Just at a time when things have gotten tuffer, losing the Monster brand will hit many AB distribs where it hurts: on the bottom line. For many it is 5-8% of their GP, but could be a 10% or greater hit to EBITDA, say multiple sources. For some it's much higher than that. Monster "outkicks its coverage in terms of cash flow," sez one knowledgeable source. For some distribs "it's literally 1/3 to ½ of their EBITDA." OUCH! No way to make that up with costs cuts or new brands, tho many will try. "For a lot of Bud distributors," said consultant Joe Thompson, "it escalates the decline in profitability." All depends where you are, but collectively loss of Monster represents a "sizable loss of profits" for AB distrib system, noted Stifel's Mark Swartzberg. Mark also sees risk for ABI of having less strong distrib network. But that cuts both ways. Could help AB speed up consolidation at lower prices paid for distribs. Then too, even AB takes hit; loses $1 per case fee ($60-70 mil) as well as hit to branches estimated at another $60-70 mil GP. Valuation hit is another critical component of how this deal affects AB distribs. Monster contract only calls for 1x GP as termination fee. Nowhere near 10x EBITDA or more in recent distrib deals. For those who have bigger % of volume or total case #s tied up in Monster, this could trigger decision to exit, especially when combined with all the other factors outlined above. But likely at lower valuation. Loss of Monster will weaken economics for many AB distribs, also making it more difficult for some to service debt, even if they stay in.

Beer distributors have proved remarkably resilient over the yrs but now face new pressures, importantly including increased pressure on profits for many.  Distribs who have survived/thrived have already weathered numerous storms in past decade alone, everything from Costco to 2005 price wars to ongoing big brewer volume declines to SKUmageddon to new way of doing biz following advent of ABI and MC, growth of craft and more.  But game is changing in ways that are shaking up distribs, including Monster deal with Coke and looming terminations of lotsa AB distribs.  As profitable as beer wholesaling has become over time, with some large distribs making $2 EBITDA a case or more, for a number of other distribs, their profitability may have peaked. 

Why? After all, not just AB and MC who vastly increased profits since 2008. Most distribs were also beneficiaries of combo of above inflation price hikes, trading up, cost cuts for several yrs. At least until recently. Recall, OMAC analysis showed 20% profit jump 2008-2013. Others see even bigger increase in past 5 yrs, despite soft volume.  But profits clearly under pressure in 2014. One source who sees a number of distrib operating statements said he’s seeing “fairly sizable projected declines of EBITDA for the year.”

In preparing this article, INSIGHTS discovered several mid-sized and larger distribs, especially in AB network, who said profits at least slightly down this yr.  Why?  There’s basic math problem: with continued volume declines, especially for top 2, lower avg price increases, gross margin $$ not going up for lotsa guys. Yet expenses continue to rise.  So profits down. Distribs routinely tell us costs way up.  This new way of doing biz with so many smaller high end suppliers and brands is very expensive to service.  Pricing no longer as robust as it was in yrs of above inflation price hikes, and AB especially also “taking margin on every little promotional package,” as 1 distrib put it. If you don’t already have the most important growing high-end brands, then most of best ones ain’t available.  On top of it, suppliers of all stripes are looking for distribs to spend more on their brands.  And for most part, distribs have already done what cost cutting they could. Add it all up, and this clearly makes it more difficult to grow profits.

This is most challenging set of circumstances for distribs we’ve seen in yrs. Yet INSIGHTS has also talked to some large MC distribs with full books of high end brands and dominant share of margin pool, who say they are still able to increase profitability, partly because of higher prices on high end brands.  Indeed, pressure seems greater on the AB system than MC system overall these days. That’s mainly because average AB distrib far more reliant on AB than MC distribs on MC. Exacerbating matters, many AB distribs are not happy with their relationship with their principal supplier.  AB has recently ratcheted pressure way up on sales (see last issue), and AB now in another big tussle with its distribs regarding plan to add branch in KY (see below). Now there is a new monkey wrench thrown into this already volatile mix: Monster’s deal with Coke and the imminent termination of remaining AB distribs. That’s worst news to hit parts of the Bud network in a long time. It will likely lead to further consolidation in AB network. 

