Comments from Constellation quoted last issue about how its growing portfolio likely makes its distribs the local leader in high-end growth in any given market should have been attributed to exec veep Bruce Jacobson.   

Lotsa positive comments popping about Constellation’s beer prospects these days, and not just from execs at Gold Network distrib mtg last week.  Today, Morgan Stanley’s Dara Mohsenian dug deep into recent IRI data, survey responses from 60 Constellation distribs and more to raise his topline grown and margin targets going forward.   Scanner data for Dec 2014 plus Jan-Feb this yr shows near-term acceleration in Constellation growth, Dara notes.  Then too, distrib survey showed 42% of respondents said Constellation volume accelerated in early 2015 and only 12% reported a slowdown.  Throw in “favorable” feedback in talks with distribs in Dallas and improving overall US industry trends and that gives Dara “confidence that longer-term drivers of the business and a US recovery are playing out.”  So he boosted his “5-year beer volume forecast by 100 basis points to +6.75% (+8.5% revenue CAGR).”  Like some other analysts, Dara also sees “upside” to Constellation’s execs’ guidance of operating margin in mid-30s and forecasts about 37%.  Finally, while most investors use Constellation’s beer industry peers to value biz, its much higher growth and margins compare better with “high growth CPG peers with similar characteristics,” like Monster, Boston Beer, Brown Forman, in Dara’s view.  Using that group suggests current valuations are low and “if we valued STZ’s beer business in-line with peers with similar financial characteristics, investors would get STZ’s wine business essentially for free.”   

Wheels of justice grind slowly and sometimes surprise.  Four-yr court battle over Mich Liquor Control Comm’s denying registration for Flying Dog’s Raging Bitch brand just took another turn.  US Appeals Ct ruling yesterday opens door for Flying Dog to win damages for 22-mo period that MLCC kept Raging Bitch out of the mkt.  Flying Dog tried to intro brand in Sep 2009.  MLCC said no way.  Flying Dog sued in Mar 2011 based on free speech rights, a case it won.  MLCC let go of the leash in June 2011 and Raging Bitch entered the market.  Now Flying Dog will pursue damages for time brand stayed in doghouse.  All this from Flying Dog release that just hit the wires.  Co sez it will use any funds to “establish a Freedom of Speech society” in hometown Frederick, MD.      

Constellation Brands is launching 2 new ads for Modelo Especial to intro fast-growing brand “to a wider audience,” reported Ad Age.  New spots mark “first national English-speaking language campaign” to grow Especial “beyond its loyal base” of Hispanics which account for 60% of sales.  That’s down from 80% just 5 yrs earlier, noted cmo Jim Sabia.  Still, “it’s amazing how many general-market consumers aren’t even aware of Modelo Especial,” added Jim.  He told mag that “40% of consumers” don’t even recognize the brand on list of beer brands.  Yet before even tapping into a wider consumer base, Modelo was up 25% in IRI for 52 wks thru Jan 25, and grew depletions 16.5% in 2014.  For Corona brand, a new ad will tout new can design made to “look more like Corona bottles,” and another spot will feature Corona alongside Casa Noble tequila.  “There are so many occasions in which beer and tequila work (together), especially with Mexican beers,” added Jim.  While unusual to see beer & liquor paired in same ad, “ever loosening rules on liquor advertising on TV gives ads like this one the chance to reach a wider audience,” noted mag.  

Back in 2011, Brewers Assn revs were $10.5 mil, $1 mil behind NBWA.  But in last 3 yrs, BA revs doubled to $21.1 mil, including another $3.5 mil, 20% jump in 2014.  Brewers Assn now gets very close to as much rev as Wine Inst, and several times Beer Institute.  Events still really drive the bus for the BA.  Events from revs up $2.55 mil, 30% last yr to $10.8 mil, slightly over 50% of total BA revs.  But event operations expenses up under 6%.  Partly as a result, BA got massive increase in surplus last yr.  Up $1.7 mil, 69% to $4.2 mil.  BA now up to 2447 brewery members, and 74% of operating brewers are members.  Number of members jumped 470 in last yr.  BA staff now over 50.  

Pennsy Liquor Control Board today issued opinion allowing “d” distributors (4^th tier home “d” who sell most of off premise beer in Pennsy.) to sell 12-packs.  Previously they only could sell cases and kegs.  PLCB Legal Opinion came in response to lawsuit by small craft brewer and “two interested distributors.”  But it went much further than just ok’ing 12-packs.  Broad ruling “radically changes Pennsylvania landscape,” according to source, almost as if PLCB “took liberty to legislate,” he added.  Howzat?  Any “original container” of more than 128 ounces will now be permitted, seemingly opening way for 15-packs, 18-packs and other packages, not previously sold in Pennsy.  That would probably suit AB and MillerCoors just fine, tho many other local brewers can be expected to mount a vigorous opposition.  

