Amidst a disappointing overall global 3d qtr earnings report, Heineken USA “sales to wholesalers and sales to retailers were both broadly stable (adjusted for one additional selling day), contributing to continued market share gains.”  Heineken pointed to “strong double digit volume growth of Dos Equis, Tecate Light and Strongbow, partly offset by lower volume of the Heineken brand.” 

On conference call, Santander’s Tony Bucalo commented that Heineken “appears to have taken a step back” in US and asked if that’s “just a hiccup.” HUSA share gains in US “very much driven by the Mexican portfolio,” responded cfo Rene Hooft Graafland.  Tho Heineken brand “very important,” doing “relatively well” and “getting in much better shape” it “will not be a big driver of growth in the USA,” Rene acknowledged.  Future growth “will not so much come out of the Dutch portfolio” but rather Mexican portfolio, cider, innovations.

Asked about US pricing environment, Rene noted: “We see Modelo announcing some increases” in mkts like Tex and Fla.  “We will try to follow, will follow” but it’s “too early to say if prices are sticking or if they will be dealt back. Hopefully, we’ll get some pricing in the US.” 

Heineken USA is down 0.5% yr-to-date thru Oct 5 in Nielsen all-outlet data, including a 2.6% drop last 4 weeks.  Total beer volume up 0.3% in Nielsen, so HUSA just held share in these channels (with 0.1 drop last 4 weeks).  Heineken brand is up 0.5% in Nielsen, tho down slightly overall.  Tecate is off 2.9% (7.8% for 4 weeks).  But Dos Equis is up 24% yr-to-date, including 32% growth last 4 weeks.   Those 3 brands over ¾ of Heineken USA volume in Nielsen outlets.  Heineken and Tecate avg prices down slightly (less than 1%), while Dos Equis avg prices up about 1% per case.

Lower Global Guidance; Stock Drops 5% Globally, Heineken organic beer volumes were down 3% in the qtr and revs up 0.4% organically, while revenue per hectoliter up 2.7%.  Amidst lower than expected volume, Heineken also reduced its full yr profit guidance.  Now expects a slight decline in earnings, as measured by EBIT BEIA, for the yr.  Heineken “cut its outlook for full year profit after quarter sales missed estimate and weak consumption by beer drinkers in central and eastern Europe,” wrote Bloomberg, “raising concern about demand across the industry.”  Stock down about 5% this morn. 

MillerCoors is “restructuring” its workforce “to create a more balanced, efficient, organizational structure, reduce costs, drive accountability, improve execution and improve speed to market,” the co said in a statement.  In total, 200 salaried employees will be leaving and another 160 open salaried positions will not be filled. MC “believes these moves will allow more financial flexibility to help the company meet longterm investment requirements” in brands and breweries, while also allowing it to “achieve its operating margin and profitability goals.”

MC ceo Tom Long wrote employees that in time of “rapid change” in beer biz, as MillerCoors “must revitalize our flagship brands, capture above premium growth, simplify our Economy portfolio” and more, this also “demands greater financial flexibility and less organizational complexity.”  Several consultants have told MC that it is too organizationally complex in recent yrs, INSIGHTS understands.  “Each SLT [Senior Leadership Team] member decided personally which roles to eliminate or change within their function,” Tom said. “Where possible, we’ve eliminated open positions to reduce the impact on individuals. We removed layers and one-on-one reporting relationships to expedite decision making.” 

No more details at presstime as perhaps not everyone yet notified, but “process will move quickly,” said Tom, “so that all involved can begin to look forward…. We know this will be a stressful time, and we’re commited to handling this restructuring with speed, dignity and respect for all involved.” More details as they develop.   

While consultant Andy Christon had called for distribs to invest “skin in the game,” that was in the form of “deferred marketing investment.” The firm does “not advocate the sale brand rights in new territories…. We think that most brewers would agree that it is not about getting money upfront, but creating and maintaining focus for years to come,” wrote Ippolito Christon’s Karen Kovtun.  

