Late last week, Colorado Governor John Hickenlooper signed controversial “compromise” bill to phase in grocery store sales of full-strength beer, wine and liquor over 20 years. So Colo second state in a week to expand retail options for alc bevs, following Pennsy’s “privatization light” (see last 2 issues of Express). While both states debated merits of change for years, pressure mounted particularly in Colo recently. Indeed, small biz owners (of indie liquor stores, small brewers, others) largely “forced into this compromise by the threat of a ballot initiative,” Gov Hickenlooper believes, according to Colo Biz Journal. “While not perfect,” he signed bill to provide convenience along with “guardrails” for small bizzes, he wrote in letter Friday. He hopes the large chain stores pushing that ballot initiative will drop it, blocking much faster, sweeping change to immediately open up full-strength beer and wine sales to grocers by next summer. That group still weighing its options, including continuing with ballot initiative and even filing lawsuit against just-signed bill.

At same time, a number of Colorado’s largest independent brewers broke with the Colorado Brewers Guild to form a new state trade assn called Craft Beer Colorado. Founding members include New Belgium, Oskar Blues, Odell, Left Hand, Great Divide and others, according to open letter sent to CBG, reported by Westword and Porch Drinking over the weekend. CBG’s lobbying firm Weist Capitol has joined the new group as well. While letter lays out numerous reasons for the break, including “a culture of information control and director behavior that is the opposite of transparent,” one of major sticking points has been by-laws that allow Breckenridge to maintain voting membership after purchase by AB last year. Formation of new group “allows us to establish membership criteria that align with our needs,” the group wrote. “Disappointed” in these brewers’ decision, CBG exec director John Carlson penned his own letter to encourage current members to engage with what he believes is a “positive, open and participatory organization.”

AB prexy João Castro Neves sent this note to wholesaler panel yesterday:  “Congratulations and a Big Thank You for your support in helping us to deliver a Big High 5 market share GAIN in May! Total US market share was positive with five of seven regions gaining share. Both On and Off trade channels were positive with broad based growth across multiple channels.  Gaining share in the first major summer holiday is a significant accomplishment and puts our team in a solid position to win the summer.”  AB’s brand and commercial strategy, João added, “on track,” with distribs AB “changing the game” via Promo Opti, SAP and Macro Destinations programs.  We’ll get updated scans with full Memorial Day tomorrow, but gotta note for 4 wks thru May 28, AB -0.5 share in Nielsen all outlet + convenience scans, -0.7 yr-to-date.   

The “consumer doesn’t care” or “know” about what craft means, who owns craft brewers or other internecine industry squabbles, group of experienced craft execs generally agreed during panel discussion at Brewbound Session in Brooklyn this AM. They don’t care about craft: “I have absolutely no clue what craft means today,” said Alan Newman, head of Boston Beer subsidiary Alchemy & Science. “There’s 1%” of consumers, “maybe, that cares,” he argued. Indeed, consumers don’t care about segment or category lines either: “the consumer doesn’t see these lines,” he said. For them, “it’s not about beer, it’s about a night out.” They don’t care about ownership either. Just look at “your darling coffee companies” to know that private equity ownership, in particular, doesn’t impact choice, Brooklyn Brewery prexy Robin Ottaway said.

To wit, “how could beer consumers possibly care?” New Belgium CEO Christine Perich asked. “Who has time to do their homework?”  Watching consumers pick a brand at a store these days is “painful,” she said, picking up on confusion point made earlier by Alan: “we’re overcrowded” and “demonstrated the ability to confuse the $#*t out of the consumer.” Yet what happens at the back end of all the private equity investments being made into craft is a concern for all these execs. It’s “one of those dirty little secrets” that CBA CEO Andy Thomas doesn’t think is totally transparent or authentic, something many craft companies take seriously and many young consumers value considerably. “We’re only seeing the tip of the iceberg,” Alan posited, suggesting there are as many as 400 brewing companies with some kind of PE money behind ’em. Both Christine and Andy agreed with notion that a tight budget forces careful choices, and an “influx of capital,” as Christine said, paired with a “lack of strategy,” ain’t good. Alan sees “a lot of bad habits going on because of the growth.” So there’s “no question that there’s a correction” that has already started. And that’s “a really good thing,” in his view.

