Total beer industry volume stayed strong, up 2.8% for 4 weeks thru Nov 26 in Nielsen all-outlet, +0.7% YTD.  But imports continued to be best-performing segment by a mile.  Up double digits and gained 1.1 share of $$, gained 1.5 share of $$ for 4 weeks.  Modelo Especial biggest gainer by far among imports; $$ sales up 32% last 4 weeks and it gained 0.8 share of $$.  But Corona, Stella and Dos Equis all up double digits too. 

Avg import prices up 2%, while all industry prices up avg 1.4%, thanks to continued trade up.  Mainstream avg prices up just 17 cents, 0.8% last 4 weeks. And economy pricing down 13 cents, 0.8%.  Both segments’ volume up slightly and lost slightly less share during period.   

Import Beer Outpaces Spirits On-Premise; In “Sweet Spot”  Meanwhile, on-premise update from Nielsen shows import beer actually outperforming spirits category in bars/restaurants. Import volume +3.8%, $$ up 5.4% for 52 wks thru Oct 8, vs spirits gains of 1.8% and 3.4% respectively.  Overall, beer still very soft on-premise: volume -3.1%, $$ -1.5%.  That means very tuff trends for other categories.  Indeed, domestic premium volume -8.8% for 52 wks and $$ down 8%. So not much price and no volume relief.  Craft volume eked out just 0.8% gain, $$ up 2.6%, so still gaining share in beer.  Interestingly, cider still growin’ on-premise, volume +2.3% for 52 wks.  But below premium, coolers and FMBs each down 4-9%.  Superpremiums flattish. 

Imports benefitting from distribution gains (+1.8%) and velocity gains (+1.9%).  Imports in several “sweet spots,” sr veep Scott Elliott pointed out.  They have sessionability, provenance, strong branding and premium price point.  Then too, Nielsen research shows import drinkers “younger, wealthier and more frequent visitors to the on premise for both eating and drinking occasions”: 55% of millennials drink out once/wk or more and go out avg 9 times/mo, spending avg $155/mo on premise.  Avg consumer goes out 6.8 times/mo and those 55+ spend avg of $92/mo.  But more data too showin’ millennials more promiscuous in drink choices than older drinkers.  They drink across 5.5 categories vs 4 for avg consumer and 1 in 4 millennials “don’t know what drink category they will drink prior to entering an on premise venue.”  That’s challenge and oppy.

Expect “Muted Pricing” in Spirits to Continue  Spirits prices continue to lag beer prices and inflation, off-premise at least, as we’ve regularly reported consumer price index trends.  (On-premise pricing has exceeded inflation across alc bevs, according to govt.)  In conference call with Wall St last week, Diageo’s North American prexy Deidre Mahlan called spirits mkt a “very muted pricing environment today,” reports Wine & Spirits Daily.  She doesn’t expect fiscal ’17 to show “real net price,” tho Diageo “taking price in the categories where this is price strength,” W&SD wrote. “Most of the difference between volume and net sales will come from mix,” Deidre said.        

Import shipments slowed in Oct but continued to build volume: up 97K bbls, 4% reports Beer Inst economist Michael Uhrich from Commerce Dept data.  For 10 mos, imports up 1.9 mil bbls, 7.1%.  That offsets estimated 1.7-mil-bbl dropoff for domestic brewers’ shipments Jan-Oct, but not by much.  With cider dropoff, industry goes into final two mos dead even.   Imports have especially tuff comp Nov-Dec: +890K bbls, +22% last yr. 

Mexican imports slowed a bit in Oct, +5%.  But still up 2.3 mil bbls, 14% yr-to-date, carrying the category (and rest of US biz).  Belgian shipments eked out tiny Oct gain and big numbers from Ireland and Germany for the mo.  Dutch shipments off slightly in Oct.  For 10 mos, Dutch shipments down 213K bbls, 5%.  Belgian shipments down similar 6%, 112K bbls.  And Canadian shipments swoon continuing: -303K bbls, 20%.  Irish and German shipments flyin’ tho, up 22% and 24% respectively.   UK off near 30%.  

Is subpremium becoming more of a battle ground between AB and MC?  AB will use one of its precious Super Bowl ad slots to advertise subpremium Busch, sources tell INSIGHTS. That’s a big departure from its perennial premium-and-above ad platforms in the Super Bowl. After all, this is very expensive real estate.  So why go there?   At same time, different AB branches in Southern Calif, not exactly a hotbed of subpremium sales, offered exceptionally low prices for 2 weeks 11/28-12/11.  Initially, these prices weren’t even offered to indy distribs, INSIGHTS hears. In response to inquiries, distribs reportedly told that these prices were “experiments.”  All these prices were at least several $$ below what independent distribs were charging. 

