Within 18 mos, Constellation expects to be #1 gross profit provider in 40% or more of its

volume with distribs, Constellation evp Paul Hetterich showed (tho he never explicitly

stated that). Gold Network, anyone? In much of its network, “we’re becoming more and

more a primary supplier,” said Paul. Here’s basic makeup of its network: about 70% of

Constellation’s network is MillerCoors, 24% AB and 6% other. But crucially, its 4 biggest

MC distrib groups are about “half of that” 70%. Or about 1/3 of Constellation’s biz,

pointed out Paul. And in 2 of those 4, “we already are the #1 gross profit provider.” In

other 2, Constellation closing in on becoming #1 in GP in next 12-18 mos. So that would

be 1/3 of biz where STZ #1 GP provider. Also, about 1/3 of its biz with AB distribs (or

another 8% or so of volume) in SoCal where “we’re either equal to AB or just on their

heels in the next 12-18 months and will be equal to them” in GP. This is an “important

dynamic,” said Paul; it’s “going to keep happening and happening.”

If Constellation likely to be #1 GP provider for over 40% of its volume, what’s that

mean? “We can get more out of this,” said Paul. “We can get them to invest more,” “co op

more” give Constellation “more priorities on a monthly basis.” Asked about this at our

Beer Insights Seminar, MC ceo Gavin Hattersley countered that most MC distribs derive

most of their GP from MC, even if those who don’t are among MC’s largest, which he called

“vast minority.” One sizable Constellation distrib described it this way: “There are 2

kinds of distributors. Constellation distributors and unhappy distributors.” May not be

universal (we can think of counterexamples) but we hear variation of this again and

again. Beer biz much better place to be in recent yrs if you carry STZ.

All high-end beers (those above $25 per case at retail) now “center of gravity” in beer

biz since they are almost half of retailer and distrib gross profit. Strong statements

from Constellation Brands Beer Division prexy Paul Hetterich in speeches at Beer INSIGHTS

Seminar and Constellation Investor’s Day (high end only 1/3 of volume). Folks at

Constellation have seen this movie before. In wine, high end shot up from 1/3 to 2/3 of

$$ in a decade. Now over 70 share of $$, showed Paul. High-end beer brands grew nearly

6% per yr over last 10 yrs to estimated 1.1 bil cases; total beer up only 0.4% per yr.

“We don’t think this is going to slow down,” added Paul, “this is really consumer-led.”

Constellation forecasts high-end beer will grow 170 mil cases (12.4 mil bbls) over next 3

yrs. That’s about 5% growth per yr. And Constellation looks to exceed that growth pace.

Constellation 25 Share of High End $$; Expects to Hit 250 Mil Cases This Yr Constellation

captured #1 $$ share in high end from AB this summer, sez Paul, citing IRI. It got 25

share of high end, compared to AB’s 24 in IRI multioutlet + convenience for 12 weeks thru

Sep 4. Heineken at 11 share, MillerCoors at 8 and Boston Beer at 5. Constellation is 100%

high end, while AB is 23% and MC 15%. Corona and Modelo Especial are #1 and #3 high-end

brands. Constellation gaining share of high end. Constellation estimates it will hit 250

mil cases in its current fiscal yr, ending Feb 17, or about 18.15 mil bbls. That’s a

gain of 68 mil cases, 37% in 3 fiscal yrs. That will put it at 9 share of volume this yr,

13 share of $$. It’s on pace to double sooner than its original 10-yr target, Paul

acknowledged. Its long-term goal of 20 share of $$ of total beer is “in reach for us.” By

STZ’s estimates, if it hits 360-mil-case target, it will have 18 share of $$.

