Annual Tamarron Survey allows distribs to rate suppliers across various relationship and performance categories.  This yr’s version focused lots on “evolving tier responsibilities” and included both distrib and supplier views on those responsibilities. Tho tiers aligned in some areas, interesting and wide gaps in others. 

This year, Tamarron got results from 226 distribs selling 1/3 of industry volume.  Avg volume was 4.3 mil cases, in same range as last 6 yrs (just under 4 mil cases to just over 4.3 mil).  A little over half (54%) of distribs reported revs over $50 mil, 46% were below that amount.  Just 7% were over $300 mil.  Since 2005, distribs went from avg of 13 suppliers to 35, 63 brands to 251 and 268 SKUs to 1,082. 

MC won the overall performance rating, scoring 3.61 (range is 1-5), edging out Boston Beer (3.59) which had won previous 7 yrs.  Constellation came in a strong #3 at 3.46.  MC ceo Gavin Hattersley and sales prexy Kevin Doyle sent e-mail to employees on Friday, noting this was MC’s first win of Tamarron and pointing out that “we ranked above the industry average in all 13 functional areas and all 74 questions.” 

Avg mark distribs gave on overall performance across those 74 questions was a 3 (“good”).  Per usual, ABI came in lowest (2.48, but fewer AB distribs participate and they include those with just a coupla AB brands). Pabst, Craft Brew Alliance and Yuengling each below 2.7 as well.  Suppliers got avg scores of 3+ in areas like leadership, field sales annual planning, and finance/rev mgmt., but natl accounts-on premise and sales training scored lowest (2.78 and 2.74 respectively) “for past seven years,” Tamarron noted, “indicating distributors continue to perceive these areas as industry-wide opportunities.”  Also, scores dipped vs previous yr on 12 of 13 functional areas.  Even tho MC got highest numeric score, on separate question where suppliers get letter grades for relationship and performance, Boston got highest percentage of As and Bs on relationship (near 90%), CBBD #1 in performance (ditto). 

Looks Like More Meetings to Fine-Tune Distrib, Supplier Roles Predictably, section on evolving responsibilities, which asked both distribs and suppliers about which partner would be “primarily responsible” for different areas in 5 yrs, showed distribs and suppliers not always on same page.  For example, distribs believe they will be primarily responsible for account targeting (right brands, right accounts), down the road; nearly 60% of distribs calling it primarily a distrib responsibility.  But 60% of suppliers thought it would be a shared responsibility, with just 1/3 saying it would be primarily a distrib role.  Similarly, 2/3 of distribs think localized sale programming will be their responsibility in 5 yrs;  less than 1/3 of suppliers agree, with again almost 60% of suppliers saying that will be  a shared responsibility, vs just 26.5% of distribs. When it comes to “localizing a relevant brand message/selling story,” roughly 1/3 of distribs think it will be primarily a supplier (34%), shared (39%) or distrib (27%) responsibility.  But over 50% of suppliers say it will be a shared responsibility and just 17% said it would be a distrib responsibility.  How about account level staff education and hand-selling?  Almost 2/3 of distribs say they’ll be primarily responsible for that, much higher than the suppliers’ view (47.5%); 44% of suppliers say that role will be shared vs just 28% of distribs.  Distribs and suppliers more aligned on in-account shopper engagement (i.e. sampling) and market analytics.  But it looks like there will be some meetings to hash out some of those other issues.      

“Analysts are forecasting a ‘restaurant recession’ in the US, which is bad news for America’s food and drink establishments and potentially even worse for the economy at large,” wrote USA Today last Thursday.  The paper picked up on Paul Westra at Stifel’s report earlier in week.  He turned “decidedly bearish” on restaurants following weak consumer spending in restaurants in Q2.  He’s concerned  that this “reflects the start of a US restaurant recession.”  And “if history is a guide,” he added, “we warn investors that restaurant industry sales tend to be the canary that lays the recessionary egg.” Should this trend continue, there could be recession next yr, according to Westra. 

On Friday, US govt released its estimate for economy’s growth in 2d qtr.  It was just 1.2%.  Now tracking at 1% growth so far in 2016.  Up avg of 2% per yr since end of last recession.  So US in “weakest recovery,” since 1949, headlined Wall St Jnl over weekend.  Not yet picking up steam, tho some economists expect better 2d half.  However, at same time, giant bank JP Morgan lowered its assessment of risk of recession over next 12 mos to 30%. Had been as high as 37% in early July.  

Heineken USA sales-to-retailers increased slightly Jan-Jun, even while shipments off a bit, Heineken said in global release this morn. HUSA led by double digit increase on Tecate franchise (Tecate Light up 31% in Nielsen all outlet YTD thru Jul 16), low single-digit gain on Dos Equis, while brand Heineken “saw similar trends” as total co, i.e. shipments down, depletions “slightly positive.” 

