Norman Adami, who served as Miller prexy and later SABMiller Americas prexy/ceo from 2003-08, will be retiring as chairman of SABMiller Beverages South Africa on July 1, co disclosed today.  Norman certainly made his mark on US beer biz during his tenure here, dramatically changing Miller’s culture and its relations with distribs for the better. 

Move comes as co consolidates its South Africa and Africa regions into one, which will be headed by Mark Bowman, currently mg. dir of SABMiller Africa.  “Norman has made an enduring contribution to the SABMiller group over many years and in many roles, and his passion, commitment and deep business insights will be sorely missed,” said ceo Alan Clark.

So what will Norman do after helping guide SAB biz for over 3 decades? One project Norman is involved in, recently featured at length in  Wall Street Journal.  Turns out Norman “is bullish on what must be one of the world’s more exotic investments: African game breeding,” wrote WSJ.  The expensive/controversial practice is “profitable” with a “steady flow” of hunters from around world coming to hunt big game in South Africa.  Norman, along with “a select pack of well-off investors say the real sport – and real money is in breeding the animals that stock those ranches,” for hunters.  Norman and 2 other investors spent $2.6 mil for one bull named Horizon that heads a herd of 40 buffalo cows “worth an estimated $7 million,” noted WSJ.  “There’s huge potential,” in stocking gaming farms in South Africa, Norman acknowledged

Lotsa buzz in MillerCoors distrib network and beyond about MC’s surprising announcement last week that departed Dave Colletti, veep of natl accounts on premise, had allegedly embezzled millions from the co over a period of yrs. Partly because he was a senior and long-serving exec, many wondered what/who else could be implicated. But if there is more to come, that remains to be seen. US Dist Atty office in Chicago is currently investigating. Investigations by MC, its insurer and Feds so far not implicating others, we hear. Turns out Colletti abruptly left MC months ago, his colleague Paul Edwards much more recently, just prior to MC convention. Edwards had once been in charge of sales to Buffalo Wild Wings, most recently served as mktg director on-premise. Colletti’s replacement is longtime MC exec John Beck, mostly recently MC gen mgr in Tex.  

Consultant Joe Thompson sees “no reason current industry trends will change much,” he told CLE intl legal symposium. He expects total volume will continue down about 1%/yr, with AB and MC losing volume at a 2% pace and crafts growing at 10+%.  Question stands: what will change these trends?  Here’s more thoughts from Joe, driving what he sees as likely to be next:  1)  craft category growth will be driven by regional crafts; 2) “heavy beer drinkers are broke,” a key factor driving volume loss, while current craft drinkers have more disposable income “for now”; 3) “AB InBev/MC will either reduce production or aggressively discount”; 4) beer price hikes will be “below the CPI”; 5) Despite fears among some brewers about challenges to distribution, “access to market will continue to be readily available.”

 

On distrib front, Joe sees consolidation continuing and  mega-distribs profitably building share.  But, “distributor gross profit increases are slowing,” he points out.  And less aggressive pricing will pressure profits further.  NBWA’s distrib productivity report suggests that annual distrib GP increases grew 1.1% in 2005, climbing steadily to +8.1% in 2011, then dropping to +4.5% in 2012 and estimated +2.5% in 2013. Joe counts 25 mega-distribs now, doing about 30% of the volume, with costs at about 16%, margins averaging 26% and profits of $1.75+/case.  Traditional family distribs number about 625 with 60% of volume, 21% cost level and 25% margins or $1/case profits.  Third group of “special” distribs have remaining 10 share with widely varying cost/margin structures depending on mkt penetration.  “Hard to calculate” number of specials but Joe estimates about 1,000.  By the way, these distribs “don’t high spot” accounts; “they target.”

Lookin’ ahead to 2020, Joe sees number of megas to hit 30, grabbing 45% of volume, with costs down to 15%, margins narrowing to 24% and same $1.75+ per case profits.  Number of traditional family distribs shrinks to approx 370, Joe believes, with 40 share of volume, cutting costs to 19% for 24% margin or $1/case profits.  Special distribs will grab more like 15 share with “very diverse portfolios,” some having added beer to existing structures.  Again, tuff to calculate how many of these there will be, but Joe figures range of 1000 to 1500.  

