ABI added Citigroup and Bank of America’s Merrill Lynch to team of banks “working on the sale of its Asia Pacific business,” reported Reuters, citing “three people with direct knowledge of the matter.”  Recall, that deal for just part of ABI’s Asia Pacific biz “could raise up to $5 billion for the heavily indebted brewer,” wrote Reuters.  The IPO “is slated for the second half of the year.”  ABI “expects to file with Hong Kong stock exchange in the first half… either later this month or early May.  At $5 billion, the IPO could be the largest in Hong Kong this year.” ABI also slashed dividend, which will save another approx $4 bil.  But ABI had over $100 bil in debt in Dec, with a debt to EBITDA ratio of 4.6x.

It’s not just Amazon or conservative pundits that pose recent challenges to traditional 3-tier system.  Recall, just last week Zx Ventures exec said that AB online biz should at least double every yr, get to 10-20% of volume over time.  And at just-concluded Craft Brewers Conference, clear that many of most successful craft brewers these days are growing fast with taproom-only or self-distribution, not thru traditional 3-tier system. On top of that, talking about franchise laws and their reform, longtime Brewers Assn counsel Marc Sorini said in speech at CBC “the ball is finally starting to roll on this.”  There’s lotsa action and potential legislation in states this yr (see Craft Brew News for more details).  While traditional 3-tier system alive and well, and still financially strong, hard not to notice the growing number of exceptions, evolutions, etcetera.    

Ain’t just Amazon and other alc bev bizzes keepin’ an eye on pending US Sup Ct case.  Writing in leading conservative mag National Review, Caleb Whitmer digs into case and observes that “nonsensical is just one way” to describe US alc bev laws.  “Anti-consumer” is another.  A 3d: “these laws have produced ridiculous contradictions” (i.e. Mississippi capping beer ABV at 6.25% for decades while allowing “much stronger wines and liquors”).   In well-turned rhetorical flourish, Caleb writes that “the restless ghosts of a 14-year national experiment in teetotallery still haunt the country’s bars, liquor stores and breweries.”  Boo!

His biggest beefs, linked to the Tennessee case and other state laws: they’re protectionist, drive prices higher, reduce variety and access.  “Reasonable restrictions on alcohol are, of course, appropriate, but – at the risk of sounding pollyannaish – ideally lawmakers would craft those restrictions with reference to a common good greater than replenishing state coffers or protecting local liquor stores’ bottom lines.”  Effort by Tennessee liquor stores to defend residency laws, he believes, was “so ham-fisted that it could be a case study for an Economics 101 class on ‘rent-seeking’ and the unintended consequences of regulation.”  So far, court watchers willing to opine expect a narrow decision that won’t necessarily clarify what “business objectives” and strategies will be legit across the board, or end these debates.  Stay tuned.    

Industry govt affairs execs, regulators and alc bev lawyers galore are polishing their resumes today.  Why? Amazon “is looking for a booze business policy and lobbying expert,” reports Washington Biz Journal.  This isn’t Amazon’s first foray into alc bev lobbying, of course; it hired ex-VA regulator to do some work in that state, for example.  But this individual will have a broader scope/responsibility to “create, execute, and manage key public policy issues related to alcohol procurement and sales,” as well as to “develop mitigation or enhancement strategies and positions, and manage and coordinate external advocacy efforts, outreach programs and key initiatives in concert with [Amazon’s] business objectives.”  Ad doesn’t detail those objectives, but Wash Biz Jnl gets a coupla industry observers to speculate.  Net-net: “I’m guessing Amazon is going to be lobbying the states and federal government to simplify the rules,” Larry Cormier of ShipCompliant, a software co that works with suppliers to coordinate direct shipments, said.  “I’m guessing they want to have their cake and eat it too.”  Imagine.  Rabobank Intl’s Stephen Rannekleiv thinks Amazon may seek to “completely change the regulatory game,” WBJ reports.  He put it this way: “Their appetite is big.  I would guess they would like to influence public policy and eventually get to the point where they can ship wine to any consumer in the country.”  It may be even more than that. 

