Constellation “just recently” began heavy distribution push of Corona cans, “averaging 31.7% ACV over the past two months [Apr and May] compared to 16.8% ACV over the 24 months prior,” reported RBC Capital’s Nik Modi.  Cans’ contribution to STZ total growth has increased gradually over the last few years, from 4.4% in Jan 2012 to 6.6% in May 2015, and Nik believes this “represents just a fraction” of their potential.  He lists “variety of new markets” such as “beaches, stadiums, boat outings, golf events, airplanes, etc.,” that Corona has oppy to tap, and ultimately expects can distribution and contribution trends to continue.  

Beer Inst prexy Jim McGreevy, NBWA prexy Craig Purser and brewer Larry Bell all sounded similar themes on Brewbound panel yesterday.  They agreed that single fed tax bill (see Jun 10 Express) will be easier to pass, keeps beer biz on same page and allows it to “move on,” focus on other important issues and challenges, most notably from spirits.  All agreed too that industry should be “celebrating our commonalities” not differences, that “having public spats never does any good for us,” as Larry put it.  None discussed details of compromise bill, so as not to “steal thunder” from Oreg Sen Wyden who will provide them at a press conference today.  BA perspective on tax issue not voiced on Brewbound panel, and Jim and Craig mostly stuck to their assns’ familiar talking points.  But, per usual, Larry had his own talking points.  Indeed, several of Larry’s comments strayed far from BA perspective (and to certain extent BI’s), including notion that “far too much time and energy” has been spent on tax issue to begin with and that tax break not likely to create many jobs, except for smaller players.       

Larry Questions Job Creation Potential of Tax Break  Recall that BA promotes tax break (almost exclusively) as jobs creator.  But Larry reminded that craft brewers are “doing pretty well” right now with tons of new entrants.  If tax break bill passes, and he doesn’t think (like most observers) anything will happen until after 2016 election, “there are probably some jobs there” for smaller breweries. At Larry’s level, it could mean some more equipment and possibly “better jobs.”  But “by the time it passes” craft “could be entering a new phase” and “other things might get done” with the money.  Like what?  Like “marketing, price wars,” more competition or getting some “old guys like me” out of the biz “so the next generation can come in.”  If ABI gets additional $12 mil, which is what bill anticipates, will it hire more people?  “Probably not,” opined Larry.  So, “in theory” some jobs may be created, but “I wouldn’t stand up there and guarantee it.”  Given long time frame and opposition, “I don’t think any brewer should count their chickens yet.”  Then too, Larry insisted beer biz has spent “far too much time and energy” on tax issue, that there are other issues – i.e. FDA menu rules, barley, crop insurance – that need attention.   Larry’s jobs point seemed to take Jim aback a bit – BI has also argued that tax break would create jobs – and he chose not to “disagree with a member.”  But Jim, Craig and Larry agreed that unified position on tax will assist beer when Congress does take up tax reform and will especially assist in battling distillers’ attempts to equalize beer and spirits taxes.  Larry tipped his cap to BI which he said is “doing good things now to fight that war against big spirits.”  “We have to keep” beer’s tax advantage vs spirits, Jim reminded, and be prepared when “health advocates” argue to increase taxes. 

On other topics, lotsa familiar points.  Craig reiterated NBWA’s concern that a 6-mil-bbl definition of “small” potentially impacts a “whole host of other issues” in state laws (different treatment at retail, self-distribution, more) since some state laws simply “ripped” from fed policy.   Craig also encouraged brewers again to “exercise their rights” under their contracts and current state franchise laws (as Larry has) when they have disputes, rather than “take a meat axe” to change a system that “has facilitated such meteoric growth.”  Larry strongly supported distribs and 3-tier system, which has “worked well for me and others.”  He acknowledged occasional “horror stories” and “personal conflicts.”  But he cautioned that franchise reform could have “unintended consequences,” noting that if his biggest distributor were to lose brands to competitors waving money to get brands, “he’s in trouble” and “I’m in trouble.”  Also asked distribs to “slow down” consolidation “so we can sell some beer,” saying he’d just signed off on sale of distrib in east.   He does not want to “take a meat cleaver” to the system either. 

That was quick.  Not Your Father’s Root Beer just rolled out to a number of states in last couple of mos.  It’s still far from national, but it’s selling fast, according to several sources, and creating buzz far beyond its Chicago origins.  Now here comes Boston Beer, epitomizing a fast-follower strategy.  Its Coney Island beer unit will launch Coney Island Hard Root Beer later this month and the brand has already received numerous chain authorizations for summer and/or fall in many states.   So Boston is jumping into this still tiny niche with both feet.

