Ink barely dry on last

round of megamergers and speculation already picking up steam on what’s next.  Stifel’s Mark Swartzberg

initiated coverage of Heineken with a “Buy” yesterday for “valuation” and “optionality” (deal possibilities). 

Like ABI, TAP (Molson Coors) and other beer stocks, Heineken is well off its 52-week high (down 16.6%) and

near a 52-week low, according to Mark, which makes it attractively valued.  Mark likes its growth prospects,

especially thru acquisition, tho he has “no knowledge of any M&A negotiations.”  In particular, tho “timing is

uncertain,” a Heineken/Molson Coors combination “has merit and could be achieved through Heineken shares

as a large portion of consideration to Molson Coors shareholders,” Mark sez. 

Combo with TAP would “bolster” global mkt share from 10 to 15%, points out Mark, “unlock cost savings in

overlapping North American and European operations” and “sustain expected growth in Miller International

brands,” Mark asserts.  In US, they could unlock “significant cost savings” thru “integrating distribution

networks,” “bolstering joint retailer and on-premise planning efforts,” “eliminating overlapping back office

functions and locations,”  and “marketing power.  A scaled up North American marketing operation… could

participate more aggressively in the ongoing competition with ABI for share of national brand visibility,”

according to Mark.  

Potential synergies are near $500 mil; that is “a reasonable estimate of the potential cost savings available,”

Mark estimates.  In fact, he labels that “conservative” since it’s only 4.2% of “target sales” compared to

“historical global beverages M&A synergies median of 6.5%.”  Mark is only most recent analyst to make this

call.  Back in May, Evercore ISI’s Robert Ottenstein did similar themed report suggesting chances of Heineken

buying Molson Coors by 2020 are 50% (same probability he assigned to ABI buying SABMiller a few years

back).  After meeting with Molson Coors brass Friday and finding much to like about co’s prospects, he issued

report yesterday that also reiterated a $130 price target for TAP stock in part to “reflect TAP’s strategic value,

as we ballpark 50% odds of Heineken acquing TAP by the end of 2020.”

Beer biz posted its best 4 week trend in

many moons, without another obvious catalyst, besides folks either mourning or celebrating Election results. 

Beer volume up 2.7% for 4 weeks thru Nov 12 in Nielsen all-outlet, compared to 0.6% YTD.  Each of AB and

MC gained about 1% in latest 4 weeks, tho still down 0.8% and 1.4% respectively yr-to- date.  Lost similar

amount of share 4 weeks as YTD. Biz just better in this period. Indeed, Constellation rocketed to 20% growth

last 4 weeks, compared to 15% YTD.  Mike’s Hard up 12% for 4 weeks, 8% YTD.  And Heineken USA turned

on gas; up 4% for 4 weeks, 0.1% YTD.  Craft volume up same 3% for 4 weeks as YTD. Didn’t gain any share

of volume in latest period, up 0.1 of $$.  Biggest $$ share gainer: Constellation up 1.5 share, with Modelo

Especial up 0.8 as is Michelob Ultra.  Both those megabrands up 0.7 share of $$ YTD.

Washington Post published particularly strong pitch for privatization of alc bev biz in Montgomery County, MD

today. Montgomery’s monopoly, Post charges, “notorious for systemic dysfunction,” including trifecta of

“shabby customer service; inaccurate, damaged and incomplete deliveries; and a miserable selection of

products.” And Post can’t resist tagging “ineptitude” of County’s control system as “an 80-year old remnant of

post-Prohibition days.” Recently proposed reform plan a “far cry from actual privatization,” Post sez. Key

reasons privatization has failed so far, in paper’s view, also familiar: county doesn’t want to give up revs and no

one wants to touch union jobs in warehouses, delivery and county-run stores. Meanwhile, Brewers Assn of

Maryland and other groups attempting to loosen rules for craft players in state, Frederick New-Post reported

yesterday. That includes raising caps that limit tasting room sales to 500 bbls, allowing more food trucks so

breweries don’t have to become restaurants, creating permits for festivals, easing collaboration and clarifying

county-level licensing. And, yet again, there’s the familiar take from brewer’s assn exec director, voiced by the

paper that past legislation in alc bevs “tends to favor traditional wholesale models and reflect [wait for it]

Prohibition-era attitudes toward alcohol.”

