerCoors value share down at least 100 basis points, over 50 basis points in 29 of 31 states.  Coors Light lost share in 29 of those states, Miller Lite in 24 of 31 states, Keystone Light and High Life each lost share of value in 27 states and Blue Moon in 30 states.  Those 5 brands are 75% of MillerCoors sales.  MillerCoors big brands (except Key Light) all losing velocity at retail too. 

More, Faster Innovation Coupled With Cost Saves;  Brewery Closing? Timing Mismatch   How to fix?  MC “needs to develop a brand (or brands) that at least somewhat offsets the declines of the big brands” like Ultra does for AB (“to a certain extent”).  “We believe that the path to better performance needs to come from innovation/new brand activity to offset the declines,” Brett added.  So far, “current high end successes are too small to make an impact” (double-digit gainers like Sol, Terrapin and Peroni “represent a little over 1% of sales”).  At same time, he sees potential costs savings in supply chain, “with the new breweries coming on line in Canada, there is an additional brewery to be closed.” But Brett also sees a potential mismatch in timing. “There is a need to spend money today whereas achieving incremental cost saves takes time to come through.”  

If US “Problems” Are “Challenging,” Canada Is “Worse”; “Further Consolidation” of US and Canada?  Between 2011 and 2018, Molson Coors profits in Canada “roughly halved with worsening profit performance in 2019.  On our estimates, 2019 profits in Canada will be roughly 70% below peak, sez Brett.” With Canada under pressure, and continued volume declines, “a realistic outlook would seem to play to a brewery closure, especially as the new breweries in Canada come on-line.  Net-net, we wouldn’t be surprised to see a further consolidation of the US and Canadian operations.”

HUSA still plans to punch above its weight in 2020 as its marketing investment “will surpass $150 mil,” Jonnie shared. There will be “more local media,” including +30% on out of home (i.e. billboards), and local radio +12%. Co will remain in “classic TV” spots “in the right places” such as Sports Center, various live games, major networks and specific shows, while keeping up digital presence on streaming services.  Key objective for Heineken marketing is to “do less,” sez Jonnie.  “We were doing everything” and had something like 16 different Heineken commercials over the last 3 yrs compared to a brand like Corona that’s kept it more consistent with just a handful of spots, he noted.  Heineken will continue to support MLS, Bond, US Open and other programs that have been staples for years. One set of new ads showcase women ordering Heineken and men ordering cocktails at bars. Heineken also making big push on cans next year, where it has “huge distribution gap” vs competitors. Heineken “still negative” but “trending towards growth,” brand veep Borja Manso stated. “There’s a feeling, it’s a bit better” and “it’s not only 0.0,” added cmo Jonnie Cahill.  

Heineken 0.0’s Heavy Emphasis on Sampling; Heineken 15-Pack with 3 0.0s  Heineken 0.0’s $50-mil budget in 2020 includes robust sampling plans, new TV commercials and other “witty” and “relevant” communication, while conveying that “you can now drink in moments you couldn’t before,” noted Borja. HUSA will also tie in “when you drink, never drive” messaging with Heineken 0.0 TV ads in US for first time, with tagline “the better driver is the one who doesn’t drink.”  Co will implement “massive” sampling program, including unique Heineken Original lager 15pk cans with 12 Heinekens and 3 additional Heineken 0.0 cans for limited time next yr, Borja shared. HUSA on track to sample 3 mil Heineken 0.0s this yr and plans 10 mil samples in 2020. Two thirds of consumers coming to Heineken 0.0 are “new to the Heineken portfolio,” said Borja.

Dos Equis Mexican Pale Ale Expansion and Investment; Ambar Too; Tecate Reboot  Dos Equis will continue to “own interesting” and use college football as vehicle to “drive” the brand. This is Dos’s 4th year as sponsor of College Football Playoffs.  Meanwhile, Dos Equis 2020 campaign is still under development, but co was able to share 4 examples of potential ads that dial up humor while poking fun at technology use within everyday lives.  Co can use platform to tackle topics like “face algorithms” “e-commerce” “fantasy football” and “endless” others to “get back into the cultural conversation.” Dos Equis packaging will also receive its first major “face lift” in many years, with “improved ‘premium-ness’” of the cans and labels that have more “premium, refreshing” and “modern” cues. Goal is to defend draft biz and drive can biz, while fixing CA where it’s still down double digits. After testing in TX, Dos Equis Mexican Pale Ale recently launched in northeast region.  HUSA will more than triple total MPA investment to $10 mil in 2020. Dos Ambar a drag on Dos franchise this yr, down 9%. So it will get new packaging, while receiving its own budget separate from Dos Equis lager for first time (at $2.3 mil).

