Keeping to Beverage Business Insights’ annual new-year’s tradition, we reprise some resolutions for entrepreneurs trying to navigate the shoals of an increasingly complex and perilous bev biz.  As noted last year, many of these rules once were viewed as contrarian in a go-big-or-go-home environment stoked by outsize successes like Vitaminwater’s, but now seem to be more broadly accepted.  As always we credit the insights to you, our readers, who've communicated your hard-won knowledge over countless channels from staticky cellphone calls to craft beer barstools.

It’s better to be slightly starved of capital than over-endowed.  Having not-quite-enough capital forces you to focus on key priorities and let distractions go. By contrast, too much capital almost inevitably fosters waste. Besides, once retailers, distributors and prospective new hires know you have the dough, their hands come out. So try to keep the round modest. Don't let the institutional guys talk you up by too many millions.  Don’t necessarily go for the highest enterprise valuation you can land – that could come back to bite you if things don’t go entirely according to plan.  And better to find your funding from people who can offer more than just a check to help you grow your biz.

Make your mistakes off-Broadway. There's much to be said for foregoing a national landgrab in favor of starting small, in a market or two, preferably including your backyard.  By staying contained in a single region or channel, you can figure out what makes your brand tick, while staying out of the spotlight and not getting tarred as a failure while you work out the inevitable kinks. You'll burn through less capital and less credibility if you make your mistakes locally, not nationally.  And capital providers will notice: by now, they’ve learned to focus as much on velocity growth within your chosen channels as on the overall top line.

Learn to say no.  "Getting to Yes" may be the name of an evergreen negotiation handbook, but "getting to no" is a better ambition for bev entrepreneurs to harbor. Learn to say no to big distributors you won't be able to adequately support, and to retail chains where you may get lost on a bottom shelf and endlessly chiseled for pricing concessions. Tho audacious moves into the likes of Walmart or Costco seem to have worked out well for some intrepid bevcos, such as Vita Coco, the annals of troubled bevcos are filled with those who outran their coverage.  That said, recognizing this pitfall, retailers like Kroger, Safeway and Target have been making it easier to enter their stores at a more organic rate, in a highly encouraging development for innovative brands.  Let’s hope they stick with those programs.  Oh, and always bear in mind that every retailer is intensely paranoid about some other rival – so if they’re really important to you, you might have to say no to the other guy, or at least offer a different product or package.  For Whole Foods, for instance, that means Central Market in Texas or Trader Joe’s just about anywhere else.

Don't be overawed by the big systems. The Coke, Pepsi, Dr Pepper Snapple and beer systems are finely tuned engines for moving high-volume, high-velocity products at affordable price points through the chains. That doesn't mean they're right for you. Big systems seem to work best for big brands. For smaller, premium brands, their default reflex, at the least sign of resistance, is to hit the 10-for-$10 button (or worse). Even if you do partner with one, try to maintain flexibility over what distribution option you employ in a given market until you're further along. As a corollary: don't be so dazzled by the resumes of big-company vets. Their credentials may be only remotely relevant to your own needs - unless your overarching strategic aim is to cook up those 10-for-$10 deals with large-format retailers.

It's better to underplay than overplay your nutritional claims. We're in an era of heightened regulatory scrutiny and class-action litigation and, given the excesses of the recent past, can't really claim it's undeserved. So you're better off underplaying your nutritional and functional claims than overplaying them - that can only increase the likelihood of unwanted attention from regulators and aggressive lawyers, and won't do as much as you think to impress jaundiced consumers.  The advent soon of more rigorous labeling requirements will put a further premium on clarity and forthrightness, in a manner that should play to the strength of those brands that have truly got the goods.  As a corollary, think hard during your inception phase about whether you want to offer an ingeniously engineered functional drink – or perhaps one with a minimal ingredient list, none of them sounding like a chemical.  A growing number of consumers, particularly young ones, seem to be opting for the latter.

