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But Brewers Assn prexy Bob Pease put Brito's "choice" comment in different context: his long-running insistence that AB InBev is out to stifle choice via craft buys, distrib relations, branches and "crafty" brands like Shock Top (down 20%+ in most recent scans). In BA website post Bob charged: "Big Beer Doesn't Think Choice Matters. They're Wrong." Bob abbreviated Brito's quote to "consumers are a bit tired of choice" (which is quite different from "so much choice"). But consumers still want choice, Bob wrote, especially the 60K who just showed up for GABF. His point: Brito's comment is "a hypothesis being willed into existence for the greater good of one brewery." In Bob's view, ABI remains hell bent on using its "marketing muscle" to push independent craft from store shelves and bar taps. But those shelves and taps "belong" to retailers and consumers and "if one mega company tries to manufacture or force demand, consumers will rebel."
Well, consumers already rebelled. As for the headline above, we dug up an old NY Times column by language-lover William Safire, from way back in 1988. He looked into origins of the phrase "you pays yer money and you takes yer choice" and came up with several different meanings. Originally, the phrase meant "the right of choice is to the buyer." Yet a communications prof suggested phrase now used "not so much as an invitation to choice as it is a rejoinder to complaint. It seems to be similar in intent to 'you made your bed, now lie in it.'" Lastly, Safire suggests a third meaning: "Beats the hell out of me." Each of these meanings resonates, tho differently, in the craft "choice" debate. Consumers make choices, every day, how to spend their beer dollars, deciding between many thousands of brands from thousands of brewers. To the extent consumers "start going for fewer brands" helps established brewers, chat about it may be self-serving. But ABI, MC, Boston and many other brewers are still adding to that choice. Every day. NBWA reports craft brewers partnering with distribs in new territories. Every day (almost). That choice undoubtedly causes some confusion. Craft brewers made that bed. Not surprisingly, ABI and MC jumped into it. Why wouldn't they? How will all of this "shake out" and what decisions will retailers and consumers make about the extent of choice they offer and demand? Beats the hell out of us. And by the way, Brito also said that his comments about consumers/retailers "all speculation on our side. It's too early to call." Indeed.
In addition to upped synergy/savings targets, MC booked strong 9% increase in operating profit in Q3. And for 9 mos operating profit up about 7% to $1.2 bil. That's before special charges, mostly for closing Eden, which were much lower in Q3 this yr than Q3 last yr, but higher this yr for yr-to-date period. MC also reduced cost of goods sold/bbl this yr. Mktg, gen and admin expenses up modestly for 9 mos, flat in Q3. Interesting difference between AB and MC: AB much more aggressive in upping MGA spend in US than MC in recent yrs, but not that much more successful in moving volume needle.
Along with 4% STR decline in Q3, which Gavin said was "reflective of the industry," not-so-hot individual brand trends in Q3 caught analysts' attention and likely prompted question about "what if" MC doesn't hit volume goals. Above premium STRs down mid singles, with Tenth and Blake and Redd's down high singles. Lite down mid singles; Coors Light down low singles. Premium regular down mid singles, despite Banquet gain. Below premium down mid singles. MC has bright spots in hard soda, Banquet, acquired craft brands, Icehouse and Steel Alloy series. But stubborn low-mid singles dropoffs in big chunks of MC portfolio persist. MC does have programs, plans in place, as detailed by Gavin, David Kroll and others at NBWA. And right now, MC's 12-mo shipments trend a full point better than 2015 calendar trend. Then again, shipments ahead of depletions by about 450K bbls. How that gap closes in Q4 determines just how much progress MC makes this yr.
Recall, Bud Light Party work was hailed as "revolutionary" by top ABI execs. But it didn't move needle. And so campaign ended several weeks early. This was debut work of Weiden & Kennedy, AB's 4th Bud Light agency in 4 yrs. Weiden & Kennedy is renowned agency for Nike and other longterm clients. But Bud Light Party didn't work and so it's back to drawing board. Last week, just before results, AB debuted new W&K's Bud Light work for 2017 with its wholesaler panel and they said they were impressed. Stay tuned.
Bud Light Down Mid-Singles; AB's 9th Craft Acquisition Karbach in Tex Indeed, Bud Light down mid-singles in Q3, as was Bud. Just after Q3 results, AB changed mktg veeps again (see below). Part of soft Q3 was simply industry softness. But AB still losing share even if it's got several high-end horses that continue motoring along: Michelob Ultra up 20%+ for 9 mos, Stella up double digits as are Goose Island and other acquired craft brands. AB just bought its 9th US craft brewer, Karbach. In just 5 yrs, Karbach grew to 80,000 bbls, all in Tex, AB's largest mkt. AB lost 300,000 bbls, 3% and 3 share in Tex last 5 yrs. But it's still at 52.3 share. All Others (craft plus others below top 5) jumped 400,000 bbls and gained 2 share to 7 same period. All AB's acquired crafts will be well over 1 mil bbls in 2016. And AB acquired crafts are growing 35% in IRI multi-outlet + convenience yr-to-date thru Oct 2. But double-digit drop in Shock Top offsets almost all those gains. AB's total above premium portfolio up just low singles in Q3 "and mid-single digits year-to-date," reported ABI, including FMB declines.
