MillerCoors STRs improved slightly over summer selling season, down 2%, tho still down estimated 2.6-2.7% yr-to-date. That's very similar to last couple yrs; MC STRs down 2.5% in 2014 and 2.8% in 2013. But shipments sank over 700,000 bbls, 5% this summer as shipments had gotten ahead of depletions. MillerCoors shipments down 1.3 mil bbls, 3% yr-to-date. That means MC down about 10 mil bbls, 15% since its inception. MC expects to decline for at least 2 more yrs, 2016-2017. Hopes to get back to growth in 2018-9. At this rate, MC will be down 20% from its peak volume by then. At same time, so far MC has made record profits yr after yr. And that's the paradox of the company. Will it change under new growth-agenda of ceo Gavin Hattersley? If so, MC acknowledges, it will take time.

Biggest anchor remains MC's subpremium biz, still around 28% of volume and steadily declining. MC's Keystone Light and Mil Best down high single digits in Q3, Miller High Life down mid-single digits, said SABMiller. MC off 0.4 share of subpremiums to 33.1 in Nielsen all outlet yr-to-date thru Sep 26 (0.8 for 4 weeks). AB at 58. But MC gaining share of largest segment, premium lights. Up 0.4 in Nielsen to 42.6, compared to AB down 0.4 to 56. Still, MC premium lights declined low single digits for 6 mos overall, SAB reported. Miller Lite "grew low single digits in the quarter." Meanwhile, MC above premium STRs just even for 6 mos. MC got just 8.8 share of above premium volume in Nielsen and down 0.6 (AB only at 25 share of above premium). High end shortfall "primarily due to" Fortune, said SAB; volume down 66% in Nielsen YTD. Redd's continues up double digits, Blue Moon and Leinenkugel portfolios each up mid-single digits. MC increased percentage of its revs from above-premium brands from 9% in 2011 to 15%. But that temporarily stalled with decline of Fortune. SABMiller N America rev per bbl up 2% for 6 mos.  

Yet another eye-poppin' qtr for Constellation Brands Beer Div (CBBD). Shipments +12.7%, depletions +10.4%, revs +14.3% and operating income jumped 31.3%. And look at 9-mo numbers thru Aug: shipments +1.2 mil bbls, 11.3%, to just over 12 mil bbls. Depletions +10%. Revs +$289 mil, 12.3%, to $2.7 bil. Operating income +$151 mil, 20%, to $910 mil. While CBBD not getting big rev-per-bbl gains (up $2, 0.9%, to $220 for 9 mos) operating inc/bbl up more than $5 to $75.50, an 8% gain. That's almost $5.50 per case. CBBD's operating margins hit 34.3 for 9 mos. Tuffer comparisons in current qtr include a volume shift of about 145K bbls last yr after recall, inventory build by distribs in same qtr last yr. Some higher costs coming too, including bigger media spend for fall sports and more on Nava brewery/glass plant expansion. Constellation faces "difficult beer sales and EBIT growth comparisons" in current qtr, cfo David Klein said on Q2 conference call. CBBD upped guidance for oper profit gain to 15-18% for fiscal yr thru next Feb, but it maintained volume guidance of mid-to-high single-digit growth and rev pop of 10% for the full fiscal yr. If CBBD hits top end of that earnings guidance, its operating income for fiscal yr will be $1.2 bil on less than 16 mil bbls. MC booked $1.347 mil operating income in 2014 on 62 mil bbls (including contract for Pabst). STZ almost same income as MC. WOW!!

David and ceo Rob Sands also provided some insights into key trends and strategies going forward. Biggest strategic insight was pricing. CBBD "marching to its own beat" more often on pricing now, less concerned with competitor moves and gap between its prices and domestic premiums (see below). CBBD still focused on "can opportunity" for Corona Extra, still just 5-6% of volume (40% of Corona's Q2 growth, "little cannibalization" of bottles) but "we should be growing that to more like 15-20%," said Rob. But Rob also identified "building our sku count per retail account" as "one of our primary focuses going forward," since CBBD remains "under sku'd given our velocity and our dollar volume at retail." Other notes: Modelo Especial can biz depletions +12% or so yr-to-date, bottle depletions in high 20's. "All key performance metrics related to cost, quality, capacity utilization and service" at Nava plant, "better than target this quarter." CBBD has already "largely separated ourselves from reliance on" AB InBev "in terms of supply chain procurement," and will still be buying "finished goods from ABI's breweries" only thru next Jun.

