Fears of a summer price war turned out to be way overblown, but beer industry pricing looks less robust post-Labor Day in some key mkts and perhaps overall. A price hike got postponed in largest mkt, more discounts popped in many mkts, and industry's hottest player took more modest increases than last yr. So pricing looks a little dicier even tho AB went up on draft August 1 in many states and took price increases mid-month (on Sep 12) in some big states, instead of Sep 26.

AB floated fall Calif price hike but earlier this mo abruptly postponed most of it, before it ever went into effect. AB planned near 3% hike on many brands/packages. But AB postponed until Mar 2017 increase on premiums, subpremiums and Mexican import multipacks tho it still took up above premium. MillerCoors already said it would follow. So why the change? Constellation has become de facto price leader in nation's largest beer mkt. And Constellation not going up at all on Corona in CA, going up just 25 cents on Modelo Especial cans, plus there will be some discount reductions. Took bigger hike last yr. When Constellation didn't move much, AB backed off, sources say. In first half 2016, AB shipments down 4.8% in CA; Constellation +8.5%. So part of it probably related to trends too.

Same could be said for MC's reluctance to raise prices much in its midwestern strongholds, Chicago and Milwaukee. MC doing it again this fall (or not doing it). Most of what little action there is on pricing in Chi is discount reduction, sources say. Started Sep 12. AB up Sep 26. While "a little thinner overall" than last yr, 1 source sez, "for the first time in a longtime everyone went up," said another. MC didn't take price hike in WI either, where it's also #1, (it had gone up slightly in Feb). Actually, AB led in northern Wisc this fall. MC lost almost 1 mil bbls (955K) in IL and WI in last 5 yrs alone. That's over 15% of its biz in those 2 states. No wonder it's a little skittish.

But why then is Constellation taking less price this yr? It's hot as a pistol. And it has also priced up in recent yrs. But Constellation somewhat more cautious this time around; ain't just Calif. Distribs in some large mkts tell INSIGHTS that Constellation price hikes more modest this yr. Constellation took bigger hike last yr, source reminds and has often adhered to every other yr moves. STZ still guiding street to 1-2% price hike and expects to hit that target, maybe even upper end of range. Recall, AB also had 1.8% rev per bbl hike in 2d qtr and MC avg prices up 0.7%. Third qtr rev per bbl #s will have lots of moving pieces: earlier draft hikes, price increases in some states, offset by hold in Calif and more discounts in key mkts (buy 2 get one free).

Pricing action got hotter in period surrounding Labor Day. AB avg prices up less than 1% last 4 wks thru Sep 10 in Nielsen all outlet; MC's prices up 1%. Subpremiums appear to be center of action and to a lesser extent FMBs. Avg subpremium prices down 8 cents, 0.5% for 4 wks. Several leading subpremium brands down in avg price, most notably Miller High Life prices down 26 cents, 1.7% and Busch Light prices down 19 cents 1.3%. FMB prices also declined almost 1% for 4 wks, compared to up about 2% YTD. Most notable avg price reductions: Ritas down 19 cents, 0.6%, Steel Reserve Alloy Series down 33 cents about 1.4%.  

Huge swings in fortunes for some big beer cos, amidst one of most volatile and unpredictable mkts ever, serve as stark reminder of how quickly things can change. Last yr, Pabst grew revs over 20% in first full yr of ownership by Eugene Kashper, TSG etc. Pabst propelled by remarkable rise of Not Your Father's Root Beer, which sold over 500,000 bbls. Co seemed completely transformed from its dependence on largely declining subpremiums to a rapidly premiumizing growth platform. That was then, this is now. While Pabst $$ sales were up close to 30% earlier in yr in scan data, Pabst total $$ sales down 22% in 2 weeks surrounding Labor Day as Not Your Father's Root Beer fell 72% in IRI multioutlet+ convenience. A remarkable 50-pt swing in 6 mos. NYFRB $$ now down 41% for 12 weeks thru Sep 4. Total Pabst $$ down 7% for 12 weeks.

