MC’s performance so far this yr a very different story than AB’s.  As in calendar 2018, MC losing more overall volume share than AB (shipments and depletions), despite their relative sizes.  And MC shed more bbls over last 12 mos than AB (see page 1).  Meanwhile, like AB, MC’s losing share in Nielsen all outlet scans at about same pace as last yr: -0.8 share of volume yr-to-date thru Apr 27 and -1 full share of $$ same period.  MC did improve in Apr too, down just 0.5% in Nielsen scans. 

Big brand trends tell a different tale.  Molson Coors ceo Mark Hunter touted Miller Lite’s ongoing share gains in premium light segment and its overall share “hold” in Q1 when reporting Q1 results.  Then too, Coors Light back to gaining share in premium lights in most recent period.  Editor’s Note: while AB de-emphasizing Bud Light to certain degree, MC execs continue to state that turning Coors Light remains top priority.  But, while AB has a coupla big brands growing, including hot, hot Michelob Ultra, Miller Lite just barely up yr-to-date, 0.4% (up 4% for 4 wks).  All other major MC brands down yr-to-date in Nielsen scans: Coors Light -4.4%, Keystone Light -5.7%, High Life -3.9%, Blue Moon franchise

-5.4%, Banquet -4.1%, Icehouse -9.3%, etc.

Another key difference: MC losing share in above premium.  Its big contender, Blue Moon franchise, shed 0.4 share of above premium yr-to-date.  Then too, next biggest brands there − Redd’s and Leiny Shandy − getting creamed; each down double digits.  Arnold Palmer and Henry’s seltzer growing, but they’re tiny.  Thus, MC’s increased focus on innovation and need to succeed with Cape Line, St Archer Gold, etc (see page 1).  Will any of these innovations, or growing imports Peroni and Sol, be scalable, even to extent of Redd’s (over 1 mil bbls in 2015-2016) or Leiny family (hit 1 mil bbls in 2015)?

In economy, MC gained share in early 2018 with Keystone Light 15-pks and Hamm’s growth.  But Key Light turned negative by end of 2018, Hamm’s petered out, Mil’s Best family ailin’, etc.  Steel Reserve family hangin’ in and Key Ice growing, but neither enough for MC to hold share of segment.  MC down about a half-share of economy this yr.  So, MC under-performing in above and below premium and hasn’t really scored wins in innovation, even while it gains share in declining premium light.  Net-net for now: MC’s road back to volume growth seems rockier than AB’s, especially without healthier category.

AB put up somewhat better sales results in Q1, but trends remain decidedly mixed.  Following its 1.9% STR drop, a full point better than last yr’s trend, Apr trends continued in a better direction.  Up 0.3% for 4 weeks thru Apr 21 in IRI multi-outlet + convenience.  But with continued mid-single digit drops for each of Bud and Bud Light, those 2 brands down 1 share of volume, 1.6-1.7 share of $$$ yr-to-date in IRI.  And they are still almost half of AB’s biz. Tuff to make all that up.

As AB continues to evolve towards more of what ceo Brito and others call “a portfolio play,” AB sez it dropped just 10 basis points of share in Q1, its best trend since Q4 of 2012.  But in IRI, AB still down 1.1 share of $$ and 0.8 of volume yr-to-date thru 4/21, just slightly better than last yr. Still, AB has 9 of top 15 growth brands in IRI, it showed. And it got over 50 share of innovation $$ in IRI too. So lots going right.  Start with Michelob Ultra. It’s now #3 brand in $$ sales in IRI yr-to-date, passing both Bud and Miller Lite in last 12 mos.  Closing in on Coors Light.  Recall, Ultra alone at 8.8 mil bbls last yr, just about 10% of AB volume, but more of $$. Mich Ultra, Ultra Pure Gold and Ultra Lime Cactus are collectively near 16 share of AB’s $$ in IRI YTD, up 20%.  

Ultra alone a little more than half of AB’s above premium volume, which totaled 17.2 mil bbls, INSIGHTS estimates.  That’s 19% of AB’s total, well above 20 share of $$. AB has 19 share of high end, we figure, well below Constellation’s 24 share.  But AB sells over 3x what MC does above premium (5 mil bbls) and it’s growing. AB’s craft portfolio continues up double digits, Stella +9% last 4 wks and near 3% YTD in IRI MULC. Stella should improve short-term as it cycles last yr’s recall.  Bud Reserve keeps growing with each new edition. Add it to Bud total and it takes 2 pts off Bud’s $$ drop in scan YTD (from -4% to -2%).  So Reserve getting to be more meaningful.  And while Bud Light Orange may not cycle (up just 9% last 4 wks), here comes Bud Light Lemon Tea.  We shall see. All of that is just tip of the iceberg (recall AB showed 40 innovations, mostly in test, at SAMCOM). 

