As trade orgs drum up support, Beer Inst highlighted fast progress for Craft Beverage Modernization and Tax Reform Act (CBMTRA) to permanently lower fed excise taxes, kicking off Beer Inst annual meeting in St Louis yesterday. In just 4 mos, 65 Senators and 218 Representatives signed on to support CBMTRA, and orgs have “identified another 6 or 7” Senators “we think can go on the bill,” BI prexy Jim McGreevy shared. Again, there is bipartisan support on bill, with “champions” working across the aisle; Ron Wyden (D-OR) and Roy Blunt (R-MO) in senate, and Ron Kind (D-WI) and Mike Kelly (R-PA) in the House. But bill still needs more support (in the House in particular), and Jim asked members to make this “top priority.”  “Get them in your brewery, tell them the great things you do with tax relief” and “you tell us as well,” he said.

Similarly, Jim asked for more members to share stories about negative impacts of aluminum tariffs in order to help gain support on Aluminum Pricing Examination bill (APEX) that would take closer look at how aluminum prices are set via Midwest Premium. After one year of BI and others making voices heard in media, commerce secretary Wilbur Ross went from saying aluminum tariff would have “negligible effect” to acknowledging that Midwest Premium is seemingly “not justified,” Jim added, pointing to Wilbur’s comments in recent Bloomberg article. So they’re “actually now hearing us,” and message is “starting to have some salience with the policy makers,” he emphasized. It’s “really at a critical moment” that could result in “some relief and satisfaction.”

New KnowYourDrink Site Has Drink Calculator; Goin’ Global Against No Safe Consumption Messaging  Then too, as next edition of dietary guidelines for Americans set to come out by end of 2020, BI also hopes to “preserve drink equivalence” and “definition of moderate consumption” (1 drink per day for women, 2 drinks for men), Jim noted. BI launched new website for Know Your Drink last week to further emphasize differences between beer, wine and spirits. Website has built-in drink equivalent “calculator” for various mixed cocktails, glasses of wine, and beers at various ABVs. And for “first time,” BI feels “need to push back” against “negative language globally” on alc consumption, Jim shared. Rhetoric that “there’s no safe level of alcohol” has ratcheted up in different parts of the world, and BI looking to counter.

BI, NBWA and Brewers Assn will launch a “shared industry campaign this summer to grow beer,” Beer Institute prexy Jim McGreevy announced at annual meeting this morn.  For too long, industry members “focused on the problem,” Jim said.  Now, the “people in this room” will “get about the important business of finding solutions” to building beer.  In following remarks, AB CEO Michel Doukeris repeated AB’s commitment to build category health and pointed out how it fits in with AB’s stated goals to address key themes of premiumization, health and wellness and purpose-driven brands. “AB is committed to working alongside other brewers” and wholesaler-partners, Michel assured, to “elevate beer…strengthen the category,” with the industry coalition launching a “first phase” this summer.  “It’s very exciting for all of us.”  Meanwhile “final details are being worked out,” Jim noted, Michel said that industry will be “learning from this pilot and then really scaling up” with this “initiative in years to come.” 

AB, Constellation Will Fund; MC, HUSA Won’t  But not all key constitutents on board. “We believe in lifting the beer industry, but we’ve been clear that we won’t re-engage in a category health campaign until Anheuser Busch stops their category denigration campaign,” said MC veep Adam Collins, referring to Corngate.  So MC not funding.  And  HUSA not funding either, INSIGHTS heard. While BI may not be officially funding collectively, it is certainly coordinating and both ABI and  Constellation are funding. 

Also this morn, BI presented $10K check to just-retired Constellation beer chief Bill Hackett for “Margaret Hackett Family Center” at University of Chicago.  Bill’s “movin’ on,” he said several times, but he’s not leaving beer.  

AB informed distribs that Budweiser Copper Lager, its collab with Jim Beam, will be back this Fall to commemorate 86^th Anniversary of the Repeal of Prohibition.  Copper Lager will be getting national media support from Labor Day weekend, thru Major League Baseball playoffs and World Series and Repeal Day in early Dec. Announcement notes brand “was a top 10 share gainer within beer, and 39% of its volume “is driven by repeat purchases.”  It will be avail in 6 and 12 oz glass stubby bottles and 24 pks of 16 oz aluminum bottles.

