Just not getting any better for beer and most brewers in GuestMetrics database of over 9K on-premise accounts, in data for 4 wks thru Jul 8 reported by Exane BNP Paribas.  All in, beer volume -6.5%, $$ sales -4.3% for those 4 wks, each a slightly steeper dropoff than in Q2.  Craft $$ -3% but gained share, premium lights -7.1%, continued to lose share.  Constellation and “smaller” craft brewers were the winners. 

AB continued down, volumes -6.3%, $$ -4.1%, but AB gained modest share as it outperformed the mkt.  Bud Light and Bud down 7.2%, 5.5% respectively.  But Michelob Ultra +8%, Stella off just 1%.  Each of MC, Heineken, Boston and Pabst saw volume dip 9% or more this period. MC volume -9.5%, $$ down 7.8%; each of Miller Lite, Coors Light and Blue Moon off about 7% in $$.  HUSA even softer: volume -11.4%, $$ down 10.1%.  Brand Heineken off near 13%, Dos down 6.6%.  And Boston and Pabst even softer than that, with respective $$ sales -13.8% and -12.8%.  Even Lagunitas down 7%.  Outside of Constellation, among top 25, only Stone, Firestone Walker, Founders, Sapporo and Victory increased dollar sales in GuestMetrics universe for 4 wks, Exane BNP reported.  How well did Constellation do?  Dollars up 2.9%, volume +0.3%, for 50 basis-point share gain of $$.  Corona Extra sales slipped 2.6%, but Modelo Especial zoomed 27%.        

Quality Brands of Omaha (Gillick family) will buy Eagle Sales of Rapid City and Chamberlin, SD (Helland family). Quality Brands already about 5 mil cases, will add 2.2 mil cases from Eagle Sales, become over  a 7-million case distrib.  Fits recent patterns of smaller AB distribs selling to a larger buyer from outside of the state.  Tony Gillick’s son Anthony will move to South Dakota, about 8 hours away from current operations. After a slow start to distribution deals in 2016, this is the 4^th deal we’ve reported on this month.  And there’s reportedly more to come.  Eagle Sales represented by Bickers Consulting Group, which has done a lot of AB deals in recent yrs, but most frequently in the South, so this one is geographic departure.   

Dizzying details of Craft Brew Alliance’s agreements with AB revealed on conference call last night, but included one major piece of news.  AB and CBA agreed on a minimum “qualifying offer” that AB can make to acquire the rest of CBA as $22 per share over next 12 mos, $23.25 per share the next 12 mos after that and $24.50 per share thereafter.  (Recall, AB owns 31.6%.)  Since CBA stock closed at $14.46 yesterday, no surprise stock took off like a rocket this morn.  Up 25% at one point to over $18, but up 20% to over $17 at presstime.  CBA stock has more than doubled since May. 

AB not bound to make, nor is CBA bound to accept, offer.  And who knows if DoJ would approve the acquisition anyway?  AB’s latest acquisition, Devil’s Backbone, still not approved several months after deal announced.  But just the possibility of a much higher stock price enuf to capture  financial community’s interest.  Big Time. Cowen and Co analyst Vivien Azer already had “outperform” rating on stock. News “very exciting,” she said on conference call. And this morning she upped her price target $3 to $19, figuring that “given the valuation protection from a potential qualified offer,” $19 is “reasonable, as it is still $3 lower than the floor.” 

Big Intl Payments; $20 Mil in 2019; Contract Brew Savings $10 Per Bbl; Steady Fee for Distribution  Much of the call focused on several other benefits of these agreements (reported in Express and Craft Brew News yesterday), which CBA ceo Andy Thomas said would be over $10 million a year.  Since CBA oper income only $4.3 mil last yr, that’s an attention grabber too.  ABI will pay CBA a series of incremental “fixed” payments for rights to sell its brands in intl mkts; $3 mil in 2016, $5 mil in 2017, $6 mil in 2018 and $20 mil incentive payment in 2019.  Those payments will be made unless AB makes qualifying offer and CBA rejects, or if CBA were to “undergo a change in control” with someone else.  CBA will also save at least $10 per bbl on up to 300,000 bbls per yr (or $3 mil per yr) it will make at AB breweries, tho that won’t be fully ramped up until end of next yr.  And CBA will be “transitioning” about 100,000 bbls away from Memphis.  Plus with extended distribution agreement, CBA will continue to pay AB 25 cents per case. That’s 50 cents per case lower than previously contemplated, which Andy called a savings of $6 mil per yr, saying that CBA would reinvest half of that savings in its brands.  These agreements also “open up opportunities” for CBA to pursue more partnerships (like with Cisco and Appalachian) or perhaps M&A. It “allows us to be bolder,” said ceo Andy Thomas.  “A lot more options are available to us,” he added.  Including option of an AB acquisition at a fixed minimum price. 

