Given high distrib inventories and loss of Leap Day, hadda expect tuff Feb taxpaid estimate.  But -1.2 mil bbls, -9.4%?  Ouch!  That’s what Beer Inst economist Michael Uhrich estimates for domestic brewers’ taxpaid shipments in Feb, citing lost day/inventory draw down to explain the hit.  That was biggest dropoff since similar 9% drop way back in Jul 2011 and a few points worse than the last Feb-following-Leap Year, Feb 2013, when shipments down 6%.  In any case, Feb loss wiped out half-mil-bbl gain posted by taxpaids/imports in Jan, and then some.  Feb imports won’t be known for a few weeks, but for now, known US shipments -720K bbls, 2.6% yr-to-date.

Yet another instance where importer stepped up with longterm sponsorship deal at professional sports stadium (perhaps again in absence of larger deal with AB or MC).  Only this time it’s Labatt.  FIFCO’s North American Breweries inked 5-yr deal with Detroit Red Wings’ coming new stadium, Little Caesars Arena, to make Labatt Blue “Landmark” level sponsor, reported Detroit Free Press and Crain’s Detroit Business among others. Landmark level deals “are multimillion dollar investments,” noted Crain’s; other Landmark sponsors include much larger cos like Comerica and Meijer.  Notably, Labatt “will gain a branded Labatt Blue Zone,” in “arena’s main concourse, as well as sponsorship rights to the Labatt Blue Club that will be located in the arena’s north end.” And Labatt remains “official Canadian import beer of the Detroit Red Wings.” Stadium expected to open this Sep.

Recall, NAB’s been boosting sports-themed spend on Labatt of late. Labatt has partnership with NHL including expanded offerings of team-themed cans (including Red Wings) and NHL-themed TV ads this year, co highlighted at annual meeting last Oct (see Vol 18, #190). And Labatt’s boosting NFL program with Zubaz-themed cans. Meanwhile, after years of declines, Labatt family stabilized trends in 2016: Labatt Blue up 1%, Labatt Blue Light down just 1% and remaining Labatt family brands up 1%, we estimate. Labatt Ice trends are improving and co plans to ramp up Mich Ultra fighter, Labatt Premiere Extra Light, in 2d yr. In all, NAB down 0.2% in Nielsen all outlet yr-to-date thru Mar 11.  

Amazon wants to bring you beer, not just books, electronics, laundry detergent and bananas. Users of Amazon Prime subscription service in Columbus and Cincinnati, OH and Seattle that have devices powered by Alexa voice-recognition software can now order beer, from Alexa USA Today wrote today. That was inevitable after the co picked up retail licenses at same time its Echo speakers (and competitive products) pushed further into mainstream late last year. Folks could ask Alexa for beer starting yesterday, as well as wine in the OH markets and wine and spirits in Seattle. “Amazon plans to add more [cities] in the coming weeks and months, subject to state laws,” natch. Recall, world’s largest global brewer was ready: AB launched Mich Ultra app (not for ordering, yet) just ahead of Amazon’s new rollout (see Monday’s issue).

At same time, Amazon’s ambitions to be a top-5 grocery retailer by 2025, requiring food/bev revs to more than triple from $8.7 bil in 2016 to over $30 bil, revealed in extensive look from Bloomberg. Opening of 3 Amazon brick-and-mortar grocery concepts in hometown Seattle is imminent. They include the c-store-like Amazon Go, “drive-in kiosks” where users pick-up online orders “and a hybrid supermarket that mixes the best of online and in-store shopping,” according to Bloomberg. Internal docs suggest Amazon sees possibility for up to 2000 such outlets. The co’s in the site-selection stage for a concept that involves more traditional grocery for perishable items on one floor and a warehouse-like second floor for pre-orders of paper products and the like.

This major shift for Amazon comes with considerable challenges, beyond “existential change” for co that steered clear of brick-and-mortar for years. A big one: food waste. Bananas browned and strawberries grew mold in Amazon Fresh grocery delivery tests, keeping that part of the co’s biz from growing too quickly. Current tests of Amazon Go mini-grocery, only open to employees in Seattle, uses tracking devices paired with customer phones, weight sensitive shelves and more (perhaps including facial-recognition tech -- Big Brother doesn’t want to control you, he just wants to sell you some grapes). But it’s “crashing in tests when the store gets too crowded.” It’s still collecting plenty of “valuable data,” Bloomberg notes.

“Grocery is the most alluring and treacherous category,” an ex-exec explained: “it lures investors and retailers with shopping volume and frequency, and then sinks them with low margin.” But Amazon thrives on mining efficiencies. Its “reimagining the next phase of physical retail,” another former exec said, because “they want more share of wallet.” And “long term,” the co could move into “wholesale food distribution.” Amazon doesn’t just want to bring you beer. It wants to bring you everything.