After tumultuous – at times sordid – history under other owners, entrepreneur Thomas Schumann is lookin’ to get Trinity Water back in game, at time that alkaline waters like Essentia and Aquahydrate have been garnering attention in bottled-water aisle.  LinkedIn notice says brand sourced from Trinity Springs aquifer 2.2 miles below Idaho mountains seeks distributors interested in participating in 2015 “restart.”  Water is claimed to come out of ground at 9.6 pH.  Schumann’s LinkedIn profile indicates he’s based in Santa Monica, Calif, and was founder/chmn of German Tobacco Group before establishing Thomas Schumann Capital in 2011.  He’s come long way from serving as private in German air force and Lufthansa flight attendant.  Brand info at DrinkTrinityWater.com . . . Right to Know Colorado campaign held rally on state capitol building’s steps on Mon to deliver 167,950 signatures supporting labeling of foods that contain GMO ingredients.  Petitions delivered to secretary of state came in at nearly double that 86,105 required to have Initiative 48 considered for fall election ballot . . . Pulse Beverage said it’s won commitment from growing Smashburger chain to carry Cabana Lemonade at all 265 locations nationwide.  Distributors Sysco and The Sygma Network, who’ll service Smashburger, put brand seriously into foodservice channel for first time, said vp/national sales mgr Paddy Sheya . . . Vita Coco is continuing on innovation push that’s seen sports drink entry hitting Target stores.  Next up: Vita Coco Coconut Oil, billed as being USDA organic-certified, 100% raw and cold-pressed and targeting cooking and personal care uses.  It hits Amazon.com this month in 18-oz PET jars and later goes out to retail in 14-oz flinted frosted glass jars.

Four delivery trucks owned by Coca-Cola FEMSA were set afire in Mexico’s southern state of Guerrero, reported AP.  Area is “known for gang turf battles,” but while local distribs are sometimes targeted, “multinational firms have seldom been attacked,” noted report.  KO Femsa had no comment so far and police are seeking suspects . . .  Local craft soda player Cool Mountain told Crain’s Chicago Business its revenues surged 30% YTD, following first-ever profitable yr in 2013.  Cool Mountain’s 7 flavors made with real cane sugar are now available in 21 states.  A 12-oz bottle retails for $1.50. 

It’s outside non-alcoholic focus of BBI by about a point of alc content, but cider-and-kombucha operation Urban Farm Fermentory offers intriguing look at some of directions entrepreneurs are taking explorations of local sourcing, fermentation and cooperation, as well as principled response to kombucha recall of 2010.  

UFF was founded in Portland as experimental fermentation center in Mar 2010 by Eli Cayer, who hales from state and had previously founded Maine Mead Works.  Its mandate is to “ferment anything under the sun,” using local sourcing whenever possible, ceo Neil Spillane told BBI last Fri.  So far, that’s encompassed hard ciders, mildly alcoholic kombuchas and meads, but lotsa other directions are possible, including cheeses and other foods.  In its early days co explored growing mushrooms, and considered beekeeping as activity, too.  Tho Maine skews high for craft beer interest, brewing won’t be in picture unless co decides to broaden current license.  Kombucha, of course, is fermented tea, while mead is fermented honey.  And Maine is rich in heirloom apple varieties to support cider biz.

Among UFF’s experiments: fresh-pressed apple ciders that are wild-fermented in farmhouse style to yield exceptionally dry and tart liquid with no fermentable sugars left.  UFF also has been at forefront of bringing techniques like barrel aging and hopping to cider category.  Its cider range includes flagship Dry Cidah (at 6.9% ABV) and Hopped Cidah (using Cascade hops), both in 12-oz glass bottles, as well as bourbon-barrrel-aged Baby Jimmy, in 750-ml bottles.  In addition, UFF is making mead from raw Maine honey in similarly dry style, so far only for on-site tasting room.  As for its kombuchas, those come in flavors Ginger, Blueberry, Mountain Mint and Burdock Root, often keyed to what’s in season in Maine.  Chaga Chai marries chai spices with chaga, mushroom that’s wild-foraged from birch trees in state.  Very sour Oak kombucha is aged in oak barrels previously used for Baby Jimmy cider.  Co also is doing hybrid items like kombucha hard cider.  Production is still at small scale, with items all hand-bottled.  Co also offers sixtel kegs to on-premise accounts.  Tho BBI hasn’t yet sampled items, which aren’t available yet beyond New England, they get rave reviews from those who have, as with staffers at tavern in NY’s East Village nabe called Proletariat that focuses on new and unusual drinks.

