While industry attention mostly focused on biz, trade practices and ABI-SAB, assn leaders remind that critics remain focused on attacking alc bevs and advocating for higher taxes/heavy restrictions on sales/mktg. At NBWA Legislative conference, Bill Earle, who heads importers' assn, warned about "continued vilification of alcohol at the international level." What's he talkin' about? In addition to points we made last issue about new "skepticism" concerning health benefits of moderation, here are a few more examples.

Tons of research establish moderate drinking as heart-healthy, but critics focus on higher risks of several cancers among drinkers. That's basis of UK's new guidance, British chief medical officer's tuff stance and "health campaigners" who recently called for public info campaigns "to raise the awareness of the danger," The Guardian reports. "The South Korean government is encouraging its people to stop drinking alcohol to avoid cancer," reported South Korean news site JKNUS. While current guidelines suggest limiting consumption to 2 drinks/day, "the new ones will encourage not drinking at all." In Germany, where beer consumption has fallen to a 25-year low, "the German Health Ministry announced plans... for mandatory warning labels on alcohol, similar to those used on cigarette packages," reports The Local. Among suggested statements: "drinking can be deadly" and "drinking can be ugly." Following peers in Scotland and elsewhere, Australian public health advocates seek minimum retail price, together with across-the-board tax hikes since "there is now an overwhelming consensus from leading Australian and international health authorities and researchers that alcohol taxation is one of the most effective policy interventions to reduce problems related to alcohol," according to Med Jnl of Australia.

"Finland recently issued a statutory ban on digital marketing of alcohol products and other countries (e.g. Norway, France, Thailand) have banned marketing on traditional media," wrote Thomas Babor, editor of prestigious Journal of Studies on Alcohol and Drugs in Jan. Babor sharply criticized industry self-regulation efforts, singled out AB InBev (without actually naming it) as a "consistent violator of industry self-regulation guidelines" and called for systematic monitoring of "long neglected 'elephant in the room,'" (industry). His advice: "a total ban on alcohol marketing would be the preferred option, ideally supported by an International Framework Convention on Alcohol Marketing." Ain't just international vilification. Recall too, public health advocates met in DC Apr 6-8 to call for broad tax hikes, availability restrictions and talked lots about cancer links too. 

Retail sales of beer hit $111 bil+ last yr, +2.1%, estimates Beer Inst economist Michael Uhrich. That's up 11.3% over last 5 yrs, even as volume about 1% lower. Gotta note BI volume and $$ total a bit shy of actual consumer sales. BI, like govt, has difficulty tracking taproom, other on-site craft brewer sales. And that biz booming. Indeed, table below shows "other on premise" $$ up just 0.1% last 5 yrs. (Volume data shows a decline in this channel.) Actual trends and totals much better than that. Still, table provides interesting picture of mainstream beer biz and what's happened there.

Channel shares changed remarkably little since 2010, tho they do reflect recent on-premise softness. On-premise lost about a point and a half to 17.2 share of volume and $$ held up at just below 52, down 2.5 share. That's even while on-premise volume dipped 8%, and on-premise $$ growth lagged at half the growth rate of overall $$. Hit hardest, and beer folk know this: bar/tavern trade. Volume fell over 2 mil bbls, 13% in bars/taverns last 5 yrs. Dollars dipped $370 mil, 2%. That matches with other BI data that shows AB and Miller draft biz down significantly same period. Restaurant volume slipped just 4%, held on to near 7 share overall. And restaurant $$ up 7%. Despite softness, combined bar/tavern/restaurant biz still fully 39 share of all beer retail $$. Concessionaire biz up since 2010; recreation sites (i.e. golf courses) took volume hit, but $$ healthy.