Given scant details in global release, Heineken prexy Ronald den Elzen and chief sales officer Ray Faust added some details, color and context in prior conversation with INSIGHTS. HUSA had “good half year,” asserted Ronald as “we gained share in the total beer market” including 3 basis points in on-premise and 1 basis point off-premise. (That’s gain of .01 share overall.  Not much but better than losing share.) 

Brand Heineken “continued to show positive momentum overall,” said Ronald, noting 0.5% growth in Nielsen YTD thru Jul 16 (and 2.8% growth last 4 weeks).  Tecate franchise up 7.2% yr-to-date in Nielsen, while Dos Equis lager up 6.3%, and Strongbow up 20.5%, as HUSA shared.  Those are HUSA’s core 4.  Dos Equis Lager also up 10% on-premise, noted Ray. And Strongbow gained 2 share of declining cider segment.

But some other more troubling trends (not shared by HUSA) appeared in Goldman Sachs report last week.  Newcastle continued down 22.6% for 12 weeks thru Jul 16 in Nielsen, while Heineken Light off 13.6%, Amstel Light off 9.9% and new acquisition Red Stripe also off 13.5%.   HUSA did note that Heineken Light trends had improved 4 points in recent weeks. Those brands not core 4 for HUSA, but still accounted for about 1 mil bbls of volume in 2015. 

Other more positive notes from HUSA. Tecate Michelada is small but doubled in Nielsen.  HUSA’s natl accounts programs are reaping some dividends as HUSA up mid-single digits in Wal-Mart and c-stores, shared Ray.  And with Heineken in “the green,” Dos Lager “up mid-single digits” with a new campaign coming in the fall, Tecate Light “still on fire” and Strongbow “up double digits in Nielsen,” HUSA sees itself doing well with plenty of opportunities.  Its 2017 plans will be shared with distribs in meeting this fall.

Globally, Heineken outperformed its principal rivals in terms of volume growth with ease.  Volume up 4.1% in 1^st half, while ABI “own beer” down 1.1% and SABMiller lagers up slightly.  It also grew profits double digits. But its operating profit beia (before exceptional items and amortization of acquisition related intangible assets) margin is only 16.9%.  And while that’s growth of 124 basis points, it’s only about half the margin of ABI.  Heineken also warned on currency effects and slowdown in Africa. Stock down 3% today at presstime.  

Suddenly, MC has amassed more meaningful position in craft across different geographies.  Just one week after MillerCoors increased its investment in Terrapin to get majority interest in Ga brewer, it made another key craft move on the opposite coast.  MC will buy majority of Hop Valley, one of fastest growing craft brewers in Pac Northwest in recent yrs.  That follows acquisition of majority of Saint Archer late last yr.  Now MC has control of 3 craft brewers that sold 135K bbls or so last yr.  Hop Valley sold 39,000 bbls last yr and up 37% thru May this yr in Oreg, according to Oreg Liquor  Control Commission.  Its $$ sales also up 76% nationally in IRI foodstores thru Jul 10.  First Beverage handled the transaction for Hop Valley.

Talk about “immediate effects.”  Hours after China cleared ABI-SAB came announcement that SABMiller board “intends to recommend unanimously” AB InBev’s final offer.  Decision was “difficult,” said chairman Jan du Plessis “given changes in circumstances” since board originally recommended deal.  Value impacted since then “most importantly” by Brexit vote and falling pound and “re-rating of comparable companies.”  That made decision “more challenging,” Jan wrote, adding “we believe the final cash consideration of £45 per share to be at the lower end of the range of values considered recommendable.”  But recommend they do.  Jan praised SAB exec team for staying focused and continuing to “further enhance the value of the business.”    With regulatory conditions clear, SAB bd and mgmt “will continue to work constructively with AB InBev to bring about successful completion of the transaction as soon as practicable,” Jan concluded, echoing comments from AB InBev earlier today.        

Two big positive developments for ABI-SAB in last 24 hours.  After AB InBev announced Q2 results, it welcomed “conditional approval of China’s Ministry of Commerce” of ABI-SAB.  Condition is that deal closes.  So: “all preconditions to the proposed combination have now been satisfied,” ABI announced, and it will move to closing “as quickly as practicable.”  Then too, “major SABMiller shareholders have signaled they favor” deal, wrote Bloomberg, naming handful of investors “among those prepared to back the offer.”  That included Elliot Management, one of the public critics of the deal.   Sources say “many shareholders view the takeover’s potential collapse as a larger risk than accepting an offer that falls short of their expectations after AB InBev said its improved offer is final,” wrote Bloomberg  Indeed, Brito reminded investors of this during conference call after Q2 announcement. “This offer is final and cannot be increased or otherwise changed,” he said, adding: “We believe the revised and final offer represents a compelling opportunity for all SABMiller shareholders,” reports Reuters. One of SABMiller’s 20 largest investors told the news service: “We are at a natural point for this business to move on and become part of a bigger company, so to reject this now, you just wonder what things would be like.”  Recall, SABMiller chairman said last week the board would review ABI’s new bid and “look at the transaction as a whole” after Chinese approval gained.  It’s their move. 

