TSG is perhaps most prominent private equity investor currently with multiple positions in beer space, but not all has so far gone according to plan.  Recall, it owns big chunk of Pabst after partnering with Eugene Kashper in $700+ mil purchase in late 2014.  Ex-TSG managing director Brian Krumrei was key guy on that deal and he also sat on Pabst board.  Yet he recently left TSG, INSIGHTS understands.  TSG founder Chuck Esserman now on Pabst board, which is meeting today.   Pabst declines continue in scan data. Volume down 8%, $$ down 14.6% in IRI multi-outlet + convenience yr-to-date thru May 14.  Volume down 7% and $$ down 11% for 4 weeks.  But much of drag remains Small Town. Several Pabst “local legends,” such as Rainier, up strong.  

Recall, TSG also has stake in craft brewer SweetWater (that deal done by different TSG exec), which it at one point hoped to take public.  But that didn’t materialize.  Then SweetWater also explored a sale, but couldn’t get its # and it’s reportedly off mkt.  Now sales trends have picked up, albeit at somewhat lower prices.  SweetWater volume up 19%, $$ up 15% in IRI MULC YTD thru May 14 as avg prices down $1.27, 3.5%.  Recall, co launched 15-packs of session IPA last yr.  And of course, TSG also made big recent invesetment in BrewDog.  Will these different investment pieces ultimately fit together.  And if so, how?    

Notable MillerCoors consolidation in tough but profitable PA mkt.  Ace Dist in York (Jeff Reeder/Tim Strickland) will acquire most of W&L Sales Co (Symons family),  MC/Others distrib between 3-3.5 mil cases in Harrisburg area.  Ace will basically double to around 6 mil cases.  Ace also recently built new 126,000 sq ft warehouse only about 20 miles from Harrisburg that can handle its newly acquired volume.  Three other distribs will pick up a county each: Nittany Bev in State College, Inco Bev in Johnstown and City Bev in Altoona.  Those deals consolidate MillerCoors footprints.  Philly and Pittsburgh are two of largest remaining unconsolidated MC mkts.

PA mkt down almost a half mil bbls, 5% last 5 yrs.  MC by far #1 brewer in state.  Shipped 2.9 mil bbls with 34.8 share and slight growth there last yr (up 0.6%). But it fell 424,000 bbls, 12.7% there last 5 yrs.  AB down 227,000 bbls, 9% to 2.2 mil bbls since 2011. It lost 1.1 share to 26.8.  Big share gainers: All Others (outside top 5 suppliers), mostly craft, up 3 share to just shy of 30 (29.8).  Bigger than AB. All Others gained 170,000 bbls, 7% last 5 yrs in PA.  

Consumer Edge’s Brett Cooper not hootin’ and hollerin’, but his “deep dive into recent trends” this morn offered a slightly brighter perspective than Bump’s got.  Indeed, Bump observed that while it would be a “stretch to say we had the beginnings of a ‘price war’ brewing in beer,” not so much of a stretch to say “we are getting awfully close to lighting that fuse on pricing.”  Brett sees “somewhat improved volume and price outlook relative to Q1, but still challenging.”  In fact, “front line pricing showing some improvement off of late 2016/early 2017 lows,” sez Brett.  Pointed to MC pricing “which has rebounded from flat at the turn of the year to up slightly less in the last 7 weeks.”  Then too, and related, subpremium pricing “back to flat,” again lookin’ at 7-wk period. Throw in high debt loads carried by both ABI and MC, ABI’s announced capex spend and fact that aggressive pricing in past hasn’t driven sustained volume growth and Brett sees “a continued rational pricing environment.”  Volumes remain soft, Brett acknowledges, but he sez biz “getting to a better place with respect to efficiency with SKU counts down and velocities improving,” which should help brewers, distribs and retailers alike.  But will it help overall volume?  At same time, AB and MC mkt share trends “generally stable,” tho both still down.   Missing from Brett’s topline: strong reasons to believe in an improved volume outlook going forward, other than that the one-offs which drove tuff Q1 won’t repeat.  Indeed, Brett cites c-store weakness as “a particular concern.”  So, “somewhat improved” seems to be operative phrase here.       