MC Launches “Miller Lite On-Demand” Ordering Service with Amazon & Drizly Capabilities Right on cue, MillerCoors just announced “launch of Miller Lite On-Demand, a revolutionary suite of connected home services that modernize the beer shopping experience,” per release. Services “include a voice-activated Amazon Alexa skill and a custom AWS [Amazon Web Services] IoT Button” that can “restock your fridge with Miller Lite within the hour.” Separately, MC partnered with Drizly delivery service app “in close to 40 markets nationwide,” and Miller Lite beer button will be available to a preselected group of 500 Drizly customers in “early 2017.” These are just “the first in a series of new offerings from MillerCoors Incubator program” that’s teamed up with “creative technology agency,” IPG Media Lab.  

Tho volume ain’t great in United States, “margin pool is still growing” and MillerCoors biz is in “good place,”  Molson Coors ceo Mark Hunter told INSIGHTS, just prior to MillerCoors distrib convention.  MC gaining share of premium light, “simplifying economy strategy,” Blue Moon Belgium White is “coming back” and MC will “put our shoulder behind Peroni.”  (Up 80% n small base for 4 weeks thru 3/11 in Nielsen all-outlet.)  

Its high-end portfolio didn’t perform as well in 2016, but “if we stuttered in 2016,” Mark said, it’s “business critical” that “we have to regain momentum” in above premium segments.   Mark supportive of economy strategy and clear-eyed in explaining its purpose: to slow the decline of subpremiums, not take from its premium brands. “All we’re trying to do is get back to the segment performance.  The worst thing we could do” with subpremium strategy is “to have unintended consequences” on premium light lagers.  Is MillerCoors investing at right level to succeed in marketplace?  Biz “doesn’t require a step level change of investment,” said Mark. MillerCoors mkt spending “pretty consistent” between $900 mil and $1 bil in last several yrs.

Like Constellation though not nearly as publicized, Molson Coors is watching potential US tax reform very closely.  “Integration” of MillerCoors going very well, but possible tax reform “caused us to pause” on North American supply chain.   Molson Coors can adjust how much it’s “brewing in the US for Canada” or brewing in Canada for the US, depending what happens. Molson Coors will “see where the dust settles” as “we reshape” supply chain.  Tho Molson Coors has declined to put a number to earnings from acquired Miller brands, it clearly sees the Miller intl biz as “an accelerator” for its intl biz.  It was interesting to see at the MillerCoors convention that materials said for the first time “a Molson Coors company.”  Tho Molson Coors considered renaming co as “Molson Coors USA,” it quickly decided that there was “equity in the trading name” and kept MillerCoors.  

Fed court lawsuit filed by MC may help explain some of its big logistics issues.  MC seeks damages “in excess of $100 million,” plus fees and costs, from IT co HCL in India and Calif for breach of contract in screwing up major SAP software project.  Project aimed at “driving efficiencies, innovation and growth across MillerCoors’ various breweries by adopting a common set of best practice business processes and implementing them in a new enterprise SAP software solution.”  SAP programs collect and integrate data into single system that would include accounting, warehouse operations, sales, production, distribution, etc.  But “solution” HCL provided, MC charges, was full of defects and delays.  In addition, HCL “failed to staff the project with a sufficient number of people” and “utterly failed to provide leadership” on it.    

MC put job out to bid in Sep 2013, signed first work order with HCL in Dec that yr and subsequently signed 3 more.  By Oct 2014, MC committed over $62.5 mil and agreed on specific dates to “go live” at Shenandoah (Oct 2015) and Golden (Apr 2016) plants.  Specific deadlines important, MC made clear, to avoid issues during peak summer seasons.  Delays, staffing, leadership and quality control issues plagued project all along, MC charges.  And when Shenandoah project started up numerous defects (of “critical” and “high” severity) found.  In fact, after software released, “the Shenandoah facility operated, contrary to HCL’s promise, at below pre-implementation efficiency.”  So Shenandoah “went into a period of post-go live, hyper-care support when thousands of additional defects and incidents were recorded.”  HCL then informed MC of further delays at Golden, “creating business risks” at brewery during peak season.   

Issues persisted thru early 2016 and MC filed notice of termination June 20.  At time, Shenandoah remained in “hyper-care” and MC “determined the warehousing solution did not comply with industry standards as it was not sustainable and would need to be replaced.”  After 90 days, MC pointed to “additional failures.”  Net-net: MC charges HCL failed to deliver what it promised, what it did deliver didn’t work and missed deadlines, project not staffed adequately and HCL did not cure deficiencies when MC pointed them out. Also: HCL’s actions “constitute intentional conduct, gross negligence or willful misconduct because HCL demonstrated an utter indifference and conscious disregard for the impending danger and harm its actions would cause to MillerCoors.”  MC damages exceed $100 mil, it sez.

