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"Walmart recently reduced beer SKUs by" around 30% "on average nationally, mainly from local craft," wrote Evercore ISI's Robert Ottenstein yesterday, following meeting with Molson Coors CEO Mark Hunter and his investor relations team. MC "picking up some space from craft SKU reductions," added Robert. "Other sophisticated retailers are also looking to simplify shelf sets." While many discussed Walmart's SKU reduction on craft, that's first time we've seen its impact quantified. Also notable that it's local craft that got clobbered in world's largest retailer. "They wanted to own" local craft "until they didn't," said one source. "The whole thing transpired in about eight months." Perhaps Walmart's course correction went too far the other way?
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11/22/2016
Sierra Nevada Promotes Joe Whitney to Chief Commercial Officer; Builds Out Leadership Team
Sierra Still Down; Up Recently; "Seems Like Things Turning a Corner"; Optimism on 2017 This year would "give anyone pause," said Joe, a 27-yr craft vet who has seen craft thru many incarnations (13 yrs with Boston, where he worked with Jeff White, 4 with New Belgium and now 10 with Sierra). Craft has become a "much tougher game," with "low hanging fruit mostly already taken." Growth still possible, but craft brewers need to "work harder" to get it. Sierra will still be down this yr for the first time ever and dropoff likely 6% or more. But it's up in recent weeks. "It seems like things are turning a corner," said Joe.
Joe remains optimistic about 2017, pointing to "more retail support" for its major Q1 initiatives, Side Car and Tropical Torpedo, first-ever line extensions for Sierra Pale Ale and Torpedo IPA. Joe reiterated that he expects these brands to "help" Torpedo and Pale, not cannibalize, as they "create excitement" for brands that are "often overlooked." Sierra historically a "quiet" co. That's gonna change next yr too, as starting in 2d half, Sierra Nevada will "tell our story" with its first ever marketing campaign, he reminded.
Sales Veep by Mar 1; #1 Indy Craft Brewer Someday? Sierra Nevada sales force has "come a long way" and has "great internal candidates" for sales veep position, but it will also look at external candidates. Joe expects to have a new sales veep "in place" by around Mar 1. Sierra seeks someone who is "very strategic" and a "great people developer" in addition to having the requisite selling skills. One of Sierra's goals is to top Tamarron's distrib survey as best supplier. But its even larger objective is to someday become #1 independent craft brewer, by "slowly but surely moving ahead," said Joe. In that context, these latest Sierra moves are significant; Sierra needs to "know where we are going and how we're going to get there," he concluded.
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11/22/2016
Craft Gets Election-Day (Baby) Bump with Total Beer Biz: +3% for 4-Wks, YTD in Nielsen All Outlet
Trends continued to improve for craft category as a whole and a few top brand families, pushing growth back to yr-to-date levels for 4 wks thru Nov 12 in Nielsen all outlet data. Craft volume up 3.2% for short-term, just a tenth faster than YTD. That's improvement from 1-2% growth last couple of periods (see chart below) and short-term declines thru most of Sept. Yet overall beer biz also improved this period, including days just before and following election. Meaning craft still didn't gain much share of total volume for 4 wks. So don't call it a comeback (yet), but things moving the right direction. Craft $$ up a couple points faster, +5.4% for 4 wks thru 11/12, +6.3% YTD. That suggests craft not getting as much price recently: avg price/case up just 70 cents for 4 wks, while up about a buck as recently as late-Sept and well over a buck earlier in yr.
Recall, Nielsen includes Blue Moon, Shock Top and Leinenkugel's brands with craft segment. Their trends mostly better too this period, including flagship Blue Moon volume up about 5% and total Leinenkugel Shandy franchise up almost 8% for 4 wks (other legacy Leinie brands not enjoying same growth). That's getting lift from Grapefruit Shandy, but other variants of Blue Moon slowing that total franchise, -2% for 4 wks and -5% YTD. Sierra Nevada pulled out of recent declines, now flat for 4 wks. But New Belgium down about 1% for 4 wks and Sam Adams franchise down 9% for 4 wks and YTD. In total, these top brand families still collectively declining. So rest of craft suppliers gaining more than segment as a whole (see chart).
That shows up in trend for "Remaining Domestic Brewers" (covering all segments, including Sierra, NBB and all smaller), up 4.5-5% by volume and $$ for 4 wks. That group gained over 3 share of craft volume YTD. MC down about 2 share, Boston lost almost 1.5 share, while AB and NAB also shedding a little share of segment. Only other top supplier gaining share is Constellation, from Ballast Point, up a half share of craft cases YTD.
