Between pay-to-play, TTB and DoJ, lotsa scrutiny of beer biz by state and fed regulators this yr. Yesterday, DoJ and Environmental Protection Agency announced settlement with Yuengling over “serious violations of [Yuengling’s] Clean Water pretreatment discharge limits,” which govt sez posed “potential risk” to drinking water from river near Pottsville, PA plants.  Yuengling agreed to $2.8 mil penalty and to make $7 mil investment to improve wastewater pretreatment, govt agencies reported.  Yuengling statement said it actually made $8 mil investment that’s already up and running.  Govt cited 141 separate violations from 2008 to 2015, for discharges that exceeded limits of “biological oxygen demand, phosphorus, zinc and pH.”   Yuengling said wastewater “not toxic or hazardous,” but acknowledged organic materials in wastewater “can upset the sewer authority’s treatment process.” New system completed in Feb and “started operating in March.”  In addition to investment and fine, Yuengling will adopt new procedures to assure compliance, beef up reporting/auditing systems and hire 3d-party consultants.

Meanwhile, Dept of Labor’s OSHA arm cited MillerCoors for safety violations in Ft Worth plant in wake of investigation of incident where employee lost a finger, reports Law 360.  Turns out lathes in brewery’s machine shop lacked safety guards and stop controls. OSHA tagged MC with “willful” and “serious” violations.  MC will pay $77,000 penalty.  And issues “have already been remedied,” it sez.     

In never-ending review by South Africa’s Competition Commission of ABI-SAB, Heineken just weighed in with its own concerns.  Turns out that competing vs brewer that has about 90 share, as SAB still does in South Africa, can be a challenge.  ABI-SAB would not add to that share, but would have the ability to bring in hundreds of new brands to add to it.  So Heineken lawyer took oppy to ask Commission to end “unsavoury and dirty tricks” it claims SABMiller engages in at retail, secure more refrigerated space for competitors and prevent ABI-SAB from “giving outlets incentives to charge higher than the retail price for SABMiller’s competitors’ products,” reports BDLive and Cape Times.  Current conditions on access “are vague and ambiguous,” Heineken’s atty said, and warned that “in a few years’ time there’s not going to be any other beer companies in the market.”  SAB used to have an even higher share in SA, but it has retained a remarkably strong position in the mkt fending off other global players.  Then too, AB InBev agreed to sell off SAB’s stake in SA alc bev producer Distell earlier than the 3-yr time frame it had originally agreed to.   ABI-SAB also still needs to iron out some issues with the Food and Allied Workers Union, tho the union has dropped out of the regulatory process, reports Bloomberg and Reuters.  Coming next, no doubt: demands by automakers to require ABI-SAB execs to drive specific makes and models in South Africa and mining companies’ insistence on minimum annual diamond purchases for spouses.

Now that we are thru first key summer holiday period and dust has settled, here are IRI multi-outlet + convenience natl results thru Jun 12, incorporating before and after Memorial Day, smoothing out holiday period at last.  Total beer biz did well last 4 weeks; volume up 1.5% in IRI MULC, compared to 0.8% gain YTD.  As noted, AB outperformed MC, but it did not gain share.  AB volume up 0.5% but it lost 0.5 share of volume for 4 weeks, while MC down 1.1% and lost 0.7 share.   That compared to yr-to-date share loss of 0.75 for AB, 0.6 for MC.  Another way to look at it: AB volume down 0.7% YTD, while MC down 1.5%.  So about 1 point difference in trends YTD (0.8%), but 1.6% trend difference last 4 weeks.

Constellation kept cookin’.  Volume up 13% for 4 weeks and 12.8% YTD.  But yr-to-date, co’s case growth of about 5.3 mil cases is slightly more than beer category as a whole.  Last 4 weeks, Constellation captured less than 2/3 of category growth as total beer did better.  Constellation gained 0.76 share of volume and 1.05 share of $$ YTD.  Meanwhile, craft slowdown continued.  Up just 5% last 4 weeks, gaining 0.24 share of volume and 0.45 share of $$.  That compared to 6% growth, up 0.35 share of volume and 0.6 share of $$ YTD.  

The 2d biggest $$ share gainer in beer this yr remains Pabst, but it too is slowing some.  Pabst volume up 7.6% and $$ sales up 22% YTD. It gained 0.3 share of $$.  But volume growth slowed to 3.6% last 4 weeks and $$ sales up 11%.   Up 0.1 share of $$ last 4 weeks. Another interesting departure in latest 4 week trends: New Belgium returned to solid growth and was easily best performing of the top 3 craft brewers.  Up 4% last 4 weeks, while Boston -3.6% (not including Alchemy & Science; with Alchemy & Science, Boston volume down 1% for 4 weeks), Sierra down 6.5%,  Gambrinus down 7.5%  and CBA down 6.6% same period.  Ouch.  At least, Lagunitas still rollin’ along at +20% clip.  New Belgium in new big mkts like NJ (not captured in IRI) and NY and also has hit on its hands with Citradelic.   

Thank goodness for Leap Day.  Big Feb taxpaid shipments gain still keeping yr-to-date trend in the black, but not by much.  In May, domestic brewers’ taxpaid shipments slipped 41K bbls, 0.3%, estimates Beer Inst economist Michael Uhrich. Including some TTB adjustments for 2015 and 2016, that reduced yr-to-date taxpaids gain to 64K bbls, 0.1%.  With import surge of 734K bbls thru Apr, means known YTD increase about 800K bbls, 1%.  Not much data on domestic cider shipments yet, but import cider down thru Apr and scan trends point to dropoff.

