The distribution landscape is changing rapidly in Chicago, and so is the marketplace. Consider what's happened in just last yr or so: 1) Reyes Beverage Group bought approx 900,000-case Windy City in Dec 2012 for about $70 mil and Windy City continued to grow 40%+ in first yr after Reyes purchased it. RBG reportedly expects similar growth rate in 2014. Despite what seemed like high purchase price, so far this deal looks like a home run; 2) Hand family companies struck deal with AB to buy out its 30% stake in City Bevs. And ILCC just gave thumbs up to Hand, approving its license on Jan 22. Deal expected to close by end of mo. Partner BDT Capital also purchased River North for near $50 mil, thereby finally unifying AB's distribution throughout Chicagoland; 3)giant wine and spirits distrib Wirtz has aggressively courted craft brewers, landing such players as Deschutes, Ballast Point and Ale Asylum (and several others) in its 1st yr.

Each of these 3 distribution developments increases competitive pressure on still-dominant distribution network in Chi metro: that's Chicago "cluster" of 8 MillerCoors distributors that also mostly has Crown, Heineken and other key suppliers. That pressure heightened by recent MillerCoors declines; Miller Lite down double digits in 2013 in Chi area. Overall Chi mkt declined several points last yr and off to soft start in 2014 amidst deep freeze. Biz down only 0.5% in IRI multichannel + convenience, but much softer on-premise and in independents. MC lost 2 share to 45 of volume and over 2 share to 37 of $$ in IRI last yr. AB gained small amount of share; at 25 of $$, 27 of volume. Then too, craft, especially local craft, is taking off.

The cluster used to get almost all new brands. But now new brands starting locally or coming to Chi have 3 well-funded one-stop solutions for entire metro area (Windy City, City Bevs and Wirtz). That makes it more difficult for Chicago cluster of MillerCoors distribs, to land new brands. The cluster contends they give superior up-and-down the street service, but many suppliers could well opt for more unified and/or craft-centric approach. Another distrib, Glunz Bevs, longtime stalwart of smaller indy brands, lost Dogfish Head, Revolution and Three Floyds in last yr alone. So lots changing.

Meanwhile, purchase of Windy City has proved more powerful than RBG could initially have imagined. It passed 1.3 mil cases in 2013 and is expected to get close to 2 mil cases in 2014, led by surging Lagunitas. Lagunitas doubled in 2013 and expected to double again in Chi in 2014, with opening of Chi brewery. "The MillerCoors cluster held craft in a niche" in Chi, sez Lagunitas founder Tony Magee. But when Reyes bought Windy City, "craft beer found a clear channel to market and other distributors had to readjust their strategies." Deal also had natl influence, sez Tony, because when other distribs across US saw how much Reyes had paid and how much growth it got, that raised stakes for all distribs to play more effectively in craft. Windy City also scored such brands as Three Floyds and Surly in entire metro area. Yet in 2013, 2 other hot craft brands that moved, Revolution, a local leader, and Dogfish Head, got split among the cluster. (Dogfish Head recently noted that its volume jumped 40% in Illinois.)

When Reyes Beverage Group first bought Windy City, MC cluster of distribs demanded meeting with RBG to voice displeasure at what they viewed as RBG's incursion on their turf and disloyalty to its MC distrib brethren. They also resented what they viewed as Reyes attempts to trigger consolidation. Many in cluster apparently adamant they're not going anywhere. Windy City deal had other purposes, such as to get more deeply into craft and to fend off other possible bidders. Still, makes for another testy distrib-to-distrib environment with winds of change blowin' again in early 2014.

Another local fave, Half Acre, has been capacity constrained and only sold about 14,000 bbls. But it has plans to get much bigger. And it just sent another shockwave thru Chi distribution land, reportedly terminating 3 distribs, Town & Country, Mullarkey and Fred Losch that sell north of Chicago. Half Acre will move to Windy City both north of Chicago and expanding to South of Chicago (where it historically hasn't sold). Under Illinois law, it's possible to move brands that represent less than 15% of volume as long as seller gets fair market value. Could there be more fallout in critical Chi? Stay tuned.  

