Annual economic briefing by Distilled Spirits Council gettin’ to be a bit of a broken record as spirits biz keeps breaking sales records. “Business is booming,” communications chief Frank Coleman crowed at briefing outset.  And you can’t contradict him.  Spirits volume rose another 2.2% in 2018, Council economist David Ozgo estimates.  That’s while beer volume dipped approx 1%.  Meanwhile, spirits producer $$ up 5.1%, David figures.  Spirits volume up in 2.2–2.6% range each yr over last 5 yrs, $$ up 4-5% annually same period.  Long-term trend for spirits just as impressive.  Since 1998, spirits volume up approx 72%, while beer managed less than 5% increase.  So, spirits now 36 share of absolute alcohol volume, up from 27.5 in 1998.  Beer shed over 11 share same period to 48 or so.  At producer $$ level, David figures similar 9-share increase for spirits. He’s got distiller dollar share at 37.3 in 2018, vs 45.5 for beer, 17.2 for wine. 

Trading up goin’ on across alc bev board.  But while spirits volume and $$ growth last yr driven exclusively by two highest price segments − high end (avg $170/case for producers, $20-$35/bottle at retail) and super premium ($275, $35+) − mainstream spirits hanging in better than counterparts in beer.  That helps explain spirits’ outperformance.  Interestingly, lowest-price spirits (“value”) and economy beer shed share in recent yrs, but not a bloodbath.  Value spirits sales off just 2% in 5 yrs, David estimates.  Brewer level data not available, but IRI shows off-premise economy beer $$ up slightly same period. Volume down slightly for both value spirits and economy beer since 2013.  But look at premium spirits vs premium beer.  Premium spirits increased $$ sales by nearly $400 mil on producer level, +5%.  Premium beer volume in IRI scans down 100 mil cases, 14% from 2013 to 2018.  And premium brands shed $1.4 bil in dollar sales, -10%.  Yet another sign of how challenged mainstream beers have impacted overall beer biz vis a vis spirits. 

Look at it another way.  Each of the major spirits producers are doin’ well these days.  Diageo reported US spirits revs up 5% organically for 6 mos thru Dec 2018; North American operating profits up 7%.  Brown Forman reported net sales +3% in US in most recent period.  Beam Suntory runnin’ up mid-singles, Pernod Ricard low singles.  Sazerac’s private, but doing well enough to shell out reported $550 mil to buy 19 Diageo brands last Nov.  Meanwhile, none of top global brewers – AB InBev, Heineken and Molson Coors – can manage to grow their biz in US.  (Carlsberg barely competes in US.)  Go figure.

Import segment solid in 2018 − up another estimated 1.4 mil bbls, 4% or so (Dec # not yet reported).  Grabbed over 17 share of US biz.  But not a great year for many of its biggest brands.  Indeed, 7 of top 10 import brands in 2017 flattish or down in 2018, we estimate.  Coincidentally, 7 of top 10 domestic brands flat or down in 2018 too.  Meanwhile, Constellation increased its dominance of segment.  Added another brand to top 10.  Corona Familiar knocked out Labatt Blue, we estimate, and fast-growing Premier not very far behind Tecate.  Those 2 brands going in opposite directions.  At current trends, Constellation could grab 6 top-10 slots in 2019.  Then too, Modelo Especial and Pacifico were only other top-10 imports to post significant growth.  Collectively, top 10 import brands tracked overall import mkt, but only thanks to Familiar inclusion.  Gotta note too, top 10 import brands still over 80 share of imports as segment far more concentrated than overall US biz where top 10 brands have about 54 share. 