Tho residents in Denver voted to allow pot use in on-premise outlets (see Nov 16 Express), Liquor Enforcement

Div of Colorado Dept of Rev ruled last week to bar on-site pot consumption, AP reports. State officials cited

“interests of public health safety resulting from public and dual consumption.” Pro-legalization activist Mason

Tvert said on-premise was prepared to deal with pot consumption and that “our alcohol policies already rely on

the judgment of the server.” He also told AP that the ruling reversing on-premise sales driven by industry

members to preserve alc bev sales.

Biggest

difference between SABMiller and Molson Coors is “the family component,” MillerCoors ceo Gavin Hattersley

said in interview at Beer Insights Seminar last week, “which is super supportive.” They don’t “think quarter to

quarter” but rather “generationally” which gives Gavin and team “a lot of flexibility to do the right thing for the

long term.” That said, “not a lot” going to change in MC strategy or day-to- day operations. “Too much was

made” of Molson Coors and SABMiller having different viewpoints, according to Gavin. “I’ve been on both

sides of the fence,” i.e. he worked for both SABMiller and Molson Coors. Tho there were tensions in Canada

for example (and even a lawsuit), “from a U.S. point of view, they were on the same page.”

MC still a ways away from having one ordering system, which is currently being “piloted” in Shenandoah, with

Golden coming next.” This is “big project” and “last thing we want to do” is create situation where distribs

can’t order beer, “so we’re being very deliberate about it.” That said, Gavin offered “bold prediction”: “new

ordering tool” in 18-24 mos. So MC will have two ordering systems for its first decade of existence. Other

supply chain issues this summer occurred because of need to “transition” 13 mil bbls following closing of Eden

and running out of Leinie Summer Shandy based on too conservative forecasts. But MillerCoors “created new

capabilities” and now “set up for a much better supply chain.”

More Craft Deals? First, “A Little Break” Would Be “Nice” MillerCoors has a “regional strategy” in its craft

acquisitions and “focused on gaps in our portfolio,” said Gavin. While “I don’t think we’re satiated,” added

Gavin, “it would certainly be nice if we have some breathing room.” Acquired craft brewers “might be small

companies…it takes effort and time to get them into our systems and processes.” Gavin “delighted that we did

4” craft deals in last yr, but “it would be nice if we had a little break.”

MC High End Almost Doubled Last 6 Yrs; Addressing Recent Softness MillerCoors total high-end portfolio

“has almost doubled in the last 6 years,” and “our marketing investment and sales effort behind the high end has

more than doubled.” Tho several of its high-end horses softened in recent mos, Blue Moon still “a really

healthy brand” overall, with a “great opportunity to continue to grow.” Redd’s “went from nothing to a million

barrels pretty damn quickly” but there’s “some work to do to get it back to growth.” Leinie’s is still 9 of 10

shandies, and MC “could have sold a bunch more” this past summer “if we had it available.” MC ran out in

early Aug. Henry’s is “a really nice launch” and MC has “plans to keep it growing” with its next flavor grape

already “extraordinarily well-received.” MC addressing absence of Mexican import in its portfolio in a

“number of different ways”; its test of Zumbida has “already sold more than we expected to sell.”