Atty Ted Zeller, who is gen counsel for Yuengling and Brewers of Pennsy and specializes in distribution and retail issues, blasted the ruling on his blog.  The PLCB Legal Opinion “will permit” AB and MC “to market their predatory 18-packs for in Pennsylvania for the first time ever” and “are designed by big beer to focus the decision of the consumer on price as opposed to quality and variety.”  In Ted’s view “today’s announcement… renders the definition of a ‘case’ contained in the Liquor Code a nullity….  It is possible” that PLCB’s “action is tantamount to new legislation and could be challenged.”  In meantime, “d” distribs can start selling 12-packs right away” and “you can expect predatory packages entering” Pennsylvania “as early as next week.”  

Constellation Brands Beer Division just finished its Gold Network Summit meetings with distribs, detailing  its 9% growth in 2014 and plans to double to 360 mil cases by 2024.  Well-received meeting featured big new investment commitments from Constellation, which will spend about $1.5 bil to grow Nava brewery to 25 mil hectos (293.5 mil cases). Already looking at sites in Western Mexico for next step; a brand new greenfield brewery site.  Constellation hired almost 400 new brewery workers at Nava last yr, currently has 3000 construction workers on site and will reportedly add several hundred more brewery workers alone in next 12 mos.  Meeting featured fired-up prexy Bill Hackett telling distribs “there is still so much runway” to “accelerate this.” Lotsa brands, plans and programs reviewed in much more detail in Beer Marketer’s INSIGHTS.

Another new and interesting point of emphasis: Constellation as difference-maker in local mkt. “Do you realize that you are the leading high-end distributor in your market simply by the fact that the CB [Constellation Brands] portfolio is in your house?”  With over 90% of total beer volume sold thru AB or MC networks, high end split between both and Constellation Brands “posting 25% share of the high end’s total growth” whoever has Constellation will likely lead the high end in local mkt.  Notable support of this point from largest most acquisitive distrib Reyes Bev Group, which reportedly won’t consider acquisition that doesn’t have Constellation portfolio.  As Constellation continues to grow, its push for defining its distribs as separate Gold Network looks increasingly sustainable.  

Overall picture remains pretty much same with total sales somewhat improved, AB and MC still losing over 2 share of $$, trade up continues, and Constellation and craft remain biggest share gainers.  But there are a handful of notable new trends taking shape in early 2015 IRI data.  Diageo Guinness USA and Sierra Nevada stand out as cos that’ve noticeably improved to start the yr. DGUSA volume up 6% YTD thru Feb 22 in IRI multi-outlet + convenience.  Guinness Draught slightly up, Extra Stout up 9%, and Guinness Blonde already a top-100 brand in supers at #97 in terms of $$, accounting for more than all of DGUSA growth in that channel.  Sierra Nevada trends jumped up 26% YTD in IRI MULC, 35% in latest 4 wks behind handful of new intro brands, and improved Sierra Pale Ale +10%, while Boston Beer (+15%) and New Belgium (+11%) trends have noticeably slowed compared to last yr. 

Also, AB’s Rita family of brands collectively down 9% YTD thru Feb 22 in IRI MULC, and took 18.5% hit on volume in latest 4 wks.  That’s the first time we can remember total Rita family down for a period.  Mang-O and Raz-Ber Rita cases up 3X and 4X respectively for yr, yet didn’t make up for Straw-Ber and Lime-A-Rita declines.  However, new seasonal flavors starting with Lemon-Ade Rita this spring/summer and “full-time” variety pk launch will certainly provide extra boost.  Also, MixxTails and Oculto brands have yet to launch full scale, so stay tuned.  Meanwhile MC’s Redd’s family up 18% to start the yr compared to +87% in 2014.  Flagship Redd’s Apple Ale and Strawberry Ale each down mid-to-high teens YTD and have steadily declined each 4wk period since Nov.  However Redd’s Green Apple and Wicked Mango flavors launched this mo too, and could boost Redd’s family to better trends. 

AB’s Shock Top family and MC’s Leinenkugel family each down 4% to start the yr.  Shock Top Belgian White down 2%, Honeycrisp Apple Wheat (-17%) unable to cycle, and Seasonal brands declined, -31% thru Feb 22.  Tuff Leinenkugel trend largely due to Shandy down 10% YTD, which is another first as far as we can recall.  Too early for Boston Beer’s natl launch of Curious Traveler Shandy to have had ripple effects on Leinie.  On the other hand, Blue Moon family is lookin’ healthier than it has in recent mos, thanks to continued solid growth from flagship Belgian White (+6%), healthier Seasonal (+14%) and Variety Pk trends (+6%) YTD.  

