“Beer and ready to drink, it was tough” in US, Diageo global ceo Ivan Menezes bluntly put it on conference call earlier this week. Recall, Diageo Guinness USA’s malt bev biz off 7% for fiscal yr thru Jun; beer -2%, FMBs down 10%. Ivan, Diageo’s NA prexy Larry Schwartz and other execs have pointed to challenges of: lapping Guinness Black Lager, that brand’s disappointing performance, FMB pouch oppy was “overestimated,” some “issues” transitioning Red Stripe to US production and Guinness facing increased competition from high end across beer. But Ivan said “we’re about to unveil some strong marketing behind Guinness this year.” And Larry offered this prediction: “I think we’ll figure out beer this year. It certainly won’t get in the way, as it did” in fiscal 13. He pointed to “a lot of good things going on Black Lager” and “now we have the right estimates going forward” on pouches. “So I think beer will be accretive to what we’re trying to do.”

On overarching picture of spirits vs beer, Diageo sees spirits maintaining momentum. (Larry already has that biz figured out here.) “The demographics are good, the premiumization trend is good and spirits are still taking share away from beer,” said Ivan. So he’s “confident about the trajectory” of spirits in US. Asked about beer’s softness and weather impact, Larry said: “I think you mentioned weather. I know that’s what the beer companies are saying so I guess that’s hurt. I guess part of the [payroll] tax increase seems to have hurt beer. I think also that some innovation in beer has softened beer this year too. But we see spirits continuing to take share from beer. We don’t see that stopping anytime soon. It seems to be strengthening right now.” One reason for spirits share gains, according to some observers: softer spirits pricing while beer prices up. Larry: “We’re back to pre-recession levels of price” on spirits in US. “We had a good year as it relates to price this year, and we see no reason why we can’t get price next year.”

More big changes coming at retail, according to consultant Bump Williams. “I expect a dramatic change in the Fall Shelf Sets,” Bump wrote to clients this week “with High End beer taking a lot more facings and shelf space from the slower moving domestic premium and below premium packages.” Bump cited “slower volume trends for the largest inventoried brands in the stores” and “a lot of domestic beer getting older by the day out there.” That’s even while beer biz did quite a bit better over the 4th of July holiday period, volume up 0.5% for 4 weeks thru Jul 14 in IRI all channel data. Convenience channel still quite soft, “suffering the woes of a poor economy,” noted Bump. Largest channel down 2% for 4 weeks thru Jul 14 in IRI, 3% yr-to-date. Subpremiums down 8% in convenience stores and premium beers down 3%.

Boston Beer blew thru analyst expectations and stock soared 12% yesterday to over $203 and a mkt cap of $2.6 bil (a small brewer?). It’s up again today. Boston’s growth markedly accelerated in Q2; depletions up 24% in qtr. Boston up even faster in scan data; gained 35% last 13 weeks thru Jul 14 in IRI all-outlet + convenience data. Boston Beer up 29.5% and gained 0.4 share of $$$ in IRI yr-to-date. That’s more than any other player in the industry (Crown gained 0.3) and also quite a bit faster than Boston’s all-channel depletions growth of 22% thru Jul 20. Even 22% on Boston’s base is still some pretty crazy growth. But is it sustainable? Angry Orchard has been killing it, but comps get much tuffer from here. So its future growth depends on how high is up for cider. Twisted Tea picked up steam after slow start. Most interesting: “pretty good turnaround” in Boston’s Sam Adams biz that started late in 1st qtr. Seasonals up 24% for 13 weeks in IRI, Lager up 12% and Variety Pack up 39%, a strong set of numbers. If mainstream light beers getting even tuffer and craft beer has indeed achieved a kind of tipping point which resembles a revolution (see latest Beer Marketer’s INSIGHTS), is it possible that Boston, with its huge sales force, increased investments and lead position in craft, could be a big future beneficiary?

Join us for the 20th annual Beer Insights Seminar, Monday November 11 at the Waldorf=Astoria in NYC. The Seminar is a premier annual beer biz event. You won't want to miss this one. Just added: a new panel called "National Retail Strategies: Challenges and Opportunities in the Growing Chain Retail Environment." Consultant Bump Williams will moderate a distinguished panel of domestic brewer, import, craft and retail execs. They'll discuss the rapidly evolving retail environment and how to address the growing influence/power of national chain accounts. Panelists include MillerCoors chief customer officer Kevin Doyle, Crown exec veep sales Bruce Jacobson and Boston Beer sales veep John Geist. The seminar will also feature 2 fast-rising young execs, AB sales vp David Almeida and Heineken USA president Dolf van den Brink, as well as outspoken Harpoon ceo Rich Doyle. As always, BMI's Benj Steinman will present an overview of industry trends. More speakers will be announced in coming weeks. The seminar is $1150 per person. Sign up for what's sure to be a jampacked and insightful day. Seating is limited. Click here for more info. Click here to register.

New data suggests reasons why, beyond economy and weather, big suppliers are experiencing tough trends for their light brands this year and may have big challenges ahead. In Consumer Edge Research's quarterly survey of 2,000 alcohol drinkers, almost 20% of the 1,750 who say they drink beer indicated they are drinking less domestic premium light. Those drinking fewer light beers "are more likely to be doing so" because of change in taste preferences rather than spending and other factors, CER found. Biggest issue: they are "getting tired of the taste," cited by 27% of respondents drinking less of premium lights, followed by 21% who were drinking "other types of beer." While 20% indicated they drank less light beer to save $$, 17% said they had shifted to "other types of alcohol more often, suggesting some share losses to wine and spirits," noted CER. And an especially alarming stat: agreeing with the comment that they were "tired of the taste" was "especially prevalent" among most important demographics for beer: 40% of those 21-27 drinking less light beer said that and 39% of Hispanics drinking less premium light beer.

