Remember 20% SABMiller stock drop we mentioned last issue?  Several UK analysts have seen enuf and upgraded ratings this week.  UBS’s Chris Pitcher said most of stock drop related to “weakness in currencies” and more cautious view of emerging mkts.  SABMiller growth is “moderating but still attractive,” so his view is stock is “oversold,” and he upgraded to “Buy.”  Stock up almost 5% today. 

A rough mo and not just surrounding Labor Day.   Softness pretty much pervaded beer biz in Sep, it seems. INSIGHTS had already heard about disconcerting Sep drops from a number of AB and Miller distribs in recent days, including some large ones.  But at NY beer distribs convention going on now, near unanimity that trends fell way off track last mo, even imports. Goes beyond how Labor Day fell this yr, weather, comps, and 1 less selling day. No one can quite put a finger on it; supplier incentives that ended in Aug, Corona shortage, even economic malaise all advanced as theories.  Supermkt sales stayed soft in wk thru Sep 24: volume -1.2%, off 4.1% for 4 wks, according to IRI data reported by Morgan Stanley’s Bill Pecoriello today. Pricing remains healthy: +4.2% for 4 wks.  AB and Miller lost share, Coors held, as imports, crafts rolled up gains.  

 

Mediamark Research Inc’s survey of 25,000+ adults in 2005 suggests that 91 mil American adults are at least occasional beer drinkers, just over 42% of adults age 18+.  Unfortunately, that’s not much more than the approx 88.8 mil American adults who were beer drinkers 10 years ago, reported by another natl survey.  Nearly 47% of adults were beer drinkers in 95.  If just the same % had held over the decade, there would have been over 100 mil beer drinkers in 2005.  That’s an additional 10 mil consumers.  At current per capita consumption, would have meant an additional 22.5 mil bbls. 

Beer became less popular among men and women since 95.  Although approx same % of 21-24 yr olds drank beer both yrs, % of 25-34-yr olds who were beer drinkers slipped 10 points, from nearly 60% in 1995 to 49% in 2005.  That’s key problem.  Another stark comparison: sharp dropoffs in percentage of drinkers in each region except for Midwest.

Who were the beer drinkers in 2005?  Predictably, men much more likely to drink beer than women.  That’s clear from the percentage who drink (55% vs 31%) and resulting indexes 130 vs just 74.  (Volume figures, which this survey does not report, are likely to be more sharply skewed.)  While 21-27 yr-olds remain target of most marketing, beer’s popularity remains about same up through age 44 at about 50%, then drops off.  Whites and Hispanics are much more likely than black Americans (or Asians) to be beer drinkers.  But beer’s reputation as a blue-collar product seems to be overstated.  In fact, the likelihood of drinking beer rises with both education and household income: 35-40% of those with household incomes between $30,000 and 60,000 annually are beer drinkers.  That increases to over 53% in households with over $150,000 annual income.  Half of all beer drinkers live in households that have over $60,000 in annual income, and lower-income households index lower than higher income households for beer.  Regionally, about 43-45% of adults drink beer in NEast, NCentral and West, but just 39% in the South.  

DEMOGRAPHICS OF MALT BEVERAGE CONSUMPTION All data from Fall 2005 Mediamark Research Inc   All Beer   All Beer   #-000 % % of Dkrs     #-000 % % of Dkrs All 90,914 42.1     Household Inc:       Males 21+ 53,543 54.9 58.9   $150,000+ 8,329 53.2 9.2 Females 21+ 33,062 31.1 36.4   $100-149,999 13,479 52.5 14.8 Age:         $75-100,000 13,409 47.6 14.8 21-24 7,851 49.6 8.6   $60-74,999 10,490 43.7 11.5 25-34 19,238 48.8 21.2   $50-59,999 7,682 41.1 8.5 35-44 22,211 50.7 24.4   $40-49,999 8,309 39.7 9.1 45-54 17,420 42.2 19.2   $30-39,999 9,353 40.6 10.3 55-64 10,397 36.5 11.4   $20-29,999 8,657 36.3 9.5 65+ 9,488 27.2 10.4   $10-19,999 6,986 31.1 7.7 Education:         <$10,000 4,220 31.7 4.6 Grad College 26,446 48.6 29.1   Region (Census):       Attended College 25,226 42.9 27.8   Northeast 18,100 44.0 19.9 Graduated HS 26,785 39.1 29.5   South 30,452 38.9 33.5 Did Not Grad H.S. 12,458 36.5 13.7   North Central 21,792 44.8 24.0 Race/Ethnicity:         West 20,569 43.0 22.6 White 73,161 43.7 80.5           Black 8,147 33.0 9.0           Spanish/Hispanic 12,025 44.8 13.2

