Flow Beverage nearly doubled its branded sales in Q2 while continuing its race to slash cash burn. Latest moves included 30% cut in employees at Toronto hq who’re not involved in production or logistics, and decision to put its remaining Tetra Pak plant up for sale after earlier disposing of Virginia operation. Whether that takes form of straight sale, joint venture or other transaction, Flow will negotiate deal to maintain Flow production there for years to come, ceo Nicholas Reichenbach assured investors yesterday.

In Q2, Flow-branded net revenue soared 98% to $9.5 mil, within broader co that grew its net revenue by 56% to $14 mil thanks to upsurge in copacking as operations transferred to Aurora, Ontario, plant from sold plant in Verona, Va, boosted capacity utilization. Gross margin widened to 18% from 12% a year earlier as co aims to get beyond 35% margin in coming years. EBITDA loss narrowed a bit to $7.2 mil from $8.5 mil.

Some of the Flow water sales gains occurred at foodservice partners like Starbucks Canada and Norwegian Cruise Lines, where margins are thinner, but Reichenbach and cfo Trent MacDonald argued that those serve as fertile sampling platforms that ultimately drive consumers to more lucrative grocery channel – as has been borne out by move into Starbucks. Meanwhile, new line of Flow Vitamin-Infused water is now in 5,000 stores with velocity well above that of a category (we presume that means mainly Vitaminwater) that’s not had much innovation, Trent argued. Flow is scrambling to get retailers restocked, he indicated.

Meanwhile, disposition of Verona, Va, plant and relocation of some contract work to Aurora, Ont, resulted in that plant surging from 5 days a week to 7 days, at site in central location that’s expandable from 3 current lines to as many as 8. MacDonald said a “large number of very interested parties” have kicked tires, and mgmt believes it should garner higher price than Verona. As noted, ceo assured investors any deal will lock in continued production of Flow on client side.

As is common on Flow calls, its senior execs inveighed against battered share price that has co trading at mere 0.6X revenue compared to 3-5X at publicly traded peers, by their calculation. “There remains a great deal of shareholder value to unlock,” MacDonald declared, and that’s what push toward profitability aims to do.

On heels of annual meeting that saw its director slate prevail, kefir maker Lifeway Foods finally responded forcefully to allegations of dissident shareholder Kanen Wealth Mgmt, but it also seemed to accede to one of its demands by appointing Kroll Securities to evaluate strategic alternatives. “We are always open to considering all available avenues to maximize shareholder value,” per statement from LWAY. “While we are confident in the company's current strategy, we are also committed to exploring strategic alternatives that might be in the best interests of all shareholders.”

Recall that KWM had issued blistering letter a week ago contending that it and dissident board slate that includes ceo Julie Smolyansky’s mother and brother had seen no signs of it considering a sale or other strategic alternative after agreeing to do so a year earlier (BBI, Jun 8). In its statement today, LWAY indicated that it had begun process at least a few months ago. “Over the course of the past several months we have been considering potential options, and the hiring of Kroll represents the next step in this process.”

At same time, today’s announcement maintained that Lifeway has performed well and flayed KMW and its principal David Kanen for blindsiding it with letter that was full of misstatements. “We are disappointed that KWM – an activist investor with a history of targeting companies and which in the past has had to apologize for breaching settlement agreements – has chosen to publicly attack Lifeway and our leadership,” it said. “This is especially unfortunate given that KWM did not raise its concerns with us privately, despite our prior interactions with the firm's principal. KWM's recent letter is riddled with inaccuracies, mischaracterizations and blatantly false statements that demonstrate its ignorance of our business.” Kanen, recall, has aligned himself with Lifeway cofounder Ludmila Smolyansky and her son Edward, Julie’s brother, in seeking to wrest control of co back from ceo.

Total bev alc volume picture ain’t pretty, with trends slowing across categories. But beer is outgrowing spirits by $$ in both on- and off-prem data over the last yr or so, participants highlighted in joint webinar between BI research veep Danelle Kosmal, 3-Tier Beverages consultant Mary Mills and CGA’s dir of North America Matt Crompton. Part of that’s due to beer taking more price, they readily acknowledged. Yet excluding RTDs, spirits’ shipments to retailers are also “below that of beer” for trailing 12 mos thru Apr, Danelle estimates. Down ~4% vs beer’s -3% trend. Total spirits STRs dropped 0.5% for the period with RTDs in the mix, while wine fell 6.4%.

