While plenty of oppy lies ahead for Dogfish Head under Boston Beer’s wing, distrib consolidation of Dogfish into Boston network remains key hurdle, both Jim Koch and Sam Calagione acknowledged on panel at our annual Beer Insights Seminar in NYC this week. Consolidation continues to move “slower than we’d hoped,” but overall “so far so good,” Jim thought. They’re “trying to do it very respectfully but firmly,” he added. Ultimately, Boston network is “where the brand needs to go” and “good will and good sense of all the parties lead to the proper business decisions.” Indeed, on top of OH, where Superior Bev worked out a deal with Cavalier (see Nov 1 issue), GA distribs were able to work out a deal too, Jim confirmed (Dogfish was with Savannah Dist). One issue is that there are several Dogfish distribs that are “multi-state operations,” so deals are “very nuanced,” said Sam. Distribs know better than anyone about whether (or not) consolidation convos are progressing, both Jim & Sam noted. When INSIGHTS posed that 6X gross profit multiple could be middle-ground to get deals done, “that’s about right,” Jim agreed. (This is an excerpt from a longer article that appeared in sibling pub Craft Brew News.)

More M&A Not on Radar; “Sorry We’re Successful” Meanwhile, Boston Beer digested Dogfish Head deal quickly, already paying off the debt incurred from the deal. And Boston remains “very committed to craft, otherwise we wouldn’t have done this [deal w/ Dogfish] at all,” said Jim. But further M&A “is not on our radar.” Tho “never say never.” Biggest oppys of all remain “4th category” alc bevs that go beyond traditional definition of beer, wine or spirits bevs, (i.e. hard seltzer), Jim reiterated. Then too, Boston Beer has “got sh*t from everyone” about being defined craft thruout the years, and Jim views it as “annoying, ignorant kind of buzz.” And even Dogfish “was taking arrows for being too big” by some consumers when it was 100K bbls and Sam had a TV show, Sam noted. He’s learned that you “can’t keep everybody happy” and remains “proud to be part of the indie community.” Ultimately, “there’s a different way to think about our opportunities,” sez Jim, and relative to AB and MC, Boston is still dwarfed by comparison. “Sorry we’re successful, but tough sh*t.” 

Tho Modelo Especial, the #4 brand in the country, continues to grow strong double-digits and Constellation still sees significant runway ahead with Casa Modelo franchise as is, “we are going to innovate” on Modelo brand, Constellation cmo Jim Sabia promised at BMI Seminar earlier this week. Co will “test some concepts” and vows to be “very careful with this franchise,” and “not over-extend.” Gotta “make sure whatever we do” doesn’t “mess up” oppys already in place. But “we have to innovate and we will innovate” because line extensions could be “huge opportunity.”

While Jim didn’t reveal much in way of specific direction(s) Modelo franchise could go, he suggested that “betterment” and “lighter” styles could be one angle for Modelo portfolio rooted in full-bodied lager, as well as Modelo Negra dunkel-style lager and Cheladas. Also, Modelo Especial innovation can be as simple as new SKUs, including Modelito 7oz bottle pack and others “you’d think would be existing already,” said Jim. Coronita 8oz pack sells 10 mil cases, he added. And Constellation will continue to add to Modelo Chelada family of flavors, adding Mango Chili flavor next yr on top of this year’s launch, Limon Y Sal, Tamarindo Picante and original Chelada Especial.

“We believe that TAP may be considering strategic options for its European operations,” wrote Evercore ISI’s Robert Ottenstein yesterday, echoing, amplifying and putting #s to similar sentiments from Credit Suisse’s Kaumil Gajrawala (see Nov 15 Express).  Robert also sees Molson Coors Revitalization Plan including “stand alone operation” in Europe as change that “would … facilitate divestiture of the business.”  Molson Coors’ European biz accounts for around 18% of sales and 15% of EBITDA, adds Robert.  That means it earns about $340-350 mil (total trailing 12-mo EBITDA at $2.289 bil).  He cites “comparable transactions” when Asahi bought SAB’s Western European business and got “high teens or low 20s multiple of trailing EBITDA.”  Robert assumes TAP could get 14-15x for its European biz, or near $5 bil.  That sounds like a lot, considering that its stock market capitalization is just $11.3 bil.   What would Molson Coors do with that much dough?   He suggests it might use after tax proceeds to buy back stock. “Potential issues with a sale of Europe include split ownership of the Miller and Coors brands in these markets, and reduced global scale.”     

AB’s clearly got tons of ambition on Bud Light Seltzer, which it told some distribs will be its biggest launch ever and top 2020 priority.  Southeastern Grocers (SEG=Winn Dixie, BI-Lo, Harvey’s, etc) said that “all five” Bud Light Seltzer SKUs will “be authorized for display” starting Jan 2020.  Variety 12-pack will be added to all spring 2020 planograms in SEG chains. So AB got the placements.  SEG (undoubtedly echoing AB communication) called it an “unprecedented brand launch… supported by over $55 million in paid media advertising to help create awareness, trial and ensure success.”   AB’s “fast start” objective: “become the most featured & displayed Seltzer brand in the industry.” Media will include Super Bowl, NCAA Basketball, Stanley Cup, NBA finals.  That’s what we’d call a big bet. But wait, there’s more. 

