General Dist in Salt Lake City has deals to buy 3 other AB distribs in Utah, totaling 1.8 mil cases.  The 3 distribs are Tooele Bev Co, Bowtie Bev and Big Four Dist.  AB only sells about 7 mil cases in state.  General will now be vast majority of its volume there.   AB at 42 share in UT, down from 54 in 2008.  Between lack of scale, loss of share (to lesser or greater degree) and increased capital requirements to be a distrib nowadays, smaller AB distribs are most frequent sellers these days.  Then too, MC network already more consolidated.   Bickers Consulting Group worked with General on all 3 of these deals.  INSIGHTS has tracked 11 AB distrib deals so far in 2016.   

After slowing slightly Jul-Aug, import shipments back on fast track in Sep.  Up 336K bbls, 13.7%, reports Beer Inst economist Michael Uhrich based on Commerce Dept data.  That pushed yr-to-date gain back to 7.5%, +1.8 mil bbls.  Big shipments boost from Mexico drove gain, natch.  Mexican imports surged nearly 350K bbls, 24%.  That put yr-to-date gain for Mexican shipments just over 15%, +2.3 mil bbls.  So, collective shipments from all other countries still down a half-mil bbls, 5%.  Irish and German shipments remain up about 20% for 9 mos.  But Dutch shipments down 5%, Belgian shipments down 7%, Canadian shipments down 20% and UK shipments down 27%.  Ouch!  Looks like AB InBev may be shipping some Stella thru Germany again.  Big Sep import gain makes US figures for Q3 look a bit better, tho still down.  And yr-to-date trend for total US shipments hangin’ in near 0.5%. 

Two other tidbits from Michael’s report.  First, exports continued to soften; off 15% in Sep, -4% for 9 mos.  Import cider shipments really soured in Sep, -28%.  For 9 mos, import cider shipments -13%. 

The 3 biggest beer states all solidly plus in Beer Institute’s state-by-state shipments thru Sep.  Calif shipments up 207,000 bbls, 1.1%, Tex up 141,000 bbls, 0.9% and Fla up 193,000 bbls, 1.9%.  Collectively, those 3 states up 543,000 bbls. Those 3 states got 39% of growth so far, tho only 27.5% of volume.  Add in Georgia, which was up 118,000 bbls, 2.7%, and 4 states got nearly half of growth. Beer shipments in 50 states up 1.33 mil bbls, 0.9% thru Sep, sez Beer Inst.  But recall, AB and MillerCoors shipments trends much better than depletions.  So likely lots more beer shipped than depleted.  Still, AB’s estimate of industry sales-to-retailers down 0.7% thru Sep implies over 1.5% trend difference with BI’s shipment numbers in 50 states.  Difficult to figure. 

Turns out a number of distribs on AB’s wholesaler panel met with AB and ad agency Weiden & Kennedy last week in NYC for what was labeled a Bud Light “immersion meeting” as AB communicated to distribs.  Bud Light’s “current creative was discussed in great detail.  More importantly, W+K explained how the transition from the Bud Light Party campaign to the NFL campaign will lead Bud Light into an exciting, new, bold approach for 2017, recapturing what the brand is about, capitalizing off its true nature of sociability and sessionability.”  This meeting was just prior to changes becoming public, including ending the Bud Light party a few weeks early and new AB mktg veep.  Several panel members quoted by AB that they were “impressed,” “encouraged” and new approach will “reenergize our network.”  Stay tuned. 

Craft got 33% of total on-premise $$ in Nielsen CGA On-Premise data, just behind domestic premium brands at 34%. Yet in “tap data” collected by Nielsen in “rolling field audit program” in Sep-Oct, Nielsen CGA found that craft got 58% of tap handles vs just 17% for Domestic premium. Meanwhile, craft got 48% of draft $$ and premium 27%.   This data paints invaluable and still surprising picture of craft dominance of draft on-premise. 

From these numbers, Nielsen extrapolates that “draft domestic premium brands are under-tapped given their contribution to sales compared to space occupied.” Then it jumps to conclusion: “In general, the evidence would suggest that many outlets could benefit from a revised draft beer assortment strategy.” This debate is not new; big brewers have argued this for years. “Striking a better balance between rotational variety and a decent choice of high velocity domestic brands,” Nielsen continues, “could well offer the optimum combination of customer choice and velocity.”  So add Nielsen to the growing chorus of industry voices (AB, MC, Boston, etc), saying that maybe this choice thing has gotten somewhat out of hand.  Clearly, not everyone would agree, as comments from Brewers Assn prexy Bob Pease on BA website would indicate (see Craft Brew News for that coverage).  Many retailers still view variety as an imperative, not a “choice,” i.e. that craft variety drives traffic, has strong image/cred and oh-by-the-way provides better margin.