Corona Extra slipped slightly in 2018, cannibalized by extensions.  Corona Light hit harder, down 8%.  But all in, Corona family up about 10%, as Corona Premier and Familiar collectively over 1.3 mil bbls.  And Modelo Especial continued double-digit gains.  At current trends, Modelo blows past Corona Extra this yr to become #1 import.  (It’s already ahead in scans.)  Heineken down mid-singles, we estimate, nearing just 10 share of import biz.  It had over 20 share in 2004.  Stella stumbled slightly in 2018, ending long growth run.  Dos Equis off slightly too.  Guinness family up slightly.  Pacifico slowed from high double-digit gains in 2016-17, but passed Tecate as #9 import.  Tecate continued down; it lost over half its volume in last decade.  Labatt Blue took big hit too same period.  Gain for Others driven by incremental Corona Premier.  Without it, Others down mid-singles.

Two cos, #4 and soon-to-be #5 in US beer biz, headed in opposite directions last yr, with a 1.1-mil-bbl swing between ‘em.  Boston Beer grew shipments over 500,000 bbls, 13.7% to all-time record high of 4.286 mil bbls.  Heineken USA declined high single digits in 2018, it reported. So it was down an estimated 625,000 bbls, 7.7% to 7.5 mil bbls.  HUSA lost almost 1 mil bbls last 3 yrs and is down 1.725 mil bbls, 19% from its peak a decade ago.  That’s even while global Heineken has grown exponentially through acquisition and organic gains same period.  Meanwhile, Boston will likely pass Pabst in 2019 to become #5 by volume (Pabst at 4.5 mil bbls in 2018) unless current trends change dramatically.

Boston Beer came out of gate fast in 2019 too.  Its depletions up 12% in 1^st 6 weeks of 2019, Boston Beer reported. Boston expects to grow 8-13% in 2019, it said.  But Heineken USA down 6% for last 4 weeks thru Feb 9 in Nielsen all outlet (about same trend as last

yr), down 4% yr-to-date, including early 2019 bump from timing of New Year’s Eve. 

Stocks of each company popped based on latest results. Boston Beer stock jumped 14% to $307 per share in 1 day, rallying based on promise of continued growth, better earnings.  Heineken stock up 7% day it announced and up 17% since late Jan. But Heineken stock up based on global results. HUSA remains just a small part of biz.  Heineken volume up 4.2% globally and revs up 6% organically, “well towards the top end of global staples,” wrote Bernstein’s Trevor Stirling. “Heineken guided to continued superior organic volume and top line growth in 2019,” he added.

Yet here in US, HUSA difficulties clear on conference call. Asked about prospects to improve performance, cfo Laurence Debroux demurred to ceo Jean-Francois van Boxmeer, “maybe you can help me with that.”  (Then she laughed).  “We all pray for that and work hard,” said Jean-Francois, then added, “seriously, we are a small player.” In US, “the market is suffering” and there are “a lot of losers” and few winners.  Last year, “we are at the side of the losers,” said Jean-Francois.  Heineken “works hard to be on the side of the winners.” There are “always good plans in the drawer.  We hope to do better.” HUSA “certainly due for an improvement.”  New prexy Maggie Timoney given broad latitude to improve results, INSIGHTS understands. She recently named Phusion prexy Jim Sloan to be her chief sales officer. Jim at HUSA for 16 yrs before he went to Phusion.    

Early on, Boston Beer founder Jim Koch had long-term goal of passing Heineken (talked about in his book “Quench Your Thirst”).  He attacked imports hard for “using brewing adjuncts like corn and sugar to lighten the beer,” as he reminds in recent blog post (Jim riffing on “Corngate” wars between AB and MC). But Heineken has “returned to all malt brewing.”  Could Boston still someday pass Heineken USA?  That’s still a stretch. Ironically, if it did, it would be because of Boston’s willingness to go beyond beer (and succeed there), not because Sam Adams passed Heineken. Sam Adams brand declined more steeply than Heineken in recent yrs. Meanwhile, in US cider, Angry Orchard is by far #1, with near 60 share, growing last yr with Rosé intro.  Strongbow is #1 cider in world, but not getting much traction here. At same time, Boston got healthy pops from Twisted Tea and Truly seltzer last yr.  Boston far more focused on innovation than HUSA.  As these 2 brewers become closer in size, will battle between them become more pitched?  As Boston seeks to continue growth and HUSA seeks to reverse decline, neither has much debt. Both could still grow through M&A here in US or elsewhere.

