Evercore ISI’s Robert Ottenstein met for 4 hours with Constellation sr mgt including ceo Bill Newlands, cfo David Klein, cmo Jim Sabia and cco of beer division Bruce Jacobson.  Robert came away “incrementally more positive” on Constellation for several reasons, including that “management… highly confident in sustaining 7-9% Beer net sales growth over the next few years.” Sustainability of growth will be “driven by” Hispanic “demographic tailwind,” “continued albeit slower distribution upside,” “room to improve shelf space with Shopper First Shelf” and “line extensions.”  Yet Robert did not change estimates or $220 per share price target.  It’s currently at $194.  Mgt also “sounded incrementally more positive” on beer margins for 2d half of its fiscal yr (ending Feb 2020). 

Corona Premier Up 20% in Non-Tracked Channels; Seltzer Response Next Spring; Svedka Seltzer To Be Discontinued  “Corona Premier is doing better than we had realized in non-tracked channels,” wrote Robert.  Tho it has slowed to 11% growth in IRI multi-outlet +convenience for last 12 weeks thru Jul 14, Constellation told Robert that it’s “more recently growing mid 20% range overall” with “faster growth” on premise and in other non-tracked channels.  Constellation still “confident” in 30% growth for yr.  Constellation also “bullish” on Refresca, which has “added 150-200 bps to Corona family growth in IRI in recent periods.” But Constellation’s Svedka Seltzer will be discontinued, mgt told Robert.  That’s not surprising as its test garnered just 0.1 share of seltzer segment in scan data.  Yet Constellation “believes seltzers will be big for foreseeable future” and it “will have a response in the market next spring” that is “not necessarily a seltzer.” Meanwhile, distribs keep telling us that Corona Seltzer is coming, with one saying it’s the “worst kept secret in the industry.” 

Constellation “Will Increasingly Lead” on Pricing; Shopper First Gaining “Traction” Constellation “will increasingly lead rather than follow on pricing,” Robert wrote, but is “cognizant of elasticity” i.e. that it can only increase price so much.  Some details starting to emerge on Constellation’s fall price increases and they are healthy (see below).  Meanwhile, Constellation “started to gain traction with forward looking innovative retailers” with its Shopper First Shelf and one “major mass chain currently testing,” Robert wrote. “Expect to see more chain adoption with spring 2020 shelf resets.” 

New direction MillerCoors has taken for Coors Light with its “Made to Chill” spots are catching folks’ attention. Unfortunately (or fortunately?) some high-profile viewers like Stephen Colbert, host of Late Show, are using it as a punch line. “Somebody had to spoof Coors Light’s ‘shower beer’ ad,” and “Stephen Colbert and team totally delivered,” complimented Ad Age.  On Tues eve show, Colbert joked that being a beer for the shower is “actually an upgrade” for CL because “previously it was ‘The official beer of weeping in your ex-wife’s birdbath.’”  “Coors Light and taking a shower are a perfect match,” Colbert adds, since “If you’re going to catch some water in your mouth anyway, why not make it a Coors Light?” Ouch. He mocks the “Do not attempt” disclaimer shown in small lettering during ad, and naturally takes idea further by showing another product perfect for shower consumption: “Von Gelder’s Shower Chili.” Watch clip to see how nice that turns out.

Even after huge runup in recent mos, Macquarie’s Caroline Levy still sees plenty o’ upside in Boston Beer stock, which she upgraded to “outperform” yesterday with a $460 price target (it’s at $390 today).  One reason: “continued momentum” in Boston portfolio, as shown in IRI data that came out yesterday.  Boston up 35% last 4 weeks thru 7/28 in IRI, vs 26.5% for 12 weeks, Caroline points out.  Beer down -2.5%, now including Dogfish Head.  Dogfish Head up 6.5% for 4 weeks, compared to 4% for 12 weeks.  Truly accelerated to 168% (157% for 12 weeks).  Another reason Caroline likes SAM: it’s the “only public company that generates a high % of sales in hard seltzer (about 30%)… which we expect will continue to take share from mainstream beer.” Boston also “dominates the hard tea category with Twisted Tea (about 35% of sales) which is growing mid-teens.”  Dogfish Head “brings strong IPAs and other beers, along with an innovative mgmt. team. With Dave Burwick newly appointed as ceo, we believe a lot of positive change is afoot.”  Between 2018-2021, she expects volume to grow about 50% (including Dogfish Head) to 6.4 mil bbls and operating income to almost $250 mil.     

