Not surprisingly, those opposed to ABI-SAB and closing of MC’s Eden brewery trying to leverage claims in Pabst lawsuit vs MC to raise those concerns anew.  Indeed, took just a few days for Teamsters to set up conference call to air out those concerns.  Teamster rep and a coupla experts on “investors” call this morn highlighted combo of 3 factors: 1) MC announced it would close an efficient plant 2 days before ABI-SAB talks revealed; 2) after negotiating new contract with Teamsters without mentioning that plan; and 3) simultaneously in negotiations with Pabst where it rejected offer to lease the plant and would only sell Eden to Pabst for “astronomical” price, as Pabst charged in suit.  All this adds up to “anti-competitive elimination of capacity” by MC aimed at “raising rivals’ costs” and increasing consumer prices down the road.  So concluded antitrust atty Allen Grunes, Teamsters’ director of Brewery Workers Conference David Laughton and, yet again, Diana Moss, prexy of American Antitrust Inst, who has repeatedly ripped ABI-SAB, at December 2015 Senate subcommittee hearing and elsewhere. 

Eden Closing A “Shock to Us,” Sez Teamster Rep  David said announcement of Eden came as a “shock to us,” since Teamsters had “just completed” 3-yr collective bargaining agreement in Feb 2015 and MC “never mentioned the possibility” of closing a plant during 6-mo talks.  David’s “been in on perhaps 100 closings of breweries,” he said, and contrasted MC’s silence on planning to close brewery to other instances when brewers would “sit and talk openly” about plans.  He gave example of when AB closed “old...obsolete” Tampa brewery.  He reminded that Molson Coors CEO Mark Hunter told Senate subcommittee in Dec that decision to close plant made in early 2015, tho MC Gavin Hattersley “later tried to back” Mark by saying decision not made until Aug 2015.  “They can’t seem to get their story straight,” David said.  In Oct last yr, MC told David it did not want to sell plant to a competitor.  David also called Eden “crown jewel” of MC system, highly efficient, with 8.8 mil bbls capacity.  It ran 24/7, provided “tremendous amount of overtime,” including temp workers for 26 wks per yr and had not “laid off a single full time worker for 20 years.”  Eden made more than 700K bbls of Pabst brands there last yr, said David. 

Allen opined that timing of Eden announcement so close to disclosing merger talks suggests it was part of strategy by Molson Coors “not to wait” until antitrust review started, but rather “jump the gun,” assuming deal would get done.  “Highly unusual” to close down such big asset before mega merger, he added, and he couldn’t think of precedent for it.  And fact that MC allegedly told Pabst it didn’t want to see Eden “end up in the hands of a competitor,” combined with holding out for “astronomical” price, suggests to him MC “doesn’t want to see that capacity in the market anymore.”

Diana Moss repeated charges that ABI-SAB deal anti-competitive from numerous angles and questioned whether selling SAB’s stake to Molson Coors is adequate remedy, noting failures of remedies in other recent mergers including grocery, rental cars, health insurance and others.  She also reiterated concerns about craft brewers getting access and maintaining independent distribution networks.  These concerns, again with overlay of charges in Pabst suit, suggest to her that divestiture to Molson Coors not a matter of “simply changing the name on the door…business as usual… and all will be well.”  Diana and Allen also claimed there’s already evidence that price increases are being coordinated in US beer biz, that ABI-SAB would create more “incentive for coordination, collusion,” as Diana put it.   

Not just GuestMetrics that’s reporting tuff numbers for on-premise.  Folks at TDn2K Black Box Intelligence report restaurant sales -1% in Apr, and a 0.3% drop vs Mar, which was also down. For 4 mos, total sales, including food, off 0.5%.  Apr trend was “weakest month since January 2014,” reports Nation’s Restaurant News.  Data derived from weekly sales in over 24K restaurants, representing $61 bil annual revs.  Same data base also shows traffic down 3.5% in Apr, “the worst result since February 2014, and a 0.8% decline from March.”  Ain’t just a coupla soft spots.  Lookin’ across 193 DMAs, 68% of ’em reported sales drops in Apr. 

