Beer Marketer's Insights
From legal standpoint, North Coast seeks to have Calif law apply here. North Coast's contract, which Crescent Crown assumed from Little Guy Distributing back in 2006, has a provision that Calif law will apply. It also has a provision that North Coast can move brands for fair market value. North Coast "did not choose to go the route of a termination for cause," Dennis told us. "I've never had to resort to that in 20 years. It is not a productive method. I've not had a case when I couldn't walk in and talk to the general manager and pay for a brand, with respect." In North Coast's view, "Crescent Crown is trying to use Arizona's beer distribution statutes to prevent North Coast from transferring distribution rights of North Coast products in Arizona. The franchise law was written to protect small and mom and pop distributors, to shield these guys from big suppliers. Crescent Crown wants to apply the law to the opposite situation --- using it like a sword to hold North Coast hostage. That's not the intent of the law." Crescent Crown currently has statewide rights; it assigned other distribs outside Phoenix. North Coast wants to move brands from all, go statewide with Hensley. It has a conditional agreement to transfer distribution of its beers in state to Hensley, depending on the outcome of the dispute with Crescent Crown.
This case has been brought up by craft brewer advocates as comparable to Brooklyn's expensive experience in moving from a NY distribs yrs back, and as another prime example of why craft brewers need carve outs from state franchise laws, especially when volume so small. As we noted, Crescent Crown not commenting now. But CC's sr veep Joe Cotroneo spoke to Brewbound about dispute last Nov. He tells different story, natch. Joe claimed then that CC's North Coast trend exceeded its 33%+ overall craft gain over previous 3 yrs, that North Coast hadn't paid much attention to Ariz biz over the years and that North Coast's notice it wanted to move the brands came outta the blue. He pointed out that CC had often bought and sold brands and wasn't litigious, "but we have to make sure we are being treated fairly…. We will not have our reputation tarnished by a company that doesn't have their act together."
Case also puts in context Joe's remarks soon thereafter at Brewbound conference. "I think sometimes" that craft brewers "don't want to do the extra work to find the cause" to make a change, he said, "so they just want to be exempt from it. It seems to me that we do a lot of different exceptions for smaller industries and startups and I think that's okay." Joe also called Ariz law "fair and reasonable. It says 'you can leave, but you have to have cause and it has to be compensated.'" In similar vein, NBWA prexy Craig Purser advised brewers at NBWAs recent legislative conference that they should exercise their rights under any current law that allows termination with cause "before you try to change it." And so, a dispute over 4,000 cases of beer has become a bit of a cause célèbre for bigger issues in craft.
Craft Enjoying Ride of Cultural and Political Shift, Sez Jim Koch; "Stick with It," to Build Brands
"What's not to like," about state of craft beer market right now, Boston Beer founder Jim Koch commented to Michael Bellas at Beverage Forum in NYC yesterday. It's not just the "pretty staggering" growth #s craft put up past few yrs but also the "transformation" of the "cultural position" of craft beer as "the new wine," especially among key 20-somethings that will drive growth in craft "for the rest of our lifetime," said Jim. While Jim would not speculate on how long incredible growth rates for craft brewers can continue, he pointed out that in craft segment, there is a "low barrier to entry" yet a higher one to exit. It "takes a long time to kill" a brewery, though there could be "ownership changes" along the way. Craft winners going forward will have to "have a reason for being," an authentic story to tell consumers. Speaking of overall beer mkt, even with volume struggles for big brewers he believes it's still "healthy" because of underlying trends in industry. Two largest brewers have shifted their focus from volume gains to generating profit gains, which "is not an odd idea," in his opinion.
