Molson Coors will sport its “biggest innovation pipeline in over 5 years,” innovations veep Sofia Colucci told INSIGHTS.  While she didn’t state amount, Sofia did say that Molson Coors aims to get twice as much innovation revenue next yr as in 2019, with 30% fewer SKUs.  Her team is “working really closely” with sales to find the brands and SKUs, prices and packages that will have “the most scale.”   Molson Coors will altogether place “a lot more focus on innovation.”  That includes making bigger bets, as well as some more modest ones.

Indeed, Molson Coors has 2 big bets for innovations in the US next yr: Saint Archer Gold and new Vizzy Seltzer.  Each will reportedly get about $30 mil in support.  A brand like Movo wine spritzer will also go national but will be a more modest bet, Sofia acknowledged.  Movo tested well this yr, “surpassed expectations” in 3 mkts: South Jersey, Ann Arbor, Vancouver, WA. Movo came out of Molson Coors’ “test and learn” process, also employed with St Archer Gold (going national) and hard coffee La Colombe, which is just in test.  This “test and learn” process will be employed with other products, not yet identified.  The process enables Molson Coors to “shave off time” and be much more “streamlined” and “efficient.”

Meanwhile, Cape Line will get the same level of support in yr 2 as yr 1, Sofia said.  MC previously identified that as $25 mil. Cape Line franchise got $26 mil in revs in Nielsen all outlet data yr-to-date thru Nov 2.  Total MillerCoors revs at $6.3 bil, down $110 mil YTD in Nielsen.  Cape Line helped, but Molson Coors will need more.  Molson Coors will also innovate more around its core brands. Sofia cited Blue Moon Light Sky as an example of core innovation “done right” with 95 calories, brewed with tangerine peel and its “great taste.”

Volume trend slipped below +2% for most recent 4 wks in Nielsen all outlet scans thru Nov 2, but still +1.8%.  And $$ sales up 4%.  Yr-to-date, volume +0.7%, $$ +3.6%.  Seltzer-driven FMBs up 2.9 mil cases for 4 wks, 46%.  All other volume down 960K cases and domestic beer shed almost 1.7 mil cases for 4 wks.  Another sign of seltzer dominance: White Claw had 3 of top 5 growth brands this period, as Mango joined still red-hot assorted pack and Black Cherry.   Those 3 brands +1.7 mil cases between ’em, compared to +784K cases for Michelob Ultra, +722K cases for Modelo Especial.  Top 2 Trulys tacked on 435K cases.  Ain’t just seltzer growing in flavor-land: Twisted Tea, Smirnoff Ice and Mike’s Hard/Harder and Steel Reserve Alloy all gaining too, along with Naturdays hangin’ in among top growth brands.  Comin’ outta the blue in recent weeks: Busch Light +5.3% for 4 wks, now +0.6% yr-to-date, only top-10 economy brand in the black thru early Nov.

Tho AB and MC had each reduced dropoff rates to below 1% for 4 wks thru Oct 12, trends back to -1.4% and

-2.5% respectively in most recent period.  Constellation continued near 10% volume growth for 4 wks, Diageo +16.6%, Boston +25% and Mike’s revved up to +111%.  FIFCO slightly in the black.  HUSA and Pabst continued off 5% and 10% respectively. While Corona Extra accelerated in most recent period vs YTD trend, Heineken, Dos Equis and Stella Artois each softer for 4 wks.  Note too: NFL ads matter, as Bud Light Platinum +5.6% for 4 wks, reversing near 12% slide yr-to-date, and popped back into top-10 above premium list.    

AB will buy 68.8% of Craft Brew Alliance it doesn’t own for $16.50 a share or some $221 mil, in deal widely reported yesterday in our Craft Brew News and elsewhere.  So AB will make its biggest purchase yet of a craft brewer. With CBA’s 719K bbls in 2018, added to AB’s approx 1.5 mil bbls in Brewers Collective in 2018 (up double digits in 2019), deal will make it easily #1 in craft by our count (INSIGHTS doesn’t include Shock Top as craft).  But it will still be less than 10 share of segment.  Former number one craft, Boston Beer, made other most significant craft deal of 2019.  It purchased 280K bbls of Dogfish Head.  Last yr Boston Beer’s craft beers were about 1.8 mil bbls INSIGHTS estimates.  But with continued Sam Adams drop, will be well below 2 mil bbls even with addition of 6 mos of Dogfish Head volume.  Dogfish Head and CBA are only 2 top 20 craft portfolios that traded so far in 2019.  Yet several others reportedly in discussions regarding their future.  Craft M&A may have slowed, but these deals show that there are still significant craft deals to be done. 

Craft Brew Alliance will add 0.8% to AB volume. But CBA, like AB, declined in volume in recent years.  Dropped 82K bbls, 10% since 2014 peak. AB also bought much smaller Platform Brewing in OH earlier this yr.  That one went off without a hitch.  Still, many expect a lengthy Department of Justice approval process for CBA deal, as it took ’em many mos to approve Devil’s Backbone, a co only about 1/10^th the size. “We could see a lengthy review process here,” wrote Consumer Edge’s Brett Cooper in note this morn.  AB said it expects deal to close sometime in 2020.  