Kentucky is poised to be the next state to enact legislation that blocks brewery-owned branches after the state Senate voted to send highly contentious bill to the Governor’s desk yesterday. The 23-13 vote followed a passionate debate on the Senate floor that included history lessons from ex-governor Sen Julian Carroll and Sen Dan Seum in favor of the bill and language calling it “punitive” and “the ultimate assault on private property rights,” from Sen Julie Adams. Legislators called up 30-yr old exclusivity threats from soda suppliers and questions about employee benefits and pensions, held up stacks of letters and emails and even invoked that Super Bowl Ad that won’t go away.

The “tough vote” ended up in favor of state distribs who sought ban, while much local media coverage pegged it as a big win for small brewers. In-state small brewers that is. Advocacy group KEG touted vote as a win for “healthy competition and increased choice to Kentucky’s consumers.” But OH-based Rhinegeist Brewing owners, who opened KY craft distrib Riverghost late last year, told Cincinnati Enquirer they “just got screwed” and result was “just so unexpected.” Meanwhile, Gov Steve Beshear said he “will be pleased to sign the measure” after the vote yesterday, according to KET public tv station. The bill “promotes the integrity of the three-tier system,” he said in statement, a system “designed to protect consumers and small producers like new breweries.”

But it ain’t over yet. “This legislation violates our rights under the US and Kentucky constitutions, discriminates against our company by providing economic protections for in-state special interests and represents nothing short of a taking of our property,” sales/mktg director of AB’s Louisville branch Damon Williams said in release, ostensibly outlining suit most observers expect to the co to file. Indeed, Senate President Robert Stivers referenced that expectation and conversations with inside and “outside counsel” that occurred as bill debated. It’s “a very good topic for quite a collegial discussion in the court system,” he said per CN|2 report. “I don’t know, they may blow up the whole three-tier system,” he added.

Colorful Stories, Language from Senate Debate “We thought we resolved this in 1978,” Sen Julian Carroll said explaining the “regulatory change” enacted when he was governor. “We didn’t think a statutory change was necessary,” he said, so action with state ABC “accomplished the same purposes that this bill accomplishes.” Current problem “came to light in Owensboro” last year, he said, where it became clear that AB’s “primary interest is in the acquisition of a distributorship so that they can control the marketplace,” he charged. And that acquisition was “in violation of our enacted regulatory change that we made in 1978,” he argued, noting that AB successfully fought for its license in court.

Another longtime Kentucky lawmaker recalled his days in the restaurant and bar business. During both this week’s Senate committee hearing and on the Senate floor today, Sen Daniel Seum spoke of the small regional beer brands he used to serve 30+ years ago. But “they’re all gone,” he commented, “the big guys bought ’em up,” he said during the committee meeting. He told another story about those days on the Senate floor yesterday. A rep from a big-time soft drink co came into one of his shops, insisting Seum would exclusively sell that company’s products: “You need to sit down here and I’m gonna give you some information,” Seum recalled telling the rep. “He said, ‘what’s that?’ I said, ‘you need to write these addresses down.’ So he wrote these addresses down. He said ‘what’s this?’ I said ‘that’s my other stores. And tomorrow at noon your product will be in the street.’ And I set him in the street, because I know what a bully is,” Sen Seum said before pointing to “craft beers” as a prime example of “American creativity.”

Those stories didn’t sway other senators. Sen Givens wondered about AB’s Louisville employees and if they’d receive the same level of benefits and pension payments under new ownership. Another expressed surprise that the body was “even considering taking away a business, part of a business from a company that’s been in business for 37 years and hasn’t done anything wrong.” An “insult to a good corporate citizen,” Sen Adams remarked, the “punitive bill” has more to do with “property rights” than the “so-called three-tier system.”

Heineken USA “will boost its marketing budget by 6% this year, including dedicating 30% of its spending to digital, up from 20% last year,” reported AdAge.  Recall, HUSA is fresh outta its Natl Distrib Conference held last week, where co detailed plans to “double down” on brand investments, with increased focus on digital to reach next level of growth (see Mar 3 issue).  While focus is increasingly on digital, “a combination of different media channels is the best [solution],” cmo Nuno Teles told AdAge.  HUSA “spent $150 million on measured media last year, according to Kantar Media,” paper added.