Think strategically about the strategics.  If your main game plan is to launch your product, fake it for a few years and get taken out by Coke, Pepsi or DPS at a nice premium, then you shouldn't be in this biz. Figure you're going to be in the game for a while, and think of strategics as cos that offer real help in staying in the game. That might mean less easily defined partners, from overseas firms like Tata and Asahi to family funds like Verlinvest and Emil Capital to well-connected incubators like LA Libations and Brands Within Reach, not just KO, PEP and Nestle.  Look at Vita Coco again: tied into DPS’ distribution system, everyone thought it was in a box regarding an exit, but conjured up a Red Bull billionaire in China as a substantial investor and prime partner to ignite a new round of growth in a promising region.  Fast-growing Celsius found its own Chinese billionaire to help fund its growth.  There are more of those players out there.

Stop pounding on the DSD guys already. True, some DSD distributors are grasping, whining, endlessly finagling operatives. (We at BBI are sympathetic, because we whine a lot, too.)  Maybe they really aren't right for your brand, at least at the earliest stage of development or in the channels you're targeting. Fine. It's worth keeping in mind, tho, that there haven't been any shelf-stable brands that have achieved megasuccess without going through the DSD network during their prime growth phase. So pick a limited # of DSD partners - maybe just one - make sure you're on the same page, and see if it can work for you. Like democracy or America's Got Talent, it's sloppy and occasionally unsightly, but nobody's found a better way.  Or perhaps look at it this way: as frustrating as this system can be to work in, plenty of marketers in promising refrigerated segments like cold-pressed juice, cold-brewed coffee and kombucha wish they had a tier like that to draw upon and are hoping more of these DSD players venture into refrigerated distribution.  Oh, and about this craft beer mania we’re all marveling at: soon enough, it’s going to subside, and beer wholesalers will find themselves less dismissive of NAs as another leg to the stool.

Stand for something, from the start. We don't buy that old saw that certain categories - tea, coconut water, energy - are tapped out, with no room for new entrants. Nor does innovation have to mean employing some earth-shattering new ingredient that sounds like a by-product from an oil refinery. As existing brands move through their life cycle, there's room for reasonably straightforward brands to emerge, even without a lot of bells and whistles. But that only works if your brand stands for something, right from the outset. Trying to add on values or personality down the line is way harder, and less likely to be convincing to consumers. Having that “story” adds excitement and meaning to brands ranging from Honest Tea to Runa and Heart of Tea.  It’s always nice if the story is true.

If you haven’t yet, read Mission in a Bottle.  That’s the graphic-novel-style treatment of the rise of Honest Tea, with a level of detail and frankness that we’ve never encountered elsewhere – down to how many cents each label cost.  Cofounders Seth Goldman and Barry Nalebuff offer an unvarnished primer on what it takes to build a bev biz, including frank discussions of their many missteps along the way.  If you’re far enough along to regard yourself as an insider by now, you can also play the parlor game of identifying the faces (without names attached) that pop up in tough encounters portrayed in some panels.  Other salutary new year’s reads?  Steve Hindy’s often-gripping account of his launching of Brooklyn Brewing, Beer School, back in the years before “Brooklyn” became a synonym for hip, artisanal and cutting-edge.  The writing is knife-sharp (the man had been a journalist) and sections on perils of self-distribution are particularly compelling.  (Soft drink folks note that paperback edition sports a foreword by one of your favorite people: then-NY Mayor Mike Bloomberg, he of the soda portion controls at movies.)