Constellation STRs Up 10.7% for 52 Weeks; Gained 1.6 Share in West; 29 Share of $$ in LA

Constellation’s total beer STRs up 10.7% for 52 weeks thru Sep 30 and it gained 1 full

share point, Paul showed on Investor’s Day, citing Beer Institute data. STZ gained over 1

share in each of the 3 largest mkts: Calif, Tex and Fla. Indeed, it gained 1.6 share in

the West region. Constellation also up 16% in c-stores, largest channel. About 40% of

its biz Hispanic, including 60% or so of Modelo Especial and 35% of Corona. Meanwhile,

Casa Modelo (brand family) volume at 79 mil cases in latest fiscal yr (thru Feb 16), Paul

showed. And Constellation now has moved target. Expects it to get to 150 mil cases.

Corona sold 117 mil cases last yr. In Los Angeles, Constellation now neck-and- neck with

AB for #1 position with a 29.5 share of $$$ for last 12 weeks thru Oct 30 in IRI MULC.

Modelo Especial is over half of that, at 15.4, with continued double-digit growth.

As it continues outsized growth, Constellation starting to spread its wings in several

directions. First, it wants to become key “insights provider” and “thought leader” for

retailers to facilitate “next transformation” to high end. As #1 in high end, and

category growth leader, it will “advocate” for high end and is in better position than AB

or MC to do so, i.e. less conflicted since all its volume high end. Second, it will step

up innovation, including Corona Premier Light, a Michelob Ultra fighter that will launch

with expensive test next spring. Also expect it to play in FMBs as it hinted. Then too,

Constellation didn’t quantify but it’s clearly stepping up its media investments. And

it’s spending $4.5 bil in capacity expansion and building new brewery. Bought Ballast

Point for $1 bil and might buy more craft or FMB players. Finally, Constellation also

looking for more clout with its distribs. Read on.

Shift

by public health advocates and some govt officials back to themes that “all drinking is risky” and there’s “no

safe level” of consumption started early in 2016, as we documented in our sister publication Alcohol Issues

INSIGHTS. Themes popped again late in year, most prominently in lengthy Washington Post article Christmas

Eve, and picked up elsewhere. WashPo’s headline for print edition: “Wine, Women and Danger.” It joined

several other articles on theme that women are drinking more, and more dangerously, than in past. Also

included link to: “Nine charts that show how white women are drinking themselves to death.” Post added

specific criticism of ads/mktg, mostly run on targeted social media, which promote and/or make light of women

drinking heavily. Interestingly, WashPo not only headlined wine, but tagged two wine brands as culprits:

Mommy’s Time Out and Mad Housewife. Wine usually gets a pass. Industry spokespeople defend ad codes,

but one researcher claims that system “broken” and “dozens of studies have found lapses in their record of

enforcing the rules,” Post sez. “As a result, an international group of public health experts convened by the

News, Numbers, Info, and More 200+X a year published by Beer Marketer's INSIGHTS, Inc.

World Health Organization’s regional office in Washington, DC plans to call in January for governments

worldwide to consider legislation similar to laws adopted a decade ago to sharply curtail tobacco advertising,”

paper reports.

Beyond ad/mktg focus, Wash Post writers drove more damaging themes: 1) connecting alcohol to tobacco; 2)

quoting Columbia researcher who dubbed women’s drinking a “looming health crisis”; 3) linking even light

drinking to increased cancer risks; 4) “new research” that’s creating skepticism about “long-standing claim”

that moderate drinking has health benefits. Indeed, WashPo gives final word to CDC’s director Robert Brewer.

He insists “current and emerging science does not support the purported benefits of moderate drinking.” US

dietary guidelines “talk about low-risk drinking, but there is no such thing,” he (and the article) concludes.

The code

is hard to crack. Recall, Bud Light Party ads, originally launched as “the culmination of a larger effort

underway to evolve the way Bud Light looks, acts and connects with modern consumers,” per AB’s original

statement, just didn’t get enough drinkers to “raise one to right now” and campaign ended before Election Day.

To add insult to agency Wieden + Kennedy’s injury, Wall St Journal’s advertising editor Suzanne Vranica

placed campaign among her 5 worst of the yr yesterday. She didn’t comment beyond noting campaign ended “a

few weeks early.” But among 4 other campaigns she deemed worst of 2016, 3 co’s issued apologies for their

ads and the 4 th settled with FTC over charges of deception. Ouch. Much ballyhooed campaign featuring high-

profile Hollywood stars Seth Rogen and Amy Schumer had misfortune of running parallel to grueling

presidential campaign that many would like to forget. And its aim to communicate “inclusivity, positivity and

fun” (especially to millennials) surely didn’t move the sales or share needles (especially among millennials?).