Recall, Boston Beer purchased Coney Island Brewing in Dec 2013 as part of Alchemy & Science unit. Coney Island’s brewery in Brooklyn will open later this month.  Now Coney Island will be used as vehicle to launch its own Hard Root Beer.  And as Boston notes in deck introducing new brand, Coney Island Brewing is a “brand with national appeal” because “86% of people have heard of or are aware of Coney Island… and have positive associations with the locale.”  Its “strong nostalgic recall” and “brand associations” (i.e. “hot dogs, boardwalks, roller coasters, rides and Fun”) have “obvious consumer connection to Root Beer,” sez Boston. 

This “emerging segment” is “gaining sizable share of craft in the US,” sez Boston deck.  In Chi IRI multi-outlet data alcoholic root beer is 4.3% of craft.  In Toledo, it’s 3%.  In  Cleveland 2.8%.  That’s virtually all one player.  If alcoholic root beer got to 3 share of craft nationally, that could be 9 mil cases in 2016, notes Boston.  That’s why it’s putting so much weight behind this; Boston and Alchemy & Science will spend $5 per case and launch the full force of its chain selling organization against this opportunity.  Then too, “many of our wholesaler partners do not carry Not Your Father’s Root Beer” and drinkers “prefer” taste of Coney Island, sez Boston.  Two other interesting points: “Drinkers believe Root Beer brands should be merchandised and priced with craft beer.” And 70% of regular Hard Root Beer drinkers drink craft beer.  Pabst too believes alcoholic root beer is a huge opportunity.  So let the race begin.  And who knows who else will come in! 

Vision of a possible future?  In Los Angeles, largest IRI mkt in nation, Constellation jumped to 24.8 share of $$ for 4 weeks thru May 31 in IRI multi-outlet+ convenience (at 23.4 yr-to-date).  Constellation $$ share up 1.6 for 4 weeks. Meanwhile, AB dropped 1.3 share to 32.1.  And MillerCoors fell 1.2 share to 19.4.  So that’s 32 to 25 to 19, with 3 share shifting between AB, MC  and STZ in latest period.  Recall, beer sales really tuff in LA over Memorial Day.  And $$ sales down 8%. So Constellation off 1%, but each of AB, MC and HUSA down double digits last 4 weeks. HUSA also over 10 share here. So top 4 still at 86 share, which means craft still at low share.  But it’s starting to come.  Even with total beer $$ sales down 8%, Lagunitas up 80%, Firestone Walker up 133%, Ballast Point up 139%, Stone up 35% and Sierra up 10%.  Those 5 players alone gained 1.4 share of $$ in period. 

Research prepared for Federal Reserve in NY throws cold water on still widely-held notion that lower gas prices will (eventually) boost beer and other consumer goods.  So sez CNBC article on analysis of 30 yrs of data.  Paper concludes “that in instances of oversupply” of oil like we have now (as opposed to reduced demand)  gross domestic product and consumption over the longer run increase ‘quite modestly.’”   Cap ex spending for biz increases “somewhat” more in these instances.  What’s more, “biggest impact” of lower gas prices has likely already been felt, Fed researchers believe, CNBC reports.  So even tho gas prices still almost a buck/gal lower than this time last yr, that’s not likely to translate into consumer spending bump.  If lower unemployment, (slightly) higher wages and more cash in consumers’ pockets do not boost mainstream beer sales, what will?  

Will Pushing the Price Button Work?  More on “Affordability”  Recall, MillerCoors ceo Tom Long told NC distribs earlier this week that biz has to make beer “affordable” on-premise, because industry has not helped the key “economy” drinker.  That’s for sure, at least in off-premise.  Since 2007, before economic downturn and subsequent recovery, avg price of two key “economy” brands in supermkts, Busch Light and Miller High Life, rose 23% and 25% respectively, according to IRI data.  Avg price of craft rose 23.5%.  During same time period, avg price of Bud Light increased 20%, avg Corona prices up just 8%.  On-premise beer prices increased 19% same period, according to consumer price index.  We don’t have IRI data for wine or spirits, but CPI for off-premise spirits increased just 6% during this period and wine CPI up even less than that, 3.7%, while beer CPI +16%.   On-premise pricing for wine and spirits tracked closer to beer, according to govt.  And that’s while overall inflation was 14%.  So beer pricing outpaced inflation and competing alc bevs even more so, at least off-premise, as NBWA chief economist Lester Jones pointed out in same meeting with NC distribs.  That was good for industry profits, but likely hurt volume and did “not help the economy drinker stay in beer,” as Tom put it.  Meanwhile, “we all forgot about” on-premise, Tom also acknowledged.   In past yr or so, MC has broadly held draft prices; AB has offered sharp keg discounts on some brands.  Each has beefed up on-premise programming.  But neither has had much effect on beer volume – or spirits volume – as far as we can tell. 