No letup in biz news as beer folk head to Vegas for NBWA this yr. Top o' mind for many will be swirl of action surrounding ABI's proposed takeover of SABMiller and its potential US implications if that deal consummated. But lotsa other change too. Many distribs will meet with new ceos at MC, HUSA and Pabst for 1st time, plus AB's ceo in position for less than a yr. Most suppliers bring plenty o' new news, not to mention a blizzard of brands, for their distribs. Then there's fast pace of craft deals rapidly changing face of that segment. In background: new pricing dynamic in beer biz. Old model of AB leading in most mkts, others following, increasingly challenged. That's a major new development still evolving (see below). Amidst all this churn, a few constants. Most important: biz still soft. US shipments down about 1.4 mil bbls, 1% yr-to-date thru Aug. Summer shipments of domestic taxpaids and imports down 1-2% each. Looks like Sep a good month off-premise. But yr-to-date, off-premise up just slightly, on-premise still down low- to mid-singles. That's a wash for volume. Spirits continue to gain share from beer as beer per caps drop. What's more, top 2 brewers ain't reversing their declines. AB hasn't announced its Q3 #s, but MC volume still runnin' down 2.5-3%. Meanwhile, Constellation and craft continue to roll. As Constellation ceo Rob Sands said on conference call this week, 20% of the industry -- Constellation and craft -- is "obviously taking share from the other 80%. So things are a little different out there than they have been in the past." Constellation's 1.2-mil-bbl gain for 9 mos thru Aug very similar to MC's 1.3-mil-bbl decline for 9 mos thru Sep. And craft likely tacked on at least 2 mil bbls thru Sep, even while some big craft players (notably Boston Beer and New Belgium) slowing. Finally, AB's multiple moves to return to growth in US are combo of change (buying up craft) and old school initiatives (incenting exclusivity). Read on for more on each of these developments.

Govt regulators finally taking on trade practices in last couple of mos, a striking change. For yrs, funding restrictions and other priorities limited regulators' attention to trade practices. And when issues came up, they mostly disappeared without repercussions (recall IL ABC sent letters about providing refrigeration equipment last yr). But given increasingly competitive biz, with so many more players chasing after the same or fewer cases, we've heard more chatter about rampant "pay-to-play" and other trade practices. Recent actions by leading fed regulator TTB, plus state enforcers in Mass and Calif suggest more attention to this part of biz, which many industry participants welcome.

Then again, these incidents may simply be regulators responding to specific complaints, as a coupla industry attys suggested. Richard Blau said: "Whether federal or state, these agencies have too many responsibilities to meet, but too few FTEs and resources with which to get their many jobs done. As a result, few if any agencies undertake trade practice investigations on their own initiatives." At same time, "every regulatory agency has a duty to investigate a bona fide complaint or allegation of wrong doing. Aside from being a fundamental raison d'etre for the agency, failing to do so could expose the recalcitrant regulators to allegations of corruption for intentionally ignoring or even shielding criminal practices." Then too, trade practice rules far from crystal clear, especially in context of current mkt. Also: regulators' views sometimes differ from industry members' views on what is legal and what is not, especially when it comes to a specific program/regulation. Indeed, that disagreement evident in of each of these actions.

MC Stung by TTB on Fortune Buybacks TTB accepted a $450,000 offer in compromise from MillerCoors based on Buy-Back Program MC initiated to repurchase unsold Fortune that went out of code. MC insists buy-back "complied with all applicable laws, regulations and TTB rulings." But TTB insisted it violated Fed Alc Admin Act (FAA) that bars consignment sales. It accepted MC's offer, based on approx 1.5 mil cases that TTB alleged were sold to distribs "located in states with similar state laws." Remember, under penultimate clause, FAA Act applies to beer only in states that have same law. TTB charged not only that MC offered illegal buybacks, but also that accepting the deal and making the purchases created "separate and distinct class of violations" on distribs' part. Yet no distribs cited, at least not publicly. MC's Pete Marino pointed out that in addition to MC considering the program legal, it made offer to "ensure we had the freshest beer possible in the marketplace…. However, in the spirit of a strong history of partnership with TTB and our distributor system, we decided to resolve the dispute to keep our system focused on selling our brands." That suggests that MC at least believes distribs won't be cited.