‘Legitimate’ Kombuchas Require Modest Alc Content   UFF’s kombuchas offer interesting response to category recall initiated by Whole Foods and distributor UNFI in Jun 2010 after numerous kombuchas were found to be exceeding 0.5% alcohol limit required to be classed as NA.  Aim at UFF is to “try to be legitimate and not lie to consumers” about being compliant, Neil told BBI.  UFF Web site declares: “We believe that kombucha should not be pasteurized or filtered in a way that negates the taste of the beverage in favor of lower taxes and distribution ease.”  So it’s settled on ABV of about 1.5% - “one of the few true examples of the form left” after crackdown, co states.  Tho alcoholic, at that level “you can’t get buzzed unless you’re a 60-pound, 10-year-old girl,” Spillane joked.  That 1.5% alc level seems to be “natural landing zone” for well-made kombucha, he noted.  Objective is “authenticity and taste, and alcohol is just a natural outcome.  In Europe, we wouldn’t have this discussion.”

yEast Bayside Collaboration    Co is doin’ interesting things on biz side, too.  It’s occupied complex in industrial area called East Bayside and leased out space to other firms, some of them nominally rivals for share of stomach, to create so-called Food Hub that’s now been dubbed yEast Bayside by locals, as host of bakers, brewers and cider maker have moved in.  Among them are Rising Tide Brewing and Bunker Brewing, Maine Craft Distilling and pair of coffee roasters including Tandem.  The tenants share expertise and equipment in atmosphere of “camaraderie and collaboration,” co says.  Not far away is craft beer stalwart Novare Res Bier Café, which offers rotating array of yEast Bayside items.  UFF lately has been expanding distribution, signing Gardiner-based MillerCoors house Pine State Trading to distribute ciders and kombuchas throughout Maine, with MillerCoors houses Burke and Merrimack Valley handling brand in Mass.  Spillane declined to discuss fund-raising plans, just saying that co “is currently making incremental capital expenditures to upgrade its operations and support its distribution before embarking on a more ambitious expansion plan further down the road.”  

Coca-Cola Bottling Co Consolidated enjoyed revenue growth exceeding 7% to $459.5 mil in 2d qtr thanks in part to addition of Johnson City and Morristown, Tenn, to franchise territory of what’s already largest indie Coke bottler in N Amer.  New territories contributed to 5% gain in case volume, while pricing added 2% lift.  Net income surged 23% to $13.78 mil.  “Our strong operating results reflect outstanding execution by our sales and marketing teams, a more favorable raw materials cost environment and the much improved weather conditions we experienced compared to the prior year,” offered chmn/ceo Frank Harrison III.  COKE’s territory will expand further as additional refranchising agreements are reached with core supplier, he reminded.  “We are continuing our work on agreements with The Coca-Cola Company for the remainder of the franchise territory expansion covered in our previously announced letter of intent,” he said.

Monster Energy is loading innovation pipeline as it seeks to counter surging Mountain Dew Kickstart quasi-energy brand from PepsiCo and offset lagging performance in established sublines like noncarb Rehab.  Heading to retail in Oct are zero-calorie Ultra Sunrise brand, countering Kickstart, as well as caffeine-free entry called Monster Unleaded.  But word is that RTD coffee offering under Peace brand that’s been touted by MNST brass for months remains stuck in development limbo, with Peace distribution partner Coca-Cola apparently taking a pass because of involvement with Illy coffee brand.  That means MNST needs to assemble separate distribution tier apart from core Peace Tea line if coffee entries are to reach market.  Also coming is exclusive Ultra Black for 7-Eleven chain, hitting around Labor Day and succeeding exclusive summer entry that c-store giant has been riding from Red Bull, tropical-flavored Summer Edition.  MNST chmn/ceo Rodney Sacks may shed light on some or all of these entries tomorrow eve, when Monster Beverage reports 2d qtr results. 

Trademark filing on Monster Sunrise was spotted by Wells Fargo’s Bonnie Herzog, tho her extensive c-store contacts apparently didn’t offer details yet.  We haven’t heard specifics yet either: if it’s an Ultra sku, that implies it’s zero calories and doesn’t contain juice, in contrast to modest amount of juice in Kickstart to position it for morning daypart.  So it will be interesting to learn more about recipe.  Kickstart blurs boundaries between soft drinks and energy – Pepsi must avoid referring to it as energy play so as not to violate Rockstar distribution contract – and seems on track to hit $200 mil in retail sales this year. 

Wells Fargo’s Herzog rates Monster Bev as an “outperform,” believing that “MNST’s more disciplined and focused innovation strategy will be driven by what consumers want and piggy-back on the company's most successful products, namely Ultra and core Green.”  Attitudes toward stock seem unusually mixed these days, with Goldman Sachs among others in bull’s camp, per Analyst Ratings Network, but Credit Agricole just reversing from “outperform” to “underperform.”

 Double Cola Co, which has been balancing its reliance on CSDs with Minoku Coconut Water and Quad Energy lines, has made further distribution headway in its core Mid South territory. Altbrands have added 27 Bi-Lo stores and other grocers and c-stores in Southeast Tenn and West Ga. With Bi-Lo authorization, Quad's distributor in hq market of Chattanooga, Tenn, Budweiser of Chattanooga, is also picking up Minoku brand. And Atlanta Beverage Co, which has distributed Double Cola's CSDs and Quad line, is picking up Minoku for Atlanta metro and western part of state.