Ain’t just WalMart lookin’ to up its game in adult bevs.  7-Eleven began selling premium wines priced at around $20 a bottle at 700 stores in 16 states and will even sell wines priced up to $54.99 “at about 300 stores” for holidays, reported USA Today.  Move is described as “a serious bid to appeal to upper-scale Millennials” and signals “changing generational tastes away from beer towards wine,” wrote paper. “We will see more of our stores adding premium and super-premium wines as demand increases,” said Alan Beach, vp of merchandising.  Stores that had carried “just a dozen or so” wines may now sell up to 40 varieties, he added.  In another bid to lure younger consumers, 7-Eleven is “poised to make wholesale changes to its look,” per FastCompany.  This is its “first brand redo” in 40 yrs.  Logo change and design changes to give interior a more upscale feel are being made to “reposition and rejuvenate…stores to better capture the millennial and female demographics.”   Elsewhere, Amazon just added 4 states where it will ship wine direct: NY, Mich, Ariz and La.  That’s 8 new states added in last yr and 20, plus DC, in toto.  Consumers can now buy 5,000 different labels from 700 wineries without leaving home.  

AB InBev remains a target of disgruntled consumers and class action attys seeking big payoffs.  While antitrust suit over ABI-Modelo deal has gone away, watered down suits remain afloat.  And now comes an unhappy Miami consumer seeking class action status in suit over AB moving Beck’s production to US in 2012.  He claims that he and others have been “deceived” that Beck’s still imported from Germany and thus paid more than they should have.  Specifically charges AB with unfair and deceptive practices under Fla law and unjust enrichment.  Seeks fed ct determination that suit is legit class action, injunction stopping AB from continuing its “deception,” a refund of its “unjust benefits,” costs and, of course, damages.  No specific amount cited, but plaintiff sez matter exceeds $5 mil. 

Suit acknowledges that each bottle label includes statement that Beck’s is “product of the USA – Brauerei Beck and Co – St Louis Mo.”  But “nowhere on the packaging of Beck’s six or twelve pack of containers does the label indicate that Beck’s Beer is brewed in the USA with domestic ingredients.”  And “the print on the bottle label is ambiguous and difficult to read.”  Packaging does mention “German Quality” and origination, tho.  AB’s “misrepresentation” also confuses retailers, suit alleges, some of which continue to call Beck’s an import and sell it at higher prices.  In addition to its own rhetoric, suit pulls stinging quote from bev analyst Gerard Rijk: “The authenticity of Beck’s is that it is a German brand with German water, with German malt, with German hops.  This isn’t about brand building.  It’s about costs.  Heineken would never do such a thing.” 

AB hasn’t responded yet in court, but St Lou Post-Dispatch reported that AB views suit as frivolous.  “Beck’s beer is meticulously loyal to its German origins -- and to the Reinheitsgebot (German Purity Law) – in the many (15) countries where it is brewed, and has been for years,” mktg veep Paul Chibe said in statement.  

While off-premise trends improve, on-premise gettin’ softer.  In last 4 weeks thru Oct 6 there were steep drops in customer traffic and volume “across the board” in restaurants and bars, reported GuestMetrics.  Overall traffic to full service restaurants and bars was down 1.7% in Q3 and slowed further to -2.5% last 4 wks.  Bars and clubs were hit particularly hard with traffic, “down a concerning -6%” in most recent 4 wks.  Beer volumes, which had improved to -2% in Q2 “but then deteriorated relatively sharply” to -4.8% in Q3, have now slid to -5.2% last 4 wks.  Spirits and wine volumes worsened as well.  Spirits fell from -3.1% in Q3 to -3.5% last 4 wks while wine slowed from -1.1% to -2% last 4 wks.  “These trends are certainly discouraging, and likely a sign of the broad consumer base that continues to be very careful with their discretionary dollars,” said ceo Bill Pecoriello.  Further weakness in last 4 wk period “is likely due to the uncertainty relating to the government shutdown, so our hope is that the recent resolution,” will help traffic and volume trends “finally start to turn a corner,” he added. 