"We all need each other," said Jim regarding recent tensions between craft and distribs over franchise laws. He reiterated an old point: if there is "no 3-tier system," there is "no craft beer." Craft beers "came to prominence" in US because of "independent wholesalers," he reminded. The disagreements in his view have been "magnified" in "industry newsletters" and he assured that craft brewers and distribs are "not at each other's throats," and will eventually work towards a resolution. (Editor's Note: it was not industry newsletters that ran a fact-challenged, advocacy op-ed; it was the New York Times.) Craft brewers today are an "increasingly powerful," force in Wash DC and the states. They are "very embraceable" to politicians who want to be seen with "entrepreneurs" from their hometowns. And if you look at the math, with craft brewers swelling towards 3,700 in US (a number Bellas threw out, including planned openings), that breaks down to 7 per district across US. The power "is shifting," and the distrib system "needs to accommodate" needs of craft.
On his red-hot Angry Orchard cider, Jim reminded that it's not an overnight success given that Boston's been making cider for 17 years. "Stick with it" thru multiple failures, focus on the taste first and "marketing can follow later on" to build a great brand, said Jim. His seasonals have been such a success because Boston "built real brands" rather than just churning out something new, said Jim. "Stay the course" with those brands to build them, as he noted Oktoberfest has been around for 26 yrs, Winterfest for 23 yrs and Summer Ale for 19 yrs. On other topics, Jim said he isn't concerned about threat from legalized marijuana, saying he "hears" folks in Colo have actually been smoking weed for a long time. Besides handling growth of his brands, he's dealing with "major construction projects," putting around $3 mil a week into upgrading his breweries.
On recent expansions, Gary said: "We're very happy with the arrangements we've made. We continue to view every new market independently and make the best decision for our brand. It may be statewide like Wirtz, or a variety of red and blue houses. We don't have a cookie cutter approach. Chicago was a bit of an anomaly. Wirtz had an enormous amount of influence in Chicago, even though not in beer at the time. Given their involvement in Nevada and Minnesota, they know beer and what it takes and are willing to invest behind the brands. It has worked out very well. We were happy enough to select them in Wisconsin as well."
Others have called Wirtz arrangement "pay to play." Gary sez: "Call it what you want. But 'pay to play' is a derogatory term, unfair to the nature of the arrangements. What we are looking for is a partner willing to invest behind long-term business success. We're not putting the money in our pocket. We are investing in the market and our local infrastructure as well." Net-net: "Our philosophy on opening new markets is to ingrain in the community and provide our customers and distributor partners the support they need to collectively grow our brands. This takes a collective investment for long-term success in growing our businesses together."
Glad to Have Conversation about Franchise Law Reform Putting on his hat as BA chairman, Gary also posted comments on BA Forum about hottest topic of the day, franchise law reform. "We think this is an important conversation to have, and while perhaps not easy, the BA is glad that we are having it." Gary reiterated that BA "vigorously supports" 3-tier system, that distribs are "critical" part of it. State laws should "support an independent distribution tier" free from "undue influence ownership or control" by big brewers, BA further believes. Yet, it's "often essential" to allow small brewers to have distrib license as well to provide market access, consumer choice.
Franchise laws, Gary reminds, originally passed to protect distribs from "arbitrary termination" by major suppliers. But now being used "in ways that were never intended, to prevent small brands" from moving, even when brewer-distrib relationship "not working." BA supports franchise reform to allow brewer with "small" economic impact on its distribs to move brands "without a major legal battle." Terminations for cause "in a state with onerous franchise laws is unrealistic," BA believes, costing more than "vast majority" of small brewers can handle. "Franchise law reform is a better, less litigious solution." One "reasonable" example of reform is NY law that allows brewer under 3% of distrib's volume to move brands by paying fair mkt value, a solution "arrived at by respectful negotiation between brewers and distributors." Other remedies will vary state by state, BA acknowledges.
