Following two down mos, import shipments back to double-digit gain in Jan.  Shipments +300,000 bbls, 15%, reports Beer Inst from Commerce Dept data.  That softens blow of 900K-bbl dropoff in domestic brewers’ taxpaid shipments in Jan.  Mexican beers up 194K bbls, 16% in Jan, as usual leading the charge.  But Dutch shipments also jumped 102,000 bbls, 30%.  Even Canadian shipments managed 11K-bbl, 8% gain.  And UK up 8K bbls, 23%.  Belgians flat.  Irish whacked.  And German shipments off 11%.  Recall, imports got off to slow start last yr before taking off on 7-mo tear.  

Ever on the move, Pabst just announced it got import rights to Tsingtao, given up by Constellation last week.  Adding #1 Chinese brand in US is “part of our strategy to build our import portfolio like we’re building our craft portfolio,” veep of biz development Rich Pascucci told INSIGHTS.  Tsingtao “will complement our national and local American heritage brands,” said ceo Eugene Kashper in release announcing the deal.  Agreement takes effect Jul 1. We estimate Tsingtao’s volume in 55K-bbl range.  

Heineken USA prexy Dolf van den Brink shared ambitious goals to build volume significantly over next 5 yrs and “become the leader in upscale” at this yr’s HUSA Natl Distrib Conference (NDC).  Faster growth pace for HUSA would be a big change from modest +1% trends in 2014 that Dolf shared with INSIGHTS a few wks back.  Yet trends for Dutch portfolio starting to turn around, Mexican brands keep on kickin’ and Heineken is lookin’ “to be a big player in [cider] in the US” with Strongbow.  Recall, brand Heineken finished 2014 strong, “in black the last 9 months” of 2014, continued up in Jan (see Feb 11 issue).  Heineken brand in US “has been a difficult journey” yet now “has turned the corner” said global ceo Jean-Francois van Boxmeer.  Heineken Light also saw huge 20% trend swing in Nielsen for final 5 mos, tho still down for the yr. Mexican beer portfolio was up double-digits last yr, as Dos Equis franchise grew to 24 mil cases.  Tecate Light +49.2%, Strongbow cider grew 75% in Nielsen. 

There’s “absolutely no doubt that HUSA is in a new phase,” board member Michel de Carvalho said later in the day, tho “not quite back” to peak profits.  This is a “key moment” for HUSA, Dolf reiterated, and “now we need to double down.”  So in this next phase, HUSA lookin’ to “double down” on its investments with new strategy dubbed “4,3,2,1”: HUSA is prioritizing 4 main brand franchises (Heineken, Dos Equis, Tecate, Strongbow), 3 big chain customers, 2 off-premise channels (grocery and c-stores), and on-premise. These 4 “very efficient” brand franchises will each get big investment boosts this yr, with new commercials, increased air time, new brands for some, and big increase on digital spending across the board.

Heinekenbrand looks to leverage new exclusive partnership with Major League Soccer (largest partnership “in Heineken history,” sez cmo Nuno Teles), and continue its Cities campaign with new bottle labels “featuring 9 US cities on the bottle” in an effort to increase focus on major cities: “We’re going to be in the cities, let someone else have the beach.”  Heineken also just launched new onlinead campaign, dubbed “Champion the Match” that already has 2.5 mil views and counting.  In similar vein as “Departure Roulette,” campaign offers free trip to Spain to see a Champions League soccer game, only if winners convince their boss to go with them that same day.  Heineken Lighthas secured Neil Patrick Harris again for this yr’s ad campaign.  

Dos Equiswill push on-premise and beyond typical Mexican restaurant accounts “into sports and high-energy bars” as it aims to become “a true national brand” and has goal of 50 mil cases by 2020.  It’ll also add a red lager to the mix, called Dos Equis Roja.  Dos will continue using Most Interesting Man, and will focus on more “occasion-based advertising” during summer season in particular, with new “Luna Rising” promotion, and specific ads for Cinco de Mayo (“Dos De Mayo”) and “Masquerade.” Also, Dos-a-Rita will roll out to an “incremental 12 states” in 2015.

HUSA looks to grow Tecate franchise 10% in 2015 by “maintaining the volume of Tecate” and “continue growing Tecate Light by 50%,” said Tecate brand manager, Max Skoworn.  It’ll  “expand into English TV” with new “Born Bold” ad campaign that features the black eagle on the logo, and add “more sales people on the ground,” said Nuno.  Co highlighted major oppy in sunbelt states, where there’re 21 mil Hispanic-Americans (and counting).  Tecate lookin’ to just “recruit 5% of that,” or around 1 mil consumers to help boost sales, said Max.

