Molson Coors stock had a very tuff May.  Including over a 3% drop yesterday and another 2% drop today, Molson Coors stock down 15% for the mo to under $54.50 per share at presstime.  That’s over 50% below its near $110 peak in Sep 2016.  Molson Coors stock mkt cap currently at $11.8 bil, down over $12 bil from Sep 16, when it paid $12 bil to buy other 58% of MillerCoors that it didn’t own. Yet that transaction portrayed as a triumph at the end of the book Back to Beer… and Hockey; The Story of Eric Molson, written by Helen Antoniou (Eric’s daughter-in-law).  The book is both informative and entertaining (more about it another time), but timeline cutoff, based on when book finished ( it was published over a yr ago), leaves out some more difficult recent chapters. 

Lately, stock under pressure again.  INSIGHTS unsure what’s causing recent dip, but gotta note MC down 5% for 4 weeks thru May 18 in Nielsen all outlet data that came out yesterday, when stock took 3% hit. MC down 3.5% yr-to-date in Nielsen.  What’s more, all-in, May reportedly a tuff mo.  Plus Constellation recently downgraded, AB prospects viewed more optimistically by analysts after last week’s meeting.  Any of those could have had an effect. 

Front-page news across Canada over Memorial Day: Ontario’s Progressive Conservative govt aims to “rip up” a retail agreement it has with The Beer Store, 445 retail outlets in province owned primarily by ABI, Molson Coors and Sapporo.  Province aims to expand “choice, convenience and fairness for alcohol consumers,” according to Ontario’s Minister of Finance.  If passed, legislation would add thousands of new retail outlets for beer and wine in Ontario, at possibly lower prices.  How many?  If Ontario just moves to the national avg of outlets per population, would “add an additional 4,028 locations in grocery and convenience stores, which would result in 9,100 new jobs,” Canada’s Retail Council claims. 

Previous administration extended long-standing contract with Canada’s largest brewers to run Beer Store through 2025.  (Molson Coors owns 51%, ABI-Labatt 45%, Sapporo 4%.)  Some craft brewers have links too, but they have long complained of not getting equal treatment/access.  Then too, prices higher, Beer Store has monopoly on 12- and 24-packs, sales/profits largely enjoyed by “three large multinational corporations” based outside country.  Finance Minister told several media: “The province’s current beer distribution system is owned by three global giants who were handed a sweetheart deal by the previous government, and who are more interested in protecting profits than providing convenience or choice for average people.” 

The Beer Store is battling legislation as “misfeasance” on the part of govt that will “legislate 7,000 Ontario-based Beer Store employees out of work and cause billions of dollars in damages,” letter from its attys charged.   Given agreement between previous govt and brewers, Ontario may be on hook for $100 million Beer Store spent modernizing system after 2015.  A hefty penalty may be levied too; hence brewers’ threat of cost to taxpayers in billions.  There’s also a NAFTA issue.  Molson Coors “could have a very strong case for compensation under the investor protection divisions” of NAFTA, trade attys told Globe and Mail.  And, even if Ontario govt opens market, “it’s not Ontario who would pay a successful NAFTA claim; it’s the federal government,” attys point out.  Indeed, fed govt has already paid out “nearly $400 mil in claims and settlements, often for violations of the trade deal committed by the provinces,” paper notes.  Under new, not-yet endorsed trade deal between US-Canada-Mexico, “existing investments…are grandfathered”; brewers get 3 yrs to sue.     

Still a possibility negotiation between parties will result in different options/solutions.  But this isn’t only live issue surrounding Beer Store and global brewers’ control of it.  Recall, US fed ct recently refused to toss all charges vs AB InBev and Molson Coors from small Wisc brewer that their arrangement with Beer Store (including monopoly on 12-, 24-pks) anti-competitive and actually violated US antitrust laws.  Oh Canada! 

