Just as we’re heading into peak-selling season, over 100 workers at Long Island AB distrib Clare Rose, a 10-mil case distrib, went out on strike last night, the story hitting NY newspapers this morn.  “Clare Rose, one of the largest beverage distribution companies in the United States is steadfast in its demands to slash worker pay by 30 percent and eliminate the workers’ defined benefit pension plan,” said Teamsters’ release last week authorizing strike.  This impending strike was subject of discussion at last week’s NY wholesalers meeting in Fla, where Clare Rose execs understandably not in attendance.  Clare Rose reportedly attempting to make transition from driver sales to presales.  Clare Rose ceo Sean Rose declined comment in statement “other than to say that the company’s proposals were made in good faith and designed to eliminate outdated work practices that are virtually non-existent in our industry today.”  

AB InBev stock got unusual 4% bump this morn, but that’s because European stocks way up after French election and ABI a big component of key European exchange, sez source. Outcome of French election “eased concerns about the future of the Eurozone,” noted WSJ.  Separately, “Q1 volumes trends should finally stabilize,” according to Morgan Stanley analysts.  ABI is “worst performing large cap Staples YTD” but this “not the time to give up,” they added.  

“While we do not expect a stellar Q1, we think it will mark a stabilization of trends and a reassuring update on cost savings delivery,” Morgan analysts added.  “Going forward, leading indicators in Brazil are encouraging” and US is “not deteriorating further,” plus “valuation is compelling,” they concluded.  Yet following last week’s release of Mar taxpaids and news that US taxpaids down 3.4% in Q1, Consumer Edge’s Brett Cooper figured that both AB and MC shipments will likely be down 4-4.5% combined in Q1 as “historically” AB and MC shipments “trailed domestic shipments by 50-80” basis points.

Recent rollout in Indiana put Yuengling up slightly in Q1, coo Dave Casinelli told INSIGHTS in wide-ranging talk.  Elsewhere, Yuengling’s makin’ progress off-premise and especially chains, but on-premise and draft remain challenging, Dave acknowledged.  What about Yuengling’s key home-market Pennsy?  Recall, PA made some big retail changes in last yr, i.e. allowing primary off-premise channel to sell smaller pkg sizes and expanding wine sales.  Jury still out, but Dave believes “we’ve traded a lot of packages to smaller sizes.  That’s not helped overall consumption.”  Indeed, PA shipments -6% in Q1, estimates Beer Inst.  Package reform has helped smaller craft brewers; consumers can experiment without buying full case, Dave and Yuengling atty Ted Zeller suggest. Broader wine availability has reduced shelf space in some outlets, Ted pointed out.  But margins still better for beer, he sez.

Expanding taproom privileges challenge traditional Pennsy bars/restaurants, as in other states.  Ted gave example of PA county where a full on-premise license could cost upwards of $450K.  But he can get a brewer started with on-premise rights for $35K.  Lotsa talk from Brewers Assn about craft brewers facing access limitations, especially given expansion/success of AB and MC craft acquisitions.  Constellation too.  Apart from any big supplier pressure, Dave sees some distribs “cleaning house” of brands that don’t move, looking more closely at economics per SKU and getting “more selective” regarding suppliers and SKUs they choose.  Also: Ted and Dave have seen some distrib deals where buyer just not takin’ all of the craft brands in seller’s portfolio.  

Yes, of course, that’s an all-time high.  Up from 40% just 5 yrs ago, according to CBS News Poll reported yesterday.  Over 3/4 of 18-34 yr olds support legalization, and that only drops to 60% among 35-64 yr-olds.  Only majorities of aging boomers and pre-boomers still support criminalization. What’s more, while US atty genl Jeff Sessions continues to talk tuff about pot, “71% oppose the federal government’s efforts to stop marijuana sales and its use in states that have legalized it…. Even among those who think marijuana should be illegal, only half think the federal government should get involved with the states.”  Why have Americans gotten so supportive of legalization?  Three key reasons. Same polls show: 1) half of all Americans now say (admit?) they’ve tried pot; 2) only 23% believe legalization increases violent crime while 22% think it decreases violent crime; 3) over half of Americans (53%) say alcohol more harmful than pot, 28% say they’re equally harmful and only 7% say pot more harmful.  (9% say neither is more harmful, which we’re thinking are regular users of both.)  So, the extraordinary gaps between Americans’ attitudes about pot (88% support medical marijuana, by the way), the fed govt’s treatment of it and state laws continue to widen.  What’s gonna give?