In fact, tho AB claims ads improved “perceptions” of brand, Bud Light trends worsened 1-2 points in IRI and

Nielsen off-premise scans vs 2015.

We wish we had better trends to report as yr

winds down, but latest Nielsen all outlet thru 12/17 continued sluggishness of recent weeks. Volume down

1.3% for 4 weeks. “Beverage results were generally weak across the board,” said Morgan Stanley’s Dara

Mohsenian (reporting on slightly different Nielsen data set), including “small impact from holiday timing.” AB

down 2.6% and MillerCoors down 2.9% for 4 weeks thru 12/17 in Nielsen all outlet. AB down 0.9% yr-to- date,

MC down 1.5%. What’s more, top 2 brewers realized very small net pricing gains in last 4 weeks. Total AB

avg prices up 0.6% and MC up 0.3%. Michelob Ultra remains a bright spot in terms of growth, volume up

20% last 4 weeks.

Meanwhile, high end a mixed bag. Constellation continued up double digits, but even its growth slowed to

13%, compared to 16% last 12 weeks. Avg price per case up 2.1%. And Heineken USA had a soft 4 weeks,

when it had been rallying recently. Down 2%, compared to 1% gain for 12 weeks. Avg prices up 1.5%. Boston

also softened further in latest period. Down 5.7%.

A couple of other interesting brand notes on Constellation and Heineken. Even in slower period, STZ still had at

least 5 brands growing 20%+: Modelo Especial up 21.4%, Modelo Especial Chelada up 45%, Negra Modelo up

35% (clearly benefiting from Casa Modelo platform), Pacifico up 28% and Ballast Point up 28%. That’s

significant slowdown for Ballast Point tho; it’s still up 77% for 52 weeks and 43% for 12 weeks. Meanwhile,

Heineken and Dos Equis brands each slowed last 4 weeks, up 1% and 2% respectively. Newcastle Brown still a

significant drag on Heineken trends, Morgan Stanley report showed. Down 24-25% for 4, 12 and 52 weeks.

Recent star Tecate Light slowed to 17% growth for last 4 weeks. Up 21% for 12 weeks and 26% for 52 weeks.

Two AB distribs chimed in from different parts of US with same message last week on our article detailing U of Texas stadium sales by brand. They both basically said it’s all about the sponsorships and who’s paying what. One midwest distrib said: “With the colleges also, it is pay-to- play.” Distribs detailed stadium deals where: a) AB and MC were on equal footing and had equal number of stands in stadium, so sales looked more like “street market share”; b) AB had “large sponsorship” and dominated the taps; MC had big sponsorship and it had lion’s share. Southwest distrib said “these stadium deals are what tied house looks like,” and concluded: “the customer and the distributor end upon the losing end, long term.”

As Bud Light Lime goes into its 10 th yr in 2017 and Bud Light Platinum goes into its 6 th , each will get updated look and new package in Spring: 8-pks of 16-oz aluminum bottles. Intro’d back in 2008, Bud Light Lime peaked at 2 mil bbls in 2009, we estimate, then down steadily until holding in 2015. Looks like it will close out 2016 at about 1 mil bbls at current trend (-9.7% in IRI MULC thru end of Nov). Platinum did approx 1.8 mil bbls in 2012 debut, but will slip below 1 mil bbls this yr (-11.7% YTD). Including 5 Ritas, 10 Bud Light brands among AB’s top 50 in scans. Only two scored gains YTD: Bud Light Chelada up 2.1% and almost all incremental volume for Lemon Ade Rita (+736%). Bud Light itself down 2.3% yr-to- date; handful of Ritas all down double-digits.

