Our newsletter that covers non-alc beverages – gives you insights to develop a strong “beyond beer” portfolio and recognize trends that impact both alc and non-alc beverage sales. Click here to read two recent articles: Coors Distributing Picks Up Colorado’s Best, Dram CBD Lines; HopTea Rolls Out thru Whole Foods, Seeks DSD Partners and Vita Coco Recruits Longtime Boston Beer CEO Roper as Prexy and to subscribe.  Also, for those readers out in Las Vegas at the NBWA Convention, BBI editor Gerry Khermouch will be moderating a discussion about the pros and cons of building a distribution portfolio beyond just beer with non-alc bevs tomorrow morning.  

US fed judges of 7th Circuit “immediately interrupted,” were “unanimously confused” by and “laughed” at claims made by both MillerCoors and AB attys in overall “critical” appeals hearing on Corngate lawsuit, according to report from Courthouse News. Despite critiques, judges seemed “sympathetic” to AB arguments, CN headlined. That sympathy seemingly hanging on point that MC lists ‘corn syrup’ as an ingredient in Miller Lite, yet charges that Bud Light ads pointing that out are “misleading.” As one judge asked MC atty: “if Miller lists an ingredient as in the product, why can’t a commercial rival do the same?” And tho AB’s atty elicited laughter by citing a dictionary definition of “made with” when making that point to the judges, he generally argued that trademark law doesn’t allow plaintiffs “to recast true words as misleading,” and that intent is irrelevant. Issue of intent, of course, key to MC’s claims: “we are here to ask the court to adopt an intent element. Budweiser intended to mislead consumers about the contents of Miller’s beer,” MC atty opened. Meanwhile, judges also not convinced they should be hearing this case at all, with one “berating both sides” for procedural lapse.

Boston Beer Co announced first nat’l sports league partnership with the National Hockey League this morning, and it’s for red-hot Truly Hard Seltzer, not one of its beers.  Five-year deal kicks off with start of 2019-2020 season that will give Truly “exposure to NHL fans in numerous ways, including the opportunity to try new flavors as they are released,” per announcement.  Sponsorship deal also makes Truly “title sponsor” of NHL PreGame fan festival at 2020 Bridgestone Winter Classic being held at Cotton Bowl Stadium in Dallas as well as 2020 NHL Stadium Series at US Air Force Academy’s Falcon Stadium.  “As the official hard seltzer of the NHL, we’re offering the best-tasting hard seltzer to the greatest sports fans out there,” said ceo Dave Burwick. “As a category leader, we’re seeing record demand for Truly year-round, not just in the summer months, he added.  “As the beer category continues to evolve, we’re thrilled to become the first national sports league partner of The Boston Beer Company,” said Keith Wachtel, NHL chief biz officer/evp.   Besides at games, Truly will also gain exposure on NHL.com, NHL Network and NHL Social throughout the season and playoffs. 

Truly Gains Push Guggenheim Raise  “Truly and Claw are now the law,” Guggenheim analyst Laurent Grandet wrote investors, as he reiterated Buy on Boston Beer and raised target price from $449 up to $462 per share, reported CNBC. “Truly is far outpacing our estimates with additional room to run next year, even as White Claw remains the category leader,” noted Laurent.  He’s upping Q3 EPS estimate on SAM to $3.27, up from $2.87 as well. “We continue to think management’s FY19 guidance is conservative, and we expect another ‘beat and raise.’” in Q3, he added.

Hard seltzers closing out summer with a bang.  Hard seltzer segment hit 5.9 share of $$ in IRI multi-outlet + convenience for 2 weeks thru 9/8. Gained 4.1 share.  Almost as big as rest of FMBs, which were at 6.7 share of $$, +0.1%.  Put the 2 together and total FMBs  at 12.6 share, considerably bigger than craft at 11.2, down 0.7 share.   Meanwhile, premium beers dropped 3.2 share to 31.6.  And subpremiums dropped 0.7 to 13.5.  So there’s an 8 point swing in this 2 week period between seltzers and mainstream beer.  Is the US beer biz changing radically right before our eyes?  