Craft Brew Alliance posted depletions growth (+1%) in Q2 for first time in recent memory. Shipments up 4%. And co achieved “record” beer gross margin. For 6 mos, depletions -1%; shipments +3.5% (to 393K bbls), so a 4.5-pt gap. “CBA’s second quarter results reflect a tangible return on the strategic investments we’ve made to fuel Kona’s momentum, realize the full value of our newly acquired brands, and unlock our future potential,” CEO Andy Thomas stated in release. Kona depletions accelerated to +8%, shipments +11% for qtr amid natl ad campaign boost, including Kona Big Wave depletions up 25% in US for qtr (+22% YTD). Widmer shipments noticeably improved to -5% for qtr and -6% YTD, tho depletions still down double-digits. And both Redhook and Omission continue to decline double-digits. Gross margin expanded 270 basis points to 38.5% in Q2, reflecting “positive impact of transitioning” recently acquired brewers from alt prop to fully owned, “as well as the continued benefit of our rationalized footprint,” per release.  Despite shipments and depletions growth, net sales dipped 2%, due to “change in ownership structure” of App Mtn, Cisco and Wynwood. And net income cut nearly in half to $2.6 mil for qtr as big boost to Kona mktg spend raised SG&A costs $3.5 mil. Kona mktg pop, plus $4.7-mil class action settlement fee incurred in Q1, drove oper/net income into the red for 6 mos.

Gotta note too, CBA hurtin’ in recent scan data; $$ down 9% and volume down 11% for 4 wks thru Jul 14. BREW stock dipped 9% to $14.34 in last 5 days.  Starts today down.  Loomin’ large: deadline for AB to decide whether or not it will acquire rest of CBA for $24.50 per share just a little over 2 wks away. Unclear how, if at all, AB’s acquisition of Ohio brewer Platform affects potential outcomes. But while CBA improved in Q2, still plenty of uncertainty clouding its future. Indeed, co didn’t offer full year guidance, “deferring an update of our full-year outlook until early September,” after Aug 23 deadline.

Does MillerCoors finally have a Michelob Ultra fighter on its hands?   Saint Archer Gold entered 4 test mkts this spring.  “For the past several months, we have been testing this brand and learning about what works and what we need to further refine when we take it national,” Tenth and Blake prexy Pete Marino wrote distribs.  “We have learned a bunch and – in keeping with our commitment to move faster, take smart risks and invest more in the growth of our above premium portfolio,” MC takin’ Saint Archer Gold natl.  Gotta note, Jan 1 will be most of a yr after MC launched test, and many yrs since distribs started clamoring for an Ultra fighter. Yet MC did move faster than it has before.   

One learning from test: Saint Archer Gold needs to be line-priced with Ultra.  “That’s when it performs,” Pete told INSIGHTS.  Memo to distribs said: “There’s no arguing the fact that Michelob Ultra has done an impressive job of creating a brand image that’s attractive to many people. But they haven’t had much competition.” Saint Archer Gold “will take us beyond the craft aisle to compete head-to-head with Michelob Ultra,” Pete wrote distribs.  Saint Archer Gold will be a “big bet for us next year,” he added to INSIGHTS, with lotsa “marketing muscle,” including media weights roughly equivalent to Peroni.  Ad campaign will be “similar in tone” to what MC showed in test, but with “enhancements.”  Mktg plan includes natl tv, out-of-home, paid social, PR, “distribution at venues and special events,” merchandising and lots of sampling.  

When people sample Gold, 53% follow up with purchase. That’s “23 points higher than the norm,” Pete wrote distribs.  And “repeat rates are on par with those of Corona Premier at the same point in the launch.”  Interestingly, while Ultra a “powerhouse,” a “significant portion of its drinker base is 50+ years old,” so Saint Archer Gold can “help recruit younger LDACs” (Legal Drinking Age Consumers) “into the category,” as Pete wrote.  Pete acknowledged one hurdle to INSIGHTS: “much of America never heard” of Saint Archer, so building awareness will be critical.    

