BMI Archives Entry
Lacking Leap Day Made for Lackluster Spirits Sales in Control States; Tho Still Up 2.6% for 12 Mos
Extra retail selling days are meaningful. Control state spirits volume dipped 0.4% in Feb, NABCA reports, with loss of Leap Day. That dragged yr-to-date volume to up just 0.6%. For 12 mos tho, volume still up 2.6%, dollar sales +4.6%.
Ballast Point’s Higher Prices “Very Sustainable,’ Sez Paul Hetterich; Premiumization “Never Stops”
Constellation’s top execs’ confidence in growing high end didn’t end with Gold Network distrib mtg. Prexy Paul Hetterich continued to talk up high-end prospects in interview yesterday with Chi Tribune. Asked whether Ballast Point’s “most expensive six pack on the shelves” is sustainable and if Constellation would consider lowering prices, Paul insisted higher price “very sustainable.” Indeed, on premiumization, “I don’t think it ever stops,” Paul believes, “and what we call premium or high end might become 100 per cent of volume.” Paul pointed to wine biz where not long ago people doubted possibility of building a million-case brand of a $20 bottle. “Now there’s like 20 of them.” Ballast Point doesn’t “satisfy” Constellation’s “craft beer need,” and co needs to play across high-end spectrum, Paul also told Trib. Could be “organic development,” M&A, or thru ventures arm. But Constellation will be “patient. There’s no reason to say we have to do anything this instant.”
Paul also repeated another key message to Gold Network. Biggest “challenge” facing Constellation: beer biz going thru “biggest transformation” since AB, Miller and Coors gobbled volume at expense of regional brewers, sez Paul. Now, beer “transitioning to this more fragmented high-end space…. But what has not come along with that is how distributors think about their business, where it is and where it’s going. And how retailers think…. Our biggest challenge with that is how do you impact the shelf space, so hot brands like Corona and Modelo aren’t out of stock.”
Cans Gained Share for 5th Straight Yr in 2016, Sez Beer Inst; Draft Hangin’ in at 10.4% of Volume
Cans picked up another 0.8 share of total US beer biz to 56.2 last yr, according to data prepared by Beer Inst economist Michael Uhrich. While overall beer volume edged up 0.3%, can biz +1.8%. Bottle biz dipped 1.9% and bottle share slipped to 33.4. That was 5th straight yr cans took share from bottles. If you go back to 2008, cans had just over half the biz, so up 6 share since then. Meanwhile, bottles slipped from 40.2 share in 2008 to one-third. Draft volume steady in 2016, Mike estimates, and picked up a point since 2008, at 10.4 share of US biz last yr. But draft up only 0.3 share since 2011 despite explosion of taprooms.
Big difference still in domestic vs import packaging splits. Cans fully 62 share of domestic brewers’ volume, up from 55.7 in 2008. Bottles slipped to 27.2 share from 34.7. Draft is just shy of 11 share of domestic volume, up a little over 1 point since 2008. Bottles still reign in imports: nearly 2/3 share of import volume in glass, tho that’s down from over 3/4 in 2008. Cans had just 26.4 share of imports last yr, tho up from 15.5 share 2008. Import draft last yr about same volume as in 2008, so draft share of imports down from 9 to 7.7.
"Tipped Hard" into a "Buyer's Market"
AB and MillerCoors, the big strategics, were obvious buyers of choice for many craft sellers in the last 2 yrs, the guys with the biggest wallets and biggest appetites. But they already did many deals and are not as likely candidates as they once were. ABI bought 9 craft breweries over 5 years. They are "pretty much good" with number of craft partners, High End prexy Felipe Szpigel said awhile back. That doesn't mean they won't do any more deals. But it's not a top nearterm priority. AB's High End is already locked and loaded for 2017. It bought brewers in most geographical regions, only the Southeast remains an obvious gap. At its annual distrib conference (SAMCOM), AB's High End unit showed distribs an aggressive plan to grow the craft businesses it acquired even amidst craft slowdown/shakeout.
It boils down to this: two to three years ago, independent craft brewers were a threat to AB. Now AB is a threat to independent craft brewers.
Meanwhile, MillerCoors bought a majority of 3 craft brewers in a flurry last summer, following Saint Archer deal at the end of 2015. MC CEO Gavin Hattersley expressed a preference to digest these first before doing any more deals. That doesn't mean MC won't buy if the right one came along. But don't forget, parent Molson Coors just shelled out $12 bil for the rest of MillerCoors it didn't own. Paying down debt is a top priority.
After shelling out a whopping one billion $$ for Ballast Point, Constellation hasn't done any more craft beer deals. It made several subsequent acquisitions, all in the high end--of wine and spirits. Did Constellation simply see better opportunities in other alc bevs or was it perhaps less than thrilled with the extremely high multiple it paid on Ballast, just before craft growth slowed (more recently Ballast slowed too, see below)? Still, given its fondness for dealmaking, big cash flow, more manageable debt levels and interest in the space, it's reasonable to expect further Constellation craft deals down the line.
