Trade practices continue to be top ‘o mind at TTB (and in some states), suggested NBWA counsel Paul Pisano and ex-TTB chief counsel Robert Tobiassen at NBWA Legislative Conference seminar.  Distribs are only 3-tier member with fed license that can be revoked, Paul stressed again, making trade practices a pressing matter for wholesalers.  Importantly, in addition to stepped-up state attention, TTB’s got the money, the mission and some momentum to pursue violations, having gotten offers in compromise from AB, MC and Massachusetts distrib Craft Brewers Guild (CBG) in recent yrs.  What’s more, just like any biz, TTB’s got “metrics and analytics,” Rob reminded, and needs to show it’s doing something to clean up what industry members themselves characterize as “Wild West” and/or “chaos” in the mkt.  TTB took those comments seriously, rejuvenated its trade practice enforcement efforts after dormant period and got funds/personnel to act (in neighborhood of $4 mil secured thru fiscal ’19.)  Indeed, TTB now has 50 open investigations underway.  That includes announced projects in Miami, Chicago and California.  Means there’s 47 others ongoing that aren’t public.  “They are clearly out there,” said Rob.

In public statements over last yr, TTB’s director of trade investigations Bob Angelo set out 2 tuff “new norms” on trade practice investigations, in Rob’s view.  First, TTB intends to complete investigations, documenting evidence with eye on license revocation. That’s opposed to gathering some preliminary info, coming to a  compromise that’s a “win-win” for TTB and industry.  “That’s not Bob’s current modus operandi,” advised Rob.   Second, when TTB does consider offers in compromise, the $750K paid by Craft Brewers Guild now “the starting point, not the ending point” Angelo indicated.  (AB and MC paid $300K and $450K offers for consignment sale allegations).  TTB so far focused on “low hanging fruit” of consignment sales and documented tied house violations in Boston.  But “commercial bribery has a certain ring to it,” and he thinks TTB may set its sights in that direction going forward.  Think credit card swipes, for example.

 So, “the landscape has changed.”  It’s gone from industry pleading it needs a “level playing field” and TTB responding “yes, but we have no money” to “we have the Wild West” and “TTB does have money.”  If TTB does not make cases, “it faces failure,” Rob suggested.  TTB can’t say in 2 yrs that tho it made no suspensions and got no court injunctions, it “put the fear of God” into the biz.  “Nay, nay, that is not success.”  TTB’s got to “show results” to Dept of Treasury and Congress.

Lotsa talk at NBWA Legislative Conference on improving category health during public sessions and networking chat. During “What’s Going On?” panel, Beer Inst’s Jim McGreevy, BA’s Bob Pease and NBWA’s Craig Purser discussed what industry can/should do right now to reverse key trends of falling beer volumes/per caps and losing occasions/share to spirits/wine.  “It’s time to stop talking about the problem,” Jim insisted.  “It’s time to talk solutions.” What can be done to improve trends, regain occasions?  Some ideas:

·         Jim: “Educate servers.  They’re not bringing romance to beer as they are to other products.”  In fact, they “denigrate beer” and beer brands, often suggest something else.  Biz needs to “get servers to respect beer more.”    

·         Bob: “Why not work together to improve draft beer quality across US?” Include draft education, line cleaning and “death to the pint glass,” so beer can be poured, presented appropriately. This is a long-time effort, focus of BA.

·         Craig: Competition is fine, healthy and necessary.  But “don’t denigrate” other beer. “Uniting will make a difference.”   

·         Brandy Rand (IWSR prexy, consultant with background in spirits): “Hire more women.”  Also: spirits biz spent tons of time, money and effort to teach bartenders/servers about importance of drinking occasions, how to make better cocktails, proper ingredients/ice and more. Wine folks adopted extensive education programs too. 

These ideas are “low-hanging fruit,” Jim suggested, and BA already has plenty of draft quality materials ready to roll, Bob noted.  As a veteran beer biz exec told us (again): key going forward will be “what are we going to do about it and who’s going to pay for it?”    We’ll have lots more on this issue/panel in upcoming beer marketer’s INSIGHTS.

 Beer biz briefly improved a bit a couple weeks back as Easter earlier this yr.  But now going against runup to Easter last yr (April 16, 2017), beer came in really soft again. Volume down 2.7% for 4 weeks thru Apr 14.  Now down 1.6% YTD, significantly softer than last yr’s trend of -0.9%.  Each of AB and MC down near 5% last 4 weeks and over 3% YTD.  Heineken, Pabst, NAB each down even steeper short-and-long term.  But Constellation, Mike’s and Boston still each up double digits yr-to-date.  Tuff industry so far in 2018. 