In 2013, Heineken brand had “temporary hiccup,” maintained veep Colin Westcott Pitt “in the turnaround of the brand that began in 2011.”  But in 2014 multiple new initiatives for Heineken to “go on hunt” and HUSA “very optimistic.”  For example, Heineken media will be up 15%, said Colin, as HUSA looks to increase brand’s share of voice on tv in gen market and Hispanic media, following dip last yr.   Heineken also has slim line 8.5 oz can that can bring 1 mil incremental cases, said Colin, adding “Slim is in.” Plus HUSA has new proprietary draft platform called “Brewlock,” which Colin called a “game changer,” and a new effort aimed at Mexican Hispanics.  Twenty mil consumers drink Heineken each yr and Heineken is “most premium” brand in upscale.  “While we are having our challenges in the US,” said global cmo Alexis Nasard, Heineken brand “still healthy and vibrant” and “most awarded” CPG co in last 5 yrs at Cannes (intl ad awards).  He said some measurements of current ads in US are “off the charts.” In “taking stock of brand equity in the US” it is “way ahead of Corona” on many measures, Alexis added, “hopefully giving us a little bit of confidence.” But “we are not monetizing that equity very effectively collectively.”  HUSA and distribs “need to work on leveraging and monetizing those assets.” 

Heineken USA still getting strong growth in Mexican portfolio with 7% growth in Tecate franchise (Tecate Light up 42%) and approx 20% growth in Dos Equis so far in 2014, according to Nielsen.  Over 1/3 of Dos Equis volume in Tex, said sales veep Scott Blazek and Tex “continues to accelerate.”  Up more than 20% again so far in 2014.  Overall, Heineken USA gained share both on-premise and off in 2013.  

 

Heineken USA moving in lots of different directions simultaneously to address what prexy Dolf van den Brink, speaking at HUSA’s natl distrib convention, called an “acceleration of innovation” happening across many industries.  US beer mkt has become “the Silicon Valley of Beer” with “what seems to be a limitless number of brands, brewers.”  But while “wave of innovation is adding tremendous energy and excitement to our category,” Dolf pointed to another big societal trend that is hurting big beer brands: “We live in the age of skepticism.”  So on one hand “explosion of innovation” on the other “implosion of consumer attachment” to brands.  That leads to “a lot of churn and a lot of disruption” but Heineken USA still must develop way forward both with innovation and to enhance its existing brands.  Last yr, turned out to be “false dawn,” acknowledged Dolf.  He had expected a return to industry growth in 2013, following 2012 gain.  But there are still “very serious clouds in the sky,” i.e. beer mkt “down again,” still “losing share to spirits.” 

 

 

 

HUSA Seeks to “Capture” Forty Million Upscale Cases in 5 Yrs  Dolf shared key insight from “largest consumer survey we ever conducted.” (Tracked 8500 consumers.) Drinking occasions break out into two main areas: “Amplify” and “Savor.”  Savor is about “winding down, special moments” and is more the space of aged whiskey, special vintages of wine and also craft beer.  On other hand, “Amplify” is about  making the most of the moment, “living legendary” big nights out on town (both white spirits and imports play well here).  And 65% of upscale consumption is in “Amplify” space. It’s here where HUSA aims to play harder and is  “going to intensify our efforts to connect” with consumers.  “Beer is significantly underrepresented” in Amplify space.  So HUSA sez it’s “time to take back drinking occasions from spirits.” 

 

The beer category “is under attack,” said new cmo Nuno Telles.  But “consumers are trading up and moving at the speed of light.”  HUSA has big expectations for continued trade up, expecting “200 million cases coming into upscale” over next 5 yrs (similar to Crown forecast) and “we will capture more than our fair share.”  Indeed, Nuno continued: “We will capture 40 million cases.  Yes we will.”

 

 

 

Several New Brands Launched Regionally  To get after these trends, HUSA launching several new brands regionally and placing big bet on Strongbow cider in 2014.  Dos-a-Rita already available in Southwest and reportedly off to fast start early.  Desparados, a tequila barrel-aged beer big in parts of Europe (4 share in France), just entering Southeast and will go national in 2015. Amstel Radler launching in northeast, proved popular at Heineken’s brand showcase event. Indeed, Heineken global cfo Rene Hooft Graafland noted approvingly that it had “sold out” the night before.  Heineken is stepping up its innovation globally.  Global Heineken had $29 bil in revs in 2013, about $1.5 bil in innovation, noted Rene.  And the majority of that came from radlers, which have become very popular in Europe.  But HUSA’s biggest US innovation play in 2014 is Strongbow. Heineken is also #1 global cider player and it is putting big push on Strongbow here with new liquids, packaging and ad campaign.  HUSA expects cider in US to triple to 50 mil cases in next 3 yrs in US
 