Yet another forgettable year for most top beer brands in US as losses widespread, gains few and far between. This year's table includes top dozen as 4 brands bunched at bottom (of top brands list) had shipments between 3.94 and 4.1 mil bbls, we estimate. These are our early estimates, which could be tweaked as more data emerges.

"Whatever happens" at Super Bowl and with new Bud Light campaign, you can see why AB needs to turn Bud Light back toward the black. Bud Light down estimated 1.5 mil bbls, near 4% in 2013. That's by far its biggest-ever drop and 1st time that it lost more bbls than any other brand in beer biz. Bud Light suffered its 5th-straight loss, but only 2d time it lost more than 1 mil bbls in 1 yr. It shipped 4.2 mil bbls, 10% less than in 2008, its peak yr. Ritas made up big chunk of loss last yr, likely gaining more than 1 mil bbls, but Bud Light Lime and Bud Light Platinum each down double-digits, over half-mil bbls, we figure. AB said in Nov that Bud Light Mega at its highest share.

Coors Light and Miller Lite down too. So another unfortunate 1st in 2013: never before were all 3 top premium light beer brands down in a single year. Coors Light ended yr ahead in off-premise scans, as we noted last issue, but its total shipments down 435,000 bbls, 2.3%. That broke 8 straight yrs when Coors Light posted gains. Miller Lite off another 1 mil bbls, 7%, its biggest hit since 2009. Slipped below 14 mil bbls for first time since 1980. So top 3 premium lights combined for 3-mil-bbl, 4% loss and shed 1 full share, compared to 1% loss in recent yrs. That's a big deal. Bud moderated dropoff, but still down 800,000 bbls, 4.8%; incremental Black Crown probably cut that loss almost in half. Add 'em and top 4 brands down 3.8 mil bbls, more than 4%, while total biz shed about 3 mil bbls. Those brands still represent over 40 share of entire biz and are still big powerful brands. But when they don't do well, very hard (impossible?) to make up the volume. Compare top 5 brands in spirits. Smirnoff, Bacardi, Captain Morgan, Jack Daniels and Absolut had about 17 share of US spirits, according to Impact Databank, and tho far from afire collectively, they combined for 0.3% gain in 2013.

First rank change in top dozen: looks like Corona edged Natty Light for #5 spot. That fits another key trend: high end brands gaining ground while subpremiums recede. Corona up slightly (2.5%, we estimate) while Natty took a big hit, like -7%. So only 75K bbls or so separate 'em. Busch Light scored very modest gain and held on to #7 slot. But Busch dropoff more than offset that increase; down another estimated 325,000 bbls, 6%. Then it gets really tight. Looks like very healthy Mich Ultra jumped several spots into top 10, coming in at #9, with high single-digit increase and shipping 4.1 mil bbls. Our estimates show Heineken and High Life neck-and-neck at 4 mil bbls, with High Life down double-digits, Heineken down about 4%. Keystone Light very likely dropped out of top 10 just 3 yrs after getting into top 10, with 5% decline. But these rankings could change.

Look at 5 yr trends. As noted, Bud Light 10% off peak. Coors Light still up for 5 yrs: about 500,000 bbls, 3%. Busch Light up for 5 yrs too and Mich Ultra built its biz by over 20% since 2008. But all other top brands down during this period, several significantly. Bud shed over 6 mil bbls, nearly 30% since 2008. Lite lost 4 mil bbls, 23% last 5 yrs. Also down in 20% range: Natty Light, High Life and Heineken. Busch not much better at -17%. Top dozen brands still 61 share of total beer, but down from over 2/3 in 2008.  

AB started off yr announcing deal to add another branch, this one in craft-centric Oreg mkt (1st reported in INSIGHTS Express). AB "exercised our match right," sales veep David Almeida said, and will buy 1.7-mil-case Morgan Dist. Fits AB branch strategy to expand in difficult mkts like Pac NW and in mkts near other branches. But deal in works had been with contiguous AB distrib Maletis Bev. So AB as buyer here seemingly restricts Maletis oppys. That was also 2d match and redirect in recent mos. It followed recent Schatz deal in Kans where AB also exercised match right and redirected to Wil Fischer, a non-contiguous Missouri distrib. These AB decisions created further unease with at least some wholesalers and advocates, and some questioning of economic rationale behind deals.