What AB is mostly buying, as Brett and others immediately noted, is the growing Kona portfolio.  Kona up 8% and hit 481K bbls for 12 mos thru Jun, while other CBA brands dropped double digits.  Since CBA never made much money, Brett finds AB’s purchase price kinda expensive as a multiple of EBITDA. On other hand, as he notes, if AB can generate a 35-40% EBITDA margin on Kona’s “roughly $114 million in revenue,” it should make around $40 mil of EBITDA on Kona alone.  That’s about 2.5x what CBA generated in toto in 2018.  His quick calculation “ignores the balance of the portfolio and other potential benefits but simply demonstrates earning return should be quite achievable for ABI.”  In any case, “this is a small transaction for ABI with the cash outlay amounting to less than 3 weeks of FCF [free cash flow] for the brewer.” 

Day after AB InBev and Craft Brew Alliance announced ABI would purchase remaining shares of CBA it doesn’t already own (see below), CBA Q3 numbers announced.  Kona continues to outperform segment, with depletions +7% in Q3 and +6% yr-to-date.  But Widmer and Redhook continue to be drag on volume.  All in, CBA depletions +2% in Q3, flat yr-to-date. After re-balancing shipments in Q3 (-1.9%), CBA shipments +1.7% for 9 mos.  Revs and gross margins dipped in Q3 due to “promotional pricing” and lower shipments.  Combo of higher selling, gen and admin expenses earlier in yr and $5 mil class action settlement continued to pull CBA earnings into the red.  CBA booked operating loss of $8.6 mil for 9 mos, net income loss of just below $6 mil.  CBA still expects depletions/shipments to be flat to +3% for the yr.         

Series of significant mktg and personnel announcements this afternoon from AB, regarding “solidified” plans for 2020, per chief sales officer Brendan Whitworth.  First, AB will increase investment in its brands by over 20%, highest in over 5 yrs.  And as part of that, AB will “jack up” summer media spend by over 15%, said Brendan.  It will particularly focus on the “mother brand” Michelob Ultra, Brendan emphasized.  Goal for full year 2020 is to make Michelob Ultra the brand with the #1 share of voice (SOV), to “take it to the next level.”  On top of that, Ultra Gold’s great growth continues and it will get big boost in spending next yr too.  Finally, Beyond Beer brands will get 3x investment, with overall spend in Beyond Beer above $100 mil.  And big chunk of that going to Bud Light seltzer launch.  Editor’s note: that brand reportedly getting as much as $60 mil in spend next yr, tho that was neither stated nor confirmed by Brendan.  

AB also naming new prexy of Beyond Beer biz unit, Fabricio Zonzini, previously AB’s strategy veep.   His role will be comparable to Mika Michaelis, who is prexy of Craft Business Unit.  Chelsea Philips named gm of Babe Wine.  Shreyas Balakrishnan is prexy of Cutwater Spirits.  Finally, speaking for leadership team including prexy Michel Doukeris and chief marketing officer Marcel Marcondes, Brendan noted that team in place “not even quite 2 years” and it’s “taken 2 years,” but now AB “understands the opportunities” and sees its “strategy starting to come to life.”  So next yr, it will add “fuel to fire” with these big investments.

US beer biz is full of proud veterans who have served their local communities for decades.  One of them, Gene Vukelic, AB-Labatt distrib in Buffalo, NY was recognized by US House Representative Brian Higgins, who rose on Friday to honor Gene as “a business leader who has devoted his life to service, giving back again and again to the people of Western New York.”  Gene took over Try-It Distrib in early 60s from his dad after serving as US Marine.  He built that biz and added Balkan Bev and Saratoga Eagle Sales & Service, a biz now in its 3d generation, with 4 of Gene’s sons working there.  Along the way, Gene volunteered for and contributed to numerous non-profit organizations, including Muscular Dystrophy Assn, Canisius College, the Roswell Park Cancer Institute and many more, won a raft of local awards and named to the Buffalo Business Hall of Fame this year, Higgins pointed out in his floor remarks.  Gene’s also known in the industry as a probing questioner of his suppliers, and a great guy.  Take a bow Gene, along with all of the other beer industry veterans and community pillars out there on this Veteran’s Day.

US Dist Ct judge should deny AB’s Oct 17 motion to file counterclaims about allegedly stolen trade secrets and amend its answer (see Oct 17 Express), MC argued in response filed Friday.  “First, AB’s attempt to add cherry-picked excerpts from discovery purporting to show that MillerCoors beer contains corn syrup is legally futile in that it adds nothing to the issues already in dispute,” MC argues.  What’s more, “the discovery record shows the opposite,” MC insists, that they don’t contain corn syrup.  In any case, that “factual dispute” already part of the case.  So, no need to amend anything.  Second, charges of trade secret “misappropriation” are also “futile” since neither AB’s Super Bowl ads nor the “public confusion” that ensued regarding corn syrup, were caused by any misappropriations or other actions by MC employees, “especially actions taken after the Super Bowl.  Only AB’s advertising campaign could have done that.”  Finally, AB’s trade secret counterclaims “would result in undue delay and prejudice,” involve different legal questions, require many more witnesses and documents and “not only double the size and complexity of this litigation but cause delay…. It is just too late to introduce a new set of issues into this case.”  If AB’s counterclaims allowed to go forward, you’re talking a whole new round of discovery and requests for summary judgment, which “cannot be accomplished without derailing the case, and the trial,” MC argues.

