Beer biz should be thankful that Amazon isn’t big as beer retailer.  At least not yet.   Amazon has invited some of world’s biggest brands to its Seattle hq “in an audacious bid to persuade them that it’s time to start shipping products directly to online shoppers and bypass chains like Wal-Mart, Target and Costco,” reported Bloomberg.   Yikes.  This will be a 3-day meeting in May.  Attendees already include big CPG cos like General Mills and Mondelez.  “Amazon is looking to upend relationships between brands and brick-and-mortar stores that for decades have determined how popular products are designed, packaged and shipped.”  Here’s Amazon’s language in invite: “Times are changing.  Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency.  To achieve this requires a major shift in thinking.”  And in alc bevs, would require a shift in law in most states.  Scary stuff.  

What’s more, Amazon and Walmart now “in an all out price war that is terrifying America’s biggest brands” in other consumer packaged goods, headlined Recode mag last Thursday.  “Grocery suppliers are feeling the squeeze—big time,” it added.  Walmart has “renewed focus” on “Everyday Low Price” at same time as “Amazon’s increased aggressiveness in its own pricing” and “obsession with customer value dominates its strategy.”  Result: “a high stakes race to the bottom….  The pricing pressure has ignited intense wargaming inside the largest CPG companies,” sources told Recode.  Amazon even “willing to lose money for some period of time on a product it feels it has to have.”  Sometimes Amazon will price per unit at same price as Costco (which sells in bulk) even if it doesn’t get same wholesale price. “When Walmart sees this it freaks out on the supplier,” execs say.  Unprofitable items are known inside Amazon as “CRaP,” i.e. “can’t realize a profit.”  But it will play hardball with suppliers “and is not afraid to kick off big and small brands alike.”  One Friday last mo, Pampers diapers were suddenly “unavailable on the site.”   One of Amazon’s demands from suppliers: “to lower wholesale prices.”

Beer biz should be thankful that Amazon isn’t big as beer retailer.  At least not yet.   Amazon has invited some of world’s biggest brands to its Seattle hq “in an audacious bid to persuade them that it’s time to start shipping products directly to online shoppers and bypass chains like Wal-Mart, Target and Costco,” reported Bloomberg.   Yikes.  This will be a 3-day meeting in May.  Attendees already include big CPG cos like General Mills and Mondelez.  “Amazon is looking to upend relationships between brands and brick-and-mortar stores that for decades have determined how popular products are designed, packaged and shipped.”  Here’s Amazon’s language in invite: “Times are changing.  Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency.  To achieve this requires a major shift in thinking.”  And in alc bevs, would require a shift in law in most states.  Scary stuff.  

What’s more, Amazon and Walmart now “in an all out price war that is terrifying America’s biggest brands” in other consumer packaged goods, headlined Recode mag last Thursday.  “Grocery suppliers are feeling the squeeze—big time,” it added.  Walmart has “renewed focus” on “Everyday Low Price” at same time as “Amazon’s increased aggressiveness in its own pricing” and “obsession with customer value dominates its strategy.”  Result: “a high stakes race to the bottom….  The pricing pressure has ignited intense wargaming inside the largest CPG companies,” sources told Recode.  Amazon even “willing to lose money for some period of time on a product it feels it has to have.”  Sometimes Amazon will price per unit at same price as Costco (which sells in bulk) even if it doesn’t get same wholesale price. “When Walmart sees this it freaks out on the supplier,” execs say.  Unprofitable items are known inside Amazon as “CRaP,” i.e. “can’t realize a profit.”  But it will play hardball with suppliers “and is not afraid to kick off big and small brands alike.”  One Friday last mo, Pampers diapers were suddenly “unavailable on the site.”   One of Amazon’s demands from suppliers: “to lower wholesale prices.”

Beer biz dropped further, down 2.3% for 4 weeks thru 3/25, in all outlet Nielsen scans.  Beer category now down almost 1 full point yr-to-date, pulled down by timing of Easter and bad weather in Calif, as Goldman Sachs analyst Judy Hong noted.  But first qtr retail sales sure look soft, with shipments likely to be even softer, considering that AB and MC had to work thru excess inventory they built at end of 2016. AB down almost 4% for 4 weeks (-3.9%) and MC down 3.3%. Each brewer down 2.3% YTD.  