AB “improved” performance on value brands, said ABI.  Indeed, it gained 1.1 share of economy segment YTD thru Apr 27 in Nielsen all outlet. Its Naturdays is #1 new product this yr in scan data. AB hitting Natty trifecta, with flagship Natural Light up about 4% and Natty Daddy flying, up over 30%. Busch Light flattish too. So AB outperforming in high end and in value.  But as it sez, “mainstream under pressure.”  With biggest chunk of Bud Light loss going to higher priced Michelob Ultra, according to AB, cannibalization has an “accretive” component to it. And if those trends continue, AB can get to a better place. It laid out just such a path for distribs in meeting last Sep in St Lou, where it promised first $$ growth, then eventually volume growth over course of next decade. Whether it can pull that off, and on what timetable, remains to be seen.

Major stepping out for Boston Beer and chairman Jim Koch with $300-mil buy of Dogfish Head in cash and shares.  Boston had never done significant M&A before in its history.  And there could well be more.  “We expect that we’ll see more consolidation in the Craft industry over time,” said Boston ceo Dave Burwick, “and we’ll be in the best position to take advantage of those changes.”  That’s significant departure from previous statements by co, suggesting it wants to participate in coming consolidation. Dogfish Head acquisition pushes Boston to higher level, possibly over 5 mil bbls this yr (under 4 mil bbls in 2017).  Last yr, Boston Beer sold 4.286 mil bbls. It expects growth of 10-15% in 2019.  At lower end of Boston’s guidance, it will sell just over 5 mil bbls, with 429K-bbl gain and including all of expected 300K bbls of Dogfish Head (deal should close late in Q2).

In Dogfish deal, founders Sam and Mariah Calagione get 406,000 shares of Boston based on share price of $314.60.  That’s a value of approx $128 mil, tho some of it will be paid out over time. Most of value in deal, $173 mil in cash, paid out to LNK, private equity firm that bought 15% stake in 2015 and seemingly saw spectacular return. Undoubtedly ballooning value of stake motivated Sam. At least Sam and Mariah got significant value out of co (unlike some other recent deals) and got bought by co defined as indy craft. But Sam left tons of dough on table by not selling in 2015. Sam sought deal for some time, talked to several others, before deal with Jim. And previously, he was trying to sell minority stake. This was simply best deal available and Sam needed to get deal done.     

And it’s a good deal for Jim and Boston. “We are impressed by this acquisition,” wrote Macquarie’s Caroline Levy, “because it: 1) strengthens the overall beer business.... 2) lowers SAM’s reliance on RTDs; and 3) most importantly was acquired at a reasonable valuation compared to past craft deals.”  Sam and Mariah stay in game.  Sam will get a seat on Boston’s board of directors and continue to run Dogfish Head.  Yet he will also become a salaried employee, making $427K per yr. That’s not always easy for entrepreneurs. Ask Magic Hat founder Alan Newman how that worked out with Boston Beer. Sam will report to ceo Dave Burwick and must spend 30% of time in Boston starting Oct 1 2019. Still, as Dogfish deal announced, Jim touted his longterm relationship with Sam as key driver in deal.    

Another interesting angle: For how long will Boston fit within current BA craft brewer definition?  At current pace, Boston could be bumping up against 6-mil-bbl limit in 2020! Will BA just change definition again?  Already, Boston is clearly not a small co, with sales of $1 bil, mkt cap of $4 bil. Dogfish Head revs expected to be $110-120 mil in 2019.  Buying Dogfish Head better positions Boston in craft beer and opens a new chapter in Jim’s storied career.

The numbers keep getting bigger and crazier. Total seltzer segment surpassed 2 share of $$ in recent periods, up about 1.5 share. Segment accelerating growth off bigger base.  Seltzers up 251% in Nielsen all outlet for 4 weeks thru Apr 20, compared to 193% growth for 52 weeks. And now this:  White Claw franchise alone up to 1.2 share of $$ last 4 weeks thru Apr 27 in Nielsen.  That’s up 0.9 share of $$.  White Claw franchise alone grew as much as all of Constellation in last 4 weeks.  White Claw at 1.2 share of $$.  That’s as big as all of Pabst.  White Claw has 2 of top 10 growth brands in Nielsen. But it also has 5 of top 10 seltzer brands in IRI data, courtesy of Bump Williams Consulting.  In both Nielsen and IRI, White Claw about half of segment, even more in most recent periods. Total Mike’s up to near 3 share of $$ for 4 weeks.  Gained 56% and 1 full share in period. Bigger than Boston Beer, which is growing rapidly too. 