Meanwhile, many other transactions in 2015-2016 led by private equity cos. But private equity has paused. Big time. Aside from Deep Ellum deal, private equity just has not done deals of note in many moons. The most visible vehicles so far have not yet had resounding success. In fact, none of the efforts to develop a craft platform for private equity has great momentum right now.
Artisanal Brewing Ventures, which owns Southern Tier and Victory, actually declined slightly last year. Enjoy Beer only owns Abita, which also declined in 2016. And it's reportedly not interested in doing more craft beer transactions anytime soon. Then too, Encore bought Full Sail, which also didn't grow in 2016. At least, it reportedly didn't pay big premium to acquire Full Sail from an ESOP.
Of the larger private equity plays, only Oskar Blues Holding Co (majority owned by Fireman Capital) showed growth. At least most pieces of it did. But its first buy Utah Brewers Cooperative declined. Oskar Blues grew 5% in 2016, but slowed lots as yr went on. Cigar City grew high singles but it was capacity constrained and will expand to many new markets in 2017. Only Perrin, much smaller but hot in home state Mich, nearly doubled.
Other strategics, like Mahou with Founders and Duvel Moortgat with Firestone Walker, grew rapidly and enjoyed considerable success so far (tho Duvel's Boulevard acquisition declined in 2016). But they haven't acquired additional craft. And despite much talk of other Asian or European brewers entering the US craft segment, this hasn't happened yet. It could still as valuations come down. Neither Pabst nor NAB, potential US buyers, have aggressively pursued deals.
But right now is a very challenging moment in craft overall, and hence craft M&A as well. Things changed so fast in several ways, none favorable to prospective craft sellers. Some craft brewers "missed their reforecast of their reforecast," said source, not confining remark to would-be sellers. While many craft brewers are for sale, buyers seem to be waiting for a more opportunistic moment. Valuations need to become more realistic to get deals flowing again. But that could prove problematic for some sellers, noted source. Many cos levered up to build huge facilities, so they now have a pile of debt. Some once attractive candidates are making good money, but growth prospects diminished. While once they might have commanded 20-25x EBITDA, perhaps now someone would value them at a more normal multiple of 10x EBITDA or even less, sez source. Problem is that would leave them worth not much more than their debt. Not an attractive prospect for a potential seller. For sure, there are still fast-growing craft jewels out there that could ultimately get scarfed up, one would assume. But so far, in this new environment, those deals ain't happening either.
Power Hour: Another 230 New Vendors Added Last Yr; IN's Sun King was Top New Craft Vendor
Another 230 new vendors were tracked in IRI Supers totaling 1,194 in 2016, Dan shared. That's double the number of vendors tracked in 2012. IN's Sun King topped all new vendors with just over $900K in sales last yr, and TX's Live Oak not too far behind ($869K). Another TX brewer, 8th Wonder was 3d best, nearly $600K in sales, followed by a few OH brewers, Platform (#4), Market Garden (#5) and Wolf Ridge (#7). Acclaimed brewers such as WY's Melvin Brewing (#6) and NC's Wicked Weed (#8) were among top brewers new to scans last yr. NY's Empire Brewing and MO's Kansas City Bier Co round out top-10.
Craft cans kept up speedy 53% growth pace in 2016 supers, snagging another 5.1 share of total craft $$ to 16.8, Dan noted (just as BA's Bart Watson depicted in recent blog post - see Feb 14 issue). Indeed, can formats gained across the board as 6pk cans (+62%) now #3 largest craft format and made up over half of total cans gain; 12pk 12oz cans (+26%), 4pk 16oz cans (+55%) and 15pk 12oz cans (+132%) made up majority of the rest, tho interestingly 4pk 12oz cans (+63%), 6pk of 16oz cans (+233%) and single 12oz can (+120%) comin' on strong off tiny bases. Meanwhile, total craft glass $$ sales were up just 0.5% suggesting that volume actually down in IRI supers last year. While largest format, 6pk bottles, were able to grow 2.5%, 12pk bottles $$ declined 2% and 22oz bottles dipped 0.4%. Only bottle formats that grew solidly were 12oz singles (+11.5%), 24pk 12oz (+8%), and single 17oz bottles (+18%), collectively making up a little over 1.3 share of total craft sales in this channel.
Looking at top-5 craft can vendors, Founders continues its ascension, now making up about 6% of all craft can sales in IRI supers. That's still second behind MC with 7.2 share of craft cans, but MC's been losing share of late. As have Sierra Nevada and Boston Beer, now each below 5 share of total craft can sales. Meanwhile, ABI craft is collectively now 5th largest craft can supplier, inching ahead of Oskar Blues with 3.85 share of craft cans. Collectively these 5 cos make up 26.6% of total cans; as recently as thru Jul 10, top-5 can cos had 28.2% of total.