 

Beer volume dropped 4.4% on premise for 4 weeks thru Mar 23, according to GuestMetrics data as published by Morgan Stanley.  That’s still weak, but significant improvement from -6.3% for 12 weeks prior (including over 7% total drop in 1^st 4 weeks of yr).  But AB and MC are still getting hammered in this channel.  Down 8.7% and 9.9% respectively last 4 weeks and each still down double digits yr-to-date.  Each lost 1.1 share.  Craft gained 2.1 share and cider up 50 basis points, while premium lights down 1.7 share.  With advent of so many tasting rooms, taprooms, brewpubs, craft-centric bars etc, probable that total on-premise sales are better than this data suggests, sources say, and significantly so in some key craft-centric mkts.  Wouldn’t affect AB and MC trends tho, since they are almost entirely absent from such outlets.

Americans may not be drinking less (yet), but alcohol’s image ain’t too pretty.  The latest ugly snapshot: the portion of Americans that consider alcohol more harmful than marijuana grew to almost 5X those that believe the opposite, a new Pew Research study reveals.  About 69% of Americans said alcohol is “more harmful to a person’s health” when Pew asked about its relative harmfulness to marijuana.  Just 15% consider pot more harmful.  So there are nearly 5 Americans that think a toke is less harmful than a drink for every 1 that thinks the opposite.  And it’s as much as 8:1 for some demographics.  Perhaps most troubling: the younger the respondent, the more likely they were to be convinced of alcohol’s comparative harm.  About half of Americans age 65+ said alcohol is more harmful, vs 81% of Americans age 18-29, the largest portion of any group. 

Hispanics and Republicans are less likely than other groups to agree with this general sentiment, but more than half of each still said alcohol is more harmful.  When asked which would be more harmful to society if marijuana was “as widely available” as alcohol, over 60% of Americans agreed it would still be alcohol.  Some media turned to other parts of the study that generally illuminated disconnects between public opinion and federal drug policy (like 75% believe pot legalization is “inevitable” or that 67% think drug policy should focus on treatment vs prosecution).  But a Washington Post blog dug right in, headlining “Americans finally understand that marijuana is less harmful than alcohol.”  How does the industry turn that ship around, especially in the context of increased tension within and between tiers (i.e. the recent op-ed by Brooklyn Brewery prexy Steve Hindy in the NY Times taking shots at franchise laws) and fierce mkt competition?

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Tho not growing as fast as cider (1.2 mil bbls in 2013, +80%, sez Beer Inst), flavored malt bevs (FMBs) are much bigger (7.6 mil bbls) and also-expanding (+21%).  Segment up 17% YTD thru Mar 23, IRI reports, across off-premise channels.  And just as most big suppliers joined cider fray, lotsa new news in FMBs too.  AB’s adding Rita flavors, MC’s expanding Redd’s, HUSA’s doin’ Dos-A-Rita and Boston Beer’s got a Twisted Tea Lemonade coming.  Then too, NAB’s Seagrams line is one of its few growth areas.  Diageo Guinness USA, tho losing volume in recent yrs, ain’t givin’ up.  Then of course there’s Mark Anthony’s Mike’s Hard and Harder lines.  Since Mike’s only plays in FMBs, fate of category even more critical to its success.  Tho execs there take position that new entries expand category, Mike’s lost #1 volume position in category last yr to AB’s Ritas.  Key question for all of these players: how high is up for FMBs?  Despite 20% gains in 3 of last 4 yrs, FMBs still modest 3.7 share of total malt bevs, we estimate.   But brewers surely lookin’ at how strong flavored spirits have become (up to 30 share), see lotsa runway for growth and believe FMBs grab drinkers from spirits (tho others suggest they actually blur distinctions between alc bevs, don’t actually help beer).

Can flavor get to 30 share in beer?  Mark Anthony’s prexy Phil Rosse’s makin’ no predictions, but he did say: “No one is saying flavor is near its peak.”  And despite tuff competition, for first 10 weeks of 2014, Mike’s depletions +12.1%, he told INSIGHTS today.  “We think we can have double-digit growth” going forward, he added.   In any case, he’d rather have 20% of a much bigger mkt – he puts FMBs and cider together and sees possibly 125-150 mil cases in 2014 – than 50% of much smaller one.   “We’ve been in the game” for 15 yrs, flavor is “what we do 365 days a year” and he believes that “laser focus” gives Mike’s a “core competitive advantage.”  Mike’s just announced key strategy change.  It will devote all media $$ to digital, reports Ad Age, after spending near $19 mil on tv in 2012-2013.  Digital allows Mike’s to “reach consumers more frequently through more targeted messaging and at different moments of truth for them,” Mike’s mktg activation director Sanjiv Gajiwala, told Ad Age.  Mike’s will double media spend in 2014, he said, tho it made 50% cut in 2013; so looks like 2014 spend will be back to 2012 level.   