Overall, beer biz doing slightly better so far in 2019, but not in Calif. California shipments down 380,000 bbls, 5.1% thru Apr, reported Beer Institute.  Even while total US down 209K bbls, 0.3%.   What could be source of problem?  Weather for sure a factor, but is legal recreational cannabis?  While there is no definitive answer, people are definitely asking the question. And it really matters, especially for Constellation which does 25% of its biz in CA.  Constellation is growing far more slowly than at last yr’s 10% clip.  While CA mkt far worse than last yr (-1%), TX far better.  Last yr TX shipments down 2%.  This yr they’re up 270K bbls, 4.4% for 4 mos.  Stay tuned.

Less is more.  Each of White Claw and Michelob Ultra franchises had 3 top 10 growth brands for 4 weeks thru May 18 in Nielsen all outlet.  And each gained 1 share of $$. White Claw’s 3 brands were Assorted, Black Cherry and new to list, Mango.  Those 3 brands alone grew 0.9 share of $$ for 4 weeks.  White Claw franchise at 1.3 share, up 1 full share.  In grocery, White Claw at 1.9 share of $$ for 4 weeks, up 1.3. That’s bigger than Heineken (1.7) for crying out loud.  Meanwhile, Mich Ultra franchise also on fire and it grew 1 share as well. Not only flagship Ultra, with share gain of 0.7 and $$ up 14.6%. But Mich Ultra Pure Gold still more than doubling (up 109%) for 4 weeks and gained 0.2 share.  (Avg prices paid down $1.82/case, more than 5% tho.)  Mich Ultra Lime Cactus also up 43% and gained 0.1 share.  Then too, Boston’s Truly also continued its explosive growth, with its variety pack still up 199%; gained 0.4 share of $$ for 4 weeks and #4 growth brand.   Usual suspects Michelob Ultra and Modelo Especial remained firmly ensconced as industry’s top 2 growth brands.  Each up double digits, gained 0.7 and 0.9 share of $$ respectively.  But brands #3-6 were all FMBs, including 3 seltzers and Naturdays (#5). Corona Premier dropped out of top 10 growth brands in this period.

Veteran TTB Administrator John Manfreda died over the holiday weekend.  Industry leaders across the board commented on his fairness, leadership and accessibility.  Rob Tobiassen, now prexy of Natl Assn of Bev Importers, “had the benefit of John as my boss and mentor in” TTB’s counsel office for 24 years.  “John Joseph Manfreda was a gracious gentleman, wise mentor, fierce and yet fair challenger, and a truly magnanimous person,” Rob wrote.  Rob also mentioned that John “understood work-life balance before it was trendy” and, while a jokester, also “had the highest expectation of professionalism and hard work by all who worked under him.”  Beer Inst prexy Jim McGreevy called John “accessible, fair, and I admire his many years of dedication to ensuring TTB enforced the laws with the highest integrity.”  NBWA prexy Craig Purser called John “a true gentleman with countless professional accomplishments.  He understood the importance of the 21^st Amendment and always administered the law fairly.” 

Distilled Spirits Council prexy Chris Swonger said “John exemplified the best in public service and will be remembered as a great steward of TTB.  He always had an open door to discuss industry concern; made customer service a top priority; and implemented the Bureau’s mission with innovative solutions.”  Veteran industry atty Art DeCelle pointed out that John’s federal service in the Treasury Dept dated back to 1970, noting: “John served under nine presidents, a very rare example of federal service.”  While some industry folks, including Rob, take issue with some of TTB’s recent actions, they clearly loved and respected its chief and his long service.

As we reported last issue, Mississippi Supreme Ct sent Rex case vs AB and Mitchell back to trial court for review.  Important to note that case was on motion to dismiss and, at that stage, judges have to take Rex allegations at face value. Indeed, they wrote: “We conclude that Rex has alleged a claim upon which relief can be granted: BIFDA [MS franchise law] rendered the match and redirect provision null and void, and AB’s demands premised on the void provision may have amounted to unjustified ‘interference’ with Rex’s transfer to Adams, an allegedly qualified transferee.”  (Our emphasis.)  At trial, AB will no doubt argue match and redirect done for good cause and in good faith, and thus not a violation of BIFDA.  Rex likely to argue the opposite.   Then too, all along AB has named Yuengling as the culprit here.  Yuengling’s final-hour termination of Rex is the reason Rex is out $3.1 mil, not anything AB did, AB has argued.  Meanwhile, these issues, along with Rex’s charges vs Yuengling and Yuengling’s counter-claims vs AB and Mitchell head back to trial court. All sides seem pretty dug in, but gotta figure settlement an option.