As we reported earlier this week in sister publication Alcohol Issues INSIGHTS, fed govt in Canada introduced legislation last week to legalize recreational use there by July 18.  Many noted that the bill left many decisions about sales, taxes and regulations unresolved and left them up to individual provinces.  Was this bill a “mish mash of vagueness,” as one National Post columnist charged?  Or should the “less is more” approach be praised as it will give system “flexibility to adapt” as health science prof opined in The Globe and Mail?  It depends.  Of course, both drew analogies to alc bev biz in Canada.  Critic of bill’s vagueness and failure to create a way to “control sales and provide a uniform, regulated market” by allowing 10 provinces to make decisions on key aspects lamented that provinces have “failed so miserably to adopt a sensible approach to cross-border beer and wine sales.”  But the states’ rights supporter (whoops, provincial rights), praised ability of system adopted after alcohol Prohibition (in Canada) that was “flexible enough to make changes on the fly.” That allowed govt authorities to “adjust their regulations as the system unfolded” and “tweak” them “until they got the balance right.”   Colo pot law that “laid out most of the fine details of the control that would be put on the system,” he wrote “might prove problematic in the long run.  For example to change the amount of weed a visitor could buy would require another constitutional amendment, something even more difficult than legislation.” So, “best way to ensure success” of legalization, in his view, is to give “responsibility for many details to the provinces,” given diversity of opinions, attitudes toward pot in Canada.  Sound familiar?  

Could be Save Our Souls, Save Our Sales, or Same Old Song.  Pick it.  In any case, spirits sales, at least in 16 control states, did not suffer same Q1 softness as beer biz Jan-Mar.  Spirits volume up 2% in Q1 in these states, following 4.4% pop in Mar.  Beer volume (shipments) in same states in Q1: -4%.  So a 6-pt gap in liquor vs beer trend.  Meanwhile, spirits volume +2.3% for 12 mos in control states, slightly off recent pace.  Liquor dollar sales up 4.3% for 12 mos.  In beer, running 12-mo US trend (taxpaids thru Mar, imports thru Feb) down about 0.6%, according to Beer Inst data. At upcoming INSIGHTS Seminar in Chicago May 15-16, we’ll explore spirits outperformance vs beer with veteran liquor exec/Sazerac prexy Mark Brown.  Promises to be lively and enlightening.  See below for more on our outstanding program.    

“Change is at hand,” began Constellation chief Commercial officer Bruce Jacobson in speech to NY distrib meeting in Naples, FL yesterday.  “Do you see it coming?”  What Constellation characterizes as “high end” (everything over $25 per case) is already 59 share of the volume in NYC metropolitan IRI data, Bruce shared. And at important NY retailer Wegman’s, high end is 74 share of $$ while at another, Stop & Shop, it’s 67. High End is over 50 share of category $$ statewide.  He used this data to illustrate with a local example Constellation’s vision of where beer biz heading even more: towards the high end.

Bruce laid out that vision with much of same material he showed at Constellation’s Gold Network Summit earlier this yr.  Recall, Constellation believes the industry will stay pretty flat for next 3 yrs, the high end will gain 128 mil cases, while the “low end” (everything below $25) will lose 123 mil cases.  This projection actually embeds slower growth for high end over next 3 yrs (4% CAGR) and less steep declines for premiums and subpremiums than occurred in recent yrs (-2.2% per yr).  Trends for 2013-2015 were 8% growth per yr for high end and -2.6% for low end.  Constellation expects to get half of that high-end gain (64 mil cases), capturing more than all of the growth in imports (48 mil cases).     

Modelo Especial has goal just shy of 100 mil cases this yr, Bruce noted and is on track.  Modelo Negra was running along at 6% growth, but since Constellation began marketing it as part of Casa Modelo, “we can’t keep it in stock.”  And Pacifico “not really very big” in NY “at this point in time,” but it sells over a half mil cases in San Diego county alone, Bruce pointed out.   

Bruce also showed shelf set with growing SKUs in green, declining SKUs in red.  “Look at the amount of red on that screen,” he said, adding “domestic section of cooler almost all red.” He pushed on this theme: “We have assets that aren’t helping drive the business forward.”   In a local mkt visit, Bruce found 13 SKUs of 16 oz cans all priced at $7.00.  That “doesn’t sound consumer driven,” he said.  In another store, Bruce found 19 SKUs of 16 oz cans within a $1 price range. “I don’t think they’re looking for” that either.  He implored all distribs in room to “Lead to the Future” vs having “loyalty to the past.” Some of AB distribs (who don’t have Constellation in NY) bristled at Bruce’s remarks.  