Meanwhile, Spirits Continue to Outperform  And so it goes.  Latest Nielsen all outlet scans show beer volume dipped 0.6% for 4 wks thru May 20, $$ sales up 0.8%.  Yr-to-date thru week before Memorial Day, volume still off 0.4%, $$ up 0.9%.  Basic segment, brewer and brand trends continued.  At same time, spirits $$ sales up 3.7% for 4 wks in tracked channels thru May 20, reports Cowen analyst.  That’s just a bit softer than +3.9% for 12 wks.  Volumes up 2.6% for 4 wks vs +2.5% for 12 wks.  So steady Eddy.  Lookin’ at top publicly owned spirits producers, all but Beam/Suntory underperforming overall liquor biz and most had softer 4-wk trends than for 12 wks.  Industry leader Diageo notably soft: $$ up just 0.6% for 4 wks, volume -1.1%.  That contrasts to Beam’s +4.6% $$ growth for 4 wks, Brown Forman +2.7%, Constellation +1.5%, Pernod Ricard +2.6%.

Say it isn’t so.  Turns out consultant Bump Williams, as close to the beer biz as anyone in recent yrs,  strongly agrees with comments from our Spring Conference in Chi that beer’s woes vis a vis wine and spirits not likely to reverse anytime soon.  His review of “healthy Spirits topline” in syndicated data, recent conversations with retailers and other observations led to this punch line in current letter to clients: with continued expansion of wine and spirits into what used to be beer-only sales points, “I look for the continued decline of Beer while Wine and Spirits continue to capture the hearts and wallets of the legal drinking aged adults.”  Picking up other themes from our conference, Bump observed that both spirits and wine have “done a much better job in differentiating their brands, attracting female consumers, capturing late night purchase occasions, creating great advertising, cracking into the once exclusive world of Beer events (NASCAR), glamorizing the ‘creation’ of custom cocktails…and cracking the code for working together with larger spirits companies as the explosion of craft distilleries continues to grow.”  That’s a mouthful, but that ain’t all Bump has to say. Spirits and wine “continue to beat the Beer business in pretty much all facets” of the biz and unless beer finds way to grab more shoppers and get ’em to buy more beer more often, “there is NO reason to expect any growth from Beer for a long, long time.”  And we thought we were the bearers of bad news recently!  

Bump’s review of IRI scans over the yrs found annual $$ growth rates for spirits consistently higher than beer.  Importantly, spirits’ health result of “gains across almost every single category,” driven by big categories like whiskey and vodka, plus smaller ones like tequila and pre-mixed cocktails.  As Sazerac’s prexy Mark Brown noted at our conference, spirits aided big time by flavors (Fireball) and outsized growth of single brand (Tito’s vodka) that’s carrying the category, as other major vodka brands down.  Bump gives shout out to craft brewers investing in craft distilling too, “before the big brewers get their checkbooks out.”  He thinks craft brewers who combine categories “will capture more of [consumers’] Bev-Alc purchase occasions than will the larger brewers.”  (Bump doesn’t mention it, but so will Constellation.)  Final observation from Bump shows breadth of spirits’ advantage right now: “Spirits align themselves well to both the old-fashioned and the innovation-seeking consumers through the almost countless number of CUSTOM drink variations, all starting with the base liquid of choice and building from the ground up,” from simple drinks to complex concoctions.