Word leaked late last week that Yuengling will head

to the Hoosier state in 2017. MC’s largest distrib Monarch will cover most of the state, with Indiana Bev getting

the rest. Recall, just 2 MC distribs in Ind compete against about 20 smaller AB distribs. If Yuengling were to

get 3 share of state shipments for the yr, Indiana would provide Yuengling with an incremental 100,000 bbls

next yr, undoubtedly coming mostly out of AB and MC’s hides. After going with AB network in MS,

Yuengling went with MillerCoors megadistribs in LA and IN, Crescent Crown in LA, Monarch and Indiana

Bev in IN. In 1 LA mkt, Shreveport, AB distrib got Yuengling, but in IN, it’s reportedly all MC.

About 4-5% of US beer volume sold in MS, LA and IN, the 3 mkts where Yuengling announced intros in last yr

or so. And AB and MC have significantly higher shares than their natl averages in these states. In IN, AB at 46

share and MC at 37 in 2015. AB and MC combined only lost 4 share between ’em there since 2008 (compared

to 10 or more in many other states). Nationally, Yuengling trending much better in scan data than it’s doing

across all channels. Yuengling up 5%, 732,000 cases to 15.4 mil cases in IRI multioutlet + convenience yr-to-

date thru Nov 27. But recall, Yuengling does bigger % of its volume on premise than big 2 and it’s hurting in

that channel. Last we knew, Yuengling all-channel volume up slightly in Q3, but down 2% for 9 mos.

University of Texas beer sales at home football games jumped 70% to $3.1 mil this yr in its 2d yr, according to

school report obtained by Austin American Statesman. That’s even as the team won fewer games, went 5-7,

and head coach dismissed. School pointed to “better weather” and mandatory alcohol training as reasons for the

spike, but spokesperson added “preliminary results show a reduction in alcohol related incidents when

compared to last season.” Gotta love that because it flies directly in face of long-held belief of control

advocates (used to be called “neo prohibitionists”) that if consumption increases, so do problems. U of T said:

“Our fans have enjoyed the addition of beer and wine to the menu as shown by the outstanding numbers from

this football season.” 

Top 2 brands were Miller Lite and Coors Light, selling 98,535 beers and 95,096 beers respectively. Coming in a

distant #3, Bud Light, which sold 34,257 beers in the stadium. It drops quickly from there, with Shiner Bock at

#4, selling 1,411 beers and Lone Star #5, selling 952 beers. Number 6 brand Ultra sold 741 beers and

Budweiser came in at #7. It sold just 89 beers in U of T stadium. Interesting to note that AB’s biggest brands

far behind, when AB has over 50 share in state.

Here’s wishing all our readers happy holidays! INSIGHTS Express will return next week.

Turns out Nov numbers are comin’ in better than Oct’s did. Scan data improved, tho that’s already slowed in early Dec, as we’ve reported. And Nov taxpaid shipments by domestic brewers came in +178K bbls, +1.4%, estimates Beer Inst economist Michael Uhrich. That barely dented big Sep-Oct drop of 1.5 mil bbls. But up isup. For 10 mos, taxpaids down 1.6 mil bbls, 1%, Michael figures. Meanwhile, import shipments thru Oct up 1.9 mil bbls, 7%. That suggests tiny gain so far yr-to- date. How tiny? Up 0.1%. But that’s mostly wiped out by cider softness. And, recall, imports have very tuff comp in Nov-Dec, up 900K bbls, 22% last yr.

Key will be how many bbls TTB adds to 2016 total over course of next yr as it reports revised numbers. In 2016, TTB has added coupla hundred thousand bbls to 2015 total, actually pushing yr slightly positive. And it still has a few more mos to report. If past is prologue, it will do same over course of next yr. That could mean difference between plus or minus, again also depending on what happens with Nov-Dec imports. So, looks like total US shipments could be up slightly, down slightly or flat in 2016, in any case nuthin’ to shout about. Key is that without more industry growth, individual players simply can’t reach their individual goals. And as we start to prepare our 2016 estimates for top-10 players, that’s surely the case.