Journal reminds that Amazon sold wine online for a 5-yr period.  It shut down that biz when it bought Whole Foods, because, Larry pointed out, it could not continue accepting fees from wineries to list their brands while also selling alc bevs in brick-and-mortar stores.  Like many retailers (think Total Wine) and suppliers (pioneer direct shippers), Amazon found that state-based regulation, 3-tier restrictions and more do not exactly accommodate its business model.  So, “new lobby hires on Amazon’s part would likely work toward convincing regulators and lawmakers to allow the company to sell both as a grocer liquor retailer and marketplace,” Larry also speculated.  Count Amazon among the many businesses that are closely watching the outcome of the US Supreme Court’s review of Tennessee’s residency law and any potentially broader reading.

Two previously reported CA distrib deals closing today.  Reyes Beer Division buy of Central Coast and Donaghy Sales buy of Delta Sierra Bev.  Reyes kept virtually all brands and volume in 2.5-mil-case deal, involving 44 suppliers; almost 20 suppliers new to RBD, including Stone.  In Delta Sierra deal, Boston, Sierra and more will reportedly move to DBI.  More consolidation coming in CA.   Meanwhile, across US in Ohio, Premium Bev Supply sold Founders brand to Superior Bev (as reported in Craft Brew News). Superior will sell off parts to Bonbright, Stagnaro and NWO, we hear.  Recall, Premium earlier sold Lagunitas and Ballast Point to network of OH distribs. It still has extensive craft book, including Bell’s. 

Consumer price index for beer increased 1.8% in Mar vs Mar 2018, per latest gov’t stats. That’s down from gains of 2%+ in Feb and Jan.  CPI increase for beer in Mar was below 1.9% gain for All Items and 2.7% increase for spirits.  Wine CPI gain slowed to +0.9% in Mar vs yr ago.  In Q1, CPI for beer was up 2.2%, well ahead of Q1 2018 increase of 1.3%. CPI for All Items grew 1.6% in Q1 while spirits and wine prices increased 2.4% and 1.1%. 

Bud Light dropped 6.7% in Region 2 yr-to-date thru March.  That included 11% drop in March.  That’s even while Ultra still up double digits.  And AB down about 2% overall.  Trends very similar to Nielsen scan data; Bud Light down 6.8% YTD thru 3/30.  Seemingly, Corngate didn’t change much.

Craft is getting to be a much tuffer game, Brewers Assn economist Bart Watson’s stats made clear at CBC in Denver yesterday, while he also accentuated positives.  Tho craft grew 4% for 2d yr in a row, regional brewers over 15,000 bbls just flat for 2d yr in a row (many declined). And at 18 mil bbls, they are still about 70% of segment. Growth was mostly split between the several thousand brewers which opened just since 2015.  Up 872K bbls, almost 90% of 1 mil bbls growth overall. That includes over 1000 new brewers that opened in 2018 alone.  Maybe BA should have “same store” stat like retailers do for Wall St, as one source suggests.  Even Bart acknowledged that some of microbrewer growth is kind of “fake” with so many new openings. 

Craft segment has a whopping 45 million bbls of capacity, 19 million bbls over what was sold.  That’s not too good, “well below” most manufacturers’ capacity utilization rates, as Bart acknowledged.  With capacity utilization under 60%, growth slowing (non-existent for established craft) and new entrants still flooding in, what do you think will happen?  The capacity crunch will likely be exacerbated by the 2500 breweries still in planning, tho tiny new brewers don’t have much impact on industry utilization rate, Bart said. 

Did somebody say crowded and ultra-competitive?  There are 7300 breweries currently splitting 1 mil bbls of growth.  That means craft growth down to an avg of 100 bbls per brewery, as Bart noted, adding that’s “where the pain point is.” How about if craft slows further, with even more newbies? 

BA started new category of taprooms, those that get 25% or more of volume from taproom. The 1,000 of them in this yr’s survey grew 40% to 809K bbls.  Those small brewers with new model got 25% of craft growth.  What’s more, all craft brewers’ “own premise” volume got 40% of growth.  Up to 3.1 mil bbls. And they could represent 15% of all draft volume.  “Expect retailers to cry foul and start scrutinizing your business models,” Bart said, plus a “new wave of competition” from local distilleries, cideries and kombucha-makers.  Did somebody say chaotic?

