Not major feature of  most analyst or media coverage, but Molson Coors took $495 mil “non-cash brand impairment charge” in Q4 on its Canadian biz.  Co said it “determined…fair value of the Molson Products was lower than its book value as it faced a weaker performance last year, difficult market conditions and intensified competition not expected to subside,” wrote Hamilton Spectator (Canadian paper).  Molson Coors Canadian biz down 3.5% in Q4 and 3% for yr.  Since 2012, Molson Coors Canadian share dropped from 40 to 34, wrote Spectator.  Meanwhile, ABI’s Labatt up from 41 to 43 share and other brewers jumped from 19 share to “almost 25 share.”  ABI has commented on its Canadian share gains; no surprise, it would like to export that to US.     

With ink barely dry on ABI-SAB deal, speculation continues of an eventual Heineken-Molson Coors hook up.  Analysts and global beer biz watchers just can’t seem to help it, especially in wake of widening gap between #1 AB InBev and #2 Heineken.  “But the prospects of a rival Heineken-Molson megadeal still seem slim,” wrote UK-based WSJ columnist Stephen Wilmot yesterday.  Why’s that?  First, affordability.  Heineken still has $12  bil net debt from Scottish Newcastle purchase yrs ago, and “a majority family stake makes issuing equity tricky.”  Keep in mind too, Molson Coors won’t be cheap (stock mkt capitalization about $20 bil), has its own family issues and just took on around $12 bil in debt.  Then too, buying Molson Coors runs counter to Heineken’s very public strategy of expanding its biz in emerging mkts, not developed mkts where Molson Coors has vast, vast majority of its biz (US, Canada, UK), Wilmot points out.  Another counter: does Heineken really want to take on a huge portfolio of mostly not above-premium brands, many of which are in decline?    

Then again, Heineken and Molson Coors already do biz together in several mkts.  On Heineken conference call yesterday, chairman Jean-Francois van Boxmeer noted “we have a longstanding partnership with Molson Coors as you know, we [have] worked together in Ireland for a long time where we were doing the Coors brand, Coors Light for quite a number of years, as well as…our brand portfolio in Canada within a joint venture with the Molson Coors organization.  We have the license for Coors Light in Mexico since a number of years.  You might expect some more developments to come hand-in-hand with Molson Coors in a number of key markets.  You can expect they are competing with ABI of course, I mean this is logic.” That raises obvious question: would a [much] broader joint-venture between the two make sense down the road, rather than acquisition?  For now, Wilmot believes “bolt-on deals in emerging markets such as the [just announced] one with Kirin Brasil seem more likely – and strategically sensible – than another brewery megamerger.”  

Consumer price index for beer increased 1.7% in Jan vs yr ago, per latest govt stats.  That’s in-line with increases over past few months, but beer CPI well behind +2.5% growth for all items in Jan, which had strongest monthly gain since Feb 2013.  CPI for beer lagged increases for all items in 3 of last 4 months.  But beer prices still runnin’ ahead of spirits/wine.  CPI for spirits edged up just 0.3% in Jan vs yr ago while wine prices slipped 0.5%.  Over last 12 mos thru Jan, CPI for beer was up 1.8% vs 1.4% gain for all items and was well ahead of spirits (+0.4%) and wine (-0.1%) pricing trends.  

Beer volume down 1.1% for 4 weeks and 0.4% yr-to-date thru Feb 4 (day before Super Bowl) in Nielsen All Outlet.  AB down 1.8% YTD and MC down 2.2%.  But avg MC price per case essentially flat last 4 weeks.  Up just 3 cents to $19.95.  AB avg prices up 21 cents, 1% to $20.87.   Almost a buck a case separating top 2 in Nielsen in latest 4 weeks.  Meanwhile, Constellation volume up 16.6% YTD, while its avg prices up 55 cents, 1.8%.  And Heineken USA volume flat with avg prices also up 2%.  Interestingly, Heineken brand up 5% YTD, same rate as Dos Equis Lager.   

“In the US, both volume and depletions were slightly down,” Heineken reported this morn as Heineken brand “declined marginally.”  In Americas, Heineken total volume up 3.7%, driven by high single digit growth in Mexico.  And operating profit “grew 23.5% organically with Mexico and the US the main drivers.”  Oper profit in Americas jumped $124 mil euros, to $1.082 bil.   Operating profit in the US benefited from material favourable transactional currency impact.”  While currency impact in Mexico a “negative,” that was “more than offset by mix, pricing and continued efficiencies.”  Operating profit margin jumped 210 basis points in Americas to 19.6%. 