With Tecate depletions down 15% YTD, it’s “super scary,” but “the beautiful thing is, you’re free” to start down new paths, said Jonnie. “It’s not ok, so we’re going to change it,” he added. Co will move away from boxing, focusing more on music festivals, and continuing to invest in Mexican soccer and Mexican holidays. Brand will get new campaign more “emotional” and aspirational than in past, dialing up historical cues while looking to connect with young LDA Mexican Americans. And co also launching new Tecate Michelada.

“Aligning” Price on Red Stripe; Amstel Light’s Smaller Keg, Package Refresh, Phil Mickelson Partnership Red Stripe plan is to “recruit new buyers” and “break through clutter” with more gen mkt consumers while being “a bit bolder,” aligning brand with cannabis culture. Co will continue to use “feeling the good vibes” messaging, partner with more 420 and cannabis-themed festivals. It also has new pricing strategy to be sold at 100 to 115 index to premium lights. Red Stripe is growing solidly on-premise while down low double-digits off-premise and declining overall. HUSA putting focus back on Amstel Light for first time in yrs, particularly in northeast, where brand was once sizable.  It will get packaging refresh and go to 20-liter kegs from 50 liter. And co struck multi-year partnership with pro golfer Phil Mickelson to use his “social media presence” to further push the brand.

Just before Heineken released 3d qtr results (US down high singles), Heineken USA prexy Maggie Timoney talked about “tough gig” to “turn around and transform” HUSA, at series of regional distrib meetings.  She acknowledged “minus before our numbers,” but promised “that is going to change…. We’re doing better than 2018,” she added, noting that Heineken brand depletions down just 1% YTD and that Heineken 0.0 is “doing really, really well.” Biggest drag on performance is presently Tecate, with depletions down 15%, HUSA execs said, as it faced shortage of 24 oz cans for several mos.  Dos also down 2%, including big CA drop.     

“The Most Innovative and Exciting” Bev Co by 2023; “Really Close” on Seltzer “Partnership” Maggie laid out a surprising vision for Heineken USA: “to be the most innovative and exciting US beverage company by 2023,” emphasizing not just beer but “beverage.”  Going forward, innovation will play much larger role for Heineken USA. Co opened door to wide range of possibilities.  What about seltzers?  Heineken “really close on announcing a major partnership in the seltzer space,” said chief mktg officer Jonnie Cahill, with a “killer brand” from “the world of non-alc,” a brand that is “already loved, already admired.”   Jonnie promised to tell distribs more about this in near future.

“Full” Pipeline; Several Smaller Mkt Tests; Canijilla in CA and TX At same time, Heineken USA has “full innovation pipeline” that is “ready to go,” said Jonnie.   “We’ve been testing like crazy,” he added.  But HUSA will not try to create categories, rather “take things that exist and make them better.”  And it will test several concepts in a couple of mkts each.  “We have to stop this vicious cycle,” said Jonnie, of “Hail Marys, audibles, punts and hoping for the best.”  First up in Q1, HUSA will test Canijilla Lemon Pepino and Canijilla Mango Picosito in critical California and Texas mkts. They are 5% FMBs with “authentic flavors” that are “straight from Mexico.”  It is also looking at everything from a seltzer IPA to a less sweet packaged variant on a margarita to honey wine and much more.

“We’re a 4 Share Player Not a 40 Share Player”; HUSA Stopped Doing Some Stuff; New Team   Maggie called for a company reset, including relatively modest regional meetings compared to glitzy extravaganzas of past. “We’re a 4 share player not a 40 share player,” she said.  Part of what’s already changed: HUSA has stopped doing “stuff that’s not adding any value,” according to Maggie. She gave list of what HUSA has stopped, on top of big meeting, which included Brewlock, Blade, routine audits of distribs, additional feet on street in key mkts (distribs said “that’s not working”).  These activities undoubtedly cost many mil $$, and HUSA will now “take that money and reallocate it,” Maggie said. 

Maggie also touted strengths of her “very new team” with its average tenure of 13 mos, including chief sales officer Jim Sloan, cmo Jonnie Cahill and several others.  Amplifying upon Maggie’s comments, Jim said: “The bad news is we’re down.  The good news is” HUSA has begun to “bend the trend.  And the better news is we’re on plan,” which means that Maggie and team “put together a doable plan” that is “realistic.”  That said, “my job is to push,” and he encouraged distribs to more fully embrace possibilities of Heineken 0.0 and carry more inventory to avoid out-of-stocks. 

Evercore ISI’s Robert Ottenstein one of first out with reassessment of ABI prospects. Given “disappointing” 3Q and 4Q “outlook, with pressures likely to continue into 2020,” Robert downgraded ABI stock to “In Line.”  As Robert noted, “the firm no longer has the benefit of synergies from the SABMiller transaction.”  ABI has already captured fully $3.4 bil in synergies, $750 mil more than it original promised, 1 yr sooner, Brito noted on call. But now that’s done.  While there are “many bright spots,” said Robert, like Mexico and Colombia, “there are not enough to offset headwinds in Brazil, the U.S. and possibly continuing in China.”  Fact that AB “underindexing in seltzers has led to an acceleration of share loss” in US, noted Robert.   While Natty Light Seltzer “promising” it’s “impossible to predict the success of Bud Light Seltzer, but it’s not an obvious success.”  ABI “sells at a significant discount to leading CPG companies… and 3Q results illustrate why.”    

