Mahou San Miguel, Spanish brewer that owns 30% of Founders and 70% of Avery, reported revs up 2.9% to $1.47 bil in 2018 and EBITDA up 1.1% to $297 mil.  It sold about 15.5 mil bbls.  With near $300 mil in earnings, Mahou could do more craft deals in US if it wants.  Its EBITDA margin about same as MillerCoors.

Not tired yet of brewers battling in court over competitive issues?  Latest is complex coupla cases now before International Trade Commission (ITC) between AB InBev and Heineken over their small-batch countertop draft systems for homes/bars, detailed by Bloomberg yesterday.  Each filed patent infringement case before ITC, “a quasi-judicial entity set up to protect markets from unfair trade practices,” Bloomberg explains.  Heineken sez it invented dispensing technology; ABI sez it invented small canisters that hold the beer in similar systems designed to keep liquid especially fresh. Apparently, they “discussed licensing each others’ patents,” but ABI filed suit, then Heineken followed suit. Over 10 yrs ago, Heineken and InBev settled similar spat in Europe over home draft systems, which apparently have not taken off anywhere.  (Carlsberg joined the fray there as well.)  And so, the battles continue.  Heineken’s up first, then ABI goes before different judge.  No final decision from ITC expected before January 2020, sez Bloomberg.  Meanwhile, Stone Brewing’s legal attempt to halt MC’s Keystone Light refresh, and MC’s suit to stop AB’s corn syrup ads, continue in courts.

Ironically, the beer industry’s leading growth company in the last 5-10 years, Constellation Brands, also made the craft acquisition with the most (high profile) problems.  Constellation paid a record  $1 billion for Ballast Point in late 2015; since then craft slowed, Ballast declined and much of its value went down the drain.  It’s an object lesson that outstanding results in one arena don’t necessarily translate into another realm, even an adjacent one.  

Less than 2 weeks after taking a $108 million impairment charge, Ballast Point closed its Temecula brewpub, closed its Trade Street brewery, let go more employees and generally reined in its horns.  It “paused plans” for new brewpubs, including already announced one in SF (Ballast also previously explored NYC) and will “halt” future “broad-based” intros, it told employees.  “Essentially what we’re doing,” sr veep of corporate communications Mike McGrew told INSIGHTS this morn, is “adjusting to trends and realities” and therefore “shifting investment and resources” after “trends… shifted quite dramatically.”  Going forward, Ballast Point will focus on a “smaller number of SKUs” and “fully integrate into core sales team.” There will be dedicated craft sales personnel only in core SoCal mkt for Ballast (FL for Funky Buddha and TX for Four Corners too INSIGHTS hears.)  Distribs whom Constellation pushed to pay high multiples to acquire Ballast Point portfolio can’t be happy about diminished emphasis on Ballast.  Some down 40% or more on portfolio.  “Most of us over paid based on their push for consolidation,” said one, adding he’s “Not Happy.”

Earlier this year, Ballast Point sold its Scripps Ranch facility to upstart hard kombucha company, JuneShine.  Last summer, it laid off dozens of employees.  Previously, Ballast took an $87 million impairment charge.  And unfortunately, the hits keep coming.

When Constellation bought Ballast Point, it was one of the fastest growing craft brewers in fast-growing segment.  As segment morphed and slowed, Constellation got one strong yr of Ballast growth in 2016.  But it has gone backwards since, declining 95K bbls, 26% in 2017-2018.  And its trends are getting still softer.  Ballast Point down 16% for 52 weeks thru 4/6 in Nielsen data published by Morgan Stanley yesterday, down 26% for 12 weeks and 31% for 4 weeks in current brutal environment.  

Finally, gotta note that for all Constellation’s craft woes, Ballast Point really didn’t even dent its overall results.   Ballast Point between 1-2% of Constellation volume (less than 1% in scan).  Constellation “right-sizing” Ballast Point, said Mike. And as is its wont, Constellation “constantly looking for what’s next,” so STZ placing more focus on FMBs (Refresca, Alera, etc) and high-end session beers (Western Standard, El Grito).  Meanwhile, Constellation’s Mexican imports continue to motor along and Constellation not taking eye off ball, assured Mike.  So while Ballast Point may be a blemish, Constellation’s total results still shine.

Looking at IRI data thru Apr 7, Consumer Edge’s Brett Cooper compares IRI historical variation with reported quarterly sales data to estimate upcoming qtr.  AB will be down 2.5-3% in US in Q1, with 2% price/mix, estimates Brett. MC STRs will be down 4%, with 1.5-2% price/mix.  Constellation only 1/3 of way thru its fiscal qtr thru May, but “period has started off soft,” sez Brett, with Easter timing.  More on pace for 6.5% compared to his previous 7.5% estimate, but with 2/3 of qtr still to go, Brett sticking with his estimate for now.  Boston Beer looks to be up 9.5-10%.  AB, MC, Boston report over next 3 weeks.