Strongbowwill “invest every dollar of revenue back into this brand,” because “we believe this category” and this brand “will grow big time,” said Nuno.  New TV ads feature cider poured over ice (a “unique” position in US) with movie/tv celeb.  HUSA will also double the amount of samples and add 2 new flavors in new variety pk: Red Berries and Ginger.  

Theremaining brand franchiseswill be more regionally focused: Newcastle in the west, Amstel in the northeast, and Desperados in the southeast.  Newcastle getting lotsa attention to turn trend around. HUSA reformulated Brown Ale without caramel coloring, will add new Vikings Amber Ale that’s partnered with TV series Vikings, and is adding a variety pk with Scotch Ale (intro’d last yr), as well as new pale ale, session IPA, and new extra IPA.  Desperados will have street teams in bars and stores pushing “300,000 samples to our target customers,” per brand manager, Raul Esquer. 

3 Chains Accounted for 40% of Growth in 2014; “Diving” Into Digital; Brewlock & Buffalo Wild Wings Focus HUSA grew its biz 9.5% in three key chain accounts last yr, which accounted for 40% of co’s total growth in 2014.  And this yr there’s “rising expectations” from Walmart in particular, noted sales veep Ray Faust, as Heineken “secured a full year of activity” and plans for 23% more cases on the floor, with a goal of 17% growth.  Then too, HUSA expects the two main off-premise channels, grocery and c-store, to be majority of co’s growth for this yr.  “What we ask of you” is to “increase our outlet execution” to 80%, said Ray Faust.  Grocery is expected to be over 40% of growth this yr, and c-stores projected to be 55% of total growth this yr, he added.  C-store channel “represents our biggest opportunity” since it’s only currently 17% of its biz and there’s gap of “over 26% up to our fair share” in their “fastest growing channel,” according to Ray.  

Heineken is also “diving” into digital, working with several new technologies to “really pinpoint” key growth drivers at store level.  HUSA provided example with a mobile app called Ibotta (a 3rd party mobile app that connects retailers and advertisers to consumers with various rebates for all types of products).  With Ibotta “you can actually track exactly whether or not your advertisement results in a sku level purchase of a product,” said ceo of Ibotta, Bryan Leach.  He used example of Strongbow campaign leading into Thanksgiving: there were 10 mil views in 2 wks, “10’s of thousands of videos being delivered each day” and “of the people who watched the video 25% of them went to the store and bought Strongbow.”  Then too, 60% of those who purchased thru Ibotta said it was the 1st time, via survey.  With new technologies you can “speak to exactly the right consumer at exactly the right moment before, during, and after they consider and then buy our products.  And technology allows us to quantify exactly what is working and the profitability impact nearly in real time,” reiterated Nuno.

Lastly HUSA has “consistently” grown its share in the on-premise, to 4.8% of beer.  Increased presence in a few key chains like Buffalo Wild Wings, Chilis, and Hooters, and further implementation of Brewlock kegs have helped push on-premise biz along.  In Buffalo Wild Wings HUSA got 95% execution level across all 1000 outlets, Newcastle sales were up 38% in BWW in 2014, and Dos Equis now mandated in all 1,000 locations.  In Chilis, HUSA gained lotsa incremental lines of Dos Equis this yr.  And in Hooters, HUSA gained new lines and will be involved in its national Cinco de Mayo program.  Then too, in accounts that converted to Brewlock, Heineken brand was up 25% and Newcastle saw 10% increase.  That improved Heineken’s overall draught trend by 6 pts.  Also, in accts that converted, Heineken bottle sales up 13% last yr.  So in 2015, HUSA goal is to double number of Brewlock installations.

It’s a big morning for anti-branch legislation. A Kentucky Senate committee discussed the bill recently passed by the state House. In neighboring Tennessee, a similar bill debated this morn and Senate committee will take up a matching bill today. The Ky bill, if passed, will head to the full Senate, where Senate President Robert Stivers sees “pretty substantial support,” according to a local CN|2 report. “There’s quite a bit of support to keep the system pure,” bill sponsor House Speaker Greg Stumbo told the station. That’s just a day after a new set of ads about the bill hit airwaves. AB’s one-minute spot focuses attention again on current employees that could be affected by legislation, calling the bill’s backers “greedy special interests.” Counter-ad from advocate KEG group re-asserts position that the bill “allows for greater beer choices.”