Beer $$ +3.8% vs Spirits +2.4% for 52 Wks Thru May 20 Beer is leading the pack in off-premise $$ sales, Mary underscored, up 3.8% in NielsenIQ Total USxAOC + Liquor + Convenience data for 52 wks thru May 20. Outpacing spirits’ 2.4% growth with wine down 1.7%. And it’s similar story on premise, with “more good news” for beer in that channel, Matt added. Beer $$ jumped ~14% vs spirits +11% for 52 wks thru Mar 25 in CGA data (measuring bars, restaurants and night clubs but excluding hotels, stadiums and other outlets).

Outpacing Spirits $$ and Volume in Q1 On-Prem Spirits’ on-premise volume outpaced beer for the 52-wk period, up 3% and 1%, respectively. Yet beer did better on both $$ and vol for 12 wks thru Mar 25. Beer volume held at +1% as spirits dipped nearly 2%. And on-prem spirits $$ slowed to +4% in Q1 while beer remained up 12%. Gotta put that in context, Matt cautioned, since spirits took “so much share over the last few years” and snagged “such a big” piece of the on-premise pie. They “can’t just keep growing forever and ever,” and eventually spirits will “plateau.” Tho he’s “not saying that’s happened yet,” perhaps it’s fair to begin asking questions, Matt posited.

Spirits Distribution Gains Lagging Beer & Wine; RTD Slowdown Coming? Another signal of potential spirits slowdown: categories change in total off-prem distribution points lagged both beer and wine for trailing 52 wks thru May 20. Despite RTD $$ up 62% in same timeframe, total spirits dist pts fell 5.4% while wine fell 3.4% and beer stayed flat, per NielsenIQ data. Spirits’ declines driven by avg # of items, Mary noted, adding that it’s “not an ACV issue.” And RTD spirits dist up just 1.6% for 52 wks, a slowdown from double-digit growth yr ago and well below FMBs (+13.5%) and imports (+5.5%) in this dataset. That’s an early sign of category maturity as segment gets saturated, Mary commented, adding that we “might see that in growth rates soon as well.”

This week in 1971, INSIGHTS reported on “horrible situation” developing in Oregon for brewers as Governor was poised to approve bill calling for a 5-cent deposit on cans and one-way bottles and a 2-cent deposit on stubbly bottles. Deposit law would go into effect by end of year and “expectation is that all beer sales will be returnable” by then. A yr later, a local environmental group was asking folks in Oreg to boycott Schlitz, Bud, Hamm’s and Miller because they each challenged state’s new deposit law while local brewer Blitz-Weinhard (with around 36% of mkt) didn’t oppose deposits as co already had a “strong orientation toward returnable bottles,” noted INSIGHTS.  

This week in 1974, INSIGHTS shared comments from a Forbes article that was praising moves by Schlitz while criticizing AB under Gussie Busch’s leadership. Article quoted former AB veep Eddie Vogel, who was now a consultant to Schlitz as he chastised Gussie “for being too interested in balance sheet” and “keeping control,” and not interested enough in expansion. Vogel said AB was planning to only add 7 mil bbls over next few yrs while Schlitz was planning to add 12 mil bbls. Article added: “Will Gus Busch’s pride yield to economics? Will he give his son his head to go out and take after Schlitz?” Well that’s exactly what happened. AB already had a 12-mil bbl lead on Schlitz in ’74 and by 1980, AB left Schlitz in dust as it grew to over 50 mil bbls while Schlitz shrank to 14.9 mil bbls.

Long before plaintiff attorneys were big biz, this week in 1977, INSIGHTS reported that a consumer was suing Miller for deceiving its customers because Lowenbrau labels don’t clearly distinguish fact that the brand is made in the US. A Miller spokesperson told Milwaukee Journal that Lowenbrau labels identify beer as produced in Germany but that Lowenbrau bottles produced in Ft Worth plant carry a Miller USA label. Suit caught attention of AB which later in year complained to FTC that Miller was falsely advertising brand as an import.