Pot & Alcohol; More Dangerous Parallels, Tangents, Blurred Lines; Data Points & Fun Facts
Meanwhile, alc bev industry execs still trying to figure it all out. "Everybody is looking at it internally," Beer Inst prexy Jim McGreevy recently told Insights. How states structure their laws will be key, in his view, and laws gotta be based on "understanding of how the market works" and not making "assumptions about what's safe or not." But some exploit pot debate to tee off on alcohol. Here's another voice on the "safety" debate: Clatsop County, Oreg DA not a fan of legalization. "We've not done a good job in our state or our society keeping alcohol - a very, very toxic drug - out of the hands of the people who need it least, which are kids," he told Daily Journal. Then there are public health types who think substituting pot for alcohol is positive since alcohol is "demonstrably worse for society as a whole than marijuana. Not only does alcohol lead to drunk driving, but it can cause fatal health effects and even more crime." So concluded author of "the public health case for legalizing pot," in Vox, a news/opinion aggregator.
Look at some other interesting early data points from an initial study of pot use in Colo and other sources:
- Wall St Jnl reported 40 publicly traded companies in pot biz with mkt cap of over $4 bil. NY Times put number closer to 80 public co's. Both reported SEC has already shut down a handful. One pot industry exec told WSJ that some co's "used to be smugglers" and "have the mindset of 'I used to smuggle $50 million worth of cannabis - that makes me a competent business leader.' It does not."
- Market demand in Colo, including medical marijuana, will be about 130 metric tons/year, 121 for residents, 9 for visitors, via initial Colo study. That's about 1/3 higher than earlier estimate. Avg mkt price in Colo is $220/ounce. Still, beer biz up slightly in Colo yr-to-date thru May, Beer Inst reports.
- Who's using? Visitors account for up to 44% in Denver, 90%+ in resort areas. But "most marijuana is consumed by heavy daily users." (This is an unsettling parallel to alcohol, depending on what research you're looking at.) About one-third of Colo consumers use less than once a month and account for just 0.3 share of total.
Coming from opposite perspective, columnist in Philly Inquirer recently suggested Pennsy sell pot from state liquor stores, replacing wine if it goes to groceries, beer stores. State store system, he wrote, is "ideal for moving cautiously" into pot. Three state senators have already offered bill to do it. Cautiously or not, this debate is moving. Go To Top
While Yuengling gained 1 mil bbls, 54% between 2008-2012, last yr it declined 2%, its 1st loss in ages. But this yr it's back in expansion mode and also (not coincidentally) back to really solid growth. Up 7.8% in 1st half, said coo Dave Casinelli. Most of its approx 100,000-bbl gain from Mass. Recall, much of Yuengling's growth 2008-12 came from series of successful launches into new mkts, capped by huge wave when it went into Oh (that wave has since receded). This yr, Yuengling likely sold 70-80,000 bbls in Mass in just 4 mos, plus a bit in RI too late in 2d qtr. Yuengling also got nice pop from its new summer seasonal, 1-1.5% of its biz in 1st half. Dave didn't give specific #s in Mass, but said Yuengling at 7-10 share in Mass, depending on mkt. A 7 share would be nearly 250,000 bbls for 10 mos. Total Yuengling growth should accelerate in 2d half with Mass and RI for entire 6 mos, plus entry into Connecticut this fall.
So Yuengling has once again emerged in 2014 as game changer in new states it enters. It's key factor that determines, among distribs and brewers, who gains and who loses over a 2-3 yr period in a state. No wonder there's such keen interest in getting those brands and it's so hotly contested. Yuengling is only player that reliably moves needle by several share points. But Yuengling believes more is possible and has changed it up some in this yr's intros. For several yrs, it went with AB distrib network statewide, in states like Tenn, Ga, WVa and Oh. Most distribs it appointed this yr are still AB, but Yuengling went with key MC distribs, Atlas in Mass and Star in CT, as well as MC distrib C&C in entire state of RI and craft-centric Craft Guild of Boston in Boston. In most populous areas (Boston, New Haven, Providence), Yuengling didn't choose AB distrib.