Popping up throughout this conversation, the group revisited and reiterated comments about building overall beer category and defending it against growth of wine and spirits. Note that’s same recurring theme across many conversations at our recent Spring Conference. “We are the ‘beer’ family,” Andy reminded in his opening remarks, questioning brewers that choose to denigrate certain members of that same family. Instead, look at wine & spirits, he urged, and “fight for consumer occasions” and “loyalty.” In his view, “we’re not preserving and protecting the classic beer occasions.” On the other hand, “how do we take beer and put it into new occasions,” Christine asked. But “it’s complicated” and “not black and white,” noted Robin, who commented that “often, consumers like” products that blur category lines.

As expected, Pennsy Gov Tom Wolf signed alc bev bill we wrote about yesterday. Changes go into effect in 60 days. 

Not a lot of brand new news at well-attended Molson Coors Investor Day at NY Stock Exchange yesterday, but some color and nuance to note.  Molson Coors ceo Mark Hunter and MillerCoors ceo Gavin Hattersley suggested they’re seeing some “pushback” at retail regarding space availability for craft and some craft “fatigue” in some mkts, given abundance of choice.  Gavin noted retailers responding positively to MC’s Building with Beer on-premise program that explains how bars make more money with mainstream light lagers and FMBs vs craft and said that tool will increasingly assist off-premise retailers too.  Retailers “asking for help,” Mark added, and shelf sets need to be simplified.  He pointed to a big display of “Chocolate Peanut Butter Stout” he encountered in a Chi store.  Craft biz, in Mark’s view, will “shake out” to a number of “well respected national brands,” regional offerings and a “churn” of local brands.

On pricing, Gavin acknowledged MC’s “biggest competitor” has been “very aggressive” with discounts and promos. “Our intent is to remain competitive,” he vowed.  But both Gavin and Mark said MC aims to build “long-term sustainable” brand equities, MC “knows where we want [our brands] to be” and has strategy worked out with distrib council, all aimed at returning MC to growth. As MC execs have previously noted, FMBs/hard sodas will be “important part” of MC’s commitment to return to growth, as well as above premium and premium lights. That commitment, Mark reminded, adopted before ABI-SAB and Molson Coors deal to purchase SAB’s stake in MC announced. So funding to get there already in place without tapping $200+ mil in expected synergies, they suggested.  MC will roll out “long term strategy” to revive economy brands this fall with distribs, Gavin said again.  What about soft Q2 numbers so far?  Gavin pointed to holiday timing and some “pretty tough” weather in early May, suggesting “let’s get through” full Q2 and see where we are.  

Outta the blue, Pennsy legislature passed a modest version of privatization yesterday.  Gov Wolf has bill on his desk.  Tho key legislator called this “first step” to full privatization down road, biggest impact is that wine, now sold only in state stores, will be available in the 300 or so c-stores/grocery stores that have beer-to-go licenses, if they obtain additional license.  And wine will likely take space from beer in those outlets.  Bill also loosens regulations on casinos, provides for direct shipping of wine, allows restaurants to sell wine for take-out, expands state-store hours of sale and allows them to offer loyalty programs, discounts and coupons, reports Penn Live. Another important change, according to one source: it resolves a key “gas pump issue.”  Assn of home D beer retailers (MBDA, representing retail beer tier in Pennsy which sells most of the off-premise beer in state) has spent lotsa time and money in court (there’s also a key Appeals Ct decision due any day) to prevent bizzes that sell gas to add alc bev licenses.  Bill resolves issue “against MBDA,” sez source. 

Response has been all over the lot, natch.  Legislators patting themselves on the back for expanding wine sales, taking first step toward privatization and providing consumers with convenience.  But one home D and former MBDA prexy told Morning Call that the bill would be “devastating” for those bizzes.  Consumers, he believes, will increasingly one-stop shop for beer at more grocery stores and gas stations.  (A number of new licenses for such stores will likely become available over time, one source sez).  Meanwhile, Distilled Spirits Council unhappy with bill as it believes if wine made available outside of state stores, so should spirits.  And head of union for state store workers blasted bill as “the first step to killing the Pennsylvania Liquor Control Board.”  He claimed the proposal “will begin draining dollars from the state immediately and by reducing foot traffic” in state stores will “weaken this asset.”   Tho supportive legislators claim proposal will raise $150 mil in new revs for state, union believes no new revs will be generated. 