Mass ABC Hits Distrib for Pay to Play In Mass, state ABC held rare hearing into allegations that Craft Beer Guild, one of many distrib arms of Sheehan family, engaged in pay-to-play in Boston bars. That followed investigation kicked off late last year after craft brewer Pretty Things tweeted about losing taps to the practice. Not an "official" complaint perhaps, but it got lotsa attention and ABC followed up. On same day of hearing, Mass ABC cited handful of city's best-known on-premise retailers for accepting payments. It will hold separate hearing. Craft Beer Guild was only distrib cited. Ironically, it got tagged after refusing retailer demand and lost biz. CBG insisted that that its specific actions -- Mass ABC cited 14 payments made to retailers or 3d parties for "marketing services," but billed back to suppliers -- not actually barred by Mass law. Then too, CBG did not invent these practices, it pointed out, but said they were widespread in mkt and its actions necessary to compete. CBG did acknowledge specific actions cited by Mass ABC, but asked to be allowed to pay approx $150K and not have its license suspended or revoked. ABC will make a decision; CBG will have legal options if it does not like that decision.

Calif ABC Cites AB for Bar Bucks Only sketchy details for now, but Calif ABC filed an "accusation" against AB for violating law passed last yr barring most coupons, tho it made exceptions for mail-in rebates and some others. Accusation believed to be against a branch. No other details available at presstime.

Changes just keep coming at MillerCoors. Big changes. In any other time, MC's Sep 14 announcement it would close Eden, NC plant (10-mil bbl capacity), by this time next yr, would have seemed momentous. Miller hadn't closed plant since Fulton, NY in 1994 and Coors hadn't closed plant since Memphis in 2006. Main reason for closing: MC lost almost 10 mil bbls since JV formed. Just as important, "continued volume declines are expected each of the next few years." That's an astonishing admission, even tho MC hasn't grown in any yr since inception. Not usually a public pronouncement of any big co. Assessment ain't optimistic, but probably realistic. (MC also may be setting expectations low in hopes of exceeding them). What about AB? Hard to imagine it acknowledging continued volume losses for yrs. Yet AB lost even more volume than MC (12.7 mil bbls thru Jun since 08). True, it gained in 2012 and has earnings might of ABI behind it. But how long can it operate with same # of breweries? Despite rumblings for yrs, no news on that front. MillerCoors production will move to Shenandoah, VA, and other plants. Besides becoming more efficient, MC stands to save over $100 mil/yr, estimates Stifel's Mark Swartzberg. Two main sources of savings: $73 mil in labor costs, $29 mil depreciation. At same time, shutting down brewery also means loss of over 500 employees and significant restructuring charges.  

Never seen anything quite like this (we finally got better look at Pabst data, including Not Your Father's Root Beer for longer period). Pabst went from losing share earlier in yr to gaining 0.4 share of $$ last 13 weeks thru Sep 12 in wide-ranging cut of Nielsen data. That's 2d biggest $$ share gainer after Constellation. Not Your Father's Root Beer has proved to be a game changer, propelling Pabst's overall fortunes as brand rolled out across US. Pabst rapidly went from plus to minus in volume. Total volume up 7% for last 13 weeks in Nielsen data for 13 weeks (10% for 4 weeks). That's even as key Pabst Blue Ribbon brand down 4% same period. Even more impressive, Pabst's $$ up 29% for 13 weeks thru Sep 12. $$ sales scorching for last 4 weeks, +35%, and it gained 0.5 share.

Pabst Avg Prices Up 20% for 13 Weeks, About Same as MC's Perhaps even more remarkable is effect of NYFRB on Pabst's avg pricing. Pabst avg prices per case up $3.25, 20% to $19.45 for last 13 weeks in Nielsen. That's just 1% less than MillerCoors $19.62. And for 4 weeks, Pabst avg prices up $3.81, 23.5% to $20 per case, almost 50 cents higher than MC's $19.53. Such is the dramatic effect mix shift can have in a company Pabst's size when you have just one hot brand. And Pabst's Small Town brewery has several more in the hopper, which some distribs think have sales potential.

Pretty clear and very familiar. Constellation Brands Beer Division (CBBD) and craft remain the main beneficiaries of share still bein' shed by top 2. Scan data from IRI's multi-outlet + c-store channels shows AB $$ share slipped 1.7 for 13 weeks thru Sep 6 (starting June 8) to 45.5; MC dipped 0.7 share to 23.5. That combined 2.4 share loss of scan dollars matched by combined gain of CBBD (+1.1) and craft collectively (+1.3). Yr-to-date, AB and MC lost 2.3 share while combo of Constellation and craft gained 2.1. Combined share of AB and MC $$ slipped below 70 for 1st time for last 13 weeks.