 As befits tumultuous period in beer biz, while fall pricing going up most places, it's very much in flux, with lotsa twists and turns, including non-mkt leaders leading price. Expect the unexpected. For example, in Calif and Fla (33% of its biz) Constellation became de facto price leader. Yep, it came out first with its price hikes in states where it has 15 and 9 share respectively (in 2014). This reverses typical scenario, where mkt leader (usually AB) leads, but Constellation apparently has pricing power. Note: whomever leads, fall increases land against backdrop where pricing getting tuffer to come by generally as AB nationwide rev per bbl only up 1.2-1.3% in 1st half, and MC also up just 1.6-1.7%. Pricing tightening in scan data as well. Constellation avg prices up 1.1% in last 4 weeks thru Aug 1 in Nielsen All Outlet, while AB continues with just 1.2% per case gain.

Yet in Calif, Constellation took robust 3% price increase on many key packages, effective Oct 5. But it did not go up on key 24 oz Modelo Especial can. This caught AB's attention, as it continues to be obsessed by Constellation, say distribs, including spread between its key packs and Constellation's. No word on AB increase in Calif at presstime. AB will see what others do first. So far, HUSA followed STZ. And MC now floating price hike too, going up a little more than 2% on 30- and 36-packs for example.

Another reversal: MillerCoors distrib Andrews took lead in Dallas/Fort Worth metro area (unusual, not unprecedented). AB initially only announced increase in South Tex. Tex is both AB and MC's biggest mkt. AB went up in South Tex, 45 cents on suitcases, $1.10 on single serve but no increase on draft or 12-packs in Bud family and big increases on hot Ultra brand. No word on what AB doing in North Tex at presstime. In Fla, Constellation also first out. But with more modest increase than in Calif (1-2%). AB took normal increase in Fla, 45 cents on premium packages. But in some mkts, AB going for bigger increases, especially big on Ultra. Some distribs again balking as AB discusses its plans for "revenue realization." Meanwhile, AB took lead in Chi, mkt where nominally MillerCoors should be the price leader (AB went up first in Chi other times too). AB going up 40 cents to $1.05 on key packages in Chi Sep 28. At presstime, MC cluster reacting to AB price letter in Chi. Chi Bev Systems, a Reyes Bev Group distrib, reportedly put out letter following AB on price. But MC wants to be more selective and some Chi cluster distribs will follow MC recs. Could mean price hike won't totally stick. In general, MC wants to take a more selective approach on responding to AB price increases. Some distribs going up on premium light draft; MC will approach mkt-by-mkt (recall, it held last yr on premium light draft).

Tho imports came in slower in Jun than we estimated (up just 0.7%), imports still posted 1.2-mil-bbl, 8% gain Jan-Jun, reports Beer Inst and NBWA based on Commerce Dept data. That's while overall industry down just slightly (0.4%) and about half the 16% gain pace for craft Jan-Jun estimated by Brewers Assn. Collectively, imports/craft up 2.8 mil bbls in 1st half. Long on the verge, imports boosted mkt share over 15; at 15.4 for 6 mos.

Import health so far this year far broader than calendar 2014 trends, tho big swings country-by-country. While only 2 of top 7 import countries increased shipments in 2014, 6 of top 7 up in 1st half of 2015 (97% of total import biz comes from those 7). Gotta note, some of these numbers pretty small and import trends in general are very volatile. Shipments from top 2 import growth countries last yr -- Mexico and Belgium -- behind last yr's pace, but still very healthy. At same time, total Mexican shipments gain of 670K bbls, 7% is behind gain pace of top players, the reverse of last yr. Constellation alone up 800K bbls in 1st half. HUSA's Mexican portfolio up mid-singles and Montejo all incremental. So likely Mexican shipments trend will improve going forward, especially compared to measly 1% gain reported in Q2. Mexican shipments alone closing in on 10 share of total US biz, at about 9.6 so far this yr. Belgian shipments rose solid 15% Jan-Jun: Stella Artois up 21% thru Aug 1 in Nielsen all outlet scans.