Hard seltzers neared $98 mil in sales for just 2 weeks, +245%.   That’s more than 10% of segment’s yr-to-date sales in just 2 weeks, pointed out IRI’s Patrick Livingston.  NOT SLOWING DOWN.  Hard seltzers broke the $1 bil mark during the last 52 weeks thru 9/8.  But already sold $907.9 mil yr-to-date in 2019.  Compare: full yr 2018 at $420 mil, full yr 2017 at $144 mil, and full yr 2016 at just $29 mil. Outta nothing, a big biz in less than 4 yrs. 

Boston Beer chairman  Jim Koch brought “very simple message” in remarks at NBWA convention. “We can make beer grow again,” said Jim.  And that will be “changing history,” since “we’ve been losing per capita consumption of beer for 40 years.  We’ve got to change history,” said Jim.  To do that, gotta “think about beer differently.” Beer is “our middle name,” said Jim, beer is “important to us.” But broader definition needed. 

Beer is anything “made in a brewery, distributed by beer wholesalers and sold in accounts where beer is sold.  I’ll call that beer,” Jim added. “That’s the playground we’ve looked at to grow Boston Beer.” It includes hard seltzers, FMBs, ciders, hard kombuchas, even canned cocktails, wines and spritzers. And because of Boston’s focus on that expanded definition, “we’ve had different results than the rest of the industry.”  Jim showed chart of co’s 5 yr moving average, up around 2% in 2001, climbed to 14% in 2014 and around 4% now (recall Boston down in 2016-2017, before returning to double digit growth last 2 yrs).   

To get this industry back to growth, “we do need big brands and brewers to do better…. If they keep bleeding… that’s bad for all of us.” Among other things, “we need them to bring new drinkers every year.”  In that spirit (no pun intended), Boston recently stopped running Truly ad aimed directly at light beer, keeping ads aimed at wine and spirits.  “We need the big guys to step up their game as well.  We can’t do it ourselves.” 

A Fourth Category Has Emerged, Sez Jim; Biggest Growth in Alc Bevs   Jim often comes up with intriguing ways of structuring his thoughts about beer biz.  He came up with another one; new catchprase to explain seltzers and other recent growth phenomena; “A fourth category has emerged,” said Jim that is not beer, wine or spirits.  And it’s the “biggest growth category in alcohol beverages,” Jim added.  He figured this new fourth category is already about 500 mil cases, with about 200 mil cases in “beer.” He projected growth to 750 mil cases by 2024, and if beer gets half of that, it could return to growth.  This is aforementioned space that includes seltzers, FMBs, canned cocktails, spritzers, etc.

Reasons Why Beer Should Win in 4^th Category “We not only can and should play” in such spaces, sez Jim, but “we should win there.”  Brewers “innovate better than wine and spirits,” according to Jim, pointing to a “grape” and “craft” as top innos from wine and spirits respectively.  Craft—“they stole that from us.”  And “we do high volume products better. Our brands have broad appeal,” not just luxury/prestige. “This room has powerful advantages,” Jim continued, noting tax advantages too.  Then too, “we work the cold box.”

Finally, Craig praised both Jim and Dogfish Head founder Sam Calagione for embracing the “Beer Growth Initiative.” (See above).  Acknowledging that traditional beer “growth is challenged” and arguing that beer can get back to growth, Jim concluded that  “embracing broader definition of beer is a big part of how that can happen.”