Other interesting data from Nielsen:  almost half of Americans (47%) “drink beer when out of home,” sez Nielsen, and they very often drink craft.  Craft “the best performing sub-category” since Nielsen CGA started with its “On Premise Measurement” in Jan 2014. Meanwhile premiums still have 3 of 5 beers with highest velocity per outlet.  Then too, craft drinkers mostly don’t drink just craft; 61% drink imports, 49% drink domestic premiums, only 28% just drink craft on-premise. 

Acquistion  AB announced agreement to acquire Karbach Brewing in Houston, hottest craft brewer of last several yrs in Tex.  Karbach slated to surpass 80,000 bbls this yr, in just its 5^th yr of existence.  It will grow at least 25,000 bbls this yr, 45%.  That’s all in 1 state.  And Karbach is  just filling out Tex this yr; only hit Dallas/Fort Worth last yr.  Houston still 60%+ of its sales. With those #s, Karbach could easily jump past similarly-sized Saint Arnold and Real Ale in 2016 to become 2d biggest craft in Tex after Shiner, but it’s only got 0.4 share of this giant mkt.  So there’s room to run.  

Karbach Will Stay in Just Tex in 2017  Indeed, Karbach still has no plan to expand beyond Tex in 2017, even after joining with the High End, said co-founder and brewmaster Eric Warner.  The plan is to “dive deeper” in  its home state, where it’s already had “tremendous success” and yet there are “still so many opportunities.”  Karbach “trying to get over 100,000 barrels” just in Tex in 2017, “a nice round number.” High End prexy Felipe Szpigel agreed, but also said it’s “too early to say.” (For those who don’t get reference in headline, it  refers to oft-repeated phrase “Number 9” in Beatles “Revolution 9” from the White Album. Seemed appropriate here.) 

The High End Has Filled in Most US Regions  Karbach will mark the 9^th acquisition for AB and its unit, The High End. By now its buying spree extends to most major regions of US. Insofar as AB is pursuing regional strategy, it may be close to done, one source sez.  Felipe said that the High End started from “a different place,” i.e. finding right partners, who are “unique and different from each other” but he acknowledged “where you end” is with geographically diverse group of brewer partners, including in Tex.  Deal still needs to get DOJ approval; given that should close by Q1 2017.

With Karbach, AB will own well over 1 mil bbls of acquired craft brewers all over the country.  Started with Chicago’s Goose Island in 2011, then AB acquired Blue Point  in northeast, 10 Barrel and Elysian in craft hotbed of Pac NW, Golden Road in Calif, Breckenridge in Colo and Four Peaks in Ariz, covering Southwest, west and Mountain regions.  And more recently, AB got Devils Backbone in Southeast.  (AB also bought adjacencies like Virtue Cider and Spiked Seltzer.)  Its various craft brewers are performing very well even as craft slows down.  Recall, AB’s acquired craft brands up 35% yr-to-date in IRI multi-outlet + convenience. 

AB Needed to Play in Craft in Tex  But long-rumored Karbach acquisition fills an essential hole for AB’s collection of craft assets: Tex.  Tex is 2d biggest US mkt and AB’s biggest mkt, where it sold 10.4 mil bbls last yr and got 52.3 share. It has held volume/share much better in Tex than in Calif, where it is down to 1/3 of biz as craft and especially Mexican imports made huge inroads in AB’s former dominance.  Craft undershared in Tex, but growing rapidly, up to high singles.  No surprise that Craft M&A heated up in Tex this yr, even before this deal; recall, MC purchased Revolver and Lagunitas bought stake in Independence. Given all these factors,  it was especially important for AB to participate in growth of segment in its most critical mkt. 

Enter Karbach.  Karbach started by serial entrepreneurs (and highly successful sellers) Ken Goodman and Chuck Robinson, who have built several strong bizzes.  They have scored several times, including sale of 700,000-case statewide craft distrib in Tex, C.R. Goodman, to Ben E. Keith back in 2008. That got BEK started down craft road nearly a decade ago. This yr, Ken and Chuck also sold 1-mil-case craft distrib C.R. Goodman in Colo to Breakthru Bev.  The 2 also own importer Belukus Bevs and sold Bitburger brand to St Killian’s (US importer that is a Sheehan Family Co). 