Morgan Stanley’s Dara Mohsenian, one of the long-time bulls on Constellation, downgraded STZ from overweight to equal weight.  Primary reason is 36% run-up in share price since Jan 9 low.  But Dara also sees “a period of increasing beer demand risk” while Constellation cycles last yr’s very successful intro of Corona Premier and expansion of Corona Familiar.  Premier will still grow, he believes, given expansion to draft, its small size relative to Michelob Ultra and more mktg $$.  But “incremental contribution” to STZ likely to be lower and “year two of any innovation is a riskier period.”  Constellation is rolling Refresca, but that’s a “smaller target market,” Dara notes.  Throw in short-term factors like lousy weather and “just OK scanner data/distributor feedback” and “we see STZ’s Q1 depletions as likely in the 7-8% range,” perhaps coming in slightly below expectations.  (Is +7-8% “just OK” for STZ now?)  Then too, little runway for much margin expansion in short-term, Dara believes, given shipments ahead of depletions last yr and “expected uptick in beer marketing expense.”  Dara expects just 4 basis-point bump for beer margin fiscal ’20.  Longer-term, combo of productivity gains, pricing and volume will push margins “beyond cost pressures,” he believes.

Yuengling is in “early stages in our plan” for adding experiential on-site component to co’s Tampa Bay brewery campus, chief administrative officer Wendy Yuengling confirmed with INSIGHTS (as sibling pub Craft Brew News reported previously – see May 8 issue). Yet it’s a “very blank slate” and co will “know a little bit more” within “the next couple of months.” Indeed, Yuengling submitted wide variety of potential plans with Tampa’s zoning board, including 200-room hotel, 13K sq-ft restaurant, 7K sq-ft museum gift shop, 5,500 sq-ft additional microbrewery/tasting room, 5K sq-ft indoor/outdoor beer garden, and 6K sq-ft conference space, Tampa Bay Biz Jnl listed. But too early to say what co will choose to go forward with. Yuengling has built up its Pottsville, PA visitor experience over the years, but Tampa provides much larger oppy “to tell our story” of America’s oldest brewery still family owned and operated, Wendy added. There’s “a lot going on” in the area, drawing millions of visitors per year with Univ of South Fla, Busch Gardens and more nearby.

No New States Planned This Yr; Focusing More on Core Mkts and Core Brands While Yuengling always “looks at opportunities” to expand into new mkts, currently in 22 states, there’s “no expansion on the radar in 2019,” Wendy shared. Last yr’s Ark and Ky launches “have fared well” and Yuengling still able to “land typically between 2.5 and 4 share” in launch mkts. Indiana launch has begun to “level off” but co’s “happy with where we’re landing.” Yet Yuengling is more focused on core mkts, putting “heavy emphasis” on PA and FL. And co’s “still focused on our core brand strategy,” Wendy added.

Golden Pilsner Could Become #2 Brand; New Core Brand Launch in 2020? Indeed, Yuengling has been “happy with the process” of launching new core brand Golden Pilsner, and still sees “a lot of opportunity,” said Wendy. Co “staggered” rollout across its footprint and finished launch in all 22 states earlier this year after adding AR and KY. Golden Pilsner currently at 65% distribution, yet only 25% c-store distribution, so this yr co launched Golden Pilsner 24oz can to bolster c-store presence. “If it continues to perform,” Golden Pilsner will be “strong candidate” to become co’s #2 brand, Wendy added (ahead of Yuengling Light, which continues to decline at tuff double-digit rate in scans). Then too, Yuengling may be looking to launch another new core brand in 2020. Co’s been able to “innovate on a smaller scale here in Pottsville,” with barrel-aged beers and Bock “resurrection” for 190th anniversary celebration among others. But “we do have something bigger in mind for 2020,” Wendy hinted, adding that Yuengling core brand “approach” leans on delivering “sessionable” beers with “something a little different” going forward.

