On heels of import shipments coming in fine in Dec and sealing modest shipments gain for 2016 (see Feb 7 Express), comes negative news about early 2017 from NBWA economist Lester Jones.  His monthly beer purchase index, an indication of how much beer distribs are ordering across segments, based on distrib input, came in at record low of 42.2 in Jan, compared to 48.4 last Jan.  Anything below 50 suggests biz is contracting, Lester noted.  What’s his take on this “continued contraction?”  Low index “comes on the heels of higher end-of-year inventory news, as well as increased volume of beer approaching out-of-code dates.  Overall, we can expect a slow start to 2017 for beer shipments.”  Recall, domestic taxpaid shipments last Jan pretty lousy

(-1.9%), but Feb last yr +4% on extra Leap Day.  We’re losin’ Leap Day this year, natch, and both Lester and Beer Inst economist Michael Uhrich expect inventory impact on Jan shipments.   

Import and craft purchase indexes still over 50 in Jan, but even import index slipped slightly lower than Jan 2016 (59.2 to 57.5) and craft index significantly lower (from heady 77.7 to 59.1).  FMB and especially cider indexes notably lower too.  Premium light index down just slightly and premium regular flattish (tho each well below 40).  Interestingly, below premium index moved up in Jan (from 24.6 to 31.8).        

Annual Scarborough surveys of beer drinkers in top metro mkts measure brand popularity, not volume, and show these two measures not necessarily aligned, especially over time.  Consumers tend to be fickle about what they say they drink.  Results also show big brands still have sway in big cities.  Coors Light still #1 in New York City, Bud Light held on to #1 spot in Los Angeles and Lite hangin’ in as leader in Chicago.  Meanwhile, beer gained drinkers (adults who drank any beer within prior month) in LA and Chicago over last 5 yrs, but percentage of adults who say they drink beer dipped in NYC (number did too), held even in LA, rose in Chi.

In NYC, Coors Light lengthened its lead over Corona over last 5 yrs, surveys say.  With 24% of beer drinkers saying they drank Coors Light vs Corona’s 21.8%, Coors Light 2 pts ahead of Corona in 2016 survey. That’s about 145K more drinkers for Silver Bullet.  Top 2 were effectively tied in 2011 with 26-27% of beer drinkers.  So each shed 200-300K drinkers.  Heineken held on to #3 spot, barely behind Corona, and barely lost any drinkers over 5 yrs, according to survey.  Bud Light still #4 and lost over 200K drinkers too.  Blue Moon edged ahead of Sam Adams for #5 slot.  Indeed, Blue Moon made top 5 in each of these top 3 metros in 2016 surveys.  Rounding out top 10 in NYC: Sam Adams, Stella, Bud (down big time since 2011), Yuengling and Corona Light.  

In LA, similar story among top 2 most popular brands, tho counterintuitive to sales trends.  Bud Light, in virtual tie with Corona in 2011, extended lead in 2016, even as data shows reverse trend in actual sales.  Nearly 28% of Angelino beer drinkers said they drank Bud Light last yr, down from over 1/3 in 2011.  But % that named Corona dropped almost 10 pts to 23%.  Meanwhile, Blue Moon grabbed #3 spot last yr; wasn’t named in top 10 five yrs ago.  Modelo Especial, also absent from 2011 list, surged to #4 spot in LA (even as it grew to #1 in volume during recent period in scans), and Dos Equis moved from #9 to #5.  Coors Light and Heineken slipped out of top 5, but still in top 10.  Also in top 10: Stella, Shock Top and Bud.