While off-premise trends improve, on-premise gettin’ softer.  In last 4 weeks thru Oct 6 there were steep drops in customer traffic and volume “across the board” in restaurants and bars, reported GuestMetrics.  Overall traffic to full service restaurants and bars was down 1.7% in Q3 and slowed further to -2.5% last 4 wks.  Bars and clubs were hit particularly hard with traffic, “down a concerning -6%” in most recent 4 wks.  Beer volumes, which had improved to -2% in Q2 “but then deteriorated relatively sharply” to -4.8% in Q3, have now slid to -5.2% last 4 wks.  Spirits and wine volumes worsened as well.  Spirits fell from -3.1% in Q3 to -3.5% last 4 wks while wine slowed from -1.1% to -2% last 4 wks.  “These trends are certainly discouraging, and likely a sign of the broad consumer base that continues to be very careful with their discretionary dollars,” said ceo Bill Pecoriello.  Further weakness in last 4 wk period “is likely due to the uncertainty relating to the government shutdown, so our hope is that the recent resolution,” will help traffic and volume trends “finally start to turn a corner,” he added. 

Can’t say happy days are here again, but turn in off-premise biz that started in Jul scans keeps getting more positive.  At least in these channels.  Volume +2% in IRI multi-outlet + convenience (now fondly known as MULC) for 4 wks thru Oct 6, just as price hikes started to kick in.  But data shows trade up continued to drive healthy gain in dollar sales, +5.3% same period, at least as much as price increases.  Prices for most segments up in 1.5-2% range vs same 4 wks last yr.   Improvement across the board.  Domestic premium volume eked out 0.1% gain for 4 wks, $$ +1.7%. Premium volume still -1.7% yr-to-date tho.  Sub-premiums reduced dropoff rate to -2.5% from

-4.6% for 9 mos.  Imports up 8%, super premiums up 9%, PABs (slowed) +13% and craft kept comin’, +18% most recent period.  Cider still doubling. 

Perhaps most striking change: 8 of top 10 suppliers up for 4 wks, including each of top 6.  AB +0.3%, MC +0.6%.  Crown jumped +16% and Boston still tearin’ it up at +28%.  HUSA and Pabst each up 2%.  Yuengling up 0.6%, Mike’s +7%.  Only Diageo Guinness (-2.2%) and NAB (-6%) down among top 10 in this period.  Yr-to-date, only Crown, HUSA and Boston gained volume, tho 7 of 10 built $$ sales. 

Most big brands doin’ a bit better too: Bud Light off just 0.3% for 4 wks; Bud down just 0.7%. Coors Light up 1.7%; Lite -3.3%.  Corona up double-digits; Michelob Ultra up close to double-digits.  Modelo Especial jumped 25%.  Heineken even.  Among big subpremiums, Busch Light only gainer, up 4%, tho Keystone reduced dropoff rate to -0.5%.  Among newbies, Straw-Ber-Rita held 0.8 share of $$, Redd’s grabbed 0.6, Black Crown 0.3.  Yr-to-date, big brand woes continue to drag down top 2.  At AB, top 4 brands each down, 8 of top 10, with only Mich Ultra up significantly.  At MC, 3 of top 4 down, 7 of top 10.                

We just published this story on the biggest-ever craft beer deal in our Craft Brew News letter. Here it is for our Express readers.