MillerCoors fell from 64.5 mil bbls in 2008 to just 50 mil bbls in 2018, losing 14.5 mil bbls in a decade. Its volume declined every yr since its inception.  And no end to dropoffs in sight.  In fact, following a 1.1-mil-bbl, 8.9% shipments drop in Q4, MillerCoors fell 2.3 mil bbls, 4.4% for full yr 2018. That was its biggest bbls drop ever. MillerCoors’ medium-term goal, as stated by Molson Coors ceo Mark Hunter on Feb 12 conference call is “matching the industry trends and holding our share in the medium term.”  Recall, beer biz declined about 1% in 2017-2018 and MC expects it to be down again in 2019. So MC medium-term objective has pulled back a lot from flat in 2018, up in 2019.  Meanwhile, AB and HUSA (see below) also down near 20% since 2008.  MC mkt share dropped from near 30 in 2008 (29.4) to under 24 in 2018, INSIGHTS estimates. 

MC 2018 Oper Profits Below 2014 Even Tho It Whacked MG&A $260 Mil Last 3 Yrs MC used to be able to say it was growing profit even as volume declined.  But not last yr or over last few yrs. MillerCoors operating income declined $70 mil, 5% in 2018 to $1.313 bil.  Its oper income below 2014 oper income ($1.347 bil), with declines in 2015 and 2018.  This profit decline happened even as MC whacked hard at mktg, gen and admin costs.  MC MG&A down $151 mil, 8.4% in 2018 alone, including $77 mil, 16% drop in Q4 (when it implemented restructuring).  MG&A down $261 mil, 14% last 3 yrs. Only some of those cuts are mktg, and MC sez it’s spending smarter.  Still, a few Wall St analysts raise key question about how much muscle/capability lost thru these cuts. Meanwhile, Constellation Brands Beer Division operating income jumped from roughly $1 bil to $2 bil in last 4 yrs and soared past MC to become #2 in US beer profits (STZ fiscal yr ends in Feb; full yr fiscal ’19 not yet available). Same pattern happening at distrib level, especially with largest distribs, leaving MC with less clout in the house. 

Molson Coors Stock Drops; Accounting Errors; Class Action Lawsuits Follow MillerCoors remains the cornerstone of Molson Coors biz, over 75% of its EBITDA. But its earnings also under pressure in Canada and Europe. And it makes little profit internationally.  TAP stock declined 44% from its peak.  When Molson Coors stock reported latest results, stock declined 9.25%, over $1 bil in value in 1 day.  And it reported “errors in accounting” that led to overstating net income by $400 mil in 2016 (understating it in 2017).  That promptly led to class action law firms circling like piranhas.  Many already filed suit.  Whatever the outcome, this is another headache Molson Coors doesn’t need.

Molson Coors Paid Down $1.4 Bil in Debt; Another $200 Mil Cost Savings Coming 2018 was a very challenging yr for Molson Coors from lotsa perspectives like big problems with supply chain, several high-profile lawsuits and restructuring, with 350 fewer jobs.  As it rolls out new ordering system to other breweries, it’s “getting more and more effective” at implementing it, said MC ceo Gavin Hattersley on conference call. And MC settled a couple of large lawsuits, including with Pabst. Importantly, Molson Coors paid down $1.4 bil in debt in 2018 and expects to get to targeted 3.75x debt to EBITDA by mid-2019. Also, it expects to realize another more than $200 mil in cost savings in 2019.