So far, sales relatively modest, tho Pete said it’s “doing very well” in some chains, distribution “exceeding expectations” and its “meeting velocity hurdles.”  Saint Archer Gold sold 23,000 cases in IRI multi-outlet + convenience nationwide yr-to-date thru Jul 14.  Compare to Mich Ultra at 43 mil cases.  Of course, Saint Archer Gold in just 4 test mkts, Austin, state of AZ, Indianapolis and Charlotte.  It’s a start, and one of several fresher approaches from MC lately. 

A coupla interesting Motley Fool columns posted this morn.  First warned of “3 Ways Marijuana Legalization 2.0 Will Disappoint Investors.”  Calls pending end-of-2019 sales of “derivatives” in Canada, edibles, bevs, etc “a highly anticipated event for money-losing pot stocks.”   Younger users prefer derivatives to dry flower and their margins are much better.  So, what could go wrong?  First, MoFo expects same supply issues/ license snafus that stalled expansion of recreational cannabis in Canada.  Similarly, “shortage of compliant packaging solutions” could create “initial supply shortages.”  Second, competition among derivative-producers “especially infused beverages” likely to be “fiercer than forecast.”  TAP partner Hexo, its stock “bludgeoned in recent months,” very focused on bevs but will “face an unknown but growing number of competitors” in that space.  Finally, no guarantee “brand-name players” will get much halo benefit for (or from) their derivative products. Molson Coors, for example, “looking for anything that will reignite sales growth and improve brand loyalty” in its eroding beer biz in Canada.  But it’s an international beer player and “adding an infused cannabis product may not move the needle much, if at all…especially if beverage competition is fierce.”  Constellation’s partner Canopy also set to compete heartily for bev mkt.  Net-net: derivatives remain “smart way” to play cannabis stocks, “but if you’re expecting marijuana stocks to right the ship in short order simply because new consumption options are being launched in a little over four months, you could be sorely disappointed.”

On the other hand, different MoFo contributor IDs “3 Canadian Cannabis Stocks with the Best US Strategies.”  They are: 1) Canopy, given its big investments in hemp facility in NY, partnership with Martha Stewart for CBD products and purchase of Acreage Holdings (pending fed legalization); 2) ABI partner Tilray, given its investments in hemp-based food and other consumer brands; 3) Altria partner Cronos, as it gobbled up hemp- and CBD-product makers too.  And, “don’t count out” either Aurora or Hexo, since latter’s CEO “stated that his company could expand its partnership with Molson Coors Brewing to target markets outside of Canada,” and seeks another big partner, as does Aurora. 

Just as Jul scan numbers came in strong, NBWA’s Beer Purchasers’ Index, measuring beer distribs’ purchase intent, popped back over 60 in Jul.  Recall, Jun BPI had fallen sharply to 47.5 indicating biz contraction, tho it had been in expansion mode Jan thru May.  But BPI back on track in Jul at 64.7, just ahead of Jul ’18 reading of 62.9.  Hard seltzer excitement reflected in index of 81 for FMB segment, up from just below 68 last Jul and similar reading in Jun this yr.  Import and craft indexes slipped vs last Jul, but each still in expansion mode.  Premium light index held at 42, about 6 points ahead of Jun.  Oddly, premium regular index jumped from 26.4 in Jul ’18 to 36.8 this Jul.  Below premium about same 33-34.  Another good sign: “at risk” inventory was 45, trending down “consistently since March 2019,” NBWA economist Lester Jones noted.

AB did its first craft deal in over 2 yrs as it announced this morn that Platform Beer would join its Brewers Collective.  Platform started in 2014, climbed to 27K bbls last yr, according to BA stats.  Earlier this yr, Platform said it’s aggressively expanding and expects to sell 40K bbls in 2019.  So Platform a fast-rising regional star with tasting rooms in Cleveland (home base), Columbus and Cincy and a production brewery in Cleveland (120K sq-ft and a 60-bbl brewhouse).  And it will open a smaller brewery and tasting room in Pittsburgh in the near future.  “We are inspired by their experiential mindset,” said Mika Michaelis, prexy of Brewers Collective, “and we look forward to supporting their growth plans as they continue to push boundaries through their intrinsic craft values of education, connection and collaboration.” 