Meanwhile, US Commerce Dept tells different story.  It reported today spending “food service and drinking places” rose 0.3% in Apr vs Mar and 5.2% vs Apr 2015.  That includes “fast casual” and “quick serve” outlets that don’t sell alcohol.  Then too, in data neither govt, GuestMetrics, nor TD2nK captures craft-centric taproom/ brewpub/on-site beer sales up about 250K bbls, 17% last yr to 1.75 mil bbls, estimates Bart Watson at BA. That’s about 7% of total craft sales, Bart figures.  We’ll dig into these #s with Bart in Chicago at our Spring Conference next wk.    

More sobering stats about difficult on-premise mkt in deep dive from GuestMetrics.  Recall, total on-premise beer biz volume down 5.5% yr-to-date thru Apr 17.  AB volume still down 6%, MC still down 7% in this very tuff environment, while $$ down 3% and 5% respectively.  AB actually held share of $$ at 21.6, while MC declined 0.4 to under 15 (14.8).  Top 2 down to 36.4 share of $$ in GuestMetrics. 

Amazingly, craft almost as large as the 2 of ’em combined nationally.  Craft $$ share up 0.8 to 35.9 yr-to-date.   But there’s a built-in problem when craft becomes such a big piece of a declining category. It’s more and more difficult to grow.  Indeed, craft volume down 3.7%, $$$ down 1% yr-to-date in GuestMetrics data, which doesn’t capture tasting rooms, brewpubs and many craft-centric accounts.  However, GuestMetrics trends for larger craft brewers probably fairly indicative.  And they sure ain’t pretty.   Check it out: Boston Beer volume down 14.7%, Sierra Nevada down 18%, New Belgium down 18% in GuestMetrics data yr-to-date.  Each of Boston and Sierra down at least several points more than last yr, NBB about same, even tho it’s in new mkts.  Yuengling, Gambrinus, SweetWater down double digits too.  About the only cos up: Constellation up 5%, faster growth than last yr. Lagunitas also up about 5%, slower than last yr.  Firestone Walker alone among top 25 suppliers in getting double digit growth.  Up 12% thru Apr 17, compared to 19% in same period last yr.   

Craft growth slowed dramatically in last couple of mos, leading to more pressure in lots of directions.  Craft volume now up 2 mil cases, 6.8% yr-to-date thru May 1 in IRI multi-outlet + convenience to about 32 mil cases, including just 4% gain last 6 weeks.  That compares to 12-16% growth in each of 2013-2015.  That’s a pretty dramatic slowdown.  Under 5% growth in IRI is new and so it’s hard to know whether that will continue, soften further or reverse, but many folks are buzzing about this much slower craft growth.

One non-mkt reason for slowdown is that IRI redefined its craft segment this yr to include Shock Top franchise (volume -8% YTD), Blue Moon Brewing (-3) and Leinie (-7).  Those 3 brand families represent almost 20% of IRI craft.   Pull those out, craft volume growth looks healthier (up almost 10%).  But then one should also take out Coney Island Hard Soda, which is more like an FMB and almost all incremental.  Then craft by our definition up almost 9%.  That’s still pretty good off-premise in an industry that’s not growing much.

But who’s getting most of that growth? Well, the invasion of the BIGs has begun in earnest.  Through their acquisitions, four big companies (that BA won’t include in its craft numbers going forward) are getting over half the growth: AB acquired-craft up 40%, Lagunitas, now in a JV with Heineken, up 25%, Constellation’s Ballast Point acquisition up 101% and Founder’s up 74% (with a stake owned by Spanish brewer Mahou San Miguel ‒ actively shopping for more craft we understand). 

AB-acquired craft brands are getting the biggest portion of that growth.  AB craft  up 356,000 cases, 40% in IRI YTD.  That’s 18% of craft growth.  And IRI doesn’t yet include AB’s most recent craft acquisitions with AB,  like Four Peaks, Breckenridge and Devils Backbone (which hasn’t yet closed). If you include those brewers’ brands, AB alone almost ¼ of craft growth, in part just by expanding these brands to new territories.