Meanwhile, flagship Yuengling Lager has endured challenges, but co “staying focused on getting the brand out there,” and “driving distribution.” And co “really focused on the fundamentals,” and “blocking and tackling” for rest of its core lineup as well. Net-net, after tuff Q1, Yuengling had “better” Apr and May’s been “busy” in Pottsville leading into summer, always a “good sign,” said Wendy.

Softer period for beer sales again in Nielsen all outlet data for 12 weeks thru May 18, reported this morn by Wells Fargo’s Bonnie Herzog.  Total beer volume down 1.7% for 12 weeks.  AB down 2.4%, MC down 3.6%.  Constellation up 8.9% and Heineken USA down 3.5%.  Total industry down 3.2% for 4 weeks, in period just after Easter this yr.  These recent tuffer industry numbers somewhat concerning, especially since early anecdotal reports from 2 larger distribs suggest that Memorial Day sales not so hot either.

Judge Conley’s 49-pg Corngate decision late Friday evening granted MillerCoors a hard-to-get preliminary injunction, but one “more narrow in scope” than what MC sought, judge said, i.e. only on some of MC claims. Judge also ruled that AB’s original ads and some others were not false or misleading, and so it can (and will) continue to run them. Then too, judge refused to dismiss MC suit as AB asked.

Given this somewhat Solomonic decision, both sides declared victory, natch, only highlighting most favorable aspects of decision to their respective cos.  Indeed, communications and legal departments in overdrive early over holiday weekend.  But for AB, hadda sting that judge ruled he found “likelihood of success on the merits” for some MC claims.  And this was 2d legal setback in 2 days following Mississippi decision (see below for follow up on that decision). 

Judge issued ruling “enjoining” AB from using any ads that suggest corn syrup is actually in Miller Lite and Coors Light, while allowing ads that say the products are “brewed with” or “made with” corn syrup.  So that means for example, billboard ads that say Bud Light contains “100% less corn syrup” are a no-no. But original Super Bowl spots are good-to-go.  AB “not able to use two tv ads and two billboards” wrote USA Today, toting ’em up.  Prohibited ads must stop “within 10 days,” sez judge.    

“We are pleased with today’s ruling that will force Anheuser Busch to change or remove advertisements that were clearly designed to mislead the American public,” said MC ceo Gavin Hattersley.  MC’s release came out late Friday night.  It also highlighted some of judge’s language:  MC’s “strongest evidence is the defendant’s… own statements indicating that in launching this campaign, it was aware of and intended to exploit consumer concerns about corn syrup.” 

Yet “yesterday’s ruling is a victory for consumers,” said AB veep of legal and corporate affairs Cesar Vargas, as original ads, focused on Bud Light ingredients, continue to run. AB also cited judge’s language that MC “has not demonstrated a likelihood of success in demonstrating that the advertisements solely using the language ‘brewed with,’ ‘made with’ or ‘uses’ corn syrup are misleading.”  Almost all the initial wave of articles focused on the restrictions on AB, as these sample headlines show: “AB must pull some ads about MillerCoors” (AP), “Judge Bars Bud Light from Suggesting Rival Beers Contain Corn Syrup” (WSJ), “A win for MillerCoors in ‘Corngate’ feud” (Ad Age), etc. 

Judge wants more from both plaintiff and defendant on another dispute over packaging in early Jun. No word yet on whether there will be an appeal of judge’s ruling on injunction or other aspects of case.  This ongoing legal battle creates additional tension surrounding upcoming Beer Institute meeting in St Louis.  That meeting could be a doozy.