In contrast to bars/restaurants, major off-premise channels all up double-digits in $$, tho mixed in volume. C-stores remain #1 off-premise channel with almost 1/3 of total volume, 38 share of total off-premise. Volume grew just 0.8% since 2010 in c's to 62.4 mil bbls. But $$ up healthier 17% to $19.5 bil and grabbed almost 18 share of total retail beer $$. Grocery not too far behind at 24 share of volume, 17.6 share of $$. And 5-yr grocery trends best in biz among major channels: volume +4.3%, $$ jumped 22%. Liquor stores are significant 20 share of volume, 13 share of $$, just behind grocery. But liquor store volume dipped 3.6%, $$ up 14% for 5 yrs.    Go To Top  

Constellation Brands Beer Division revs jumped $1 bil, 40% in last 3 fiscal yrs and oper income up $800+ mil same period under new more profitable biz model (recall it's spending billions to buy Nava brewery and build capacity to capture that profit). Coming off its best growth yr yet, Constellation expects even faster growth in fiscal 2017, ending next Feb. That would include mostly incremental volume from its Ballast Point acquisition. In latest fiscal yr, Constellation shipments up 1.65 mil bbls, 11.3% (STRs up 12%), revs up 14% to $3.6 bil and operating income up $246 mil, 24% to $1.264 bil. For this yr, Constellation expects sales and oper income to grow 14-17%, with revs up 10-13% organically. Given anticipated 1-2% rev per bbl jump, that means it expects "organic" volume growth of 8-12%. That alone would be a gain of between 1.3-1.9 mil bbls.

If Constellation up 10% organically, could grow 2+ mil bbls in all in 2016. Howzzat? Recall, Constellation recorded only 65,000 bbls of Ballast Point volume in the 2.5 months since it closed Dec 16. Yet Ballast Point currently up around 80% and should come in between 450-500,000 bbls. That would provide another 400,000 bbls or so of incremental volume for CBBD in fiscal yr. To achieve its overall growth objectives, CBBD will have to keep supply flowing, "no small challenge," said chairman Bill Hackett at NBWA spring legislative conference, given recent Corona recall (resolved in 8 days) and faster-than expected growth. Constellation has "every intention of insuring we have plenty of product" this summer, Bill said, but there will be shortages on select packages from time-to-time.

Meanwhile, CBBD also became a money machine last 3 yrs. Oper income tripled from $448 mil to $1.264 bil from 2013-2016. Besides its big growth, that huge jump is also a function of more profitable biz model, following DoJ requirement that ABI divest Nava and ultimately all Mexican production for US. In latest fiscal yr Constellation Beer's operating margin climbed 300 basis points to 34.9%. That's almost as high as ABI's in US. What's more, Constellation oper income surged to $5.64 per case. That's over 3x higher per case than MC. In fact, Constellation became #2 player in profits overall. Its operating income $25 mil more than MC's reported $1.239 bil. MC oper income lower because of charges at Eden ($110 mil), which will continue this yr. MC revs 2x as great as Constellation and volume more than 3x as great.

Constellation got 55% of its $6.5 bil in revs and 70% of its oper income from beer in latest fiscal yr. That transformation to a beer centric co in turn catapulted Constellation stock price almost 8x and mkt cap to around $30 bil. That's only part of broader, more sweeping change towards "premiumization" in alc bevs. Recall, Constellation made several strategic acquisitions in last couple of yrs, including tequila (Casa Nobles), wine (Prisoner and Meiomi) and craft beer (Ballast Point). All in the high end. "We're not on an acquisition bender," assured ceo Rob Sands on conference call. Constellation ended fiscal yr with about $8 bil in debt, at 3.8x debt to EBITDA. That's slightly lower than at end of prior yr (4x) despite deals. Expect Constellation to continue to target "tuck-in, high growth, high margin, easy-to-assimilate opportunities," said Rob. STZ "finally doing all the right things in wine," said RBC analyst Nik Modi. Its "historical poor performance" in wine "driven by its decision to previously acquire large platform-changing brands." But STZ "dramatically shifted its acquisition strategy… focusing on tuck-in acquisitions of premium fast-growing brands." Finally, Constellation exploring possibility of a partial IPO of its Canadian wine and spirits biz. Could use proceeds for other capital allocation needs, like paying down debt. Could this be a prelude to spinning off its entire wine and spirits biz? "We're not planning anything else, but clearly it gives us more optionality," said Rob.  

