Is this going to prove typical of uncomfortable conversations that big bevcos will be having with their fast-casual restaurant partners?  Profile of Panera Bread exec chef Dan Kish in NY Times’ Sun biz section revealed that high-fructose corn syrup is key ingredient under fire at 1,900-unit chain, which has stated aim of employing only “clean” ingredients by end of 2016.  That’s put bev partner Pepsi in uncomfortable spot.  After chain removed HFCS from its salad dressings and most pastries it’s turned sights to bevs.  “We’ve told them we have to fix this, please be our partner,” Kish told paper about discussions with Pepsi.  “We’ve had countless meetings with them about it.  And we’ve said with you or without you, we are getting high-fructose corn syrup off our menu.” 

Tho story allows there’s no definitive evidence that HFCS is worse than sugar, Kish’s decision-making on unacceptable ingredients hinges on 2 questions: “Is this necessary?” and “Is it something you’d find in your home pantry?”  That’s underpinned prior decisions on 150 ingredients on co’s No No List, ranging from HFCS and sucralose to added caffeine (below).  Tho Panera has “no immediate plans to stop selling soda,” it’s “experimenting with soda sweetened with cane sugar and has asked Pepsi to come up with alternatives to Pepsi, Mountain Dew and Sierra Mist sweetened with high-fructose corn syrup.”  At another point he warns:  “Ultimately, they are going to have to evolve, or they are not going to have the business of companies like Panera.”  (Pepsi wouldn’t comment beyond saying it’s exploring other options.  Story makes no mention of cane-sweetened entries that Pepsi already has in limited distribution, such as Caleb’s Kola, which has entered also-persnickety Umami Burger chain.)  Story notes that, since Kish came aboard in 05, Panera has been at forefront of eliminating such ingredients as poultry raised with antibiotics and trans fats.  Meanwhile, changes are offering possibilities for indie craft soda brands, as Boylan was able to exploit recently in cracking Arbie’s chain for extensively supported summer promo (BBI, Jun 15).

Background: Only ‘Clean’ Ingredients by End of 2016   Panera in mid-Jun broke new campaign entitled “Food as It Should Be” touting co’s “commitment to clean ingredients,” including via letter from founder/ceo Ron Shaich in Times and other papers, and hosted popup “pantry” in NY’s Soho district, where consumers were invited to discuss ingredient strategy.  And starting a year ago, it’s widely publicized No No List that includes such bev staples ace-K, aspartame, added caffeine (as opposed to naturally occurring caffeine, ruling out most energy drinks), potassium benzoate, sucralose and vanillin.  “We are committed to removing artificial preservatives, sweeteners, colors and flavors from the food in our bakery-cafes by the end of 2016,” co declares at top of list.

This is how fast a segment can morph in today’s marketplace.  It probably wasn’t until May or June that it was clear that Not Your Father’s Root Beer was selling well in many mkts outside its hometown Chi.  Since then, Coney Island Root Beer has launched nationally with some “mind blowing” initial displays and depletions, according to Alchemy & Science founder Alan Newman.  And now here comes Henry’s Hard Soda from MillerCoors, officially announced yesterday.  But it’s not debuting until early next yr with Hard Ginger Ale and Hard Orange Soda.  By then whole segment could have changed again, with many more new entries.

“Our goal is to establish Henry’s as a hard soda platform,” MC wrote distribs this morn.  “This is a truly white space opportunity in the marketplace,” MC director of innovation, Bryan Ferschinger, told Ad Age.  Maybe, but not for long.  AB reportedly has its own version of an alcoholic soda in the works.  Not Your Father’s Root Beer and Coney Island also have extensions coming.  Not to mention preexisting brands like Sprecher’s root beer and Berghoff’s Rowdy Root Beer.  Meanwhile, media fascination with these drinks continues apace, including long WSJ piece Friday and Ad Age article yesterday.  

