Tech and particularly e-commerce are coupla areas already disrupting beer biz with potential to force even bigger changes, and global ABI’s “disruptive growth” arm ZX Ventures clearly ain’t shying away from making inroads there or within world of homebrewing. ZX is behind launch of Whym, a sort of homebrew-lite that promises homemade, personalized beer in 24 hours, profiled by Digital Trends yesterday. Of all the tech launched recently to make homebrewing more accessible and easier for newcomers, this is closest we’ve seen to the levels of accessibility offered by appliances like SodaStream but for beer. That’s partly because users won’t actually be fermenting beer themselves, just adding specialty ingredients to existing “beer base.” Whym kit includes tools to add steeped grains, hops or other ingredients to canned “beer base,” shipped separately, according to website, because it’s an alcoholic beverage. Once additional grains and hops heated and added to base, throw Whym stainless “growler” into fridge with CO2 cartridge and 24 hours later: your own “homemade” beer. (See website for video demo.)

What’s this “beer base” and where’s it come from? Not a ton of info on website, but Whym’s “proud to partner with Drizly for all the refill items you need,” according to its Facebook page. And indeed, head over to Drizly to see range of products already available “in some locations.” It includes 3 different Beer Bases, an Unfiltered Wheat, Golden Pale and Medium Amber, in 16 oz cans, ranging from 4.3% to 5.4%  ABV for $1.99. Cans all list Blue Dawg Brewing in Baldwinsville, NY as brewer (note that’s AB facility and name used for AB’s Wild Blue blueberry lager). Users can also order full recipe kits or separate malt, hops and CO2 cartridges from Drizly. So far, Whym release is quite limited: the co made just 200 kits, selling for about $80 each. Haven’t heard back from the co yet about how Beer Bases get from Baldwinsville to Drizly’s retail partners. Recall, unlicensed Drizly gets through regulatory hurdles for online alc bev sales by being agent of retailers, which must take payment and deliver product. Interesting to see how that plays out for such a limited-release product and how that may scale up. Also recall that this isn’t only ZX foray into homebrewing: it invested in top online US retailer of homebrew equipment, Northern Brewer (and partner co Midwest Supplies). Indeed, ZX already has Global VP of Homebrewing. So this clearly an area where world’s biggest brewer sees plenty of room for current and future disruption.

Looks like Oct not so hot for spirits biz either.  Adjusted for selling days, spirits volume -0.4% in 17 control states, reports NABCA, with $$ sales up just 1.5%.  That’s well below recent trends.  Twelve-mo spirits trends still fine in these states tho, with volume steady at +2.5%, $$ rollin’ along at +4.7%.  How’s beer faring in these states?  Yr-to-date volume thru Sep in these control states up same 0.9% as natl trend, Beer Inst reports.

INSIGHTS had a chance to catch up with TTB’s director of Trade Investigations Division Bob Angelo and spokesman Thomas Hogue about recent record $750,000 offer in compromise from Massachusetts distrib Craft Brewers Guild.  This was largest offer in compromise ever for pay-to-play.  Bob characterized it as “progressive discipline.” In a couple of earlier wine and spirits cases, TTB got $300K in Vegas and $50,000 in Chi.  So penalties keep going up as they’re finding more stuff.  What’s more, Bob sez: “We want industry members to realize we don’t want this to be considered cost of doing business.”  And they should “take seriously” the potential consequences, including prospect of TTB investigation, offers in compromise but also even potentially suspension or revocation of their federal permits.  The CBG fine intended to be large enough “where it gets the industry members’ attention.” 

“We are always looking at trade practice issues,” said Tom, challenging notion that it’s stepped up activity recently.  Instead, TTB “continuing down a path” for at least 10 yrs, since TTB separated from BATF.  Reason we’re “seeing more offers in compromise” in last 12 months or so are that cases are complex and “take a good deal of time.”  But trade practice investigations are “bread and butter” of TTB and “what we do.”

TTB absolutely “had our own independent investigation,” said Bob, in Massachusetts and wasn’t simply piggybacking on Mass ABC investigation, but rather responding to various reports.  “A lot of factors” go into an “offer in compromise,” with “many components” in order to have a fine.  TTB must also choose its battles wisely; “where we spend our resources” is where TTB has best shot of “good, viable resolution,” said Tom.  Recall that each of US House and Senate Appropriations bills currently seek an additional $5+ mil for TTB enforcement activities. But that’s not law yet.