In Pomona, AB selling Bud Ice quarts for $14.40/case (12 qts); in Riverside, AB selling Natural Light and Rolling Rock 12-packs for $8.90; in San Diego, AB did all those discounts plus Cobra, Hurricane, Natty 25-oz cans ($11.25 for 15).  Indy-LA area distrib Straub also had 25-oz can promotion at $11.25.  But no other indy distrib so far doing these particular promos as far as INSIGHTS knows.  Meanwhile, both AB branches and indy distribs will have hot $13.20 12-pack premium prices next week and for 2 weeks in Jan.  Unclear at presstime whether these low subpremium prices happening in other geographies, possibly related to inventory or perhaps some other explanation. What’s going on? 

Tho many speculate that legal pot will negatively affect alcohol consumption, that’s mostly not borne out by data so far. Looking at Beer Institute state-by-state data thru Oct 2016, shipments to states where pot’s legal are mostly up.  In Colo, beer shipments up 117,000 bbls, 3.7% again in 2016, following a 1% drop in ’15, 4% gain in ’14 (pot legalized in 2012).  So mixed bag, but generally trending upwards, whether because of pot tourism, complementarity or whatever other reason.  In Oreg, shipments up 41,000 bbls, 1.6% for 10 mos in first yr that pot’s legal.  And Alaska beer sales up at a double-digit pace.  Up 49,000 bbls, 12%.  Only Wash showed decline so far.  Shipments dropped 65,000 bbls, 1.7% thru Oct, following 2.6% gain in 2015, 6% gain in 2014.   Meanwhile, lengthy article in Politico points out that “with little more than the stroke of his own pen, the new attorney general” (nominee Jeff Sessions), who stongly opposes marijuana use, could reinstate “aggressive enforcement” against growers, sellers and users and “cause chaos in the $6.7 billion industry.”   

ABI will “roll out its first European chain of pubs based on its popular US craft beer brand, Goose Island,” wrote the Daily Telegraph on Friday.  “A pilot” will open in London before Christmas “and a second site planned for the capital next year alongside a third in Belgium.”  This upcoming launch is “first venture” for ABI’s “brand experience” division, “which it set up last year to grow its stable of craft beer brands.”  Goose Island Vintage Ale House will offer consumers “a different style of beer than many people are used to,” ABI’s Toby Cowan, who heads up new division, told Telegraph.  Recall, AB now owns over 20 retail outlets here in US, but has said that these are brand-building, not a retail strategy. “We do not have a strategy at retail,” High End prexy Felipe Szpigel said at Beer Insights Spring Conference in May.  Now those “brand experiences” are going global.  

Despite all of the churn, new brands and new flavors in flavored malt bev space, Phusion Projects and its total portfolio (Four Loko and other products) runnin’ up 20% this yr and likely to regain a near-peak volume of 8 mil cases, co-founder Jaisen Freeman and prexy Jim Sloane told Express.  That would put Phusion in neighborhood of 600K bbls.  “We lost every point of distribution we had,” in the wake of attacks from state AGs and others that started back in 2010 on the caffeinated version of Four Loko.  And even while Phusion’s got those points of distribution back, it’s sold almost exclusively in just 2 channels, c-stores and independents.  Virtually all grocery and drug placements disappeared, said Jim, and “we’re just starting to get them back,” creating oppy for “all new business” in them.  Phusion also has growing intl biz in addition to sales in 49 states (UT is only US mkt where Four Loko not available).  Distribution is 60-40 MillerCoors/AB, said Jaisen, and each network performing about the same, with 1 quarter of a percentage point difference between them, he added.

Why is Phusion doing so well in midst of very crowded segment, including big brewers’ efforts?  Jaisen points to: distinctive liquid (of course), flavor and packaging innovation (Gold in 2015 and Sour Apple in 2016 were top new packages in IRI) and sales execution between Phusion team and distribs.  Distribs like the margins on single-serves: “we are golden cases…and we are easy to do business with,” sez Jaisen.  Phusion counts 270 SKUs in single-serve, with 30 doing about 80% of the biz.  Four Loko has significant number of those top SKUs and “sticks to the knitting” via social media and experiential events, sez Jaisen.  Who’s the Four Loko drinker?  Age 21-26, 60/40 male to female, often “pre-gaming with a single can before moving to something else,” said Jaisen.  Also, Four Loko mostly competes with spirits drinks and spirits occasions, he believes, not beer.  The “only competing we do with beer is for shelf space.”  Tho it may be counterintuitive, Jaisen sees “a high correlation between craft beer and Four Loko” since millennials like “big flavors” whether it’s hoppy or sweet.  “They think in terms of flavor and they want a lot of it.”   Asked whether calories an issue for Four Loko drinkers, Jaisen noted last time he was in an airport there was long line at Starbucks of folks ordering high-calorie flavored coffees with no one on line at the Argo tea cafe.   