Lagunitas keeps rolling right along if not quite as robustly. It’s still up 25% YTD in IRI, growing 271,000 cases. That’s another 13% of craft volume growth.  In 1 recent 4 week period, Lagunitas alone accounted for 20% of craft growth. Not bad.  And Constellation craft biz is doubling. Ballast Point volume up 102%, 161,000 cases and another 8% of craft volume growth, over 9% of $$ growth.  Finally, Founders up 74% and grew even more cases than Constellation. Up 171,000 cases.  Add it all up and 4 companies that represent barely 10% of craft volume got 53% of the growth 

On the other hand, cut the data another way and all craft brewers below the top 30 (over 1000 in IRI), gained 1.3 mil cases, capturing 2/3 of craft growth.  That includes 653 cos gaining at 45% clip (many of ’em tiny) and almost 400, collectively declining 16%.  So craft trends a very mixed bag, but getting lots more challenging.  

Latest M&A activity comin’ from overseas: Dutch co, Bavaria N.V “has acquired 60% of the shares of, and thus majority interest in, Palm Belgian Craft Brewers,” with path to 100% ownership by 2021, cos announced.  Bavaria is owned by 7th generation family holding co, Swinkels Family Breweries, along with 8K local shareholders.  It does 6 mil hectoliters (5.1 mil bbls) annually, approx 65% exported, but no significant US biz heretofore.  Belgian-based Palm does approx $60 mil in sales and has joint production capacity of 1 mil hectoliters (850K bbls) per yr, with various brands under its arm including Palm and Rodenbach, tho it’s still relatively small in US. 

Recall, Palm’s importer for US, Latis, currently has sales and mktg agreement with Radeberger USA that was formed in late 2013.  “At this point it’s business as usual,” Latis Imports founder David van Wees told INSIGHTS.  Relationships with distribs, people at Palm, supply chain and agreement with Radeburger stay “exactly the same” in “short term.”  David is having meetings with new partners this week to try to pinpoint “what are opportunities out there” to “improve our position in the US.”  For instance, since Bavaria is a much larger co with more production capabilities and “greater economies of scale,” Palm could look into “more US friendly package configurations” like a “cost effective 12pk” and “more effective costing in the market place” in general.  It also now has access to Bavaria’s vast distribution network across 120 countries, while Bavaria will “increase its access to Belgian retail channels and the hospitality sector in months to come,” per release.

Palm was down in US last yr, “very similar to…other more approachable amber ales” in the mkt, David acknowledged.  But “we’re starting to see a couple nice rebounds and responses in a couple of our core markets.”  And Rodenbach innovation brands are seeing “high acceptance” but “we need to improve the approachability.”  All in, David and co feel its brands, as well as Bavaria brands, are well positioned; “starting to see some people settle back” to “some of the old traditional brands.” 

C&C Group saw steeper declines in North America during latter half of the yr, bringing net revs down 15% to $51.6 mil and volume down 18% to 226K bbls for fiscal yr thru Feb 2016, co reported.  Operating profit took a tuff 65% hit and operating margin dropped from 3.2% to just 1.3%.  Indeed, C&C gettin’ hit from all angles in US, listing “growth in new categories adjacent to cider” (i.e. hard soda), “loss of momentum within cider [category],” “big brewers detuning focus” and “growth of local ciders” as factors for declines.  So Woodchuck brand depletions plunged 19% and Magners shipments were off 6% (tho improved later in the yr).  Woodchuck’s Gumption brand was lone bright spot, growing to 14% of total Woodchuck volume in its first full yr.  In fact, Gumption will split off from Woodchuck family as its own brand family this year and add a new year round cider, Strongman, as well as a 3d that will be “a rotation of innovation,” Terry Hopper noted at Pabst distrib conference last mo.

Yet C&C remains ever hopeful that things will turn around.  “The view from the trade appears to be that the stalling of cider growth is temporary in nature and cider will continue to build share...over the long-term,” co wrote.  And “time will tell whether the [alc soda] phenomenon has any permanence” (its new partner sure hopes it does…).  C&C is “confident” that the sales and mktg agreement with Pabst (with path to ownership) “will deliver a return to long-term sustainable growth in the US,” sez co.  And conversely “the addition of the Pabst brands to our UK and Ireland portfolios will strengthen our consumer and customer offering.”  Ultimately, Woodchuck “needs to be viewed” as “authentic, iconic and American,” just like Pabst brands, said Terry at Pabst mtg.  And he asked distribs to “raise expectations” with new PBC platform.  Partnership went into effect in Mar.  

