In wide-ranging interview with MarketWatch published today, Pabst ceo Eugene Kashper covered landscape, making  familiar points and new tweaks.  One key “learning” from attempts to sell its own craft brands, i.e. Ballantine IPA: “Even if we make a world-class beer under any of these [legacy] brands, go back to the 1880s and spend a year and a half developing the right recipe, it’s still not appropriate for us to just sell that at a craft price.”  Pabst’s oppy with its own brands is to offer “value,”  Eugene stressed, and that’s flavorful, sessionable beer distinguished from macros, at premium or just above premium price, “similar to what Yuengling has been doing,” he said later in interview.  That’s the model – “being perceived as a craft brand but being sold at a very reasonable price point” ‒ for Old Style Oktoberfest, Stroh’s Bohemian and  Rainier Mountain Ale, which have “really done well” in past yr, he sez. And that pricing is a “sweet spot,” just as Pabst itself falls “between big beer and craft,” in Eugene’s view.  Meanwhile, learning from Not Your Father’s Root Beer was Pabst org could sell brand for $44 per case (no mention of sharp falloff in interview).  That makes Pabst “more ready for the future and with something like Minerva or New Holland” partnerships kickin’ off soon. What makes Pabst good partner, for these and other brands? “I think we’re unique in that there are only about six or seven national platforms in the US, but we’re one that’s focused on and comfortable with working with other people’s brands as well as our own brands.”   Pabst’s partnerships, sez Eugene, combine a good “cultural fit” and synergies while allowing owners to “maintain control” and “realize the full potential of the brand they created.”  

Increased Complexity; 6 Partners, 7 Breweries One thing very clear from interview: Eugene’s purchase of Pabst with TSG has added lots of complexity in last 2 yrs.  For example, Pabst now brews with 7 other breweries of different sizes. (Eugene still in discussions to iron out differences with MC that led to lawsuit.  He hopes to “find a solution that fits both parties’ needs,” all he could say.)  Then there are partnerships with Small Town, Tsingtao, Woodchuck, Dog Tag, Minerva and New Holland, plus those “sweet spot” legacy brand extensions.  But it’s been a roller coaster: sales soared with NYFRB in 2015, swooned in back half of 2016, leading to Pabst’s smallest shipments total since late 90s at 5.2 mil bbls, down nearly 6%.   Question is whether all this change and new partners will pan out in better trends goin’ forward.   

Classic Dist sold almost 100,000 cases of Ballast Point to 3 Constellation distribs, Ace, Harbor and Triangle, reportedly for 7x GP.  Recall, Classic and Constellation had court battle a few yrs ago, which ended with Classic selling its Constellation biz to AB Pomona.  AB branch then sold Constellation biz to Harbor, owned by Reyes Bev Group, (following DoJ consent decree, which allowed Constellation to terminate AB branches). Harbor set up separate distrib there.  So this ain’t a huge surprise, following Constellation acquisition of Ballast Point in late 2015.  More surprising perhaps is that Triangle sold 150,000 cases of Heineken USA (Dutch brands) to Classic, Mission and Harbor.  But Triangle didn’t have Mexican portfolio and aligns itself more closely with Constellation following deal, which could already be its largest supplier (by $$). And it will be able to do a 1031 exchange, receiving tax benefit for buying Ballast with some of proceeds from sale of Heineken.  

Total beer volume up at an anemic 0.4% pace for full yr 2016 in Nielsen all-outlet.  AB down 1% and MC down 1.7% (each down 5% or so last 4 weeks).  AB lost 0.7 share and MC lost 0.5 share of volume.  AB down 1 full share of $$ and MC down 0.7 share of $$ for full yr thru Dec 31.  Who grabbed it?  You guessed it, no doubt.  Constellation volume up 14.4%, $$ up 17.6%.  It gained 0.9 share of volume and 1.3 share of $$; now over 10 share of $$.  HUSA volume down 0.2% for yr (6% for 4 weeks) and it basically held share, but no growth.  Boston Beer declined near 10% for 4 weeks, 3.6% yr-to-date (not including Alchemy & Science).  Imports up 7% for full yr in Nielsen and craft up less than 3% (as Nielsen defines it).  FMBS slowed to 5.5% growth for full yr (down 8.4% for last 4 weeks).  