This week in 1991, INSIGHTS reported that Heileman was bringing “lotsa bad publicity” on itself and the industry with intro of new brand Powermaster, an up-strength malt liquor. BATF reversed its initial approval and asked Heileman to change name. Negative articles appeared in many papers and there was plenty of tv news coverage too. A Black minister told Wall St Journal: “This is a company that has no sense of moral or social responsibility.” INSIGHTS pointed out that “most media made no mention that big brewers not pushing higher alcohol products, that general trends is towards lower alcohol products and moderation,” and also that Heileman was in Chapter 11 and looking for a spark. 

Seagram creaked the broadcast marketing door open for spirits when co ended decades-old voluntary ban on running liquor ads on TV with spot on a Corpus Christi station this week in 1996. Decision at time stirred up neo-prohibitionists who vowed to ban spirits tv ads, and ABC, CBS and NBC all reaffirmed their stance against taking such ads. One reason a CBS exec explained was that “to take hard-liquor advertising could trigger restrictions on beer and wine advertising as well.”  INSIGHTS noted with distillers not on tv, beer jumped to 59 share of absolute alcohol mkt since 1970, up from 45. Spirits declined from 44 share to 29. Consultant Bob Weinberg was skeptical tho that tv would lift spirits: “The economics of beer marketing vs the economics of distilled spirits marketing are sufficiently different that I question the wisdom of tv as the advertising medium for distilled spirits.” Brewers spent $737 mil on ads in ’95, almost 3x as much as $255 mil for distillers, so they would have to invest heavily to play ad game at same level.

This week in 2001, INSIGHTS reported on “sad tale” featured in Irish Times that former Heineken prexy Michael Foley was fired as ceo of Aer Lingus only 8 most after he left US on a high note. Two Aer Lingus employees filed sexual harassment claims against him and following an “extensive inquiry” the board decided his conduct was “less than satisfactory.” Foley told Times he was “shocked and disturbed” by board ruling. “I reiterate my total innocence,” he added as he blamed a conspiracy within the co for false charges against him. He went on to sue Aer Lingus for unfair dismissal and a settlement agreement was not reached until 2008.

This week in 2013, Constellation ceo Rob Sands surprised many in industry when he told Wall Street Journal: “I see Modelo Especial being potentially as big or bigger than Corona in the next 5 years.” STZ had big goals for brand but that was a much faster timetable than thought. Modelo Especial was still less than half the size of Corona the previous yr. But in 2013, Especial was growing in mid-teens while Corona was essentially flat. Five years later in 2018, Modelo Especial finished yr just 10K bbls behind Corona but surged ahead by 1.25 mil bbls by end of 2019 and over 3.6 mil bbls larger than Corona by 2022.

Diageo is moving production of Guinness Baltimore Blonde from Maryland to New York. FX Matt will contract brew the brand despite Baltimore’s efforts to keep production in county, including a $500K incentive for an existing area brewer to produce the brand following shutdown of Guinness’ manufacturing facility.

“After conducting a due diligence process, which also considered options to keep production of Baltimore Blonde in the state,” FX Matt was the supplier that “best met the business case and production timeline,” Diageo said in a statement to local news. The taproom and restaurant at co’s Guinness Open Gate Brewery will remain open, it reminded, along with its 10-bbl innovation brewery. But FX Matt is takin’ on lots of former MD volume between its Flying Dog acquisition plus Baltimore Blonde production.

If the legislative leaders behind a sweeping 150-pg bill in Wisconsin do as they expect to, a whole lotta alcohol laws in the state will change later this year. The result of 5 yrs of negotiations between numerous industry stakeholders, the bill aims for what many of those folks argue is long-sought clarity and much-needed oversight. Sponsors include prominent Republicans in the state, including the Assembly Speaker and Senate Majority Leader, among others. They’ve fast-tracked it for passage, according to local press, introducing it last Thursday, holding a hearing on Tuesday and expecting it to pass in the next few wks.