Growth in US earnings will come in especially handy for ABI in 2016 (if sustained). Earnings in its 2d most profitable mkt, Brazil, under severe pressure. Down 33% in 3d qtr. That was focus of many analyst reports. "Battered by Brazil," headlined CLSA's Caroline Levy. Globally, ABI "own beer volumes" down 0.2% in Q3, while Heineken up 2%. ABI "own beer volumes" down 0.7% for 9 mos, but "normalized" EBITDA up 1.5% to $11.5 bil.
After scoring small gain in Q2, AB shipments off 650K bbls 2.5% in Q3. And AB posted its worst STR trend in 3 yrs, -3.8% in Q3. For 9 mos, AB shipments -800K bbls, -1.1%, STRs down 1.9%. Its 12-mo shipments trend, -1.5%, not much better than 2015 loss of -1.9%. Depending on Q4 trends and totals, AB on track to lose another half-share or more of shipments again this yr. MC shipments trend improved in Q3 following tuff 4.4% shipments hit in Q2. But its depletions down 4% in Q3 and shipments about 450K bbls or so ahead of depletions for 9 mos. MC shipments down 600K bbls, 1.4% Jan-Sep. That's slight improvement vs 12-mo trend (-1.7%), and about a point better than MC's calendar 2015 trend. But MC STRs down 2.5% YTD. At current pace, MC on track to lose 0.5 share, to under 25.
Constellation's gain continues to stand out. It's sporting the only plus signs in entire table below among major suppliers for any of these 3 periods. We haven't seen anything like that for this group of players. Ever. Is STZ "sucking the oxygen" from industry room? Constellation up 15% plus for Q3, 9 mos and 12 mos, we estimate. That's boosted by incremental Ballast Point volume, for sure. But core biz rockin' it too. For 12 mos, Constellation up estimated 2.4 mil bbls. AB and MC combined down 2.4 mil bbls. And that's an improvement for AB and MC.
Doesn't leave much gain for anyone else, and that shows in the numbers. Heineken shipments off slightly for each of these 3 periods following tiny gain in 2015, we estimate. Pabst took a 13% hit in Q3. With tuff NYFRB comps, it went negative for 9 and 12 mos.
| Shipments (000) | Chg | Shipments (000) | Chg | Bbls (000) | Chg | |||||
| Q3 16 | Q3 15 | bbls | % | 9Mos 16 | 9Mos 15 | bbls | % | 12 Mos 16 | % | |
| AB | 25,125 | 25,775 | -650 | -2.5 | 71,535 | 72,325 | -790 | -1.1 | 93,410 | -1.5 |
| MillerCoors | 14,025 | 14,105 | -80 | -0.6 | 41,285 | 41,880 | -595 | -1.4 | 53,605 | -1.7 |
| Constellation | 5,075 | 4,410 | 665 | 15.1 | 14,425 | 12,420 | 2,005 | 16.1 | 17,980 | 15.3 |
| HUSA | 2,300 | 2,330 | -30 | -1.3 | 6,545 | 6,615 | -70 | -1.1 | 8,405 | -0.7 |
| Pabst | 1,360 | 1,570 | -210 | -13.4 | 4,030 | 4,160 | -130 | -3.1 | 5,385 | -0.5 |
| Boston | 1,125 | 1,278 | -153 | -12.0 | 3,030 | 3,283 | -253 | -7.7 | 3,988 | -6.5 |
| Others | 8,104 | 8,074 | 30 | 0.4 | 26,085 | 25,610 | 475 | 1.9 | 33,834 | 4.9 |
| Total | 57,114 | 57,542 | -428 | -0.7 | 166,935 | 166,293 | 642 | 0.4 | 216,607 | 0.6 |
| (Taxfree) | 1,685 | 1,785 | -100 | -5.6 | 4,745 | 4,696 | 49 | 1.0 | 6,349 | 5.3 |
| US Total | 55,429 | 55,757 | -328 | -0.6 | 162,190 | 161,597 | 593 | 0.4 | 210,258 | 0.4 |
| All figures are BMI estimates of shipments, subject to revision. | ||||||||||
Boston's trends are tuffest of all top suppliers. It's also down double-digits in Q3, minus 7-8% for 9/12 mos. Softening sequence for "Others" reflects in part craft slowdown. Yuengling improved; off just 0.4% in Q3, knocking a point off yr-to-date dropoff. Down 2% Jan-Sep. NAB said its fiscal yr thru Sep was up slightly. Diageo malt bev trends improved this yr too and Mike's runnin' up near 10%. So suppliers #7-10 all outperforming industry right now. Put all this together and suggests shipments slightly Boston's trends are tuffest of all top suppliers. It's also down double-digits in Q3, minus 7-8% for 9/12 mos. Softening sequence for "Others" reflects in part craft slowdown. Yuengling improved; off just 0.4% in Q3, knocking a point off yr-to-date dropoff. Down 2% Jan-Sep. NAB said its fiscal yr thru Sep was up slightly. Diageo malt bev trends improved this yr too and Mike's runnin' up near 10%. So suppliers #7-10 all outperforming industry right now. Put all this together and suggests shipments slightly understated yr-to-date. TTB still likely missing and/or behind in recording growing taproom biz and long tail of craft.