Less than 2 weeks ago, Constellation announced sale of its low-end wines to Gallo; today it’s already announcing new acquisitions.  (Deal with Gallo expected to close later this qtr.)  First, Constellation Brands is taking minority stake in “leading mezcal producer El Silencio.” Co is based in Santa Monica, CA, tho its mezcal is created in Oaxaca, Mexico.  Mezcal category up 32% last yr, according to IWSR.  Praising STZ’s “trailblazing vision, pioneering practices, genuine passion for craft spirits and appreciation for craft spirits,” ceo and co founder Fausto Zapata called this “more of a love story than a business transaction.”

Canopy Growth, leading cannabis co in which Constellation has near 40% stake, today “completed an all cash-acquisition” of Spanish cannabis producer Cafina.  This buy “lays the foundation” for Canopy Growth “to expand its European production footprint in one of the most ideal growing regions in the world.”  Who knew?  This buy complements existing production in Denmark as well as Germany.  Canopy Growth “continues to strategically deploy its substantial cash reserves to acquire assets that will allow the Company to scale efficiently and into global markets,” co said.  Recall, Constellation invested over $4 bil in Canopy and has path to control down line. 

While AB attempts to make Budweiser relevant (again) in the US as it has become in many intl mkts (“we’re always defending” Bud, said Ricardo), global competitors also makin’ some interesting moves to refresh their brands and reps to be more relevant.  Boldest by far: Carlsberg is admitting its long-standing claim as “probably the best beer in the world” just ain’t true.  “At Carlsberg UK, we lost our way,” UK mktg veep admitted to various media sites. “We focused on brewing quantity, not quality; we became one of the cheapest, not the best.  In order to live up to our promise of being ‘probably the best beer in the world,’ we had to start again.  We’ve completely rebrewed Carlsberg from head to hop.”  Brewer is launching Carlsberg Danish Pilsner with $26-mil ad campaign that acknowledges “truth” that Carlsberg wasn’t the best, introduces new recipe and “upgraded every touch point” in order to “challenge a generation of drinkers to re-appraise and re-trial Carlsberg.” Interestingly, Carlsberg is featured in new Microsoft ad dubbed “In Pursuit of Better Beer” that aired several times already during NBA playoffs.

In separate move to improve its image, Carlsberg had previously announced it would replace plastic holders for multi-packs to “Snap-Packs” held together by recyclable glue.  Yesterday, Guinness announced it is spending $21 mil to reduce its plastic use and use “100% recyclable and biodegradable cardboard” for its multipacks.  “Consumers expect our packs to look beautiful, be functional and sustainable,” Diageo’s chief sustainability officer told CNBC.  With new investment, “we have been able to combine all three.”  These moves by Carlsberg and Guinness prompted consumer petition calling on Carling (owned by Molson Coors in UK) to follow and eliminate plastic ring pulls, Huffington Post reported yesterday.  Several hundred thousand signed. 

Meanwhile, Heineken continues to drum up media coverage for its big $50-mil bet on Heineken 0.0 no-alc brew in US.  CNN ran lengthy article yesterday with familiar quotes (“we’ve cracked the technology”), motivations (soft beer mkt in US, consumers’ interest in health and wellness) and data points (Heineken 0.0 is 5% of Heineken’s UK biz, 7% in Spain, 20% in Russia).  And this point from HUSA CMO Jonnie Cahill: “The more you can invite people to stay in your category, the better it is for all of us.”   Pabst just launched its no-alc brew as well, CNN pointed out. 

Finally, back to ABI.  Key investor, 3G’s Jorge Paulo Lemann, recently commented on importance of embracing technology for big companies.  In Africa, ABI using blockchain technology to connect local cassava farmers in Zambia (cassava replaces barley in some local beers) to its global supply chain.  Farmers then “have access to near immediate digital payments upon delivery of their product,” Forbes reports today. 

Will Carlsberg’s “honesty,” Guinness’ interest in sustainability, Heineken’s accommodation of “health and wellness” and ABI’s embrace of technology improve their respective reputations and/or sell beer?  Hard to say, but these moves certainly viewed by global brewers as necessary to stay relevant these days.

Landing on the moon 50 years ago may have been an easier task than returning Budweiser to growth in the US.  But AB keeps trying.  (Bud down since 1988 in US, but up globally.)  Now, Budweiser Discovery Reserve American Red Lager has hit the market.  It sports an archival recipe from the time of Apollo Moon missions, is brewed by a retired US Air Force captain and follows increasingly successful intros of Repeal Reserve, Freedom Reserve and Copper Lager.  Just retired Copper Lager was “the biggest seller to date” of the 3, group veep mktg for core and value brands, Ricardo Marques told INSIGHTS.  It scored as a top-ten share gainer in natl and, importantly, Calif scans.  Reserves attract both loyal Bud drinkers “keen to try something new” and casual craft drinkers seeking more complex brands, Ricardo said.  They’ve also had a positive influence on flagship Bud: drinkers aware of the Reserve brands have a “much better opinion of Bud,” he said, associating it with “higher quality” and “made with care.”   Then too, Reserve series balances “need for novelty” and “cultural relevance,” these days. 