Imports still big winners so far this yr at retail.  Import volume up 5.8% yr-to-date, tho just 4% for 4 weeks.  Gained 0.9 share of volume, 1.2 share of volume.  Constellation virtually all of that.  Up 12.5% YTD.  Corona brand up 7%, Modelo Especial +18% YTD.  Heineken up 2.8% (tho flat for 4 weeks), Dos Equis up 1%, and Stella up 14%.   

Shipments numbers continue to come in soft.  Imports dipped 37K bbls, 1.4% in Feb, reports Beer Inst economist Michael Uhrich based on Commerce Dept data.  Mexican shipments finally stumbled, off 5%.  Dutch, Canadian and UK shipments down too for the month.  But Belgian, Irish and German shipments up, including doubling of German shipments. For 2 mos, imports slowed to 5% gain, up 205K bbls.  That didn’t offset much of big 960K-bbl, 3.7% decline for domestic brewers’ taxpaid shipments Jan-Feb, estimated by Michael.  So US shipments down 750K bbls, 2.4% yr-to-date, thanks to loss of Leap Day and inventory drawdown.

Mexican shipments up just 47K bbls, 1.4% Jan-Feb.  Be interesting to see what Constellation reports for its Dec-Feb fiscal qtr later this week.  Mexican shipments up 4% for that period.  Meanwhile, Dutch shipments up 70K bbls, 9.5% for 2 mos.  Belgian shipments flyin’ again: up 51K bbls, 26% Jan-Feb.  Irish and UK shipments down 23% each.  And Canadian shipments down 9%.  But German shipments jumped almost 100K bbls, more than doubling in short period.   

Brewers of PA’s annual hi-profile Meeting of the Malts event attracted a crowd of about 500 for a discussion of the beer biz at the Arts Quest Center at Steelstacks in Bethlehem last week.  New kind of industry event (and assn fundraiser) brought consumers and industry members together in cool, modern space with commanding steel “sculptures” as backdrop outside.  (They are imposing relics of bygone Age of Steel). Consultant Bump Williams moderated a panel of beer heavyweights including Yuengling prexy Dick Yuengling, Boston Beer chairman Jim Koch, Firestone Walker co-founder David Walker, plus Left Hand’s co-founder Eric Wallace. Audience a mix of consumers, craft brewers, journalists, politicians and distribs.  Distribs from several surrounding states attended, perhaps hoping that they might be next to get Yuengling brand.  (This article also appeared in our Craft Brew News.)

Leave it to Left Hand’s Eric (smallest player in bunch) to come up with the catchiest quote:  “A reckoning is coming,” he said, adding sharply “if you’re not running a good business, you’re f—d”  and admonishing craft brewers and even distribs to “get your act together.”  Editor’s note: Eric’s comment one of several strong quotes last week that ratcheted up rhetoric about next phase for craft.  In North Carolina, Old Mecklenburg founder John Marrino talked of “coming trainwreck.” And Brooklyn CEO Eric Ottaway told us: “No question there is a shakeout in craft happening at every level.” Strong words.

Yet this incredible proliferation of craft brewers is “good for the consumer” and good for beer biz, said Jim at press conference prior to panel.  Larger craft brewers should “embrace” and “accept” this phenom.  “Our job is to make it good for us…. And if we can’t do that, shame on us.”  Yuengling prexy Dick Yuengling thinks it’s “great” for consumers that this trend “getting people off the national brands,” tho he doesn’t like that big brewers now buying up small brewers.  “We’re fine,” he told audience later. Yuengling “down a little” in barrelage, but “we’ll be back.” Yuengling just entered its 20th state Indiana and redesigned its package for first time in decades.  Boston chairman Jim said that of craft brewers who were there when he started in ’84, only he and Sierra founder Ken Grossman are still around.  There are near 400 craft brewers in Colo now, compared to about 30 when Eric started 23 yrs ago and that has “forced everybody to get better,” said Eric.  

Runaway success of Firestone Walker’s 805 brand as “just sort of serendipity,” said David.  Brand now over half FW’s biz and still growing dramatically, tho only in 4 states (still mostly in Calif).  “We just listened to the customer,” “noticed what was going on,” i.e. essentially that consumers viewed area code as a “lifestyle” and a “moniker.” If there’s “anything smart that we did,” it’s “just basically listening.”   