Belgian brewer Duvel Moortgat, which also owns NY craft brewer Ommegang and hi-end importer Duvel Moortgat USA, has deal to buy Boulevard based in Kansas City, creating a new US based company.   Deal price is reportedly between $110-120 mil we hear, tho that’s unconfirmed by either party officially. That’s the 1^st major craft brewer deal for over $100 mil (tho New Belgium’s Kim Jordan sold her stake in New Belgium to employees for much more than that last yr).   AB bought Goose Island for $38.8 mil in 2011, Magic Hat bought similarly sized Pyramid 5 yrs ago for $25 mil and assumption of $10 mil in debt (NAB paid less), Fireman’s Capital bought majority of Utah Brewers Coop for $35 mil last yr.  

Boulevard expects to do 188,000 bbls in 2013, up about 8% and it was #12 BA craft brewer last yr.  Ommegang/Duvel Moortgat USA will be close to 70,000 bbls, with more than half of that Ommegang, the rest in imports.  So in one fell swoop, Duvel would become a leading player in this fast-growing segment here in the US, with ambitions to ultimately be quite a bit larger yet.  Deal is expected to close by the end of the year.

The Marriage of 2 Craft Bizzes; Approaching $300 Mil in Revs “This is the marriage of 2 craft breweries,” Duvel Moortgat ceo Michel Moortgat told CBN, “one from the old world and one from the new.” And as such, it is yet another example of globalization, the first major foray of a foreign brewer into the US craft space (Indian mogul VJ Mallya had an aborted craft rollup strategy in the 90s).  With this acquisition, Duvel Moortgat will roughly double its US business to over $75 million.  Tho Boulevard is a lot bigger than Ommegang/Duvel Moortgat USA from a volume perspective, it’s about equal from a revenue standpoint.  With the acquisition of Boulevard, Duvel Moortgat’s total worldwide biz will approach $300 million and over 1 mil bbls.  So this is not a small company by any means, but it is laser focused on the high end. 

Duvel Moortgat went private earlier this yr. Before that about 25% of its shares were publicly traded.  In 2011, last yr of publicly available data, it had operating profit of $40 mil on revs of $202 mil and it has grown since then.  So this is highly profitable co too with operating margin close to 20%.  It is reportedly acquiring $10-11 mil of EBITDA from Boulevard, paying a multiple that is roughly in line with industry norms, tho not the 12-14x that is often associated with strategic buyers among global brewers.

Diversification One Big Reason for Doing the Deal  Most of Duvel’s biz is in hard-hit Western Europe, including tiny Belgium (only about 7.3 mil bbls) where beer biz in decline in recent yrs.  So diversification has to be key strategic aim for Duvel Moortgat.  This deal will make it more balanced and less reliant on Belgium.   It’s already been in US for some time (about 20 yrs), with a successful and growing business, in a fast-growing space (ultra high-end craft and imports).  This deal will push US to around 25% of volume and over 30% of value, said Michel.

Why Is John McDonald Selling?  “Perfect Fit”  “I’m 60,” John told CBN and he “woke up a couple of years ago” and started thinking about “exit strategy.  I’ve looked at all kinds of partners… talked to a lot of great people” and “at least had [exploratory] conversations” with them.  And John “weighed” these various options.  Duvel Moortgat only came into picture a few months ago.  But the more he talked to the Duvel Moortgat folks, the more he liked their “vision and plan” and “fit…. Our brewery is better served longterm to partner with them than it is to go it alone,” John added.  In a statement, John put it thus: “Duvel Moortgat’s commitment to quality and independence, and their proven record helping breweries fulfill their potential, made this a perfect fit and an easy decision.”  

The Vision: Keeping the Biz Intact; Exports; Investments    This deal has lots of angles.  Importantly, Duvel Moortgat is “absolutely” intent on keeping Boulevard intact and building upon it.  “We don’t want to change daily operations,” said Michel.  So this is not a synergy or cost-cutting play.  Duvel Moortgat has done numerous smaller acquisitons in Belgium, keeping the bizzes there intact and growing them, according to Michel.  Boulevard’s majority owner John McDonald will still come in daily, stay on the board of the combined US entity and will remain a “significant” shareholder of US co.  That is “very important for the future” of Boulevard, said Michel.  And it is important to John to sell to someone that would preserve Boulevard’s local status and take care of his 126 employees. John is also a prinicipal in an innovative sustainable glass co called Ripple Glass with a couple of other key Boulevard employees. Boulevard had a stake in Ripple too, which Duvel Moortgat will keep. 