Power Hour: Large Cos Losing Share Across CPG; Extra Small Cos +1.4 Share of $$ to 10.3 Since 2011
Beer by no means alone in share shift to smaller players over last 5 years. Across all CPG categories, about $20 bil in sales shifted away from large companies to smaller players since 2011, according to data from IRI that Dan Wandel shared during Brewers Assn Power Hour today. Back in 2011, large companies (over $5.5 bil in sales in 2016) had over 57 share of total CPG sales in IRI. Since then, they collectively lost 3.1 share, including a half share in 2016 alone. Collectively they were up less than 1% last yr, a bit slower than average 1.3% annual growth between 2011-2015 (CAGR). Mid-size cos ($1 bil to $5.5 bil in sales) held about 20 share across all yrs, gained 0.4 share from 19.9 to 20.3 between 2011-2015, stable in 2016. It's small cos ($100 mil to $1 bil) and extra-small cos (less than $100 mil) that gained the most share and grew the fastest. Small firms gained 1.3 share from 14 to 15.3, putting up average 4.6% growth per yr thru 2015, but slowing to just 2.8% growth last yr. But extra-small cos actually accelerated slightly in 2016. The group gained 1 full share between 2011 and 2015, with CAGR of 5.3%. They passed 10 share of total CPG sales last yr, +0.4 share to 10.3, collectively up 5.4%. Key to continued craft growth (and there ain't much these days): how long will this shift to small continue?
It was another record year for new beer product launches in IRI tracked stores, with craft and FMB segments leading the charge. Despite selling slightly less cases than 2015 (7.65 mil vs 7.7 mil), total new product sales reached $272.8 mil in IRI supers vs $258.6 mil in 2015, Dan noted. New craft products were over half of total new beer product $$ sales (52.5%), followed by FMBs (29%) and Imports (10.8%). Then too, a record 30 beer vendors generated over $1 mil in new product sales last yr. And a record 1,385 new beer brands were tracked, making up nearly 70% of total new product sales (rest are from new packages launched). Interestingly, from 2012-2014, number of new brands tracked rose steadily from 415 to 612, before shooting up to 1150 tracked in 2015 and 1385 this past yr. Yet total volume added by new beer brands was actually higher in each year 2012-2014, when brands like AB's Bud Light Platinum, Straw Ber Rita and Mang O Rita were largest new launches. Jump in total number of new brands perhaps correlated to vast amount of smaller local craft brewers entering chains and lookin' to innovate.
"Can the beer category sustain this?" Dan asked. "Can retailers and distributors sustain this?" Established craft brands in supers were actually down vs 2015, according to Dan, which is "very concerning to me." Editor's note: this is what's been happening with FMB category for many years now. And recall, over half of total craft $$ growth in IRI MULC came from new craft brands tracked last yr (see Feb 7 issue). Lookin' back at "class of 2013" top-15 new brands (total beer), only 2 of them - Stella Cidre and Mike's Hard Strawberry Lemonade - were up this year and 4 of 'em now discontinued (3 of 4 from Boston Beer). Meanwhile, overall craft velocity decelerated in final mos of 2016 and into 2017, Dan noted separately. It's the "slowest" $$ velocity since Jan 2015 and "slowest" volume velocity since Jan 2014. Some "sobering" stats indeed.
Each of the 4 largest beer cos in US clearly made IPAs a focus thru M&A, a point clearly depicted in Power Hour chart of top IPA vendors in 2016 supers. Lagunitas (JV with Heineken) remains "the king of the IPA mountain," with $73.5 mil in total IPA sales (flagship IPA is over 80% of that). So Lagunitas has over 11 share of total IPAs, nearly double its next largest competitor, Sierra Nevada. Then too, ABI craft cos collectively make it the 3rd largest IPA vendor - and that's without counting Karbach, which would likely put it at #2. Constellation's Ballast Point also has over 5 share of IPAs, making it #5 largest IPA vendor. And MC craft collectively #11 largest IPA vendor, just under $19 mil in sales, Dan shared.