Pennsy Wholesalers Get Additional Locations, Opening to Non-Contiguous Territory; Brewers Get Fests, Farmers Mkts and More   Meanwhile, massive bill (163 pages) includes tons of details and new tweaks, including provisions for when Groundhog Day falls on a Sunday (!).  Among ’em, both independent beer wholesalers (called importing distributors in PA) and in-state brewers got a coupla goodies each in the bill. Wholesalers can now have up to 4 storage facilities in the state (not necessarily in current territory).  They’re also cleared for territory appointments in “non-contiguous” territories.  That’s likely to facilitate consolidation, one small brewer told us.  At same time, small brewers still support broader modernization, not this sort of piecemeal effort, brewer added.  Bill also creates a couple new permits brewers can pick up, one to organize beer and food festivals, another to sell beer and offer samples at farmers markets. Bill also creates 2 new boards, one for the promotion of beer, one for “marketing and research” of wine, each made up of members appointed by elected officials, each with a $1-mil grant budget.

MegaBrew is “closing in on getting approved by China’s Ministry of Commerce,” Bloomberg said today, once again citing those “familiar with the matter.”  This report follows on heels of last week’s Bloomberg report that US Dept of Justice likely to approve ABI deal to buy SABMiller later this month.   In China, cos also “agreed to divest some assets.”  Then too, yesterday, ABI sweetened pot for union in South Africa that threatened protest as well.  Piece-by-piece, ABI-SABMiller deal moving closer to consummation.  

Some striking trends for top 25 brands in Southern California in Nielsen multioutlet for 13 weeks thru 5/28, again likely made somewhat worse by not including back half of Memorial Day Weekend.  Total beer biz $$ down $6.4 mil, 2.2% in period.   But Bud Light down $4 mil, 11.6%.  It lost 1.7 share to 11.  Tough sledding for  #1 brand there.  Still coming on strong at #2: Modelo Especial.  Up $4.1 mil, 19% and gained 1.6 share to 9.   Coors Light #3, with $$ sales down 5% and it lost 0.3 share at 8.4.  Strikingly, Corona $$ sales down 15% for 13 weeks in SoCal, tho we’re told that’s mostly in large format.  It’s down low-singles in c-stores, liquor stores, etc during period. 

Some Top Crafts Still Cookin’ in SoCal Firestone Walker 805, up 85%, $1.4 mil and gained 0.5 share. It was the 2d biggest $$ and share gainer of any brand in SoCal.  It was #16 brand overall in mkt.  And check out Ballast Point Sculpin, which is #6 brand in San Diego mkt.  Up 58%.  Gained 1 share of $$ to 3.1 share.  Its $$ sales/share gain bigger than Modelo Especial’s in San Diego.  In total, Sculpin bigger than Miller Lite in San Diego Nielsen. And it’s closing in on Bud.  Lagunitas IPA up 19% and gained 0.2 share of $$ in SoCal. 

AB at 29 Share of $$, Constellation at 20, MC 19 in SoCal; Share Shifts  Total AB biz under 30 share of $$ in SoCal as it dropped 1.5 share to 29 in last 13 weeks in Nielsen.  Constellation is #2 supplier, up 0.9 share to 20 and MC lost 0.6 share to 19.  HUSA has hefty 9.4 share of $$ in SoCal, but that’s down 1.2 share 

“Please note that the Memorial Day Holiday this year (5/30/16) is misaligned vs last year (5/25/15),” said Nielsen.  “Because the 2016 holiday occurred slightly later in the year, volumetric numbers are marginally lower in the current period.”  That’s a nice of way of saying sales stunk. 

Beer volume down 3.7% for 4 weeks thru 5/28 in Nielsen data, which Nielsen called “a slight improvement” from 4.2% drop for 4 weeks thru 5/21.  But last week, the excuse, noted by some Wall St analysts, was that last yr, data included Friday and Saturday of Memorial Day; this yr thru 5/21, it didn’t.  Now 5/28 data includes Friday and Saturday of Memorial Day weekend this yr vs a period last yr that included Sunday/Monday.  Got that?  Once again a lot of noise in the numbers, making ’em tuff to read.   That said, a few trends jump out.

Craft Down 4%, FMBs Slowed, Cider Tanked for 4 Wks; Total Above Premium Gained Less Share About those trends: first of all, beer biz in rough patch last couple of mos, during which total volume went from up 2.8% yr-to-date thru 3/26 to flat YTD thru 5/28.  Knocked 3 points off YTD trend in 2 mos.  Now gonna be much tuffer to lift that up much, off bigger 5-mo base.  Second, craft is in a whole different world than where it was 6-9 months ago. Craft down 3.7% for last 4 weeks in Nielsen.  Gained no share of volume, just 0.1 of $$.  Up just 3% YTD, up 0.2 share of volume, 0.4 of $$.  Another former growth engine, cider, tanked.  Off 20% for 4 weeks, 14% YTD.  Even FMBs, still up double digits YTD, but up just 2% for 4 weeks.  In fact, total above premium biz just flat for 4 weeks.  Still gained 1.6 share of $$ but that compared to 2.3 YTD. 

