More on explosive recent growth of seltzer.  Segment grew $92 mil, 147% for 4 weeks thru Jul 6 in expanded Nielsen database (includes liquor, military exchanges).  White Claw up 205%, $57 mil and Truly up $26 mil, 133%.  Those 2 brand franchises got 90% of growth. White Claw grabbed 54.8 share of segment for 4 weeks, while Truly at 29.2.  With top 2 at 84 share, didn’t leave a lot of room for anyone else.  AB down to 6.5 share, and its  $$ sales up just 23%.  Diageo at 5.6 share and its $$ sales up 73%.  MC grew 159% for 4 weeks or faster than segment. Yet it’s still only at 2.5 share.  Constellation just 0.1.  Total seltzer segment at 4.2 share of total beer for 4 weeks and 2.6 share yr-to-date.

A truly wild coupla weeks for AB InBev. Just days after it pulled unsuccessful Asian IPO (Budweiser APAC), ABI struck deal with Asahi to sell its Australian beer biz for $11.3 bil US. Deal illustrates ABI’s determination to reduce its debt and considerable financial ingenuity. “Substantially all of the proceeds from the divestiture of the Australian business will be used to pay down debt,” said ABI.  This deal will get ABI down from $98 bil to $87 bil debt, said Jeffries analyst Edward Mundy and debt to EBITDA multiple will go from 4.2 to 3.9x, he sez. ABI target is to get under 4x debt to EBITDA by end of 2020. But it hadda sell profitable Aussie biz to get there (about $760 mil in EBITDA in 2018). Still, it got good price. “The transaction represents an implied multiple of 14.9x 2018 normalized EBITDA,” ABI said. That’s “favorable” multiple, said Mundy. Plus it positions ABI to potentially refile its Asian IPO at a higher multiple.  “Pretty much positive all around,” said Bernstein’s Trevor Stirling.  Stock popped 6% with deal. (This article appeared in different form in Beer Marketer’s INSIGHTS.)

How quickly the boos turned to cheers. Only a few days ago media and analysts piled on ABI’s huge debt load and failed Asia IPO as “flop.”  But ABI clearly had Plan B ready-to-go. Indeed, Asahi had talked to ABI in May about buying Aussie biz, WSJ reported.  Recall, Asahi had already spent $11 bil on deals with ABI, buying Pilsner Urquell, Peroni and Grolsch outside US. Then too, ABI not giving up on Asian IPO for part of its biz. ABI “continues to believe in the strategic rationale of a potential offering of a minority stake” of Bud APAC, “excluding Australia, provided that it can be completed at the right valuation,” the co said. It might even be more attractive to investors now. “Selling down slower growth assets like Australia should make the APAC IPO much more interesting to investors, given the reduced mix of slower growth, mature market beer assets,” Liberum analyst Nico von Stackelberg wrote, according to Bloomberg.  What a difference a few days makes. ABI bizzes in South Korea and Central America may also be on the block, wrote WSJ.  In addition to reducing its debt burden, improving prospects of Asian IPO, deal “positions co better for next wave of M&A,” wrote Jeffries’ Edward Mundy.  “Our take,” said Consumer Edge’s Brett Cooper, is that ABI “had a willing buyer for a non-essential business that will be transferred to consolidation opportunities in the future.” 

Earlier today, Heineken USA settled with the New York State Liquor Authority for $1.25 mil “offer-in-compromise” related to its BrewLock system.  SLA announced its “acceptance of a conditional no contest offer.”  Recall, HUSA also had offer in compromise with TTB on BrewLock for $2.5 mil earlier this yr.  Turns out last yr, SLA got info from TTB that HUSA was providing BrewLock to NY “retailers at no cost.” BrewLock “designed to dispense products exclusively offered by Heineken, an anti-competitive practice that illegally incentivizes retailers to purchase beer produced by the global brewing giant,” sez SLA release. The SLA also sez it uncovered that Heineken gave away over 800 BrewLock systems valued at approximately $500 each in 2014-2015.  On Jun 10, 2019 SLA charged HUSA with 42 violations of ABC law, including 32 “counts of providing illegal gifts and services and ten counts of failing to maintain adequate books and records,” said SLA. “Heineken has since ceased offering their BrewLock system in New York.”   Here’s HUSA statement:  “We have finalized an ‘offer in compromise’ settlement agreement with the NYSLA for alleged violations of the New York State alcoholic beverages trade practice laws. This settlement does not admit to any violation of the law.  HEINEKEN USA has been and remains committed to legal compliance in everything we do. Earlier this year we introduced an enhanced and robust compliance program for all employees and have established a new internal audit process."