 Following AB's buy 2 get one free promo in Wisc (dubbed "March Madness"-see last issue), AB broadening initiative for Memorial Day. Same "buy 2 get one free" ad will appear for first time in Fla's powerful Publix chain. So AB offering huge discounts on its premium brands in 3d largest state on key holidays during peak selling-season (also July 4th). Pricing down to $17.10 per case equiv. Consumers will be able to get 3-12s for $26-28. That's "aggressive" as competitor noted. At presstime, MC will match AB's Fla Memorial Day promo, INSIGHTS hears. But that ain't all. AB looking to do same promo in at least several other mkts, where legal, or some variation, sources say. Another big mkt will break with "buy 2 get 1 free" for Memorial Day very soon, INSIGHTS hears.

AB intent on getting much closer to stabilizing share in 2016. Looks like some extra monies will be spent on discounting. Subpremiums set up to be another battleground this yr. Recall, AB also has low 18-pack price on subpremiums thru summer in Fla. MC reportedly has hot prices on High Life 12-packs in Chi and Milwaukee; gained ground in last couple of mos. Out west, AB planning a 25 oz can program with c-stores. In all, somewhat more price rumblings than usual at this time of yr.

In Fla especially, stakes are high for all. In last 5 yrs, AB held volume in Fla more so than in many other mkts. Down 205,000 bbls, less than 3% in last 5 yrs. But Fla mkt growing volume and AB lost 4.5 share since 2010 to a still commanding 53.8 during same period. MC down more than AB; down 278,000 bbls 10% in Fla last 5 yrs. And it lost 3.1 share to 18.8, way below its natl share. Constellation and craft of course are both coming on. Constellation up a half mil bbls and gained 3.5 share to 10 last 5 yrs.

Even with discounting pickin' up, pricing remained pretty solid in Q1. Avg case price up 60 cents, 2.7% overall in Nielsen all-outlet thru Apr 2. Govt stats showed beer pricing up 1.8% in 1st qtr, more than 1.1% gain for all items. One watch out showing up in data: below premium prices up 16 cents yr to date, but not even a nickel for most recent 4 wks. As AB and MC gear up for what could be a "hot" summer on pricing, worth remembering several issues with big promos in past. First, they typically punish profits. Second, when competitors match, promos usually don't provide volume boost anticipated. Third, what do you do for an encore? Next yr's numbers could be tough. Fourth, are they good for brand equity? Past evidence suggests no. Finally, what does this do to pricing architecture of biz?

Just outside of Portland, ME, Sebago Brewing plans to spend $5 mil on a new 31K sq-ft facility in Gorham. It's up 44% yr-to-date, the co reports. It produced about 8500 bbls last yr, the Brewers Assn estimated. The new brewery will be outfitted with a 40-bbl 4-vessel brewhouse, as well as large tasting room and outdoor space, natch. At same time, makers of highly-respected IPAs like Lunch, Dinner and Another One, Maine Beer Co plans to seriously expand its space in Freeport. Recently released plans show the co looks to "roughly quadruple" its brewery, The Portland Press Herald reported. That involves adding on over 20K sq-ft to existing 6,000 sq-ft. That's as brewing in state of Maine continues to expand along with its top brewers: it's home to 83 brewers now, up from 34 in 2011.  

Couple more interesting nuggets about recently acquired Florida Beer Co turned up in unrelated clips over last couple days, including comment that it "will start brewing some of their beer," as in brands owned by ANSA McAL U.S., mktg director Eulan Middlebrooks told Florida Today. Recall, those brands include Carib imports. (Yet another "import" to be brewed in US? Maybe.) The Cape Canaveral-based co is "ready to more than double its brewing capacity" and soon "jump to more than 100,000 barrels," the paper wrote. But again, that would be a fairly large mix of brand families, either owned or contracted. For example, one of its contract clients recently launched its Boricua lager brands in the Orlando market, according to the Sentinel. Its two lager and light lager brands are aimed squarely at Puerto Rican consumers currently drinking big import brands. But "this is a high quality craft beer," founder Danny Ramos told the paper.  