LA-based Kombucha Brewers International said it plans to launch its verification program at KombuchaKon 2016 conference slated for Feb 5-6 at Long Beach Convention Center.  The program, including alcohol testing and extensive labeling requirements, “demonstrates the industry’s willingness to self-regulate and will be based on the modern, kombucha-specific testing methods currently in development by the AOAC – Association of Official Analytical Chemists,” KBI said.  As noted, KBI maintains that 3d-party reports indicating that major kombucha producers are understating their alcohol and carbohydrate levels are skewed by use of process not developed for low-alc items . . . MillerCoors officially jumped into ring of alcoholic sodas, unveiling Henry's Hard Soda, “inspired by the spirit of Henry Weinhard, a brewer known in the Pacific Northwest for making flavorful beers and great soda for over a century.”  New entry is made with cane sugar and comes in at 4.2% ABV, in initial flavor range of Henry's Hard Ginger Ale and Henry's Hard Orange Soda (using Valencia orange flavor).  New line will be offered in 16-oz single cans and 6-packs of 12-oz bottles and backed by national marketing campaign kicking off at end of Jan . . . Coca-Cola Refreshments last week reached tentative agreement on 3-year contract with Teamsters Local 727 representing 319 production and warehouse workers at bottling sites in Niles and Alsip, Ill, ending unfair labor practice strike that began on Dec 3.  Once ratified, agreement moves union members into new health and welfare plan previously available to KO mgmt and gives them annual wage increases retroactive to last May 1 and employer-matched 401-K retirement benefit contributions.  Union’s bargaining committee is recommending that rank-&-file approve deal.

Bev vet Michael O’Donnell, who recently departed Mountain Valley Spring Water after 6-year run under prior mgmt team, has been recruited as ceo of Veri Soda, Amsterdam-based mid-calorie organic soda brand with US base in DC area.  O’Donnell, a vet of Anheuser-Busch and Nestle Waters who’s based in NJ, will help brand scale up in US with assist from Scout Beverage’s Eric Skae as advisor.  Veri Soda was launched by former commodity trader Zeger Van Havell when his wife became pregnant with their first child; after 4 years of flavor development, it debuted in fall 2013 at Expo East (BBI, Oct 2 13) . . . Cedric Chastenet, who with partner Andy Knowlton recently suspended their ’Tude Juice line of raw apple juice blends, has landed at Tex retailer HEB as biz development mgr responsible for specialty grocery, responsible for such categories as bulk foods, coffees, teas, candy and housewares.  

With S&P 500 off 0.7% and Dow Jones off 2.2%, it was easy for majority of beverage co stocks to post decent returns for shareholders in 2015.  For 2d straight year, shares of #3 supplier, Dr Pepper Snapple Group, easily outpaced gains of larger rivals.  DPS stock price slowed to 30% gain in 2015 following gains of 47% and 10% previous 2 years.  DPS stock price has risen double-digits for 4 consecutive years now.  Meanwhile, Coca-Cola share gains narrowed a tad to +1.8% in 2015.  KO had gained 2.2% in 2014 and 14% in 2013.  PepsiCo stock price slowed from 14% gain in 2014 to 5.7% increase last year.  Stock price of Monster Energy remained strong in year it finalized investment deal with Coca-Cola and transitioned almost entirely to KO bottlers in core US market.  MNST stock price surged 37.5% last year following gains of almost 60% in 2014 and 28.3% in 2013.  National Beverage (maker of fast-growing LaCroix brand, along with Shasta, Cascade Ice and flock of others) enjoyed doubling in share price to $45.44 at year-end 2015 amid speculation – not grounded, apparently, in any real discussion – that La Croix sparkling essence water makes co an attractive acquisition candidate.  FIZZ mkt cap has shot up to $1.97 billion – remarkable performance for quirky, family-controlled co generally viewed as mustering a menagerie of sub-premium regional sodas and other cats and dogs as portfolio. 

Cott Corp stock price posted solid 50% gain to $10.99, up from close of $6.88 last year, after controversial acquisition of DS Waters.  Cott bounced back with double-digit gain following 15% decline in 2014 and slight gain of 0.4% in 2013, period when it remained nearly pure play in private-label bevs.  Campbell Soup (owner of Bolthouse Farms biz and V8 juices) enjoyed 19.4% runup in share price to $52.55 after managing only a slight gain in 2014 as ceo Denise Morrison continued with dramatic strategy shift away from shelf-stable center-store brands to faster-growing, higher-margin refrigerated plays at perimeter of grocery stores.  Probiotic player Lifeway Foods couldn’t sustain gains it made in 2014, up over 20% to $18.53, dropping 40% back down to $11.10 last year as it struggled with production and other issues.  Riding organic food/bev wave, WhiteWave Foods stock price scored 11% gain to $38.91. 

