Yuengling’s 6^th generation, owner/prexy Dick’s daughters Jennifer, Wendy, Debbie and Sheryl welcomed media (including BMI) Apr 4 in Pottsville, PA to kick off its 190^th Anniversary celebration. Dick himself was on hand as well as co paid appreciation to generations before them and looked to future.  “This year we are celebrating 190 years of hard work, perseverance and resiliency,” said Jennifer.  “Guided by these principles, each generation of Yuengling’s has impacted the family business and helped us survive to become America’s oldest brewery,” Jennifer added.   Noting that, “We are a family business first,” she added, “When we say family, we don’t just mean the 5 generations of ancestors that preceded us,” but also “employees and fans that have shown support and dedication throughout the years.”  “As the 6^th generation, we are inspired by our past and stay disciplined to our values.  We are focused on new challenges and more importantly, new opportunities to help maintain the business for the future generations to come,” declared Jennifer.  To think of all the brewers that have closed, sold, merged or were taken over in almost 2 centuries, Yuengling certainly deserves to enjoy this milestone. 

AB veep of communications Gemma Hart will leave AB after 3 yrs to join Danone North America as veep of communications and community affairs.  Under Gemma, AB built out its communications functions. At Danone, she gets what she told PR Week is “a blank sheet of paper in the US” and a “transformational opportunity.”   Given “great team” at AB, transition “will be seamless.” AB is “fantastic,” Gemma added, so move “bittersweet.”

Big news in wine and spirits world as merger between #2 and #3 wholesalers fell thru 18 months after it was first announced on Nov 20, 2017.  Decision to terminate deal made “after a protracted review by the FTC” [Federal Trade Commission], release said.  The 2 cos originally expected to close in Q2 2018 and form a $12 bil co.  RNDC doesn’t sell much beer, but Breakthru is unconsolidated MC distrib in Vegas, Minneapolis and sells craft/imports in Colo.  Unclear what, if any implications, breakup has for Breakthru’s beer operations.

Day after Beer Inst economist Michael Uhrich predicted another 1-2% decline for overall beer volume this yr comes mostly pessimistic report from Goldman Sachs’ Judy Hong.  She doesn’t see “surging” FMB growth improving overall biz, as “FMBs appear to be sourcing volume from the broader beer industry.”  She also sees “core” beer continuing soft.  So, “we forecast overall US beer industry volume…to decline by -1.3% in 2019 and at a similar decline rate of -1.3%-1.4% in the out years,” thru 2022.  

While Constellation still “well-positioned in the high end” with its core beer brands and has oppy to get “modest growth” in FMBs from Refresca and other entries, prospects for AB, MC and Boston not so positive, in Judy’s view.  Indeed, Judy tweaked trends for all 3 downward looking forward.  For AB, she shaved a half-point, projecting -2.5% trend for next 3 yrs, with “Michelob Ultra’s growth to slow, offsetting a moderation of declines for the Budweiser family.”  At MC, Judy sees -3.4-3.7% annual declines over next 3 yrs, about a full pt steeper than earlier estimates, again as core beer declines “persist” and “stepped up focus on FMB innovations (in particular Cape Line cocktails) are unlikely to offset declines in Redd’s.”  AB and MC both under-shared in FMBs, Judy notes.  Meanwhile, she expects “core” beer biz in US to continue down -4.4-4.5% “per year in 2019 and beyond.”  Ouch.  Over at Boston Beer, Judy downgraded stock to “sell” as she sees “headwinds in 2019 as competition intensifies and the company is unlikely to repeat its innovation success again this year.”  Specifically, she projects Boston growth to slow to +6.6% in 2019, 6% in 2020, down from previous estimates of +8.2% and +6.7%.  That reflects “slower growth from Twisted Tea and resumption of declines for Angry Orchard starting in” Q2 this yr.  Boston stock down 4% today. 

Judy sees nothing but blue sky tho for FMB segment.  She pegs FMBs at 5 share now, after double-digit growth in 2018.  Expects segment growth to accelerate to +18.5% in 2019, gaining another full share, 11.5% growth in 2020, with FMBs reaching 7 share by 2022.   FMBs, she sez, “resonate well” with consumers given their interest in flavors, “health and wellness positioning” for some brands and convenience of cans.  Distribs and retailers like FMB margins, given higher price points, plus their higher velocity than leading craft brands, “a very favorable combination, in our view.”

Leading up to Craft Brewers Conference next week, lotsa action in craft deals that illustrate just how much craft landscape has changed.  First, Avery announced that it would sell another piece of itself to Mahou, which already owned 30%.  Now Mahou will own 70%, while founder Adam Avery and family own the rest. Avery sold 54K bbls last yr, down double digits. But it’s up double digits so far this yr.  Recall, Mahou also owns 30% of fast-growing Founders.   And on 4/4, Ninkasi sold majority to Legacy Breweries, a new craft rollup platform, as first reported by Brewbound.  Legacy funded by family office called Blue Ocean and REIT called EPR. It’s looking to add at least 2 similar sized breweries in other parts of country.  Ninkasi sold 94K bbls last yr, down 1.5% last yr and flat so far in 2019. 