But bigger change is swing from -5% for Dutch shipments in calendar 2014 vs +6.6% Jan-Jun this yr. Or how about swing from double-digit declines last yr to gains in shipments from Canada, Ireland and Germany so far this yr? UK shipments still down, but decline slowed from -24% to -5%. Be interesting to see if these improvements hold for the rest of 2015. Since last issue, Heineken reported HUSA shipments up 1.1% in 1st half, very close to our 1.2% estimate. Depletions flat, with Heineken "flattish," Dos Equis and Tecate Light continuing as "important growth drivers." But import trends and scan data suggest Dos Equis slowed from mid-teens growth pace of 2014.  

While there's no blockbuster beer biz lawsuit runnin' right now, legal issues with broad implications on tap in state and fed courts. They involve such hot topics as when/how brewers can move brands and brand valuation. And several involve Pabst.

Winner Loses Bid to Stop Termination in MD Pabst now in legal disputes over efforts to move brands as "successor brewer" in at least 3 states. In addition to Calif and Oh, there's also lawsuit in Md, where Pabst sought to move brands from FP Winner to half-dozen other Md distribs. Pabst terminated Winner with Mar 9 letter, effective May 8, noting successor distribs obliged to negotiate and pay fair mkt value. Winner (like Mission in Calif) did not negotiate. Sued to stop termination. Pabst kept shipping beer until late Jul, but then stopped; beer now being sold by other distribs. Winner sought TRO/ preliminary injunction, but court just denied. Lawsuit moves forward, but not likely Winner will win back the brands already moved. Pabst argued termination legit, that money is all that's at stake. But, again like Mission, Winner argued Pabst not true successor brewer under MD law and did not have right to terminate in first place. Even if Pabst was true successor, Md law does not allow it to terminate, again just as Mission argues.

Winner had also argued that losing Pabst would mean its biz "would be shuttered" and 123 jobs would be lost. Pabst represented 27% of Winner's annual volume, 14% of revs ($1 mil per mo in gross sales) and 17% of GP. Losing that would be "catastrophic," claimed Winner prexy Evan Athanas. Pabst countered that those figures ignore Winner's huge AB biz in Md (plus Constellation, Guinness, others) which are sold under same umbrella company, Chesapeake Bev. Overall, Pabst is "tiny fraction of revenues" at Chesapeake, sez Pabst. (There's separate dispute over how the 2014 Mitchell-Winner deal presented to Pabst.)

Mission Can't Stop Calif Arbitration In Calif, recall that Mission Bev also failed to get TRO/preliminary injunction to stop Pabst from moving brands after arbitration of FMV. (But Mission still has brands.) Mission also filed request for court to stop arbitration with successor distribs Beauchamp and Classic until court decides whether termination legit in first place. And Mission also asked arbitrator to hold off, using same arguments it took to court: that termination issue has to be resolved first, that Pabst not a legit successor manufacturer under Calif law and that successor distribs didn't negotiate in good faith. But arbitrator flatly rejected Mission's arguments. Ordered hearing to proceed Sep 8-10. Meanwhile, Superior Ct also refused Mission's request to stay arbitration. So arbitration will proceed, a "fair market value" number will emerge and Mission will likely continue lawsuit challenging termination, arguing that FMV nowhere near its "real damages" in losing Pabst. In Oh, distribs lawsuit movin' forward since settlement "unlikely," according to pre-trial order.

Hunterdon Claims AB Violated NJ Law by Moving Elysian Moving brands and brand values also at heart of fed ct action in NJ. AB moved Elysian brands from distrib Hunterdon, a division of Sheehan Family Cos, which does not distribute AB in NJ but has statewide craft operation there. They're in US Dist Ct. AB seeks declaration that as "successor brewer," it followed NJ law in terminating Hunterdon for Elysian and paying 5.5X GP for the Elysian brands ($563K for approx 8500 cases). AB considered that "premium" over the 4.75X it paid last yr to move Blue Point. Hunterdon filed counterclaim that AB and Elysian actually violated state law, its contract with Elysian and more. Lotsa "he said, he said" in the filings, natch, and Hunterdon seeks more like 12X GP for Elysian, a precedent AB would not want to set, in NJ or anywhere else.