High End Grabbed Additional 2.5 Share Over Summer All high end segments came in just below 42 share of $$, up 2.5 share, tho just over 30 share of volume. (We focus on $$ share instead of volume/$$ trends as there's a fairly wide disparity between what IRI and Nielsen are reporting for volume/$$ trends for the summer, with IRI showing much better gain. Not sure why.) Cider slowed significantly -- we and others suspect that volume going to hard root beer for now -- and picked up just 0.1 share of $$ over the summer in IRI. Superpremium segment gained 0.3 share, but FMBs lost 0.3 share (NYRFB in craft in IRI).

Mostly Modest Share Shifts Below Top 3 Brewers and Top 10 Brands Below top 3, little share shift; only 1 supplier movin' needle more than 0.1. Pabst gained 0.3 share in IRI thanks to Not Your Father's Root Beer (O.4 in Nielsen-see below for more). Mike's gained 0.1, as did Sierra Nevada and Lagunitas. That's it. HUSA, NAB and Yuengling each lost 0.1 share. Plenty of other craft brewers among top 25 suppliers posted double-digit gains (Stone, Bells, SweetWater, New Glarus and Duvel Moortgat) but none moved share needle 0.1.

Lookin' at top brands, you know the drill. Corona and Modelo Especial each up 0.5 share of $$, to 5.0 and 2.9 respectively. Modelo was #8 brand in dollar sales over summer, passing Busch Light. Michelob Ultra picked up 0.4, as did Not Your Father's. Miller Lite held $$ share. Meanwhile, Bud Light lost 0.9 share of $$, Coors Light and Bud each lost 0.2 share. Top 4 Rita flavors combined dropped 0.7 share. And Natty Light slipped 0.3 share. Other than that very few $$ share shifts of 0.2 or more among brands.

Next big chess move in global beer game is coming fast. ABI will bid $106 bil for SABMiller this week, reported Sunday Times 9/27. SABMiller "initially reticent about negotiating a deal," said UK's Telegraph, but became "more open" to deal "following pressure" from largest shareholder Altria (27%). ABI "won over Altria before approaching SABMiller," said Telegraph. Earlier reports said if Altria favored deal, resistance futile.

ABI-SAB would be truly vast, with ripple effects in many directions, affecting lotsa players in beer/bevs. "Beer Behemoth" would have combined stock mkt capitalization around $275 bil and be 1 of top 10 largest cos in the world. That's bigger in value than Proctor & Gamble and Nestle. If deal price does come in at $106 bil, that would be double size of deal for AB 7 yrs ago. It would also be 1 of 10 largest deals of all time. Following this transaction, ABI would dwarf all competitors. It would sell about 30% of global beer volume and get 50% of global beer profits before divestitures. Amazing when you consider it all began with $50 mil purchase of Brahma back in 1989. So basically in one generation, it will have gone from a bit player to world domination. It's "kinda game over in global beer," said one competitor.

ABI-SAB Earnings Power; EBITDA Over $30 Bil by 2018 "Megabrew" would generate revs of $70.5 bil in 2017 and EBITDA of $28 bil, estimated Stifel's Mark Swartzberg on Sep 25 (that's after assumed disposals of 58% of MillerCoors and 49% of Snow in China). By 2018, ABI's global EBITDA would be almost $31 bil in Mark's model. Compare to Heineken, which would be (distant) #2 global beer player. Heineken had $5 bil in EBITDA in 2014. So that's about 6 to 1. AB would clearly have leverage and scale, enuf of an advantage in earnings power to make competitors miserable in many mkts. It may well sacrifice profits in its competitors' most profitable mkts to put a hurt on 'em, including possibly US.

Complexity; Asset Disposal; Approaching Altria; Soft Drinks; Execution Risk This transaction is no layup or slam dunk. Odds of it happening are high, say most, but it will be exceedingly complex, with tricky asset disposals, not to mention "execution risk." This is ABI's "biggest roll of the dice so far," sez Redburn's surprisingly cautionary Chris Pitcher. Another past champion of ABI's value creation, HSBC's Carlos Laboy, sez it's first ABI deal done from "a position of weakness, not strength," citing softness in US, and issues in Brazil. Others see deal as value-adding, as evinced by strong stock moves as soon as approach became public. As noted above, Altria is huge key; Altria open to equity deal, but would like to keep its stake in ABI high enough that it can continue to use equity method of accounting for its earnings, wrote WSJ 9/25. Also gotta watch Coke and Pepsi; 22% of SABMiller volume is Coke, 10% of ABI volume is Pepsi. Seems unlikely that Coke and Pepsi would want to be under same roof in ABI-SAB. With so many moving pieces and regulatory approvals required, could take a yr or more to get done.