Both Avery and Ninkasi built big breweries and had a ton of debt.  Deals they struck get ’em out of debt crunch and left ’em still in the game. But they got far from fortunes they might have a little while back, INSIGHTS understands. 

Even Stone is scaling back. It has deal to sell its Berlin brewery and taproom to BrewDog.  “Ultimately our project in Berlin turned out to be a bit too aggressively big and bold, and a little too far from home for Stone to continue to operate,” said founder Greg Koch in Morning Advertiser, sounding more humble than arrogant.  Recall, Stone got capital infusion from private equity firm to go out and acquire other craft brewers in venture called True Craft.  But no deals ever materialized.   For most of a yr, INSIGHTS has heard that Stone is peddling parts of itself.  Is deal to sell Berlin just the first to come to fruition?   

Ballast Point Took $108 Mil Impairment Charge; Gordon Biersch Sells Piece to Fox Family Biggest symbol of fortunes paid for some craft brewers a few short yrs ago remains Ballast Point, which Constellation acquired for a whopping $1 bil in late 2015.  But even while Constellation biggest winner overall in US beer, this acquisition hasn’t gone as planned, to put it mildly.  Indeed, Constellation just took a $108 mil “impairment charge” on Ballast Point, cfo David Klein said yesterday on conference call.  That followed a previous $87 mil charge. Recall, Ballast Point lost over a quarter of its volume last 2 yrs; down 95K bbls, 26% from 2016 peak of 370K bbls.  Ballast Point $$ sales down 19% in IRI MULC yr-to-date thru 3/24.   “While this investment has not met expectations as the craft marketplace has slowed since our acquisition,” David understated, “it has increased our leadership position in the high-end of US beer, and provided us an innovation and operating platform in the craft and specialty category to contribute to future growth.”  

And finally, the Fox family is back in beer. Founders of longtime AB San Jose distrib ME Fox & Co, which embraced craft, imports and NAs early on, Fox family just took 15% stake in Gordon Biersch, partnering with ceo Dan Gordon. Fox led capital round that got co-founder/ceo Dan Gordon over the hump in adding 250-per-minute Krones can line due this fall.  The partners hope the addition will make Biersch a go-to resource for growing craft brewers and NA.  Almost 90% of Gordon Biersch biz these days is contract production.  More details in Beverage Business INSIGHTS. 

As underlying economic, demographic and competitive conditions, plus premiumization in beer, continue apace, US beer volume trend in 2019 likely to be in same range as dropoffs in 2017 and 2018, Beer Inst economist Michael Uhrich said during State of the Industry webinar this afternoon.  He projects “a fairly rough year” in 2019, with volume down between 1 and 2%.  Without much change in GDP, household income, unemployment, spending on beer, “we’re not likely to see a lot of change” in volume trend, Michael added.     

Premiumization, Higher ABVs as Dampers on Volume  While premiumization a big buzzword in beer (and spirits and wine) these days, and embraced by many in the biz, trading up “decreases volume,” Michael pointed out, at least in beer.  Looking at IRI off-premise data shows that avg household that buys economy beer purchases about 15 cases/yr at avg price of $15 or approx $225.  As prices rise, volume dips.  So, avg premium-oriented households buy about 11 cases/yr, spending about same amount. But that dips to avg 5-6 cases/yr for imports, craft and superpremiums, IRI data shows.  FMBs/cider volume/household even lower.  Another intuitive point that Michael puts some numbers to, via IRI: “Light styles have higher average sales.”  Plotting avg household purchases along scale of higher (4.6%+) vs lower ABV (<4.6%) and price points, indicates more cases sold at lower ABVs, “at every price point,” Michael said.  Gotta keep in mind that this is off-premise only.  In any case, this data (and Michael’s 2019 projection) supports Constellation execs’ expectations that it will take a few more yrs before premiumization drives volume growth in US beer biz.

Is Recession “Good For Beer?”  A “Mixed Bag,” Sez Michael   Amid signs that recession could be looming in 2020 or 2021 (i.e. movement in long-term interest rates vs short-term interest rates), Michael was asked if recession “good for beer.”  “A mixed bag,” he responded.  Some folks might switch to less expensive products, and that could mean less volume and share loss for mainstream/economy segments, and possibly less share loss to wine and spirits.  But beer “likely to decline in case of recession as well,” Michael opined.

Whither Craft?  Taprooms as Damper on Volume  Recall, BA reported 4% volume gain for craft in 2018 earlier this week.  But as Michael defines category, including big brewer craft brand entries like Blue Moon, Shock Top, he estimates craft actually down 0.5% in 2018.  That’s despite 16% gain on “own-premise”/direct sales volume, i.e. taprooms, brewpubs.  Why the dropoff?  If you’re moving craft purchases to taprooms instead of grocery stores, Michael suggested, same $10 might get you “a single pour” instead of six-pack.  Thus, switch to taprooms “results in less volume,” he believes.       