Molson Coors has “great cash flow” from “stable markets” and a “great balance sheet,” Molson Coors ceo Peter Swinburn told INSIGHTS in recent interview. Recall, global EBITDA +5% to $1.5 bil and free cash flow at $892 mil, +3% in 2013.  Molson Coors’ signature transaction, MillerCoors joint venture, has been a “huge success...by any stretch of the imagination,” said Peter, creating almost $1 bil in savings (unstated, but remarkably that value created basically without paying for it, since it was a straight merger). JVs are “historically difficult to execute,” added Peter, yet “we’ve executed it well.... The parents don’t get in the way.”

What about growing the top line? Growing core brands remains top priority in all Molson Coors markets, emphasizes Peter, along with growing above premium and innovation. Yet core brand growth clearly difficult to come by in TAP’s lead mkts in recent yrs, Peter acknowledged.  That’s primarily because of economic weakness, he maintained, tho the marketplace is changing. Molson Coors has to adapt and be ready, “by positioning yourself to take advantage of whatever happens.”  Molson Coors has the #1 cask ale in the UK and its Six Pints craft unit in Canada grew double digits last yr, while Blue Moon Brewing here in US has of course shown big growth. Molson Coors (and MillerCoors) learned that you can’t try to “hit a home run” each time out with new products.  In some cases, may be better to “try things,” gather learnings from intro and then “course correct,” said Peter.  (Editor’s note: as MC did this yr with Third Shift).

Canadian mkt pressure most acute in Ontario and Quebec, where Molson Coors makes 70% of its Canadian profit. Those provinces have trailed the rest of Canada in economic growth and job creation. What about losing Modelo portfolio in Canada?  Molson Coors “perfectly happy” with outcome, professed Peter, since it got paid the cash flow stream of $18 mil a yr for 5 yrs. Modelo was about 2% of TAP’s Canadian biz.  In meantime, SABMiller and Molson Coors have “suspended litigation” in Canada.  And Miller in Canada less than 1% of Molson Coors’ global biz. Peter keen on intl growth oppys for Coors Light.  Coors Light “on fire” in Mexico, growing fast in UK and Ireland.  Up 50% in Mexico to 250,000 bbls and sold about 640,000 bbls in UK too. Coors Light sold by Heineken in Mexico and Ireland, and Molson Coors also sells Heineken brands in Canada.

What about M&A? Molson Coors not “desperate” to do a deal.  Its Star Bevs deal in Eastern Europe has “gone well” and integration “went incredibly smoothly.”  Despite many doubters, Molson Coors has “maintained margins,” said Peter, and grown a bit of share in a number of Eastern European mkts.  Canada’s Financial Post interviewed Peter as well and its Mar 31st article concluded that “bottom line: this is a brewer in bad need of another buzz.”  Yet Molson Coors overall position “would be the envy of most people,” Peter countered to Post. Then too, “nothing stays the same,” he told INSIGHTS, so lots of possibilities down road. 

While Feb import figure knocked back US shipments trend, retail numbers improving.  IRI reports volume up 2.4% for 4 wks thru Mar 23, $$ sales up 5.4%, in its multi-channel + c-store data.  Nielsen reports similar trend in its off-premise data, tho IRI still reporting stronger yr-to-date  picture.  For 4 wks, craft up near 20%, FMBs +22% superpremiums +12% and imports +6%.  Premium biz close to even (-0.1%) and subpremiums off just 1.9%.    Each of top 6 suppliers up for 4 weeks: AB +1.3%, MC +0.3%, Crown +15%, HUSA +4%, Boston +37% (!) and Pabst +1.6%.  Top brands doin’ better too.  Bud Light up 1.4%, Lite +1.5%, Coors Light -1.3% and Bud off just 0.7%.  Corona +9%; Modelo Especial +27%. Major subpremiums improved trends:  Busch Light, Natty Ice and PBR up.  Mich Ultra up double digits.  Heineken up slightly.  Miller Fortune grabbed 0.4 share in early days, at avg price of about $26/case.  Together with Redd’s Apple and Strawberry Ales, those 3 brands had 1.2 share of $$ for 4 wks.