Beer volume down 3.9% for 4 weeks thru December 31st in Nielsen all outlet data.  So beer closed out yr with one of softest 4-week periods of yr, right thru 2 major holidays.  Not a good way to end, tho holidays “misaligned” once again, notes Nielsen, as last yr’s 4 week period ended on Saturday, January 2.  

Pricing under pressure as total avg beer prices up just 23 cents, 1%.  Avg prices lower for FMBs, economy and malt liquor segments.  There’s just not a lot of good news in latest report.  Trading up cut virtually in half.  Above premium segments declined in volume and $$ sales.  Still gained share but just 1.2 share of $$ for 4 weeks, compared to 2.2 YTD.   Craft volume down 2% for 4 weeks and imports up just 1.6%.  Several leading imports actually declined last 4 weeks.  Corona down 1%, Heineken down 3%, Dos Equis down 3%.  Even growth rates for hottest brands slowed substanitially.  Mich Ultra still up 14% for 4 weeks, but 22.2% for full yr.  Modelo Especial up 15% for 4 weeks, 23.5% for full yr.  Both gained slightly less share short-term too.

The plot thickens.  Interesting note from Consumer Edge’s Brett Cooper this morn points out that “collaboration” between AB InBev and Keurig announced last week now connects lead shareholder in AB InBev ‒ 3G ‒ with Keurig owner JAB “operationally where there had only been a management connection previously.”  Turns out JAB’s senior partner Peter Harf is former chairman of ABI and was on Burger King board.  Then too, JAB Partner and CEO Olivier Goudet is current chair of ABI, Brett notes.  These connections get Brett to thinking: 1) “we may be at the early stages of companies looking beyond their walls for savings” that don’t hurt long-term growth oppys; 2) “whether we will see more collaboration in the future on a small scale (leveraging brands) or on a larger one (direct assembly of a super CPG company or a virtual one.)”  How super?  Well, 3G “prominently present in beer, food and quick service restaurants”; JAB in coffee, household, personal care and luxury.  Oh yeah, then there’s the potential Coke piece (“it is our belief that ABI could potentially make a pass at Coca-Cola,” Brett writes) that would link ABI with Warren Buffet just as 3G has connections with him in food.  There’s even more, as Brett adds speculation about food co Mondelez, JAB’s coffee acquisitiveness, pot and even tobacco (Altria owns 10% of ABI).  The possibilities seem endless.    

2016 not the best of times for Boston Beer.  It will report first shipments decline since 2003, likely in mid-high single digits.  And despite easier comps later in yr, Boston’s scan trends “worsening,” as Susquehanna’s Pablo Zuanic pointed out in note today.  Looking at latest IRI multi-outlet + convenience scans thru Christmas Day, Boston volume -6.2% for 4 wks thru 12/25, -4% for 12 weeks and -3.4% for 52 wks (not including Alchemy & Science).  Sam Adams brand trends hit hard for 12 wks: Seasonals -11.4%, Boston Lager -12.4%, Variety Pack -6.4% and Rebel IPA -22%.  Crisp Apple cider trend a coupla pts better for 12 wks vs yr-to-date, -5.9%.  And Twisted Tea’s top flavor kickin’ along at +14% for 12 wks, up nearly 20% for the yr.  Then too, separate from Boston beer #s, Coney Island Hard Root Beer tanking.  SAM stock price rose 12% last 3 mos, Pablo noted, but he believes because of “bottom feeding, the notion that things cannot get worse and speculation at some point (in the distant future?) of a company sale.”  But based on worsening scanner trends and expectations of possible double-digit depletions drop in Q4, Pablo cut earnings estimate for Q4 and he sees “near term downside for SAM shares.”  Sure nuff, SAM down $9, 5% today, following this report.