Local station WAVE3 nit-picked both claims in latest “Reality Check” segment. Some of KEG’s language needed some clarification, in WAVE’s view; AB “is as much a special interest as supporters” of the bill, using common definition of the term (“a group that tries to influence legislative policy,” per WAVE). Votes also come a day after owners of Rhinegeist Brewing in Cincinnati and new Riverghost Distributing in Ky claimed bill would “nullify our investment” in an op-ed in the Lexington Herald-Leader. Another op-ed, asserting benefits to “small, independent craft brewers” from anti-branch legislation in Tenn, penned by distrib pair Fred Dettwiller of DET Distributing and Kurt Strickmayer of BountyBev, hit the Tennessean yesterday too. “Some international beer conglomerates want to come in and monopolize our three-tier system,” the pair wrote, but Tenn can prevent that “by closing a loophole,” in form of current legislation.

Good numbers keep comin’.  Volume +1.9%, $$ sales +4.3% for 4 wks thru Feb 21, according to Nielsen all outlet + convenience scans.  That follows 2.3% volume gain, near 5% $$ pop for 4 wks thru Jan 24; implies yr-to-date volume up 2%+ and $$ up 4.5% or so. 

For 4 wks thru Feb 21, above premium scored 8% volume gain, 10% in $$.  Premium light up close to 1% and 2% respectively. Again, only below premium segments declining. Premium light still losing near 1 share of $$ tho, as avg prices up less than 20 cents/case, less than 1% vs overall price increase of 51 cents/case, 2.4% and more than a buck-a-case bump for craft.  So price gaps widening, especially craft vs premium light.  For these 4 wks, avg craft price $14.61 higher/case than premium light.  That’s up from $12.43 price gap in 2011.  Over same 4-yr stretch, import-premium light price gap expanded by $1.70 cents, from $4.38 to $6.08.   So far, more aggressive craft pricing not hurting segment growth.

“The duty of good faith cannot override express contractual terms and convert a permissive contract provision into a mandate.”  So concluded the US Ct of Appeals in denying relief to Pittsburgh-area distrib Fuhrer who objected to MillerCoors process and decision not to grant him Batch 19, Redd’s and Third Shift in 2012-2013. Appeals Ct upheld decision by lower ct that MC contract allows it to add new products to distribs’ portfolio but has “no contractual obligation to do so.”  Fuhrer further objected to MC’s “process,” because MC apparently told Fuhrer that to get new brands it would have to set up “new corporate entity dedicated exclusively” to MC brands.  (Fuhrer is rare big wholesaler with both AB and MC.)  But Appeals Ct said that wasn’t “bad faith,” as Fuhrer charged, but “an arm’s length negotiating tactic, offering to barter contractual right for contractual right.”  MC’s chief communications officer Pete Marino took oppy of this decision to pass on blunt message: “This case was simply about the fact that we do not want any of our new brands in competitive ABI houses.  As our fiercest competitor, ABI goes to great lengths to demand an overwhelming share of mind on their brands from their distributors.  Having our brands in the same house as ABI doesn’t make sense for our brands or theirs and we are delighted the court sees the wisdom in that.”

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Elsewhere, AB battling attempted class action suit in Calif fed ct that claims AB’s Ritas brands mislead consumers into thinking calorie/carb count lower than other beers.  AB fired back in attempt to dismiss suit with two key arguments, reports Legal Newsline.  First, every Rita label “accurately discloses” avg calorie and carb count.  Second, Rita labels all “complied with…TTB requirement” regarding average analysis and “thus were approved by the TTB prior to being used” in the US.  Then too, AB points out there’s no “actionable misrepresentation” here since plaintiffs only “subjectively interpreted” use of words “Bud Light Lime” on label to mean “low” in calories/carbs and that actual counts didn’t satisfy that “subjective definition.”   Plaintiffs trying to keep this Calif case from being dismissed, noting that US fed ct in Fla has refused to dismiss suit there vs AB for allegedly misleading consumers into thinking Beck’s still made in Germany.

Another sign that beer prices tightening up.  Consumer price index for beer increased 0.2% in Jan compared to Jan 2014, tho that was ahead of 0.7% decline for general inflation and flat performance for all food items.  Wine prices were flat in Jan; spirits up 0.4% compared to yr ago.  For last 12 mos thru Jan, CPI for beer was up 1.1% vs 1.5% for all food items, while spirits prices were up 0.6% and CPI for wine dipped 0.2%.  