Pabst radically revamped in reaction to new conditions. It had boosted employees from 250 to 440 in 18 mos, ceo Eugene Kashper told distribs in Apr. But in early Sep, it suddenly laid off dozens. Tho Pabst painted this as improved organizational structure, it had to greatly disrupt fledgling org that just recently thought it had momentum. Pabst placed huge bet that NYF franchise would become much bigger. Meanwhile, Pabst efforts to buy or form partnerships with some craft brewers also stymied so far. Woodchuck trends down 40% for 4 weeks thru Sep 10, 34% yr-to-date in Nielsen all outlet. Pabst Blue Ribbon down slightly, but softer for 4 and 12 weeks than YTD. So where will Pabst go from here?

What About Boston Beer? Boston revs grew over 20% a yr 2013-14, jumping from $580 mil in 2012 to $903 mil in 2014, riding waves of Angry Orchard, Rebel launch, Twisted Tea and all the rest. Even last yr, Boston depletions up 7% thru 1^st half and still up almost 4% for full yr (tho down slightly in 4^th qtr). That was then this is now. Boston depletions declined 5% in 1st half. And it's gotten even tuffer since then. Its beer brands declined 17.4% for 4 wks thru Sep 10, wrote Goldman Sachs Judy Hong. Cycling hard soda launch #s proved insurmountable obstacle for Boston too. Coney Island Hard Root Beer down 60%+ in latest periods. Angry Orchard down double digits and Sam Adams franchise down 9% for 4 wks. Only Twisted Tea remains healthy. Wall St took increasingly dim view of Boston Beer's prospects: "Beer is Battered But Still Cruisin' for a Bruisin'," wrote Cowen and Co's Vivien Azer as she downgraded Boston in brutal report with subtitles like "Going from Bad to Worse," "Core Sam Facing Weak Craft Trends" and "Hard Soda Hurts, Cider Still Sour." Meanwhile, Boston stock continued to tank. Down about 20% in last mo. Boston stock mkt capitalization well under $2 bil from peak of $4.2 bil.

To be clear, it ain't just Boston and Pabst. They are just two largest and most extreme examples. Total craft segment suddenly facing radically different conditions. Craft volume flat for 2 wks thru Sep 11 this yr in IRI multi-outlet + convenience, compared to up 21% for 2 wks over Labor Day last yr. Eight of top 19 down, 6 down double digits. What a difference a yr makes! Sierra Nevada will have its first down year ever in 2016. Expects 4% drop after biggest growth yr last yr. With such rapid craft evolution and segment getting so much tuffer, many in segment don't know quite what to do next, it seems.  

Everyone keeps sayin' it: they've never seen year like 2016 with such month-to-month fluctuations due to holiday timing, sell days and more. They're wreaking havoc with reported trends. And that beat goes on, latest data points indicate. While imports up steadily all year, domestic taxpaid shipments continue up-and-down trend. Aug was up month: taxpaids gained 521K bbls, 3.3%, estimates Beer Inst economist Michael Uhrich. A good mo, but that offset only half of estimated 1-mil-bbl decline in Jun-Jul. For 8 mos, taxpaids down 428K bbls, 0.4%, Michael figures. With big import gain thru Jul, known yr-to-date US beer shipments up 934K bbls, 0.7%. Cider decline knocks that back to about 0.6% gain. Meanwhile, retail scans suggest limp Labor Day sales. Volume dipped 0.7% for 4 wks thru Sep 10 in Nielsen all outlet + convenience scans. Dollar sales up just 1% for 4 wks. That put yr-to-date volume trend at +0.5%. Broadly, imports still kickin' along just fine in scans, driven by Constellation's double-digit pace. But craft and mainstream softer in recent periods, now joined by flattening FMBs. Then too, you know on-premise weaker than off. New Nielsen data reports for on premise show beer volume -3% for 52 wks thru mid-Jul. Will football, Oktoberfest, holiday season perk up beer biz? Here's hopin'.  

You won't want to miss the 23d annual Beer Insights Seminar, at the Waldorf=Astoria in New York City, with a reception Sunday eve November 13th and a jampacked day Monday November 14th. This is one of our widest-ranging and most power-packed programs ever. Our program includes the top exec at the world's largest brewer, ABI ceo Carlos Brito, plus the top beer execs at the #2 US brewer MillerCoors ceo Gavin Hattersley and #3 US supplier Constellation Brands Beer Division president Paul Hetterich. We will also feature global thought-leader FIFCO ceo Ramón Mendiola Sánchez (FIFCO owns North American Breweries), plus two generations of leaders at independent craft brewer Bell's Brewery, founder Larry Bell and his daughter and vp Laura Bell. Beer Marketer's INSIGHTS president Benj Steinman will provide an industry overview. More speakers will be announced in coming weeks. Seating is limited. Click here for more info. Click here to register.

