As noted above, even amidst tuffer time in craft, especially for established craft brewers, some of larger craft brewers still putting up very good trends.  Lagunitas, Bell’s and Firestone Walker all growing double digits again in all channels so far in 2017, brewery sources tell us.  Lagunitas depletions up about 12% domestically with 1 week to go in 3d qtr, it said.  And its intl biz more than doubling.  Bell’s up 10.2% in 1st qtr, founder Larry Bell told INSIGHTS, boosted by strong intro in big Tex.   And Firestone Walker up 22% in Q1, sales & mktg veep Dave Macon told sibling publication Craft Brew News.  Brooklyn returned to 4-5% growth domestically, significant since it was down in US last 2 yrs. It seems that some sizable craft brewers are navigating a way forward amidst the stormy seas.  

With most of 1st qtr done,  yr-to-date trends soft in IRI multi-outlet + convenience thru Mar 19. Each of AB and MC down 2.1% yr-to-date.  They lost over 1 share point of volume between ‘em and almost 1.5 share of $$.  Constellation still gaining most of that.  Its volume up 12.9%, 0.9 share and $$ up 14.4% and 1.2 share.   AB avg prices up near 1%, MC flat, Constellation avg prices up about 1.3%.  Some surprises in data too.  

Diageo Beer Co Up Near 5%, Driven by Guinness;  Pabst Down 9%  HUSA volume down 0.7% YTD.  Pabst still getting hit hard.  Volume down 9% and $$ sales 17% YTD.  Volume share fell 0.36, to just 1.7 share. Boston volume down 6%.  But Diageo Beer Co USA picked up steam in early 2017. Its biz up 4.8%  thru Mar 19.  Growth driven by Guinness brand, with its Guinness Draught and Guinness Extra Stout each up 8-9% YTD and double digits for 4 weeks (must have been a happy St. Patrick’s Day indeed).  NAB down 4% in this data set (doesn’t include Seagram’s).

Craft Up 2%, But Lotsa Variation; FMBs Down 7.5%  Total craft segment up 2% as defined by IRI, but big variety of trends within that, which one distrib called a “hodgepodge.”  (See below).  Imports up 7%, but FMBs down 7.5%.  Tuff trends there. Yet Mike’s still rock-solid, up 7%.  Meanwhile, Yuengling down 3% YTD, compared to 4% growth in IRI last yr.  Here are a few craft brewer trends to get idea of what a mixed bag it is:  Sierra down 10%, New Belgium up 5%, CBA down 6%, Deschutes down 8%, Gambrinus down 3% among top craft brewers.  Yet Lagunitas up 15.5%, Founders up 45%, Bell’s up 25%, Firestone Walker up 29% in IRI (see below for some all-channel trends).  SweetWater back to 19% growth.  

Bud Brands Takin’ A Hit, While Ultra, Stella and Goose IPA Rockin’ AB softness driven by its top 2 brands.  Bud Light down 3.6% and Bud down 5.6% yr-to-date in IRI MULC.  The two brands off over 3 mil cases, slightly more than AB has lost as a whole. Meanwhile, Mich Ultra up 20% and gained 1.9 mil cases.  Stella also up 15%.  Goose IPA up 33% and a top 10 craft brand.  MC’s top 2 brands down just slightly.  Coors Light down 0.3% and Miller Lite down 0.7%.  But it has fewer bright spots and softness more widely dispersed.  Constellation strong across-the-board, with several up-and-comers.  Corona up 7%, Modelo Especial up 20%, Corona Light up 1.7%.  But Pacifico up 23%, Modelo Chelada up 24% and Modelo Negra up 29%.   Not bad.   

Don’t miss the Beer INSIGHTS Spring Conference May 15 and 16 at the Four Seasons hotel in Chicago.  Top notch speakers will provide the most up-to-date, wide-ranging and in-depth picture of the ever more important High End of the US beer biz, including leaders of craft, imports, superpremiums, FMBs, and spirits.  Just added, AB mktg veep Marcel Marcondes on what makes Mich Ultra, hottest brand in beer biz, tick.  

