Malt and aluminum cost pressures are easing for brewers, tho it’s complicated and timing will be different for different regions, Bernstein’s Trevor Sterling detailed yesterday.  Brewers with lotsa biz in Western Europe (Heineken/Carlsberg) will see bigger impacts and more quickly from sharp fall in malt prices there, about  15%, Trevor figures.  Costs for malting barley have fallen even more sharply than that.  At same time, current spot prices of aluminum now about 15% below last year, “indicating likely relief as hedges roll over in 2014,” he wrote.  Hedging, timing of contracts and impact of foreign exchange rates all play a role in final costs facing brewers.  Here’s how Trevor summed up impact on US: “modest relief on COGS (cost of goods sold) in 2014” implied by contract prices falling earlier this yr with increased production, following spike in prices in 2012.

Then too, “more good news in the pipeline, albeit 12-18 months ahead,” Trevor noted.  Contracts for 2014 signed at even lower prices, which imply “10-15% fall in the price of malting barley for the 2015 cost base.”  At same time, “most brewers,” Trevor believes, “have considerable upside from lower aluminum prices in 2013 and that this will continue in 2014.”  Aluminum spot price was $2400/ton when brewers made their hedges for 2012, dropping to $2000/ton when hedges made for 2013.  But lotsa aluminum will be hedged “this year when prices have been closer to $1800/ton,” Trevor calculates, “implying likely further upside for the brewers’ P&L’s in 2014.”  Be interesting to see whether these easing cost pressures on one side of biz have impact on pricing decisions going forward.   

Total beer $$ sales have taken a turn for the better in recent mos in off-premise scan data.  Beer $$ sales up $395 mil 5.6% for 13 weeks thru Dec 1, according to IRI, with a combo of 2.3% volume growth and 3.2% avg case price increases (over half trading up).  So healthy pricing continues.  At same time, beer sales have gotten even softer on-premise, according to GuestMetrics.  Down 5.5% last 4 weeks thru Dec 1.   While the industry is still challenging overall, some brands stand out as especially hot in recent months in IRI, growing the most incremental $$. 

Indeed, 5 brands captured almost half of the industry’s $$ sales growth last 3 months in IRI.  Straw-Ber-Rita got $52 mil in sales, 0.7 share of $$.  Redd’s now nearly as big, at $44.5 mil in sales and 0.6 share of $$.  Modelo Especial jumped to 30% $$ sales growth last 13 weeks and an incremental $36 mil in sales.  Avg prices paid up 4.2%.  And it gained 0.4 share of $$.  Corona back to major growth in recent mos, $$ sales up $33 mil, 12%.  Avg prices up nearly 2%.  Gained 0.25 share of $$. Michelob Ultra accelerated to double digit $$ sales gains.   Up $23 mil, 13% and 0.2 share, with avg prices up 3.3%.  Those 5 brands grew $189 mil and 2.2 share of $$.

The 3 brands that lost the most in $$ sales last 13 weeks were all AB brands.  Bud Light Lime-a-Rita suffering a change in fortune. Down big 30%, $16.5 mil.  Natty Light $$ down $12.2 mil, 4% and Bud Light Platinum down $9.7 mil, 11%.  In last 4 weeks, Cran-Brr-Rita made up for Lime-a-Rita drop and then some.  Which brands lost the most $$ share last 13 weeks?  Big premium light beers.  Bud Light, even tho $$ sales up slightly, off 0.8 share last 13 weeks.  And Miller Lite $$ sales down $7.6 mil; it lost 0.45 share. 

After about 3 yrs at helm, Beer Institute prexy Joe McClain will resign effective this Friday, Dec 13 to “pursue other interests,” Beer Inst chairman (and MC prexy) Tom Long said in a statement.  Tom said Joe “stabilized” BI and “led the organization through many challenges,” crediting him also with “strengthening” the org with the hiring of gen counsel Mary Jane Saunders and vp communications Chris Thorne.

Search for a successor “begins immediately.”  In the meantime, “longtime BI mgt committee member Tim Scully is interim president.”  Tim is MC’s  DC honcho.  BI gives one clue as to its future direction: “We will recruit an individual who has a clear understanding of the inner workings of Washington DC and can represent all brewers with policy makers, industry associates and partners.”  This sentence suggests that BI will look for an inside DC player this time as Joe’s background was mainly in the Navy.