New Enforcement Arm Top priority and biggest change legislation would make is creation of a new agency within WI Dept of Revenue to regulate the industry and enforce state laws. State is “one of only a handful of states that doesn’t have a dedicated office charged with enforcement of alcohol laws,” the AP wrote. Currently, DOR charges regulation of alcohol, tobacco and gaming to just 2 staff members, department staffers testified on Tues, per Wisconsin Examiner. So industry welcomes better enforcement, including of illegal shipments.

Clarity on Contract Production, FMBs Ain’t just enforcement that hasn’t been a focus in WI. Two big pieces of alc bev biz in WI not strictly reflected by current state laws. This bill would put contract brewing on the books for first time in the state, despite the fact that it’s long been home to some of biggest contract facilities in the country. It would also redefine “fermented malt beverages,” or beer, to include any bev considered a beer by fed law. That would bring FMBs and hard seltzers under the beer umbrella in WI. Current law technically defines those bevs as “intoxicating liquor,” subject to higher taxes and other restrictions.

Brewpub Caps Raised, Off-Site Producer Retail Allowed, So-Called Wedding Barns Restricted The bill lists 23 sections, some making multiple changes to WI alc bev code. Among ’em, bill would double the amount of beer a brewpub could produce and self-distribute to 20K bbls and 2K bbls, respectively. Would also harmonize retail allowances for in-state manufacturers, including ability to open 1-3 off-site retail locations depending on size. Bill would allow transfers between locations owned by same co and among producers of the same type (like brewer to brewer or distiller to distiller). Also loosens some tied house laws, allowing licensees in one alc bev type to own modest stakes in a biz in another tier and another type (so a beer wholesaler can have a stake in winery). It creates explicit exception for a beer wholesaler “holding an interest in a brewer on July 1, 2011.”

Major brewers, craft producers, wholesalers and retailers of all shapes and sizes participated in negotiations and registered support for the bill. But one group isn’t happy. Operators of so-called “wedding barns” argue bill will “crush” their bizzes. Venues currently allowing folks to buy and bring in their own alcohol will be limited to getting a permit for up to 6 such events per yr. Property owners looking to host more events than that will need to get a license to buy and serve alc bevs themselves.

This wk, Senator Ted Cruz formally petitioned the Beer Inst Code Compliance Review Board (CCRB) to review AB’s partnership with Dylan Mulvaney, following up on his May 17 letter to ceo Brendan Whitworth with detailed memo on Weds. Recall, that letter didn’t just want investigation by CCRB, but requested extensive set of documents about AB’s relationship with Mulvaney. Tho AB responded to Sen Cruz in unsigned letter on May 19, attached to memo, co has “failed to comply with” those additional requests, memo reads. Two media reports alerted the senator to an earlier Bud Light “partner” post by Mulvaney as well as the possibility that the April 1 post that kicked all of this off wasn’t properly age-gated in accordance with Instagram policies. In so doing, he questions the efficacy of the age-gating that just about all digital alc bev mktg depends on.

Notably, memo opens up with nod to distribs. “For the past two months, independent beer distributors and their employees across America, from truck drivers to salespeople, have suffered the negative consequences of” AB’s decision “to partner with” Mulvaney, Sen Cruz begins. He goes on to critique another sore spot for many AB distribs. A May 21 WSJ piece cited a Feb 11 post by Mulvaney referencing Bud Light’s Super Bowl ad. That “disproves” comments by AB and ABI execs, Cruz wrote, specifically pointing to ABI ceo Michel Doukeris’ comment on co’s early May earnings call “that the company’s partnership with Mulvaney consisted of ‘one can, one influencer, one post and not a campaign.’”

Another article, published around the same time, provided Sen Cruz with another piece of ammunition. A Washington Post columnist created a fake Instagram account pretending to be 16 and was still able to view the Apr 1 Mulvaney post, Cruz reviews. That suggests to the senator that post violates not only BI’s ad code, but Instagram’s policies too. (Last mo, we wrote that it was “hard to imagine” that the platform wouldn’t have already checked, given all the attention on the post. Like so much about this story, what’s happening can turn out to be miles beyond what’s imaginable.)

