Recall, TTB stepped up its trade practice investigations in recent yrs, at times in conjunction with state ABCs.  That’s resulted in financial offers in compromise and numerous one-day suspensions of very small players, often for violations against the prohibition of consignment sales.  As TTB press releases point out, these are “sales of wine to multiple trade buyers who were not obligated to pay for the wine until after it had been sold to retailers.” 

Veteran California alc bev atty John Hinman called out TTB on his blog yesterday asking: “What is behind the curtain of the TTB press releases?”  Interestingly, John went public here even while he has a client in the midst of one of these investigations, a NY wholesaler that, as John describes, “specializes in building markets for small wineries unable to attract attention from the traditional large wholesalers.”  That distrib, John writes, gave him permission to “shine a light” on TTB’s actions.  Among John’s key points:

·      “The TTB does not understand that extended payment terms with no right of return of the goods are not consignment sales.”  If such arrangements are to be defined as consignment sales, TTB needs to “clarify…what payment terms are, and are not, acceptable.” 

·      More broadly, TTB has “targeted small businesses, family owned companies spanning generations” (and so far, not one “major industry member”) who often do not have in-house counsel and must pay “significant legal fees” to expensive outside counsel.

·      As a result, many of these small targets opt to settle rather than fight.  And while a one-day suspension seems like “an easy give-away,” small companies may not understand “the collateral consequences of having a record as a violator (at the least) that must be disclosed in detail in every future state license and permit application.”  Failure to disclose the violation could mean license revocation.  

TTB targeted John’s client and its suppliers with consignment sale allegations.  The suppliers, John contends, are “small wineries with little access to the wholesale marketplace” but who can get access to local markets via his client.  Whether their relationship represents a consignment sale is “the heart of this matter.”  His client will fight TTB’s allegations and believes it will prevail.  If so, TTB will “face the question of how to make whole the small wineries it pushed into a stipulated suspension.”  Money from an offer in compromise can be returned, John notes.  But with a license suspension “you can never give back time or the permanent stain on the record of the affected winery.”     

A final irony.  Such consignment sales, TTB believes and states, are used to “gain an unfair advantage over law-abiding industry members and ultimately limit consumer choice.”  But John’s blog, supported by other industry attys we’ve spoken with, suggests that without such relationships these wineries would not get to store shelves in the first place.  So how does preventing these relationships improve consumer choice?

Last week we shared FIFCO’s news to its distribs that Pura Still “is off to a fast start” in terms of category weighted distribution (CWD) in its first 11 wks in market compared to starts of White Claw and Truly spiked seltzers.  But where do these brands stack up head to head currently?  In IRI total US multi-outlet + conv data, Pura Still is at 22.42 CWD, about a third of White Claw reach (66.58) and less than half of Truly (55.87) for 11 wks thru Feb 23.  FIFCO had noted Pura Still was lagging in terms of $$ per point of distribution and IRI data shows that indeed Pura Still has a way to climb at $28K vs $307.4K for White Claw and $159.7K for Truly in Total MULC. 

More positive commentary on Constellation popped in recent days.  Exec chair Rob Sands and ceo Bill Newlands talked up cannabis oppy with CNN.  “Just based on Canada,” Rob said, “our investment’s really going to be good.  Anything else is gravy.”  Bill said again that Constellation “put ourselves in a position to be the leaders in a once-in-a-lifetime growth opportunity.”  Rob pointed out that Constellation intends to compete in every aspect of cannabis biz: medical, edibles, bevs, etc in every channel and every market where it’s legal, CNN reports.  Net-net, from Rob, Canopy investment a “boon” for STZ shareholders: “They’re getting the cannabis business for free.” One analyst sprinkles just a dash of cold water, suggesting investment not yet a sure thing and global rollout may take longer than anticipated.  Questions is: “did they miscalculate how quickly the development of the market could occur?”       