Core 4 Brands Gained Share in US, Execs Say  Chat with Heineken USA chief sales officer Ray Faust and chief mktg officer Nuno Teles added some color to 2016 results and outlook for 2017.  Tho overall volume off slightly in 2016, HUSA core 4 brands – Heineken, Tecate/Light, Dos Equis and Strongbow – each gained share. HUSA gained share overall, said Ray and picked up share in 3 of 4 regions (talkin’ depletions here). Combo of Heineken/ Heineken Light down slightly, but brand Heineken ended year with “good momentum,” said Ray.  Tecate/Light combo up mid-singles with Light up “strong double-digits” and providing “halo” for flagship in some places.  Dos Equis franchise up low-singles; Lager up mid-singles and “accelerated” in back half of yr.  Tho natl cider biz soft (an understatement), Strongbow up and “gained significant share” in segment, said Ray.  Positive trends driven by solid c-store performance (HUSA up 4.4% in channel vs -3.3% in grocery in Nielsen scans), share gains in Wal-Mart and 7-11, Dos Equis cans and continued expansion of Tecate Light.  

Nuno cited strong mktg programs, natch, and “big ideas” that will carry into 2017, including: 1) Heineken focus on More Behind the Star brewing credentials/family heritage, plus Heineken Holiday and soccer programs (“we own the soccer space”); 2) Dos Equis doin’ college football and Most Interesting Man reboot; 3) Neil Patrick Harris campaign for Heineken Light that’s improved trend, (tho brand still down).  In 2017, HUSA will “spike up” Dos Equis Cinco de Mayo and college football programs, said Nuno, with new tv spot and digital ads.  Dos is #1 Mexican brand on draft, he reminded.  HUSA will extend tv ads for Heineken Light and have “year-long investment” behind brand. Tecate to sponsor 2 big boxing matches (Mar and May) and continue natl expansion.  Strongbow’s getting new flavor, and will offer four 5-oz cans, with 4 different flavors, at suggested retail price of $1 to build sampling.  Aim is to sell 5 mil cans.  Hard sodas grabbed volume from cider in 2016 and 2017 will be tuff too, Ray and Nuno acknowledge, but HUSA convinced cider will return to growth down the road.         

Heineken Global Volumes Up 3%; “Motoring”; Stock Up  Back to global Heineken, consolidated beer volume grew 3%, revs grew 4.8% to $22 bil, and organic oper profit grew 9.9% to $3.75 bil.  “We delivered strong results in 2016 with clear outperformance of our brand portfolio led by Heineken,” said ceo Jean Francois van Boxmeer “and sustained momentum of our innovation agenda.”  In 2017, Heineken  said “we expect” continued volume, profits and margin expansion, but didn’t put a finer point on it than that.  Still, Heineken numbers “robust,” said Bernstein’s Trevor Stirling and it reiterated guidance to expanded margins in 2017 “despite headwinds.”  Heineken is “motoring,” headlined Stifel’s Mark Swartzberg.  Stock up 4% so far today.

In echo of unsuccessful suit vs MC over Blue Moon, Ohio consumer seeks class action status in suit vs Wal-Mart for “false and deceptive labeling,” positioning and pricing of 4 brands he sez it sells as “craft.”  Cites dictionary definitions of craft, plus BA defn of “small, independent and traditional,” and sez Wal-Mart’s Cat’s Away IPA, After Party Ale, Round Midnight Belgian White and Red Flag Amber don’t fit the bill.  Paid $14 for a 12-pk in Oh store (which is close to $28.51/case avg Shock Top price in grocery store per IRI, but less than avg craft price of near $36/case).  Wal-Mart labels name Trouble Brewing, which “doesn’t really exist,” Plaintiff points out.  Rather it’s name created by private label co Winery Exchange/WX Brands; beer brewed in NAB’s Rochester, NY plant.  Plaintiff believes “Genesee produces well over the prescribed amount that would be considered ‘small,’” citing BA’s 6-mil-bbl cap.  