In closed mtg with members and opening General Session at this yr’s NBWA Convention, NBWA leaders focused lots on assn’s support for legal efforts to shore up 3-tier system and state regulation.  Tho recent US Sup Ct decision in Tennessee case not a “rousing victory” for distrib interests, as NBWA ceo Craig Purser acknowledged, 3-tier system and state regulatory system “remain strong,” he asserted.  Craig and outgoing chairman Michael Schilleci noted that NBWA and assn-supported Center for Alcohol Policy both filed amicus briefs to support “quirky” Tenn residency law and state regulation. At same time, 12 other amicus briefs also filed to support law.  That total of 14 dwarfed just 4 such briefs to support state law in previous Granholm case at Sup Ct.  In intervening years, NBWA’s ramped-up legal efforts also assisted individual states with analytics and arguments to defend other state laws, including franchise laws.  Ongoing litigation and inevitable new flood of suits in Tennessee’s wake (it’s already begun) will keep these issues front and center for years, Craig and Michael pointed out.  NBWA also helping distribs defend “companion products” in wine, spirits and non-alcs, products rarely protected by franchise laws.  Recently filed amicus brief in ongoing arbitration battle in Washington State linked to Monster terminations several yrs back.  Meanwhile, NBWA and members have drummed up support for Congressional resolution that acknowledges 85 years of successful state regulation of alc bevs among 190 members of Congress.  One other “major deliverable” and “bread and butter issue” on legal/legislative front for NBWA past year: TTB’s decision to create temporary window until the end of this year to allow distribs “who might have been out of compliance” to update their permit/license info. 

Going Beyond Beer to “Make Beer Grow Again”  Outside of legal/regulatory issues, in the marketplace, talk of biz this summer clearly hard seltzers and other “beyond beer” products and their growth potential, while big mainstream brands continue to lose volume.  Craig views this mkt challenge for distribs as “both/and” not “either/or.”  That’s led to just-launched “Beer First” program (or, rather a “movement,” as creators of slogan “Beers to That” and others call it) aimed to achieve category growth. After yrs of talk about a collaborative effort to return industry to growth and recapture occasions (and volume) lost to spirits, brewers and distribs “put aside their differences…spoke up and showed up” to launch “Beer First” in Austin last week, said Craig.  NBWA, Beer Inst and Brewers Assn worked together, Craig noted.  Taking stage right after Craig and Michael, Jim Koch and Sam Calagione also lauded collaborative effort between 3 assns standing “shoulder to shoulder” as Sam put it.  Echoing Craig about distribs building their bizzes with products  beyond beer, Jim and Sam also pointed out how diverse portfolios typified by Boston’s range of traditional beer, cider, FMBs, seltzer, and more, give Jim confidence to assert “we can make beer grow again." 

  Depletions trend for Constellation YTD thru Aug in Arizona, Utah and New Mexico is +8%, higher than reported in yesterday’s Express.  

California started licensing cannabis bizzes just over a year and a half ago and top state regulator, Lori Ajax, already refers to Jan 2018 as “the early days.” Compared to 90K alc bev licenses in state, CA currently has just 6500 cannabis licenses, Lori shared during casual talk at Calif Craft Beer Summit in Long Beach last wk. “It is really in its infancy stage still,” she assured, but state’s cannabis market evolving quickly, including rising interest in more lax regulation akin to alc bevs in the state. Lori knows the differences about as well as anyone, having moved from role as deputy director of state Alc Bev Commission to be first chief of CA’s Bureau of Cannabis Control. 

Almost half of CA licenses, around 3K, belong to cultivators. State issued another 1K or so distrib licenses and just 900 retail licenses, Lori shared. Lack of retailers created situation where retailers now tell everyone upstream: if “you want a space in our shop, you’ve got to pay.” Recall, state has “full vertical integration” aside from testing labs, no tied house laws barring a producer or distrib from giving retailer something of value. So it’s “not illegal in the statute or the regulation” for retailer to charge slotting fees. But now that producers increasingly have to pay them, they’re asking state to step in and bar them. Lori’s not sure if that’ll help, she shared, instead believing that a better solution is “more competition at the retail level.” 