Our exceptional program also includes:  Constellation Brands Beer Division chairman Bill Hackett and prexy Paul Hetterich on the past, present and future of the fastest growing beer co, now #1 in high end; Mike’s Hard Lemonade prexy Phil Rosse as co returned to #1 in FMBs and posted 2d biggest volume gain in beer biz in 2016; plus two craft panels to explore this dynamic segment.  One features Lagunitas founder Tony Magee and Goose Island prexy Ken Stout, along with just-added Rhett Keisler, founder and prexy of Revolver, recently acquired by MC.  The other includes New Belgium founder Kim Jordan, Brooklyn Brewery ceo Eric Ottaway & Karl Strauss ceo/co-founder Chris Cramer.  You’ll also get an in-depth quantitative look at the High End, both on and off-premise, from Nielsen sr veeps Danny Brager and Scott Elliott.Sazerac president Mark Brown will give you some fascinating perspective on how spirits has outperformed beer in recent yrs.   Program kicks off with a timely overview of the US beer with a focus on the high end by BMI’s Benj Steinman. Learn more.  Register here.

While Columbia sent letters to Odom, Stein and Marine View with offer for distribution rights (see above), court battles continue.  Pabst filed very brief motions to dismiss each of their suits or have fed ct order arbitration with Columbia.  Under Wash franchise law, Pabst insists, these distribs have “no claims against Pabst.”  Indeed, “Pabst is not subject to damages for terminating” these agreements, it argues.  Distribs’ “only recourse after termination is to seek payment from Columbia, the successor distributor.”  Motion cites section of law that sez terminated distribs “entitled to compensation from the successor distributor” for inventory and fair mkt value of distrib rights.  Wash law, Pabst continues, “specifically contemplates a situation like this case, where a supplier has terminated one distributor’s distribution rights in favor of another, and expressly provides that the terminated distributor’s sole right is to be compensated for the fair market value of those rights,” by successor. By limiting terminated distribs’ remedy, Wash law “allows Pabst and Columbia to move on with their new distributor agreement” while ensuring terminated distribs get paid.  “Sole recourse” for distribs, Pabst repeats, is compensation. All of the distrib contracts “expressly incorporate” Wash law, Pabst points out.  What’s more, distrib lawsuits are “precisely what” Wash law “meant to avoid,” Pabst argues.  Compensation requirement “would be meaningless” if terminated distrib could ignore the law and “file an action such as in the present case.”  Act also provides that if Columbia and distribs can’t agree on compensation, it goes to arbitration.  If they reject Columbia’s offer, “Court must direct” them to arbitrate, Pabst concludes.  

Wash Law Does Not Limit Terminated Distribs to FMV Compensation, Distribs Argue  Not surprisingly, distribs have very different interpretation of Wash franchise law.  They seek summary judgment from fed judges to agree with their interpretation.  In distribs’ view, Wash franchise law: 1)  does not make compensation by successor distrib an “exclusive remedy” for terminated distribs; 2) does not require terminated distrib to arbitrate claims vs supplier; 3) does not allow suppliers to terminate without cause.  Distribs say court has to consider all parts of franchise law which they say offers broader protections vs termination.  Instead of being exclusive remedy, section that requires successor distribs compensate for distrib rights is an “additional remedy.”  “According to Pabst,” distribs argue, “a supplier pays nothing and has no obligation, no matter how wrongful its termination or significant the damage it caused.  Pabst is wrong.”  Compensation requirement did not limit distrib rights, but rather “expands them” with additional remedy.  Nothin’ in franchise law suggests compensation is “exclusive” remedy or shows legislators’ intent to limit distribs’ rights to seek others. Indeed, other parts of law “implicitly recognize that distributors have other remedies against suppliers.”   

Distribs cite other beer franchise laws that do set out exclusive remedies and cite court cases from other states, specifically Calif, that suggest requirements to arbitrate fair market value with successor distribs do not preclude claims vs suppliers for breach of contract.  What’s more, “an arbitration to determine the fair market value of distribution rights” under Wash law, “can readily proceed against a successor distributor in parallel with a lawsuit resolving contract, tort and other statutory claims against the supplier,” distribs say.  Similarly, nuthin’ in law requires terminated distribs to arbitrate anything with suppliers, they add.  Finally, “The Act authorizes a supplier to terminate distribution rights under certain circumstances – but not without cause.”  While compensation section refers to termination “for any reason other than cause,” that “does not implicitly authorize suppliers to terminate distribution without cause as Pabst will argue,” distribs argue.  They cite Wash Supreme Ct decision in previous distrib case (Mt Hood) which ruled state franchise law “enhances contractual rights and responsibilities” between distribs and suppliers, “generally prohibiting suppliers from terminating contracts with distributors without cause or notice,” (as Pabst did here).  If legislature wanted to allow suppliers to terminate without cause, distribs conclude, “it would have used those words in the Act…. It did not.”