“What’s happening with valuation,” a friend asked recently.  And so we asked around a little and bring the answers to all our readers.  10x EBITDA (earnings before interest, taxes, depreciation and amortization) is the “new norm” in distrib deals, Paragon Beverage Advisors Mark Hall said last yr at our spring conference.  Has anything happened to change that?  Not really, sources say, tho there’s more like a range rather than one hard and fast number, and it depends on your demographics and your portfolio. Is your mkt growing in population?  Most important, do you sell Constellation’s portfolio?  Distribs without Constellation might only fetch 8x, said consultant Joe Thompson, while those with it could get as high as 12x.

What about craft brewers?  Craft brewer multiples got pretty crazy, with many in the 18-20x EBITDA range, some between 20-25x, said source; Ballast Point closer to 30x.  But valuations have been coming down for months, as MillerCoors ceo Gavin Hattersley told INSIGHTS as long ago as last summer.  It’s difficult to know where they are now.  Not many deals getting done these days.  “The bid and the ask are so far apart,” said another source, who believes that some craft valuations need to come down to the 6-10x EBITDA range in order to get a transaction done.  A lot of valuation is “driven by growth,” and that’s either slowed markedly or gone away altogether for many.  And we’ve just come through a period of great need among strategic buyers, who could pay the most, because of the synergies they would realize.  But the big strategics aren’t as hungry for deals.  Both those changes reduced valuations.  Then too, distrib valuations holding up better because distrib deals are “much more stable” and “less volatile” than craft deals, said first source.  Yet within craft, there exist some “jewels” with rapid growth, great geographic presence, good branding that could still command sky high valuations.  

There are fewer big brewer transactions, so it’s perhaps harder to generalize.  But to give 2 pertinent examples, ABI paid a multiple in the high teens for SABMiller last yr, sources say.  And yet Molson Coors only paid 9.2x EBITDA for the 58% of MC it didn’t own, according to its 4th qtr release, to get 100% of MillerCoors.  Since deals appear to average more like the mid-teens, seemingly Molson Coors got a reasonable valuation, as ABI had to get deal done.  

“What’s happening with valuation,” a friend asked recently.  And so we asked around a little and bring the answers to all our readers.  10x EBITDA (earnings before interest, taxes, depreciation and amortization) is the “new norm” in distrib deals, Paragon Beverage Advisors Mark Hall said last yr at our spring conference.  Has anything happened to change that?  Not really, sources say, tho there’s more like a range rather than one hard and fast number, and it depends on your demographics and your portfolio. Is your mkt growing in population?  Most important, do you sell Constellation’s portfolio?  Distribs without Constellation might only fetch 8x, said consultant Joe Thompson, while those with it could get as high as 12x.

What about craft brewers?  Craft brewer multiples got pretty crazy, with many in the 18-20x EBITDA range, some between 20-25x, said source; Ballast Point closer to 30x.  But valuations have been coming down for months, as MillerCoors ceo Gavin Hattersley told INSIGHTS as long ago as last summer.  It’s difficult to know where they are now.  Not many deals getting done these days.  “The bid and the ask are so far apart,” said another source, who believes that some craft valuations need to come down to the 6-10x EBITDA range in order to get a transaction done.  A lot of valuation is “driven by growth,” and that’s either slowed markedly or gone away altogether for many.  And we’ve just come through a period of great need among strategic buyers, who could pay the most, because of the synergies they would realize.  But the big strategics aren’t as hungry for deals.  Both those changes reduced valuations.  Then too, distrib valuations holding up better because distrib deals are “much more stable” and “less volatile” than craft deals, said first source.  Yet within craft, there exist some “jewels” with rapid growth, great geographic presence, good branding that could still command sky high valuations.  

There are fewer big brewer transactions, so it’s perhaps harder to generalize.  But to give 2 pertinent examples, ABI paid a multiple in the high teens for SABMiller last yr, sources say.  And yet Molson Coors only paid 9.2x EBITDA for the 58% of MC it didn’t own, according to its 4th qtr release, to get 100% of MillerCoors.  Since deals appear to average more like the mid-teens, seemingly Molson Coors got a reasonable valuation, as ABI had to get deal done.  

“What’s happening with valuation,” a friend asked recently.  And so we asked around a little and bring the answers to all our readers.  10x EBITDA (earnings before interest, taxes, depreciation and amortization) is the “new norm” in distrib deals, Paragon Beverage Advisors Mark Hall said last yr at our spring conference.  Has anything happened to change that?  Not really, sources say, tho there’s more like a range rather than one hard and fast number, and it depends on your demographics and your portfolio. Is your mkt growing in population?  Most important, do you sell Constellation’s portfolio?  Distribs without Constellation might only fetch 8x, said consultant Joe Thompson, while those with it could get as high as 12x.