MillerCoors' interim ceo Gavin Hattersley not kiddin' when he said on Aug 6 conference call that he "dove in headfirst" Jul 1 and MC "moving swiftly" to position itself for growth. Recall too: Gavin said on his 2d day as CEO: "We're not satisfied with our volume performance, so we need to take action to change that dynamic." So Gavin took action. Since Jul 1, MC: 1) replaced top sales and mktg officers; 2) fired long-time ad agency on lead brand Coors Light (plus Banquet and Redd's) and ordered "creative review" for Leinie brands. With these changes, means 38% of volume and over half of premium-and-above volume will get new agencies; 3) working on its first deal to fully acquire a craft brewer (TBA, soon), indeed its first craft beer deal of any kind since buying minority stake in Terrapin in 2011. Meanwhile, MC volume decline stayed in low-single-digit range thru Jul, cfo Tracey Joubert said on same call. That trend unchanged since JV formed in Aug 2008. But Nielsen all outlet scans suggest improvement in Jul.

Tho volume remains soft, MC outperformed AB financially in Q2/1st half. MC operating income jumped $43.6 mil, 9.7% in qtr and $55 mil, 7% in half. Operating margin jumped 2 full pts in Q2 to 22.4 and 1.5 pts for 1st half to 20.2, tho MC expects margin will be even for full yr. New investments coming, including tech and increased Coors Light/ Miller Lite mktg. MC got better $$ performance in part as shipments well ahead of depletions in 1st half (-2% vs -3%). Amounts to about 300K bbls. MC also got bigger rev/bbl hike than AB for 6 mos and cost of goods sold declined $60 mil in 1st half, 2.5%. Other new news in 2d half: MC will be "going live with its new ordering tool," said Tracey, as big step towards 1 system, tho it will still be running 2 simultaneously for next couple of yrs, which means it will have taken nearly a decade to get to 1 ordering system.

The Beer Insights Seminar on the evening of Nov 8 and all day November 9 at the Waldorf=Astoria in NYC promises to be another premier beer biz event. Just added: Alltech ceo Dr. Pearse Lyons, who is building new model in alc bev biz, as founder/prexy of fast-growing Alltech Lexington Brewing and Distilling in KY (plus he recently acquired UK and Ireland craft brewers). Other speakers include outspoken new MillerCoors cmo David Kroll, fast-movin' change agent Pabst ceo Eugene Kashper, provocative consultant Mike Mazzoni, plus industry growth leaders, Constellation cmo Jim Sabia and Lagunitas founder Tony Magee. Beer Marketer's Insights prexy Benj Steinman will also present. More speakers to be announced in coming weeks. Click here to register.   

Pace is really picking up. Deal environment percolating. At least 3 distrib deals announced in just last couple of weeks. That's highly unusual in middle of summer. And INSIGHTS knows of over a dozen possible AB deals in works. That's unprecedented. Indeed, AB reportedly looking to triple number of annual transactions to near 30 for next several yrs. Recent deals each illustrated different distrib deal themes: MC megadistribs going across state lines, AB adding (mostly) but also subtracting branches, and AB and MC distribs adding to their craft arsenal courtesy of statewide wine and spirits distrib.

Columbia Enters Calif Columbia Dist, which dominates Oreg and Wash, made its first foray into Calif. Likely not its last. It has deal to buy 4-mil-case Mesa Beverage Co in Santa Rosa, a high share, profitable distrib. Deal will close Oct 31st, pending supplier approval. Recall, Columbia purchased by family office Meritage in 2012. Meritage is family office of Simons family, worth many billions. Meritage hasn't expanded holdings as quickly as many expected, but Columbia did purchase Constellation volume in Wash earlier this yr. Twice. Could it be on march now? After Mesa move, Columbia will be 41 mil cases of beer and about 54 mil cases including Red Bull and NAs. Reyes Bev Group at about 67 mil cases of beer in Southern Calif. RBG and Columbia 39% of non-AB volume on West Coast. Since non-branch AB network sells lotsa other brands in West, Reyes/Columbia close to half of MC distribution system volume on West Coast. They often compete with full portfolios and high share of margin pool against AB branches. In recent yrs, they have gained share.