Amazingly, SEG sez “100% of Bud Light Family paid media support will go towards Bud Light Seltzer Jan-Apr & 50% May-Aug.  Really?  But will consumers who have specifically chosen seltzers instead of beer flock to beer-branded seltzers like Bud Light and Corona?  And if many consumers still don’t know about seltzers, try them and like them, what if they shift to White Claw and Truly?  Next yr, we’ll find out the answers to these questions, which will be one factor in determining how the segment evolves.  Recall, AB aims for Mich Ultra to become #1 Share of Voice (SOV) in industry.  Asked at Beer Insights Seminar if that meant further cuts for Bud and Bud Light spending in 2020, cmo Marcel Marcondes said “not necessarily.”  Total Bud Light spend should be “flat,” including Bud Light Seltzer.   But that seemingly means mother brand will get big cuts.

Not only does Craft Bev Modernization and Tax Reform Act have record support in Congress, but 68% of American voters “want Congress to continue federal excise tax relief for all of our nation’s more than 7,000 brewers and beer importers.”  So sez Beer Inst after poll that found 75% of conservative voters, 63% of moderates and 66% of liberals support extending tax relief granted in 2017.  It’s a near landslide among younger voters, with 74% of those age 21-38 on board.  Beer biz faces $100 mil tax increase if no vehicle found to attach CBMTRA by year end.  Brewers have come up with strong talking point when they note that while large/regional brewers face 4% hike in excise tax payment, “99% of US breweries will see their excise taxes double.” 

Online poll by Quadrant Strategies asked 1,000 voters: “America’s beer industry supports more than 2.1 million good-paying American jobs and provides more than $328 billion dollars for the nation’s economy. To help keep this industry thriving, in 2017 Congress passed a reduction on the federal excise taxes on beer. On December 31st this tax relief will expire, doubling the excise tax for most American brewers. Some people are calling on Congress to extend the tax reductions for the beer industry given the jobs it creates and the money it contributes to the economy. Do you support or oppose Congress extending excise tax relief to the beer industry?”  Looks like lotsa legislative activity in Congress will be happenin’ in week running up to Dec 20, looming as next deadline when funding to run fed govt runs out. House vote yesterday to extend funding thru Dec 20 “sets up a potentially explosive set of votes just before Christmas, when the House may be considering impeachment articles,” NY Times wrote this morn.  As supporters of tax break extension seek vehicle to attach to, they’re no doubt fastening their seat belts.

Clarification/Correction:  New Belgium sale to Lion expected to close by end of yr, so we were a little ahead of ourselves when we wrote “has sold.” It does have a deal to sell.  Also, total Lion has 4,000 employees, not Lion Little World Bevs. That has 200-300 employees, Lion spokesperson said.  

“Soon,” said AB cmo Marcel Marcondes, speaking at Beer Insights Seminar on Monday, AB and Keurig Dr Pepper JV Drinkworks will be selling “nationally.”  The next day, ABI, Brown Forman and Keurig Dr Pepper (did someone say blurring of the lines?) put out joint press release that Drinkworks will partner with Brown Forman to “develop signature cocktails for use in the Drinkworks Home Bar System” with initial selection hitting the market in mid-2020.  “We are thrilled to announce a monumental step in the development of the Drinkworks portfolio,” wrote AB execs Bob Tallett and Brendan Whitworth in note to distribs co-signed by Drinkworks ceo Nathaniel Davis.  “This partnership fits directly into our Beyond Beer strategy,” the execs wrote.  Marcel also saw high potential and promise in Drinkworks in his presentation at Insights Seminar; Drinkworks is “amazing” and “has the potential to be a big revolution,” he said.

Molson Coors ceo Gavin Hattersley reiterated familiar themes from last few weeks in address to Beer Insights Seminar, and picked up a few new strands.  Revitalization plan, he emphasized again, “creates a future where we are playing to win with our iconic brands and not just trying not to lose.”  At same time, universal feedback has been: “That sounds great, but I want to see you prove it. And I intend to do exactly that.”   Partnership Gavin announced that morning with LA Libations an example of “meaningful investments” Molson Coors will make to broaden, strengthen “beyond beer” offerings.  “What spirits when?” one attendee asked.  Molson Coors has canned wine spritzer Movo in pipeline, Gavin said, and pointed out that David Coors running wine/spirits projects.  He also cited “building momentum” behind Coors Light and Miller Lite, noting their ads are “not beer wallpaper.”  Notable again that Molson Coors still very invested in its premium light brands, while later in day AB cmo Marcel Marcondes noted AB is “not the Bud/Bud Light company” and aims to maintain flat share in mainstream category, devoting lion’s share of his attention to above premium portfolio.  Another difference between top 2: while AB continues to innovate off of Bud Light, i.e. coming Bud Light Seltzer, Molson Coors more likely to innovate off the “mother brand” (Miller or Coors) than off the “sub brands,” Gavin said.