Pair of cos offering next-gen bev gizmos had difficult year.  Keurig Green Mountain, struggling with issues on both machines and pods even before its long-awaited Keurig Kold platform drew indifferent reception, saw stock skid all year before being saved at the bell by rich buyout offer from global coffee player JAB that enabled key shareholder Coca-Cola to salvage its investment.  After starting year near $140, shares steadily skidded south to $40 before popping back above $80 late in year on heels of JAB offer of $92 per share.  Since JAB is privately held, GMCR shares will no longer trade once deal concludes.  And SodaStream, in midst of sweeping transition from being home soda maker to more health-inflected sparkling water maker that saw shares erode from mid-year peak of $24, managed recovery to $18 before shares tumbled 9% on final day of year in what observers presumed to be end-of-year loss-selling by investors. SODA was down 11% overall for year, and in absence of co guidance, Wall Street earnings forecasts for new year range widely from $0.45 per share to $1.20, as Motley Fool analyst pointed out.  

Among smaller-cap stocks, Reed’s suffered 2d straight decline following big gains back in 2012 and 2013 as it left lotta sales of its much-in-demand natural soda lines on table due to inventory constraints as it struggled thru production overhaul and its kombucha and private-label plays failed to meet expectations.  Reed’s was down 9% to $5.38 following drop of nearly 26% in 2014.  Jones Soda stock price was up modest 8.6% to 38 cents following 27% decline in 2014 as ceo Jennifer Cue stopped money drain and continued to grope for ways to get co growing again.  Celsius Holding shot up 288% to $1.94 per share in 2015 as turnaround ceo Gerry David brought in big-ticket new investors and got negative-calorie sparkling line growing consistently in multiple channels.

Former Mountain Valley Spring Water ceo Breck Speed is starting new year back in old realm: running bottled-water company, this time New Orleans-based Evamor Natural Alkaline Artesian Water.  After quietly advising owner Reily Foods Co on its Luzianne iced tea line while waiting for his non-compete to conclude, Tulane grad Breck has signed on as prexy of Evamor Products unit, putting him in charge of fast-growing, 14-year-old alkaline water brand and advanced bottling plant above artesian aquifer in Covington, just north of Nawlins.  Breck reports to ceo Bo Reily, 4th generation member of founding family.  Century-old parent co has been involved in range of food/bev brands including French Market Coffee, New England Tea & Coffee, Blue Plate Mayonnaise and Tiger Sauce.

Unlike some prominent brands in fast-expanding alkaline space, Evamor comes by those qualities naturally at source, flagging pH range of 8.8 to 9.1 on-pack.  Liquid is aseptically filled in blow-filled proprietary PET bottles at Covington, which Speed – no stranger to building and running bottled-water plants – termed “finest plant I’ve been in.”  He’s among wave of Mountain Valley execs who’ve left over past year and a half after new owner, Great Divide Capital, recruited retired Nestle Waters exec Jim Waldeck as ceo.  Jim has filled most key spots with former Nestle colleagues and set Mountain Valley on more-aggressive growth path.  Speed had sought to position Mountain Valley as a rare domestic water in premium segment dominated by imported sourced waters and domestic functional brands.

Evamor, which Speed views as competing vs functionally oriented waters like Smartwater and other alkaline brands rather than Mountain Valley, is available nationally but maintains strongest presence in Southeast, area where Speed intends to focus for now.  Brand employs DSD in southern La and generates velocities to justify DSD distribution in other parts of country, noted Breck, who built out extensive beer wholesaler network while at Mountain Valley.  Brand flags its natural attributes with slogan “Know.  Better.  Water.”  Info at Evamor.com.