Recall, Nielsen includes Blue Moon, Shock Top and Leinenkugel's brands with craft segment. Their trends mostly better too this period, including flagship Blue Moon volume up about 5% and total Leinenkugel Shandy franchise up almost 8% for 4 wks (other legacy Leinie brands not enjoying same growth). That's getting lift from Grapefruit Shandy, but other variants of Blue Moon slowing that total franchise, -2% for 4 wks and -5% YTD. Sierra Nevada pulled out of recent declines, now flat for 4 wks. But New Belgium down about 1% for 4 wks and Sam Adams franchise down 9% for 4 wks and YTD. In total, these top brand families still collectively declining. So rest of craft suppliers gaining more than segment as a whole (see chart).
That shows up in trend for "Remaining Domestic Brewers" (covering all segments, including Sierra, NBB and all smaller), up 4.5-5% by volume and $$ for 4 wks. That group gained over 3 share of craft volume YTD. MC down about 2 share, Boston lost almost 1.5 share, while AB and NAB also shedding a little share of segment. Only other top supplier gaining share is Constellation, from Ballast Point, up a half share of craft cases YTD.
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11/18/2016
Sacramento Bar Promises to Cut AB Craft, Including Bourbon County, Due to Golden Road Pub
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03/24/2016
"Easy Comps" Not Helping Boston Beer; "New Products Not Living Up," sez Cowen's Vivien Azer
Big aspect of Boston's inability to cycle is that new products "not living up" to the levels they've been accustomed to over last handful of yrs. Increased competition turned SAM into "a follower as opposed to a leader in consumer innovation." And now Boston's innovation brands have "limited staying power, and are only masking temporarily the softer underlying trends that are apparent in the business," Vivien wrote. For example, Rebel IPA family up 7% in most recent 4 wks, but all of that's from new Rebel Grapefruit; core Rebel IPA declined "for 10 consecutive months and sales for Rebel Grapefruit have declined sequentially...since peaking in mid July."
She remains skeptical of alc seltzer category too, pointing out that Boston lowered volume guidance for 7th time in 2 years last qtr while simultaneously calling "continued strength in hard seltzer as a driver." "As the biggest incremental contributor to SAM's sales growth, the [potential] short-lived nature of the hard seltzer shift could prove problematic." Could be that hard sodas are ceding share to hard seltzers too, she thought. And "hard soda comps create an incremental headwind." Meanwhile, "cider continues to sour" despite easier comps, still "waiting for evidence" on Sam Adams packaging refresh and "broader rebranding" for Sam "might be too late." Alchemy & Science and other "non-Sam Adams line extensions and new innovation...will be an increasingly important offset" going forward (i.e. Twisted Tea, not mentioned in report, continuing to see strong growth). But all in, Vivien and co lookin' at Boston's glass half empty right now.
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Then too, Ballast Point and Constellation are "starting to collaborate more," Paul noted. Go-to-mkt strategy is "very different" for craft vs imports, but Constellation is able to "leverage...insight, innovation, Category Management, national account-type synergies" and more (i.e. Barclays Center bar) for Ballast. And tho distribution footprint is fundamentally not fully aligned, "we hold Ballast accountable" for their performance regardless and "don't force them to go one way or the other." Net-net, "digestion" of Ballast Point is "going well" and Constellation's "happy with our performance there." Even as "category is shifting around a bit," co hasn't "really changed our optimism with regard for Ballast."
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11/18/2016
Attys Tour Legal Zoo, Point Out Toads & Elephants; One Pay-to-Play "Pirate" Hangin', Will We All?
Toad in Warming Water There's "nothing wrong with craft. Craft is great," Moses underlined early on, as it brings "sampling and diversity" and "also is a kick in the ass to the major domestic brewers." Plus, "look at how it's invigorated the beer industry," he said. But when it comes to three-tier exceptions allowing brewers to operate retail outlets, "at some point there's a line," he insisted, arguing for clear caps. Exceptions can be troublesome without 'em, because it's "like that toad in that warm pond," where the temperature rises slowly "until they realize they're boiling and they're dead."
Elephants & Trucks Halfacre offered more support for caps on 3-tier exceptions and compared the regulatory structure to the "Constitution": "it's a living document," he said, so industry members "have to be flexible, but we also have to be careful." He pointed to the "elephant in the corner of the room," insisting on "balance" provided by caps. "At some point, when is craft not craft?" Well, "AB's not craft" he said. "The creation of the exceptions becomes a revolution when a major supplier can drive a truck through" 'em.
What's the Beef? Sorini also acknowledged "the dangers of vertical integration by very large market-share players." But in a marketplace with "tens of thousands of retailers," he still wondered, "what's the beef?" Even a bunch of AB-owned brewpubs "shouldn't matter." He also reminded that "the system's been evolving" from the outset and still "has not led to any collapse or any calamities."