AB had a good qtr in US with improved sales trends, solid pricing and earnings growth.  AB sales-to-retailers were down 0.9% selling-day adjusted in the 2d qtr, about a point better than MC (down 2%).  AB STRs down 0.7% for half.  AB figures it lost 35 basis points of share in qtr and 40 bps in 1^st half, about 25 bps better than 2015. But AB also shipped a bit extra headed into summer.  Shipments up 0.5% in 2d qtr and down just 0.3% in 1^st half on organic basis.   

Both Bud and Bud Light continue down low single digits, so AB’s improved sales led by Above Premium, which “performed very well” and gained a half share, sez ABI.  Mich Ultra up more than 20% in qtr, while Stella and Goose Island each up double digits.  Estrella Jalisco has “performed very well.”  Mkt share trends “improving” within near beer too, “helped by new innovations and flavors within the Rita’s family” (Editor’s note: Watermelon, more so than Splash, INSIGHTS hears), “as well as volume growth from the Best Damn portfolio of brands.” 

AB revs up 2.3% to $3.7 bil in qtr and 1% to $6.9 bil in half.  Revenue per bbl “grew by 1.8% in the qtr, driven primarily by our revenue management initiatives and positive brand mix.”  This is yet more evidence that there is no price war in the US beer biz.  And AB also returned to earnings growth in US. EBITDA grew $66 mil, 4.8% to $1.5 bil in qtr, and up 3.6% to $2.8 bil in 1^st half.  EBITDA margin “expanded by almost a full percentage point.”  At 40.6% in 1^st half. 

Global Challenges; $1.8 Bil Hedging Hit, Brazil, Etc; But Better News on MegaBrew While AB had better qtr in US, ABI faced several challenges globally.  Total global volume down 1.7% in qtr, with “our own beer volumes” down 0.8%.  ABI reduced guidance in Brazil based on continued tuff mkt challenges there. And ABI had “huge drop” in 2d qtr net profit as “it reeled from a $1.77 billion hit tied to foreign exchange hedging toward its $100 billion plus beer megamerger,” wrote WSJ this morn.  “Another poor quarter from ABInBev,” wrote Exane BNP, “that’s four out of the last five quarters now.”  Still, biggest current challenge of all, getting MegaBrew done, looked much better this morn with news that Chinese authorities approved the deal and big SABMiller shareholders support the offer.  Read on.  

Flurry of activity followed SABMiller’s decision to pause what ceo Alan Clark called “convergence planning workstreams” on ABI-SAB in internal memo yesterday, reported broadly as full stop to ongoing “integration” work.  “This means there should be no contact with AB InBev with immediate effect,” he wrote.  Alan acknowledged in memo that pause “will cause lots of internal and external speculation.”  He was right.  Among the immediate effects, Molson Coors stock price dropped 9%, as we noted yesterday, then recovered.  ABI and SAB shares dropped modestly, but not dramatically, after Euro mkts reopened.  Then too, biz media speculation went into higher gear, already revved up by ABI’s bumped up bid and continued criticism of deal’s structure from some SAB shareholders.  ABI-SAB “hit a snag,” featured Bloomberg.  “AB InBev takeover stalls,” headlined South Africa’s BD Live.  And while lots of attention paid to stock prices, Bloomberg also reported yesterday that “Megabrew’s frothy bond yields seen shaky as deal in disarray.”   What looked like great investment when AB InBev sold the bonds to pay for the purchase has morphed into “simmering concerns that the yields they were being promised will prove short-lived.”  Tho one part of offering traded near $1.10 on the dollar earlier this month, Bloomberg reported, “now the bonds are falling closer to 101 cents, because that’s the price at which bondholders would have to sell their debt back to AB InBev if the deal falls apart.”