Beverage Support Group Consultancy Offers Handle on Internet Order Fulfillment   Multitasking exec also is in home stretch of taking wraps off Internet fulfillment service for small bevcos called Beverage Support Group that he’s started with pair of former Mountain Valley execs, his daughter Collins Speed Pugh, who handled marketing there, and e-commerce specialist John Porter.  With online sales becoming major force in bevs, Little Rock, Ark-based BSG aims to offer targeted resource to small bevcos, including those for whom maintaining retail presence may be too daunting, at least in early stage.  Tho it hasn’t IDed its initial client roster yet, Speed said systems designed for its first 2 bev clients should be operational and ready for intro in Q1, linking up to those unidentified cos’ social media marketing efforts.  BSG aims to offer alternative to services like Amazon, which controls item pricing, presents rival brands next to yours as alternatives, shares little consumer data and doesn’t promise that data won’t be sold – in other words, Amazon shoppers “are their customers, not yours,” Breck said.  Co will work on per-case commission as it gets brands off ground or for flat fee on project basis. 

AB down nearly 2% YTD thru Nov in one of its top-10 states, OH, INSIGHTS understands.  That’s right in line with natl STRs thru Q3 (see Oct 28 issue).  AB’s lost 5 share in 5 yrs in OH, shedding 670K bbls of shipments from 2010 to 2015.  It still had dominant 52 share of shipments, but looks like that’ll dwindle again in 2016.  This yr, Bud Light and Bud each down close to 1%, subpremium brands down more and Ritas collectively down in the teens, while Mich Ultra flyin’ up 20%+ and High End (including Stella) collectively up high-singles.      

Each of 3 financial analysts on panel at this morning’s Beverage Digest Future Smarts conference took very seriously the notion that ABI may buy Pepsi or Coke next, once it pays down debt.  Look at ABI’s “cash generation power,” said Rabobank’s managing director Ross Colbert, “and its ability to delever.”  When ABI gets back down to its targeted 2x debt to EBITDA, “they’ll have the ability to do a $200 billion transaction,” said Ross.  Yep, you read that right.  $200 Billion.  That would give ABI “the ability to buy any big brand,” including Coke or Pepsi, said Ross. Their “appetite doesn’t stop in the beer aisle,” he added, noting recent comment from ABI ceo Brito that ABI reaches 100,000 more accounts than Pepsi.  

There’s “nothing left in the beer aisle that is meaningful” to buy and M&A is a “core competency” of ABI, said Consumer Edge veep Brett Cooper.  ABI will continue to grow likely through “verticals within the CPG world that they’re looking to dominate over time,” Brett continued.  He also pointed out that ABI is “opportunistic” so look for a “stumble, market related or otherwise,” like the beer price war in 2005 or the emerging market currency problems that emerged in recent years.  Even tho Pepsi could be easier to digest in some ways (ABI would sell off snacks and it still own most of its distribution),  Coca Cola “is sort of their dream in soft drinks,” concluded CSLA’s Caroline Levy, as “they like to buy leading brands.”  

Separately, Brett said in his introductory comments that with “beer struggling for volume growth” and AB, MC and Pabst all down, “it would not surprise us to see” brewers “get more active in non-alcoholic beverages.”  If this happens, it will be “in order to gain favor with distributors as well as retailers.”  That was certainly one of the motivations behind AB’s deal with Starbucks for AB and its distribs to sell Teavana brand.

Coca-Cola’s New CEO a Dealmaker Too?  James Quincey, is “the right person to lead KO into the future,” wrote Bonnie Herzog, senior analyst at Wells Fargo Securities following announcement that Quincey, current prexy/coo will takeover ceo role May 1, while Muhtar Kent will remain in chmn position.  Besides bringing a “refreshing approach,” one reason Bonnie positive on move is that “given James’ background and significant deal experience, he could accelerate KO’s growth even further through stepped-up acquisitions over the next several years.”  

Focus on Buffett Board Move  While media and mkts focused on major managerial shift at KO, “we think the focus should be more on the Buffets relinquishing their Board seat (held by Howard, Warrens son), as that may pave the way for Berkshire Hathaway to divest its $16.6Bn stake in KO,” wrote Pablo Zuanic of Susquehanna. Why is that key? Because “those counting on an eventual bid some day from 3G/BUD for KO, may think BH being out of the picture would make it less awkward for that group to buy KO,” noted Pablo. That way, “Buffett’s ultimate legacy would not be having handed over the keys of the most iconic American brand to a group of foreigners.”  However, Pablo notes Susquenhanna take differs and that Buffett board move “may point to, some day, BH helping 3G/BUD buy another soft drinks company.”