Asked about Yuengling's approach, Dave told INSIGHTS that distribs "can't go in and assume it's automatic." Yuengling looking to "shake some things up" and "retool" its approach to better capture the oppys it believes are there with the big brewers' decline in recent yrs. A lot of distributors "are still beholden to a lot of old practices," but the "whole world has changed," sez Dave. He repeatedly referred to the experience of going into accounts in airports and elsewhere where "you can't even find a domestic [premium] spigot." In this fluid, fast changing world, Dave believes that the 3 share Yuengling got in several states "just the low hanging fruit" and he's looking for distribs that have bigger, bolder visions than that.
Another state where Yuengling has begun to explore is reportedly Mississippi. Whenever that happens, should be another interesting choice. AB has its highest share nationwide in Miss; 68 share in a 2.2-mil-bbl state. And MC at 22. So AB/MC still 90 share in Miss, compared to 60 in say Calif. Miss is one of least changed mkts in US. If Yuengling seeks to be a change agent, which would be its best choices in Miss? Stay tuned.
What's happening with off-premise pricing yr-to-date? Avg price for a case-equivalent up 55 cents, 2.6% to $21.72 yr-to-date thru Jul 13 across channels, reports IRI. That's just slightly less than 61-cent, 3% hike over calendar 2013. Increase so far this yr mostly driven by trade up. Premium and sub- premium prices up just 15 cents/13 cents respectively YTD, both less than 1%. FMB prices up just 1.3% too. Import and malt liquor prices up 2% each. But superpremium prices up 2.6% and craft prices 3%, significantly widening gaps with mainstream. Indeed, avg craft price up $1/case, so about 20 cents per 6-pk more than premium prices rose, about a dime per 6-pk more than imports. But craft trends keep rockin', with volume up 19.7% yr-to-date.
Big volume winners -- Constellation Brands Beer Div (CBB), Boston and other craft -- plus more modest gainers in top 10 -- Yuengling and Mark Anthony -- picked up over 2 mil bbls Jan-Jun, we figure. Howzzat? CBB reported 6-mo shipments thru May up 625,000 bbls, 10.4%. For Jan-Jun period that bbl gain likely a bit higher, replacing Dec 2013 with Jun 2014. Boston Beer's malt bev biz slowed a bit in June scans, but it likely picked up about 150,000 bbls in beer/tea/lemonade for 6 mos, plus another 200-300,000 bbls of cider. With Mass expansion, Yuengling up near 8% Jan-Jun (see below). That's about 100,000 bbls. Mike's/Mark Anthony up 9% thru May, another 70,000 bbls or so for 6 mos. Finally, there's the craft gain ex-Boston. Gotta figure that % increase will be in mid-teens at least, over 1.1 mil bbls. Add 'em up and these winners likely to tack on approx 2.1 mil bbls Jan-Jun. That's a low-double-digit increase.
Meanwhile, total shipments trend will be plus or minus a bit depending on Jun number. Taxpaids had been flat thru May and AB had to draw some inventory down in Q2, so it's not likely to be upside surprise. Jun imports is a guess. But if modest import gain thru May (+2%) holds thru Jun and Jun domestic shipments take a hit, leaves overall industry about flat for 6 mos. With MC down 2.3% for 6 mos, suggests combo of AB, Pabst, NAB, DGUSA and others down 1.5 mil bbls or so, near 3% collectively.
The biggest issue for MC in 2014 is softening trend on its largest brand: Coors Light sales-to-retailers down a little more than 3%, INSIGHTS understands. Coors Light trends now worse than Miller Lite's. That's a big deal, since Lite down over 20% last 5 yrs while Coors Light up. Unless Coors Light improves in 2d half, 2014 will be softest trend ever for Coors Light. Until 2013, Coors Light was easily the healthiest of the megabrands, growing every yr 2005 through 2012, even while Bud Light and Miller Lite declined each yr since 2008. Last yr, Coors Light down 2%. Key part of dropoff: mid-Atlantic-northeast region, where Coors Light built very strong biz that's tailed off in recent yrs.