While distribs have faced boycotts over labor issues, a unique one is broiling in NYC as Rabbi’s from ultra orthodox Satmar sect have called for a boycott against all beers carried by Manhattan Beer Dist because they claim Jewish owner Simon Bergson didn’t follow letter of their law over Passover holiday, reported NY Post.  Owners of businesses that deal with leavened products are expected by this sect to symbolically “sell” their biz to a non-jew “during a ceremony where both parties sign an agreement,” noted Post. Simon did just that and “sold” MB “for $1 million to a goy named Ed McBrien,” his friend and coo.  But it turns out Simon was also expected to shut distrib down and not work over Passover, which he found impossible to do. So now this Satmar sect has called for a boycott among its followers of all “114 different brands of beers Bergson sells” and instead urges them to drink Bud and other beers sold in Brooklyn by Union Beer Dist “until the holiday of Shavout,” on May 19. “It’s over the top,” Simon said of boycott. “I did everything I was supposed to do. I’m sorry this particular sect of rabbis is upset about it, but I certainly didn’t mean to offend,” he added.  Requirement to shut down for a week is “a completely absurd request,” he added. 

Alcohol beverage sales were up estimated 2% ($$) in Q1 based on survey of over 15K c-stores across US by Well Fargo Securities, while total beverage sales grew 3%.  “We detected a chill from our bev retailer contacts in Q1, with many citing slower traffic driven in large part due to bad weather,” wrote sr analyst Bonnie Herzog.  Heck “4 Nor’easters in 3 weeks was a disaster,” as one retailer put it.  Constellation was once again a key driver in alc sales in c-stores, up an estimated 7.6% in Q1 while AB sales down estimated 0.6%, MillerCoors up slightly (+0.2%) and Boston Beer flat.  (Note scan data of late shows tougher trends for top 2.) Craft beer sales were up just below category avg at 1.8%.  Retailers are “broadly positive on STZ’s new innovation – including Corona Familiar and Corona Premier,” she noted. Another positive for CBBD: retailers indicated they are ready to give co more shelf space in 2018, an additional 6% on top of 10% gain in 2017, Bonnie added.  Survey found retailers “less certain” about pricing in 2018 with around 40% expecting increases this year, “down from 100% in our prior survey,” per Bonnie. “Encouragingly for STZ, 80% expect [CBBD] to take pricing,” she added.

 Just before BI cut loose the packaging data, Michael Uhrich’s economist-counterpart at NBWA (and his predecessor at BI), Lester Jones, ran thru some “Numbers You can Use to Grow Your Business” for distribs at NBWA’s Legislative Conference in DC.   We’re living in “best time to be in this industry,” Lester believes, even while beer facing challenges.  Two key oppys.  (They’re also challenges) First, expanding number of retail accts in US, with alc bevs now available from Nordstrom’s and Bed Bath & Beyond to local barber shops, salons and movie theaters.  Separately, NBWA material showed total number of retail alc outlets jumped from 554K establishments in 2010 to 643K in 2017, estimated by TDLinx Account Tracker service. Second, important generational shifts as two huge demographic groups facing “formidable transitions”: baby boomers retiring and millennials movin’ on buying houses, etc.  Tho industry had single target for yrs – baby boomers – now has two distinct targets – boomers and millennials – “and they ain’t the same,” Lester reminds.  “There’s a ton of fun ahead of us.”  Some other topline views:

·         Despite expanding number of outlets, alc bevs “need more stomachs to grow, not more outlets.”  That’s because, as we’ve noted before, per capita absolute alcohol consumption changes little in US, in fact, dead even since 2010, Lester pointed out.   

·         So, “category health is not about growing occasions, but we’re cutting the pie into smaller pieces,” be they taprooms or all those other places people are drinking.  That adds complexity, reduces drop sizes, etc.

·         Speaking of changes, Lester plucked some data from NBWA’s 2005 and 2016 Distrib Productivity Surveys (2017 just published) to show: avg # of square miles covered by distrib increased from 3,200 to 4,700; avg # of SKUs jumped from 196 to 1,025; avg inventory aged from 21 to 27 days; net sales up from $13.71 to $18.77/per case; avg # of cases “written off” (out of code at retail, breakage, etc) 3K/yr to 9K/yr, tho range very wide, natch. 

·         Separate tap handle survey showed avg territory has 5K taps but that ranges from 1K in Region 8 (WI, IA, MN) to 11K in Region 4 (TE, NC, SC).

Meanwhile, Lester’s April Beer Purchaser’s Index just released.  Trend showed “a little uptick” in Apr back over 50 to 54, which indicates increased purchases/expanding category, tho a touch lower than Apr 2017.  Still, suggests “a little future recovery.”  Imports still indexing near 70, craft picked up in Apr to 52 after all-time low in Mar, tho still 10 pts below last yr same time.  FMB index popped to 60.  Mainstream segments all below 40 still.  One other negative sign: index for in inventory at risk of going out of code in Apr came in above 50. More to come.