Interesting contrast between recent mtgs of two key industry assns. Annual mtg of Beer Inst focused mostly on future of beer biz and other forward-looking challenges, from the economy and sustainability to upcoming elections. Meanwhile, NBWA/CAP Alcohol Law and Policy Conference stressed fundamentals of state-based regulation and 3-tier system. It was more of a back-to-school event with lotsa discussion of past legal cases, regulatory basics and alc bev history. Upcoming NBWA convention likely more forward-looking.

Beer Inst economist Michael Uhrich laid out short-term, mid-term and long-term outlooks. Upped forecast slightly for 2016 US volume to range of +0.25 to +0.5%. Then too, Michael "hopeful" about 2017, tho not specific. As for medium-term, lower gas prices expected to continue for yrs and better beer trends do correlate with gas price drops, Michael showed. Longer-term, key demographic trends: Hispanics' and retirees' will increase their share of drinking age population, by 6 and 8 points respectively over next 20 yrs. But older consumers tend to drink less beer, Michael reminded. That change, together with millennials' and other generations' broader alc bev portfolios, we can expect "more styles, more wine and more liquor." At same time, beer's high end will continue to expand and gain share of beer, mostly from economy segment, these demographic changes imply.

Online Sales, New Occasions Comin' While big, structural changes in beer biz tend to be slow, Michael pointed out, consumers may be hastening pace a bit. Nick Rellas, ceo of home delivery pioneer Drizly, stressed on separate panel that today's consumers buy everything else online. Alc bevs will not be exception to that. More and more online sales comin', just a matter of how big biz will be, how fast it will develop and what it will look like. AB-Constellation distrib Mark Doll made same point during earlier panel. His daughter orders groceries online, he said, never goes in store. She and many other consumers don't even "see the displays," distribs work so hard to build. Beer biz has got to adapt to that consumer, Mark insisted. On same panel, Mike Barnes from Andrews Dist made similar point that distribs have to "embrace" and find ways to adapt to new "occasions" and oppys to drive consumers to their brands. One example: growing growler sales, which blur distinction between on-premise and off-premise occasion, noted Mike. On panel with Nick, IRI's Dan Wandel repeated recent warning that beer biz may be getting too reliant on innovation to build sales; new brands almost half of growth this yr in IRI. New brands add volume/ $$, for sure. But they're also showing "shorter life-cycles." More emphasis on quality of innovation vs quantity may be in order.

BI mtg's forward-looking themes included some optimism about prospects of alc bev tax reform bill that cuts fed alc bev excise taxes across the broad. BI prexy Jim McGreevy said bill "very close to passing but we can't stop [efforts] until it does." May be oppy to attach tax bill, which now has majority support in House, near majority in Senate, to yr-end budget/continuing resolution legislation, or tax extenders. Beer also has good stories to tell on increasingly important "sustainability" and environmental issues, regarding use of water, spent grains, recycling and more, several speakers noted.

CAP Speakers Stress Education, Bases for Regulation Key theme at NBWA-sponsored CAP mtg a wk before Beer Inst: importance of educating lawmakers, policymakers, judges and public about original reasons for alc bev regulation. They include orderly markets, public health concerns, separation of tiers to avoid tied house, etc. Former chief counsel for TTB, Robert Tobiassen explained that TTB lost several key trade practice cases due to lack of info provided to court, miscommunication between regulators and industry and lack of understanding about alc bev laws' background. Similar expertise/background needed on 21st Amendment, antitrust and more, atty and distrib advocate Mike Madigan advised. As more cases comin', industry experts will need to explain why, for example, restrictions on distribs and producers providing ads in stores is economic regulation not regulation of speech (see Retail Digital case in CA). Similarly, as retailers and other industry members pursue new biz models, policy experts need to clarify lawmakers' original goals/ intents and balance fed competition concerns with states' rights to regulate. Mike and other attys made same point: individual state laws easy to pick apart as outdated/irrational, but laws work together as effective system, as atty Keith Strama of Wholesale Beer Distribs of Tex said. Tex now battling barrage of suits that challenge its 3-tier laws.