Monster Energy is considering entering alc bev biz either thru acquisition or new brands, co shared last week during its annual meeting Jun 6.  Direct compete restrictions Monster has with its distributor Coca-Cola are coming to end in Europe and have  about 1 year to go in US, noted Evercore ISI’s Robert Ottenstein, and with that in mind, MNST execs are eyeing possibilities. “Clearly, we do have an appetite to look at alternative brands and to develop more beverages in the non-alcoholic as well as the alcoholic market,” said ceo Rodney Sacks. He indicated co was open to exploring malt-based, hard seltzers and spirits-based brands. “We’re looking at some of them at the moment but not made decisions to do anything, but that’s something we certainly would be open to,” added Rodney.  MNST execs also indicated that when/if cannabis is OK’d at fed level they would be open to that biz too. “As an aside, mgmt noted that they don’t necessarily need to own a cannabis company in order to expand into the category,” as they own their own flavor co as well, noted Wells Fargo Securities’ Bonnie Herzog.

Busy coupla days for Kaumil Gajrawala and Credit Suisse team. Besides initiating coverage on MolsonCoors, they also took deep dive into biggest challenges for US beer industry and cautioned there is “no quick fix,” as “powerful long term trends point to a shrinking industry.”  He flags list of familiar concerns as beer’s biggest headwinds ahead:

1. Consumers are drinking less alcohol.  Yup, alc consumption is flat over last 2 yrs, per capita consumption “is declining after peaking in 2007,” and he expects that to continue even with a growing legal drinking age population. “Our estimates suggest alcohol volume should grow +0.5% annually and slightly higher in dollar terms,” but he expects “spirits to capture most of that growth.” 
2. Generational share loss.  Beer’s been losing share to spirits “as far back as 2005,” and its share of bev alc category has fallen from 58% in 2000 to 47.4% in 2018. 
3. Big Brewers Heavy Exposure to Declining Brands.  As mentioned in Molson Coors report, he expresses concerns over AB and MC’s reliance on declining premium brands, noting Bud Light, Coors Light and Miller Lite “collectively contributed most of the industry volume decline over the last two decades.” 
4. Millennials Not Choosing Beer.  “Demographic factors are not favorable for beer’s future growth,” wrote Kaumil, citing data that shows millennials chose spirits ahead of beer when asked what alc bev they prefer. “In a world where millennials actively try to drink less alcohol, for them to choose beer less often presents a long term challenge,” he noted. 
5. On Premise Shift to Alternative Channels.  Consumers drinking less in traditional bars/restaurants to tap rooms that favor craft and leave out big brands hurts big brewers.  Also, “overall dining traffic trends have been negative for seven years and are unlikely to change in our view,” per Kaumil.
6. Cannabis substitution.  This one is a wait and see. While “beer sales have declined” in states that legalized marijuana, it was “not in an outsized manner relative to the other headwinds impacting the industry.”
7. Big Debt.  “Aggregate debt for beer companies equaled $140bn at the end of 2018, dwarfing every other consumer beverage and packaged goods sector,” and those debt loads remain a risk “as it limits the ability for all three major players to invest behind the initiatives needed to fund innovation, increase marketing and update aging infrastructure.”

Not all negative tho, as Kaumil believes further opportunities in high-end as well as “health & wellness related products and M&A outside of beer can still support meaningful growth.”  Report cites AB as top pick for global brewer, credits Boston Beer for its growing FMB exposure and Constellation for both its high-end portfolio and being a first mover in cannabis.

Beer Institute’s board meeting today included appointment of 3 new board members, 3 out of 5 board seats.  That's change. Constellation Brands Beer Division prexy Paul Hetterich takes over for Bill Hackett (who long served on board).  Also, HUSA prexy Maggie Timoney joins board.  And BI has new craft board member, who is a familiar face in craft world: Heavy Seas’ Dan Kopman.  Dan one of leading early advocates for greater craft presence in fed politics when he was at Schlafly and on BA board. 

Deal between Mexico and Trump admin on Friday removes threat of 5% tariff on Mexican imports, including beer, which was to begin today. That threat hit beer stocks, particularly Constellation, at end of May, when proposed escalating tariffs announced. But by close of mkt Friday, STZ stock price basically back where it was before threat. And up another couple pts this morn. Recall, this is the sequel to 2017 flick, in which tax on profits from Mexican goods also hit STZ stock before being dropped (see May 31 issue). Some details of deal with Mexico, focused on border security and slowing migrant flow into US, remain unclear, but will require vote by Mexican lawmakers, according to AP report this morn. Tho Trump admin expects provisions to clear, “if for any reason the approval is not forthcoming, Tariffs will be reinstated!” the president tweeted. So could this double-feature become a trilogy?

