North America not only “biggest regional profit pool by far,” according to Bernstein analyst Trevor Stirling, but US and Canada “still structurally much more attractive than Western Europe.” And Mexico is “a perfect cocktail: still plenty of potential to increase volume and premiumization along with a duopolistic market structure.”  All in, North America volume about 287 mil bbls, with brewer revs of $43.5 bil and EBIT of $11.8 bil in 2015, for an avg 27% margin.  Margins vary by mkt.  In US, Trevor figures EBIT is $8.3 bil on revs of $32.3 bil or 25.6%.  Not that different in Canada, with EBIT margin of 24.3%, $1.1 bil of EBIT on revs of $4.4 bil.  But in Mexico, margin jumps to 36%, $2.4 bil of EBIT on revs of $6.8 bil.  More on Trevor’s competitive analysis in each mkt to follow.

Recall, Constellation looking into a possible IPO for its Canadian wine unit, including 8 wineries and 160 retail outlets. It’s seeking a valuation of $1 bil Canadian ($771 mil) for an IPO later this yr, reported Bloomberg, citing “people familiar with the matter…. The spun off company is expected to list in Toronto as early as the fall, the people said.”  Constellation working with Goldman Sachs, Toronto Dominion Bank and Bank of Nova Scotia on offering.  “Spinning off any of its wine portfolio would make Constellation more reliant on beer,” wrote Bloomberg.  Would also enable Constellation to pay down debt.    

MillerCoors announced its new promo this morn of 18 packs of Miller Lite and Coors Light for $9.99, for period starting today and going thru Jun 25.  It will have same pricing for similar period starting in mid-July.  That’s not even including whatever kind of big deal will be coming for July 4th holiday.  So “price war” has started in Wisc, sez one source, calling this “reaction” to AB’s promos.  

While last mo, AB had “Buy 2 Get 1 Free,” this mo it has 18-packs of Bud, Bud Light and Ultra with a free 6-pack of “America” for $12.99.  That’s part of broader multi-state promo-opti program, sez another source.  Such promos not offered mktwide, create excitement without great cost to distrib, that source added.  In Wisc, these prices amount to roughly similar per unit pricing for both AB and MC.  Meanwhile, #1 in-state craft New Glarus, which has a 4 share of mkt and doubled in last 5 yrs, will debut can 12-packs of its Moon Man next week for $13.99 with Spotted Cow reportedly to follow next mo.  So you can get a 12-pack of New Glarus for a buck more than a case of AB products. 

While MC continues down a coupla/few points, AB flattish in Wisc.  In last 5 yrs, MC down 337,000 bbls, 15% in Wisc but MC still sells almost 2 mil bbls there. Mkt share dropped 7 points from 47.3 to 40.2 last 5 yrs.  Meanwhile, AB volume down 110,000 bbls, 7% to about 1.5 mil bbls and its share dropped 2.4 points to 30.2.  So top 2 have gone from 80 combined to 70 in last 5 yrs. Wisc is still MC’s highest mkt share state in US.  As pricing situation deteriorates there, some key questions: 1) Will increased discounting halt either MC or AB declines?  2) Who has more to lose?  3) Is AB attempting to make life more difficult for MC in its high share, high profit mkt? 

AB announced most significant foray into non-alc bevs since ill-fated partnership with Monster. It will work together with Starbucks to launch a ready-to-drink version of its premium tea Teavana thru AB distrib network next yr.  But in big contrast to Monster deal, this is 30-yr agreement.  What’s more, AB will brew Teavana in its breweries.  So AB will have “much more control of the process,” prexy João Castro Neves told INSIGHTS, “all the way from producing to the point of sale.”  And distribs will sell Teavana brands to all channels, except likely Starbucks and Teavana retail stores.   AB distribs can “take the brand to the next level,” João said.  Premium RTD Teas have a 5 yr CAGR of 16% and hit $1.1 bil in sales. That’s of course much smaller oppy than energy drinks, but still a growth segment that distribs can sure use. And that was key message from João to INSIGHTS.  AB is delivering on promise of 3-yr plan developed jointly with wholesaler panel to build together toward a better future by bringing new hi-margin brand in growth segment.  Also on call, current panel chairman Philip Mullin and past chairman Tim Mitchell. “We give AB huge amounts of credit for thinking outside the box,” said Phillip.  “It’s a huge opportunity for the system,” chimed in Tim, selling “viable brand under the Starbucks name.”  Will this create other potential oppys down the road?  That’s  “a possibility,” acknowledged João.