“We don’t expect to stabilize Budweiser in the US in the short term,” AB InBev cfo Felipe Dutra said yesterday when 2014 results announced, quoted by Wall St Jnl.  “It isn’t an easy challenge,” he added.  Bud lost share again in US last yr, ABI acknowledged; it estimated 0.3 share loss of STRs tho “momentum picked up” in Q4.  (Bud -2.5% in IRI multi-channel + convenience in 2014 and share off 0.3; Bud -1.7% in Dec in same channels.)   But Bud much healthier globally.  Indeed, brand up 5.9% all in last yr, with “good performances in Brazil, China, Canada and UK.”  That was slightly better than Corona’s intl performance, +5.8%, and more than double Stella’s 2.5% gain, ABI’s other two “global brands,” which are now 18.8% of ABI total volume, 20% of revs. 

With global growth, 60% of Bud volume now outside US.   We estimate Bud’s US-only volume at between 14.5-15 mil bbls last yr.  That implies Bud about 37 mil bbls in toto, well below Bud’s peak of 50+ mil bbls way back in 1988 (almost all in US), but still a powerful brand.  Coincidentally, that 37 mil bbls very close to our estimate for Bud Light’s US-only shipments last yr.     

Lakeshore Bev, AB/Others distrib thruout Chi metro at 23.5 mil cases, has deal to acquire Central Bev’s beer brand distribution rights, totaling around 2 mil cases. About half of that is Pabst; other notable suppliers include NAB, Bell’s and Rogue. Deal expected to close Apr 30, pending supplier approval.

Lakeshore shaking things up in Chi, even in 1st yr or so of its existence as unified AB distrib thruout metro area. It’s been very active dealmaker, adding to its portfolio, mostly thru acquisition. Recall, it bought rights to Founders from Glunz thruout Chicagoland, bought Bell’s and Sierra in small part of its territory in L&V deal, and now bought rights to Pabst, Bell’s etc right in heart of downtown. Meanwhile, it’s #1 Goose Island distrib and has reportedly continued to grow that brand double digits. In Chi IRI foodstores, AB lost much less share than MC.

Lakeshore Bev and Central Bev will also form JV on non-alc brands (another 2 mil cases or so) in which “Lakeshore will provide all operating functions for the JV in the companies' combined non-alcoholic distribution territory.  The owners of Central Beverage will provide strategic direction and brand management for the jointly owned non-alcoholic brands,” according to release. Recall, Lakeshore Bev is JV between BDT Capital and Hand Family Cos.  JR Hand became ceo of Lakeshore as Hand Family Cos bought AB’s 30% stake a little more than 1 yr ago, and Lakeshore also added River North. 

US may be down to about 1/3 of ABI’s global EBITDA, but US mkt still got about half the questions on this morning’s conference call, on everything from pricing to total industry volume to somewhat surprising 2 questions on branches (an issue financial analysts rarely focus on).  Asked about “pricing environment,” ABI ceo Brito noted that ABI doesn’t give guidance on “breakout” of pricing, but is “very comfortable” with pricing, with several different elements including “brand,” “packaging” and “region” mix affecting number.  Total US biz likely to get better because US economy “getting better,” said Brito, with “lower oil prices” and “stable to going down” unemployment.  With establishment of AB’s hi-end unit, “we believe we have what it takes to accelerate the growth and get to more of a fair share of that segment.”  AB “totally underrepresented” in the high end, added Brito.  

Some of most interesting questions revolved around branches.  What is “the profitability impact” of losing Corona and Monster in several branches, asked Deutsche Bank’s Tristan Van Stein. “What’s your compensation gain?”  Brito responded that yes branches will lose brands, but “in terms of impact for the overall company- owned wholesalers, or WOD as we call it, is minimum.”  (Editor’s note: some individual branches likely to lose 25% or more of gross profit.)  Then Brito talked about what he sees as “silver lining.” Loss of Monster and Constellation “will provide us with an amazing opportunity to focus on our own brands, which we think will be very well received.”  Brito acknowledged that it will “get compensation” for both, but called that “private” per contract and did not disclose.

“When you’re given the opportunity to acquire a branch, how do you weigh the economic upside from the acquisition of that branch versus the potential for antagonism elsewhere inside the distribution network?” asked Bernstein’s Trevor Stirling.  “We don’t have a plan to ‘acquire’ branches,” retorted Brito.  There is a “consolidation idea” but whether there “is an opportunity for us to own or if it’s better to pass it along to one of the great operators we have” is “case-by-case; there’s no plan.”  What ABI wants, which is “very important… is that our wholesaler system remain as strong as they are.”  Since “day one,” ABI has maintained “that our wholesaler system is one of the main assets we have” in US.”  While not exclusive, “90% of what they sell is our brands. So we want them to continue to perform well.  We exchange best practices.  That’s the main idea. Ownership of branches is something secondary.”