What's It Mean in US? A New MillerCoors, Owned by Molson Coors? About Africa ABI would clearly divest 58% of MillerCoors owned by SABMiller. That's a no-brainer. Unlike in Modelo deal, where ABI thought it might be able to retain stake in Crown, ABI has no such illusions here. Most likely buyer would be Molson Coors, since it already owns 42% and has 2 bites at the apple. Deal could cost it $10-12 bil. But TAP would become a co with $11.3 bil in revs and nearly $2.8 bil in EBITDA, estimates Stifel's Mark Swartzberg. He only estimates $300 mil in cost savings; others peg synergies $100-200 mil higher.

If Molson Coors controlled 100% of MillerCoors, how much would it change? Since 2 partners often disagreed, fair to expect there would be changes. After a couple of mos of getting its footing under new ceo Gavin Hattersley, news of deal has to be another monkey wrench for MillerCoors. It's big challenge, but also oppy for more focus, to extent dual ownership has been impediment to progress. Yet transition period could be rife with distractions, hold-ups, strategic barriers. For folks at AB, not as much would change. But AB would become smaller piece of total ABI, perhaps making it harder for US to get incremental resources/focus, since best growth oppys elsewhere. Like where? Africa. That's where ABI has almost no presence but SABMiller gets 30% of its profit. Breaking Views columnist called Africa "the jewel in the crown." Why? Growing population, up 2.6% per yr and growing GDP per capita, up 5.4% per yr, with the "beer story even stronger" as populations shifts from illegal hooch and climbs closer to worldwide per capita beer consumption. Biggest beer deal of all time and US is a sideshow.

This summer will go down as the most active in beer biz history on the deal front, but sales stayed unexpectedly soft despite some significant tailwinds. Blowing everything out of water: Sep 16 revelation that ABI approached SABMiller about a proposed combination. At presstime, bid for $106 bil imminent, reported London Times, others (see below). Since mid-Jul, 4 famed Calif craft brewers (including 2 of top 5 in state) cemented summer flings and jumped into bed with new partners. Two sold their entire bizzes (Firestone Walker and Golden Road), one sold vast majority (Saint Archer) and the largest Lagunitas, sold half. Combined total value of just those 4 deals: about $850 mil (and that's only for half of Lagunitas). Craft has created lotsa wealth. Top 3 global brewers bought in; Golden Road sold to AB, St Archer to MillerCoors and Lagunitas 50/50 with Heineken. Earlier, Firestone Walker sold to Duvel Moortgat, after reportedly rejecting an offer from AB. So face of craft has changed yet again. Big money just pouring in now. On distrib front, over a dozen deals since Jun 1, in middle of peak-selling season. Highly unusual.

Shipments Sag, On-Premise Off, Off-Premise Sluggish Meanwhile, summer sales shoulda been better; easy comps, low gas prices, hot weather and an economy that's adding hundreds of thousands of jobs every mo. But domestic taxpaid shipments down 800,000 bbls, 1.2% May thru Aug, import shipments down 151,000 bbls, 2% May-Jul (tho still +5% for 7 mos). On-premise beer volume continued down 4% or so, as it's been all yr. Off-premise better, but trends up and down during summer and all-in far from robust. Lookin' down the road, deal environment promises to remain active. While ABI-SAB will dominate media coverage, more craft/distrib deals coming too. On sales, import trends likely to pick up as Constellation crushing it with its Mexican brands and Mexican shipments way behind known trend. Domestic brewers going against flat back end of yr last yr, so possible to gain some ground. But BI economist Michael Uhrich's estimate of -0.5% for full yr (see last issue), could be best-case scenario; latest yr-to-date shipments down near 1%.  

Beer Marketer's INSIGHTS is pleased to announce that AB ceo João Castro Neves will join our program at the Beer Insights Seminar on November 9 at the Waldorf=Astoria in NYC. The Seminar promises to be a premier beer biz event. We've got a great program that will also feature new Pabst ceo Eugene Kashper, new MillerCoors cmo David Kroll and on-a-roll Constellation cmo Jim Sabia. We'll also feature Lagunitas founder Tony Magee, fresh off his groundbreaking deal with Heineken, and Alltech Lexington Brewing and Distilling ceo Dr. Pearse Lyons. Plus the irrepressible consultant Mike Mazzoni. Beer Marketer's Insights prexy Benj Steinman will present an industry overview. You won't want to miss this. Space is limited. Click here to register.