Top execs in alc bev biz continue to be well-compensated, recent proxy statements and other financial filings show.  At Molson Coors, not many bonuses in recent years for top execs, and salary bumps pretty modest.  But it ain’t about those measures; it’s all about the stock awards/options and non-equity incentive plan pay.  For most top execs at Molson Coors, for example, salary less than 1/4 of total compensation. Prexy/CEO Mark Hunter averaged $8.6 mil total compensation in each of last 3 yrs.  But his annual salary of $1.1-$1.2 mil less than 15% of that.  Over half of Mark’s 2018 compensation was stock award calculated to be worth $4.3 mil.  Similarly, MillerCoors CEO Gavin Hattersley’s $979K salary/bonus last yr was about 23% of his total compensation of $4.3 mil.  That was down from $4.9 mil in 2017, $5.5 mil in 2016, mostly due to reductions in stock award value/non-equity incentives.  Meanwhile, CFO Tracey Joubert’s total package was about same $2.4 mil in 2017 and 2018, down from $3.9 mil in 2016 when she got big stock award.  New to Molson Coors salary listings: Europe chief Simon Cox, compensated to tune of $2.2 mil last yr, and chief supply chain officer Celso White, also at $2.2 mil.

Boston Bounty  At Boston Beer, new CEO David Burwick treated like an MVP.  In early 2018, we calculated David could make $28 mil in total compensation over 4 yrs, based on publicly disclosed deal.  He’s well on the way.  Dave’s total compensation in 2018 alone reported in proxy a cool $20 mil.  That’s pretty close to what Red Sox JD Martinez ($23.75 mil) and Rick Porcello ($21.1 mil) will be paid this yr.  David’s $20 mil breaks down as: $563K salary, $1.6 mil signing bonus, $1.5 mil performance bonus, nearly $16 mil in various stock awards and $600K in other pay.  Meanwhile, chairman Jim Koch’s total package was $1.5 mil in 2018, $413K salary (up just 1.9%), rest in stock, other incentives.  Chief sales officer John Geist more than doubled compensation in 2018 to $1.7 mil, including salary of $517K.  Ditto supply chain sr veep Quincy Troupe, whose total more than doubled to $1.2 mil, salary of $380K.  Outgoing CMO Jonathan Potter walked away with near $700K bonus and total package of $1.4 mil.  Incoming CMO Lesya Lysyj signed on for $475K base salary, Boston reported last mo, with potential bonus of 50% of that, plus option to purchase $1.5 mil in Class A stock and award of $1.5 mil in “restricted stock units.”   

Cool Constellation Cash Over at Constellation, Board of Directors held mtg Apr 2, a couple days before fiscal yr results announced, and awarded top execs their fiscal ’19 incentive awards.  Four guys got cash incentives: $1.9 mil each for bros Richard and Robert Sands, $779K for prexy/CEO Bill Newlands and $676K for CFO David Klein.    

Finally, Bloomberg ran interesting piece on families that still run many of top global spirits companies and their long-term horizons.  “We carry billions of euros of strategic stock inventory with an average age of seven years,” Alexandre Ricard, CEO of Pernod Ricard and grandson of founder said, adding: “It’s a long-term industry by nature.”  Here’s the money shot: “Seven of the world’s richest spirits families hold stakes worth about $70 billion combined, according to calculations by the Bloomberg Billionaires Index.”  Tweaking a well-known comment, there’s gold in them thar liquids!

“Our culture is under attack because of the results of Kraft Heinz,” Jorge Paulo Lemann of 3G Capital Partners, among AB InBev’s key shareholders, acknowledged to students at a Harvard & MIT event last week, per Bloomberg.  3G has long been known as expert cost cutters but not so great when it comes to brand building side and Jorge is more than aware of that as criticism has amped up since its takeover of Kraft Heinz has failed to boost biz.  “They say we came from the finance business, we are traders, we didn’t think much about what clients want. We were more conscious about cutting costs,” he noted. “Now we are changing that,” he claimed. “We are getting more and more consumer focused,” and 3G also plans to “embrace new technologies.” “Now we must create our own platform and talk directly to consumers,” said Jorge.  He told students that he “lost many times,” in biz, but he learned from his love of tennis to deal with ups and downs. “I am in one of those phases now, thinking about what we are going to do, what we are going to change,” said Jorge. “I learned to play to win, not to play for the crowd.”