Two week natl data INSIGHTS reported thru Jun 5 was IRI multi-outlet, not multi-outlet + convenience (MULC), meaning it did not include c-stores.  INSIGHTS regrets the error.  Florida #s also multi-outlet, while LA MULC.   

Solid growth continues for spirits biz in control states, tho month-by-month numbers choppy this yr, as they’ve been for beer.  May volume +2%, NABCA reports, +2.5% for 5 mos thru May and on 2.8% gain pace for 12 mos.  That 12-mo volume trend pretty stable since this time last yr.  Dollars running up 5.3% for 12 mos.  

Just as a blue moon can be 2d appearance of full moon in single mo, US District Ct judge Gonzalo Curiel in Calif just dismissed plaintiff’s lawsuit vs Blue Moon for 2d time in less than a yr.  (If that name sounds familiar, he’s the judge being attacked by Donald Trump over latter’s “university.”)  And this time, Judge Curiel closed off plaintiff’s ability to amend.  Indeed, “amendment would be futile,” he concluded.   Just as he tossed Plaintiff’s first set of arguments that MC misleadingly labels, advertises and markets Blue Moon as “craft,” judge similarly rejected 2d round of arguments, ruling that: 1) “reasonable consumer” would not be misled by Blue Moon ads; 2) MC not liable for 3d parties “representing” Blue Moon as craft; and 3) Blue Moon pricing itself not a “representation” that it’s craft.  As he has all along, judge refused to define “craft.”  (This article appeared in our Craft Brew News publication Jun 17.)

Specifically, Judge Curiel found 3 internet ads which portray history of brand and profile brewer/creator Keith Villa to be “non-actionable puffery” that did not misrepresent Blue Moon.  Then too, since plaintiff didn’t show MC had “unbridled control” over distribs or retailers, including concert/sports venues, to require Blue Moon to be sold as craft, MC can’t be liable for their actions.  Finally, pricing “cannot constitute a misrepresentation,” he flatly ruled.     

SABMiller ceo Alan Clark pay package fell 17% to $8.7 mil in fiscal yr ended Mar 31, Financial Times reported.  His salary and bonus were each $2.5 mil, both significant increases.  His long-term incentives cut almost in half to $3.6 mil or so.  When ABI-SABMiller deal closes, Alan stands to get about $81 mil, $50 mil or so from longterm shares, the rest from “vesting… triggered by the change of control at SABMiller, and from termination payments,” wrote FT. 

Reminding that Constellation share price “up almost 8-fold over the last 5 years,” and acknowledging similar returns not likely to repeat, RBC Capital Markets Nik Modi still sees plenty of positives in co performance and prospects.  Given “magnitude AND duration of” STZ’s rev and EPS growth curve, and his expectations of 8% rev/9-10% EBIT growth over next 3 yrs, Nik figures that amounts to “level of growth that exceeds the average of the consumer staples sector by a factor of 2X.”

What’s more, this rosy scenario already reflects some reduction in beer volume growth, Nik notes, tho offset by improved wine prospects.  Indeed, parsing scan data and reviewing recent survey of 30 Constellation distribs, Nik knocked back his estimate of organic beer volume growth for fiscal Q1 thru May from +12 to +8-9%.  That still leaves estimate of 13% for overall beer growth, given incremental boost from Ballast Point.  Constellation “not immune” to some negative industry-wide impacts, Nik suggests, i.e. lousy weather, lapping gas price “tailwinds” and other factors “weighing on the c-store channel traffic.”  Still, both Corona and Modelo continue to gain share, he points out.  That’s even as Modelo Especial “is starting to take some of the Corona volume.” 

All in, Nik expects Constellation “on pace to deliver on its 14-17% revenue growth assumption for the year,” as well as a “very strong June.”  While STZ beer may be slowing slightly, “wine really starting to get its mojo,” Nik believes.  Credits new chief growth officer Bill Newlands for already having “positive impact” and thinks STZ can get mid-single digit rev growth and margin improvement from wine/spirits.  Then too, combo of “wholesaler consolidation and cross category consumption” in alc bevs gives Constellation “distinct competitive advantage,” Nik believes. Why’s that?  Constellation has “scale” to get “priority attention” from distrib partners, plus the “portfolio” and “the emerging consumers insight engine” to reach those increasingly promiscuous consumers who drink across alc bevs (3 of 4 drink more than 1 type, sez Nik).  “We believe the company is just now starting to leverage this advantage.”

Recently closed Great State deal in New Hampshire is good example of how complex beer distribution deals are becoming these days, even if the selling distrib ain’t all that large by today’s standards.  Great State deal involved 131 different suppliers, noted consultant Joe Thompson, including 66 beer suppliers, 61 NA suppliers and 4 wine cos. Think about getting all those approvals.  In general, distribution deals “are getting harder and harder to do,” said Joe.  Great State’s beer volume in all a little less than 2 mil cases, NAs a little less than 1 mil cases, including Mass operation. 

Beer volume mostly went to New Hampshire Dist.  New Hampshire acquired about 1.2 mil cases of beer and 600K of NA and will be about 6 mil cases all in, New Hampshire prexy Chris Brown told INSIGHTS.  New Hampshire Dist will sell over half of AB volume in state.  Some craft beer brands went to MC distrib Amoskeag (half owned by HOBO), including Dogfish Head, Allagash, Brooklyn.  Flying Dog went to Craft Brewers Guild of NH (a Sheehan Family Co), and some other craft brands went to fellow AB distribs Bellevance and Clarke who are part of alliance with New Hampshire selling craft brands.  Mass NA biz split between Polar and Dari Bevs so far.