Pete Coors “Biggest Cheerleader” of Plan  Gavin countered notion that Pete Coors may not have been on board with decision to close Denver office in favor of Chicago (and Milwaukee).  Board agreed with plan, said Gavin: “they voted for the plan.  They’re very supportive.  Pete Coors said he’s the biggest cheerleader of our plan.  He said that publicly, internally and externally.”  When Molson Coors announced revitalization plan, included in employee communication was this quote from Pete: “Success going forward will require the support of the management team now in place, and I intend to be its biggest cheerleader.”  On current distrib relations: “Better than 4 years ago, I can tell you that,” Gavin said.  Distribs like the innovation plan, “excited” about momentum shift in premium lights.  “I think our distributor relations are just fine, thank you.” 

Lotsa speculation that Molson Coors would shift production for US to Canada, especially in wake of Pabst deal with City Brewing.  But Gavin did not acknowledge any shift coming, but rather said that Pabst deal will allow Molson Coors to be more efficient, that consolidating North American supply chain will allow quicker decisions.  He added that closing breweries doesn’t necessarily make company more efficient.  That can be done by closing lines and those quicker decisions, for example.  Then too, by “next week, all of our beer will be produced in the right place and right brewery.”

As beer biz continues march to premiumization, top players falling out of step lately.  Indeed, for 4 wks thru Nov 9, top 4 brewers shed 3.5 share of above premium volume in Nielsen all outlet scans: AB -0.9, Molson Coors -0.7, Constellation -0.5 (!) and Heineken -1.4 (ouch!).  Yr-to-date, their combined share loss a more modest, but still notable, -2.3 as Constellation’s above premium share still up slightly (0.1) YTD.  Also takin’ a hit: “remaining domestic brewers,” a pretty good proxy for craft, -1.1.  Mike’s gained remarkable 4 share of above premium volume in latest period, Boston +0.8. Diageo Beer Co runnin’ up double digits, but on small base, so share gain just 0.1. 

At brand level for 4 wks, Michelob Ultra family up 0.7, which means a net loss in above premium of 1.6 for all other AB brands in segment.  Meanwhile, White Claw fam + 4.1 on its own, Truly fam + 1.3 and Modelo Especial +0.5 share of above premium.  But Corona family shed a full share in most recent period despite 2.3% volume gain, leading to net loss for Constellation.  Brand Heineken lost half-share too.  Molson Coors’ biggest brands in segment (Blue Moon, Leinie, Redd’s) each lost share.

Evercore ISI analyst Robert Ottenstein hosted an investor meeting with Mark Anthony Group/Mike’s founder Anthony von Mandl and Mike’s prexy Phil Rosse yesterday.  They reprised some of their points from Beer Insights Seminar the day before and also expanded upon them.  Mark Anthony “on track to grow 85% to $2 billion in revenue,” this year, wrote Robert.  It’s also “on track to at least double sales next year,” Robert emphasized.  It is “targeting $4 billion revenue in 2020, driven by increased capacity, household penetration, distribution and velocity growth.” WOW!

Stop and consider for a second. That would be well over half the size of Molson Coors in US.  Molson Coors at $7.26 bil in US in 2018 and Constellation Brands Beer Division revs at $5.2 bil in fiscal yr that ended Feb 2019.  Meanwhile White Claw/seltzer “has emerged as the most disruptive brand/segment since the advent of light beer in the late 1990s,” Robert wrote. There is still “substantial runway for flavor wave,” he added.  It’s already up to “mid-teens share in its top markets” and it’s #1 beer at Target, according to Robert.  What’s more it’s “starting to get significant incremental shelf space, as retailers are starting to align with brands/products they expect to drive future growth.”

Whew!  It’s a deal a day this week.  Artisanal Brewing Ventures will buy # 2 cider brand Bold Rock, adding to its “unique platform” of “craft adult beverage companies” that includes Southern Tier, Victory and Sixpoint.  Deal expected to close by year end.  Bold Rock will do near 80,000 bbls of cider in 2019, up low double digits.  ABV sold 311K bbls in 2018 and it’s up mid-to-high singles this yr. Put ’em together and ABV will be over 400K bbls annualized, with volume heavily concentrated in Northeast and Southeast. Bold Rock has particularly tight territory with about 80% of volume in just VA and NC and distribution aligned in those 2 states. ABV remains one of the more intriguing private equity plays in craft.  And with today’s news it’s still adding to its portfolio and spreading out beyond beer.  More details in Craft Brew News.