Several questions on ABI conference call asked about hottest topic in beer biz: seltzers, natch.  Acknowledging that “we are underindexed” in seltzer, ABI ceo Brito said that “the way to win in seltzer like we did in the craft segment” is with “a portfolio game.”  Brito emphasized same point several times in answer to question.   Over period of some yrs, AB ramped up its craft portfolio and is now “leading growth” and #1 in segment, he said.  “We think some of the same thing could happen in the seltzer category.  We’re coming from behind,” but recently with Natty Seltzer, AB “doubling share” in segment.  A follow-up question asked if barriers to entry lower or higher in seltzer than craft and Brito said lower tho he seemed to be talking about AB’s ease of entry in segment.  Seltzers are about “big brands,” said Brito, and so are “much more of a game that people like us are very equipped to play.  Scale matters.”  Yet another question on seltzers asked about seltzer impact on Ultra.  “We haven’t seen any impact on Michelob Ultra,” said Brito. “No impact, amazing growth, lots of opportunity,” said Brito re Ultra.  

Following 7-straight months of declines, taxpaid shipments by domestic brewers up 233K bbls, 1.6% in Sep, estimates Beer Inst economist Michael Uhrich.  That bested Jan gain of 178K bbls, 1.5%.  So Sep best month of the yr, for what it’s worth.  For 9 mos, taxpaids off 2.6 mil bbls, 2%, basically same trend as in 2018 and 2017.  Add in modest import gain thru Aug and yr-to-date total US shipments -2.2 mil bbls, -1.4%.  In Q4 last yr, taxpaids down 800K bbls, -2%.  Minus 2 is lookin’ like the new norm.    

Even tho Amazon revs grew a whopping $13.4 bil, 24% to $70 bil in latest qtr, its profits fell 26% to $2.1 bil, “as it ramped up spending on its next day delivery service,” noted Financial Times.  That led to “sharp sell-off in after-hours trading,” wiping out about $80 bil in mkt cap, said FT.  Down about 6% this morn pre-market opening. “It’s a big investment and it’s the right long-term decision for consumers,” said Amazon ceo Jeff Bezos. 

Support for legalizing cannabis held even at 2/3 of adults in latest Gallup Poll.  That’s after rising (mostly) steadily since mid-90s.  Long-term trajectory of that support remains remarkable, jumping from just 12% in 1969, 25% in mid-90s and 46% as recently as 2010.  Interestingly, latest poll showed “no meaningful differences” in support by gender, education, income, region or urban/suburban/rural residence, with 60-70% support across the board within those categories.  But “opinions vary significantly” by age, political party and religiosity.  For example, 81% of 18-29 yr-olds support legalization, vs 49% of those 65+.  About 3/4 of Dems, 70% of Independents are pro-legalization vs just 51% of Repubs.  Those who attend religious services weekly are among least likely to support legalization, just 42% in favor.  While support for legalization did not increase in this poll conducted Oct 1-Oct 13 vs poll in May 2019 or 2018 poll, nor did it wane, despite very negative recent press surrounding dangers of vaping, mostly linked to illicit vaping products containing THC.

Cannabis Legalization “Complicated, Controversial and Consequential,” Sez NY Gov  Dem governors of NY, NJ, PA and CT recently co-hosted a Regional Cannabis Regulation and Vaping Summit.  State officials from MA and RI also participated.  They agreed on set of “core principles” to address broad range of issues: market regulation and empowerment; public health; public safety and enforcement.  That breadth, along with some of the details, show just how “complicated, controversial and consequential” issue of cannabis legalization is, as NY Gov Cuomo called it.  Among the myriad principles agreed upon, according to release from NY state, many will be familiar to those in alc bev biz.  They include: identifying best practices for taxation, implementation and market-based controls; ensuring fair mkts; strategies to limit number of licenses; taxes high enough so as not to encourage use “beyond current rates”; prioritizing small biz oppys; implementing social justice reforms (i.e. expungements/pardons for past violations); adopting minimum purchase age of 21; prohibiting ads targeting youth; warning labels; limiting amounts that can be purchased.  That doesn’t even include issues of public safety, awareness campaigns, banking and enforcement guidelines.  Breadth of these concerns, some still very live issues in alcohol almost 86 years after end of Prohibition, also suggests why moves to legalize cannabis in NY and NJ stalled in 2019.  Given alcohol experience, getting handful of states, even in relatively concentrated northeast market, aboard same regulatory scheme will be challenging indeed.