Big news coming out of DC. There’s a deal to end the controversy that’s long-brewed between big and small brewers over excise tax relief and unite them behind one bill.  While not all i’s dotted or t’s crossed yet, Senator Wyden of Oreg  (former chair and now ranking Dem on key Senate Finance Committee) will reportedly intro tomorrow a comprehensive bev alc excise tax relief bill for beer, spirits, wine and cider.  Senator Wyden’s office did the heavy lifting of putting this together, INSIGHTS understands.  

While small brewers said they could move Brewers Assn’s Small BREW bill even in face of Beer Inst’s competing Fair BEER legislation, legislators sought one bill.  Small brewers reportedly heard that message from a number of legislators in their many, many visits to the Hill last week in advance of SAVOR.  This deal has only been in the works for less than 2 weeks.

Wyden’s bill includes several elements big brewers said need to be part of tax relief.  For example, the new bill will reportedly include tax relief for all brewers including AB and MillerCoors.  And it will include importers. All brewers will get taxed at $16 per bbl, up to 6 mil bbls.  That’s $2 per bbl lower than currently.  Bill also preserves current structure of the additional tax break provided to small brewers and cuts that rate in half.  So all brewers under 2 mil bbls will now pay $3.50 per bbl on their first 60,000 bbls, and that’s down from $7 per bbl.  Tax reform may not happen until 2017, leading legislators told key business sectors.  But whether this new bill passes or not, getting brewers back on the same page is likely a big step in the right direction for all.

Calvin Broadus, Jr, aka, rapper Snoop Dogg has filed suit against Pabst in Los Angeles claiming he’s owed money from sale of Pabst.  In Jan 2011, Snoop agreed to serve as a “Brand Ambassador” and consult for “Blast by Colt 45,” its fruit juice-flavored extension, and for Colt 45.  In exchange, Snoop claims contract called for him to receive “an up front fee followed by quarterly payments,” as well as royalties “based on sales of Blast and other ‘Base Colt 45’ products,” and other merchandise royalties and bonuses for term of 3-yr deal.  That agreement ended 8 mos before Metropoulos family sold Pabst “for a reported $700 million” to JV between Eugene Kashper and TSG Consumer Partners.

Snoop claims however that his contract had a “Phantom Equity Clause” which stated that if Blast or the Colt 45 brands were sold during term of his agreement, “or within two years following the end of the term,” he would be entitled to “10% of the net sales price of such sale,” for the sale of the Blast brand and entire Colt 45 brand family, “after the subtraction of any and all costs incurred by the Company to accomplish such sale.”  Suit claims the only exception to that clause was “if the Colt 45 brands were sold to a subsidiary or affiliate of Pabst, or were sold in connection with a stock purchase/exchange among existing shareholders.”  Upon learning of sale, his lawyers reached out to Pabst “to discuss Mr. Broadus’ right to collect 10% of the price realized by Pabst stockholders” but Pabst “has taken the (very convenient) position that no transaction has occurred” to trigger the Phantom Equity clause. 

AB won a sweeping victory from fed ct judge over charges that its Bud Light Lime Ritas mislead consumers into thinking they’re lower in calories/carbs simply by using the word “light” in the name.  Recall this is just one of spate of cases vs alc bev producers about claims in labels and ads that we detailed in current issue of beer marketer’s INSIGHTS.  But just as Fla fed judge upheld use of word “handmade” by Makers Mark, a Calif fed judge here found use of “light” was not misleading, but permitted under TTB labeling regs.  He also repeatedly ripped “deficiencies” in Plaintiffs’ claims. 

Plaintiffs argued that AB subject to FDA regs on the Ritas, or that FDA regs “co-exist” with TTB’s.  But judge cited 1976 decision in a Brown Forman case that “already clarified this issue” that TTB is final authority on alc bev labeling, “with the exclusive effect of federal law.”  That means: “In receiving COLAs for its can labels, the Court finds that the labels on the Ritas Products are permitted under federal law.”  And those labels disclose the calorie and carb content.  That also means that the COLAs provide a “safe harbor” that “insulates AB from liability,” which is what AB argued all along.  (TTB regs required an average analysis disclosing carbs and calories on the package but does not require outside packaging to include the analysis.)  That alone justified a dismissal.  But judge went even further and dismantled all of the Plaintiffs’ claims, saying that even if the allegations were true, they don’t “amount to a cognizable claim for deceptive or misleading labeling.” 

In fact, judge put himself into mind of the “reasonable consumer” and found no deception.  Plaintiffs never defined “light” (TTB doesn’t either) but judge determined that “the adjective ‘light’ appears to be a descriptor that compares one product of lower calorie intake to another similar product of full calorie intake.”  But there is no “full calorie counterpart” to the Ritas, he pointed out.  (Judge even went so far as to speculate that “at most, the term ‘light’ could be interpreted to mean…an alcoholic beverage comprised of a blend of margarita mix and Bud Light Lime.”)  Without that full-cal counterpart, Court can’t determine any deception.  What’s more, Plaintiffs never said how many calories/carbs they expected the Ritas contained, so their “subjective expectation” that it would be less than it turned out to be “is unreasonable” and does not support the charges. 