AB Adds NY, Colo Branches; Branches Less Than 10% of Biz AB bought several branches and traded others in recent weeks. Net-net, it will add over 4 mil cases to branch system, acquiring several locations in Colo totaling about 8 mil cases and tiny 700,000 case branch in Staten Island, NY. At same time, AB will be getting out of 4.5 mil branch biz in KY as mandated by new legislation. Still, branches less than 10% of total AB volume. AB clearly wants to get bigger in branches in states where it still can. In Colo, AB will purchase 3+-mil case American Eagle in Loveland Colo and trade for over 4 mil cases of Standard Sales volume in Colorado Springs, Pueblo, etc. Standard Sales will take on branches in Louisville and Owensboro, KY. AB Dropped 7.6 Share in 6 Yrs in Colo Colo will be interesting test of AB branch model. AB will distribute 80-90% of its volume in state where craft has gone wild. There are well over 200 craft brewers in Colo. AB is presiding over a shrinking empire. In last 6 yrs alone, AB has lost 256,000 bbls, 16.6% of its volume in Colo. Dropped 7.6 share from 42.3 to 34.7. And that's with something close to half its volume already going thru branch. MC has also lost volume and share, but far less (it too has Denver branch, but one that sells many other brands). AB and MC went from combined 70+ share to 59 share in just 6 yrs. Meanwhile, All Others (mainly craft) zoomed over 10 share from 14.6 to 24.9.

Branches as Impediment to Distrib Acquisition of Craft Brands; Will AB Keep Craft in CO? Interestingly, on two different occasions, AB independent distribs (and branch) got very close to acquiring significant craft brands in Colo, up to and including New Belgium. But deal fell apart when AB sr mgt put kibosh on deal. So Denver branch became a serious impediment to indy AB distribs landing key craft brands. That likely was a factor in their decision to sell. Still both Standard and American Eagle do have sizable craft books. AB sez it would like to keep some local craft, pending supplier approval. Given its track record in Pac NW, where Firestone and Ninkasi both left branches in less than 2 yrs, will be interesting to see who it woos and who sticks around. More Branch Deals Coming? DoJ Compliant AB working on trying to get more branch deals done, including in Calif (see last issue). But AB "fully compliant" with DoJ agreement, assures source. Modelo brands will "remain aligned" for period required (next Jun). That doesn't preclude AB from making sure sufficient "focus and efforts" placed against its brands, sez source.

Large AB/MC Distribs Still Acquiring Craft in Ariz Finally, giant spirits distrib Alliance Bevs (a JV between Charmer Sunbelt and Glazer's) will sell off its extensive statewide beer portfolio in Ariz, basically splitting between 2 big beer distribs, Hensley and Crescent Crown. Crescent Crown will reportedly get about 800K cases of Boston Beer. And Hensley will get about 1.2 mil cases, including Diageo, Lagunitas, Anchor, Stone, etc, pending supplier approvals. Hensley has acquired and built a deep craft book in a relatively short period of time. It's going ahead with this transaction in period when AB is talking about potentially adopting incentives to get distribs to become more exclusive and only allowing aligned distribs to acquire. So it will be interesting to see what happens next.

Join us for the 22d annual Beer Insights Seminar on the evening of Nov 8 and all day November 9 at the Waldorf=Astoria in NYC. This year's seminar promises to be another premier beer biz event. Don't miss this unique opportunity to learn more about the beer industry and network with some of the best minds in the biz. Just added to the program: MillerCoors cmo David Kroll, just named in Jul, who is sure to bring a fresh perspective to MillerCoors mktg opportunities and challenges. Other speakers so far include Pabst ceo Eugene Kashper, who will update you on his action-packed 1st yr including the runaway success of Not Your Father's Root Beer, consultant Mike Mazzoni, certain to be thought-provoking on brewer and distributor issues, and a Growth Driver Brands Panel including some of hottest brewers and brands in the industry, such as Constellation CMO Jim Sabia and Lagunitas Founder Tony Magee. Beer Marketer's Insights President Benj Steinman will present an overview of the US Beer Industry, identifying trends and updating us on the competitive landscape. More speakers to be announced in coming weeks. Click here to register.