Indeed, Boston’s Truly Spiked and Sparkling also on fire. The Truly franchise gained 0.5 share of $$ to 0.7 in last 4 weeks.  Paradoxically, even with such explosive growth, Truly lost share of seltzer.  Total Boston Beer grew 21% last 4 weeks and 0.3 share in Nielsen. Outside of Truly, Boston lost share. Put White Claw and Truly together and they spiked to 1.9 share of $$ last 4 weeks, up 1.4 share! Yr-to-date, they are 1.5 share, up 1.1.  Top 2 hard seltzer cos around 80% of segment, depending on period.  But each of AB, Diageo and MillerCoors are more than doubling seltzer sales too. AB and Diageo Beer Co losing share of segment as well. At same time, Smirnoff Spiked Seltzer a key ingredient that returned DBCO to robust growth.  This seltzer phenom has already radically altered trends for 3 top-10 beer players: Mike’s, Boston Beer and Diageo. Other smaller suppliers getting in on action too.  How big can this wave get?

What a weird and different Q1!  AB lost just tiny share of shipments.  Constellation barely up, its softest qtr since 2012, gaining just tiny share.  Meanwhile, Boston and Mike’s packed on at least 450-500K bbls between ’em with unheard of 32% and 50%+ gains respectively.  And Diageo Beer Co stayed very healthy.  Boston’s outsized shipments jump propelled it well ahead of Pabst on 12-mo basis, we estimate.  So, Boston’s the new #5 brewer in US.  And just got bigger with Dogfish Head acquisition (see below).  Can’t call it yet, but Mike’s very close to passing Yuengling for #7 spot.  With a bullet!

AB and MC each had easy shipments comps, -4.5% and -6.8% respectively in Q1 ’18.  Each shipped a point better than depletions in Q1 ’19.  AB shipments -0.9%; depletions -1.9%.  That suggests just 0.1-0.2 share loss.  AB mainstream brands continued soft, especially Bud Light/Bud, tho it’s gaining in above premium and with innovations.  Natty brands up too.  MC shipments -2.7% vs a -3.8% depletions trend. Its key innovations hit in Q2: Cape Line, Sol Chelada and St Archer Gold.  And Blue Moon gettin’ big mktg boost.  MC needs to succeed with these above-premium brands, plus continued growth from Peroni, Sol and Arnold Palmer, as it’s been losing above-premium share.  For 12 mos, AB -1.6 mil bbls, less than 2%, about half of MC’s downtrend, -3.5%, -1.8 mil bbls; each off 0.5-0.7 share. 

Constellation number’s a real oddity given steady shipments growth in mid-high single digits qtr after qtr for yrs, plus fact that it reported 8% shipments gain for 3 mos thru Feb ’19.  But take out Dec and throw in very soft Mar (down double-digits) following awful Feb weather in key Calif, and Constellation’s calendar qtr came in up less than 1%.  Other factors, noted by sr veep Mike McGrew: Constellation lapped launch of Corona extensions, Easter timing and Mar had 1 less selling day.  Apr already back on track; Constellation +11.5% in Nielsen all-outlet scans.  Plus, note 12-mo trend still up near 9%.  So, far from panic time.  HUSA reported mid-singles decline in Q1, a slight improvement.  Next up: 263K-bbl, +32% monster gain Boston reported, as it shipped lotsa extra Truly to build

inventories for summer.  Some of that will come out of future qtrs.  Boston guides to 10-

15% shipments gain for full yr, but that’s gotta be fluid in current environment.  Meanwhile, Pabst strugglin’ in scans as flurry of new products haven’t really hit and PBR price move (upwards) hasn’t gotten traction.  It’s down 10% in Q1 scans.  Yuengling down mid-high single digits, goin’ against AR and KY rollouts last yr.  Lion’s share of gain for All Others (and then some) in table gobbled by Mike’s in Q1, again running up 50%+.  Diageo Beer Co strong in scans too; up 11% YTD thru Mar 30 in Nielsen all-outlet.  Doesn’t leave much for craft, even with continued taproom growth, newbies comin’ in.

HUSA hit especially hard in Calif (-12.3%) and Fla (-9.9%); those 2 states are 26% of HUSA volume.  Better in Tex (-3.8%) and managed modest gain in Ariz.  Pabst down double digits in most regions and 7 of 10 biggest reporting states.  Collectively, All Others surged in Fla (figure may be revised) and Ill; up in 7 of 10 biggest reporting mkts and all but 2 regions.  Here’s how reporting-state regions break out: NE= ME, MA, NH, RI, VT; MA= NJ, PA; SE= AL, FL, GA, MS, SC, TE, WV; ENC= IN, IL, MI, OH, WI; WNC= IA, KA, MN, MO, ND, NE, SD; WSC= AR, LA, OK, TX; MTN= AZ, CO, ID, NM, NV, MT, UT, WY; PAC= CA, HI, OR, WA.