AB’s Brewers Collective is already the #1 craft player in IRI. And it’s far-outperforming the segment as a whole.  Volume up 21% yr-to-date thru Jul 14 in IRI multioutlet + convenience, even tho its largest member, Goose Island down 2% by volume and almost 6% by $$.  Fastest growth from Wicked Weed, volume up 227%,  Breckenridge up 92% and Golden Road up 78%, each with at least 10% reductions in avg price.  But half its craft $$ sales growth from Elysian and Karbach, each of which are up 20+% in $$ and volume. While AB sales-to-retailers down 3% overall, AB has succeeded in disrupting craft, establishing a strong position and growing within craft.  AB acquired craft just shy of 1.5 mil bbls in 2018, we estimate.  And with this morning’s announcement, its 11^th craft acquisition, AB is taking it further from there.

Not much has changed for indie craft brewers’ collective growth trend so far this yr, according to the Brewers Assn. BA-defined craft brewers collectively grew 4% for 6 mos thru Jun 2019, BA chief economist Bart Watson estimates. “Growth continues to follow a similar pattern we have seen in the past few years, with steady rates in the low-to-mid-single digits,” Bart stated. Recall, BA craft grew 4% in calendar 2018 as well, to an estimated 25.9 mil bbls (see Apr 10 issue) including up ~5% thru first 6 mos. Total US beer shipments were down an estimated 0.8% for 6 mos thru Jun 2019, we estimate based on taxpaid shipments and Beer Inst data. Suggests BA craft on pace for another 1 mil-bbl gain to nearly 27 mil bbls in 2019.

“The majority of growth continues to come from microbreweries, taprooms, and brewpubs whereas the distribution landscape remains more challenging for regional brewers,” Bart noted. Indeed, BA regional craft brewers were flattish in 2018. This yr, BA craft volume was only up 1.7% thru 1st half 2019 in natl IRI multi-outlet + convenience data, suggesting another 2 pts of BA craft growth came from combo of indie channels, taproom/own-premise sales and traditional on-prem.

Then too, pace of new brewery openings hasn’t slowed either and continues to factor into BA craft growth as well. There were 7,480 active craft breweries as of Jun 30, up from 6,464 year prior. And between 2,500 and 3,000 breweries are “in planning,” sez Bart, based on TTB brewery license stats. While these industry dynamics make it difficult for an increasing number of US craft brewers to find growth, BA seems to think this is likely how craft landscape will lay out in this next phase. “Overall demand for beers from small and independent brewers continues to increase, but at levels that make it difficult for all breweries to grow simultaneously,” he noted. “This is a sign of a maturing market that will likely continue in the coming years.”

Did someone say summer of seltzer?  FMBs continue to fly off the shelves and drive industry to a better place.  For 4 wks thru Jul 27, beer volume +2.2% in Nielsen all-outlet scans, $$ +5.6%.  These are spirits-like trends.  FMBs jumped 40% in Jul and runnin’ up 26-27% yr-to-date.  Grabbed very close to 10 share of volume for the month and near 13 share of $$.  Mike’s in stratosphere: volume +73%, $$ +75% in Jul.  White Claw Assorted and Black Cherry up 226% and 236% respectively, not that far off their YTD trends.  Truly Assorted +182%.  Three top White Claws and Truly combined for 2.4 $$-share gain in Jul. 

Almost everyone did better in Jul.  Gainers accelerated: Constellation to +11-12%, Boston to +30-31%, and Diageo to +20-21%.  AB off less than 2% in volume and grew $$ 0.5% in Jul.  But it still lost fully 2 share of $$ for 4 wks.  MC knocked 2 pts off of its volume decline (-1.3%) and its dollars +0.4%.  MC lost 1 share of $$ in Jul.  Yup, top 2 improved trends and shed 3 full share of $$ for the month.  HUSA 4-wk trend better than YTD, but volume still down 3.5%.  Pabst continued down double digits.  FIFCO up almost 3%, with $$ +6.4%. 

Bud Light barely better: -6.9% in Jul vs -7.5% YTD.  Coors Light knocked 2 pts off of YTD volume loss before new ads; off 2.5% in Jul.  And Miller Lite back in the black: up 1.5% for 4 wks vs -0.5% YTD.  Michelob Ultra keepin’ up at +15%.  Modelo Especial up near 20% in Jul.  Corona Extra back in black, modestly.   Dos Equis too.  Blue Moon had good mo: +5.3%; it’s even yr-to-date.  Natty Light tailed off, tho Naturdays still among top gainers.  And Busch Light comin’ on: +3.7% in Jul, off just 1% YTD.