Elsewhere, Wells Fargo analyst Bonnie Herzog reiterated her outperform rating on STZ, even while tweaking earnings down a bit.  She cites strength of STZ’s beer biz and her view that upcoming sale of low growth/margin wine business will “create value.”  Implicitly agreeing with Rob, she also notes “essentially, investors can buy its fast-growing beer biz today at a market P/E multiple (which is 30% below its 3-yr average) and get a free call option on cannabis.”  Over at HSBC, Carlos Laboy reports that following a positive (for STZ) plebiscite vote in Mexicali, “political risk appears to be subsiding.”  Recall, Carlos had earlier raised warning about threats to Constellation’s Mexicali brewery over water use.  Constellation “not out of the woods yet,” Carlos notes, but a positive development.  HSBC maintains “buy” rating with target price of $206, while Wells Fargo up at $235, slightly higher than the $230 target Credit Suisse initiated its very positive coverage with last week (see Mar 7 Express.)

An Express reader sent pic of hot-hot Fla-only deal in c-store/gasoline chain RaceTrac.  Stack of Bud Light and Bud has sign that offers $13.99 price on 15pack of 16-oz cans with $10 mail-in or website rebate.  At net of $3.99 for 15-pack, that’s 20 cents per 12-oz serving.

Blast from the past.  Longtime AB top marketer Bob Lachky resurfaced in Ad Age podcast with some pointed and timely remarks about corngate.  Beer is “a commodity industry and the last thing you need to be doing is further commoditizing it with discussions about ingredients that nobody cares about,” said Bob. “It’s just real disappointing. It’s a total miss.”  But wait, there’s more.  Bob broadened his critique: “The Coors Light, Miller Lite, Bud Light advertising is talking to each other and not talking to the consumer.  They don’t really care about this dialogue,” according to Bob.  “Both sides are spitting at each other and patting themselves on the back.”  Ouch.  And finally this: “Every precious moment and piece of energy and dollar you spend on this effort is money that could have been spent building brands.” 

“Our Strategy Is Working,” Sez AB  AB spokesman begged to differ with this statement (consistent with what it’s been saying): “Our goal with the Bud Light campaign was to start a conversation around ingredients and transparency.  We believe our current campaign has done just that − more people are searching for beer ingredients than ever before since running our ad.” What’s more, “this is not just a Bud Light brand play, but rather a portfolio play. Each brand plays its part to contribute to overall company growth, and our strategy is working,” he asserted, citing improvement in share performance since Q1 2018.

They just get softer and softer, week by week.  Nielsen all-outlet scans in Feb and into Mar that is.  Following modest 1.6% Jan gain, boosted by extra weekend day over New Year’s, 4-wk volume trends eroded from -0.5% thru Feb 9 to -1.6% thru Feb 16, -2.1% thru Feb 23 and finally -2.3% thru Mar 2.  Yr-to-date volume went into the red thru Mar 3 (-0.1%), tho $$ sales hung in at +2% yr-to-date.   Key to volume softness: no elevation for mainstream beer at all.  In fact, premium biz -7.2% for 4 wks since Super Bowl, economy -3.4%.  As noted yesterday, Bud Light trend decelerated to down 9% for 4 wks since “corngate” launched.  Bud Light lost 1.2 share of volume and $$ in most recent period.  Then again, every premium brand lost dollar share; Miller Lite held volume share.  Every economy brand except Natty Light lost dollar share this period too.  And only 3 of top 10 above premium brands gained $$ share: Michelob Ultra, Modelo Especial and Corona Familiar.

As large brewers, bev cos and upstarts alike look to capitalize on budding prospects of infused cannabis beverages, they all face one potential glaring issue: the taste. That’s according to WSJ article with same headline (above) in paper’s A-hed (funny) section, written by bev and tobacco reporter, Jennifer Maloney.  She spoke with a handful of involved cannabis industry observers commenting on the challenge. It’s “like a barnyard,” said Ron Silver, an NYC-based restaurateur who recently launched co that sells cannabis-infused sweeteners called Azuca. “The oil tastes terrible and it floats,” he said, adding “it’s very grassy and very funky.” One of the issues is that “oily cannabis extracts don’t mix with water,” which is “a familiar chemistry problem,” notes WSJ. “It’s not that difficult to make salad dressing…but is that something you want to consume as a beverage?” asked Trait Biosciences chief strategy officer, Ronan Levy. Another infusion technique, “nano-emulsion,” involves “break[ing] the CBD and THC compounds into tiny particles, then mixes them in water-based liquids using other chemicals known as surfactants,” WSJ explains. That helps with faster onset time for the respective buzz. Yet “those chemicals taste soapy and ‘suspicious,’” and “it doesn’t feel natural,” according to Alexey Peshkovsky, prexy of Industrial Sonomechanics LLC, which “sells technology to companies looking to mix cannabis drinks.” And Alkaline Water Co uses “soaking and straining technique that separates water-soluble CBD compounds from the plant,” but leaves the final product with the “murkiness of tea.”  