A Brawl Over Brewery Retail? So while he doesn't think brewery-owned retail causes any major issues for 3-tier, Sorini is "sympathetic to the retailer that says 'if you want to operate an on-premise [retailer], you need to operate by the same rules.'" He agreed with "rough analogy" of taprooms for beer to direct shipping for wine: it's "a bit of a safety valve," he argued, relieving some pressure for all these tiny brands to fit into wholesaler warehouses or onto retail shelves.
Halfacre disagreed, saying that he sees breweries open "solely for the purpose of running a bar," something he doesn't see from wineries. (Unsaid during panel, but Sorini has noted in past that thousands of 8-9000 wineries in US do much or all of their biz thru tasting rooms and direct shipping, even if that still makes up small portion of total wine volume.) And while pushback from retail tier could just be starting (see below for specific Sacramento example), "it's been a brawl" in NJ, Halfacre said. Note that Jersey structure, with quotas and extremely high costs of retail licenses, almost certainly a major contributor to heightened concerns there.
Retailers "don't like it," Moses agreed. Taprooms should be "limited in scope and sales," he argued, noting that allowance of "a brewery next to Wrigley field" in Chicago with "pure retail," not just brewery's brands, could even be "misinterpretation of the law." So "are the retailers upset? Yes." Self-distribution cuts similarly, in his view: "it's a great beginning," but most of time brewers will grow and go with distribs instead of dealing with headaches of wholesaling. Halfacre sees it that way too. So again, panelists implicitly endorsed limited exceptions.
Of Pay-to-Play and Pirates Crucially, those limited exceptions provide access to market, part of the "reason" they exist in the "first place," as Halfacre said. "Everyone" showed they're "very concerned about access to market" during discussion with Dept of Justice over ABI-SAB deal, Sorini noted. This issue underlies pay-to-play cases in Massachusetts too. "Allegations" made by Shelton Bros, in suit against Craft Brewers Guild distrib in Mass, "certainly ring true to many people," Sorini continued. To him, it highlights difference between technical "access to market" with distrib and equal or "competitive access." Same issue with "large brewer branches" in select markets, he noted. If enough warehouse space or number of tap handles is owned, paid for or otherwise mandated, that hinders equal access based on consumer demand, as logic goes.
On issue of pay-to-play in Mass, Moses likened state commission pegging CBG with 18th century sea law: to combat piracy, when leaders caught a pirate they'd "hang the first one they get and put the body in the harbor." So he "applaud[ed]" the "publicity," and "heard a lull in some of the shenanigans" because of it. Halfacre agreed that there "has to be a show trial" and "got to hang a pirate in the harbor." Further, "anecdotally speaking, New Jersey was a much quieter summer after" Mass case went public. Both lawyers strongly advocated for fully-funded state liquor authorities and equal enforcement of trade practice laws.
Sorini questioned if the proverbial pirate's been hung or just given "a haircut." Litigation likely to go on for some time at serious expense. So "count me as a skeptic," he said. And gotta go after retailers with "hands out" too, Moses said, but feds, at least, have "no jurisdiction" over them, Sorini noted. Speaking of retail, rise of Wal-Mart and approach of Amazon offered as one final kicker. Those players don't "care about our three tiers," Halfacre said. So forget about hangin' pirates: "we have to all hang together or most assuredly we will all hang separately," he cited Ben Franklin. But either way, whether we're lassoing ever-expanding number of industry members to fit inside system or tying nooses, someone's gonna have to find some more rope.
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Of course, he also sees issues with large brewers acquiring craft brewers. Larry doesn't think it's "our job to educate all the consumers about who owns who." Instead, they need to focus on finding the "consumers out there who care" and convince them to choose Bell's. But "we're not going to go out and keep a scorecard for anybody." At the same time, "we still see a lot of pay-to-play and the swiping of cards certainly happens." He claims to see that from "big guys" that are "going after our handles." Indeed, "certainly we've seen" acquired breweries "sliding into some practices that they didn't do before." He also expects to see more suppliers "droppin' a dime to their local liquor commissions telling 'em what's really going on." Laura thinks many "retailers are trained to expect that this is just how this goes." One of their reps recently got an email from a bar that "hadn't even opened yet" that said its "tap handles are now for sale." Yikes.
Further, something "that worries us, as an independent brewer, is when we go to see our big chain retailer, why is there somebody from ABI that has to be in the room with us, that is hearing our entire plan for one of our biggest retailers?" CatMan is "a concern for us," and if one of the co's biggest competitors "has to be in the room while we give our plan, we've got troubles." Final concern arises from self-distribution. Larry's experience early on gave him an appreciation for the work of a good wholesaler, and it alleviates some pressure on wholesale tier to have to carry so many small players. But at same time, Laura's "seen small brewers that are self-distributing that are not necessarily being comparative in price," selling kegs for 50 bucks less than average craft prices, she said. So "not only are they local, now they're cheaper."
Correction: Last issue we misspelled the last name of John Mallett, who is director of operations at Bell's.
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