Leaders of Brewers Assn and NBWA ain’t the only voices Dept of Justice is hearing from as it reviews ABI-SAB deal.  “Declaration” of AB distrib in support of deal sez DoJ “overreacting and overreaching” and concerns raised by others re negative impacts on distrib independence and competition “do not fit the reality of an AB wholesaler’s real everyday relationship agreement with AB.”  This distrib has long career and worked with multiple suppliers, in past and present, but we’ll avoid details that might reveal operation or region.  Some key declarations:

• “Every brewer I have dealt with has always respected” this distrib’s independence.  “AB especially has always gone out of their way” to do so.
• Consumers determine which brands distribs carry. To serve “all” retailers in mkt, distrib has to carry brands “their clientele request.”  That includes brands that compete with AB.  AB “realizes that if I fill a retailer’s niche beer brand need” with competing product, there’s also a shot distrib can “convince that retailer” to carry other AB brands as well.
• Neither the compensation nor “maximum efforts” provisions in AB agreement are “barrier in running my business the way that I want to.”  They haven’t “held me back” from supporting affiliated brands, prevented distrib from carrying competing brands or stopped competing brewers from providing incentives to this distrib’s sales force.  “Maximum efforts” provision has “never made me not do the right thing by any of my suppliers.”
• Distrib has never “terminated” a brand “because of pressure from any supplier! The market dictates the brands that sell – not a major brewer like AB.”
• This distrib has some big non-AB brands and some of them among its most profitable. VAIP incentives would not offset loss in margin from those brands and distrib doesn’t participate in VAIP.  AB “has never questioned” distrib’s decision not to participate in program. 
• Distrib faces multiple competitors where it operates and that “ensures vigorous and tough competition.” 

Clearly other AB distribs have different views and experiences.  We’ve heard plenty of stories that AB has forcefully urged them to reconsider whether to carry certain competing brands.  And not all distribs may be as assertively independent as this one.  In any case, DoJ’s clearly gettin’ lots and very varied input.  Will be interesting to see what it comes up with.        

New near 20-pg analysis of latest Constellation trends in Nielsen data by Morgan Stanley’s Dara Mohsenian shows even a short-term blip in STZ’s stunning growth will be intensely scrutinized by Wall St, maybe even more so by outfits that recommend the stock (like Morgan). “Most but not all of the slowdown is weather related and due to other temporary factors such as Memorial Day timing and more difficult comparisons,” Dara concludes after looking at data six ways to Sunday.  But “Corona has slowed beyond what these temporary factors…would indicate” and that’s “likely a combination of less can distribution expansion, cycling strong marketing from last year and a small incremental impact from the Estrella Jalisco launch.” 

Corona Share Gains Cut Way Back; Cans Provide Less Pop; Modelo Especial Share Gains Increased  Constellation $$ sales growth slowed to 10% for 4 weeks thru 5/21, compared to 18% for 52 weeks in Morgan’s cut of Nielsen data (+AOC including convenience).  While its total share gain slowed only marginally to 118 basis points, compared to 129 for last 52 weeks, Corona share gain slowed to 6 basis points (or .06 share), compared to 47 basis points for 52 weeks.  Meanwhile, Modelo Especial gained 0.9 share last 4 weeks compared to 0.7 for 52 weeks.  “The modest total STZ market share gain slowdown was more than entirely driven by Corona.”  In fact, Corona $$ sales down 1% for 4 weeks, up 7% prior 4 weeks before that and up 15% for 52 weeks in Nielsen.  Cans up just 21% last 4 weeks, compared to 62% for 4 weeks before that and 278% for 52 weeks.  Drove almost 6 point increase in trend for 52 weeks, but just 1.5% increase in trend for 4 weeks.  

“Slowing Trends in the Pacific Are a Concern” Beyond that, Dara zooms in regionally and deems “trends in the Pacific region are a concern.”  Constellation gained 1.3 share in Pacific for 4 weeks (134 basis points), compared to 2.1 share for 52 weeks.  Corona Extra lost share in Pacific last 4 weeks.  “Not all of the slowdown can simply be explained by weather,” Dara notes, positing “one explanation is a modest impact from the Estrella Jalisco” launch by AB in Pac region.  But Montejo “which we view as a failure” is “now declining.”  So net-net AB ain’t gaining much share with Mexican beers, Dara notes.  Talking to 2 Calif Constellation distribs before this report came out, Constellation closed out mo strong in Calif and still seemingly on 9-10% growth path overall there.  