Molson Coors “recent trends” and its “challenging portfolio reality are unlikely to improve,” anytime soon, noted Credit Suisse’ Kaumil Gajrawala, as he initiated coverage with an Underperform rating on TAP stock.  Obviously MillerCoors is key to success or failure for Molson Coors, yet “after a decade of effort, U.S. is increasingly an Albatross,” Kaumil wrote, with volume down for 12 yrs and revs for 4 yrs.  MillerCoors along with ABI “heavily invested over two decades” to build up its premium biz, but even with that effort, is now “in its 14^th consecutive year of declines.”  Given premium accounts for 70% of MillerCoors volume, it creates an “unfavorable portfolio exposure, which we estimated to be an annual 340bps headwind,” added Kaumil.  Indeed, in Kaumil’s view, “the issue is the portfolio, not marketing or management.”   Beyond “inability to grow” Miller Lite and Coors Light “at the same time, MC’s dealing with a “lack of offset from the remaining portfolio (which if growing in line with its categories, would only offset 15% of the decline from mainstreams),” he added.  That remaining portfolio, “is currently underperforming,” and “we believe there is not enough evidence to suggest this should change.”  “In our view, short of a major strategic shift such as a mainstream light divestiture, we believe this situation is difficult to fix,” wrote Kaumil. 

MillerCoors can’t count on getting much help from its high-end biz either as its positioning is “weak” with only 10% exposure to high-end, “the lowest among” top 3 US brewers and its “high-end portfolio is declining ~10% versus an industry growing 5%,” per Kaumil.  Another big headwind: “with $10bn of net debt, we believe Molson Coors is restricted from making the bold decisions necessary to reignite growth,” he noted.  He also believes “MillerCoors profitability to remain behind peers,” as co “has not successfully reinvested synergies from creating MillerCoors or consolidating the joint-venture.”   TAP shares are off 40% since end of 2016, “as fundamentals in nearly every region deteriorated, with no clear path toward stabilization in our view,” he wrote.  TAP shares are down 4% in trading this afternoon.

Early colleague of founder Anthony von Mandl who helped build Mike’s in early days, Anat Baron, talked to Marijuana Biz Daily.  Topics: parallels/differences between alc bevs and cannabis and how cannabis entrepreneurs can build brands in biz she calls “just a big white board right now,” tho oppy is “huge.”  While beer has luxury, middle segment and entry levels, lotsa cannabis consumers going to luxury, she sees, “but there doesn’t seem to be kind of that mainstream.  And that’s where big brands are built – with that mainstream consumer.”  No one has figured that out yet, she thinks.  (Perhaps that’s because, as cannabis expert Jonathan Caulkins observes, bulk of cannabis use currently more concentrated among heavy users than alcohol.)  Another difference, depending on jurisdiction: “extra layer” of distribs in 3-tier alc bev biz not being adopted everywhere for cannabis.  Mike’s “needed to get our distributors to care about our product,” whereas “right now in cannabis, you can get to consumers by going directly to the stores.”  “Huge question” for cannabis: “if they’re going to force a middleman (in the supply chain)” or allow producers more direct access to retail.

Key lesson from Anat for cannabis entrepreneurs on building brands: don’t focus on creating brands simply for themselves, but identify who their drinkers are and communicating with them. “It’s always about three things.  Who’s your consumer?  How are they feeling about you? And it’s about building stories.”  Mike’s grew “because we figured out who our customer was and we were differentiated from everyone else.”  Mike’s consumers were independent, she notes, and “wanted to be different.”  Craft brewers also figured out how to “build communities,” via social media/internet, since “it is so expensive to build a brand in America today…so everything becomes a niche.”  In cannabis, “a lot of people are spending a lot of money to put their products into a few retail stores, but that’s not going to create a big-enough market.  You have to blow it up, and you’re going to do that by figuring out how to reach consumers.” 

Final lesson from Mike’s experience, relevant to both alc bevs and cannabis.  Start with core product, then add.  “Before I left, I had a long conversation with the owner about, what is the brand?  Is it Mike’s Hard Lemonade, or is it Mike’s? And we decided to make it Mike’s.”  If co wants to stay independent and not simply get investor money, “figure out your core product and get revenue from that, and then use that to keep going and launch other products.”          

Craig Katerberg will succeed Katie Barrett as VP and general counsel for ABI’s North American Zone.  Recall, Katie promoted to ABI’s global senior leadership team as gen counsel.  Craig joined ABI in 2012.  He joins AB mgt committee and reports to Cesar Vargas, AB veep of legal and corporate affairs.