Odds Still Good for Deal to Get Done, Say Analysts  ABI’s not commenting on pause’s potential impact on deal.  Neither are Molson Coors, Asahi or China Resources Holding, whose deals to acquire significant volume are at stake.  (Yes, half of the globe’s top 10 brewers have significant skin in this game.)  SAB’s not commenting beyond statement last week that the board will “look at the transaction as a whole” after Chinese authorities clear the deal.  A few financial analysts have opined.  “We believe the odds are well over 50%,” the deal gets done, EverCore ISI’ Robert Ottenstein told INSIGHTS, reflecting his reports.  “Vast majority” of large SABMiller shareholders he’s talking to “want this deal to get done” and “will be upset” if SABMiller board doesn’t get it done.  Stifel’s Mark Swartzberg said “we do not consider” pause “a sign SAB is considering changing its recommendation” of the deal, which he still gives a 90%+ chance of closing this yr.  “Rather, we believe it is a symptom of fiduciary duty.”  He believes ABI has counted the votes correctly to get deal done with bump in its bid.  In this morn’s Wall St Jnl, reporter Stephen Wilmot also suggests deal has enough shareholder support and  “chances are the deal will still go through this year.” Redburn’s Chris Pitcher seconds the notion that SAB board doin’ its duty.  Announced pause “does not strike us as that dramatic,” Chris wrote, given earlier announcement SAB will review revised offer.  Simply, “revised offer changed the circumstances.  If there is a chance the Board may not recommend the new offer, and the holding statement kept their options open, then it seems prudent, to us, to cease interactions with AB InBev.”  Given current “variables at play,” Chris believes, “it serves the SABMiller board to wait” for Chinese govt to speak and ABI to announce its Q2 results.  The latter will be tomorrow’s new development with its own immediate effects, no doubt.  Stay tuned.

Lex Lays it On the Line; ABI-SAB as “Unacceptable Face of M&A”  Per usual, Financial Times column Lex provides pithy take on all this. ABI-SAB saga “hardly an edifying spectacle,” sez Lex. “A deal structured to limit tax obligations for certain shareholders and whose financial logic stretched credulity is now threatened by speculators trying to wring extra money out of the bidder using flimsy arguments.”  All this is example of “the unacceptable face of M&A,” Lex suggests.  While partial share offer now significantly more valuable than cash offer, “currency volatility is a fact of life” and no one complains when “a strong greenback boosts the sterling value of their dollar-denominated dividends.”  Then too, SAB shareholders have always had option to take partial share alternative, so “it is a bit late in the day to be crying foul about the deal structure.”  (Note: one of the loudest critics, Aberdeen, sez it has criticized structure from the beginning.)  Lex concludes: “SAB shares trade just under the new price, suggesting investors believe that ‘final’ means just that.  Those worried that the deal might yet collapse should resign themselves to remaining SABMiller investors – or sell the shares now.”    

While Diageo spirits in North America returned to relatively robust 3% depletions growth, its beer and FMB unit, Diageo Guinness USA still somewhat sluggish overall.  DGUSA volume declined 3% on reported basis, but it had flat “organic movement.” (Editor’s note: “organic” presumably takes out Red Stripe for both yrs. It was sold to Heineken.)   

FMB volume returned to growth.  Up 4% on organic basis, 1% on reported basis (perhaps discontinuing some brands).  Organic net sales up 7%.  “Launch of Smirnoff Electric and a solid performance of Smirnoff Ice, which benefited from new flavors and packaging, drove net sales growth of 7%,” reported Diageo.  But beer volume dropped 3% organically “largely driven by a decline in Smithwick and Harp’s,” said Diageo.  Beer volume down 7% on reported basis (again no Red Stripe this yr).   Guinness Nitro IPA “offset the net sales decline of Guinness American Blonde Lager, which lapped the previous year launch, and Guinness Draught which continued to be impacted by a crowded craft beer segment.”   

Total DGUSA volume up 121,000 cases, nearly 2% in IRI multi-outlet + convenience yr-to-date thru July 10. Its top 4 brands, Smirnoff Ice, Guinness Draught, Guinness Extra Stout and Smirnoff Screwdriver, are all flattish.  Smirnoff Ice down 0.6%, Guinness Draught down 0.1%, while Guinness Extra Stout up 0.4% and Smirnoff Screwdriver down 0.7%.  They represent 56% of DGUSA volume in IRI MULC.  That means rest of DGUSA would be up 4-5%, even with Smithwick and Harp down.  Means DGUSA got significant bump from Electric, new Smirnoff flavors, Guinness Nitro IPA, etc.  

That “person familiar with the matter” in the beer news again.  Bloomberg, WSJ and others cite source who sez SABMiller “hit the pause button on its integration work with” AB-InBev over pending deal, as WSJ wrote.  European mkts already closed, but Molson Coors stock took a quick 9% plunge when story broke in financial press just after noon Eastern time today, before recovering slightly.  SABMiller had been “working with AB InBev on integrating finance, technology, procurement and certain supply chain functions,” source told WSJ, tho there’s limited amount of integration work that can be done before a deal closes, we understand.  May hinge on your definition of “integration.”  Pause reportedly called after ABI announced “final” bid.  Meanwhile, several articles appeared in press yesterday questioning whether actions around falling value of British pound “could sink Megabrew tie-up,” as Financial Times put it.  So, here’s yet another twist in a story with near-daily developments.