Goldwing “Would Have Distracted”; “Consistency” on Lite and Coors Light Meanwhile, MC gaining share in

premium lights, Gavin reiterated, asserting that MC has “momentum.” Both brands declined in 3d qtr after flat

1 st half, but Gavin reminded that “third quarter was tough for almost everybody” and those brands still gained

share of premium light. MC didn’t go through with test of Michelob Ultra fighter Goldwing because “without

doubt, it would have distracted us,” said Gavin. He praised MC’s “consistency in how we’re bringing Miller

Lite and Coors Light to life” and cited that and being “more inclusive with women” as examples of its new

more “assertive” stance. In comparative ads on Miller Lite vs Bud Light, “we’re being very respectful,”

according to Gavin, but “pointing out the differences.” This past summer “very competitive” on price. MC

“chose not to respond in some areas” and “ceded a decent amount of volume and share.” In other areas, MC

“did respond.” Fall price hikes are pretty much normal, Gavin agreed. Early take on economy strategy: “really

nice plans and strategies,” according to Gavin. Miller High Life “fastest growing brand” on premise in some

targeted accounts, with new retro ads slated to debut before yr end.

MC as Declining % of Distrib Profits; “It Bothers Me” Asked about MC declining as % of distrib profits as

Constellation (70% in MC network) and craft grow, Gavin acknowledged: “It bothers me” and MC cannot

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

“allow our share of a distributor’s mindset to fall any further. That’s the intent.” But he reminded that it’s “oft

forgotten” that “by and large across our network we are most of our distributors’ largest supplier,” tho there’s

“one or two examples where that’s not the case,” including some of MC’s very largest, which Gavin called “the

vast minority.”

US Surgeon General issued first-ever report on “Alcohol, Drugs and Health” yesterday. We’ve not digested it

yet, but here are a coupla top lines. Report adopts language and approach of public health advocates,

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

specifically emphasizing “importance of implementing evidence-based public-health- focused strategies to

prevent and treat alcohol and drug problems” in the US. Intro does include statement that US Dietary

Guidelines “indicate that moderate alcohol use can be part of a healthy diet, but only when used by adults of

legal drinking age.” But chapter on “prevention programs and policies” states as “key finding”: “federal, state

and community policies designed to reduce alcohol availability and increase the costs have immediate, positive

benefits in reducing drinking and binge drinking,” as well as related harms. So, SG office basically joins CDC

in explicitly endorsing higher taxes and restrictions on alcohol availability. Note too: Intro chapter includes

equivalence graphic and definition of “standard drink” as 12 oz regular beer, 8-9 oz malt liquor (why malt

liquor?), 5 oz wine and 1.5 oz spirits. Also includes definition of heavy drinking as 8+ drinks per week for

women, 14+ per week for men.

Recall, industry policy watchers had been anxious about report since they’d not seen any advance language.

Beer Inst put out statement: “We are pleased to see the Surgeon General's Report acknowledges that moderate

alcohol use can be part of a healthy diet for adults. We also welcome the Surgeon General's efforts to

destigmatize treatment and recovery for those for whom alcohol consumption is a concern. Significant progress

has been made in reducing alcohol abuse, including long-term declines in drunk driving and underage drinking.

More remains to be done and we stand ready to support proven strategies to combat alcohol abuse.” On SG’s

policy points, BI commented that “the prevailing and widely accepted research shows that one-size- fits-all

policies, including advertising bans and tax increases, fail to effectively address the problem of alcohol abuse,

divert resources from more targeted approaches, and unfairly and negatively impact moderate and responsible

consumers.” BI also joined Distilled Spirits Council and Wine Inst with similar statement.

US Surgeon General issued first-ever report on “Alcohol, Drugs and Health” yesterday. We’ve not digested it

yet, but here are a coupla top lines. Report adopts language and approach of public health advocates,

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

specifically emphasizing “importance of implementing evidence-based public-health- focused strategies to

prevent and treat alcohol and drug problems” in the US. Intro does include statement that US Dietary

Guidelines “indicate that moderate alcohol use can be part of a healthy diet, but only when used by adults of

legal drinking age.” But chapter on “prevention programs and policies” states as “key finding”: “federal, state

and community policies designed to reduce alcohol availability and increase the costs have immediate, positive

benefits in reducing drinking and binge drinking,” as well as related harms. So, SG office basically joins CDC

in explicitly endorsing higher taxes and restrictions on alcohol availability. Note too: Intro chapter includes

equivalence graphic and definition of “standard drink” as 12 oz regular beer, 8-9 oz malt liquor (why malt

liquor?), 5 oz wine and 1.5 oz spirits. Also includes definition of heavy drinking as 8+ drinks per week for

women, 14+ per week for men.

