Michelob Ultra regularly priced at $9.99 per 12 pack, according to Circle K ad in Fla, but during peak selling season, consumers can get it for $6.99 after a $3 mail-in rebate.  Sure, mail-ins have low redemption rates.  But why would AB offer the hottest brand in the industry at below premium price? Overall it’s realizing significant price increases.  Rev per case up 63 cents, 2.5% last 4 weeks in Nielsen all-outlet.  AB believes its above premium pricing “sustainable,” cmo Marcel Marcondes said at Beer INSIGHTS Spring Conference yesterday.  We didn’t know about and didn’t ask about this specific promo, but INSIGHTS mentioned others from last yr that priced Ultra at same prices as Bud.  AB always trying different things, piloting “impact on consumers,”  Marcel said, as AB looked at “whether it speeds up trial” or “whether or not it cannibalizes more from any other brands.”  Marcel added: “I guess we did it like 5 times last year” and “I would tell you you’re gonna see less than 5 times this year.”   

Michelob Ultra regularly priced at $9.99 per 12 pack, according to Circle K ad in Fla, but during peak selling season, consumers can get it for $6.99 after a $3 mail-in rebate.  Sure, mail-ins have low redemption rates.  But why would AB offer the hottest brand in the industry at below premium price? Overall it’s realizing significant price increases.  Rev per case up 63 cents, 2.5% last 4 weeks in Nielsen all-outlet.  AB believes its above premium pricing “sustainable,” cmo Marcel Marcondes said at Beer INSIGHTS Spring Conference yesterday.  We didn’t know about and didn’t ask about this specific promo, but INSIGHTS mentioned others from last yr that priced Ultra at same prices as Bud.  AB always trying different things, piloting “impact on consumers,”  Marcel said, as AB looked at “whether it speeds up trial” or “whether or not it cannibalizes more from any other brands.”  Marcel added: “I guess we did it like 5 times last year” and “I would tell you you’re gonna see less than 5 times this year.”   

Constellation $$ sales up 18% for 4 weeks thru May 6 in Nielsen all outlet.  And it gained 1.6 share of $$ to 11.8 in period ending day after Cinco de Mayo. It has now gained 1.3 share of $$ yr-to-date.  Trade up accelerated again in most recent periods, with all above premium brands gaining 2.2 share last 4 weeks.  Mich Ultra $$ sales up 30% and it gained 1 full share, but AB still lost 1.2 share of $$ overall in period.  MC down 0.7 share of $$ in period.  

That was quick! In 3 short yrs since Reyes Holdings first signed letter of intent to distribute Coke in Midwest, it has deals that will lead to it becoming larges independent US Coke bottler.  Adding Calif and Nev to 6 midwestern states (Reyes and Coke “reached a new letter of intent”), Reyes will now be Coke bottler in 8 states that represent about 20% of Coke’s US volume.  Wow!  That’s much bigger % of Coke biz than it represents of MillerCoors for example, which took decades to build.  And that’s all since Feb 2014.  Its total Coke biz will more than double and be well over 300 mil cases, compared to around 150 mil cases of beer.  Calif/Nev deals expected to close by year end.    

These huge investments by Reyes in Coke bottling system strongly suggest that it’s finding more attractive deals in soft drinks than in beer distribution.  Reyes is buying these big bizzes that already have scale, likely for lower valuations than what beer distribs often seek these days.  Then it can apply its systems and processes to make these bizzes more efficient and effective. Somewhere down the road, one has to imagine there will be more integration of soft drinks and beer.  Recall, Reyes Bev Group sells around 70 mil cases of beer in SoCal.

While a bunch of suppliers talk about doubling their biz (Constellation/Mikes’s/Michelob Ultra, see above), getting back to growth (MC, HUSA and Pabst) and/or gaining share (AB), flattish overall beer trends, declining per capita beer consumption and continued outperformance of spirits suggest at least some of these plans (dreams?) will be denied.  The math just doesn’t work unless overall beer picks up momentum.  But look at some comments from our conference yesterday.

Beer won’t gain share of absolute alcohol again in US in “medium term,” for 7-10 yrs, Constellation Beer Div prexy Paul Hetterich opined.  Yikes.  That’s important, since overall per cap alcohol consumption doesn’t change much in US.  So becomes very tuff to grow significant beer volume, even with population growth.  Paul and Constellation Beer chairman Bill Hackett reiterated their goal to double Constellation volume from 2013 to 2023, as they fully expect high end to significantly expand.  Meanwhile, “cross category consumption” (across beer, wine and spirits) is “only going to increase,” Paul believes.  Constellation’s “agnostic” on this, since it sells all three 3 bevs, Paul acknowledged.  Bill added that consumer has shifted from mainstream brands to high end.  That’s where growth is and Constellation focused.  Some consumers not even staying within beer, much less specific brands.  And that’s not likely to change, said Bill, “until the marketing community in the beer business does understand how to re-engage consumers.  Why would it change?”   