Consignment Sales as "Low-Hanging Fruit" Current funding bills give TTB extra $5 mil for trade practice investigation/enforcement, Robert Tobiassen pointed out. Recall, TTB got offers in compromise from AB and MC in last 12 mos over consignment sale arrangements. And TTB looking at arrangements between suppliers and distribs in this area. Consignment sales are "low hanging fruit" for regulators since they don't need to show exclusion (of competitor's product) and "easiest case to make" in trade practice world. Elsewhere, Virginia ABC recently added enforcement staff and "engaging and refocusing" on trade practice issues, VA ABC's Shawn Walker said. VA held trade summit bringing together members from each tier and assn, outside experts and more. Goal was not to brand laws as "terrible" or "gather intelligence" from players. Rather, ABC aimed to "get issues out into the open," encourage voluntary compliance, develop guidance materials and solidify ground rules.  

MC's improved depletions trend in 1st half and share gains in biggest segment, premium light, support optimism that MC on better track. Still, MC faces 2 big obstacles to oft-stated goal of getting to even (volume) in 2018, growth in 2019. First is overall sluggishness of total beer. With tiny industry gain in 2015, expected 0.25-0.5% growth this yr, and per capita consumption down 10% over the last decade, there just ain't much wealth to share among over 4500 competitors. Second is AB's near 20-pt share lead. And those 20 pts spread across almost all key segments. Start with high end and look at scans thru Aug 7 from IRI's multi-channel + convenience, a good gauge of off-premise biz. AB's not a huge import player. Indeed, its top handful of brands have just 6 share of import biz YTD in IRI, selling about 7.5 mil cases in these channels. But MC sold just 2.8 mil cases with its top imports, only 2.2 share. And that's only if you include, as IRI still does, Fosters as an import. Without Fosters and Molson brands now produced in US, MC barely a player in one of beer's healthiest and largest segments. And MC has no entry in Mexican beers, fully 2/3 of import biz and the segment growth-driver.

MC has stronger position in craft, if you include Blue Moon and Leinie's, as IRI does. In fact, top dozen MC craft brands sold over 10 mil cases YTD and had 16 share of IRI craft, vs 4.3 mil cases for AB's top brands, about 7 share. But MC's craft biz (these brands) down in IRI. AB's up slightly, even with ailing Shock Top family. And AB has growing Goose, Elysian, 10 Barrel and other acquired brands. MC just getting serious with craft M&A. In superpremium, no contest. AB's top superpremiums ? Michelob Ultra, Bud Light Lime, Bud Light Platinum and Bud Light Chelada ? dwarf MC's tiny Killian's, Fortune biz: 47.1 mil cases to just 600K in YTD IRI. So AB commands almost 90 share of superpremium. Even if you flipped Shocktop, Blue Moon and Leinie into superpremium (as BMI does) AB has over 70 share of IRI superpremiums. In volatile FMB biz (still just 4.5 share of volume in off-premise, barely registers on-premise) MC has modest share lead. Its top dozen brands have just over 21 share yr-to-date in IRI, 3 points ahead of AB's top brands. But as we reported two issues back, FMBs remain a world of churn. Indeed, lead player in FMBs in recent yrs has passed from DBCUSA to Mike's to AB to MC and now neck-and-neck. In tiny cider mkt, AB has gainer in Stella Cidre; MC's entries hurtin' tho still higher share.

In big-scale but soft premium/subpremium segments, AB has massive lead in premium regular, even with Bud still down. Bud sold near 62 mil cases YTD in IRI MULC, Bud Select another 2.4 mil cases. MC has perennial gainer with Coors Banquet, but that's still offset by Genuine Draft losses. Those 2 brands sold 10 mil cases, just 15% of AB's lead brands. MC's punching hard and gaining share in premium lights. Bud Light about 57 share of top 3 lights combined; Coors Light and Miller Lite combine for 43 share in IRI. Importantly, MC brands up 121K cases while Bud Light lost 3.7 mil cases yr-to-date. That's a huge battle playin' out day by day. Gotta figure too some of Bud Light loss goin' to Michelob Ultra and in some (many?) mkts Ultra on promo at Bud Light prices.