Washington State Liquor and Cannabis Bd sent AB an administrative violation notice seeking $150K, plus 3 day suspension, or $151K “in lieu of suspension.”  WSLCB alleges AB branch had exclusive arrangement with two concert venues in Seattle, Showbox and Showbox Sodo.  Responding to complaints, two WSLCB agents reported that at one of ’em, “every beer product on the premises for sale was solely supplied by a ‘Budweiser’ distributor.”  The other, they were told by an employee, “maintained an ‘exclusive’ agreement with Budweiser” and was “able to offer for sale only products solely supplied by a ‘Budweiser’ distributor,” according to an evidence report.  WSLCB sez this violated state’s law prohibiting “undue influence and contractual agreement.”   A second evidence report showed Showbox had 15 brands, all AB (one CBA), from Bud/Bud Light to Goose and local craft brands.  Showbox Sodo offered 8 brands, but included Guinness.  Finally, investigators got 41 invoices for Jan-Jun 2015 from AB Sales of Wash to the two Showboxes.  Also got invoices from non-AB Columbia Dist for similar period including half dozen non-AB brands (including Deschutes, Guinness, Strongbow, Angry Orchard).  Investigator wrote “I had observed none of these brands offered for sale during my physical inspections at both Showboxes.”  That’s even tho same report included Guinness among beer taps.

AB does have a sponsorship agreement with company that runs the venues, not the same entity that sells the beer.  That agreement names AB as “exclusive malt beverage sponsor” and barred “public promotion” of other beer sponsors, but also includes a warranty that “AB purchase rights does not require any retailer to purchase AB brands.”  AB’s response: “AB does not agree with the allegations in the Notice.  AB met with the state today and will continue to respond to the Board in a timely manner”

Hard sodas grew 1 full share point in beer to 1.1 share, while cider lost 0.2 share of beer to 1.2 share, IRI’s Dan Wandel pointed out to INSIGHTS yesterday.  Amazing!  In 1 short yr, hard soda nipping at heels of cider.  A yr ago, it was just Not Your Father’s Root Beer and other smaller brands totaling 0.1 share.  NYFRB hadn’t rolled out nationally yet at that time. Now other big co’s have jumped in and the segment is flying. At this rate, might not be long before hard sodas are bigger than cider. Cider $$ down 8% thru May 1 and cases down 11%. 

Another fascinating factoid from Dan: hard soda $$ sales up $109.3 mil YTD.  That’s approx 30% of $361.3 mil in total growth for beer segment.  Both soda and cider are examples of even more sweeping trend towards flavored malt bevs.  Flavored, broadly-defined (FMBs, shandies, ciders, sodas, cheladas, fruit/veggie/spice in craft, etc) reached 13 share of $$ in supers last yr, Dan said.  

Jim Koch’s recently released book called “Quench Your Own Thirst” is divided into 42 bite-sized chapters averaging less than 6 pages per, each with a business lesson, pithily expressed in the title of the chapter. Along the way, it contains lotsa sound advice for any entrepreneur, a wealth of detail on Jim’s formative experiences, and much useful historical info from largest US craft brewer.  The book also chronicles more than a few controversies over the years.  While some may disagree with the way these are characterized, Jim is always direct, to the point. And he cheerfully/ruefully admits to many errors.  It’s a breezy, fun read.  

Jim’s Longterm Goal: Pass Heineken  In chapter called “You Don’t Climb a Mountain to get to the Middle,” Jim reveals his “one central goal”: to pass Heineken. In 1985, Jim developed longterm goal to pass Heineken by 2005 (it was then the best-selling high-end beer) and if not by then by 2025. “To make that goal stick I hung a sign over my desk that read simply ‘2005’.”  This still “remains our organizing objective. Everyone who joins the company is told from day one about this goal.  It continues to galvanize us.  We’ve made progress: Our sales have risen to over half of Heineken’s.  I know we’ll get there one day.”  

Going Public With the Public; Surviving AB’s “War” Against SAM One of the most interesting chapters details Boston’s innovative and against-the-grain IPO (“Make Your Public Offering Public”). Jim defied Wall St’s model of offering shares only to insiders and successfully made shares available to consumers as 130,000 “drinkers mailed in their checks for $495 each, amounting to $65 million.”  Another called “Learn to Take a Punch” details the many moves Anheuser Busch made to halt Boston’s momentum way back in 1996.  “My goal was to survive the war, not win it,” Jim sez bluntly.  And he did, tho his stock price cratered.  It was cut in half within 1 mo of infamous NBC Dateline piece (attacking contract brewing generally and Jim specifically) and then cut in half again.  But eventually “a bunch of very smart Brazilians” took over AB, “kicking out the entire Busch family.”  And Jim has a parting shot for former AB ceo August Busch III: “August Busch, once the king of American brewing, was forced into retirement on the family farm.  And I’m still here.”  