There’s more.  Plaintiffs charged AB with “fraudulent omission” for not disclosing Ritas contain high-fructose corn syrup.  But no TTB regs require AB to disclose such ingredients, so no liability there either. Finally, judge also tossed Plaintiffs “claim for breach of express warranty,” because Rita labels “make no explicit guarantee about the product being low” in calories or carbs.  Rather, plaintiffs “blindly surmise” that Ritas would have some unknown amount of calories based on word “light.”  “That is not a promise,” judge ruled, “and even if it was, Plaintiffs fail to properly allege how this promise was breached” since the info was accurately disclosed.  All in, judge pounded complaint as “rife with deficiencies” and tossed all claims under Calif law.  As final blow, he denied plaintiffs any oppy to amend complaint, stating they “cannot overcome the deficiencies” and that “amendment to these claims would…be futile.”   This sweeping decision is key win for AB (and other producers).  Will it slow down other attempted class actions claiming consumers are being deceived?  We’ll see.        

Just a few weeks before his time at MillerCoors ends, MC ceo Tom Long gave a reflective set of remarks to NC Beer and Wine Wholesalers Assn yesterday.  He focused on the demographics of his home state (NC), implications for the beer biz there and then spun that out to why beer hasn’t grown nationally, especially on-premise, and what the beer industry might do to improve its fate.  Citing famous Peter Drucker line that “demographics are the future that has already happened,” he argued that much of what’s gone on in beer is the “logical outcome” of demographics as well as economic factors.  At same time, “trying to see around the corner has been tough lately” as biz is “moving very fast.” But distributors “have to shape your market,” said Tom, “you’re not passengers.” Once again, Tom said distribs have too many brands, “more than you need” and it’s already reached point where “net incrementality is going down” while “cost of new brands is going up.”  

Key point for Tom both in NC (9th largest state) and nationally is division between “haves” and “have-nots” and how that impacts beer consumption.  “Growth is uneven,” he said.  Tom showed that 2 counties out of 100 in NC (basically Raleigh-Durham and Charlotte) dominate the growth in the state, while many rural areas are going backwards demographically: decreasing population, people leaving, few births etc.  Fully 49 of 100 NC counties have lost population.  As one example of how that affects beer, Tom noted that craft is 17 share in Wake county (Raleigh-Durham), and under 1 in NW part of state. 

Nationally, beer per capita consumption has declined for a long time.  Here's important reason for that decline: “Income fell 21% in real terms for men with high school diplomas since 1979,” said Tom.  So as prices went up, beer biz made it harder for economy drinker.  But the “economy drinker is your best customer,” according to Tom, typically “much more exclusive to beer” with “more lifetime value” than a craft drinker.  

So there is “need to make beer affordable in the on-premise,” said Tom. Gotta have “a beer offering in every account that is affordable,” because “we’re not helping the economy drinker stay in beer. Over the long-term we’re going to regret it,” emphasized Tom. “We’re going to have fewer and fewer beer drinkers in America.”  The on-premise channel is down 4-5%.  “Why do you think that is? We all forgot about it,” said Tom.  Just “rolled the hand truck in” instead of selling beer.  “Category management is way more important on-premise than off premise,” said Tom. “We’ve got to take back the on-premise by being way more sophisticated in our selling strategy.” 

While Stifel’s Mark Swartzberg sez ABI-Diageo deal unlikely, a recent survey of Constellation distribs Stifel did with Bev Mktg Corp, plus latest IRI trends, suggest Constellation likely to report “a pick-up” in “depletion growth” in beer back to 10% pace when it reports 1^st fiscal qtr thru May.  Survey found more distribs reporting “accelerating growth,” more saying “no inventory shortages” of Corona Extra or Modelo Especial and more saying Corona growing at 5%+ pace.  Over half of distribs said Constellation brands depletions up 10%+ vs 29% in Dec 2014/Jan 2015 survey.  And over 40% said Corona Extra up 10%+ (vs just 16% in prior survey).  Nearly 70% said Modelo Especial up 10%+.  Distribs also reported per-store velocity up.  Finally, Mark believes that with first round of Nava brewery expansion complete by year-end, he expects distributor inventory build thru Feb next yr to “ensure no disruption of supply to retail” as Constellation unwinds relationship with ABI-Modelo.  That boosts his estimate of shipments volume for fiscal yr to just below 10%, about 1.5 mil bbls, instead of 8.4%.