So what are broader reasons for Coors Light's current softness? Part of it has to do with much improved Miller Lite trends. Lite has new packaging news (retro can) and new and improved media goosing its results. But Coors Light media took a step backwards this yr, sources say. Indeed, MC reportedly working on new CL executions that will dial up refreshment cues, instead of just focusing on cold. It intends to debut them this fall. MC doing "deep, deep analytical dive," sez MC source, "to have firm understanding of the problems with Coors Light and the opportunities to fix it."
MC's # 1 Brand Has Media, Marketing, Packaging Issues There are multiple other reasons for Coors Light's current malaise, cobbled together from various sources. 1) cuts in media, the brand less visible than it was 2) lack of packaging innovation in recent years (remember intro of bottles and cans where labels turned blue - those especially helped!) 3) new package design alienates some drinkers, say distribs 4) Coors Light Summer Brew takes away resources and focus from mothership, while only selling about 125,000 bbls and some distribs have too much inventory 5) pursuit of Hispanic consumers at the expense of other demographic segments. Other factors include increased competition from AB's revamped aluminum bottle as well as consumer shift towards craft and other more flavorful brews, and also the ever-popular economic effects. That's a whole lot of reasons to try to explain a relatively modest 3% decline (worse in Northeast). Shows how important brand is to MC and its distribs, but also highlights some of oppys to fix.
MC launched a comprehensive new draft initiative to combat persistent on-premise softness, including holding the line on draft prices for premium lights this fall (first reported in INSIGHTS Express). MC's draft pricing action comes after yrs of on-premise volume hits amidst craft onslaught. Recall, MC draft biz down 16-17% last 5 yrs in 42 reporting states. Premium light draft decline likely even larger.
MC also has slew of new product initiatives in 2014 (some started in 2013). Other than Redd's, results are spotty. Even Redd's slowing; lead brand up just 7% in latest 4 weeks thru 7/13 in IRI multichannel + convenience. But Strawberry still all incremental and higher-ABV Wicked is coming. MC's much ballyhooed Fortune launch is below expectations. Coors Light Summer Brew had modest target of 125,000 bbls and will reportedly exceed that. Other minor brands from last yr like Third Shift and Batch 19 are declining precipitously in scan. Even MC's high end growth engine of recent yrs, Tenth and Blake, just reported decline for 2d qtr in a row. And MC will also be losing one of its sr execs best liked by distribs, longtime stalwart and Tenth & Blake prexy Tom Cardella. Tom staying until Jan 1. No replacement named at presstime. Actually, MC's relationship with distribs overall much improved as evidenced by some of its scores in Tamarron, including 4.1 (out of 5) on "3-Tier Advocate," highest score of any supplier on any measure, sez MC source.
Against the backdrop, with all these crosscurrents, MC folks sometimes have to deal with distractions caused by periodic press eruptions and other rumblings of potential ABI deal to buy SABMiller. In face of such challenges, distribs sometimes find MC execs lacking urgency or looking over their shoulder. And MC doing a bit of belt tightening too, which probably adds to sense of potential change and uncertainty.
And yet even with all this, off-premise, MC outperforming ABI in scan data, especially in $$ sales. AB lost 1.6 share of $$, MC just 0.36 in IRI multichannel + convenience thru Jul 13. That's principally because MC getting far more benefit from trade up and new products this yr than ABI. In most recent 4 weeks thru Jul 13, MC lost 0.7 share of $$, compared to AB's 1.3 and its volume trend softer than AB's (down 2.1% vs 1.1% drop for AB).
Flash at Presstime for E-Mail Subscribers: Peter Swinburn Retiring as Molson Coors Ceo at End of 2014; Mark Hunter to Replace Molson Coors ceo Peter Swinburn will retire at end of 2014 after 40 yrs in beer biz and 6 as ceo. Taking his place as Molson Coors ceo/prexy and board member will be current ceo of Molson Coors Europe, Mark Hunter.