How Will MC Improve Sales in 2019?  Coors Light dropped over 1 mil bbls, 6% in 2018, accounting for almost half of MC decline.  All major MC brands flat or declined. But “early signs of impact” on Coors Light in 2019 from new mktg campaign, said Mark Hunter on call. Coors Light down 5% for 4 weeks thru Feb 9 in Nielsen all outlet and 3.3% YTD; better than 6% decline last yr.  And “almost 20% of our volume” in above premium, sez Mark. MC plans to “accelerate our above premium portfolio through higher investment,” he proclaimed. MC will “double” Blue Moon spend, “air” natl ads on Peroni “for the very first time,” “build” Sol and Arnold Palmer in yr 2, “increase” Henry’s Hard Sparkling and “introduce a number of innovations” including Cape Line, Saint Archer Gold, Crispin Extensions and Sol Chelada “all before the summer.” That’s 9 brands getting new or increased focus in 2019.  But MC remains dramatically undershared in high end (under 10 in IRI).  And it has persistently lost share in above premium segments in Nielsen in 2017-2019.  Will these new brands reverse that or get MC closer to even?

Two AB distrib deals and 3 MC deals announced in first 40 days of 2019 (and another imminent). At that pace, there would be 45 distrib deals this yr, or 2x the normal pace. But this flurry often occurs at beginning of yr, as some deals in works late in yr don’t get announced until beginning of next one.  Still, with way winds blowing, there may well be more deals this yr than in many yrs.  Why?  Combo of factors. Biz getting tougher. Especially for distribs without Constellation or in rural areas.  Industry declines, volume losses of top 2 brewers, cost increases, less pricing and profit pressures lead to diminished value for some, unfortunately. Even tho difficult to agree on valuations, wear and tear do take a toll.  Also, gotta consider Constellation risk factor.  Constellation showed its willingness to terminate several of its larger longstanding distribs in CA last yr.  No one believes it is done.  Do distribs in at-risk areas (i.e. without strong franchise protection) wait for it to be done to them or take proactive steps?  In CA, lotsa discussion continues behind scenes.  Elsewhere, personal reasons drive decisions.    

Most significant deal in early 2019 in CA, but didn’t directly involve Constellation.  Donaghy Sales of Fresno will acquire Delta Sierra Beverage of Stockton.  Each over 7 mil cases.  Creates new megadistrib, almost 15 mil cases in central CA. Donaghy will be one of top indy AB distribs in state. Quite a turn of events considering Donaghy was originally a Coors distrib.  Sold Coors and bought AB distrib in same town, just as AB about to take off decades ago.  Delta Sierra deal expected to close in April, pending supplier approval. Both distribs sell AB, HUSA, Firestone Walker, Boston Beer and others.  Another large, acquiring AB distrib on other side of US, Vukelic family, will do another small deal. Saratoga Eagle in Eastern NY will buy approx 650K-case Plattsburgh Dist.  That will make Saratoga Eagle 5.6 mil cases.  Including Try It and Balkan Bev (beer and non-alc) in Buffalo, Vukelic family will sell about a total of 14 mil cases.  This will be 5^th Saratoga Eagle deal since 2005.  Deal expected to close in Mar. 

On MC side, megadistrib Columbia continues to do deals.  It will buy 1.2-mil-case Graybeal Dist in Pendleton, OR, expected to close Feb 28. Columbia did several deals last yr.  Graybeal is largest bev distrib in Eastern OR. Columbia will be 33 mil cases in OR, 70 mil cases in all, including beer, wine/spirits and NAs.  On smaller scale, Bernick’s in Minn also highly acquisitive.  It will purchase Northwest Bevs in Superior, WI.  That will be its 3d buy in MN and WI in just last 2 yrs.  Most of its biz in MN.  Also has facility in WI. Finally, MC distrib Inco Bev in Johnstown, PA bought neighboring Greensburg Bev and will grow to 3.7 mil cases. Adds Miller, Heineken and Labatt brands.  Inco added part of Pittsburgh territory where MC still unconsolidated (Philly too).