AB “plans to invest” in Karbach to “realize” brewing capacity of 150,000 bbls by 2019. “We have maxed out our potential to grow on our own,” said Karbach co-founder Chuck Robertson in by now familiar statements, but Karbach “will retain a high level of independence” as “existing management and brewing teams will continue to drive culture and strategy.”  Karbach co-founders Chuck Robertson, Ken Goodman and Eric Warner all stay on.  Chuck and Ken’s sons are each part of “active daily management” of co, as is Eric.  This deal announced just 3 weeks after ABI closed “Megabrew,” its $100+ bil deal to purchase SABMiller.    

Recall that assns representing Conn beer, wine and liquor distribs, plus on-/off-premise retailers made bids to intervene on side of CT state officials to defend pricing laws there challenged by mega-retailer Total Wine.  But Total filed motion to keep ’em out.  In addition to technical legal arguments, Total sez beer distrib assn should be denied since Total only challenged laws “to the extent they regulate the pricing of wine and spirits,” not beer.  Then too, Total “deliberately did not name” any wholesaler or retailer as defendant, knowing state laws would likely shield them from antitrust liability.  (Recall, Total sez CT’s post-and-hold law, ban of selling below cost/volume discounts, plus uniform pricing amount to price fixing among suppliers, distribs and retailers.)  Then too, other distribs and retailers haven’t pled their case with enough specificity “to argue substantial interests,” (as in how or how much profits will suffer), Total argues.  Also, allowing them as intervenors would create delay/complexity/repetition and any interests they have would be “adequately represented” by CT AG, which has already filed motion to dismiss.  Plenty of snark in Total’s pleading, natch.  Wine and spirits distribs claim an interest because laws protect their “profitability.”  Retailers “say the same thing with a bit less candor.”  And while beer distribs “have more difficulty articulating an interest,” according to Total, “doubtless” they “are also worried about their excessive profit margins.  But Total has filed this action to protect consumers, not sellers.”  If judge allows assns to intervene, Total asks for “conditions” to speed up process.

Four assns filed joint reply to support their bid to intervene.  Statutes “directly regulate” members of each of their assns, Total seeks to “radically alter” distribution in CT “to its own financial benefit” and alleged distribs and retailers “violated the law, illegally fixed prices and conspired to restrain trade.”  Without intervening, distribs and retailers could not respond to such charges.  As far as beer distribs concerned, same law covers them too and Total’s trying to get that law tossed.  So beer distribs’ interest “equally substantial as those of wine and spirits wholesalers.”  Total has already indicated, assns add, that “discovery will focus on information requests directly from (or about)” distrib and retailer actions, more reason to include them as intervenors.  Distribs and retailers also have “economic and legal interests not represented by” the AG.  That includes prevention of “predatory tactics of large box retailers” and maintaining a “broad and diversified customer base of retailers” in order to keep sales and prevent “undue influence in a highly concentrated marketplace.”  Those interests “distinct and different” from the AG’s interest in “protecting the consuming public policy, which may invoke a variety of other public policy concerns” like temperance or consumer choice.     

Heineken staked out brand new ground with its new responsibility message.  Key aspect of its Formula 1 sponsorship: new TV ad featuring legendary driver Sir Jackie Stewart. Tagline: “When You Drive, Never Drink.”  Ad features vintage footage of Stewart racing and declining offered Heinekens.  This is 1st time we’ve seen any alc bev producer adopt zero tolerance for drinking and driving, tho some govt agencies use “don’t drink and drive” message.  Industry previously focused on “don’t drive drunk,” like AB’s 2016 Super Bowl ad.  Oddly, Heineken taking a public stance that’s stricter than Mothers Against Drunk Driving.  MADD’s website focuses specifically on ending drunk driving.  And MADD has repeatedly stated it does not even support lowering the legal BAC level to .05, a much more common limit in Europe, where Heineken has much more of its biz.  Much of Eastern Europe is reportedly already .00 BAC.  (This article appeared in different form in our Oct issue of Alcohol Issues INSIGHTS.) 