On Consumer, Distrib Relationships; Taprooms and 3-Tier  Rise of taprooms related to some distribs “holding brands hostage” and “burying” them, said Eric. That “results in clever, driven, passionate brewers” coming up with new ways to sell their beer.  “Most precious relationship” for craft brewers is with “their consumers,” said David. “Local will continue to play a huge role…. We live in a world” of direct-to-consumer experiences and “people are seeking it…. If people want to buy their beer directly, they’re going to find a way to do it.”  Several comments related to 3-tier system.  Jim told audience “crazy as it seems,” brewers “have to sell” thru a distrib to a “bar down the block” which is “almost un-American.” However, he then went on to say he “loves” distribs, pointing to how they insulate him from Wal-Mart, when it wants lower price.  Firestone’s David Walker compared 3-tier system to “elephants at a tea party,” i.e. “someone’s always getting sat on.”  He also said “very nature of three tier” is “somewhat of a barrier.”  But “two tier world is tough” on smaller suppliers. He concluded 3-tier is “ultimately the best system” even if it’s “not perfect” or “ideal.”  

Heineken USA promoted Felix Palau, who spent past 2 yrs as mktg veep on Tecate, to sr veep on mothership Heineken brand.  Previous sr veep Ralph Rijks “is returning to Holland with his family,” said HUSA.  After losses in 2013-14, Heineken brand eked out very slight shipments gain last 2 yrs (less than half of 1 %), but it’s still way off peak. It started out 2017 up 2-3% in scan data.   Felix “led the implementation” of Tecate’s “Born Bold platform that’s helped Tecate experience substantial growth.”  Tecate family up each of last 3 yrs, INSIGHTS figures, driven by Tecate Light, which jumped 295,000 bbls, from 170,000 bbls to 465,000 bbls in 3 yrs.  Tecate used to outsell  Tecate Light 10x in 2012, but less than 2 to 1 in 2016.  Taking Felix’s place on Tecate is Esther Garcia, who spent past 2 yrs as “our Innovation team lead.”  

While Diageo’s US malt bev biz lookin’ up (see Mar 30 Express), Goldman Sachs’ Mitch Collett sees some weaknesses in much larger US liquor biz and just downgraded Diageo from neutral to sell.  Key weaknesses: below-mkt rev growth, softer pricing and mkt share losses.  Then too, Diageo not as strong in a coupla fastest-growing spirits categories: bourbon and tequila.  Mitch also noted slowdown in overall liquor biz last 3 mos from control state and Nielsen data, and expects that to continue.  Add it up and he thinks Diageo’s rev growth may accelerate from recent yrs, but “remain below the  company’s medium-term target of mid-single-digit growth.”  And that will lead to “more muted margin progression and organic EBIT growth over” next few fiscal yrs.     

US is “comfortably Diageo’s largest operation,” Mitch reminds, 31% of net sales and fully 45% of EBIT.  And Diageo has boosted EBIT margin from 35.4% in fiscal 2010 to 43.5% in fiscal 2016.  Further expansion may be a challenge, he believes.  Deeper dive shows: 1) Diageo has lost share in US liquor biz “since at least 2011”;  
2) hottest brands in biz ain’t Diageo brands, as Fireball whiskey and Tito’s vodka jumped from #45 and #75 in 2012 to top 5 now in NABCA data; 3) even some of Diageo’s strongest  brands – Smirnoff, Johnnie Walker and Ketel One – have lost share over last 12 mos; 4) Diageo has gone from above mkt price/mix growth to “lagging and the gap appears to have expanded in recent months”; 5) more recent lower price/mix hasn’t closed Diageo’s “growth gap”; 6) data suggests Diageo is losing share on and off premise “despite price/mix converging with the overall market.”  Net-net: Goldman expects US spirits mkt to slow and that Diageo will “continue to underperform.”  That’s despite its “price investments, given the decline in pricing appears more permanent,” along with mkt fragmentation and rise of smaller brands.  Note parallels here with AB and MC, which are also losing share, chasing growth in hot segments and getting less pricing.

Bud Light $$ sales fell 8.6% in Calif foodstores last yr in IRI data, while Modelo Especial jumped 19.7%, data published by consultant Bump Williams showed.  Bud Light sales at $140.4 mil, compared to Modelo Especial at $137.8 mil.  So Modelo Especial will almost certainly pass Bud Light in grocery in largest state in 2017.  Total Calif tracked beer sales of $1.6 bil in foodstores, fully 15.3% of $10.4 bil tracked nationwide by IRI last yr.  

Bump used same data to make a different point: rise of local craft.  In Calif foodstores, Lagunitas IPA $$ sales up 5.2%. It was #12 brand with a 1.5 share of $$.  Sierra Nevada Pale #14 brand, down 4.6%, with 1.3 share of $$.  And Firestone Walker 805 up 62%.  It grew to become #15 brand statewide (even bigger in SoCal) also with a 1.3 share of $$.  Those 3 craft brands totaled $$ sales about the same as #5 brand Budweiser.