Beer Inst remains a much smaller assn than its counterparts in wine and spirits, and also much smaller than either the NBWA or the Brewers Assn.  Traditionally, the big brewers have preferred to have their own individual lobbying arms doing much of the heavy lifting.  But as beer continues to lose ground to wine and spirits, as big and small brewers remain divided on issues such as tax reform, and as beer faces a growing potential challenge from the legalization of marijuana, can such an approach effectively be sustained?  For much of Joe’s tenure, we heard lots about BI’s coming push on “Brand Beer” but that hasn’t yet been implemented in a big time public way.  

Tho trial in lawsuit between partners Molson Coors and SABMiller in Canada on tap to start today, settlement talks led to postponement, reports Globe and Mail.  Recall, SABMiller tried to terminate long-term deal it has for Molson Coors to sell Miller Genuine Draft in Canada.  Claims Molson Coors missed (by far) MGD target sales for 2010-2012, so it had right to terminate.  Molson Coors sued, got injunction to stop termination. Turns out both companies had anticipated rule change regarding use of clear glass that would have allowed Molson Coors to brew MGD in Canada, instead of importing it, thus improving margins and incentives, Globe and Mail explained.  That put sales goals on hold.  But rule change didn’t occur and SABMiller sez that meant old sales targets still in effect.  Molson Coors maintains sales goals were supposed to be renegotiated and that losing MGD would be “irreparable harm” given strategic role brand plays in portfolio. 

Judge had granted Molson Coors injunction in Jul.  At time, he “said Miller has the strongest case on many of the legal issues,” but felt trial could go either way, paper reports.  Judge also pointed out both brewers “sophisticated” enough to work together despite dispute, (as they do in US) and that should “temper whatever personal acrimony may have arisen in the course of these proceedings.”  Recall too, Miller had tried to end agreement back in 2005, when Molson merged with Coors and Miller said that would reduce their incentive to sell MGD in Canada.  Lawsuit then ended in settlement to extend agreement.  Tho MGD fading fast in US, it is one of SABMiller’s 4 global brands, along with Grolsch, Pilsner Urquell and Peroni.  

Yuengling yet again went with mostly AB distribs in Massachusetts, but the exceptions are big and notable ones.  That makes its choices in Mass more of a hybrid distribution network than in several recent states where Yuengling just went with the AB network.  In Mass, Yuengling went with 5 AB distribs, 1 MC distrib and 1 craft distrib.  But the MC distrib (Atlas) and the craft distrib, Craft Brewers Guild of Boston, will get Yuengling in some of the most populous and desirable territories.   The L. Knife and Son companies (Sheehan family) emerged as a big winner in the Yuengling sweepstakes.  L. Knife got the brands in its Seabord Products and L. Knife territories.  In both, it is an AB distributor. But L. Knife also got Yuengling in the city of Boston, where it sells craft and imports.  Other AB distribs that got the brands include Quality, Williams and Girardi.

Choosing Craft Brewers Guild of Boston changes the distribution landscape in the Boston metro area.  The Craft Brewers Guild sells somewhere approaching 1.5 mil cases statewide, vast majority in Boston metro.  Getting Yuengling means it will compete on a much broader basis in Beantown in a crowded distribution landscape with at least 6 competitors, including an AB branch at near 10 mil cases, Burke Dist (MC, Boston) at around 6 mil cases, Harpoon self-distributes around 600,000 cases, Horizon is a large wine and spirits distrib that also sells around 2 mil cases of beer in Mass (mostly Heineken) and also there’s Atlantic Importing (with a number of craft brands led by Dogfish Head).  Yuengling is set to enter Mass at the end of 1^st qtr 2014.    

Customer traffic at bars and restaurants fell 3.3% in latest 4 wks thru Dec 1, and after “encouraging improvement” in Oct, “traffic has fallen back to its weakest level” since Feb, according to GuestMetrics.  Traffic is down 1.8% overall Jan-Nov.  Situation at bars/clubs got worse as traffic fell 7.1% in Nov, “a fairly sharp decline” from -4.6% previous 4 wks.  This time period includes Thanksgiving holiday too, a period that usually brings lots of young adults out to bars/clubs.  On-premise traffic is “particularly weak” after 10pm, down 8.5% Jan-Nov, which is “likely a reflection of younger adults remaining under significant economic pressure.” 