Heineken has “an obligation and opportunity to promote responsible behavior….  We are the only brewer to show people rejecting our product,” an exec told Ad Age in Sep.  Ad will run in the US next year, HUSA’s sr VP/corporate relations officer Tara Rush Tripp told us.  “We are advocating that when you drive, you should not drink, essentially the same message as ‘don’t drink and drive.’  But the… ‘When You Drive, Never Drink’ campaign is saying it in a new inspirational and creative way that we hope influences and ultimately changes consumer behaviour.”  Heineken supports legal limits everywhere it does biz, but maintains “the best approach is zero alcohol when behind the wheel.”  Does HUSA expect pushback from on-premise retailers, who will likely see message as a threat to their bizzes?  “We’d be surprised if any of our partners would be against advocating for responsibility as it protects the future of our industry,” said Tara.  “We know they are very committed to responsibility efforts as well.”  One alcohol policy vet said Heineken ad is example of how some responsibility responses that may seem appropriate for global players to adopt in Europe just don’t align with the US mkt or habits.  Another example: increased emphasis on low-/no-alc products.  ABI announced goal of 20% of its total volume in such products by 2025.  But no-alcohol beer has never gotten traction in US.  Nor have low-alcohol products.  Indeed, 3.2 beer may disappear here if Okla changes its laws next week. 

MillerCoors sales-to-retailers declined 4% in Q3, just slightly steeper than AB’s -3.8%. But it shipped way ahead of depletions in 3d qtr and so its sales-to-wholesalers down just 0.6%.  STRs down “reflecting industry trends,” said MillerCoors ceo Gavin Hattersley, “but we remain steadfast in our drive to achieve flat volume in 2018 and growth in 2019.”  That over 3-point differential between shipments and depletions in qtr amounts to about 450,000 bbls which MC will have to account for, presumably in 4^th qtr.  For 9 mos, MC shipments down about 1.4%, while depletions down more like 2.4% (MC didn’t give those numbers).   But with 1.6% rev per bbl increase (excluding contract production), slight shipments drop, revs inched ahead. Plus cost of goods sold down almost 1% per bbl and mktg, gen and admin costs flat in qtr, so it had solid financial qtr; oper income up 9.6%. 

Miller Lite Down Mid-Singles, Coors Light Low Singles; Above Premium Down Mid Singles There’s not a lot of good brand news in MC’s latest quarterly report.  Miller Lite down mid-single digits and Coors Light down low single digits in qtr; but both gained share of premium lights, sez MC.  MillerCoors above premium volume down mid-single digits in qtr, even with all incremental Henry’s Hard Soda volume (#1 soda, proclaims MC).  Tenth & Blake down high single digits, as Blue Moon down high singles and Leinie down mid-teens, “partially caused by Summer Shandy demand outselling production a month earlier than planned,” said MC.  Redd’s down high single digits, tho Wicked up low singles.  Meanwhile, MC’s economy brands also down mid-singles, with High Life down low singles, Keystone mid-singles and Mil Best down high singles.  A bit of good news with Coors Banquet up low single digits (10^th yr in a row of growth), but Gen Draft down low double digits. And so MC premium volume declined mid-singles.  

No easier to tease out most pertinent performance measures for Molson Coors now that it owns MillerCoors, given special charges,  currency moves and reported “US GAAP” vs “underlying” performance, etc.  But Q3 softer than yr-to-date in volume, revs and EBITDA and 9-mo trends down slightly for each.  Worldwide volume off 1.4% for 9 mos to 37.2 mil bbls.  Coors Light had soft Q3 globally (-3.3%), but still up 1.2% for 9 mos.  Reported revenues down near 5% for 9 mos, but flattish in constant currency. Underlying EBITDA off slightly to $1.1 bil for 9 mos. 

CEO Mark Hunter focused on: 1) net rev per bbl up in each mkt (constant currency) yr-to-date; 2) brand investments up across the board as well; 3) Coors Light and Miller Lite continue to gain share of premium lights in US with Coors Light scoring “highest segment share gain in 3 years” in Q3; 4) Coors Light up over 14% outside North America yr-to-date.  Mark noted “this is a historic time in the evolution of Molson Coors,” given recent closing of acquisition of SAB’s 58% stake in MC and Miller brands’ intl portfolio.  Adding all of MC creates “bigger better organization” and with “expanded portfolio of iconic brands.”  Molson Coors aims to “leverage our increased scale, resources, synergies and combined commercial experience to accelerate our First Choice agenda and deliver long term shareholder value.”