Many industry observers have thought it a matter of when, not if, Constellation Brands would participate in craft beer, some expecting a big bet somewhere along the way.  But it’s got very full plate building out Mexican brewery, scouting out next site, adding wine brands and more.  So announcement yesterday that Constellation has created a “corporate venture capital function” within co called Constellation Ventures to identify “smaller scale investment opportunities related to innovative concepts and emerging categories” within alc bevs, looks like modest step toward craft involvement.  Constellation bought a stake (less than 1/3, less than $10 mil, sez Wall St Journal) in Crafthouse Cocktails, which sells pre-mixed drinks; best known is Moscow Mule.  Constellation Ventures compared to similar projects at Diageo and Coke (plus Boston Beer’s Alchemy & Science) to invest in startups that fit the companies’ aims.  Constellation also looking beyond bevs and will “look to technology opportunities,” WSJ reports, including “mobile and digital companies that can help market Constellation’s existing beer, wine and liquor brands.”  So this is integration play combining portfolio and mktg goals and sets up oppy for a craft beer play.  As Constellation’s chief growth officer Bill Newlands told WSJ, “When we find something distinctive, we’re going to be prepared to invest in it.” 

Meanwhile, Constellation’s beer biz continues to accelerate.  Latest Nielsen all-outlet + convenience data shows Constellation volume up 18% and $$ up 19%+ in latest 4 wks thru Aug 8.  Corona and Negra Modelo trends in mid-teens this period, Corona Light +12-13% and Modelo Especial in mid-high 20s, reports Morgan Stanley’s Dara Mohsenian.  Pacifico is “laggard” at mid-single-digit growth.  All in, total beer trend continued to improve in Nielsen, with volume up 2%.   

Beer Institute’s just-announced updated Ad and Marketing Code, guidelines for content and placement of ads/mktg, took one step to make the code stricter, one to loosen it up a bit.  Recall that Fed Trade Comm is big supporter of industry self-regulation and has praised efforts by industry in past reports.  FTC’s most recent report on alc bev mktg recommended that Beer Inst follow distiller assn DISCUS’ lead in allowing competitors to file complaints about another’s ads.  New language in BI code “allows for competitor complaints,” and as previously, any “identified individual, company or organization” can file.  But BI code still bars anonymous complaints.  Another FTC recommendation is still under consideration at BI:  FTC suggested that when BI’s independent Code Compliance Review Board (CCRB) decisions are made public, it should also publish the original complaint and the brewer’s response. 

Turns out that vast majority of complaints from consumers handled by brewers themselves and do not go to CCRB.  Indeed, since 2006. CCRB has formally handled only about a dozen complaints.  That’s because brewers are “really careful,” suggests BI counsel Mary Jane Saunders, and work hard to stay in compliance with a code that’s been around for nearly 80 years.  Be interesting to see whether competitors start filing complaints under revised code.  They’re a major source of complaints handled by DISCUS.  Tho public health advocates like Alcohol Justice have been very vocal about criticizing brewers’ ads over the years, they’ve filed very few complaints for either BI or DISCUS to review.  That’s probably because the process would show that, despite occasional exceptions, brewers/distillers are not violating their codes, the ads are not inappropriate and that self-regulation works.

Meanwhile, advocates may squawk a bit when they see that Beer Inst code also tweaked to allow “generally recognizable athletes, entertainers and other celebrities who are, and appear to be, of legal drinking age” to appear in ads/mktg materials.  Previously all models/actors had to be at least 25 yrs old.  Brewers apparently have a few 21-24 yr old celebrities under contract who may or may not be in ads.  Summing up, Beer Inst prexy Jim McGreevy told INSIGHTS: “Beer Institute members are very proud of this long-standing self-regulatory structure.  The FTC has acknowledged its importance and acknowledged these important changes.  The Ad and Marketing Code is another way that brewers, particularly large brewers, are leading on important social issues.”

A funny thing happened on the way to the cider slowdown this year.  (Nielsen all outlet scans show cider up just mid-single digits since Jun 1 tho still +24% thru late Jul.)  While total cider sagged, import cider shipments doubled Jan-Jun, from 64K bbls to 128K bbls.  Total import cider was only 133K bbls for all of last yr.  Strongbow’s gotta be big hunk of that, and significant reason why HUSA shipments in the black so far this yr. 

Meanwhile, beer exports have slowed too.  Recall that after a very strong 2012-2013 and 1st half of 2014, exports went in reverse in latter half of 2014 as dollar strengthened.  Slowdown continued in 1st half of 2015.  Exports up just 35K bbls, 1.6% in 1st half of 2015.  Some key Euro mkts still strong (Sweden, UK) and shipments to Canada and Mexico outpacing overall export trend, but exports to Australia and some large Latin American mkts off sharply.  