Spirits have been much stronger competitor to beer in recent yrs for share of Americans’ alc bev consumption.  But wine has also chipped away long-term.  Same premiumization that’s occurred in beer (and spirits) has happened in wine, too.  And just as beer execs talk about building per capita consumption in US, wine folks focused there as well.  Indeed, Stephanie Gallo, mktg veep for vintner with her name on the door, recently spoke about need to “democratize wine,” with perhaps less focus on selling pricier bottles, and “getting American consumers to drink more,” reports The Press Democrat.  A coupla key figures from Stephanie:

1) only 33% of wine drinkers drink it on regular basis; 2) per capita wine consumption in US still only 2.3 gals/yr, vs 6.3 gals in Germany, 14 gals in France. We’d add that our calculations suggest adult per capita consumption of absolute alcohol as wine up just 0.03 gals from 2005 (0.36 to 0.39, about 8%) while per capita consumptions in absolute alcohol for spirits rose .12 gals, 17%.  Same measure for beer dropped 10%, by the way.  Wine still less than 16% of absolute alc consumption in US.  So it has plenty of run room.

Wine could double growth to 700 mil cases with higher per caps, Stephanie believes, and said “change is starting to happen.  Consumers are starting to view wine as a casual social beverage, and not as an elitist beverage.”  (Hmm, a casual social beverage.  Sounds like…beer.)  Part of the plan, millennials, natch.  They “do not have a snobbish view of wine…because of their willingness to embrace concepts and products not necessarily steeped in traditions.”  Like what?  Like sweet moscato and Gallo’s “sweets line, a slightly fizzy wine in,” wait for it…fruity flavors.  These brands, Stephanie claimed, grabbing drinkers new to the category.  And in a final resonance with beer marketers’ talk, Stephanie asks familiar question in how to “democratize wine.”  “How can we continue to expand category occasions?”  Gallo’s comments, together with spirits execs (from Diageo and Pernod most recently) expectations of continued mid-single digit rev growth for that category goin’ forward, together with fact that per capita consumption of absolute alc doesn’t change much in US, suggest competition in alc bevs will get no easier going forward.  

Big brewers got some good news going into the holidays.  Not only did scan trends pick up – volume up 2.7% for 4 wks thru Nov 27 in IRI MULC, echoing Nielsen trend for similar period – but big brands had a solid month.  Nine of top 10 brands gained volume and 17 of top 20 in the black this period.  That included each of top 3 premiums lights, Bud Light, Coors Light and Miller Lite: +0.1%, 3.4% and 1.6% respectively.  Bud was sole top-10 brand that dipped, -2.1%.  But 4 top subpremiums gained: Natty Light (+1.2%), Busch Light (+2.5%), Busch (+2.5%) and Miller High Life (+3.1%).  Michelob Ultra and top imports each gained, 4 of ’em at double digit pace: Corona, Modelo Especial, Stella Artois and Dos Equis.  Other gainers in top 20: Bud Ice, Pabst Blue Ribbon and Yuengling Lager.  Down: Key Light and Natty Ice. Constellation trends stood out yet again. Each of its brands in top 20 shone: Corona Extra (+10.4%), Modelo Especial (+28.7%) and Corona Light (+6.2%).  Rest of portfolio even brighter: Pacifico +28%, Especial Chelada +36%, Negra Modelo +34%.

Big brand success drove positive top supplier trends too. AB, MC Constellation and HUSA each up for 4 wks.  So were Mike’s and Yuengling.  But Boston, Pabst and NAB each down for the mo, as were several big craft players: Sierra Nevada, New Belgium, Gambrinus, Craft Brew Alliance and Deschutes. Up double-digits for 4 wks: Lagunitas, Stone, Bell’s, Founders, SweetWater, Firestone Walker, New Glarus and Dogfish Head.        