Finally, AB's share advantage in subpremiums may be MC's biggest challenge of all. AB's top subpremiums have close to 60 share of category in IRI. That includes 3 brands over 20 mil cases each (Natty Light at 40 mil, Busch Light at 34 mil and Busch at 23 mil, 97 mil cases between 'em). Top 8 AB subpremium brands shipped nearly 130 mil cases YTD in IRI. And it has gainers: Busch Light, Bud Ice, Busch Ice and Natty Daddy. In contrast, MC's top 8 subpremium brands totaled 56.2 mil cases, only 2 brands over 10 mil cases (Key Light and High Life, each just under 17 mil cases). And all but one big MC brand down YTD. MC promised economy strategy this fall, but difficult for MC to take share in this largely price-driven segment with AB's higher share, better trends and overall segment eroding.

Narrower Share Gap On-Premise A quick look at most recent GuestMetrics data shows that AB-MC share gap nowhere near as wide on-premise. GM currently pegs AB on-premise share at 24.2 vs MC's 17.3. In IRI, it's AB at 49.7 vs MC's 26.2. Given this competitive structure, lack of industry growth and segment by segment gaps, MC's moving volume growth goal posts down the field a ways makes sense. But it's still a challenge.  

If it weren't competing against ABI, Molson Coors would seem like a really large co. Molson Coors will increase revs by $4.4 bil, almost 2/3 from $6.8 bil to $11.2 bil after buying rest of MC for $12 bil, ceo Mark Hunter showed in Sep 7 presentation to Barclay's Back-to-School conference. At same time, underlying EBITDA will jump by $1 bil, 77% to $2.3 bil. And that's before it captures $200 mil in synergies over next 4 yrs and another $250 mil in annualized tax savings. Meanwhile, TAP will go from selling 58 million hectoliters to 94 mil hectoliters (about 80 mil bbls).

Even before this deal done, Molson Coors has delivered total shareholder return of 170% in last 5 yrs, Mark showed (stock jumped in part anticipating deal). Its stock mkt capitalization is about $22 bil today. Several financial analysts think stock still has plenty o' room to run (Stifel and Susquehanna have target prices over 25% higher than today). Molson Coors also has strong track record of exceeding cost savings targets and paying down debt, it showed. Paid off over $1.5 bil in debt last several yrs alone and traditionally kept low debt levels. Its net debt to EBITDA went down below 2x last yr. But with deal to buy rest of MillerCoors, Molson Coors debt to EBITDA ratio will climb to historic high of 5.3x, new cfo Mauricio Restrepo showed at Barclay's Back-to-School (Mauricio replaced MC ceo Gavin Hattersley earlier this yr). Molson Coors will have $12.5 bil in debt, he said. Yet interest costs will be some $200 mil per yr less than anticipated in May, before $7 bil debt offering. So Molson Coors raised earnings per share targets.

Going forward, to a very significant extent, Molson Coors is MillerCoors. Recall, over 70% of Molson Coors earnings will be MC. So Molson Coors will control way MC runs, now that ownership ain't split. Don't know what changes that portends, but likely to be meaningful. Big as it will be, revs will be about 1/5^th the size of ABI's and its profits 1/10^th. Meanwhile, TAP goes head-to-head with BUD in each of its top 2 profit mkts, US and Canada, that comprise 85-90% of its profit.  

 AB InBev will easily become the most profitable CPG co in the world, following completion of its deal to buy SABMiller in Oct, it showed again in Aug 30 presentation. It will widen lead as world's largest brewer and account for about half the profit brewers make globally (as some have estimated). If you're in the beer biz, you simply gotta get your arms around just how huge this company will become. Even after selling off big chunks of biz, on a pro-forma basis, ABI-SAB combo would have had $55 billion in revs, and a whopping $21 bil EBITDA (based on ABI calendar 2015 + SABMiller thru Mar 2016). With M&A in their DNA, expect more deals, maybe lots of 'em.