All that said, many cos were quick to pursue this nascent space within cannabis, betting big $$, conducting extensive research, already in mkt or looking to get there soon. And even while stripping out certain flavors and odors of cannabis, “the taste of cannabis itself, with its dominant notes of lemon and pine, should be embraced,” according to Brett Vye, chief exec of Truss (JV created by Molson Coors and Hexo Corp). Still early days, but gotta wonder”: Will flavor profile ultimately prove to be a limiting factor for cannabis bevs or will taste techs figure it all out?

“If negative advertising becomes more entrenched as a standard for beer marketing, and if beer’s total shipments continue to stagnate,” it may be “essential” for distribs to “diversify into traditional” non-alc bevs, spirits, wine and/or other “unique” bevs poppin’ up in the mktplace.  That’s consultant Ted Wardell at Ippolito Christon’s take as he looks at “CornGate” spat between AB and MC, overall soft sales and beer’s ongoing share loss to spirits and wine.  Ted notes beer’s share of absolute alcohol dropped from 55.1 in 2007 to 47.8 last yr and suggests “disparaging” advertising “doesn’t bolster consumers’ preference for beer.”  So, “CornGate may be a further drag on the entire category,” he suggests, implicitly contradicting AB’s claim that it’s doing this in the service of elevating beer.  For distribs, fewer cases mean lower profits and value, Ted points out.  So, beer distribs may need to become bev distribs, as “an incremental case of” non-alcs and/or spirits/wine “can be just as valuable” to a distrib as an incremental case of beer.  And, “if installed correctly,” these bevs can be added with “a degree of franchise protection.”  How’s that?  That’s one teaser to call Ted.  Net-net: distribs’ “new Golden Cases likely may be found outside of the traditional beer category.”

MC Ajax Dist headquartered in Clarskville bought BarDett Dist in Memphis and said it more than doubled its size (without giving #s), roughly estimated between 4-5 mil cases now.  BarDett (also known as A.S. Barbaro) owned by Malcolm Wood, Fred Dettweiler and Hall Crawford.  Fred still owns DET Dist in Nashville.   A.S. Barbaro distributed in Memphis for 142 yrs.  Ajax will keep A.S. Barbaro’s warehouse, which employs 126 people.  Ajax owned by Jeff Turner and family, sons Paul and Patrick represent a 4^th gen for co that started in 1933.  Another branch of same family owns AB distrib in Nashville known as Ajax Turner Co. 

Memphis is around 180 miles from Clarksville and remains a tuff mkt.  Several distrib deals happened there in last decade or so.  Local AB distrib Eagle has Constellation, Yuengling, NBB.  Statewide, AB at 55 share in 2017 and shipped 29.4 mil cases, MC at 21.6 share and did 11.6 mil cases in 2017.  Each down in recent yrs.  MC lost 109,000 bbls, 11.5% of its biz in Tenn between 2012 and 2017.   

Kinda sums it up: MC blog today all about how bad AB’s sales are.  This is where we are as an industry.  On the eve of MC natl sales meeting, its Behind the Beer Blog shines a spotlight on early returns and very soft sales following launch of Bud Light’s new ad campaign.  “Bud Light Sales Plummet Post #Corntroversy,” read headline.  “The early returns are in. And for Bud Light, it’s not pretty.”  Bud Light volume down 8.8% for 4 weeks thru Mar 2 in Nielsen all-outlet. “The results offer the first comprehensive look at Bud Light’s performance since it spent millions airing a series of TV spots taking aim at Miller Lite and Coors Light for using corn syrup as an ingredient.”  According to MC blog, “the ads rankled farmers, angered some retailers and sparked a wave of media reports questioning the motive and wisdom of the campaign.” But AB “showing no signs of backing off,” sez MC, pointing out how AB has “pasted billboards across the country attacking corn syrup” (INSIGHTS saw one in NYC this past weekend), “mocked the ingredient on Twitter, and it continues to air the TV spots.”