What about craft brewers?  Craft brewer multiples got pretty crazy, with many in the 18-20x EBITDA range, some between 20-25x, said source; Ballast Point closer to 30x.  But valuations have been coming down for months, as MillerCoors ceo Gavin Hattersley told INSIGHTS as long ago as last summer.  It’s difficult to know where they are now.  Not many deals getting done these days.  “The bid and the ask are so far apart,” said another source, who believes that some craft valuations need to come down to the 6-10x EBITDA range in order to get a transaction done.  A lot of valuation is “driven by growth,” and that’s either slowed markedly or gone away altogether for many.  And we’ve just come through a period of great need among strategic buyers, who could pay the most, because of the synergies they would realize.  But the big strategics aren’t as hungry for deals.  Both those changes reduced valuations.  Then too, distrib valuations holding up better because distrib deals are “much more stable” and “less volatile” than craft deals, said first source.  Yet within craft, there exist some “jewels” with rapid growth, great geographic presence, good branding that could still command sky high valuations.  

There are fewer big brewer transactions, so it’s perhaps harder to generalize.  But to give 2 pertinent examples, ABI paid a multiple in the high teens for SABMiller last yr, sources say.  And yet Molson Coors only paid 9.2x EBITDA for the 58% of MC it didn’t own, according to its 4th qtr release, to get 100% of MillerCoors.  Since deals appear to average more like the mid-teens, seemingly Molson Coors got a reasonable valuation, as ABI had to get deal done.  

Millennials are finally emerging from their parents’ basements.  And they’re toting cases of Miller High Life, Busch Light and Bud Ice on their shoulders.  Okay, we exaggerate.  But hard to ignore that near premium category in Nielsen all outlet scans up 2%+ for 4 wks and yr-to-date thru Mar 11, while total biz off 0.6-0.7%.  Near premiums have avg case price of $16.25 and just over half of total economy segment.  Sure, imports and superpremiums still growth engines, driven by Michelob Ultra and Modelo portfolio.  Those two segments each continue up mid-to-high single digits this yr.  But 4 of top-10 growth brands in latest period are Busch Light, Bud Ice, Miller High Life and Busch.  Only 1 premium brand in top-10 growers: Yuengling Lager.  Premium light biz and premium regular biz down 3.2% and 4.5% respectively in most recent period, with Bud Light/Bud  takin’ a -5% hit for 4 wks.  Coors Banquet up, but MGD/Miller 64 and Bud Select still takin’ whacks.  Note too, Keystone Light eked out tiny gain for 4 wks, Steel Reserve +1%, Pabst Blue Ribbon down just 0.3% and Natty Light reduced dropoff pace to under 1%.  And MC’s new honey, Hamm’s, jumped 23% for 4 wks at hot price of $12.25/case, down almost a dollar and almost $3 below avg case price in Nielsen’s budget segment.  The other 2 top-10 gainers, by the way: Stella and Heineken, up 14% and 4% respectively YTD.   

In mega-brand land, Coors Light (-1.3%) and Miller Lite (-0.6%) far outperforming Bud Light for 4 wks

(-4.6%) and yr-to-date (-1% vs -4%, roughly).  But some other very ugly numbers in latest scans: Sam Adams family down 20-22%; Sierra and Ritas down 14-15%; Shock Top down 30-33%; ciders and hard sodas sinkin’.  On flip side, some solid growers: New Belgium up 15% for 4 wks, 7% yr-to-date; Blue Moon Belgian White up mid-singles, tho portfolio still down slightly; Leinenkugel shandies jumped 22-23%; Mike’s Harder up 19-20%; Twisted Tea +16-18%.

Gotta be notable when world’s largest brewer works with world’s largest online retailer to launch “a free dedicated skill” on its highly popular Alexa device.  Ultra 95 “taps into the cutting edge voice recognition aspect of Alexa to deliver 12 customized fitness workouts to beer drinkers who enjoy staying active physically as much as they enjoy gathering with friends for a beer…. Each of the 12 audio workouts is designed to be quick and efficient, burning approximately 95 calories” (same as in a serving of Ultra).    

This move definitely sounds on brand, and it’s a clever way for Ultra to utilize new technology.  Could this also be a way for AB to forge a deeper relationship with Amazon?  Meanwhile, Michelob Ultra remains the beer industry’s hottest brand.  $$ sales up 27.4% for 4 weeks.  Ultra gained 0.9 share of $$, 50% more than Modelo Especial, which gained a still impressive 0.6.  And Ultra avg prices up nearly 3%.