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World's biggest retailer and world's biggest online retailer going toe-to-toe on each other's turf. Potential for beer biz disruption is huge. Sure there are lotsa legal barriers and online alcohol sales in infancy. But both Wal-Mart and Amazon have history of pounding suppliers on price and disrupting/destroying middlemen. Is fate of 3-tier system in balance? We've heard that before (direct shipping, Costco, etc). Yet system proved remarkably resilient. But what's happening with "retail rights" these days, from the tiniest taproom to ABI (which just bought largest homebrew supplier with big online component, also has many retail outlets) plus Wal-Mart and Amazon, do give cause for concern.
Speaking of retail disruptions with 3-tier implications, legal/legislative battles brewin' in 3 states promise more. They echo direct shipping struggles that ended up at US Sup Ct and Granholm decision which ruled state laws could not discriminate vs out-of- state producers. Distrib advocates argue Granholm restricted to producers, that states could legally discriminate vs out-of-state bizzes in other tiers. Retailers disagree. Lawsuits in IL and MO test if states can bar out-of-state retailers from shipping across state lines, notes Wine Spectator. Elsewhere, proposed MI bill allows in-state retailers to ship to consumers but not out-of-staters. Bill, supported by Mich Beer and Wine Wholesalers, prompted letter from same attys representing retailers in MO and IL (and who won Granholm) to MI Senate stating they'd won suits in MI twice before and suggested a 3d on the way. So retailer reps clearly hope to return to Sup Ct to expand Granholm.
After growth ("green") in 1st half, Heineken franchise slipped ever so slightly into "red" thru 9 mos, HUSA prexy Ronald den Elzen said, opening HUSA's Natl sales conference. Depletions just below zero, down .003%. Tho there are reasons (going against load in #s from NY price hike last Sep, recent Heineken Light trends), "I don't want to win with excuses," said Ronald. "Sorry to say, it's just not good enough," Ronald pointed out bluntly to distribs, adding: "We need your help." (This was first of many such exhortations from HUSA execs at meeting.) Heineken is "our most iconic brand" with "the name on the door," Ronald said, emphasizing: "We are healthy, have momentum, and we will make it happen." While this was "not the opening you expected" nor the one Ronald wanted to give, he gave it because of his "fantastic belief" and because he's "so confident" Heineken franchise will end the year in green. Its core Heineken Lager brand already up.
Indeed, brand Heineken up 1% in Nielsen, said Ronald, while Dos franchise up 3% (with Lager up 6% YTD) and Tecate franchise up 6%, including Tecate Light up 30%. Strongbow up double digits, 30 points ahead of cider trend. Those are HUSA's 4 priority brands, all performing better than category. But its Mexican brands up mid-to-high single digits, and again, "we need to do better," since larger competitor up double digits. "We should outgrow" Mexican import segment "and we can." HUSA also updated trends in key chain customers: WalMart, Kroger and 7-11. HUSA up 5% in Wal-Mart; Heineken franchise up 7% there. But it's down 3% in Kroger's (up outside of Calif), tho Dos Equis up 7%. And up 1% in 7-11, including 2% gain on Heineken. HUSA's core 4 up 6% in Buffalo Wild Wings.
Looking ahead, Ronald sees a total US mkt that is "volatile" but with "underlying strength" in population growth and employment trends. "Glass is half full" and total beer mkt should grow about half a % next yr even tho the mainstream segments of premium and economy will decline, estimated Ronald. But craft has "come to a standstill," said Ronald, and so "put it at flat. I think that's optimistic. There will be many losers. And a few winners." Lagunitas is "biggest winner" this yr. Consumers are turning "back to imports." Ronald expects another yr of 10% growth in Mexican imports, 3% growth in Euro imports and 7% growth in "flavored" including cider. HUSA is "ideally positioned to play against the growing segments" with its Mexican and European imports and cider.