There were plenty of hop bombs from the 88 brewers represented at 29th edition of Oregon Brewers Fest this past weekend, but also signs of greater diversity invading even IPA-obsessed town like Portland, Ore. Show organizers and visitors marveled at abundance of gose and Berliner Weiss styles being poured, to point that show mgrs said they'd even gotten a few complaints about lack of IPAs. (For the record, there were 28, which really should be enough, one noted with bit of exasperation.) Among those proffering goses were McMenamins, Breakside, Laurelwood, Anderson Valley, Stone, while Berliner Weissbiers were available from likes of New Belgium, Oakshire and Buoy. Two dozen invited international brewers, including Japanese and Dutch contingents, didn't hesitate to offer their takes on US-identified styles like Cascadian dark ale and chili porter.

Biggest hubbub during forays by vacationing CBN editor to show seemed to be for Wyoming brewer Melvin, named small brewpub of year at last fall's GABF, which also recently announced plan to build a brewery in Washington state. At one point on opening day, 3 lines extended the width of Tom McCall Park to sate demand, and brand tapped out early on Sat. Why the commotion? Self-professed IPA nuts from Southern Calif who gave their names as Carlos and Lily said they'd already tried every IPA at event and deemed this one best, braving line once more for full pours, not just samples. Others thought the beer Melvin chose to serve, 2x4 Double IPA, drew extra interest simply by virtue of being biggest hop and alc bomb, at 10% ABV and 100 IBUs.

As competition intensifies, brewers are embarked on constant quest for new ingredients to offer unique beer. So they're quick to latch onto any trend. At OBF Seattle's Georgetown used cold-brewed coffee (from 80 lbs of beans per batch) for its Gusto Crema Coffee Ale while Portland's Natian used cold-brewed Earl Grey tea in 50 Shades of (Earl) Grey. Sasquatch Brewery used lactobacillus yeast from Nancy's Greek Yogurt. (Away from fest, in coastal city of Astoria, CBN even encountered dairy-alternative milk stout: Fort George's Tough Nut Stout, using almond milk.)

Other brewers used sage and juniper berries (Deschutes), lavender and honey (Squatter's), cucumber juice and pulp (Oakshire), High Desert honey (Gigantic), hibiscus and ginger root (Great Divide), passion fruit (Green Flash), raspberry and boysenberry (Three Creeks) or cayenne, jalapeno chilis, cinnamon and ginger root (Laht Neppur). Lotsa emphasis on locally sourced ingredients. Some melded seemingly incompatible ingredients: black peppercorns, basil and strawberries in Fla-based Lakeland Brewing's Lipstick on a Pig or pine nuts, parmesan cheese, basil, garlic and olive oil in Zoiglhaus' Birra Pazza al Peste. Heavy contingent of Japanese brewers in international area, who often trace roots to sake brewing, frequently used sake rice base.

As pace of craft beer deals accelerates, show organizers acknowledge it's gotten harder to maintain integrity of fest deemed nation's biggest for independent breweries. Buyouts lately have cost the show such popular stalwarts as Ballast Point and Firestone Walker, and Full Sail only was allowed back in after making case that after recent transactions it still rates as employee-owned. Venerable fest participants BridgePort and Widmer continue to be grandfathered in given their key roles in earlier years. Fortunately, there still are 4,000 indies left to invite, one organizer noted with relief.  

Expect more double-digit growth for Kona, the "key to" investors "ultimately being rewarded in BREW," Craft Brew Alliance's stock, according to author of one of two interesting analyses published by Seeking Alpha last month (see July 7 issue). CBA stock basically undervalued, considering recent craft M&A multiples and attractiveness of particularly Kona brands, Mike Loughran reiterated basic thesis of analysis last month in article published today headlining "Just The Slightest Buzz For Shares Despite Searing Hot M&A Sector." Yet in shorter take ahead of CBA's 2d quarter earnings release, he provides handful of interesting tidbits that point further toward a future transaction, in his view. That view, by the way, is perspective of an ex-Redhook director who assisted in Redhook/Widmer Bros merger that led to CBA and a longtime BREW investor.