Other big brands besides Bud Light also suffered in Calif foodstores.  Brands #3-5 each down mid-single digits.  Coors Light $$ sales down 4.8%, Corona down 6.6% (!), Bud down 5.2%.  Heineken also down 6%, Tecate down 8.5%, Miller Lite #9 and down 3.9%.  Of top 10 brands, 2 other imports gained: Stella up 6.2% and Pacifico up 5%.   Modelo Especial easily passed Bud Light in LA mkt in 2016 scan data.

AB has lost 10% of its volume in Calif in just last 2 yrs.  Despite all its efforts there, and with many branch operations, AB dropped 446,000 bbls, 5.5% in Calif last yr alone.  It lost 386,000 bbls, 4.5% in 2015 too.  So in 2 yrs, AB down 830K bbls and lost 3.5 share in nation’s largest mkt.  AB peaked at half the Calif mkt in early 90s.  But last yr, it fell to under 1/3 as Calif share dropped 1.6 points to 32.9.   MC also taking it on chin.  Down over 5% each of last 2 yrs.  It lost over 500,000 bbls, 10% in last 2 yrs to 4.5 mil bbls.  And its share fell to 19.1. So top 2 got just over half of Calif mkt, compared to over 2/3 of natl mkt (and they used to be more than three quarters).

The big winners are clearly Constellation and Calif craft.   Constellation’s rise is almost as remarkable as rapidity of AB and MC declines.  In last 2 yrs, Constellation jumped over 700,000 bbls, almost 20% to 4.3 mil bbls.  Grabbed 3 additional share to 18.3.  Up 7.7% last yr, a slight slowdown compared to double digit growth in each of prior 3 yrs.   If present trends continue (and they did in first quarter), Constellation will pass MillerCoors in volume in 2017.  Meanwhile, All Others (mainly craft) also on a resounding run.  Up 813,000 bbls 20% last 2 yrs.  Gained 3.4 share to 21.5.  Think of it, AB and MC lost 1.35 mil bbls between ’em in just last 2 yrs in Calif, while Constellation and All Others (mostly Calif craft) gained over 1.5 mil bbls.

South Carolina law that limits corporations to 3 off-premise retail licenses “is an example of market regulation that exceeds constitutional bounds,” SC Sup Ct just ruled, reversing lower court and tossing the law.  Total Wine & More has 3 stores in SC.  Remarkably, it sought a 4th license, and when it was denied, it sued.  While lower ct upheld law as within scope of state’s police powers, Sup Ct disagreed.  While SC Constitution gives state “broad mandate” to regulate alcohol, judges wrote, “the ability to regulate is not as far-reaching as” SC Dept of Rev believed.  Its “extreme industry regulation” in this case fell primarily because Dept of Rev “repeatedly stated to this Court during oral argument that the only justification for these provisions is that they support small businesses.”  Apparently, no arguments made at hearing to support regs for public safety, temperance, orderly mkts, etc that usually accompany such defenses.  Without those justifications, “economic protectionism for a certain class of retailers is not a constitutionally sound basis for regulating liquor sales,” the majority ruled.  Besides that, statutes themselves and overall scheme in SC “lend further support” to Total’s position, they found. “Ultimately,” the Dept of Rev’s “position amounts to ‘it’s just liquor,’” as in alcohol is unique, “which is not a legitimate basis for regulation.  Under this rationale, market regulation – no matter how oppressive – cannot ever be said to be unconstitutional.”  And these judges rejected that rationale.  So Total wins another state battle.

Defenders of broad states’ rights to regulate alc bevs will take some solace from dissenting judge’s lengthy opinion.  He pointed out that other justifications for law were included in briefs and argued.  Also pointed to cases in Mass, NJ and NH where courts upheld similar restrictions and why they did so, i.e. to promote temperance, “trade stability” etc.  Same judge noted Total unsuccessful in getting legislature to change law and observed that it looks like Total “is therefore attempting to accomplish through the Courts what it has been unable to achieve properly through the General Assembly.”  He even chastised his colleagues: “Regrettably, Appellant [Total] has persuaded a majority of my colleagues to take the bait and act as a superlegislature,” allowing Total to bypass the Assembly.  Finally, he even pushed back on the “it’s only liquor” charge and makes argument that alcohol is indeed “a unique commodity amenable to unique restrictions.”