Big Mktg With Sports/Celebrities; New MIM; New "Route to Market" Sales Model Even tho HUSA a 4 share player in US, it plays in big leagues in marketing. Several HUSA campaigns feature celebrities and 3 of its 4 priority brands have their own distinct sport focus: Heineken-soccer; Dos Equis-college football; Tecate-boxing. HUSA continues with Benicio Del Toro campaign for flagship Heineken, with new holiday ad that focuses on Heineken heritage as family biz. Global Heineken recently signed huge deal with Formula 1 racing, partnering with racing legend Sir Jackie Stewart in responsibility ad. Neil Patrick Harris continues with Heineken Light. Co blamed recent softness for HPL on not being on air enuf. Next yr, HUSA will be on air for double the number of weeks. Tecate franchise will continue with boxing champ, Canelo Alvarez and add to celeb roster. Tecate Light will provide 2 mil cases of incremental volume this yr and become 40% of franchise. It is "our future" and "will become the growth engine," said Tecate veep Felix Palau. Tecate Light will expand nationally, at "right pace in a focused way."
Most Interesting Man "reboot is complete" and "brought a ton of momentum back to the brand," said veep Andrew Katz. New MIM ad "outperforms" other beer ads "on every single metric," he said. Dos Equis cans are up 30%. New Strongbow campaign emphasizes "natural colors and flavors." HUSA pitched this as competitive advantage compared to hard sodas/FMBs. HUSA also investing heavily in new "route to market," sales team model, noted chief sales officer Ray Faust. Added more folks in Fla in May; trends improved 2% overall and 4% in focus accounts in 1st 120 days. Program rolling out to other major metros by yrend. Other "top priority" will be on-premise. "We will reprioritize the on-premise" with "more focus, more feet on the street and more investment," added Ray.
After averaging a -0.8% dropoff for each of 5 previous 4-week periods, starting with 4-wks thru Sep 10, off-premise volume down just 0.1% for 4 wks thru Oct 8 in Nielsen multi-outlet + convenience scans. That pushed yr-to-date trend back to +0.6%. Hadn't been that high since before Labor Day. Net-net: Sep stank. Recent improvement nuthin' to shout about, especially since new Nielsen on-premise data tracking down about 3% thru mid-Aug. But throw in taproom biz and looks like beer volume still up slightly thru 9 mos of 2016. Meanwhile, latest yr-to-date figures (thru Aug) show shipments up about a half %.
Back to latest scans. For 4 wks thru Oct 8, imports and superpremiums stayed strong (+8%) and craft steadied. After 5 straight periods of being flat or down slightly, craft volume +2.4% in latest period. That's still just a shadow of its growth pace in these channels not so long ago. But hard sodas lookin' less bubbly. All in, FMB volume -1.2% for 4 wks, tho still up 7% yr-to-date. NYFRB down 2/3 from same 4-wk period last yr. Henry's hangin' in at 0.2 share, Best Damn at 0.1. But Redd's (base) and Ritas each down double-digits. Mike's still rockin' it; +10% for 4 wks, +8% YTD.
Premium biz softer for 4 wks than YTD: -2.5% vs -2%. But a few green shoots in economy segment. Volume -2% for 4 wks, only slightly better than YTD (-2.3%). But 5 of top 10 economy brands up in most recent period: Busch Lt, Busch, High Life, Bud Ice and Icehouse. Every top-10 economy brand except PBR and Keystone Light up or had better 4-wk trend than YTD. Could it be pricing? Avg economy brand saw 7-cent price decline for 4 wks; Busch Lt pricing off near 20 cents/case, Busch pricing off near 30 cents/case, Key Light down a dime and High Life down a penny. Premium prices up about 30 cents/case same period. Above premium share gain slowed slightly, +1.6 of volume for 4 wks vs +1.8 YTD; share gain of $$ was +1.8 vs +2.3. Constellation got full point of 4-wk above premium volume share gain, got 1.5 of $$ share gain. With Michelob Ultra pickin' up 0.6-0.7 share, lotsa churn elsewhere. That includes craft. Segment up 0.2-0.4 share of volume/$$ depending on period, but again, tail lookin' much stronger than almost all top players/big brands.
Comparing 4 wk vs YTD trends, AB, MC and Pabst each slightly softer for most recent period. Constellation steady Eddy at +15% (volume) +18% ($$) both periods. Boston dropoff pace doubled to -6% in most recent period. But Heineken USA, Mike's and Diageo each up and improved trend and NAB reduced dropoff pace to 0.9% for 4 wks vs -3.3% YTD. Yuengling up solid 6% in recent scans, but it's gettin' hurt on-premise, we understand, where it has much higher share of its biz than bigger brewers.