Since a “global settlement of the issues between” Pabst and a handful of Oh distribs over whether Pabst can terminate them and pay diminished value under Ohio’s successor-manufacturer law, “appears to be unlikely,” charges movin’ forward in US Dist Ct in Ohio.  Judge agreed tho with distribs that key issues should be split.  Court will first determine whether Oh law applies here (distribs say Pabst does not meet requirements of manufacturer or a successor) before proceeding on determining diminished value.

BUD’s Q2 “was pretty ugly,” wrote Seeking Alpha columnist  Josh Arnold yesterday, noting that “every category was weak.”  Tho stock pulled back, “perhaps the beating the stock took wasn’t even enough,” he added.  “Weak results are really nothing new,” he continued, “as it has struggled with volume for several quarters now.”  BUD problems are similar to Coke’s, according to Josh, i.e. “upstarts are taking share from younger consumers.”  And while BUD “is working to remediate that as much as possible… the numbers speak for themselves. Consumers are going elsewhere for their beer needs and while BUD’s business certainly isn’t dying off, it can’t seem to grow either.” 

But the “problem” is “valuation.” BUD is trading for nearly 22x forward earnings after falling from $130 to $119, Josh notes.  “That is an extremely high valuation for a company that is slowly shrinking,” sez Josh, as “that kind of multiple implies double digit EPS growth at a minimum.”  But BUD “is a long way from that.”  Analysts only expect 4% growth or so, sez Josh, but even that “is anything but a slam dunk.”  Actually, BUD’s value is “based upon its payout and rightfully so.” BUD has high dividend payout with current yield of 3.7%, “but given its irregular dividend policy, it is impossible to tell what the yield will be going forward.”  It’s dependent upon earnings and given “weak outlook for volume and margins from stiffening competition, the yield is a big wildcard.”  All that makes BUD look “precariously perched” to Josh.

NBWA economist Lester Jones is stickin’ to his original forecast that industry will post 0.5% volume gain this yr, even as combo of plus and minus factors -- weather, gas prices, wage/employment growth --“failed to deliver the extra lift the industry needed to grow demand” in first half.  Total shipments down slightly Jan-Jun.  With gains in imports (+8%) and craft (+16%), Lester calculates rest of beer biz collectively down slightly over 4%.  Lester also took a peek at packaging trends:  can volume up slightly (0.6%), bottles down (-1.9%), draft eked out tiny gain (0.1%).

Potential positives to get beer back to growth before the end of 2015: gas prices dropping again, continued increases in employment, possibly wages, hotter Jul.  While reported unemployment rate now 5.3%, Lester also looked at another key measure.  Number of young males “not working” has dropped from 9 mil in 2010 to 6.8 mil now, a level not reached since 2008. But that figure was just 5 mil before the recession.  Another 2 mil jobs “will go a long way to lifting industry volumes over the next year.”  In more somber note, Lester reminds that industry needs 1%+ growth to increase all-important per capita beer consumption, which inched up in 2012, but has been falling and still 2 full gallons lower than 5 yrs ago.  Meanwhile, “beer continues to face strong competitive pressure from wine and liquor,” which have held or grown per capita in recent yrs.  

Following last week’s firing of Coors Light/Coors/Redd’s agency Cavalry, MillerCoors “confirmed” it’s “in the midst of a separate review for Leinenkugel,” its first in over 15 yrs, according to AdWeek’s Agency Spy blog.  “As Leinenkugel continues to grow,” said MC spokesperson, “we decided to expand the brewing company’s roster of agencies by adding a dedicated ATL partner.” (Above-the-Line). Leinie “initiated the pitch process” in Jul. “We expect to award the business in August.  So MC not only changing agency for Coors Light, which has had tuff couple of yrs, but also growing Redd’s, Coors Banquet and Leinie brands.  While total Leinie family up YTD thru July 12 in IRI multi-outlet + convenience, its lead Lemon Shandy brand down slightly. 

Many have wondered how AB will deal with increased distrib deal flow, especially since its top 2 guys on wholesaler deals, Randy Jozwiakowski and Mark Hall will be leaving at end of Aug to start their own shop.  Well, AB has already named David West as vice president, wholesaler development.  David is a 16 yr AB vet who has worked in wholesaler development before, done lotsa m&a work and most recently was vp treasury for the North American zone, as internal memo from veep of biz and wholesaler development Bob Tallett noted last week.