Oreg is one of tuffest mkts for AB. AB down about 15% there between 2008-2012 and down to 30 share overall. But in Portland supers, epicenter of craft, AB down to just 17.3 share of $$ for full yr, sez IRI. It's down 6% and lost another 1.4 share in 2013. AB down to 16.4 last 12 weeks. INSIGHTS has never seen lower share #s for AB in scan data. Morgan also has CBA, and some smaller craft brands. But can AB really do better than an indy distrib there? AB increasingly competes against megadistrib Columbia on I-5 corridor; Seattle, Eugene and now part of Portland. Columbia has enormous craft book as well as MC, Crown and HUSA and it reportedly had a strong 2013. AB desire to expand branches remains highly controversial among many AB distribs. Recall, NBWA chairman Greg LaMantia speech that called them "detrimental" to indy 3-tier strength and "long term value."

In Kans, AB match and redirect on Schatz deal also raised eyebrows. Original buyer was O'Malley Bevs, contiguous distrib that had appetite as consolidator. Instead, AB went with Wil Fischer from Mo, which won't capture synergies from deal. "The holy grail of efficiency is not met or even approached," said one longtime industry observer. In each of Kans and Portland, AB's choices seemingly sent message to jilted AB buyers and others. In Mo, O'Malley had reportedly lobbied for anti-branch provision. In Oreg, Maletis sells craft brands outside its own footprint and even competes with AB branch. AB looks for buyers aligned legislatively and not selling outside their AB territorial footprint. It has said this since then-prexy Dave Peacock's speech in 2011. But as AB further shapes its distribution network according to its preferences, there are also costs associated with its choices. Uneasy relationships with lotsa distribs, for these and other reasons, may just cost it some biz. And what's happening to value of branch assets, especially in craft-centric locales? Is that best use of AB resources or best way to go to mkt?  

Constellation blew thru Wall St earnings estimates with Crown sales the "primary driver" and "phenomenal" Crown growth in fiscal 3d qtr thru Nov, as ceo Rob Sands said on conference call. Call heavily featured Constellation's beer biz compared to past calls. No wonder! Beer now much bigger % of STZ's biz, and performing far better than wine and spirits too. Crown revs up 21%, shipments up 17% and STRs up 10%, as inventories got back to normal and Crown trends picked up steam. Oper profit margin came in at 32% in qtr!

All Crown's core beer brands up. Modelo Especial up 18% in qtr, Corona Extra up almost 6% and its underdeveloped draft biz up 30+% in qtr. Even Victoria has returned to growth; up 20% in latest qtr. Some large Crown distribs INSIGHTS talked to had even faster growth in Dec. Crown up 17% in Fla in Dec for example. Crown up 12% for last 13 weeks thru Dec 29 in IRI multi-channel + convenience. Two big initiatives will be mostly incremental in 2014: Modelo Especial Chelada and natl expansion of Corona Light on draft.

Rob Sands praised wholesalers several times on call, citing their "excellent execution" as a big factor in improved growth. "They really have gotten behind it in a big way, which from a push perspective, is really driving the continued expansion of the brands at retail." With rest of biz "pretty lackluster and down," noted Rob, Crown wholesalers "are really looking at our business as being the only material business that they have, which is really driving growth and profitability for them for the future." Constellation execs also contrasted Crown favorably to craft, saying non-Corona brands in Crown portfolio "will turn much better than almost all craft brands and deserve more shelf space," as does Corona. "We provide a lot of the benefits of craft beers, but we have much more scale." About Crown's fast-growing draft biz, Rob noted it "doesn't take much of a strategy, given that it's a called for item in most cases." He contrasted that to craft where "you're talking about tiny little brands nobody's ever heard of outside their city."

Constellation raised full yr guidance on Crown. Now expects revs up high-singles, depletions up mid-singles and profits up low to mid-teens. For 9 mos, Crown revs up 8.6%, shipments up 6.2% and depletions up 6.6%. Crown retail sales trends outperforming ABI and MC by almost 10 points. But Constellation careful not to "extrapolate" Crown's recent success too far into future. "For the longer term, it's fair to count on or expect more like mid-single digit growth in total." Its pricing more healthy too, with revs 4 points ahead of shipments in 3d qtr, suggesting avg price/mix increase of 4% per bbl. While there are "anomalies" from qtr to qtr, cfo Bob Ryder said on conference call "our price mix in beer is consistent with what we've been talking about all year, and that's probably right around 2%." Asked about pricing on CNBC, ceo Rob Sands added: "We've been pretty judicious when it comes to pricing… pricing below the market in general" in past, which has averaged 3% increase per yr.