Meanwhile, founder/chairman Jim Koch’s still telling his story in the press as he continues roadshow promoting his book.  In lengthy article that ran in several Canadian papers today, Jim tells familiar tale of Boston Beer’s history, struggles vs big brewers, importance of staying independent, etc.  One interesting tidbit: Jim said when he intro’d best-before dating in 90’s  he was paying out about $100K/yr to buy back old beer from distribs; “today Mr. Koch says it’s over $6 million.”  Article also notes two new seasonals on the way, packaging refresh and that “Boston plans to spend $10-$20 million more in advertising, promotions and sales” this yr.  With craft biz tightening, no expansion of shelf space or tap handles in offing and 5K craft competitors (Jim thinks it will go to 10K), road back to growth ain’t gonna be an easy one.  

After relatively successful launches, both MC and AB hard soda lines may well face tuff road ahead.  MC’s Henry’s Hard Soda sold almost 2.3 mil cases, ringing up $81.1 mil in $$ sales in IRI multi-outlet + convenience for full yr thru Dec 25.  More than 2/3 of that in original Orange flavor ($55.4 mil), but Henry’s added almost $21 mil in Ginger Ale, $3.9 mil in Cherry and $875K in Variety Pk variants.  Collectively, these brands added 1%, virtually all incremental, to MC’s $7.85 bil in $$ sales in IRI MULC.  And 0.6% of volume.  But this yr, it has to cycle those numbers.  And if past is prologue, that ain’t gonna be pretty.  Already, Henry’s Hard Soda brands are demonstrating significant seasonality, as they sold 365,000 cases last 12 weeks, far less than ¼ of yr’s total.  Can Henry’s avoid the boom/splat syndrome?

Meanwhile, AB’s Best Damn Root Beer sold 1.7 mil cases, $66.5 mil thru Dec 25.  Similarly, over 2/3 of that’s from Root Beer variant while Cherry Cola ($20.8 mil) and Apple Ale ($2.2 mil) make up the rest.  But collectively, Best Damn family’s a much smaller % of total co sales relative to MC; just 0.4% of AB’s total $$ and 0.2% of volume.  As has been case with other alc root beers in the mkt, Best Damn Root Beer already unable to cycle launch.  Its $$ down 51% for latest 4 wks, dragging total brand family down 27% for period.  Recall, Not Your Father’s Root Beer and Coney Island Hard Root Beer have declined at 60-70% rates in recent mos.  

Mike’s closed out yr strong with shipments up 175,000 bbls, 11% to 1.75 mil bbls (over 24 mil cases), prexy Phil Rosse told INSIGHTS.  Depletions up 10%.  Mike’s was 2d biggest gainer among suppliers in US malt bevs; only Constellation grew more.  Each mo last yr was a new best for the co.  Mike’s grew at faster rate each of last 4 years, Phil said. Over 90% of Mike’s distribs grew with the portfolio in 2016.  Flagship Mike’s Hard continued up 3%, while Mike’s Harder up 17% and Cayman Jack up 36%.  Mike’s Hard now “has the #1 variety pack in all of beer,” according to Phil. And Mike’s Harder is #1 FMB in IRI convenience channel.  Mike’s Harder had $66 mil of sales in IRI c-stores in 2016, up 20%; 85% of Harder’s total IRI biz in c-stores. Total Mike’s Hard (all brands) up $46 mil, 9.7% and crossed half a bil ($520 mil) in IRI MULC for full yr thru Dec 25, 2016.  Plus, Phil also “very optimistic” about hard seltzer category and White Claw #1 in volume share last 13 weeks.  

It’s not all bad news for the hard cider biz in 2016.  While category declined and several established brands that make up vast majority of the category struggled, several smaller cos saw exceptional growth.  Bold Rock is a prime example.  It grew 70% to 45K bbls, emerging as the 6th largest hard cider co in IRI data and the “nation’s largest independently owned craft cidery,” co announced.  That’s right in line with co’s expectations outlined just a couple mos ago in our sister pub, CBN, after speaking with sr veep of sales and mktg Jeff Liebhardt, who previously worked for E & J Gallo Winery and Boston Beer (see CBN vol 7, #94).  Indeed, Bold Rock quickly shot up after opening in 2012.  It’s currently in 9 states and already opened a 2d production facility in Mills River, NC, bringing total production capacity to 150K bbls/yr with room to grow.  Yet nearly 2/3 of its sales are in home state, VA, Jeff shared. In fact, in VA Bold Rock was #2 cider with 35 share of segment as recently as Sep 2016.  Only behind Boston’s Angry Orchard at 45 share with sales down 13% thru Sep.  Bold Rock expects to grow another 45% to 65K bbls in 2017.