Highly detailed, analytic 192-pg report on Heineken from Evercore ISI’s Robert Ottenstein concludes that Heineken has “vulnerabilities” and “purchase of TAP [Molson Coors] more than any other strategic step would address those vulnerabilities and help keep ABI in check.”  Robert views “potential purchase” of TAP as “longterm positive,” while acknowledging upfront that “many investors may disagree.”  Heineken has “4 broad vulnerabilities that ABI can exploit over time,” according to Robert: “Relative scale, limited Americas position, brand concentration and competitive asymmetry…. We see the potential for ABI to turn up the heat in 3 large Heineken strongholds: Vietnam, Mexico and Nigeria.” 

ABI 4x Heineken EBITDA; Heineken a “Bit Player” in S. America; “Risks Losing Relevance” in US  ABI generates 2.5x the revs and 4x the EBITDA as that of #2 global brewer Heineken.  The Americas are “over 50% of global industry margin pool,” but Heineken is “a bit player” both in South America and Canada, and “risks losing relevance” in US.  Mexico “looks solid today but Heineken’s share could tumble post 2020 when the existing Oxxo contract ends.”  Recall, Oxxo is leading c-store chain, owned by FEMSA family. Heineken’s exclusive could end in 2020.  

Heineken “Subscale” in US; US  is 5% of Profits, Down from 33%   “We estimate that Heineken generates 5% of operating income from the US (that would be less than $200 mil) down from 33% in the early 2000s,” wrote Robert.  US is “largest market” for brand Heineken, but total Heineken only has around 4.5 share in US (including Lagunitas stake).  Its US portfolio “is well aligned with consumer trends,” but “is that enough long term for the world’s #2 brewer?” 

Heineken Brand at 30% of Global Co’s Profits; But “Lost Cachet” in US; Down 25% in US Since 2007  Heineken brand is about 14% of Heineken’s global volume, but 30% of profits, Robert estimates.  “We see a risk of ‘mainstreaming’ of brand Heineken in some markets,” Robert sez.  Heineken could be vulnerable globally to ABI targeting with Stella and Corona at higher prices, Beck’s and Bud at lower prices.  Here in US, brand Heineken “lost its cachet as craft nearly doubled” and it “ceded share of import segment to Stella… and Constellation,” Robert headlines, citing our #s.  Since 2007, brand Heineken down 1.3 mil bbls (flattish last few yrs), INSIGHTS estimates, while Stella Artois gained 1.545 mil bbls.  Heineken’s Mexican portfolio has grown but “lagged STZ’s.” 

“Most Critical Question”; “Best Path” for “Long Term Prosperity” and “Credible Deterrance”   “The most critical question facing Heineken,” according to Robert: “How to thrive long-term vs competitor with vastly greater resources?  A combination with TAP has compelling industrial logic” and is Heineken’s “best path for ensuring long-term prosperity.”  Deal with TAP would “vastly improve Heineken’s position in North America, unleashing brand Heineken and its Mexican cousins,” “strengthen Heineken’s positions in South and Central America with the Coors and Miller brand families.”  Robert thinks Heineken could use MillerCoors brands for global expansion as AB has with Bud.  Bud brand up big globally even tho still down in US. This deal would also “expand its premium portfolio further protecting brand Heineken”and “add global scale and purchasing economies.”  Robert sees $450 mil in synergies (similar to Stifel’s recent $500 mil estimate).

Finally such a deal would make “Heineken a credible threat in ABI’s core US market.”  This is one of Robert’s core arguments. With its vast resources, ABI could potentially punish Heineken in 3 strong mkts that are about 1/3 of Heineken operating profit (Vietnam, Nigeria and Mexico).  If Heineken acquires Molson Coors in US and becomes a strong #2, that could serve as “credible deterrance” from ABI attack and “allow it to counter pressure.”   It would also add about “$1.5 billion of additional hard currency cash flow before financing.” Finally, Robert sees “limited other potential M&A options which would address challenge from ABI.”  He concludes there is 50% chance of deal happening by 2020, “but could be sooner.”