Say it isn’t so.  Turns out consultant Bump Williams, as close to the beer biz as anyone in recent yrs,  strongly agrees with comments from our Spring Conference in Chi that beer’s woes vis a vis wine and spirits not likely to reverse anytime soon.  His review of “healthy Spirits topline” in syndicated data, recent conversations with retailers and other observations led to this punch line in current letter to clients: with continued expansion of wine and spirits into what used to be beer-only sales points, “I look for the continued decline of Beer while Wine and Spirits continue to capture the hearts and wallets of the legal drinking aged adults.”  Picking up other themes from our conference, Bump observed that both spirits and wine have “done a much better job in differentiating their brands, attracting female consumers, capturing late night purchase occasions, creating great advertising, cracking into the once exclusive world of Beer events (NASCAR), glamorizing the ‘creation’ of custom cocktails…and cracking the code for working together with larger spirits companies as the explosion of craft distilleries continues to grow.”  That’s a mouthful, but that ain’t all Bump has to say. Spirits and wine “continue to beat the Beer business in pretty much all facets” of the biz and unless beer finds way to grab more shoppers and get ’em to buy more beer more often, “there is NO reason to expect any growth from Beer for a long, long time.”  And we thought we were the bearers of bad news recently!  

Bump’s review of IRI scans over the yrs found annual $$ growth rates for spirits consistently higher than beer.  Importantly, spirits’ health result of “gains across almost every single category,” driven by big categories like whiskey and vodka, plus smaller ones like tequila and pre-mixed cocktails.  As Sazerac’s prexy Mark Brown noted at our conference, spirits aided big time by flavors (Fireball) and outsized growth of single brand (Tito’s vodka) that’s carrying the category, as other major vodka brands down.  Bump gives shout out to craft brewers investing in craft distilling too, “before the big brewers get their checkbooks out.”  He thinks craft brewers who combine categories “will capture more of [consumers’] Bev-Alc purchase occasions than will the larger brewers.”  (Bump doesn’t mention it, but so will Constellation.)  Final observation from Bump shows breadth of spirits’ advantage right now: “Spirits align themselves well to both the old-fashioned and the innovation-seeking consumers through the almost countless number of CUSTOM drink variations, all starting with the base liquid of choice and building from the ground up,” from simple drinks to complex concoctions.

We dropped a couple of 0s in the mkt share article last issue and overstated Lagunitas’ volume share gain.  AB, MC, Pabst and Boston were the only companies that lost 0.05 share or more yr-to-date in IRI MULC, not 0.5.  Similarly, Diageo was only other brewer (besides Constellation and Mike’s Hard) to gain 0.05 or more share of volume, not 0.5. Finally, Lagunitas gained 0.07 share of $$, 0.04 share of volume yr-to-date.  

A number of governors seem to have identified support of their state brewing industries, often via less restrictive laws, as either a good policy move or at least good politics. That’s even as small brewers were largely less successful this yr in achieving broader policy goals at the legislative level, as in TX or NC. But govs in NV, SC and OK all signed off on laws beneficial to small in-state brewers, while VA and NY govs continue to throw promotional support behind their state’s breweries. In many of these cases, local press offers splashy coverage of small-brewer support.

In interesting final twist to winding road to new taproom rules in Maryland, that state’s Gov Larry Hogan refused to sign bill passed by legislators that boosts amount of beer in-state breweries can sell on-site to 3,000 bbls but requires them to buy anything over 2,000 bbls back from distribs and limits taproom hours. Law goes into effect anyway. But it was first example cited by Frederick News-Post of a bill Hogan wouldn’t support but allowed to pass. Recall, bill driven by Diageo’s plans to open Guinness brewery and visitor center in state. But Hogan didn’t like final version, asking lawmakers “to explore modernizing our state’s brewery laws, and lift the legislative impediments to Maryland’s craft brewers so that their industry can continue to grow and thrive,” he wrote in letter to them, according to paper. He sides with state Comptroller Peter Franchot, who said legislators “held a gun to the brewers’ head” to get final version of bill passed on paper’s podcast. Attempts by Virginia to “lure Maryland businesses across the Potomac” also apparently part of Hogan’s reasoning, paper wrote. VA Secretary of Commerce and Trade and his staff have been “pitching the commonwealth as more pro-business and pro-beer,” setting up meetings with half a dozen MD breweries, per Baltimore Sun.