IPA Nears Half of San Diego Craft $$, +4.4 in Foodstores; Over 30 Share of Craft $$ in 9 More Markets Remarkable stats reveal strength of IPA in handful of individual markets. The style gained another 4.4 share of craft $$ in San Diego foodstores last yr, to 47.7. The style had 30 share of the segment or better in 9 more markets. Maybe no surprise, but just 3 of them not on the West Coast. Scan down the Pacific Coast: IPA at 35.5 share of craft $$ in Seattle/Tacoma foodstores, +3.2, hit 37.4 share in Portland, OR, 35.3 in Sacramento and a whopping 38.5 in San Francisco/Oakland, up 3.2 share. Biggest share gain for IPA? Los Angeles, +4.8 share to 34.5. In case you hadn't noticed, IPA gained over 2.5 share of $$ in most of these markets, 9 of 10. Oh, and in 10th, Grand Rapids, MI, IPAs ain't no slouch either: +1.9 share to 30.1. Philly, Spokane, WA and Miami/Ft Lauderdale round out the list. IPA gained 3.8-3.9 share of craft $$ to about 30 in all 3.
Fruit Veggie Spiced IPAs Snag 5 Share of Style; Most Substyles Grew Double-Digits Within dynamic IPA style that continues to provide bulk of craft's growth, fruit veggie spiced (or infused) IPAs emerged as a major trend thruout the year. Sub-style grew nearly 400% and snagged 5.2 share of total IPAs to 6.8, becoming nearly as large as session IPAs in the blink of an eye. In fact, fruit veggie spiced IPAs already larger than session IPAs in early 2017 scan data, Bump Williams showed in separate deep dive on IPAs looking at IRI MULC in his monthly update released yesterday. Keep in mind, lots of that growth came from new brands including each of the top-5 new IPAs launched last year - NBB Citradelic, Sam Rebel Grapefruit, Ballast Pineapple Sculpin, Watermelon Dorado and Mango Even Keel.
So largest substyle American IPAs were collectively just under 2/3 of total IPA sales in IRI supers and Imperial IPAs under 20% of total, collectively shedding 5 share of style thru 2016. But even as these top substyles lost share of IPA, nearly all substyles grew sales in 2016. American IPAs grew 14%, Imperial IPAs up 6%, Session IPAs up 25%, English IPAs up 35% and "Other" IPAs grew 18%. Only Belgian White IPAs (-18.5%), and Black IPAs (-13%) declined. Some substyles are highly concentrated among top brands within substyle, Dan pointed out. For instance, Goose IPA makes up 74% of English Style IPAs, and that was up 50-60% last yr in supers. So remainder of English IPAs aren't as strong. Founders All Day still makes up half of total session IPA sales and it grew 70% plus last yr. Turns out 3 of the top 5 session IPA brands were down large double-digits last yr in IRI MULC, including NBB Slow Ride, Lagunitas Day Time and Stone Go To. Still plenty of growth among smaller session IPA brands tho. Contrastingly, American IPAs largest brand, Lagunitas IPA only has 11% of largest substyle.
260 New IPAs in 2016; Could Reach 2K Next Yr, But # of New Brands Slowed vs Prior Yrs In toto, net of nearly 260 new IPAs were tracked in IRI supers last year, bringing total to 1,719. Yet Black IPAs had 4 fewer brands tracked, and 0 English IPAs, just 3 more Belgian White IPAs and 2 "Other" IPAs tracked. So American IPAs accounted for half of new IPAs, bringing total to 912 in 2016, followed by another 56 Imperial IPAs, 40 Fruit Veggie Spiced and 29 Session IPAs tracked. Gotta note, total new IPAs added were actually lower than both 2015 and 2014, and only Fruit Veggie Spiced IPAs added more new brands in 2016 compared to prior two years. Yet Dan still wouldn't be surprised if total IPA count surpasses 2K brands.
Power Hour: Beer Losing Share of Alc Bev $$, But Craft Beer Better than Cookies in Supers
Beer just keeps on losing share of alc bev $$, -0.3 in IRI data shared by Dan Wandel during BA Power Hour. But in terms of total food and drink market, "it can be a heck of a lot worse," he said. Beer was 3d largest edible category in IRI supers last yr, and it was one of just 6 of the top 15 edible categories to grow $$ by more than 1%. Breaking out craft on its own though, Dan showed that craft would be something like #47 edible category overall in supers, but the #16 growth category by absolute $$ sales growth, "just ahead of cookies." So "beer and craft are not in as bad a shape as many of these others." In fact, among top 50 categories, just 6 put up better % growth than craft beer last yr. Look at larger top-100 categories and just another 3 grew faster than craft. So amidst all the doom and gloom, zoom out a bit and craft still looks pretty good.
Back to alc bev world (and less good news), "for the first time in many years, craft is not ranked at the top" of alc bev segments by absolute $$ growth in multi-outlet scans. This yr, table wine priced at $11-14.99 took top spot, followed by import beer. Both bested $160.4 mil gain for craft. Wine putting up serious competition these days, Dan noted. Indeed, "wine was able to place 8 of the top 15 growth segments within beverage alcohol." But it's higher end wines gettin' the growth. On the other end of the spectrum, cheapest wines got biggest decline among alc bev segments. And ciders got 2d largest $$ decline last yr. How 'bout them apples?