Suit sez Wal-Mart positions these brands next to craft on store shelves, prices them as craft and, according to Wal-Mart exec, “we were intentional about designing a package that conveyed a look and feel you’d expect of craft beer.”  But Plaintiff insists Wal-Mart’s “Craft beer has never been a ‘craft beer,’ nor has it been produced by a craft brewery.”  Wal-Mart’s actions violate OH’s consumer protection laws and constitute unjust enrichment, fraud, etc, he claims.  Seeks class action status, compensatory and punitive damages, atty fees and injunction to stop Wal-Mart’s “misleading misconduct.”  Recall, similar action vs Blue Moon dismissed by US federal court last yr.  That ct specifically said pricing of brand “cannot be a misrepresentation” (that brand is “craft” or not).  Same ct tho refused to decide on defn of “craft,” for such claims.    

First results report from Molson Coors on MillerCoors very tuff to unpack, with different “pro forma” and “actual” figures, plus revised figures for 2015.  One clear, key number: sales-to-retailers trend in 2016 was

-2.5%, virtually same as -2.6% in 2015 and -2.5% in 2014.  MC reported better sales-to-wholesaler trend for yr, -1.3%, than our shipments estimate; we’ll have to suss out difference.  Trading-day-adjusted Q4 STRs were

-2.8%, “driven by lower volume in the Below Premium and Premium Light segments,” Molson Coors reported.  

MC’s net rev per bbl, excluding contract biz for Pabst and branch biz, up 1.3% in 2016 with “favorable net pricing and positive sales mix.”  At same time, cost of goods sold/bbl decreased 2.5% for the yr.  Mktg, gen and admin expenses down slightly for the yr and dipped 5.4% in Q4.  “On a pro forma US GAAP basis, MillerCoors income from continuing operations before income tax was $1.287 billion for 2016.”  That’s a 16.9% increase for the yr and a huge pop in Q4, as result of cost controls, pricing growth and much smaller special charges in Q4.  Molson Coors gave no brand color for the yr.  Details to follow, hopefully.  Globally, Molson Coors reported worldwide volume dipped 0.8% to 81.1 mil bbls.  Coors Light off 0.2% globally.  Net sales slipped 2.3% to just below $11 bil.  Underlying EBITDA up 2.6%, to $2.4 bil, but several different income numbers/trends highlighted in report.  

Factor in new finding from California when keeping score on whether alcohol and cannabis are net-substitutes or complements. Most marijuana users reported reduced alc bev consumption to Eaze, site that works a bit like Drizly, taking and delivering online orders of legal pot. (These consumers ostensibly “medical” marijuana users.)  The co looked at orders from over 250K Calif cannabis consumers and results of over 5000 surveys for recent 2016 State of Cannabis Data Report. Among those findings: about 82% of those surveyed said they reduced alcohol intake due to cannabis consumption and almost 12% said they stopped drinking completely. Whoa. That ain’t  all. Over a quarter of respondents said they “drink a lot less” and another quarter “drink moderately less.” Those that quit drinking and shift to marijuana tend to buy vaporizer cartridges over traditional flowers or edibles, Eaze reported. And by the way, almost one in 3 Eaze users ordered those cartridges last yr, a full 1 in 5 deliveries. That’s about half of non-flower orders on the site by the end of last yr as users continue to move toward new or innovative product types. Other relevant findings: women represented a third of Eaze users last yr, up from a quarter in 2015; more Baby Boomers are using the service than before, growing at a faster rate than other generations, and they spend about a third more per order than Millennials. Don’t expect T-Mobile’s Super Bowl spot featuring Martha Stewart, Snoop Dogg and their big bag of pot puns to slow down shifting attitudes across generations.

However, another big state seen as having similar political leanings to Calif may continue to be slower moving on cannabis legalization, despite broad support. New York Gov Andrew Cuomo recently reiterated his resistance to recreational marijuana use, according to International Business Times. “As of this date, I am unconvinced on recreational marijuana,” he said during press conference last week, citing long-held view of it as a “gateway drug.” IBT threw some skepticism at that belief tho, using Natl Inst of Health data to boot, before noting “a wave of research concluding that [alcohol] is more dangerous.” And that “has not stopped Cuomo from aggressively promoting alcohol.” Indeed, Cuomo has largely supported small alc bev producers in NY by easing restrictions, in part seen as a way to boost jobs and tourism. He’s also gotten “more than $900,000 from alcohol-linked donors,” the report claims. Perhaps more persuasive tho is IBT’s underscoring of political conundrum posed by cannabis for Cuomo and others. Gallup poll sez about 60% of Americans now support pot legalization and support even stronger among registered Democrats (and younger voters). For folks like Cuomo thrown around as possible presidential candidates come 2020, could stances on cannabis rise to serious considerations (at least in Democratic primaries), when the party has much bigger political fish to fry?