In same yr that industry members across tiers came together to support measures bringing limited direct sales by small brewers to all 50 states, battles elsewhere rage on. And in some states, continued market shifts seem to only exacerbate battles, pushing parties to take new tacks. Mississippi Gov signed a bill clearing small brewer taproom sales after brewers/distrib orgs agreed to draft language last fall. Yrs-long debate over taprooms softened in Georgia too, where bill to fully legalize taproom sales waits for the gov’s final approval. But brewers of all sizes and distribs far from on the same page in Texas, while folks in North Carolina have opened up completely separate books.

A handful of NC brewers butting up against 25K-bbl self-distribution cap want to see that raised, unwilling to turn over distrib rights to wholesalers. Group got one bill intro’d lifting it to 100K bbls, some legislators drafted another pushing it to arbitrary 103,091 bbls and NC Brewers Guild worked with legislator to intro Omnibus Bill with provisions to make a number of minor code changes, raise cap to 200K bbls and oh-by-the-way reform NC franchise law. That was clearly a no-go for distribs. So they went in a new direction, using Dept of Revenue data showing at least 38 small in-state brewers “not in total compliance” on taxes to support a bill to increase tax reporting. Many brewers not even set up to collect taxes, so why extend self-distrib privileges, distribs argued. At least that many NC brewers less than 1 yr old, NCBG reminded. But this week, sponsor of Omnibus Bill pulled self-distribution and franchise provisions in hopes to move forward with smaller changes that would be beneficial to all in-state brewers. Brewers nearing cap now considering legal action, unlikely to build consensus, but apparently “our only path to success,” NoDa Brewery owner Todd Ford told Charlotte Observer.

In Texas, a distrib-backed bill would shut down taproom sales and self-distribution for small brewers connected to larger ones. It makes seemingly minor changes to 4-yr old laws allowing on-premise taprooms sales at breweries that produce less than 225K bbls and self-distribution of up to 40K bbls from breweries that produce less than 125K bbls. Distribs want those caps to be inclusive of volume produced at “all premises owned directly or indirectly by the license holder or an affiliate or subsidiary.” That puts kibosh on those 3-tier exceptions for not just AB-acquired Karbach and MC-acquired Revolver, but also very likely new Oskar Blues brewery in Austin, Independence Brewing, which sold stake to Lagunitas, and any other small Texas brewers working to link up with another larger brewer or significantly grow their biz down the line.   So inter-tier relations and regs still in flux in both NC and Tex.

Following big changes in Colo and Okla last year, Kansas legislators passed law allowing grocery and c-stores to sell beer up to 6% ABV starting in 2019. Til then they’re still limited to 3.2 beer. As in Colo, indie liquor stores pushed back against chain-driven attempts to expand options. Gov signed “compromise” allowing stronger beer sales, not including wine, while giving liquor stores option to sell cigs, lottery tickets, mixers and ice, previously barred. Move further questions future of 3.2 beer, as state after state with separate rules for weaker beer drop or at least adjust them.

Stein Dist, Odom and Marine View now in arbitration with Columbia Dist in Washington over value of rights to distribute Pabst brands in wake of Pabst moving them to Columbia late last mo.  Recall, Columbia offered 2.75X GP for Pabst/Rainier, 3.5X for Not Your Father’s/Tsingtao, 2X and 2.5X for others.  Distribs rejected offer.  Meanwhile, their lawsuits vs Pabst continue.  Pabst argues compensation for distrib rights, to be paid by successor distrib, is “exclusive remedy” for termination under WA law.  Distribs insist “Pabst is wrong,” that compensation is “additional” remedy, that they have separate claims vs Pabst and arbitration with Columbia and lawsuit vs Pabst for illegal termination can run concurrently.

Stein Dist, Odom and Marine View now in arbitration with Columbia Dist in Washington over value of rights to distribute Pabst brands in wake of Pabst moving them to Columbia late last mo.  Recall, Columbia offered 2.75X GP for Pabst/Rainier, 3.5X for Not Your Father’s/Tsingtao, 2X and 2.5X for others.  Distribs rejected offer.  Meanwhile, their lawsuits vs Pabst continue.  Pabst argues compensation for distrib rights, to be paid by successor distrib, is “exclusive remedy” for termination under WA law.  Distribs insist “Pabst is wrong,” that compensation is “additional” remedy, that they have separate claims vs Pabst and arbitration with Columbia and lawsuit vs Pabst for illegal termination can run concurrently.