                                        Best Wishes,        

Majority of adults still drink adult bevs, but younger drinkers especially say they look to cut back, several surveys show.  And many drinking other stuff too (or instead).  Meanwhile, many also at least say they’re more concerned about health/wellness and that impacts bev choices.  Look at some striking bullets from Nielsen’s Danny Brager and Danelle Kosmal (at Beer Biz Daily Summit):

·         52% of regular beer drinkers now say they make efforts to reduce their alc bev consumption, including almost 2/3 of 21-34 yr-olds, 54% of 35-44 yr olds

·         25% of beer drinkers say they’re now more interested in consuming alc bevs with “wellness” in mind; “health” now among top-5 concerns among Americans

·         Asked how their consumption changed vs couple yrs ago, 55% of beer drinkers say about same, 32% say less, just 14% more; females and higher income most impacted

·         Why are beer drinkers drinking less? Top 4 reasons: “opting for healthier lifestyle” (40%); don’t go out as much (30%); lost interest in drinking in general (27%), drinking different alc bev (22%)

·         47% of millennial monthly craft drinkers only drink alcohol on weekends

·         Coke/Pepsi and a ton of other non-alc bevs compete vs beer; others too: hard teas, hard kombuchas, hard ciders and hard seltzers; cannabis-infused bevs comin’ on fast

·         Consumers want ingredient transparency, the shorter the list the better; “absence of undesirable ingredients is more important than the inclusion of beneficial ones”

Not All Trends Negative for Beer  Elsewhere, most recent data from Scarborough Research (also Nielsen) shows beer drinking population across 10 large US metro markets grew to 44.5% of adults between Aug ’17 and Sep ’18.  That’s up almost 2 pts vs prior yr.  So, projected # of beer drinkers in these cities up 2.5%, while total # of adults +0.5%.

Volume softness suggests that even if more adults choose to drink beer, they’re drinking less. “Style” trends tend to vary little yr to yr.  But, less than 50% of beer drinkers in these metros said they had a domestic light for only 2d time in recent memory.  Instead, imports more popular in urban areas (56.1%).  Craft popularity grew in 9 of 10 markets to 18.6% of beer drinkers across all 10.  (Cities: NY, LA, Chi, San Fran, Philly, Boston, Houston, Dallas, Atlanta, DC.) 

While underage drinking way down and adults may be drinking less, since 2007 very little change in Americans’ propensity to drink alcohol after age 21. Overall, 67.1% of young adults (age 19-28) were monthly drinkers in 2017.  That’s virtually the same as in 1997 (67.5%), tho down slightly from 69.5% in 2007.  So say same annual Monitoring the Future Surveys (MTF) which also report sharp declines in teen drinking.  This tracks Gallup Poll results (for decades) that approx 2/3 of Americans age 18+ “have occasion to drink.”  MTF figures show significant drop-offs in drinking rate among 18-20 yr-olds. But if you look at narrower age breakdowns, not much difference among younger and older millennials, especially over last decade.  Among 21-22 yr-olds, a slight dip in monthly drinking: 74.5% to 72.7%.  Trends vary among next four 2-yr cohorts, up or down a coupla of points.  But nothing dramatic.  Meanwhile, monthly drinking among those 35+ increased.  Similarly, reported daily drinking rates, while much lower, didn’t change much among those 21+ either.  Rose among some groups, except for 21-22 yr-olds.  Two other govt-sponsored natl surveys show increase in the percentage of adults who are “past month” drinkers or “current regular” drinkers over last decade. 