Local Control, Black Market, Testing Challenges  Of course, roadblocks there as well. Like most states with legal adult-use cannabis, Calif gives local control to each city or county. Currently, “just under 2/3” of those jurisdictions “do not allow cannabis regulation,” meaning they won’t allow any licensees to operate within their borders. So those 6500 licensees operate “in about 1/3 of the cities and counties.” That’s put damper on the whole system, including keeping actual tax rev well below predictions made prior to legalization. Also makes it harder to suppress “illegal cannabis market,” which to Lori’s eyes “is the single-biggest challenge that faces the state right now.” She pointed to recent new items about “tainted vape cartridges” that “are making people sick. That’s not happening in the legal market” (it’s all untested bootleg cartridges) and is even “helping the legal market right now.” Every cannabis product sold in state-licensed store must be tested “for 66 pesticides, mold, mildews” and “heavy metals,” plus “moisture content” and THC levels, natch. While that “makes it clunky” as product moves thru supply chain, Lori acknowledged (plus tracking requirement for distribs), gives the state confidence tainted product is illicit.  Calif’s already tested, OK’d 65K “batches.”  So far, pesticides remain top reason why batches rejected. Initially state had 20% fail rate, but that’s down to “just around 8,” Lori shared. That’s in part because pesticides legal for other products are barred for cannabis. Current legislation may loosen that, but in meantime, creates tensions between cannabis cultivators located next door to, say, vineyards. “The drift” of pesticides creates “contentious relationship” between some neighbors, Lori said. Then too, since products like edibles made with cannabis need to be tested in final form, also means any other produce included must also be free of all pesticides banned from use on cannabis.  

Dog Treats & Suppositories & Tooth Picks? Between testing issues and “very strict packaging and labelling laws,” which require “child resistant packaging” on all products, Lori told audience of mostly small brewers to “be thankful for the regulations you have. Because cannabis is more regulated than you guys.” She sees that evolving over time in the same way alc bev regs evolved after Prohibition. Lori also thinks “alcohol is so much easier to deal with” as a regulator because, “for the most part” it’s limited to “three products,” all liquids. With cannabis there’s “flower...concentrate...nasal sprays...inhalers,” Lori rattled off. Everything from “dog treats to suppositories.” Recently she got an application for “cannabis infused tooth picks,” she shared. “Well, what category does this fit in?” (It’s not ingested or inhaled….  We hope everything comes with clear instructions.) 

In short, cannabis biz owners initially told the state “we don’t want to be regulated like alcohol,” but now thinking “hey, those alcohol guys are onto something,” Lori said. She expects “a lot of movement in the next year or two.” But biggest issues (and tightest restrictions) generally continue to stay in place because of federal prohibition of cannabis. Restrictions on banking creates a lot of headaches for everybody (not least of all the state, which had “gotten away from taking cash” but now Lori’s agency is “bringing it back in” in the millions between tax revenue and sky-high license fees). And “they’re unpredictable at the federal level,” in terms of what they’re going to choose to prosecute. Any movement there will have numerous ripple effects everywhere. 

Even as White Claw sends Mike’s Hard Lemonade Co into another stratosphere of growth and volume, Mike’s insisting that it has “portfolio for growth” with product solutions across ABV and flavor profile spectrum in FMB space, several execs reiterated thruout Mike’s mtg. Co will continue to invest in Mike’s Hard, Harder, MXD brands as well as Cayman Jack and other innovation on top of massive investments behind White Claw in cap-ex as well as increased mktg spend, marketing veep Sanjiv Gajiwala stated. In fact, Mike’s aims to become a leader in flavor category management at retail.

Co has been building out insights team behind sr director Dan Wandel, hired 2 yrs ago from IRI, “focused 100% on flavor and how it can disrupt the industry,” said Sanjiv. Mike’s category insights team doubled in 18 mos, Dan shared. Team’s “built out consumer insights,” and “developed a suite of solutions to do more work on category management,” with ultimate goal to “get a seat at the table to do shelf elevation work at retail,” he added. Kroger, Albertsons and Safeway are among stores already looking to Mike’s for “flavor shelf allocation.”