“Hard seltzer craze makes White Claw founder a multibillionaire,” headlined Bloomberg as it profiled Mark Anthony founder Anthony von Mandl.  Bloomberg pegged his fortune at $3.4 bil, but imagine what it will be if White Claw continues on its present trajectory for even a coupla more yrs.  From his humble beginnings in early 70s as a wine importer who sold wine out of the back of his car and had an office “the size of a cupboard,” according to a wine writer who knew him then, Anthony has built quite a biz.  Anthony “made a fortune creating genre defying alcoholic beverages,” wrote Bloomberg.  White Claw is “the latest in a string of successes” that include Mike’s Hard Lemonade.  Anthony has “poured a good bit of that money back into his first love: wine,” added Bloomberg.   He owns 5 wineries in British Columbia and 1,000 acres of vineyards. 

But the growth engine is White Claw, catapulting Mark Anthony’s US biz (Mike’s) to growth of “85% this year and accelerating,” Mark Anthony emailed to Bloomberg.  If Mike’s ends yr up 85%, that would be growth of 2.2 mil bbls, greater growth than Constellation ever achieved in a single year!  

California has long been known as trendsetting state, so it’s interesting to note that seltzers exploded in CA in spring of this yr, later than elsewhere.  Still gotta watch what’s new in Calif.  So here are top new brands in CA IRI multi-outlet + convenience yr-to-date thru Oct 13, data from Bump Williams Consulting.  Modelo Limon Y Sal is #1 new brand in CA.  Got $5.7 mil in sales (recall Modelo Especial up $62 mil, all on its own).  And Truly’s Tropical Mix Pack is #2 so far in 2019, garnering $4.9 mil in sales.  Surprisingly, #3 new brand in CA scan is Heineken 0.0, at $2.3 mil in sales.  Coming in at #4, Firestone Walker’s Mind Haze. And #5 is Corona Refresca.  So you’ve got a Chelada, a Seltzer, an FMB, a craft brand and a no-alcohol beer.  Amazing variety.  All above premium.  And not one traditional beer.  Sign of the times.

As Molson Coors ceo Gavin Hattersley and his staff talk with analysts and media in aftermath of announced revitalization, more detail emerging about strategy going forward.  For example, Consumer Edge’s Brett Cooper developed “greater appreciation” for where the money’s going and came up with a list of how to assess the “green shoots” Gavin cited as Molson Coors goes forward. “High-end and beyond beer” will be “getting the majority of the incremental money, but there are also dollars going to capability, which is essential to being able to deliver on the next growth drivers, and core brands,” Brett wrote this morning.  Beyond critical issue of identifying the “next seltzer,” this notion of “capability” also includes changes in organizational structure that call for more “centralized” decision-making, innovation and brand management.  That should have some relatively short-term impact (as in next year).  A longer-term change in Molson Coors’ “culture” underway too, Brett believes.  That includes “being better listeners,” presumably including to distribs.  Key question remains: will outcomes change; can Molson Coors grow its top line?  “The market is betting no,” Brett points out.  Yet he does see a plan and identifies a half-dozen bellwethers that “will be a way to understand the potential for future success” and boost the stock.  They are:

·      Miller Lite and Coors Light (continuing) to “improve share performance relative to Bud Light.”

·      St Archer needs to succeed.  It may not be Corona Premier in yr one, but “early success should be achievable” since distribs want an Ultra fighter.

·      Continue Peroni’s momentum, a “big bet” for Molson Coors, with success so far.

·      Vizzy “may matter more than the others as it relates to the stock” short-term and will be an “important signal” of Gavin’s talk about making the right ideas work with proper support.

·      Extending Blue Moon franchise with Light Sky, and appealing to the “lighter craft” drinker.

·      Driving “early success” of Arnold Palmer further as Molson Coors sees oppy there and another way to test the big idea/more money strategy.      

Not all of these things will happen, natch, but “evidence of success across a number of key initiatives is important” for any market revaluation and Molson Coors needs to show “meaningful progress on these to drive investors to believe in the 2021 and beyond algorithm.” Brett points out.  A couple of other interesting observations from Brett, that Gavin hasn’t spoken specifically to elsewhere.  Molson Coors will de-emphasize economy, Brett believes, which could cause some short-term pain.  Indeed, Molson Coors could discontinue some brands, divest or “take a profit maximization route,” in Brett’s view.  “Getting outside of beer is necessary” for Molson Coors, Brett sez again, as distributors already “migrating” there, and it will take time to scale non-beer biz.  Finally, “another brewery closure may not be the optimal path.  Shipping considerations may lead to mothballing lines rather than entire breweries.”