In deck for investors, ABI uses its closest CPG competitors for comparison purposes: P&G revs at $69 bil and EBITDA at $18 bil in 2015, Nestle $92 bil in revs, $17 bil in EBITDA, Coca Cola $48 bil in revs, $12 bil in EBITDA. Note how much larger ABI-SAB's EBITDA margin will be than other top CPG cos: ABI-SAB at 38% compared to P&G at 26%, Nestle at 18% and Coke at 27%. SABMiller deal is one of largest corporate takeovers of all time at over $105 bil. But after ABI sells off over $20 bil in assets, it gains "only" about $4 bil, 22% in EBITDA from deal and will get an additional $1.4 bil down road in synergistic savings. Compare to AB deal: InBev paid $52 mil for well over $3 bil in EBITDA and over $2 bil in savings. Don't forget ABI also hadda pay almost $2 bil in advisory fees on SABMiller deal and lost $9 bil so far on currency hedge. So current deal lots more costly going in and on surface AB deal seems more value-creating. But with African biz and enhanced position in Latin America, ABI will become dominant global brewer. When AmBev did deal to merge with Interbrew a dozen years ago, combined revs were $11.9 bil and EBITDA around $3 bil. That's a helluva long way to travel in 12 short years.

Yet ABI's appetite for M&A clearly undiminished. Every time you turn around there's another ABI deal somewhere. Heck, there were 3 deals in news last week. First, DoJ finally greenlighted AB acquisition of Devils Backbone on Sep 6. Five months after it was announced. DoJ expressed several caveats and watch outs. But AB's 8^th US craft deal in 5 yrs got approved. Two days later, deal announced for ABI to buy traditional Belgian brewer Bosteels, estimated price at around $225 mil, per the Street. Day after that, AB announced purchase of SpikedSeltzer, pioneering hard seltzer co. Globally, ABI has bought numerous other craft brewers in last 12 mos, including Birra del Borgo in Italy, Camden Town in UK, Bogota in Colombia and Cevejaria Colorado in Brazil. Meanwhile, ABI's "disruptive" private equity subsidiary Z^x Ventures bought stakes in a kombucha co and a tea co, perhaps others. AB also did deal with Starbucks on Teavana. Undoubtedly, more line-blurring deals on horizon. Following SABMiller deal, ABI's debt to EBITDA ratio will only be about 4x, far less than when InBev bought AB. So ABI likely to pay down debt quickly and be loaded for bear again within a few yrs. Don't forget if ABI reaches $100 bil in revs by 2020, many execs get big bonuses, it revealed in annual report.

ABI broke down $1.4 bil in synergies from SABMiller deal over next 4 yrs: 30% from "Corporate HQ/Overlapping Regional HQs." So about 30% of savings from headcount reductions and office closings that will amount to about 5500 people, about 3% of global workforce over a 3-yr period, ABI revealed separately. To get those annual synergies, ABI will incur one-time costs of $900 mil, it said. ABI also anticipates another 25% of savings from "procurement & engineering," 25% from "brewery and distribution efficiencies" and 20% from "best practice sharing." But importantly, "no significant net savings are expected in consumer and customer facing sales & marketing investments." So it will keep mkt pressure on, notably here in US, where it's spending hundreds of millions in incremental mktg and sales $$ in effort to stabilize share.

Advent of ABI and MillerCoors in 2008 utterly transformed the US and even the global brewing industry. Now next wave of change almost upon us with ABI-SABMiller deal expected to be consummated next month as well as Molson Coors taking 100% control of MillerCoors. Each of ABI and Molson Coors just recently gave updated info and peeks into what their revamped cos will look like and some moves they will make.  

 You won't want to miss the 23d annual Beer Insights Seminar, at the Waldorf=Astoria in New York City, with a reception Sunday eve November 13th and a jampacked day Monday November 14th. This is one of our widest-ranging and most power-packed programs ever. Our program includes, the top exec at the world's largest brewer, ABI ceo Carlos Brito, plus the top beer execs at the #2 US brewer MillerCoors ceo Gavin Hattersley and #3 US supplier Constellation Brands Beer Division president Paul Hetterich. We will also feature global thought-leader FIFCO ceo Ramón Mendiola Sánchez (FIFCO owns North American Breweries), plus two generations of leaders at independent craft brewer Bell's Brewery, founder Larry Bell and his daughter and vp Laura Bell. Beer Marketer's INSIGHTS president Benj Steinman will provide an industry overview. More speakers will be announced in coming weeks. Seating is limited. Click here for more info. Click here to register.