Odom Corp “plans to build a new $40 million building near Midtown,” reported NBC affiliate in Anchorage, Alaska. Odom sells about 8 mil cases a yr in Alaska of beer, soda, wine and spirits, and employs about 400 people statewide, it reported.  While Odom hasn’t yet submitted final plans, “project includes about 215,000 square feet of general warehouse space, 17,000 square feet of office space and 8,400 square feet for cooler/refrigerator use.”  Construction should begin next spring and take about 2 yrs.  Only about 6.5 mil cases of beer overall sold in Alaska.  But lotsa change.  Recall, K&L, which sold about 2.8 mil cases AB, Constellation, Alaskan, announced deal earlier this yr to sell to KY’s Bill Fields and investors. That finally closed just recently.   

Wall Street Journal did deep dive into debate around benefits of moderate drinking for page-one story today.  Public health advocates/researchers and some govt officials around the world raising more doubts lately about long-established heart health benefits of moderate drinking, as we’ve been reporting in our sister publication Alcohol Issues INSIGHTS.  Both US and UK dietary guidelines earlier this yr downplayed that evidence and UK officials especially played up potential cancer risks of even light-to-moderate drinking.  WSJ pointed to this skepticism, shifting guidance and policy around the world over the years and noted some pro-active moves by industry to push back and stay in policy debates. 

New news in this regard: AB, Diageo, Heineken and Pernod Ricard will help fund – to tune of $55.4 mil ‒ “the first randomized trial assessing alcohol’s health effects,” planned to involve 8,000 adults who are over age 50 and “at risk for heart disease.”  Under supervision of Natl Inst of Alcohol Abuse and Alcoholism, study will actually have some subjects consume one drink per day and compare cardiovascular effects to abstainers, according to WSJ.  Industry won’t have role in design, implementation, findings or reporting, we understand.  “Findings could go either way,” Pernod spokesman told WSJ, but producers believe “it’s important to get a conclusive and definitive answer for public-health reasons for consumers and our business.”

Meanwhile, while UK govt will not rescind stricter drinking guidelines adopted earlier this yr, 14 units per week for men and women (that’s just 6 pints of 4% beer/week), new Prime Minister Theresa May and her health secretary are “changing the tone” from the chief British medical officer who advanced the notion that “all drinking is risky” and played up cancer risks.  When final guidelines announced this week, Times of London, Daily Mail and others report, they will “make clear that there is only a very small risk of moderate drinking,” as the Times put it. The health secretary is expected to point out that risks of drinking within guidelines are similar to those from “regular or routine activities, such as driving.”  Industry sources told the Times that the guidance “will give context about not preventing people enjoying a drink.”  

Not really a big surprise, but UK court ruled that, as requested, there indeed will be 2 separate votes, treating Altria and BEVCO (Santo Domingo family) as “a separate class from other SABMiller shareholders for the purposes of the UK Scheme Court meeting.”  That’s scheduled to take place on Sep 28. While court ruling ends up “effectively giving smaller investors a chance to derail the deal,” as AP reported, “opposition to announced deal terms is low,” said Stifel’s Mark Swartzberg.  Aberdeen Asset Mgt, which owns 1% of SABMiller and demanded separate vote, said: “We are pleased the court has acknowledged the reality of the situation which will help to ensure that the views of the rest of the investor base have due weight.”  It encouraged investors who “recognize the superior longterm value from continuing to hold SABMiller as a standalone entity” to vote against the deal.  But real question is whether they have much company. 