Constellation ceo Bill Newlands began conference call this morn emphasizing “increased” media investment.  And no wonder.  Marketing will reach 9.5% of sales for Constellation Brands beer division in fiscal yr that began Mar 19, said cfo David Klein.  Since its revs $5.2 bil in fiscal yr that ended in Feb, and it expects high single digit growth, that amounts to over $500 mil Constellation will most likely spend in fiscal 2020 (Mar 19-Feb 20).  That’s a lot of moolah.    

Corona spending will go up in both English and Spanish language, including  #1 share of voice during NBA playoffs and finals.  Constellation expects Corona family to grow mid-single digits in fiscal 2020, following 7% growth in yr thru Feb (depletions).  Premier spending will be up double digits, with natl tv Mar-Oct. Constellation expects Premier to grow 30-45% in yr 2.   And Modelo Especial will also get its “biggest ever investment,” both Spanish language and English. In last 3 yrs, general market consumers of Modelo Especial jumped 60%, said Bill. But still only 5% of drinkers tried Modelo Especial.  Meanwhile it is #1 brand in state of CA, grew double digits in 41 states, grew 25% on premise and is #1 in 7-11 chain. All of which leads Constellation to believe there is “long runway” for growth.  More details in Beer Marketer’s INSIGHTS.

Constellation Brands Beer Division reported revenues of $5.2 billion, up $542 mil, 11.6% in fiscal yr ended Feb 19.  And oper income up $203 mil, 11% to $2.04 bil.  In other words: more stellar results.   Shipments jumped 26.1 mil cases (1.9 mil bbls), 9.7%  to 294 mil cases or 21.3 mil bbls.  That’s nearly 1 point ahead of depletions, up 8.8% for full yr.   In Q4, shipments up 8%, same pace as depletions.  Shipments in Q4 “exceeded expectations, primarily due to timing,” said Constellation. Inventories “higher than planned due to muted depletion trends at the end of the quarter driven primarily by poor weather conditions for the West Coast during February.”   That “benefit” expected to reverse over course of fiscal 2020.  

Corona Family Topped 150 Mil Cases; Modelo Family 125 Mil Cases  You want more milestones?  You got ‘em.  Corona brand family shipments clocked in over 150 mil cases.  Up 7%. And the Modelo brand family at 125 mil cases, up 12%.   Combined Nava and Obregon capacity climbed to 34 mil hectoliters.  That’s about 29 mil bbls. Constellation Brands Beer Division said it expects net sales and oper income up 7-9% in fiscal yr ended Feb 2020.  

Constellation Sells Off 34 Wine Brands to Gallo for $1.7 Bil; Proceeds to Pay Down Debt   Long in works, Constellation finally sold off big chunk (40%) of its wine biz to Gallo for $1.7 bil. Wine brands it sold had $1.1 bil in revs in latest fiscal yr, Constellation said.  Included lotsa well known brands like Clos du Bois, Black Box, Ravenswood, Mark West, Franciscan, Toasted Head etc.  “Prices from the the Transaction are expected to be used primarily for the repayment of debt,” STZ added.

Price was “less than our expectations,” wrote Wells Fargo’s Bonnie Herzog, tho she also said: “we view this transaction favorably since it should remove an overhang.”  Still it’s “likely dilutive” to earnings for 3 yrs, said Macquarie’s Caroline Levy, who added she was “surprised” that brands sold included Black Box, its #2 brand in IRI at 18% of sales. 

Constellation Beats Analyst Expectations; Stock Up; Border Shutdown Possibility?  Constellation earnings ahead of consensus, sez Seeking Alpha and revs $70 mil above consensus.  Stock up 3% pre-market, perhaps on earnings beat, or Gallo divestiture.  Yet another potential overhang cropped up in recent days as President Trump has talked of closing off  Mexican border (tho he has since seemingly walked that back).  Obviously, that could have big effect on Constellation and HUSA and they are concerned.  In a long article about shutdown possibility in Congressional pub the Hill yesterday, beer headlined as one of 5 areas that could “take a hit if Trump closes Southern border.” In beer, “a border slowdown would much more quickly be reflected in higher prices or lesser availability of beer on store shelves.”  But border issues aside, STZ still put up big #s.  

BA estimates craft brewers added 15K jobs, +11% in 2018, to total of just over 150K jobs.    

Corona Premier signed multi-year deal to partner with US Golf Assn on major tournament US Open, this yr at Pebble Beach, Jun 10-16.  Golf a staple of Michelob Ultra mktg for many yrs, so this move by Premier is in part an incursion into Ultra’s well-trod turf.  Premier is “going all-in on golf strategy,” Forbes piece said earlier this week. Premier gets category exclusivity with the US Open.  Premier grabbed a half share of $$ last 4 weeks thru 3/23 in Nielsen all outlet.  But it’s now beginning to lap intro #s.  Up just 0.2 share of $$ for 4 weeks.  It’s at 0.4 share yr-to-date, but up 0.4 share YTD.  So even while Premier more than doubled, $$ up 111% for 4 weeks, share gain has slowed.