“The jury remains out on the practical impact” of President Trump’s Exec Order 13771, or  “two-for-one” rule aimed to shrink amount of fed regulations businesses face, commented vet alc bev atty Marc Sorini.  Instead of streamlining regs, actual impact may create bigger challeneges for industry, Marc suggested, via more arbitrary decsisons.  Exec Order requires gov’t eliminate 2 regs for every new one proposed, as well offset any increase in costs.  “Much hinges on the interpretation of ‘costs,’” noted Marc. “Does this mean the costs to the Agency, the entire federal government, or society at large?” he wondered.  If those costs “are defined broadly, how will agencies and/or the OMB calculate such costs?”  Also, this  Exec Order “might not withstand legal challenge, given that no current law gives OK for a “two-for-one” rule, Marc also cautions, so the “opportunities to ‘game’ the Executive Order’s mandate seem endless.”   

What’s more, Exec Order “may accelerate the unfortunate trend of agencies to make rules through informal documents instead of the notice-and-comment rulemaking process mandated by the Administrative Procedures Act,” said Marc. So bypassing process could create more issues for businesses to deal with in short term. That adds potential burden given that “too often, the legal costs and potential for relationship damage involved in challenging such rules outweighs the benefit of a challenge,” he added.  Cites example of “how willing is a heavily-regulated brewery, winery or distillery to engage in protracted litigation with the Alcohol & Tobacco Tax & Trade Bureau.”  Looks like Exec Order 13771 “will likely accelerate the pace of regulation by internet posting, bottom-drawer regulation, letter ruling and other means,” that don’t require public notice and comment periods, concluded Marc.  

Heineken has deal to significantly expand its Brazil footprint and be stronger competitor to AB InBev in world’s 3d largest beer mkt, about 118 mil bbls in 2015, it announced today.  Heineken will buy Kirin’s Brazil biz for approx $704 mil; with debt, price edges up over $1 bil.  It picks up 12 breweries and about 9 share, adding to 5 breweries and 10 share Heineken already has from FEMSA biz it bought in 2010.  AB InBev still has about 70 share in Brazil.  The company (Brasil Kirin) reported operating loss in 2016 and Kirin paid whopping $3.9 bil for it back in 2011.  Deal never worked out for Kirin, to put it mildly.  It took $1 bil impairment charge in 2015 as overall mkt went soft last few years.  “There are certain limitations to transforming Brasil Kirin into a sustainable and highly profitable business on its own,” Kirin said in statement. “None of the normal ratios work because it’s loss-making, but it’s a very attractive price,” understated Bernstein’s Trevor Stirling.   

Tho it still significantly trails ABI in share, Heineken likes long-term prospects for overall biz and premium growth in Brazil. Among the “compelling strategic benefits” of deal, Heineken cited: consolidates Heineken’s existing position in mkt; provides oppy to accelerate premiumization; builds scale to drive more growth; compliments Heineken’s current portfolio with addition of “well-established” Schin, Bavaria, Kaiser and other brands; increases Heineken’s exposure to developing mkts; and cost synergies, of course.  Brasil Kirin also has small soft drinks co, with about 2 share.  

Separately, Heineken completed purchase, along with English private equity co Patron, of Punch Taverns, a big UK pub group with over 3,000 locations, for about $500 mil. Then too, Kirin turned around and bought majority stake in Myanmar’s Mandalay Brewery for about $4.3 mil, giving it 90 share of that country’s beer biz. That ain’t all.  Reports that Carlsberg may be considering an offer for Asahi’s 20% stake in Chinese brewer Tsingtao surfaced today too. Asahi has shifted sights to Europe with brands that fell out from ABI-SAB deal, and lost interest in its non-control stake.  Deal would make Carlsberg/Tsingtao stronger competitor to AB InBev in China (Carlsberg also has stake in another Chinese brewer, Chongqing).  Then too, Carlsberg, and other global brewers, still reviewing potential offers for Vietnamese breweries.  Finally, speculation continues about a future Heineken purchase of Molson Coors.  There may be questions (tho not likely answers) about that during Molson Coors and Heineken conference calls coming up this week as they announce their 2016 results.  Sources: Heineken announcement, Wall St Journal, iafrica.com, Reuters, Bloomberg, Burton Mail.