Recall, industry policy watchers had been anxious about report since they’d not seen any advance language.

Beer Inst put out statement: “We are pleased to see the Surgeon General's Report acknowledges that moderate

alcohol use can be part of a healthy diet for adults. We also welcome the Surgeon General's efforts to

destigmatize treatment and recovery for those for whom alcohol consumption is a concern. Significant progress

has been made in reducing alcohol abuse, including long-term declines in drunk driving and underage drinking.

More remains to be done and we stand ready to support proven strategies to combat alcohol abuse.” On SG’s

policy points, BI commented that “the prevailing and widely accepted research shows that one-size- fits-all

policies, including advertising bans and tax increases, fail to effectively address the problem of alcohol abuse,

divert resources from more targeted approaches, and unfairly and negatively impact moderate and responsible

consumers.” BI also joined Distilled Spirits Council and Wine Inst with similar statement.

We got to thinking a bit more about two comments from MC cmo David Kroll to Calif distribs last week (see

Nov 11 Express). Early in his talk, he noted that American light beers have only 28% of Calif mkt, compared to

44 share nationally. Concluding his talk, David declared “a healthy, growing American light lager segment is

essential to a healthy growing American beer industry.” But, upon closer inspection, the former fact belies the

latter belief. Why’s that? Look at the numbers.

In 2015, US beer shipments were 4.9 mil bbls lower than in 2008, down 2.3%. Premium light beer lost 11.3 mil

bbls, 15% during the same period. But in California, shipments in 2015 were 150K bbls, 0.6% higher than in

2008. No great shakes, but the state significantly outperformed the country, especially in recent yrs. Note too,

economy brands (important to MC, AB and Pabst, but not others) are also significantly under-shared in Calif vs

the rest of the US. That segment shed 7.3 mil bbls, 14% nationally during the same period. Overshared in

Calif: Mexican imports and craft, which combined were near 40 share of the Calif mkt in 2015 vs under 20

share of the total US mkt. This suggests possibility that the more that the rest of the US beer biz looks like

Calif’s, the healthier the US beer biz may be. By the way, per capita beer consumption in Calif declined by less

than the US average did during this period. Just some brew for thought.

You

don’t see this kind of abrupt departure very often, especially after so short a tenure and at so senior a level. Just

6 mos after starting as cfo of Molson Coors, Mauricio Restrepo resigned “effective immediately,” Molson

Coors announced yesterday “because of matters regarding personal conduct.” That conduct “unrelated to the

operations or financial statements of the company,” it added.

Tracey Joubert Appointed Molson Coors CFO; Greg Tierney Appointed MillerCoors CFO Stepping in on

short notice, MillerCoors cfo Tracey Joubert will become Molson Coors cfo. At presstime, MC announced that

Greg Tierney, MC’s veep of financial planning and controller, will take Tracey’s place as MillerCoors cfo.

Tracey is “well known to our investor community as a highly qualified and respected financial leader,” said

Molson Coors. Several analyst reports did not see changes as creating risk. Indeed, Cowen and Co’s Vivien

Azer wrote “In Tracey We Trust,” describing her as “incredibly competent and deserving.” And Greg with

Miller since 1998, “taking on progressively bigger roles…. His extensive experience equips him well for the

expanded responsibility,” said MillerCoors ceo Gavin Hattersley in note to distribs. Greg’s “close partnership

working with Tracey throughout the years will make for a smooth transition,” added Gavin.