“Brewers Bet Beer Drinkers Seek More Sober Suds,” headlines Wall St Journal today, detailing dreams of no-alc beer boom at ABI, Heineken and Carlsberg.  As we noted last week, AB InBev ceo Brito talked up no-alcohol beer’s potential and progress in places like Canada, Brazil and Germany at Beer INSIGHTS Seminar.  Brito was addressing ABI’ stated goal of having low/no-alc malt bev products be 20% of its global volume in by 2025.  That would be up from 6% now (see Nov 15 Express).  Since AB announced that goal last yr, it seemed like quite a stretch, given that no-alc less than a half-share of total US volume (had gotten to 1 share in early 90s) and of AB’s volume here.  (Spoiler alert: amid lotsa optimism and comments from brewers about potential, growth rates and improved quality, WSJ reports “despite brewers’ efforts, the volume of nonalcoholic brews as a proportion of global beer has stayed roughly flat at around 0.7% for the past decade, according to beverage industry research firm Canadean.”  Share of low-alc beer unknown.)  Regional shares range from 0.3% in North America to 1% in Eastern Europe and 5.2% in Middle East/N Africa, dominated by Muslim culture.  And yet.  Not only does ABI have ambitious goal, but its global competitors also “investing in new technology, marketing and distribution for nonalcoholic beer,” according to WSJ. 

Heineken and Carlsberg link non-alc beer to active lifestyles; Brito agreed, noting lotsa Germans drink no-alc beer after marathons.  Brewmasters say they’ve cracked the code to maintain flavor via new recipes/technology.  WSJ found a “virtual reality developer” who did some research on no-alc beer for Heineken.  He lays out the challenge: “It’s kind of like nonbeneficial exercise – why would people use this if the main benefit doesn’t exist?”  He found that core drinkers of no-alcs are same folks as they ever were: “older people whose doctors had advised them to cut back on alcohol.”   Two benefits of no-alc beers, at least for producers: they can be viewed as response to consumers’ health concerns and profits tend to be high as prices premium and taxes nil.  Will no-alcs spread to younger, active populations seeking, as Brito said, brewed products with known ingredients, marketed as “water plus, plus plus” rather than “beer without this, this this?”  We’ll see.  Interestingly, WSJ feature follows article last wk about struggles distillers face in keeping the flavor game going in spirits, given “choppy” nature of sales and risks to brand equity.  Brewers going down similar road with flavored malt bevs (viewed by some as way to get spirits occasions back), hard sodas and low/no-alc beers. All this in pursuit of volume not being provided by core products right now. Do these efforts make sense or are they exercises in virtual reality that won’t translate to real volume?  

Starting today, 2 new 15-second ads will reprise Miller High Life’s classic “If you’ve got the time, we’ve got the beer,” slogan for first time since late 70’s.  “Stabilizing the economy segment is critical to achieving growth by 2019 and Miller High Life is a cornerstone of our economy portfolio,” cmo David Kroll wrote distribs yesterday to announce new ads and new packaging coming in March.  High Life “offers ‘quality for the everyman’ in a way that is unfortunately rare in today’s world,” he added.  MC is “investing significantly in Miller High Life and we’re already seeing results,” added David.  High Life on uptick as of late, up 5.8% in Nielsen data for 4 wks thru Nov 12.  Spending on High Life will more than double (+135%) in Dec vs yr ago, Ryan Marek, dir of economy brands toldAd Age. MC spent total of $10.7 mil on brand for all of 2015, per Kantar. 

Rich No More “If you’ve got the time,” spots replace “I am Rich” campaign, which sought a “hipster feel,” but in end, ads “may have tried just a little too hard to look cool,” wrote Ad Age.  “You need not act like a millennial to appeal to a millennial. This is a lesson a lot of brands are learning within beer and across a lot of other categories as well,” noted Ryan. “You have to be authentic. You have to be true to yourself. Because people sniff through the bullshit,” he added. So with Miller High Life history, “it’s a really easy job to do.”  

Evercore ISI’s Robert Ottenstein and investors met with Molson Coors ceo Mark Hunter and investor relations team on Friday.  Robert headlined his report “steady as she goes” and TAP stock remains his top pick because of $550 mil in synergies and savings it should achieve in next 3 yrs following deal to buy rest of MillerCoors.  But one news nugget could mean MillerCoors will fall behind in mktg spending arms race.  

Robert “not expecting step change in marketing investment,”  he wrote.  Molson Coors is “not underinvesting in the brands” with spending near $1 bil.  Molson Coors will “be opportunistic, but focus on sweating current spending level, not adding more money,” Robert added.  “Opportunities for increased marketing programs are $5-10 million order of magnitude, not $50 million, and more for market insights/tactics/tools than media spend,” Robert emphasized.  Constellation and ABI have ramped up spending big time in recent yrs and outperformed overall (tho MC has gained share of premium lights). If they continue to keep spending pressure on, will MC trends suffer if it doesn’t step up too?  

Meanwhile, Mark and team “confidently fielded investor questions and allayed concerns over its sudden CFO departure announced the previous day.”  Incoming cfo Tracey Joubert  was “first choice,” and there will be “no impact on integration, timing, targets” as “work streams well underway,” according to Robert’s report.  Mark “highly confident in delivering at least $550 million” in synergies and cost savings, concluded Robert.  

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 “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.”