Separately, Sazerac prexy Mark Brown, who pegged shift from beer to spirits in part to “sustained sophomoric advertising” by brewers, agreed.  “I don’t think there’s any evidence to suggest any seismic shift in [these] trends….  As we look right now, these trends seem set to continue.”  Following up, Nielsen sr veeps Danny Brager and Scott Elliott provided number of insights/data points that support cross-drinking trends and challenge to beer volume.  In off-premise, 63% of beer buyers buy wine, 47% buy spirits.  On-premise, half of 21-24 yr-olds drink 2+ categories on typical night out, 17% drink all 3.  While # of on-premise establishments continues to grow, it’s all in restaurants. Number of neighborhood bars has shrunk by nearly 13K since 2004. “Nearly 1 in 6 neighborhood bars have closed in just over a decade.”  That’s critical, since surveys show 70% of those who visit neighborhood bars drink beer vs just 52% of those who visit restaurants.  And average bar sells nearly double (91% more) beer volume of avg restaurant.  The kicker: domestic premiums suffer a much bigger volume hit in this shift from drinking places to restaurants than imports/crafts.  

Big Hairy Audacious Goals, or BHAGs, abound in High End of US beer biz, several speakers at Beer INSIGHTS Spring Conference showed yesterday in Chicago, even if total beer stays flat (see below). Remember yrs ago when Constellation’s Bill Hackett put out goal for Modelo Especial to hit 100 mil cases?  That seemed like a big stretch at time. But Modelo Especial will hit that number this year, Constellation Brands Beer Division prexy Paul Hetterich said at conference.  “I would say we’ll do it,” said Paul. And Especial has lotsa “distribution upside” and so “could” become bigger than Corona, he added.  “There is no doubt in my mind,” said chairman Bill.

Could Ultra Become 3d Largest Brand in 4 Yrs?  Michelob Ultra growth accelerated last several yrs, AB chief mktg officer Marcel Marcondes showed. It went from +6% in 2013 to +23% last yr.  But now Marcel is raising the stakes. AB looks to double Michelob Ultra by 2020, he said.  If AB achieves that objective, that would make it roughly a 12.5-13-mil-bbl brand.  And Ultra could be the 4th or possibly even the 3d largest US beer brand in 4 yrs.  Howzzat?  Consider: last yr, both Bud and Miller Lite at about 13.2 mil bbls in US, INSIGHTS estimates.  Bud down 4% and Lite flat in shipments, down in depletions.  Both continue down again this yr.

Mike’s Looks for About 50 Mil Cases by 2021  Also on an accelerating growth trajectory, Mike’s Hard Beverage Co.  Its depletions were up 1% in 13, 4% in 14, 7% in 15, 10% last yr and 14% yr-to-date, prexy Phil Rosse showed, hitting 24 mil cases or 1.75 mil bbls last yr. But Mike’s looking to push further ahead with goal of doubling by 2021, which would put it very close to 50 mil cases.  Can all these cos achieve their objectives?    

Consumer price index for beer increased 2% in Apr vs yr ago, per latest gov’t stats. That’s first time CPI for beer was up 2% or higher since May 2016.  Beer prices closed gap with CPI for all items which increased 2.2% in Apr vs yr ago.  Spirits (-0.5%) and wine (-0.1%) prices were down in month of Apr. Spirits prices have declined last 4 months while wine prices down 7 straight months.  CPI for beer was up 1.7% YTD thru Apr vs 2.5% increase for all items.  CPI for spirits and wine down 0.3% and 0.7% respectively YTD.

Heineken just intro’d "Heineken 0.0" at Spanish Grand Prix in Barcelona, plans to sell it in 14 mkts, across Europe, plus Russia and Israel.  Most brewers, it sez, target specific no-alc brands in individual markets.

On Heineken’s yr-end conference call, CEO Jean-Francois van Boxmeer noted “huge success” of no-alc beer in Spain, where it has near 10 share.  “In the tapas bar you can eat and drink and then people prefer to have a non-alcoholic beer than having a carbonated sweet soft drink with their food,” before they drive home.  “So there are a lot of these occasions,” he added.  “There is the ‘don’t drink and drive’ and not all people want to drink water....  What we know is that there is a potential there,” in no- and low-alc beers, “and we take a ticket to be first row on the development of these products.”  Note too, AB InBev has set an ambitious goal to significantly increase its sales of low- and no-alc beers to 20% of its total volume by 2025.