Top 3 light brands are top 3 brands in Chi, according to Scarborough surveys: Lite, Bud Light and Coors Light, with latter two each moving up in the ranks over last 5 yrs.  Lite holds bigger lead there than #1 brand has in NY or LA (8 pts vs 3-4 pts).  Lite lost only 100K drinkers, but % of beer drinkers that named it down 4 pts from 33% to 29%.  Once again, surveys say Corona popularity dipped slightly in Chi; it slipped from #2 to #5 most popular brand.  (Is it cool to drink Corona but not cool to reveal that you do?  Have Corona fans upped their consumption of it as their go-to brand?)  Blue Moon held on to its #4 slot in Chi.  Heineken and Stella sat at #6 and #7.  Then come two big brewer craft entries: Leinenkugel and Goose Island.  Modelo Especial #10 in Chi.       

AB really ramping up the discounts on subpremiums in Calif, after first mainly trying it with branches in Dec (see Express vol 18, #218).  AB offers retailers $3.25 off on Natural Light and Natty Ice, Busch family and Rolling Rock, down from $12.15 to $8.90 per case.  That will get $10 price per case at retail or under.  Promo will last for 4 weeks.  Distribs make less than $2 per case on this promo, INSIGHTS heard.  Since cost of delivering over $3 per case, they lose money on every case sold.  Good thing subpremiums just very small part of biz in Calif.  Other deals: $5 off on Bud Ice quarts down to $14.40 ($1 a bottle at retail).  And $6.35 a case off on 25 oz cans of Natty Daddy, Hurricane and King Cobra, down to $11.35 for 15 cans.  Both those deals last for 4 weeks too.

What Is AB’s Objective?  Buy 2 Get 1 Free Back in Wisc; MC Matches What is AB thinking with such low pricing?  First of all, its biz hurting in Calif for yrs. But 2d, there is “compression” between promoted price of Bud Light and subpremiums that this seeks to address.  Yet this price way below where MC is in mkt.  Did AB have to go this low?  Then too, perhaps AB looking to put additional pressure on MillerCoors, following MC’s move to 50/50 on promos.  MC has not matched yet. But presuming it does, will MC distribs even go along with such steep discounts?  This is budding dilemma for MC.   

Another area where AB aggressive on price is Wisconsin, MC’s highest share state.  In Wisc, AB back this yr with “buy 2 get one free” promo for Super Bowl.  This yr, MC matched for first time.  Super Bowl results  just “OK,” said one distrib.  Can either AB or MC get a leg up with lower prices? If past is prologue, ain’t likely.   

Three AB distribs in different states in Southeast have announced a merger, with all 3 staying in,  pending supplier approval. Deal announced to employees/suppliers in last 1-2 days.  The 3 distribs are R.A. Jeffreys in North Carolina (approx 18 mil cases), Southern Eagle in Ga and SC (14 mil caes), and Crown Bevs in Florence, SC (2.5 mil cases). Each of Jeffreys and Southern Eagle have been very active in dealmaking over last decade and are run by 4th generation execs.  When they combine forces, presuming AB approves, they could be one of top 5 AB distribs nationwide.  

AB does about 8 mil bbls in those 3 states (roughly 3 mil in each of NC and GA and 2 mil in SC) and these guys would collectively sell about 1/3 of that. That’s big.  AB still has well over 50 share in each of those 3 states.  Each of these 3 distribs sell other brands, craft in particular.  But AB is vast preponderance of their biz.

Deal Environment Ramping Up This is first deal of 2017 that’s sending some shockwaves thru industry, but may not be last.  With industry conditions getting tuffer, top 2 still not turning around, and increased margin pressures, more distrib deals are in wings, including potentially some big ones.  There were about a typical number of deals last yr, but mostly smaller ones (with exception of Beer Capitol to Frank).  Most distrib deals we tracked were in AB system.  When INSIGHTS last checked (a few mos back), AB had 466 distribs, MC 415 distribs.  Recall, AB network far less consolidated.  Moves like this could begin to narrow gap.  Largest MC distrib Reyes Bev Group, about 3x as big as the largest AB distrib Silver Eagle (including all brands for both).  And RBG is again apparently in the hunt. But overall, more rumblings about AB deals than MC deals.  