Following results, stock popped nearly 10% to all-time high of $77 per share. That put stock mkt capitalization at $14.5 bil. For 2d yr in a row, Constellation stock "best performer in the S&P 500 consumer staples universe... increasing almost 100%" in 2013, noted Rob. Before ABI bought Modelo, and Constellation got other half of Crown and Piedras Negras brewery, its stock stuck at about $20 per share.  

Top brands' volume trends all over the lot in 2013. Bud Light -2% and share dipped 0.5 to about 21 across outlets, according to IRI. Coors Light up 1.6% in scans, tho overall STRs down almost 2%, we hear. Bud reduced dropoff rate to just 3.3% and $$ down only 2.4%. With Black Crown, Bud up slightly. Miller Lite down nearly 5% and even its $$ sales down 3.5%. Together, top 3 premium lights lost 8.7 mil cases across these channels, IRI reports, and share slipped 0.7 to 35.8. ($$ share loss was 1.2.)

Natty Light took a 7% volume hit and Busch down 5.4%, way offsetting modest 1% Busch Light gain. Corona still well below Natty Light in volume, despite 5.2% gain. It passed Natty Light in $$ with 6.6% increase and now #5 brand in scan $$. Mich Ultra had big yr: volume up 2 mil cases, 7% in IRI. It was significantly ahead of Heineken and Busch in $$ sales across these channels. Heineken down near 2%.

Modelo Especial gettin' closer and closer to top 10, at least in $$. Volume jumped 20%; $$ up 24%. Goin' in opposite direction: Key Light, High Life and Natty Ice, each off in 5-10% range. But Pabst Blue Ribbon continued to buck subpremium trend: +8%. New-brand star of 2012, Bud Lt Platinum, lost almost 20% of its debut-yr volume, 2.7 mil cases. And Bud Light Lime down 1.7 mil cases. But Ritas combined for nearly 9-mil-case incremental gain in these channels. Other notable brand trends: Yuengling Lager (-1%), Bud Ice (+2%), Dos Equis Lager (+21%), Corona Light (+5%), Blue Moon Belgian White (+13%), Stella (+16%).  

Top brands' volume trends all over the lot in 2013. Bud Light -2% and share dipped 0.5 to about 21 across outlets, according to IRI. Coors Light up 1.6% in scans, tho overall STRs down almost 2%, we hear. Bud reduced dropoff rate to just 3.3% and $$ down only 2.4%. With Black Crown, Bud up slightly. Miller Lite down nearly 5% and even its $$ sales down 3.5%. Together, top 3 premium lights lost 8.7 mil cases across these channels, IRI reports, and share slipped 0.7 to 35.8. ($$ share loss was 1.2.)

Natty Light took a 7% volume hit and Busch down 5.4%, way offsetting modest 1% Busch Light gain. Corona still well below Natty Light in volume, despite 5.2% gain. It passed Natty Light in $$ with 6.6% increase and now #5 brand in scan $$. Mich Ultra had big yr: volume up 2 mil cases, 7% in IRI. It was significantly ahead of Heineken and Busch in $$ sales across these channels. Heineken down near 2%.

Modelo Especial gettin' closer and closer to top 10, at least in $$. Volume jumped 20%; $$ up 24%. Goin' in opposite direction: Key Light, High Life and Natty Ice, each off in 5-10% range. But Pabst Blue Ribbon continued to buck subpremium trend: +8%. New-brand star of 2012, Bud Lt Platinum, lost almost 20% of its debut-yr volume, 2.7 mil cases. And Bud Light Lime down 1.7 mil cases. But Ritas combined for nearly 9-mil-case incremental gain in these channels. Other notable brand trends: Yuengling Lager (-1%), Bud Ice (+2%), Dos Equis Lager (+21%), Corona Light (+5%), Blue Moon Belgian White (+13%), Stella (+16%).