Are Younger Adults Drinking Less Volume? Looks Like It  These surveys don’t report volume data, but millennials significantly less likely to say they have 5+ in a row on any occasion in 2 wks prior to survey in recent yrs.  That so-called “binge drinking” rate fell from 45.8% among 21-22 yr-olds in 2007 to 39.8% in 2017 in MTF data.  Similar drops among 23-26 yr-olds.  This squares with Nielsen finding that millennials cutting back.  Trends flatten out and actually increase over age 30.  Finally, note that while monthly/daily drinking rates relatively stable, monthly marijuana use rose from 16% of 19-28 yr-olds in 2007 to 23% in 2017.  And daily use of cannabis increased from 5% to 7.8% (a 56% increase in that rate) while daily drinking dipped from 5.6% to 5%.  Yep, 19-28 yr-olds now more likely to use cannabis every day than drink every day.

Just before and after AB’s SAMCOM meeting with distribs, two big controversies cropped up. One essentially resolved, the other still flaring at presstime. A couple of days before SAMCOM, AB rescinded its planned 6-cent freight increase (see last issue) much to relief of distribs.  But why?  This move to go back on such a significant AB action is “unprecedented,” said longtime distrib, either in August Busch III or ABI era (AB exec agreed).  At meeting, ABI ceo Michel Doukeris said “that was not my preferred option at any time” but “we learned that the most important thing… is to do this together and avoid” moving system “in different directions.” Take that at face value.  With degree of pushback AB faced with distribs, it knew many would take their own pricing actions and/or mktg reductions to recover freight increase. Its planned April price hike would have been very chaotic.  This way, Apr price hike will be more orderly. 

But that’s just one piece of puzzle.  Clearly, another relates to distrib pushback. Distribs reached whole new level of upset over this and they weren’t gonna just take it.  If AB hadn’t rescinded, the 6 cents would have cast a very long shadow over SAMCOM, and greatly interfered with other more positive messages AB imparted to its distribs about growth and innovation. Perhaps controversy would have even hindered execution of its plans.  By eliminating so much noise and emotion, AB literally took the elephant out of the room.  As direct result, many AB distribs came away with upbeat assessment of SAMCOM and AB direction.  Third, AB still getting its 6 cents from price hike coming in Apr with 70/30 split.  It really should have been incorporated into price hike last Oct, many said.  Yet another reason may have ultimately influenced AB’s decision. Behind scenes distribs talked about going to statehouses about this and some even discussed going to US Dept of Justice seeking remedy for what they view as their lack of pricing independence.  AB reportedly upset by that. Another side benefit: AB rescinded its 6 cents, but MC still took freight increase Jan 1. So relatively speaking, AB looked more distributor friendly. 

Bud Light and Bud Ads Less Emphasized at SAMCCOM; Super Bowl Slam Starts “Corntroversy”  AB’s SAMCOM meeting debuted tons of new creative (see above), but not on Bud Light. AB kept tight lid on new Bud Light campaign, holding big reveal for Super Bowl. Meanwhile, Bud mktg now features Reserve series and/or “purpose driven” messages in most ads; doesn’t really have traditional mktg campaign (Bud still a 12.5-mil-bbl brand in US). On Super Bowl, Bud Light launched broadside against Miller Lite and Coors Light because they are both “brewed with corn syrup.” Bud Light brewed with rice. AB took shot at MillerCoors, in part as response to Miller Lite’s repeated jabs at Bud Light taste last yr, (tho AB denied this).  But also to push “transparency” in ingredient labels (which it started to put on Bud Light, but not on its other beers) and “elevate” beer, it said. 

Could such internecine squabbling really elevate beer? Certainly not in unified way.  MillerCoors responded gleefully, took out full page ads in NY Times and elsewhere, proclaiming anew its “more taste” message, fewer carbs and calories for Miller Lite.  Corn growers went ballistic, a consequence that appeared to catch AB by surprise.  Corn Growers Assn veep posted video on YouTube of him pouring Bud Light down drain, assn tweeted “we’re disappointed,” etc. AB quickly put out statements supporting corn, but also called it “inexpensive.” Spokesman: “We are not saying corn syrup is bad,” but “it’s a less expensive ingredient and we think a quality light lager only should include the best ingredients.” But doesn’t AB use corn in some products? AB “does use it in certain value brands, which are driven by price,” AB said in another statement. (Hmm, are those brands not “quality” then?). Media cited many experts; all we saw contended little difference between corn/rice.  AB “proudly supports farmers and the agricultural community,” it said. Last yr, AB “purchased more than 1 billion pounds of corn ingredients.”    