MC made move on  “important integration initiative” set in motion by Molson Coors becoming 100% owner.  MillerCoors will move from one giant ad agency to the other, switching from Interpublic to the Connect unit of Publicis Groupe for its media buying and planning business.  Review started back in Sep. Connect also handles media buying for Molson Coors in UK.  Appointing Connect, MC “better positioned” to achieve 3 “primary media related objectives,” cmo David Kroll wrote distribs.  “We will harness the power of addressable media as a critical marketing lever to connect with people across the entire path to purchase…. We will elevate our local media strategy and execution with a highly qualified and dedicated agency…. We will fuel growth by taking advantage of global media, publisher and technology partnership opportunities.”  Those sound a bit vague.  But then David gets to perhaps the nub of the matter: “Importantly, we’ll achieve these objectives while becoming more efficient in our investments.”  

As of late yesterday, Bud ad got 20 million You Tube views and Bud Light 10 mil, #1 and #2 among Super Bowl ads respectively, according to AB.  Even the “boycott” generated mostly favorable comments on social media, AB sez, citing a 3 to 1 ratio in support during the game.  Meanwhile, 111 mil people watched the Big Game and since then almost 50 mil have watched the Bud and Bud Light ads online, reports Ad Age.  That’s a lotta eyeballs.  But for 4 weeks thru Jan 28, Bud Light down 2.3%  and Bud down 5.6% in Nielsen all-outlet (its softest 4 week trend in a while).  Let’s see if this better buzz on AB ads translate into better sales.  

“Industry volumes have decelerated measurably, pricing has gotten more aggressive, craft growth continues to slow, active SKU counts have decelerated meaningfully, and innovation is delivering less top line growth than the industry has seen over the past five years,” wrote Consumer Edge’s Brett Cooper.  That’s quite a laundry list of recent woes, with Brett flagging short-term trends (IRI since beginning of Dec) to show upcoming potential pressure on stocks.  “Given what we are seeing,” said Brett, “it would seem unlikely that the upcoming earnings season will act as a positive catalyst for the brewing stocks.”  

Over the medium term, beer biz should “deliver flat demand to slight growth,” sez Brett, but “higher gas prices and weather are negatively impacting short-term volume performance.”  Brett flags additional upcoming pressure following “implementation of cigarette tax in” Calif on Apr 1 which will hit disposable income of some drinkers.  And while Brett still believes beer biz “rationally priced” over medium term, “actions in the short term are challenging that view.”  There’s less front-line pricing in premium and subpremiums, which is “a change in strategy…. We believe that the moves are tactical by MillerCoors to improve relative performance in subpremiums and by ABI to pre-empt those actions.” But “deceleration in front line pricing and less mix will make companies’ average price per HL (hectoliter) results look less flattering in Q4 and into 2017.”  

Perils of Pickup in Price Promotion; No Better Volume, Lower Profits  Brett waxes philosophic about poor industry pricing and its effects.  “In an environment where demand for the industry is stable and the structural pressure for premiumization and fragmentation persist, the only means by which large producers can grow revenues, profits and cash flows is to increase price. We are not believers that discounting will lead to sustainable volume improvement.”  Editor’s note: hard to argue with that based on what we’ve seen at BMI over the decades.  Last summer’s “promotional environment,” according to Brett, “proved that more aggressive pricing will more often than not be matched, leaving the aggressor with no improvement in volumes, simply lower revenues, profits and cash flows.  Couple this with larger brewers who have significant debt loads and we remain comfortable with our medium term outlook for price outlook.”  But Brett goes on.

“Admittedly, what we have seen in late 2016 and early 2017 has had us examining this belief” in pricing rationality.  “Industry front-line pricing (excluding mix) has fallen below 1%  growth in the last couple of months led by somewhat more aggressive pricing from ABI and front line pricing that has gotten to flat from MillerCoors.  Subpremium pricing has been the largest culprit in the deceleration.  We expect that this activity will be a hot topic when Molson Coors and ABI report.”  