Cheaper than Bud with mail-in rebeate?  Not exactly the image Boston Beer has projected over last 30+ yrs.  We saw picture of ad with Sam Adams Boston Lager offered for $5.98 per six and with purchase of 4 six- packs, consumers can make use of $10 mail-in rebate, getting to final price of $3.48 per six.  

Boston biz soft so far in 2017.  “We estimate that on an underlying basis, Boston Beer’s depletions are running down 8.5%,” wrote Consumer Edge’s Brett Cooper, noting that scan data “has been a very good predictor of depletion trends.” But in 1st qtr, “we believe” Boston depletions even softer and “will be down 11.5-12%.”  Why?  Calendar shifts and timing of Easter (2d qtr this yr, 1st qtr last yr) will hit Boston trend by about 3 points.   Recall, Boston reported depletions for 1st 6 weeks of yr down 15%.   

Meanwhile, Boston Beer volume trends actually improved overall in latest 4 weeks of Nielsen data.  Still down 4.8% for 4 weeks thru Mar 18 in Nielsen all-outlet. But that compares to 7% drop yr-to-date.  Sam Adams franchise still down about 19% for 4 weeks, compared to 20% YTD.     

Two weeks after 3 Wash distribs filed lawsuit in fed court over Pabst terminations, megadistrib Columbia (which got the Pabst brands) sent letter to principals of the 3 distribs, Odom, Stein and Marine View, detailing what it is offering.  Mar 15 letter from Columbia prexy Chris Steffanci sez that following terminations: “Pabst has entered into new distribution agreements with Columbia Distributing for the territories you previously serviced” and that in accordance with Wash law, Columbia “has purchased your remaining inventories for their laid-in costs.”   

Now Columbia wants to talk turkey.  “Columbia is ready, willing and able to provide compensation to you for the fair market value of the terminated malt beverage distribution rights.”  How much?  3.5x trailing 12-mo gross profit for Not Your Father’s and Tsingtao.  But 2.75x for Pabst and fast-growing Rainier, 2.5x for Dog Tag and Olympia and 2x GP for “all other malt beverage brands” that moved to Columbia.  “Please let us know if any of you would like to discuss our proposal individually or collectively.” If no agreement reached, Columbia “is prepared to arbitrate” with each distrib.

Not easy these days bein’ a global brewer, given threats of “border adjustments,” foreign exchange woes and local politics.  Fascinating twists and turns pop from WSJ article today on efforts by Mexican farmers who “erected a banner demanding that Mr. Trump stop a large brewery being built” in Mexicali by Constellation.  It’s the west, so it’s about water, natch.  Farmers complain that water table there dryin’ up for decades, that state’s done nuthin’ to help them but helpin’ out Constellation with improvements.  Constellation responds that Mexicali “has enough water to provide us,” that brewery will use just 1% of valley’s supply which is actually plentiful.  WSJ quotes professor who supports Constellation and state govt’s effort to attract more industry and foreign direct investment.  But farmers are diggin’ deeper and deeper wells, see crisis comin’ and see parallel between President’s Trump’s efforts to keep manufacturers open in US (vs moving to  Mexico), and possibility he’ll pressure Constellation to make products for US consumers in US.  