Out in Nevada, governor signed bill upping production cap for in-state brewpubs, from 15,000 bbls to 40,000 bbls, but limiting on-site retail to 5,000 bbls, Las Vegas Review-Journal wrote. At same time, SC Gov Henry McMaster signed 2 brewer-focused pieces of legislation into law. Both comparatively small tweaks: one allows small brewers to donate beer to non-profits for events and serve their own beer at festivals, another allows breweries to get a license to sell liquor. Meanwhile, Oklahoma continues on its road to “modernization.” Couple of tweaks to alc bev laws, including expanding hours for brewery taprooms, already signed into law by Gov Mary Fallin, tho others to ease transition from separate 3.2- and strong-beer systems to single-strength distribution and retail awaiting further action. Vote in that state revealed support for movement away from tighter restrictions on alc bev sales, which these other govs clearly recognize as politically popular, at least. Others have jumped in with both feet to support not just broad alc bev code changes but in-state brewers specifically. Look no further than VA Gov Terry McAuliffe, who once again this weekend issued press release touting approval of state grant money for an expanding local brewery. Or NY Gov Andrew Cuomo, who earlier this month launched a competition for in-state breweries as part of promotional Taste NY program. Whether driven by the policy, the politics or just some good press, these leaders certainly setting an interesting precedent.

Anheuser Busch drivers at its Bronx-based branch signed a new contract “guaranteeing pension contributions and wage increases for the next five years,” union reps told Newsday.  Deal covers around 150 workers from Teamsters Local 812, who handle deliveries in 4 boroughs, tho not Brooklyn. Percentage of pay hikes was not disclosed. That’s same union that’s out on strike against AB distrib Clare Rose Inc on Long Island since Apr 23. “If Anheuser-Busch can do it in the Bronx, why can’t Clare Rose do it out here?” said Ed Weber, prexy of Local 812.  Recall Clare Rose argued (Express May 15) that under its new contract, “well over” half its workers would receive a raise, while a “minority” of workers would get less compensation in move away from “outdated” pay model. Also, Clare Rose noted its proposed pay avg of $70K for new delivery driver role was in-line with union’s own salary proposals.

Meanwhile, in neighboring NJ, MC-Others distrib Shore Point Dist has locked out 113 union workers since Apr 30, and acknowledged disagreement there is also proposed shift from a pension plan to a 401K, per Asbury Park Press. Shore Point contends it received notice back in Oct that Local 701 pension plan was in “endangered status,” lacking funds to continue. So in addition to funding new 401K plan, Shore Point contends, “we will still be obligated to pay the failing union pension plan over a million dollars per year, for at least the next 20 years.”  Like Clare Rose, Shore Point continues to operate with mgmt and replacement workers.  Local 701 claims that deal Shore Point is proposing with new 401K plan would not include raises for next 3 years and require drivers to pay more towards their health plan.   

US Dist Ct just sided big time with 3 Washington distribs terminated by Pabst earlier this yr: Stein, Marine View and Odom.  Recall, Pabst argued that under WA law it could terminate without cause and that the distribs’ exclusive remedy was negotiating fair mkt value from successor distrib, in this case Columbia Dist.  Distribs argued that Pabst misread state law, that they could sue Pabst for breach of contract, lost profits, reputational damages and more. Judge just agreed with distribs down the line, rejecting Pabst’s motion to dismiss and allowing distribs to pursue their claims.  

Pabst “Can’t Get Off Scot-Free in this Circumstance”  Judge analyzed WA law, legislative history, previous cases and compared it to Colorado and Kentucky franchise laws, which do explicitly lay out exclusive remedies in termination cases.  He ruled WA law “does not immunize from liability suppliers who terminate distribution contracts without cause.”  While terminated distrib would get fair mkt value from successor, under the law, it can “also pursue damages against the supplier if the supplier breached their contract,” (as distribs claim here).  Therefore, WA law “does not authorize suppliers to terminate distributorships without cause” and “does not command the exclusive remedy available to terminated distributors.”  So distribs have shown “a plausible claim for relief against Pabst” and can pursue it.