Sales Force Almost 50 Strong; Smokestack; Distrib Networks; 1+1=3 The two companies have roughly equal sized sales forces of 24 people, noted Duvel Moortgat USA ceo Simon Thorpe. Combined that will be “way beyond” any similar sized brewery, he asserted.  But Boulevard is in 25 states and 90% of its biz and its strengths are in the Midwest.  Meanwhile, Duvel Moortgat USA is much stronger on the coasts and lion’s share of its biz is done in a dozen largely coastal and urban mkts.  So there’s not that much overlap in their distrib networks and aligning their distrib networks is not a top priority.  “It is much more important to have highly motivated distributors than to have consolidation for its own sake,” said Simon.  The Boulevard brands are very likely to be expanded.

Could Boulevard ever brew Ommegang brands or vice versa?  Tho no one will officially say that’s the case, Boulevard brewery is highly efficient and it’s reasonable to speculate that someday Ommegang brands could be brewed there. Meanwhile, Boulevard’s higher margin Smokestack Series is right in Duvel Moortgat’s wheelhouse and is viewed as especially promising, both here and abroad.   “We will look where those brands can help each other,” said Michel.  The idea is to “achieve that 1 +1=3,” he added.  Duvel Moortgat’s global chief operating officer Daniel Krug will relocate to Kansas City for the first several months of the deal.

Exports “Certainly One of the Purposes” of Deal  So said Michel.  Nowadays American beer starts “to become very interesting” to Europeans and even Belgians. And as a Midwest heartland “icon,” the Boulevard brand could play well in Euro mkts, said Michel.  Once again, the Smokestack Series “has the most potential here and in Europe.”   Today American brewers “are probably more creative” than Europeans, said Michel.  “We have the legacy” in Europe.  US brewers “don’t have the weight of history,” he added. “That’s a very strong asset.”

Duvel Will Invest $17 Mil Over Next Few Yrs Boulevard has had some capacity constraints.  Not in brewing or bottling, but fermentation and cellaring.  So Duvel Moortgat has “an ambitious investment plan” and will break ground in 2014 on a project called Cellar 5.  It will invest $17 mil spread out over yrs.  This deal is far more about finding “top line synergies,” said Simon, and figuring out “what we need to invest to drive growth.”

Boulevard’s Slower Growth and Battle in Home Mkts  Boulevard has  not kept pace with segment growth in recent yrs.  It grew 1% in 09, 7% in 2010, 5% in 2011, before returning to double digit growth in 2012 and 8% growth this yr.  Missouri is of course Boulevard’s #1 mkt.  Boulevard did 37% of its biz there in 2012.  So far this yr, Boulevard is up less than 1% in its home state, but that is based on volume.  Since good chunk of volume has become Smokestack in recent yrs, biz has healthy value and profit trends, sources say.

This deal will make Duvel Moortgat a very serious player in US craft arena. But oddly, because of foreign ownership, Boulevard will likely no longer be a voting member of the Brewers Association.  “Don’t get me started,” said John.  First Beverage represented Boulveard in the sale.  Other bidders at different points had reportedly included MC and an unnamed family office (a type of private equity firm).  Yet Duvel Moortgat and Boulevard seem very much on the same page and a fine fit to start. 

The 20^th annual Beer Insights Seminar is coming right up on Monday November 11^th at the Waldorf=Astoria in NYC.  It’s a jampacked day with up-to-the minute content plus plenty of time for networking with industry leaders.  Seating is limited.  Click here for more info.  Click here to register.

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