 Craft brewers have had fascination with coffee going back to undertakings like Seattle brewer Redhook's harnessing of Starbucks coffee in holiday-period offering back in 90s. Another Wash State brewer, Tacoma-based Harmon Brewing, is taking different direction, offering line of ostensibly non-alcoholic craft-brewed coffee drinks under Hop Coffee trademark. As detailed in local Suburban Times, operator of 15-bbl craft brew system and taproom recruited chef Melina Eshinski to devise 4 flavored syrups that are reductions of Harmon's signature beers: Mt Takhoma Blonde with Orange Zest, Pinnacle Peak Pale Ale with Vanilla Bean, Pt Defiance IPA with house-made Torani caramel sauce, and Puget Sound Porter with house-made chocolate sauce. Initial batch of beer syrups will become basis for series of signature creations offered by Hop Coffee shop located within Harmon Tap Room, with coffees supplied by local specialty house Bluebeard Coffee Roasters. So far, Harmon execs seem to be viewing this as strictly regional effort, but it reflects intriguing way to capitalize on 2 hot trends, craft beer and specialty coffee, with new brand in coffee rather than beer arena.

 Call it a packaging and positioning play more than anything else: Vita Coco Sport entry at Target into overt sports-drink realm offers little more than coconut water and sea salt but cradles liquid in 20-oz PET bottle that won't look out of place next to Gatorade or Powerade on retail shelf. Launch flagged by BevNet.com off Instagram post from Vita Coco marketing exec builds on previously reported alliance this spring between marketer and retailer under Target's broader Made to Matter innovation program and brings brand full circle: it started off positioned as nature's sports drink, then in recent years has backed off nutrition and performance claims in favor of lifestyle positioning, and now formally re-enters sports drink realm, this time in PET bottle rather than aseptic box. That's certainly not to say strategy won't work: after all, as many have noted, explosively growing Sparkling Ice isn't much different from diet soda, except for tall, straight-wall bottle and positioning as "bolder side of water." The right look and feel truly can change category that a brand seems to participate in. That said, the only "healthier" alternatives that have scored success in brutal sports drink market have been those that attacked from different category - Vitaminwater and Smartwater from enhanced water, and coconut waters labeled as coconut waters, of course.

Ingredients on Vita Coco Sport, as posted on Target Web site, are listed simply as "coconut water, filtered water, sugar, natural flavor, citric acid, sea salt, fruit and vegetable juices (for color)," but that's enough to support positioning as providing "healthy alternative for consumers who are tired of artificial, sugary, laboratory-processed sports drinks," per Vita Coco. Liquid is about half coconut water, greater amount than in another coconut-water-based Gatorade challenger, Body Armor. New brand's nutrition panel lists bev as containing 50 calories per 8-oz serving - comparable to Gatorade Lemon-Lime at 250 calories per 20-oz bottle. (Oddly, Gatorade lists serving size as full 20-oz bottle, while Vita Coco lists serving size as mere 8-oz, which seems unlikely for active user in need of hydration, and may be at odds with FDA recs on serving sizes.) It's packed in grippable 18-oz PET bottle, tapered at middle, with label placed on upper half of barrel. Vita Coco cofounder Mike Kirban told newsletter item was 8 months in development among 2 partners.

 Rockstar Energy continues to explore exotic ingredients for its canned energy line, this time offering entry that mimics flavor of Latino staple horchata. Positioned as "tradicional dairy beverage with natural cinnamon flavors" (using Spanish spelling of "traditional"), new item melds Rockstar energy blend of taurine, caffeine, guarana and B-vitamins with combo of whole milk, dry nonfat milk and rice flour, and comes in at 100 calories per 8-oz serving. Graphics on 16-oz can sport eagle and red, green and white color palette of Mexican flag. A staple in Spanish-speaking countries, horchata is variously made from milk, rice or almonds, tho Rockstar recipe follows profile of Mexican agua fresca flavor.

New entry comes just as Bay Area-based co has begun shipping what are believed to be first coffee/energy hybrids to employ almond milk rather than dairy base (BBI, Jul 31). In this case, tho, Rockstar can't claim to be first mover into segment, with incubator LA Libations having launched Arriba Horchata Energy into 7-Eleven stores last spring (BBI, Apr 2). That item, launched as exclusive for c-store giant, is now moving into broader array of retailers, tho LA Libations exec has told BBI it's not quite ready to detail where.