Sen Cruz also goes to even greater lengths to argue that Mulvaney has a “special attractiveness” to those under the legal drinking age. The BI ad code cautions against partnering with such celebrities. But he also continues to use posts on another platform, TikTok, to make this case. So among the key issues facing the CCRB is determining if over 73.6% of  Mulvaney’s Instagram following was over 21 at the time of the posts as well as whether that is more important than the fact that she attracts large underage audiences on other platforms.

Cruz goes farther, too. He first implies that AB didn’t take into account “the well-documented spillover effect,” noting that “versions of the posts circulated” elsewhere. He also repeatedly points out the potential for users to lie about their age to get around age-gating policies. But those arguments attack far more than this post and endanger much modern alc bev mktg. Both scenarios make marketers liable for the activity of others, whether the reproduction and dispersal of ads beyond their original audience or the false statements of individuals to gain access to those ads. Consider the chilling effect on alc bev mktg if Sen Cruz wins broad agreement with these arguments.

Molson Coors is “already getting an understanding of the stickiness of this” current mkt shift, Gavin told analyst Robert Ottenstein at Evercore ISI’s annual Consumer and Retail Conference yesterday. “Our market share gains are holding” thru Memorial Day, he noted, adding again that co will be able to share more by Q2 earnings report in Aug. MC already had “strong plans” to increase mktg investments “meaningfully” in Q2 and Q3, across Miller Lite and Coors Light plus Blue Moon and Peroni, among others. That includes latest digital ad with Patrick Mahomes working around rules for active NFL players unable to promote beer by introducing “Coors Light Bear.” But “there is a point you can lean into too much,” and “can overdo something,” he warned. So co’s “going to lean into” plans it already had and “we think they’re robust.” MC will remain “flexible” and “can lean in” more if needed, especially now that ~50% of its mktg spend is in digital space.

Increased volumes led to “positive leverage” and there haven’t been “significant extra costs” associated with increased production and sales, Gavin also noted. On top of being in “good shape at the moment” to handle the increased demand, Gavin pointed to MC’s contract brewing relationship with Pabst “coming to an end” over next 18 mos as another potential benefit going forward. That will give additional “flexibility to utilize some of that capacity, which we might have been making different decisions about” and “certainly gives us the opportunity” to run more Miller Lite, Coors Light and other brands.

MC Flavor Plays Growin’ Collectively YTD Despite Soft Seltzer Molson Coors remains “pleased” with its “progress in beyond beer” and “flavor is a very positive momentum driver” for the beer category overall, even as hard seltzer biz declines, Gavin highlighted. Notably, Simply Spiked’s incremental $49 mil and Arnold Palmer Spiked’s 11% gain more than offset drops from Topo Chico hard seltzer (-12% ex-spirits), Redd’s (-13%), Vizzy (-32%) and Steel Reserve Alloy Series (-2%) YTD thru May 21 in Circana MULC channels. Collectively these brands grew 11% to $222.8 mil YTD, including +18% for latest 4 wks; now ~8% of MC’s mix in scans. Tuffer comps are comin’ soon but Simply has “lots of runway ahead,” Gavin asserted. Plus, MC plans to put “meaningful” media, retail and sampling investments behind Topo Spirited, Coors Whiskey Co continues to grow and expand, and Peace Hard Tea will launch in partnership with Coke later this yr. There’s more “opportunity for us to expand our distribution and our portfolio” in beyond beer.

“Learned a Lot” on ZOA; “Plans Behind It”; Down Big in Scans but “Outpacing Industry Growth,” Sez Gavin MC’s also “pleased with the results we’ve got so far” on ZOA Energy, Gavin said. “We’ve got a brand we can really do something with” that’s “gaining distribution” with its new packaging. “We like it,” are “excited about it” and have “plans behind it.” Energy bevs is a “growing segment” and ZOA is “outpacing industry growth,” sez Gavin. Tho gotta note, that’s not the case in tracked off-prem channels where ZOA $$ sales sank 39% and volume -42% vs total energy drink $$ up 12%, volume +4% for 12 wks thru Jun 3 in Nielsen data reported by Goldman Sachs’ Bonnie Herzog. Yet MC reported ZOA all-channel volume up triple-digits in calendar 2022, significantly faster than its trend in scans last calendar yr.