Rhonda Kallman and Joe Owades Get Their Props There’s much, much more.  For both longtime Boston Beer watchers and newbies, gotta note:  Jim absolutely gives props to his original partner, Rhonda Kallman, described as “smart as a whip,” “very determined” “confident and self-possessed....  We owe much of Boston Beer’s success over the years to Rhonda’s energy, drive and general smarts.” He also details painful chapter where Rhonda left the co when Martin Roper slated to become ceo.  “Jim, you only had two people to manage and you screwed it up,” Rhonda is quoted as telling Jim. “In this, she was 100% right,” adds Jim. But Rhonda left and sold a half mil shares for less than $4 mil (at peak, would have been worth close to $200 mil).  Meanwhile, Martin “has done a more than excellent job as CEO.”  More recently, Jim and Rhonda (who started a craft distillery) “are collaborating and having fun.  If you can endure the endings, you might eventually find that they’re not endings at all, but rather the start of something new.”  

In the beginning of the book, Jim also details, perhaps too much, how his father (a 5th generation brewmaster) gave him family’s “best recipe” to start with “if you’re going to do this crazy thing,” which became Samuel Adams Boston Lager.  But in a chapter called “Find Your Yoda,” Jim also gives props to renowned brewmaster Joe Owades, who had “invented the original light beer,” and as a consultant, helped bring Sam Adams to life. “I don’t know if we would have been successful producing Samuel Adams if it weren’t for Joe.  Not only was he a perfectionist, he had the brewing chops to deliver perfection.”  Tho Jim only paid Joe what he could, he “gave him 2 percent of the company,” worth about $40 mil today, if family still owns. 

“Long Period of Stagnation”; Twisted Tea $200 Mil Biz; Successes “Started as Failures”  Finally, Boston Beer going thru a rough patch right now,  but Jim reminds he’s had rough patches before.  Between 1996-2003, Boston Beer endured “long period of stagnation” when its sales stayed at roughly $200 million.  But it kept plugging away, tried “to grow even when you’re not growing” (thru improved productivity, etc) and “just keep trying new things.”  Eventually sales took off again; over $900 mil last yr, with Twisted Tea alone “a solid $200 million business,” sez Jim.  And Angry Orchard cider sold over 10 mil cases within 2 yrs when it took Sam Adams 16 yrs to get to that level.  Each of those and indeed “all our successes started as failures.”  So Boston keeps trying.  “Craft beer incubator,” Alchemy & Science is helmed by Magic Hat founder Alan Newman  (“The Man With the Gold Painted Toenails”).  Jim sez: “I told Alan I wanted him to create  five beer projects, each of which could grow to 100,000 barrels a year” and Boston “willing to lose $25 million.”   Jim’s book details many other successes and lotsa errors and failures too and it’s well worth your time.  

Not surprisingly, AB and NJ craft distrib Hunterdon (A Sheehan Family co) settled case over AB moving Elysian brands to its distrib network in early 2015.  Key issue: whether Hunterdon got fair mkt value for brands, required by NJ law.  Recall, AB sent check to Hunterdon for $563K, 5.5X GP of estimated $12/case for approx 8,528 cases of Elysian it sold in 2014. AB sought court ruling that Hunterdon got FMV.  Hunterdon reportedly sought 12X GP and countersued, challenging AB termination.  Fed judge tossed most of Hunterdon’s counterclaims earlier this yr and case went to mediation, scheduled to start Apr 13.  Two weeks later, parties informed judge they’d settled.  No details yet, natch.  Not likely AB wanted higher GP level “established” in NJ; it transitioned Blue Point there for 4.75X GP in 2014, added a “15% premium,” it said, for Elysian.  And not likely Hunterdon wanted to establish lower multiple. Plus AB and Sheehan Family Cos have other potential deals to discuss on brands AB acquired that Sheehan sells outside AB footprint.