It took two tries, but looks like Pabst can finally consolidate its OH distrib network under law there that allows “successor manufacturer” to terminate without cause (within 90 days of deal closing) and move brands if distribs get “diminished value.” Issue of who constitutes legit successor litigated numerous times and once before with some of same distribs and Pabst itself.  Recall, when Metropoulos gang bought Pabst from S&P, it tried to invoke law to terminate handful of Pabst distribs.  They sued and won, not because Metropoulos was not successor, but because it failed to provide necessary 60-day notice. Call that case Bellas I.  When Eugene Kashper’s Blue Ribbon Holdings bought from Metropoulos, it tried same move.  Same distribs sued in 2015, Bellas II.  Bellas, which sold in interim, and several others dropped out of suit and 3 distribs remained: Tri-County, Lipton and Esber.  They argued terminations not legit in part because letters sent by Pabst Brewing Co, not Blue Ribbon Holdings.  They also argued Blue Ribbon didn’t meet defn of legit “successor manufacturer.”  Fed ct judge disagreed,  adopting logic of previous fed ct judge on similar case (brought by some of same distribs vs Labatt USA yrs ago).  Net-net: Blue Ribbon Holdings bought the assets and Eugene Kashper, via Blue Ribbon, “acquired the ultimate decision making authority over Pabst” and “tasked with making Pabst’s business decisions.”  So, Blue Ribbon is legit successor manufacturer, terminations can go forward.  Only thing left for court to decide: what Pabst pays as diminished value of biz.  

AB sent “People on the Move” message to distribs, listing changes, including Andy Goeler becoming Bud Light veep, pictures of execs and brief descriptions of “achievements.”  For Chelsea Phillips, newly minted veep of near beer and value brands, first bullet listed under “achievements” is “All time high share of Value (60!!!).”  Now MC has economy “strategy” to combat AB, largely based on value, and avg prices of subpremium brands going down.  But AB still gaining share of segment.  Up 0.5 share of segment yr-to-date thru 3/18 in Nielsen all-outlet and MC down 0.5.  Yet for latest 4 weeks, MC overall sales trend (-2.3%) better than AB’s (-2.8%).  

INSIGHTS visited revamped Heineken USA hq yesterday, met with prexy Ronald den Elzen and got briefed on its new Amstel XLight by Ronald and sr brand director Michael Schwartz.  HUSA launched Amstel XLight in state of Tex, Ariz and city of Boston on Mar 1 (INSIGHTS first reported HUSA would test Amstel XLight last fall).  Unlike more expensive Corona Premier, Amstel XLight goes head-to-head with Ultra on price and seeks placement right next to Ultra on shelf.  It has fewer calories and carbs (90 calories, 2 carbs), but same ABV as Mich Ultra (4.2%).   This is a “controlled rollout,” emphasized Ronald, looking for a “high rate of sale” and then to “slowly” expand.   While first mo depletions “excellent,” HUSA intent on building rate of sale, using “very different model,” in part learned from Lagunitas, of expanding brand more gradually in select geographies.  XLight replaces Amstel Light in Tex and Ariz, but sold side-by-side in Boston, so Boston a different kind of test.  Launch eighteen mos in making, driven by consumer insights from 100K households where HUSA sees actual cash register receipts. “Wellness” a really big deal for consumers who like Ultra.  

HUSA overhauled its hq in White Plains, remaking the offices into a much more open, collaborative, and welcoming space.  Sr top mgt all sit together in open settiing, like at ABI and many other cos.  There is big co bar, right at entrance; elsewhere a coffee shop, ping-pong table, etc.  The 250 people housed there now include about 50 mktg folks formerly in NYC as well as its new Five Points subsidiary, which sells smaller Heineken-owned brands like Red Stripe, Tiger, Murphy’s, Moretti and Affligem.  Glassdoor, frequently a forum for critical comments about cos, just voted HUSA hq as one of top “phenomenal” office spaces “hiring now.”  

While total HUSA #s down slightly in scan, brand Heineken has firmed up.  Heineken up 3.3% yr-to-date thru Mar 18 in Nielsen all-outlet, even tho HUSA down 1.6%.  HUSA “encouraged” by Heineken trends, but  still early days.  Bad weather in Calif (20% of HUSA volume, much bigger % of Tecate volume) reportedly hurt trends.  Another cut of Nielsen data from Morgan Stanley showed Tecate brand down double digits for 12 weeks thru Mar 11, while Tecate Light had slowed to 9% growth.  Strongbow has also turned from plus to minus.  Down 7% YTD in Nielsen.  Heineken brand still nearly half of HUSA volume and any meaningful improvement in its trend could make sizable difference for HUSA.