Meanwhile, tho no-alc beer still less than 0.5% of US biz, the Euro mkt for no-alc beers grew about 5% a year from 2010 to 2015, according to research group Canadean, while overall beer mkt declined.  In addition to zero alc, these bevs have fewer calories.  Heineken 0.0 has half the calories of Heineken or Coke.  No-alcs have traditionally suffered taste issues.  And Heineken brewmaster Willem van Waesberghe acknowledges beer without alcohol won’t taste the same as regular beer.  But he sez Heineken has developed a “brew that recreates some of the fruity, bitter and acidic tastes found in a normal 5% Heineken” via blending two separate brews, Reuters reports.  

AB’s  eye-catching outlay of funds shows that even after SABMiller deal, AB will “keep focus” on US, and it also “reinforces” ABI’s commitment here, ceo João Castro Neves told INSIGHTS.  Such big spending represents a “huge vote of confidence,” he added that will “boost” many state and local economies.  Basically, AB “investing everywhere,” said João.  This capex program “among largest in U.S. brewing history,” according to AB’s release.  

AB will spend “close to $500 million in 2017” alone, including $200 mil in “brewery and distribution projects.” Of that, $82 mil will be spent “to build new state-of-the-art distribution facilities” that will be “right next to”  LA and Columbus breweries, which will “save time” and “guarantee freshness,” according to João.  Another $180 mil goes to“product and packaging initiatives,” including $28 mil in Fort Collins “to expand production” of aluminum bottles and “increase diversity of products through installation of dry hop capabilities.”  And $58 mil more in 2017 alone will “improve and increase sustainability at our facilities.”

AB gets surprisingly granular about some of these investments.  For example, it will spend $10 mil in Baldwinsville, NY “to increase production of non-alcoholic product offerings, mainly Teavana, and to install a new multi-packer.”  AB “really pleased” with Teavana test in 4 states, NH, Vt, NY, Mo, said João.  Teavana will roll nationally by next yr, so this investment one step towards that.  

Or consider AB’s $8 mil investment in Houston “to begin brewing the popular Michelob Ultra Lime Cactus product and to expand aluminum bottle production” there.  Incidentally, Ultra Lime Cactus is a bit of a sleeper.  It’s now a top 20 growth brand in IRI, with $$ sales up 45% yr-to-date thru Apr 29 in IRI multi-outlet +convenience.

AB currently has 21 breweries in US, including its acquisition of 9 craft brewers.  The 10th, Wicked Weed, is pending regulatory approval.  “Ninety eight percent of the beer we sell in America is proudly made here,” said AB veep of supply Dave Taylor.  New cap ex program “will expand” AB’s U.S. operations, “bolster local and state economies, and support over 17,000 jobs” in US.  AB added 2500 employees with craft brewers it acquired.  And AB adding employees at many of craft breweries it purchases.  For example, Blue Point full time employees doubled.  These announcements demonstrate yet again that ABI doesn’t just cut costs; it spends big on projects/campaigns that it believes will build the biz for the long haul.

Almost a decade after Capital Coors Co sold Sacramento biz to DBI (for $72.6 mil) in Dec 2008, it has agreed to pay “about $14 million in tax deficiencies and penalties stemming from unreported capital gains, settling IRS claims that the company owed an additional $40.5 million,” reports Law360.  That amount was tax deficiencies for 2007 thru 2011, plus small penalty.  IRS charged Cap Coors didn’t report about $98 mil in income for disposition of intangible assets, but was “improperly allocated” to key shareholder, Ken Adamson.  That income shoulda been on company’s tax returns, IRS determined.  A few other numbers from Law360 report.  Cap Coors built revs from $3.1 mil in 1970 to $138 mil in 2008.  Cap Coors stipulated in US Tax Court that DBI paid $72.6 mil for Cap Coors, including $17 mil for non-compete agreements signed by Cap Coors execs;  those were “intangible assets in question.”  So, $14 mil is big chunk of change, but looks like it could have been lots more, if IRS got its way.   

We don’t have access to all the info/files, but asked a coupla consultants for comment.  One said tersely: “Don’t be a C-Corp.”  Similarly, a second speculated that “avoiding C-Corp tax pain” explained much here.  Same source suggested distribs: 1) do tax planning and don’t reject  smart tax plan to deny “some unplanned or unpleasant potentiality,” as you gotta prepare for such a possibility; 2) “uncertain” calls on taxes can lead to “substantial economic and public exposure.”