While AB

numbers better overall in recent mos, and Estrella made initial splash in SoCal, AB still spending big to get so- far tiny piece of Mexican beer segment.  And last yr’s model, Montejo, ain’t comin’ close to cycling.  AB sold 638,000 cases of Mexican beers in IRI multi-outlet + convenience. That’s up 86,000 cases, 13% yr-to-date thru Aug 7.  Montejo at 340,000 cases, but it’s down 212K cases, 38%, including 59% drop last 4 weeks.  And Estrella Jalisco sold 298,000 cases, all incremental and far bigger than Montejo last 4 weeks.

Taken together, AB’s Mexican beers amount to almost a rounding error out of 456 mil cases AB sold in IRI YTD overall.  Estrella Jalisco and Montejo combined also less than 1% (0.76 share) of all Mexican beers, tho they have bigger impact in SoCal where it counts most.  Mexican imports climbed to 84.3 mil cases in IRI MULC.  Up 8 mil cases, 10.6% and gained 2 share to fully 68% of import volume YTD.  It’s virtually all the growth in imports. So no wonder AB making big push to participate and it will continue to do so, but with limited success so far. 

AB and Craft Brew Alliance significantly expanded agreements between them on 3 fronts.  They will: 1) extend existing “Master Distributor Agreement” for 10 yrs until 2028; 2) allow for AB to contract brew up to 300,000 bbls of CBA brands; 3) ABI will sell CBA brands more extensively internationally, getting “exclusive” in countries where CBA doesn’t already have agreement.  This is a “natural evolution,” CBA ceo Andy Thomas told INSIGHTS, but “pretty progressive” at same time, since it’s so multifaceted.  Extending the distribution agreement eliminates “uncertainty” that CBA could go off “distribution cliff” when existing agreement ended in 2018, Andy added.  What’s more, deal remains under current fee structure.

Meanwhile, AB facilities will gradually brew up to 300,000 bbls of CBA brands, which “affords us a ton of flexibility,” said Andy.  Likely to be “full 18-month ramp up” as the companies “match breweries to brands.”  CBA looks to “transition” out of Memphis and “rationalize” (i.e. sell) its Woodinville brewery.  Recall, Pabst brewing Rainier brand there and has option to buy.  And there will be synergies, as AB ships product made at common breweries to common distribs (expect those to be quantified on conference call later today).  Portsmouth still will play “pretty strategic role” as per CBA’s existing contract brewing “partnerships” with Appalachian and Cisco, according to Andy.  And importantly, these expanded commercial agreements between CBA and AB contain what Andy called “guardrails” and “protections” should AB and CBA either expand or diminish their partnership, i.e. both apparently remain possible in rapidly changing environment. 

CBA “expected to gain significant financial benefits from these commercial agreements that will allow the company to continue investing in its growth strategy,” according to release.  AB also “positioned to benefit directly from those gains” because of new oppys for “international distribution system, U.S. wholesaler partners and, breweries.”  It’s a “win, win, win,” said Andy.  Recall, CBA reported much better 2d qtr with shipments up 4.5% and depletions up 3%, but recent periods rough in IRI multi-outlet + convenience.  Volume down 6.7% for 4 weeks thru Aug 7, almost 6% for 12 weeks.  On call earlier this mo, CBA reiterated that it expects shipments up 1-2% in 2016.  

Dog Tag Brewing’s Legacy Lager will be distributed nationally by Pabst Brewing Co in partnership announced this morning. Legacy Lager features name of “fallen warriors” from US military on each can to honor their sacrifice. “The partnership with Pabst will ensure that millions of Americans will have a chance to try our beer and join us in helping Gold Star families build the legacies of our nation’s fallen military heroes,” said Seth Jordan, a Marine vet himself who founded brewery in 2014. Dog Tag Brewing donates 100% of its after-tax profits to Dog Tag Brewing Foundation to benefit charities created or chosen by Gold Star Families, org run by families of military members who have died.   Legacy Lager will be in 26 states Sep 1 and nationwide in 2017. 

With 3 flavors of Henry’s Hard Sodas, 2  new versions of Redd’s, and intro earlier this mo of Easy Tea Co, you might have thought MC already had full plate of new FMBs this yr.  Last week, MC officially confirmed Zumbida in Ad Age.  Zumbida is an “agua fresca,” a traditional Mexican, non-alc bev, but here with 4.2% ABV. While MC “does not have a Mexican beer in its portfolio,” and Zumbida will be made in US, MC “seems to be aiming to gain credibility with Hispanics by referencing aguas frescas,” wrote Ad Age