Import shipments steady on at mid-single-digit gain pace in Apr, NBWA’s Lester Jones reports from Commerce Dept data.  Apr import shipments +224K bbls, 7.6%.  For 4 mos, imports +734K bbls, 7%.  But source countries surely not sharin’ the wealth.  Indeed, Mexican shipments up 19% in Apr and up 1.1 mil bbls, 17.5% for 4 mos, gobblin’ up far more than total import gain.  Dutch shipments down just slightly, 16K bbls, 1% yr-to-date.  But Belgian shipments haven’t bounced back at all: -235K bbls, 31% Jan-Apr.  And Canadian shipments down nearly 30% too: -173K bbls, 28%.  UK shipments off 25%.  German shipments showed small gain (+3%) and Irish shipments up 55K bbls, 16%.  But Italian, Polish and Czech shipments down yr-to-date as well.  With 7% import gain thru Apr, means total US shipments held on to near 900K-bbl, 1.3% increase for 4 mos.  

Yuengling continues to expand in South instead of Midwest mkts.  Will add Louisiana “in a few months,” chief operating officer Dave Casinelli confirmed this morn, aiming for fall selling season.  Mostly goin’ with MillerCoors network, including big Crescent Crown in entire footprint, Choice Brands and its sister co Venture Mktg.  But Eagle Distrib (AB) got brand for its Shreveport territory.  Louisiana mkt about 3.4 mil bbls.  In 2015, AB at 56.7 share, MC at 26.6, Pabst just below 2 and Constellation/HUSA at 3-4 each.  All Others still below 8 share, so potentially lotsa room for Yuengling to run there.  

AB’s voluntary incentive program has become a punching bag for NBWA and BA as they critique AB’s “anticompetitive” (BA) actions in efforts to get Dept of Justice to impose limits as part of any agreement on ABI-SAB deal.  But is VAIP having any effect in marketplace?  Not that we’ve seen so far, even amidst craft slowdown.  Most hi-profile launch of 2016 is Yuengling in Mississippi.  Yuengling chose AB distribution network statewide there; ultimately one AB distrib backed out (for reasons unrelated to VAIP).  Next most hi-profile intros: New Belgium in NY, NJ and Conn.  AB distribs among those who got the brands in NY and CT, tho NBB went statewide MillerCoors network in NJ.  While we’ve heard a couple isolated anecdotal reports of distribs dropping smaller craft brewers (which likely had mitigating circumstance that their brands didn’t sell)  in general, INSIGHTS gets no sense that AB distribs collectively lost interest in new non-AB brands.  In fact at Craft Brewers Conference in Philly opening night reception last mo, notable that of the first couple dozen or so distribs we encountered, probably 3 quarters of ’em were AB distribs, undoubtedly trolling for new brands, as they have for past many years.   

With DoJ decision on ABI-SAB pending soon, and small brewers descending on Capitol Hill today, timely op-ed in today’s NY Times from Brewers Assn prexy Bob Pease reminds yet again of oft-voiced small brewer and indie distrib “concerns” about the deal.  On-line version titled “A Big Beer Merger May Flatten America’s Beer Market” kinda answers the print version’s title “Will Big Beer Crush Craft?”  Not surprisingly, Bob omits fact that “big beer” has given up over 23 mil bbls since 2008, when ABI and MC were formed.  A big chunk of that went to craft, as AB and MC distribs added thousands of new brands to their portfolios.  Yet Bob frets again that an “enlarged” ABI “will have more influence over which brands distributors carry” and “have even more power to strong-arm independent distributors not to carry rival brands and exert pressure on retailers to cut back on, or even refuse to carry, competitive brands. And it will have more resources to buy up smaller breweries as they start to feel squeezed out of the marketplace.”  Bob’s proposals, “legal guard rails to preserve competition,” are again familiar.  The “least” govt could do is follow 2013 move by DoJ in ABI-Modelo deal and now bar AB from “interfering” with indie distribs who sell craft brewers’ brands, sez Bob.  Also, DoJ should require AB to “sell off or reduce its share in” distrib network (branches) and “modify its anticompetitive incentives to distributors to not deliver other brands of beer” (VAIP).  He also wants DoJ to “investigate ways to limit the number” of craft brewers AB can buy.

Elsewhere, Bob points out that “states usually don’t allow brewers to sell their products themselves” but a few sentences later notes that “in several states, the law allows the company [AB] to distribute its own beer, and most markets have only one or two distributors.”  Notable here: 1) BA’s website includes a state-by-state analysis that shows 37 states and DC (representing 79% of US population) allow at least some limited form of self-distribution and some of the states that don’t allow self-distribution do allow some form of retail sales by brewers; 2) almost every state that allows AB to have a branch allows any brewer to have a branch (OH would be exception); 3) can’t think of a single substantial market in the US has just one distribution option; many have multiple choices.  They may not always be great choices, but still.