The rush of daily deadlines can on extremely rare occasions lead to strange, unfortunate errors. And we had a whopper today.  Our brief coverage of Tops filing Chapter XI is actually based on an article from last year.  INSIGHTS deeply regrets the error and any confusion it caused.   Thanks to an alert reader for pointing it out. 

Earlier today, Heineken USA settled with the New York State Liquor Authority for $1.25 mil “offer-in-compromise”  related to its BrewLock system.  Recall, HUSA also had offer in compromise with TTB on Brew Lock for $2.5 mil earlier this yr.  Turns out last yr, SLA got info from TTB that HUSA was providing BrewLock to NY “retailers at no cost.” BrewLock “designed to dispense products exclusively offered by Heineken, an anti-competitive practice that illegally incentizives retailers to purchase beer produced by the global brewing giant.”  The SLA uncovered that Heineken gave away over 800 BrewLock systems in 2014-2015.  On Jun 10, 2019 SLA charged HUSA with 42 violations of ABC law, including 32 “counts of providing illegal gifts and services and ten counts of failing to maintain adequate books and records,” said SLA. “Heineken has since ceased offering their BrewLock system in New York.”   Here’s HUSA statement:  “We have finalized an ‘offer in compromise’ settlement agreement with the NYSLA for alleged violations of the New York State alcoholic beverages trade practice laws. This settlement does not admit to any violation of the law.  HEINEKEN USA has been and remains committed to legal compliance in everything we do. Earlier this year we introduced an enhanced and robust compliance program for all employees and have established a new internal audit process.”

NBWA kept its comments to TTB on its proposed new labeling/ad regs short and sweet, just 4 pps.  But assn manages to hit some pretty hot topics.  One area of general concern:  while TTB aims to consolidate some beer, wine and spirits regs, it should “clarify” that this “in no way implies support or favor for any effort by any entity to claim that all forms of alcohol are the same,” NBWA insists.  Long-time “national policy” of regulating beer, wine and spirits differently should remain.  No equivalence here, advises NBWA.  Another interesting general concern over fact that labeling regs for all alc bevs may be consolidated under single section.  And TTB sez “willful violations” would be subject to suspension of basic permits.  But brewers don’t have basic permits, NBWA gently reminds.  It doesn’t specifically ask TTB to insist on permits for brewers (which would give TTB bigger hammer in trade practice enforcement, we note), but simply asks for clarification.  More specifically, NBWA picks up on importers’ comments about private label.  Consumers, industry and regulators “should know the producer of alcohol, the location of production and who financially benefits from the sale,” NBWA believes.  Such transparency will “help state enforcement police arrangements between the tiers.” Lastly, NBWA also seeks “greater flexibility” and “clearer guidance” from TTB regarding ownership info on individual kegs in order to “prevent theft and reduce costs.”  That’s it.  

Consumer Edge’s Brett Cooper paints tuff picture for top 2 in his comments that accompany report on IRI in 32 states (see above).  Noting continued move towards FMBs, Brett sez “the way in which the consumer gets” FMBs “has evolved from craft beers, cider and legacy FMB sub-segments to some flavored beer, but mostly seltzers.”  As Brett analyzed top 10 share gainers in 32 states, he found 54% of gainers were flavored, 82% high end, while 72% of top losers were “traditional beer.”  Here are 3 “takeaways,” according to Brett: “Companies need to take shots on goal.  Second, the breadth of losses for traditional tasting mainstream and value beers suggests there is no practical means for that cohort to see improved performance. Third, pace matters.”

Elaborating on why he sees “no practical way” traditional beer is “coming back on a sustained basis,” Brett sez to “the absolute level of loss for these types of beer and the breadth of their weakness argues that turning around the segment is simply too difficult to do.”   So with “constantly evolving” US consumer, “depending on winning those consumption occasions with legacy products is a losing equation.”  ABI’s “outperformance” vs Molson Coors “is a result of activity that they do on new products.” Corona and Corona Light “show up on the list of brands losing share” and that “speaks to the need for Constellation to ramp up its efforts in new product activity.”  Then too, “one must move with pace to gain early mover advantage.”  Spiked Seltzer was “not pushed enough” by AB, “opening the door for Mike’s to dominate the segment.” 