Don’t miss Beer INSIGHTS Spring Conference, coming right up May 15-16 at the Ritz Carlton in Chicago. This year’s conference features a top-notch lineup of industry leaders. You’ll hear from Constellation’s current ceo Bill Newlands, AB’s chief sales officer Brendan Whitworth and new MillerCoors chief marketing officer Michelle St. Jacques.  We’ll also talk to Mike’s Hard Lemonade prexy Phil Rosse and svp mktg Sanjiv Gajiwala, Diageo Beer Co USA prexy Nuno Teles and more. See enclosed flyer for details….  Next issue in 3 weeks.

                                Best Wishes,   

Held Tex loss to 2.4%.  Among largest reporting mkts, AB scored modest gains in Ariz and Wisc, flattish in Pennsy.  But off 2-3% in each of 3 other big Midwest mkts, plus GA.

Meanwhile, MC down 3% or more in 7 of 8 regions.  Off 5%+ in 3 of ’em.  And MC lost full share or more in WN Central, WS Central and Mtn regions.  In big states, MC down just 0.3% in Fla, but got whacked in Tex (-6.6%,) and down 4% or more in Calif, Mich and Ill.

Once again, Constellation up across the board, including double-digit gains in 6 of 8 regions and 7 of top 10 reporting markets.  Constellation still does 44% of its biz in Calif, Tex and Fla, and gained 10.4%, 11.3% and 9.7% respectively in those states in 2018, rolling up 884K bbls of gains, 42% of its total gain.  Constellation shipped 5.3 mil bbls in Calif alone, grabbing 22.8 share, 5.3 share higher than MC.  In 2014, MC had a 6-share lead over Constellation in Calif.  An 11-point swing in just 4 yrs.  Among reporting states, Constellation also has outsized shares in Nev (18) and NJ (16.7).     

Region and state shipments data from 42 “reporting states” in 2018 showed several pockets of improvement for AB.  That’s while MC, HUSA and Pabst trends tuff pretty much across the board.  Constellation ran the table with gains and it was a mixed bag for All Others.

After declining 2% or more across all regions in 2017, AB eked out tiny gain in Mountain states last yr, and off just 1-2% in 3 other regions: NJ-PA, EN Central and WN Central.  Indeed, AB significantly outperformed MC in middle of US, as MC down 4% or more in EN Central, WN Central and WS Central states.  Only region where MC outperformed AB: Southeast, where each down 2-3%.  Each also down 4.5% in Pac states, and down 4-6% in New England.  Another sign of AB improvement: it gained share in NJ-PA, held share in WN Central and lost less than half-share in EN Central, WS Central and Mtn regions.

That was quick.  Just days after we reported “more coming” from TTB enforcement actions in IL (see Mar 25 issue), it announced $350K offer in compromise from Brewers Distrib Co in Peoria, IL.  And just days after that, TTB announced $2.5 million offer from Heineken USA, its biggest haul on record.  Those offers followed a $1.3-mil deal TTB cut with Seattle distiller in early Mar.  All in, TTB got offers for over $4 mil in less than 1 month. And that’s on top of collective $2.7 mil TTB collected from Eagle Brands in FL ($1.5 mil), Elgin Dist (IL) and Warsteiner Imports in 2018 ($900K). Those multi-mil allocations the agency got for expanded trade practice investigations starting to pay off for Feds. But more folks starting to push back against TTB’s perceived overreach too. Stay tuned.      

In Illinois, TTB tagged Brewers Dist Co (AB, HUSA, craft) for allegedly selling products to retailers with right of return.  BDC also “required retailers to purchase their products,” an exclusive outlet violation under FAA Act.  After investigation in Florida, then in NYC and WA, TTB alleged “Heineken USA provided some retailers with BrewLock draft systems at no charge and reimbursed other retailers for the cost of purchasing BrewLock draft systems.”  Those payments “disguised” as credit card swipes.  Since BrewLocks only work with Heineken kegs, TTB sez HUSA “obligated and induced” retailers to exclusively buy Heineken products.  TTB also alleged HUSA: 1) “made slotting fee payments to retailers and disguised those unlawful payments as payments for permissible activities (such as consumer sampling)” that never happened; 2) used 3d parties to pay additional slotting fees.  HUSA said it “doesn’t admit to any violation of the law,” and it “has been and remains committed to legal compliance in everything we do.”  It also adopted “enhanced and robust compliance program” and “internal audit process.”  Finally, distiller Sun Liquor in Seattle allegedly “failed to timely file and pay excise taxes” on spirits sold to airline carriers not eligible for export credit, TTB charged.    