Elsewhere, AB InBev’s US CMO Marcel Marcondes also spoke of balances ABI seeks to achieve.  “We’re known for our tradition in beer, and also for our connection to culture,” he told marketing website WARC.com.  “But now we want to be known by our creative power, because we fully, absolutely, radically believe that this is the only way for us to drive growth now, and in the future.”  Also from Marcel: “Creativity has always been relevant.  But maybe this is the peak of that relevance, because people don’t care about us, people don’t pay attention to what we do, people don’t pay attention to what we say.  Unless we really become relevant to them, we’re dead.”  In addition to seeking relevance with launch of new Reserve brand, AB garnered attention in recent days with well-received long-form ad celebrating retirement of NBA great Dwyane Wade, plus full-page ads celebrating 72d anniversary of Jackie Robinson’s first at bat.

Beer volume down 1.8% for 4 weeks thru 4/6 in Nielsen all outlet, affected by Easter timing (Easter 4/1 last yr, so tuff comps).  Now down 0.8% yr-to-date.   But some segments hit harder than others in latest period.  Craft has some of softest trends seen for segment in most recent periods.  Down 6.1% for 4 weeks and 2.2% YTD.  Lost 0.5 share of $$ last 4 weeks, and 0.2 YTD.  (Nielsen craft segment includes steep declines of Shock Top, Leinenkugel and Blue Moon.) Craft volume drop almost as steep as that of premium beers, which were down 6.6% for 4 weeks. But premium beers down 5.5% YTD.  Lost over 2 share of $$ both periods.  Meanwhile, FMBs accelerated.  Up 19.1% for 4 weeks, 18.5% YTD.  Gained 1.3 share of $$.   Mike’s Hard Lemonade Co up 45% for 4 weeks and gained 0.9 share of $$. Up 42% YTD.  Imports slowed to 3.4% gain for 4 weeks, but gained 0.9 share of $$, compared to 0.8 YTD.  Constellation up 8% and gained 1 share of $$.  Boston Beer volume also up 8% overall, even tho Sam Adams franchise down 25% last 4 weeks.  Boston Beer gained 0.2 share of $$.  In all, above premium segments up 5%, but gained 2.4 share of $$ for 4 weeks.  Up 2.7 YTD. 

Just like California, Canada’s launch of legal recreational cannabis last yr has not met sales expectations so far, reports Wall St Jnl.  While BDS Analytics and partner Arcview Mkt Research projected $400 mil in sales from mid-Oct thru end of 2018, actual sales came in at just $112.5 mil.  “It’s a bit of a bummer,” BDS’ Tom Adams commented.  The Canadian govt’s projection was way high as well.  Combo of supply shortages, product restrictions (no edibles or liquids until this Oct) and black mkt competition blamed for “slow and sputtering start.”  Also like Calif, where there’s mix of state-local control, different provincial rules in Canada “created a patchwork of regulations across the country and stunted sales” in some of largest provinces, WSJ noted.  Indeed, Toronto has just 2 stores open.  And one of ’em sells 3.5 grams for just below $30 (US), while “a salesman at the store said black-market dealers would sell the same amount for roughly half the price.”  Then too, only 10 stores open in all of Ontario, Alberta stopped issuing licenses due to lack of supply, etc.  BDS still sees a near $5 bil retail mkt by 2024, but it’s been a rocky start.          

Not much remarked on, but among the low-end wineries that Constellation sold is the one that started it all, Canandaigua Wine and also its first big brand Richard’s Wild Irish Rose (named after executive vice chair Richard Sands when he was a toddler).  Constellation “cuts ties with its Upstate NY legacy,” according to article on NYupstate.com. “One of the world’s largest alcoholic beverage companies grew out of a small winery established on Canandaigua Lake in 1945.”  In deal to sell off its low-end wine brands to Gallo for $1.7 bil, “it was easy to miss this part of the news” i.e. the sale of Canandaigua.  “That essentially means Constellation is selling the piece of the company that gave it its start.” 

That makes Constellation somewhat unique among the dynastic alc bev cos INSIGHTS has followed; few of the families still in control have sold off the names that gave them their start.  Imagine sale of Heineken, Jack Daniels, Coors?  Can’t do it.  True, Canandaigua’s brands became just small parts of Constellation Brands (name changed in 2000).  Canandaigua/Constellation has “always been about change” in 37 yrs of watching ’em, said director of Wine America Jim Trezise.  “They have always been one step ahead, always looking for what’s on the cutting edge.” Hence the bold bet on cannabis and so many other deals.  Constellation has just named its first non-family ceo, Bill Newlands. As far as INSIGHTS knows there is no family successor.  Combine that with its willingness to jettison the past and perhaps that’s why an increasing number of folks speculate that Constellation’s ultimate deal will be to sell itself.