Wow!  There are 5,005 US brewers, Brewers Assn said today in yr in review release titled “A Big Year for Small Beer.”  That’s up 736 from 4,269 at the end of 2015.  And there are still over 2000 in planning.  BA’s celebratory and extensive release was timed to coincide with anniversary of repeal of Prohibition. It focused on continued craft growth (8% in 1^st half), styles that are gaining share, like IPAs  and “more sessionable” beers, now totaling 30% or so of craft, “freedom of choice,” “homebrewing impact,” “beer destinations” and more, including pointing out that there are 10,000 wineries in US. Release made no mention of slowdown, m&a, definitional dilemmas, overwhelmed consumers.  This glass was more than 3/4 full, as you’d expect.  

Big distillers trying to crack the code and revive sluggish on-premise biz, just like big brewers.  Diageo’s “Activation Army” ‒ sales force members who coordinate activity with operators on pricing, profitability across portfolio ‒ movin’ the needle, it told analysts on investor call yesterday.  These AA accounts (6K of ’em) “grew 12% vs other accounts +2%,” reports analysts at Exane BNP and CLSA.  And just as AB and Marlboro challenged on their “big reds,” so is Diageo’s Smirnoff Vodka.  But Smirnoff volume “stabilizing,” it sez, in part via “lowering prices to be in line with competitors,” wrote CLSA’s Caroline Levy.  Diageo hasn’t been keeping pace with overall spirits growth, but it believes, and analysts buyin’ in, that it can match industry rev growth of 4% in North America by fiscal ’18 or ’19.  Diageo Beer is #2 focus area for North American biz, wrote Exane BNP, behind US/Canadian spirits biz, natch.  Not a lotta beer details, but Exane noted expansion of Guinness portfolio and that Diageo will “pursue a single trademark strategy for Smirnoff” flavored malt bevs, “one that is aligned with the core spirits brand.”   Diageo Beer Co’s volume +2.2% in latest 4-wk Nielsen all-outlet scans thru Nov 12, +1% yr-to-date.   Smirnoff Ice franchise even stronger: +7.4% for 4 wks, 2.7% YTD. Interestingly, even with constant flavor churn in FMBs, and Diageo faces same issues with some of its spirits brands, FMB mainstays among best performers in category right now: Smirnoff Ice, Mike’s and Twisted Tea.          

AB closed off part of 24th St in NYC this morn so it could bring hitch of Clydesdales down the street and celebrate both the official opening of its Commercial Strategy Office in Chelsea neighborhood and upcoming 83d anniversary on Dec 5 of the end of Prohibition.  AB ceo João Castro Neves and panel chairman Philip Mullin rode in with Clydesdales.  João welcomed NY Lt Gov Kathleen Hochul with beer in ceremonial echo of first case of beer delivered by AB to then-NY gov Al Smith in 1933.  The Lt Gov talked about how state is promoting economic development and in Chelsea particularly there’s “entrepreneurial spirit” and almost a “start-up” environment that AB now part of, along with other big companies like Google, Cadillac, Chobani, etc. 

AB’s 24th street office in works for almost 2 full yrs and it has come a long, long way.  Houses over 300 people, including over 250 from North American team and 2 floors for Disruptive Growth unit of ABI.  First floor is called Celebration and includes recently opened bar, a small pilot brewery called 24th Street Hops (will have 2-bbl system installed soon).  Outside the building, window decaled with this statement: “You’re looking at what’s new and next in beer culture.”  

Just-opened twelfth floor is rooftop biergarten with a skylight, an inviting, comfy NYC space.  Whole office recently opened up in middle with large airy staircases between several floors.  People veep Sandro Bassili said he studied many other co’s offices, sought to create open, collaborative, dynamic environment. He and entire leadership group are on 9th floor on floor called Culture.  For this event, AB also brought in many historical artifacts, aided by archivist Tracy Lauer, who gave brief tour of them showing AB’s early history, creation of Budweiser in 1876 and that during Prohibition the brewery survived by making over 20 different products.  v

Constellation’s “beer scanner data revenue growth is coming in better than expected this quarter,” wrote Morgan Stanley’s Dara Mohsenian in report today.  That’s “key new point” in driving even higher earnings estimates, he added.  Nielsen data thru Nov 19 shows “year-on-year growth actually accelerating and two-year average sales growth reaching new modern history highs in recent weeks.”  Those rates in rarefied +20% range, Dara noted, and improving across every key brand in portfolio. So STZ not exactly bein’ boxed out by AB/MC duopoly.  Meanwhile, Dara believes “potential Trump policy risks look manageable.”  While “concerns” of potential tariff on Mexican products, reduced consumer demand via deportations/departures and “relative STZ tax risk vs US-centric peers” are “appropriate,” Dara thinks regressive beer tax “unlikely” and “deportation rhetoric [is] likely much harsher than actual implementation.”  Constellation has boosted growth even under “ramped up” deportations and migrations under Obama admin, Dara notes.  Relative tax risk a “larger potential wild card,” Dara acknowledges, but would take time and may be offset by broader tax reform.