Total beer biz up just 0.1% for 1st 4 weeks of 2017 in Nielsen all-outlet thru Jan 28.  Growth hard to come by.  Broadly speaking, many leading brewers/imports start 2017 with very similar trends to how they ended last yr. That ain’t surprising.  But it’s notable that Constellation accelerated to 18% volume growth past 4 weeks, while AB down 1%, MC down 2% and total craft biz up just 0.5%.  That’s craft as Nielsen defines it (including Blue Moon, Leinenkugel, Shock Top).  But note both Blue Moon and Leinenkugel shandies showed good growth in 4 week period, while Shock Top volume dropped 27%.  Sam Adams family also down 21% and Sierra franchise down 10.5%.   So it’s getting tuffer for craft.   Meanwhile, last yr’s hottest brands Michelob Ultra and Modelo Especial look even hotter off a bigger base in early 2017 data, with $$ sales of each up by more than 25% (volume up 22-25%).  Ultra gained 0.8 share of $$ and Especial gained 0.7.  Corona brand up double digits too, gained 0.5 share of $$. Those 3 brands up 2 share.  Interesting that 2 of top 10 growth brands, Busch Light and Miller High Life, are subpremiums. That’s 3 if you count Bud Ice, which is at price point kind of in between subpremium and premium.  Avg subpremium pricing down 1% last 4 weeks.  

Two recent “good news” developments among leading craft brewers.  Late Friday, Bell’s Brewery announced that Laura Bell “assumed the role of CEO” on Feb 1.  This is a rare example of generational succession among top craft brewers.  Laura joined Bell’s full time in 2007.  The brewery was founded by her father, Larry, in 1985, when she was just 2 months old.  Founder and father Larry Bell will “continue in his role as president and remain active in various projects.”  Bell’s shipped 422,000 bbls in 2016, up 51,000 bbls, 14%. That was 2d biggest bbls growth among BA-defined craft brewers (Firestone Walker was first).  

Lagunitas, by far the fastest growing craft brewer since 2010, is off to a fast start again, even in this much tuffer environment.  (Lagunitas half-owned by Heineken since late 2015.)  Depletions up 21.5% in Jan, including 14.5% gain on-premise and 24.8% gain off-premise.  Founder Tony Magee prompted to share those stats after INSIGHTS recently published Nielsen info that top craft brewers down on-premise and industry off to tuff start.  

Just-released Harris Poll asked different questions than annual summer Gallup Poll of American drinking habits.  So the numbers come in a bit different.  Still, beer beat wine and spirits when Harris asked drinkers: “if you had to choose just one, what is your current beverage of choice?”  Beer got nod from 38% of drinkers, vs 31% for wine, 28% for liquor.  (Recall, beer scored over 40% as bev consumed “most often” in last 3 Gallup Polls.)  Similar disconnect tho with volume as shipments show beer still near half of all alcohol consumed vs 35% for spirits, 16% of wine.  Beer is bev of choice for all age groups up to 65+.  At that point both wine and liquor surpass beer in popularity.  Beer still much more popular among men (55% say it’s their bev of choice) vs women (just 21%).  Wine more than twice as popular among women (46%) than beer and 30% of women choose spirits as bev of choice almost a 10-pt lead over beer. Continuing gender gap remains key obstacle to building beer per caps.

Among beer drinkers, 38% say domestic non-craft beer is their favorite style.  Interestingly, 29% say they favor craft, 23% imports; 6% say hard sodas/seltzer/teas and 3% say FMBs.  Mainstream domestics have slight edge over craft among millennials (28% vs 25%), but craft takes big lead among 35-44 yr-olds (40% vs 29%).  Mainstream beers get their mojo back at age 45+.  Men prefer mainstream beers 37% vs 30%.  A wider gap among women: 41% vs 26%.  Geographically, no surprise that mainstream domestics beers win in northeast, south and midwest, but craft is style of choice in west, where just over 1/3 of beer drinkers prefer it compared to just under 1/3 who choose mainstream domestics.