Constellation Dominated Hi-End Gain; Industry Pricing Held, Except Subpremiums Most suppliers had really rough 4 week trends. But notable that Constellation volume still up 7% and it gained the same 1.1 share of $$ that it’s up YTD.  Means for 4 weeks Constellation alone grabbed over 2/3 of hi-end share gain (1.1 out of 1.6).  And finally, despite all the noise about pricing over the Memorial Day Weekend period, total industry pricing remained relatively solid. Up avg 53 cents, 2.4% for 4 weeks, just slightly less than the 59 cents YTD.  Avg case of premium lights up more like 2% than the 1.5% or so they averaged yr-to-date. Import and craft pricing still healthy and beer biz still trading up.  Only subpremiums clearly under pressure. Avg subpremium prices down 6 cents a case for 4 weeks, compared to up 8 cents (or half a %) YTD. 

Supermkt Sales Especially Ugly: Volume -7.6% for 4 Wks, -1.3% YTD  Overall scans bad enough, but grocery store trends really hit a wall and remind us of comment by retail consultant Bump Williams last week that “the lights for the Beer category went ‘out’ all of a sudden.”  Indeed, grocery numbers dark across the board.  While total volume off 7.6% for 4 wks thru May 28, craft flat, every other category down, including FMBs (-4%).  Then too, almost every top supplier down in grocery, including Constellation (-2.9%) for 4 weeks.  Top 2, plus Heineken and Mike’s, down 8-9% each.  Boston, DGUSA and NAB each down double-digits.  Each of those flat (Mike’s)  to down 9% (Boston) YTD with others inbetween.  Even Constellation up just 3.5% in supers YTD, but it’s up 21% in c-stores.  Back to supers where premium lights truly went out: Bud Light and Miller Lite each off near 10% and Coors Light -8% for 4 weeks.  Corona trend worse than that, -11% for 4 wks in supers.  Even Michelob Ultra slowed to +4% for 4 wks.  Hangin’ far tougher than the rest: Modelo Especial +14% in grocery, only 2 pts off YTD gain pace.  Gotta hope tons of shoppers waited ’til Sunday and Monday to buy their Memorial Day beer this yr.          

Chess moves, and potential chess moves, continue as global beer mkt develops and AB InBev tries to close SABMiller purchase.  Asahi, already on tap to purchase Peroni, Grolsch and Meantime for $2.9 bil, may pony up additional $7.2 bil for SAB’s Eastern European business, Sunday Times reported.  That’s another 25 mil bbls or so, Stifel estimates, with EBITDA of approx $546 mil.  But “that’s a lot of money to spend in one of the few regions whose demographics look even worse than Japan’s,” Bloomberg opined.  Key issue in slumping Japanese beer mkt has been declining population.  But population declining even faster in some Eastern Euro mkts than in Japan, Bloomberg points out.  “Shareholders should hope the latest report is off the mark,” sez Bloomberg, noting Asahi’s prexy had said last mo the co was not interested in the Eastern Euro biz.  But “fact that such a deal could be credible is an indication of how incoherent Asahi’s strategy has become.”  Why’s that?  In Bloomberg’s view, Asahi has missed out on both trying to appeal to Japanese drinkers with “high growth niche” bevs and, unlike competitors, hasn’t made moves in developing markets, “where most of the candidates are already taken.”  ABI-SAB all about developing mkts, and Heineken and Kirin have each made such moves.  One oppy still on table: the evergreen idea of Diageo selling off Guinness to Asahi or creating a JV.  “That would seem to be a much better use of Asahi’s money than a foray in Eastern Europe,” Bloomberg concluded.

Meanwhile, ABI-SAB hit a “new obstacle” to getting final clearance from South Africa’s Competition Tribunal, as WSJ and others reported.  Recall, just last week, SA’s Competition Commission recommended clearance after adding some further conditions.  But SA’s Food and Allied Workers Union “plan to object to the merger at a hearing” before the Tribunal and sez it is prepared to go to the Competition Appeal Ct if necessary.  The union wants the option for shareholders in SA to be able to cash in shares immediately on ABI-SAB closing, not wait until 2020.  ABI has offered an “advance” to these shareholders based on future sales.  But the union wants the immediate cash-out option or an “ex gratia payment” or “one-time lump sum payment that isn’t an advance on the future sale of the shares,” WSJ reported.