Lotsa notable points in just-released Beer Institute package breakdown for US beer biz in 2017.  No dramatic movement last yr in overall package share; cans held on to about 56 share of total biz, bottles a third and draft 11.  But longer-term trend shows cans up about 6 share over last decade.  Draft eked out a point gain same period.  So bottles lost 7 share since 2008.  That’s even while cans still very small share of import volume (4.4%), tho growin’ fast.  Indeed, one key takeaway from Michael: “aluminum cans now make up 62% of beer produced and sold in the US.”  Nearly 2/3 of domestic brewers’ volume in cans now.  “That’s another reason why the Trump administration should take a closer look at the impact of aluminum tariffs,” he took the oppy to point out, tariffs that don’t really touch wine or spirits, not to mention even all of Beer Inst members.   Govt “should not be picking winners and losers,” Michael opined.  Also: delivered cost of aluminum already up 25% since tariffs announced and aluminum cost hit on domestic brewers “completely outweighs” fed excise tax break they got in Dec. 

Back to package trends.  Draft gained half-share last yr, and growing share across on-premise, Michael told INSIGHTS.  That’s not just taprooms/brewpubs, he added.  They’re “driving much of the growth,” but draft gaining across all on-premise.  Draft share on-premise up 1.8 pts to 61.7 last yr and “the highest on-premise draft share ever directly measured by the Beer Institute.”  That reflects “growth in variety, rotation, choice and excitement” driven by draft.  Within draft, half-bbls still dominate but volume in halves down half-mil bbls last 2 yrs, while volume in sixtels up 260K bbls, and solid growth in 50-liter Euro Kegs and quarter-bbls.  Within cans, 16oz and 24-26oz gettin’ the growth and 12oz slipped below 2/3 of can biz.  Strong import growth slowing bottle share losses.  And smaller bottle sizes, 7oz, gaining share while larger bottles losing share, especially 22-24oz pkg and 40oz.  Net-net: retailers “re-allocating space to faster moving SKUs,” said Michael.  “They don’t like dusty bottles,” and craft moving away from emphasis on big bottles. 

Lookin’ state-by-state, cans are king – 2/3 share or more – in AL, AR (72.4 share!), IA, OK, and WV, but less than 45 share in AK, CT, DC, HI, MA, NV, NJ, OR and RI.  Draft’s highest shares, 15+, in CO, DC, ME, MA, MN, OR, PA and RI, mostly strong craft states.  Lowest draft share found mostly in southern states.  Bottles do best in AK, CT, HI, NV, NJ and RI, where glass has 40+ share.

When we dropped a line in yesterday’s Express wondering how Massachusetts ABCC’s experiences with pay-to-play might impact other state regulators’ actions in this area, we didn’t expect to follow up quite so soon.  But Iowa Alc Bev Div (IABD) just hired “new investigator whose duties will focus on trade practices enforcement.”  IABD “committed to ensuring the interaction” of industry members “is being conducted in a fair and legal manner,” said director Stephen Larson.  He added: “It is imperative that we strive to create a fair and level playing field” via “active enforcement” of state laws and regs.  Iowa’s regulatory compliance program has been dormant, he acknowledged, but now being “reactivated.”  First up for new investigator: “Validating the legality of discounts offered by industry members to retailers for purchases of designated quantities” of alc bevs.  Note too, IABD “exploring” oppys to partner with TTB to “conduct joint trade practice investigations.”

First qtr state shipments down 1.27 mil bbls, 2.7% in Beer Inst.  But over 25% of drop in 2 large states.  TX beer shipments down 201,000 bbls, 4.3% in Q1 and FL shipments down 130,000 bbls, 3.8%.  NY also down 77,000 bbls, 3.3%.  Oddly, even in this soft qtr, some extra beer shipped to CA.  CA shipments up 9% in Mar, up 110,000 bbls, 1.7% YTD.  Crazy double digit drops seen in many Mountain states in Feb, reversed in some states in Mar. First qtr Mountain state drops not good but not as tuff as those numbers suggested.  For example, Colo shipments down 1.7%, but WY down 5%, Montana down 5.5%, UT down 8.7%.   

Following release of Mar domestic taxpaid shipments number, Consumer Edge’s Brett Cooper rejiggered his estimates for AB and MillerCoors in 1^st qtr.  Tho he continues to expect their STRs to be down in normal range of 2.5-3%, shipments numbers suggest much steeper drops in Q1, driven by what Beer Institute called “the severe and pervasive inventory issues throughout the value chain.”  Brett modeled relationship between total taxpaids and AB, MC trends in past 2 yrs and he came up with some shocking estimates: AB “shipments to wholesalers down 4.6%,” estimates Brett, while MC “STWs down 6.6%.”  These lower estimates caused Brett to lower his earnings estimates too.   It wasn’t just Brett who took notice of weak Mar taxpaids and what that meant for AB and MC first quarter apparently.  Molson Coors stock down 3% today and hit new 52 week low of below $71, off 35% from peak.