“The spat...has rekindled the beer marketing wars at a time when Big Beer keeps losing ground to spirits,” Ad Age wrote.  Meanwhile, “mainstream” light beers are also losing lots of ground to higher priced low-cal offerings, including everything from Ultra to Premier to White Claw and Truly.  And many more new entrants take direct aim at light beer’s perceived vulnerabilities. Can this heightened pitch of battle change any of that?

AB presented tons of new brands, plans and programs at its SAMCOM meeting in Dallas, all with same aim: to drive growth. Objectives/strategies usually boiled down to handful of key points.  And these points tell a lot about way AB looking at biz. In “Value” and “Core Mainstream” (Bud, Bud Light) segments, AB has 60 share but segments down. AB seeks to “stabilize” mainstream and value. AB gained volume and share of subpremium in recent mos.  In Core+ Segment, “we want to double the size of this segment,” said AB ceo Michel Doukeris, which AB already dominates with Michelob Ultra. That’s “best and biggest benefit” for AB as “gateway to premiumization.”  With Bud Light Orange, Bud Reserve, “we are doing our job here,” added Michel. In what AB now calls “premium” (example: Corona), AB doesn’t have much presence, so it seeks to “accelerate” growth there.  AB is #1 in segment it calls “superpremium,” it sez (examples: higher priced imports/craft), with 20 share.  But it wants to “double share” of this segment. 

Forty Regional and Natl Innovations; Double Ultra Pure Gold, More Bud Reserve What about all AB’s new brands? Dizzying, with so many in pipeline, almost always above mainstream pricing. Consumers these days seek “premiumization, health and wellness and purpose driven brands,” said Michel. Almost all its innovations fall into one or more of those 3 buckets.  AB got half of innovation $$ in 2018 IRI, said cmo Marcel Marcondes, up from 10% yr prior. That amounted to 12 mil incremental cases, said AB innovations veep Jake Kirsch.  Bud Light Orange was #1 innovation, and will be available all yr round this yr “with even more investment.” AB also coming with Bud Light Lemon Tea, aimed at Twisted, with less calories and sugar. Meanwhile, Michelob Ultra Pure Gold was #2 innovation and AB looks to double it in 2019. Bud Reserve Copper Lager (collab with Jim Beam) sold more than 2x Bud Freedom Reserve and 5x Bud Repeal Reserve.  Series will get natl media support, including on Oscars ad with Charlize Theron. AB testing Bud Prohibition NA in Columbus/Detroit. Many other new propositions ain’t linked to top brands.  Patagonia will spread to a couple of additional regions, after “people in Denver responded strongly,” said Jake. Buy a case, AB plants a tree. Another purpose driven brand, Wild Peak golden lager, testing in Sacramento. AB’s newly renamed craft unit, Brewers Collective, grew double digits in all in 2018 (faster in 2d half), and coming with many more new brands.

Beyond Beer in Many Directions While 4 of AB’s top 5 priorities remain beer, AB no longer remotely restricts itself to just beer.  One priority involves “Beyond Beer,” which it seeks to grow into a billion-dollar biz (AB’s total biz about $14 bil).  That includes everything from FMBs to hard seltzer to non-alcs. Ritas dropoff rate reduced by 11 points last yr, noted chief sales officer Brendan Whitworth. Spiked Seltzer more than doubled. Reinvented as Bon & Viv Spiked Seltzer, AB expects its hard seltzer biz to double again. AB also going natl with Spiked Agua Fresca from Golden Road.  Between Ritas, Bon & Viv, Spiked Agua Fresca, AB coming with “Triple Flavor Threat,” sez Beyond Beer veep Chelsea Phillips.  Then there are AB’s fast-growing but small non-alc projects.  Teavana up 150% and AB “investing more to make it a leading brand,” said Michel. AB looks to double its Teavana biz again in 2019.  AB “will disrupt the fastest growing trends” in “innovative beverages,” said Beyond Beer veep Randy Ornstein, pointing to Bon & Viv and its hard kombucha called Kombrewcha.  AB also pushing its partnership with Babe wine in a can (up 160%, “beer rate of sales with wine margins”) and its Drinkworks JV with Keurig Dr Pepper.  Each got more time on stage than some much bigger brands.