Then too, Mich-based Blake’s Hard Cider “recorded triple-digit growth in sales” to 23,000 bbls in 2016, and is “positioned to triple our volume again in 2017 to meet market demand,” founder and co-owner Andrew Blake stated in press release.  Blake’s only opened in 2013 and currently has distribution in MI, OH, IN, IL, KY, NC, MN, WI and KS “with three additional states coming soon.”  It’s been able to “build awareness” in natl chains “like Kroger and Meijer,” sez Andrew, and co is “plowing its profits immediately back into the business” to add 12K sq-ft “tank farm” and “state-of-the-art brewing software and production materials.”

ABI is everywhere, trying to get ahead of the curve. This afternoon it announced it entered into a JV with Keurig Green Mountain,  “focused on the research and development of an in-home alcohol drink system.”  Keurig Green Mountain owned by coffee giant JAB.  JV will “build on the Keurig Kold technology and system innovations and AB InBev’s brewing and packaging  technology.”  Products will include beer, spirits, cocktail and mixers, focused on North American mkt. JV will be separate entity, reportedly over 50 people, mostly from Keurig. And JV still at front end of R&D, without a defined product offering yet.  Once JV comes up with product offerings, they will go thru AB’s distribution system, but appliance will be sold separately through Keurig’s route-to-market.  

ABI has also separately taken minority investment in PicoBrew, a countertop appliance that simplifies homebrewing and ironically is sometimes called the “Keurig of homebrew.”  Unlike with Keurig JV, this investment is through ABI’s private equity arm Zx Ventures.  Recall, ABI also bought Northern Brewer/Midwest Supplies, largest US  homebrew supplier.  Zx Ventures is part of ABI’s “disruptive growth” unit, headed by chief disruptive growth officer Pedro Earp.  Many small brewers supply recipes to PicoBrew, which also offers modified versions of well-known craft brands (like “Half Squeezed” “Plinius Maximus” and “Not Yet-e.”). Some will not be delighted to learn of ABI’s investment.   But it again shows ABI’s willingness to invest in new and emerging technologies that have potential to affect beer biz.   

Keurig Green Mountain’s Keurig Kold home soda-making system will find new life at heart of home alcoholic bev system to be co-developed with ABI.  Previously, system found itself an orphan when Coca Cola relinquished its stake in Keurig Gree Mountain.  CEO of JV will be Nathaniel Davis, 18-year vet of ABI and predecessor co Anheuser-Busch, who’s been serving as global vp for innovation & development.  R&D will be carried out at locations in Mass and Vermont by team comprised of Keurig and ABI employees. 

Tho focused mainly on alc side, deal is interesting because it salvages some upside for Keurig Kold system that had sucked in tens of millions in development costs (including via acquisition of rival Bevyz system) before being abandoned by JAB as new owner.  It also unites ABI with Starbucks rival JAB at time that ABI has also teamed with Starbucks on soon-launching RTD iced tea line under Teavana brand; SBUX and JAB increasingly have become direct rivals, as JAB builds third-wave roasters like Stumptown and Intelligentsia and SBUX scrambles to keep up via its Reserve sub-brand. 

These investments show wide-ranging directions ABI is willing to go as it pursues disruptive technologies via its in-house efforts, its Zx Ventures fund and now this joint venture.   “We look forward to combining our capabilities and technologies to deliver innovation for consumers,” said Keurig Green Mountain ceo Bob Gamgort, who stepped into role last May following career at likes of M&M/Mars, Major League Baseball Properties and Pinnacle Foods.  “We can’t wait to get started,” Davis said in statement issued today heralding deal.