Cayman Jack Going Natl, Plans to Double; New Moscow Mule; 19.2oz Cans Despite consistent growth, including best yr yet in 2019, Cayman Jack has been like “the kid that cannot move up to the adult table” at the holiday party, Sanjiv quipped. But it’s growing up now, going national in 2020 with plans to double volume, he shared. Co will launch new Moscow Mule flavor that “doesn’t exist” in FMB space currently. Only exists in RTD spirits world, including from Cutwater Spirits brand purchased by ABI earlier this yr, Anthony von Mandl pointed out. Cayman Jack’s Moscow Mule is “staying in beer,” and “we want to use your distribution” and “produce from beer an alcohol that is cleaner than vodka,” he added. Other new Cayman flavors are “ready to come” as well. And Cayman Jack will launch first-ever single serve can, 19.2 oz cans of Margarita and Moscow Mule flavors.

Mike’s Hard Packaging Refresh; Party Like It’s 1999; “Yellow Album” Mike’s Hard Lemonade brand family has series of new mktg initiatives to celebrate its 21st birthday since launching in 1999. Mike’s Hard will get “complete brand refresher” next yr, with “brighter” colors, more “focus on the fruit” and dialed up “refreshment” cues via new packaging due next spring, said Sanjiv. Marketing theme will be “party like it’s 1999,” with program to consistently reference popular music, movie, tv shows and more from 1999. It will even collaborate with current musicians and Spotify to release “The Yellow Album,” with covers of 1999 pop songs like Blink 182’s All the Small Things, TLC’s No Scrubs, Ben Harper’s Steal My Kisses and Red Hot Chili Peppers’ Scar Tissue among others.  And co wants to ramp up display presence with Mike’s Hard first and foremost, focusing on core 6 SKUs.

Mike’s Harder Green Apple; 23.5oz Cans Push; Packaging Refresh & More Mike’s Harder will also get packaging refresh and continue to use its “Dude, that’s sweet” campaign with new creative coming this fall. Since launching in 2008, Harder is #1 FMB singles brand, and #1 high ABV beer brand among total beer category, even as distribution “still under-indexes” AB Ritas and MC Redd’s. In 2020, co will “do more on packaging and flavor” to communicate “harder, higher ABV.” It will launch new Green Apple nationally and Pineapple Mandarin in certain mkts, as well as Peach flavor only available in 23.5oz cans.

MXD with WWE; Expects 100% Growth in 2020 Lastly, Mike’s 12% ABV brand line, MXD, is up 166% YTD and co plans to double in 2020 too. It will partner with WWE wrestling, which is still a top trending topic on Twitter weekly with 51% of fans between 21-34, Sanjiv shared. MXD still has room to grow distribution at just 23% CWD, and product is a different use case than Mike’s Harder with more multi-culti consumers, he added.

Mike’s closed out conference with candid and informative Q&A moderated by distrib Crescent Crown general manager Joe Cotroneo and including founder Anthony von Mandl, prexy Phil Rosse, mktg veep Sanjiv Gajiwala, sr veep sales Steve Ballard and sr veep supply chain John Sacksteder.   First question concerned whether Anthony would sell.  “We’ve got a ways to go here,” said Anthony.  He brought his 11-year-old son on stage.  “This is a family business.  He’s all in. I’m all in.”  Then too, “we’re getting so large now, who could possibly buy us?” Anthony asked. He pointed to big debt at ABI and Molson Coors. 

“We have zero debt,” Anthony reiterated.  In fact, that $250 mil it will spend next yr, will be self-funded, Anthony said. “We are not going to the bank,” he emphasized.  “We are the masters of our own future.”  Meanwhile, Phil Rosse has led Mike’s organization through this period of extraordinary growth. Phil and Anthony had a “great lunch,” said Phil, “and worked out a multi-year deal for myself.  I am not going anywhere anytime soon.” Anthony has “supported all of my asks” and Mike’s turnover is “extremely low, especially at the executive level.”  

Asked why Mike’s didn’t simply buy an old brewery, Anthony said there is “big difference between taking an old brewery” and retrofitting it and “buying things brand new.”  Plus, Mike’s doesn’t “do things in a traditional way” and will be “buying the most advanced, fastest technology,” including the “fastest can lines in the world.” He praised “speed at which these partners are working with us,” on “super aggressive timeline.”