AB “must win on innovation,” said Marcel, and AB “making a lot of progress on our portfolio.”  Co actually “grew volume” in 4 of 5 segments last yr, said Marcel, all except mainstream (majority of its biz). And “we have 200 wholesalers that grew topline last year,” Michel noted, while 187 grew volume, plus 2 regions gained share for full year. So 2018 an “improvement” and “we’re headed in the right direction,” concluded Brendan.

Join us for the Beer INSIGHTS Spring Conference at the Ritz Carlton in Chicago, the evening of May 15 and all day May 16.  This yr, our conference theme is Where We Are, Where We’re Going and Where We’ve Been. Once again, we’ll focus on the many growing and promising aspects of the High End. But we’ll take a broader look at where the industry has been in the last decade, where it is right now and where it might be going.  Our top notch program already includes industry leaders like Constellation Brands coo (incoming ceo) Bill Newlands, Mike’s Hard Lemonade prexy Phil Rosse and mktg veep Sanjiv Gajiwala, Diageo Beer Co USA prexy Nuno Teles and CANarchy prexy Matt Fraser.  You’ll also hear a dynamic craft review from Craft Brew News sr editor Christopher Shepard.  And BMI prexy Benj Steinman will present a provocative overview of the US beer industry, with a focus on the high end and winds of change.  More speakers to be announced soon.  For more info, click here. To register click here. 

Best Wishes,

As Tennessee residency requirement to hold retail liquor license went on trial in US Sup Ct, lotsa different views aired out.  TN retailer atty and IL AG stressed states have “broad authority” under 21st Amendment to structure in-state alc bev systems.  Granholm decision barring discrimination vs out-of-state entities applies solely to producers/ products, they argued, not other tiers.  If economic protectionism for those tiers results, that’s legit.  Also: law survives since state only needs “plausible reason” for it and TN law “facilitates” background checks, investigation, enforcement.  Several Justices voiced skepticism that 21st Amendment broadly “shields” state laws that protect in-state interests.  Total’s atty emphasized TN law “has no purpose except” to protect local bizzes, so it’s unconstitutional.  TN’s own AG acknowledged law did not “remotely serve” any purpose under 21st Amendment and state never met burden of justifying it, Total atty said.  “This is not a close case,” he asserted, and TN law should stay tossed.

While Total atty claimed no challenge here to 3-tier system or anything broader than residency law, TN retailers/IL AG argued Total approach would leave 21st Amendment with “no meaningful role to play,” and ultimately treat alcohol like every other commodity.   Several Justices saw that elephant in room, i.e. inevitable attacks on state laws like those that bar retailers from shipping across state lines and internet sales, creating “Amazon of – liquor,” as Justice Gorsuch put it.  “Tomorrow’s argument” will surely be, he added, that states can regulate virtual retailers as easily as brick and mortar stores.  Justice Kagan echoed that: “We’re leaving a lot for another day, but they all seem to be demanded by the principle” espoused by Total that no protectionism can be allowed.  Key question: will Sup Ct decide narrowly, solely on residency law?  Or will it provide new “test” for state laws, delineating just what state’s “core powers” to regulate entail, including laws requiring physical presence stores?  Depending on that will be accuracy of Justice Gorsuch’s comment to Total atty that “we’ll see you again” down the road.