Now that recent DOJ action scrapped AB's previous incentive program with indie distribs, "all CBA brands will likely benefit to varying degrees," Mike wrote, with "the greatest impact on KONA sales given the size and relative growth of the brand." Recall, Kona now easily largest and fastest growing brand in CBA family. And following "channel checks" and talks with indie distribs, Mike expects another 20%+ volume trend for Kona in Q2. He also points to a fair amount of personnel movement, including supposed "shifting of personnel from the Widmer / Redhook brands to the KONA brand and required mandatory relocation [to] Los Angeles." Recall, Mike sees AB as likeliest buyer of Kona. Unexplored here is potential impact of DOJ scrutiny on future AB/craft brewer deals: would DOJ really allow AB to pick up a craft brand that alone ranked within top 10 of craft by shipments in 2015? Still Mike's analysis also includes note about CBA nearing 1 yr with only 1 board seat occupied by an AB rep, instead of 2 that AB's allowed. Last time AB went multiple months with just one seat on CBA board was around time of deal for Goose Island, in which CBA had 42% stake. Regardless of possible transaction, deal CBA cut with Pabst for that co to use Woodinville, WA brewery "should provide some boost to Q2 results and beyond," Mike wrote. And indeed, "Pabst is making significant capital investments" there, he hears, suggesting likelihood that Pabst will exercise option to buy that brewery.  

Michigan's Atwater Brewing continues to ambitiously set sights on various expansion projects all at once, so what's two more to the list? Co "looking for locations in Chicago and Boston to open taprooms and small brewing operations, similar to its Grosse Point Park location and soon-to-be opened Grand Rapids location," Crain's Detroit Business reported. Atwater only just finished $2.5 mil expansion at Detroit location over "the past 18 months" to double capacity, will open Grand Rapids location "later this year," is jointly opening Austin, TX brewery with Flemish Fox in Mar 2017, and plans to open an NC facility in the next few yrs.

Indeed, "no one is expanding quite like Atwater," said partner at Miller, Canfield, Paddock and Stone PLC, and leader of firm's alc bev regulation team, Joseph Infante, acknowledging that co's takin' higher risk, higher reward approach to biz model. Another local MI brewer expressed some skepticism regarding Atwater's latest plans. "Both of those markets [Chicago and Boston] are incredibly competitive," Bell's Brewery founder Larry Bell told paper. "There are about 50 brewers operating in the Chicago city limits right now. I think they are going to have their work cut out for them."

"It's a branding opportunity to get closer to our customers and have them understand our culture," owner and CEO Mark Rieth separately told Chi Tribune, specifically talkin' about a Chicago "small-scale production brewery" with taproom, restaurant and outdoor space planned for Spring 2018 opening. "We've been studying the market in Chicago for more than a year," and "our presence there is not what we want it to be," he acknowledged, attributing some of that to lack of "continuity" on distrib side. Atwater initially came into Chicago with Windy City until leaving in 2008, then re-entered with Central Bev in 2012, which sold to Lakeshore in early 2015. Either way, this will be a much smaller project than in Austin TX. Atwater would operate on a 5- to 10-bbl system and "make beer only available in its taproom and around Chicago." Co "hopes to have a site announced by the end of the year."

Then too, Atwater will also consider "rollups with other regional brewers" down the road, Mark told Crain's. "I don't have anything in the works right now, but if I'm looking at trends, I'd be remiss to not look at the opportunities out there for us."

All in, Rieth expects to reach "up to 50,000 barrels this year" according to Chi Tribune, and generate $10 mil in revs this yr, "aiming to double revenue to between $18 million to $20 million in the next three years, due to expansion," Crain's noted. Last yr Atwater grew to 48,500 bbls, per Brewers Assn estimate, and revs grew 25% to over $9 mil (see Jan 6 issue), so growth seems to be slowin' in the near term at least. Recall, Rieth and co previously stated goal to reach 200K bbls by 2020 and eventually plan for Atwater to be a natl brand. But co takin' much slower approach to adding distribution thus far. After adding 3 new mkts this yr to 24 total, it'll add two more in 2017 and possibly 1 in 2018, Mark said at Brewbound conference back in Jun (see Jun 10 issue). Indeed, as biz constantly changing, gotta "be more realistic," Mark acknowledged. However, Mark still sees "opportunity" and "plenty of room to grow."