ABI “taking numerous shots on goal, moving with pace and we believe that they have accepted that their mainstream and below brands will be drags on share performance for the foreseeable future (or forever).”  Since there is “no silver bullet” to fix “weight of the big brands… embracing the diversification of new categories is essential to improve the long term revenue and profit picture for the US business.”  Meanwhile, Molson Coors “needs a strategy change” as its “opposition to playing in flavors with their large trademarks is missing the consumer dynamic that is a mega trend and not a passing phase. We appreciate the idea of not wanting to dilute the trademark but given performance, the value of Molson Coors’ mainstream and value trademarks is declining by the year.”  Across 32 states, only 5% of top 10 share gaining brands are MC. “Another poor performance in 2Q will bring more questions and pressures on the business,” adds Brett. “The company needs to take more and better shots on goal” and “move with significantly greater pace into adjacencies.”

White Claw has taken off to another level, especially in some states, Consumer Edge deep dive report on IRI data in 32 states shows.  Mike’s led all gainers, up 1.2 share of $$ nationally to 2.7 in IRI multi-outlet + convenience for 13 weeks thru Jun 30 (Constellation up 0.7).  Led by White Claw, Mike’s putting up far bigger #s in some key states.  In fact, Mike’s up 2 share or more in NY, OH, WI, WA and OR.  Note that these outsized gains include 2 top-10 mkts (NY #4 and OH #7), 2 of most developed craft mkts (WA and OR) and another midsized midwestern state that used to be viewed as center of mainstream beer (WI).   

White Claw Each of Top 3 Share Growth Brands in Q2 in Craft-Centric WA  Mike’s gained 2.5 share of $$ in WA and 2.4 share of $$ in OR for 13 weeks thru Jun 30. In these craft-centric states, White Claw dominates growth.  In WA, White Claw has each of the top 3 growth brands: Variety Pack, Black Cherry and Mango, up 0.8, 0.6 and 0.5 share respectively.  Grapefruit up 0.3 share in Q2 and #6 growth brand.  Similarly in OR, White Claw got 4 of top 5 growth brands, up 2.3 share.   For 52 weeks, Mike’s double its national share in several states.  At 5.7 share in WA and 5.4 share in OR, up 1.5-1.6 share.   Passed Pabst in both states. In WI, Mike’s at 5.6 share for 52 weeks and passed Constellation (5.1 share), even as STZ gained 0.6 share.  For 13 weeks, Mike’s gained 2.2 share there and White Claw got 3 of top 4 growth brands in WI too.  Mike’s also up 2.1 share in OH and 2 share in NY, but closer to 4 share for 52 weeks there.

Beer biz improved in most recent scans, tho still runnin’ down slightly for 4 wks and yr-to-date.  Following -1.3% volume drop in Jun, substitution of Jul 4 week for 1^st wk in Jun moved 4 wk trend to -0.4% in Nielsen all outlet scans.  That’s about same as -0.3% volume trend yr-to-date.  Dollar sales up solid 2.8% for 4 wks, +2.1% yr-to-date.  Hard seltzers clearly drove the improvement.  Indeed, FMBs were only segment where 4-wk trend (+28.5%) stronger than yr-to-date trend (+23%).  Imports a point off longer term trend at +3.9% for 4 wks.  Superpremiums really slowed (+5.9% vs +10.6%), even while Michelob Ultra still +12.7%.   Only other segment up for 4 wks: lowest-priced budget beers, +1.1%.  Busch Light went positive for 4 wks. Otherwise, you know the drill: mainstream doldrums continued (see below), Modelo Especially hot (+20% for 4 wks), flavored bevs dominated largest growers (7 of top 10, if you include Mich Ultra Lime Cactus, 6 if you don’t), AB and MC each down 3.6-3.7%, above premium gaining close to 3 share for volume and dollars, etc.

Seltzers still pickin’ up steam.  Mike’s $$ sales up 56% for 4 wks thru Jul 6 in Nielsen all outlet (48% yr-to-date) and it gained 1.5 share of $$ nationwide.  White Claw franchise at 2.2 share of $$, gained 1.5 share.  Meanwhile, Boston Beer $$ up 23.3% and gained 0.6 share of $$.  Truly franchise at 1.2 share of $$, up 0.7 share. So seltzers close to 4 share in latest 4 weeks.