A separate report in Nation’s Restaurant News also shows that despite an improvement in same-store sales, restaurant biz remains challenged. Same-store restaurant sales were up 0.8% in Nov, a slight drop from 1% gain in Oct, per Black Box Intelligence, a mktg partner of Consumer Edge Research.  Same-store restaurant traffic improved for 5^th straight month but was still down 0.9% in Nov.  Data from co called People Report, tracking employment data, shows “rising turnover levels for both restaurant managers and hourly employees” as chains expand and put further pressure on staffing levels.    

First the good news.  Q3 beer sales in UK had “biggest quarter-on-quarter increase this century,” according to British Beer & Pub Assn, recording a 5.2% increase.  AB InBev reported its UK beer/cider volume up 4.2% for the qtr, Heineken posted gain too and Molson Coors said trends improved.  But UK govt predicts beer’s long-term decline, now into a decade or so, will continue.  Office of Budget Responsibility forecasts beer volume to “fall back a further 15%” from 2013 thru 2018/19, reports Morning Advertiser.  And wine/spirits outperforming beer there too. Same UK govt office expects wine volume to jump 54%, spirits to gain 31% over same period.  Ouch!

Citing progress after “several weeks of productive bargaining,” AB InBev and Teamsters announced resolution of “local, non-economic issues” for the 12 breweries, reports St Lou Post-Dispatch.  Details not released, but these “typically include issues such as seniority and work rules,” according to the paper.  Next up: meetings next week to start talkin’ about national non-economic issues.  Current 5-yr contract runs out Feb 28.

Citing progress after “several weeks of productive bargaining,” AB InBev and Teamsters announced resolution of “local, non-economic issues” for the 12 breweries, reports St Lou Post-Dispatch.  Details not released, but these “typically include issues such as seniority and work rules,” according to the paper.  Next up: meetings next week to start talkin’ about national non-economic issues.  Current 5-yr contract runs out Feb 28.

Goldman Sachs’ Judy Hong is a self-professed “out of consensus” bull with her “buy” rating on Molson Coors, in part because she sees “potential for better than expected volume recovery in US as employment improves and the payroll tax impact is lapped.” Not much sign of those better numbers yet as Nielsen all-channel data for 4 weeks thru Nov 30 (now including week after Thanksgiving) is down 0.9%, with premium and subpremium volume down 4-5% each and they lost 3.4 share of $$ between ’em.

But Judy sees lotsa other potential for TAP.  Molson Coors will be nearing its leverage target of 2-2.5x debt to EBITDA in 2014 and so “we expect investors to focus on the cash usage outlook,” (TAP will throw off some $770 mil in free cash flow next yr, sez Judy) including higher dividend, share buyback or potentially more m&a.  “Full ownership of the US business could be appealing if it became available,” sez Judy, because it is “TAP’s strongest market,” Molson Coors “could likely gain significant synergies by combining its US and Canadian businesses” and “it could improve efficiency and decision making processes by having one clear owner.”  Molson Coors operating margin is 20% in Canada, compared to ABI’s 38%.  TAP “has indicated” that “as much as half of this margin gap could be structural” because ABI has “integrated US/Canada platform…. Removing that structural difference could mean an additional $200 million in EBIT,” Judy said.  

No indication that SAB’s interest in MC JV is available.  But under the JV agreement, starting earlier this year, either party could offer to sell their stake, according to Judy.  Yet “it will be another 5 years until either party is allowed to make an unsolicited offer for the other party’s stake.”  Molson and Coors families “remain involved” and have 93% of Class A shares and 16% of the B shares “giving them an 18% economic interest in TAP,” said Judy.  Editor’s note: reverse also seems possible, i.e. that Molson and Coors families could decide to sell somewhere down the road, but both would have to, as Judy notes, otherwise it’s “an automatic ‘no’” on any transaction.  Meanwhile, Judy’s analysis is latest example that such talk is more in the air, but some also see TAP’s stock as value play.  It sells at 8.8x EV/EBITDA, well below the “developed market consumer packaged goods average of 10.5x.  Our sum-of-the-parts analysis shows that TAP’s US beer business may be particularly underappreciated,” according to Judy.