And there’s more to come, no doubt.  TTB seeks big bucks from another distrib and big supplier too, INSIGHTS hears.  Importantly, TTB targets and tags growing in size from tiny vintners/distribs nailed for consignment sales. That “progressive discipline” viewed by some as counter to due process.  Yet TTB “remains committed to putting an end to anti-competitive practices that hurt law-abiding businesses and prevent consumers from enjoying a wide selection of products,” the agency said announcing HUSA offer.

Not surprisingly, AB fired back at MC corn syrup lawsuit with both barrels and a ton of paper.  Ten documents filed in Wisc fed ct ask it to: 1) dismiss MC lawsuit claiming AB corn syrup ads deliberately mislead, cause confusion and harm MC; 2) deny MC request for injunction forcing AB to halt current ads, run corrective campaign and pay damages. 

As it has all along, AB asserts its ads true, merely state what MC admitted before and after the ads, that Miller Lite and Coors Light use corn syrup.  “Such truthful advertisements do not violate the law,” AB insists.  Similarly, comparative ads that “call attention to ingredients of competitive products,” are perfectly legit under same Lanham Act that MC claims AB is violating.  Regarding charge ads imply MC brands have high fructose corn syrup, AB sez “a Plaintiff cannot assume that consumers will take a truthful statement and leap to false conclusions about other matters.” 

Interviews that Bud Light chief Andy Goeler gave to media not “actionable” in first place, no allegation any consumers swayed by them and they were “grossly mischaracterized” by MC.  Rather than “overtly” admitting consumers confuse corn syrup with HFCS, when Food & Wine asked if AB aimed to “tacitly imply” similarities of corn syrup/HFCS, Andy said: “No.  Absolutely not.  Absolutely not.  And I disagree with your point about consumers not knowing.... These people are very tuned to ingredients.”  Andy “never acknowledged” consumers confused, AB asserts, and never said consumers believed corn syrup in final product.  And no ads made any reference to HFCS.  MC claims consumers confused, but provided no evidence of “actual consumer confusion,” AB points out.  “Anecdotal evidence of confusion is insufficient.”  Nor did MC plead any “facts” or “examples” of actual damages or loss of good will, AB argues.  That’s fatal to MC request for relief and injunction.  MC’s claim that AB “diluted” its trademarks also falls, AB argues, since Lanham allows “fair use” of competitors’ marks in comparative ads. 

Legal vs Marketing Battle; “Game On”  Per usual in legal battles over marketing issues, AB uses its motions to market a bit.  For example, “Bud Light leads with transparency,” AB motion to oppose injunction claims early on, “while MillerCoors only plays lip service to it.”  While MC materials have admitted for yrs it uses corn syrup as ingredient, “it has spent the last ten weeks trying to spin the fact” and asks court to declare those admissions “misleading” when Bud Light sez it.  Then too, MC claims damages “even though it has told the marketplace that it has benefited from the ads.”  While MC points to statements from Andy Goeler allegedly linking corn syrup to HFCS, AB cites email from MC comms chief Pete Marino to AB’s corporate affairs veep Gemma Hart during the Super Bowl that read: “Game on....  This is going to be a lot of fun. You gave us a gift in some way, so thank you.... I love this stuff.”  MC also subsequently tweeted “happy to have this fight any day of the week.”  Nor can MC argue harm, AB sez, when it publicly claimed its brands held share trends, which MC blog noted after Super Bowl.  AB also provides background on decisions to disclose ingredients, Miller Lite ad comparing carbs and calories, mktg back-and-forth after Super Bowl, numerous affidavits from execs, mktg expert and (much) more.  It attacks MC’s own mktg expert, natch, and can’t help but note that while MC claims 18% of people who wrote to MC after SB said they’d “end or decrease” purchases,  that was “32 total people out of the approximately 100 million who watched the Super Bowl” or “hundreds of millions” who saw ads.  You can’t claim confusion, AB asserts, “on such an infinitesimal fraction of the marketplace.”       

A final flourish from AB: “Ingredients matter.  They differentiate products, and consumers want to know what specifically is used to brew their beers.... If MillerCoors believes its brands’ reputation for quality has been harmed, this is due to its own ingredient decisions, not Bud Light’s decision to tell consumers about them.”  So, court should toss suit and deny injunction, AB concludes.