Here’s how executive merry-go- round worked here. Recall, Gavin Hattersley left job as MillerCoors cfo to

become global cfo of Molson Coors in 2012. Tracey then took over as MillerCoors cfo. Then Gavin became

ceo of MillerCoors, first on interim basis, then officially last July. Now 16 months later, Tracey goes to Molson

Coors. Recall, Molson Coors also promoted Michelle Nettles from position in MillerCoors to become chief

people and diversity officer of Molson Coors.

Mauricio had extensive background in sr roles in alc bev biz, both at Beam Suntory and for 9 yrs at SABMiller.

At time of his hiring, Molson Coors ceo Mark Hunter had touted Mauricio as the “ideal candidate.” But when

Molson Coors “learned of certain personal conduct by executive that violated the company’s policies,”

Mauricio “agreed to resign,” according to TAP’s govt filing. Not only that, he has to pay the co back a big

chunk of change for sign on bonus and relocation bonus “currently estimated at $776,149.38.”

In-house innovations

and new brands have been an important aspect of AB’s FMB and superpremium biz. However, several more

recently launched brands rapidly declining amidst brand clutter and skus that’ve piled up. So AB made decision

to “discontinue or realign a selection of low-volume brands and flavor variants this spring,” an AB

spokeswoman said in an email to St Louis Post Dispatch. Laundry list of discontinued brands includes: Bud

Light Mixxtails, Oculto, Bud Black Crown, Beck’s Sapphire, Raz-Ber- Rita, Cran-Ber- Rita, Lime-A- Rita

Picante, Lime-A- Rita Splash, Shock Top Raspberry Wheat and Shock Top Honeycrisp Ale. And Montejo

brand “will be limited to California and Texas while AB focuses on Estrella Jalisco.” These

discontinued/realigned brands are collectively marginal at best, making up just 0.8% of AB’s total $$ sales and

0.5% of total volume YTD thru 10/30 in IRI multioutlet +convenience.

Recall, Mixxtails and Oculto were entirely new brands brought in just last year. This year, Mixxtails brand

family down 70% plus and Oculto down 50% in IRI multi-outlet + convenience data thru Oct 30. As they say,

hindsight’s 20/20, but arguably Mixxtails in particular took further cut of AB’s Rita family of brands. Rita sales

previously grew each year since 2012 launch before plummeting more than 20% in 2015 scans; down 13% in

2016 YTD. Many Rita family flavor variants are declining. So AB decided to cut several Rita flavors to make

room for national launch of Grape-A- Rita, “pilot launching of Orange-A- Rita,” and new Pineapple Splash Rita.

Then too, after investing heavily in Bud Black Crown and Beck’s Sapphire in 2013, including a Super Bowl

commercial for each brand, both deteriorated since. Black Crown declined about 50% and Sapphire declined

35-40% each of the last 3 yrs in IRI MULC (including 2016 YTD). Discontinuing Sapphire is “intended to help

the brewer focus on the Pilsner flagship to deliver stronger execution and build brand equity,” noted paper,

citing AB’s letter to distribs. AB High End already talked about plans to phase out Shock Top SKUs and focus

on flagship Belgian White; Raspberry Wheat down 23% and Honeycrisp Ale down 39% YTD thru Oct 30. And

Montejo down 40% plus in its second full year in US, as AB shifted focus to launch of Estrella Jalisco.

Altogether, AB’s Mexican import portfolio volume up 17% in scans YTD. AB “is consistently looking for

ways to optimize our portfolio and deliver the right brands at the right time,” spokeswoman told paper. “This

proactive approach will allow us to prioritize our core offerings and make room for exciting new products.”

Consumer price index for beer increased 1.4% in Oct vs yr ago, per latest gov’t

stats. While easily outpacing monthly pricing trends for spirits (+0.3%) and wine (-0.2%) once again, beer

prices grew less than all items (+1.6%) in Oct. That’s first time in 20 months that gain in beer CPI was below

increase for general inflation. YTD, CPI for beer still up solid 1.8% vs 1.1% gain for all items, while spirits and

wine eked out gains of 0.3% and 0.1% respectively thru Oct.