Pabst argued that since franchise law acknowledged terminations without cause, that’s “synonymous with its authorization of them.  It is not,” judge countered.  Also, Pabst’s contract “does not permit Pabst to cancel it ‘at any time’ after 60 days written notice” (tho it does allow distribs to do so).  Nor does contract allow termination without cause, judge found.  Also agreeing with distribs, judge found franchise law does not limit terminated distribs to purchase of inventory and fair mkt value of lost distrib rights.  “Rather, it expands the relief available” to that terminated distrib.  Indeed, “Pabst’s selective and convoluted reading of these provisions does not convert them into an exclusive remedy,” he wrote, again comparing WA law with language in CO and KY laws that do include language about “sole remedy.”  If WA legislature had wanted successor-distrib’s compensation of terminated distrib to be “exclusive remedy” in such cases, “it could have said so….  But it did not.”  Thus franchise law’s stated remedy “and a common law remedy for breach of contract can coexist.”  

Under Pabst’s interpretation, judge adds, it could terminate distribs without cause “and could take its operations in-house without owing the terminated distributor any compensation.”  But law’s provisions “do not evidence a clear intent to effectuate such an imbalance between suppliers and distributors.”  Tho WA law does not specifically address how a supplier should compensate a distrib for termination without cause, lost profits or other possible damages, judge acknowledges, Pabst hasn’t shown legislature aimed to “insulate from any liability a supplier” who terminates without cause and allow it “to get off scot-free in this circumstance.”  So looks like case will continue, whether or not the distribs eventually agree with Columbia on the fair mkt value of the brands, an agreement they’ve not yet made, as far as we know.     

“There was one unexpected thing that was highlighted during this session: it was just how unworkable, unpredictable and, in some cases, unreasonable our archaic alcoholic beverage laws are in Indiana.  Many of them date back to Prohibition with very little logical change to them, although we’ve tinkered with them over the years.”  So said Indiana House Speaker Brian Bosma in the wake of yet another cold beer legislative battle in his state this spring.  The upshot: an Alcohol Code Revision Commission, made up of ex-regulators and enforcement folks, but not legislators or lobbyists, will review all of IN’s alcohol laws over the next 2 years, reports the Evansville Courier & Press.  “Nothing will be off the table during the study, lawmakers said,” the paper added.  

Meanwhile, Maryland’s comptroller Peter Franchot held the first meeting of his Reform on Tap Task Force earlier this week.  That 40-member task force will perform “an overview of Maryland’s current beer laws, an assessment of the State’s craft beer environment from a national perspective” and the economic impact of the biz.  Franchot hopes the task force will lead to legislation next year.  “We are doing this so the craft beer industry can grow and flourish and succeed.  It is time to modernize the beer laws and support small businesses that are eager to grow,” he told the Baltimore Business Journal.  Franchot, and some others, remain unhappy with the compromise bill that came out of MD’s legislature this yr.  That bill would allow Diageo to build a brewpub in the state and raised the cap for taproom sales, but added some new restrictions that both established and new players, as well as Franchot, objected to.  For example, they don’t like a provision that if taproom sales exceed 2K bbls, brewers can sell an additional 1K from them, but they have to first sell it to a distrib, then buy it back.  In response, one lawmaker asked: “What century do we live in here?”  Franchot wondered “why didn’t they just write a check to the distributors?”  But distrib Betty Buck defended the law to ensure that big companies don’t take over the mkt by acquiring small brewers.  (A similar defense was raised in Tex to defend a taproom restriction there.)  “They are dismantling the whole state’s liquor laws,” Buck told The Baltimore Sun. “We have to be careful what happens today with folks like Diageo.”  MD’s governor still hasn’t signed the bill and hasn’t signaled whether he will, the Sun reports.  In addition to IN and MD, Massachusetts also has a task force reviewing its alc bev laws.  There may be others as well.       

Have a great Memorial Day!  Enjoy a few beers!