"Our latest consumer research reveals some serious warning signs for the premium light segment," said prexy David Decker. While domestic lights "dominated" the US mkt for a long period, "many beer drinkers, particularly younger ones, are finding they prefer the stronger and more varied tastes of imports and craft beers instead," he added. Premium light brands were named as their "favorite" type by 28% of beer drinkers in Jun 2013 survey, down from 32% a yr ago while craft was named as fave by 15%, up from 13% in Jun 2012. Perceptions of light beers "show signs of gradually weakening," noted CER, as 30% said they perceived them as "tasting great," down from 33% a yr ago. Also more beer drinkers (37%) described them as "watery" compared to Jun 2012 when 34% felt so.

As hot as Boston Beer is, the craft brewer with the most outsized growth is Petaluma, Calif-based brewer Lagunitas. It's poised to pass Deschutes for #5 on the Brewers Assn list and sell well over 400,000 bbls this yr. Lagunitas shipments up 88% in 1st half and sales-to-retailers up 75%, chief oper officer Todd Stevenson told our sister pub Craft Brew News yesterday. That kinda growth is showing up in scan data too, where Lagunitas up 81% yr-to-date in IRI all outlet + convenience. Up 98% last 13 weeks. Wow!

Flagship Lagunitas IPA is about 55% of its biz and it's up 70%, but secret weapon just may be Little Sumpin' Sumpin', which is up 105%, according to Todd. With the recent addition of new fermentation tanks, Lagunitas can brew as much as 500,000 bbls in Calif, but don't forget 2d brewery in Chi is scheduled to open in Dec. That will have an initial capacity of around 200,000 bbls. It will cost $22 mil, founder Tony Magee told Crain's Chicago Business recently.

US taxpaid shipments dropped another 300,000 bbls, 1.8% in Jun, estimates Lester Jones of Beer Inst.   Means taxpaid shipments dropped another 900,000 bbls, 1.8% Apr-Jun and now down  2.4% for 6 mos.  Imports down about 150,000 bbls, 1.2% for 5 mos, and Jun not available yet.  So depending how Jun imports come in, shipments likely down near 2.5% in 1^st half.  But both domestic shipments and imports put up spectacular gains last yr Jul-Aug; up 1.9 mil bbls, 5% between ’em.  So tough comps ahead.

Depletions down more than shipments.  Total beer biz STRs down about 2.8% in both qtr and half, estimated ABI ceo Brito on conference call this morn (using ABI #s, not Beer Inst stats).  That’s selling-day adjusted.  Means raw number is over 3.5%.  Not very good. Yet Brito looked to the bright side, pointing out that estimated depletions trend improved every mo since Feb.  Down 4% in Feb, 3.2% in Mar, 2.8% in Apr, 2.1% in May and just 1% from June 1 thru 1^st week of July (ABI added 1^st week of July to smooth for distortions based on holiday timing).

 

Boston Beer sales-to-retailers jumped 24% and shipments up 21% in 2d qtr. Revs jumped $33.8 mil, 23% to $181 mil. And operating income up $8.6 mil, 37% in Q2 even with markedly increased costs. That put Boston Beer depletions up 21% for 6 mos and shipments up 243,000 bbls, 20%. These sales are so far ahead of its own initial projections that Boston Beer hadda raise its guidance by a bunch. Now expects depletions growth of 17-22% for the full yr, compared to "previously communicated estimate of 10% to 15%."

Boston is much, much hotter than it expected to be. These outsized Q2 results "primarily due to the improved growth" of Seasonals and Boston Lager, said Chairman Jim Koch. "We believe that our depletions growth is attributable to strong sales execution and support from our wholesalers and retailers." It's also because of cans and the phenom that is Angry Orchard. For 29 weeks thru Jul 20, "depletions are up approximately 22%."

Boston's sales are so strong that even tho it raised estimates substantially on capital expenditures, expenses on Alchemy and Science, and ad, promo and selling expenses, all by millions, it still expects to make a lot more money this year. Rev per bbl is only up 1%. Still, Boston raised its earnings per share expectation to a range of between $5.10 and $5.40 per share, up from $4.70 to $5.10. More details in tomorrow's Craft Brew News.

“How do you optimize upscale?” is key question that HUSA aims to answer for retailers with “ramped up arsenal of tools” and “proprietary shopper insights,” HUSA sr director, category mgt (and former Nielsen exec) Nick Lake told INSIGHTS. In this tough environment, retailers are hungry for growth, to drive traffic and to successfully segment shoppers in increasingly fragmented and competitive landscape. Beer is big powerful category (#3 in $$, #3 incremental $$ in Nielsen across channels last yr) that can be answer, especially upscale. Upscale shoppers are more loyal, 30% buy only “upscale” compared to 18% of mainstream shoppers. HUSA also found that 90% of retailers that are growing with beer are “growing upscale faster than mainstream.”

Within upscale, Nick is making the “case for imports,” which he said “drive volume more efficiently than craft,” have a higher basket ring and import shoppers “make more trips to the store annually.” Plus imports have a far more multicultural consumer base. In terms of greater efficiency, the top 10 growth SKUs in imports added 5.5 mil cases last yr, while the top 10 craft growth items added 1.6 mil cases, he said. And they moved faster too; at 139,000 cases per point of distribution, compared to 53,000 cases per point for craft. The best way to optimize upscale is to “win with upscale imports” while “optimizing craft assortment,” said Nick.

HUSA is “uniquely positioned” to win with upscale shopper and its portfolio strength with multiculti shopper is nonpareil, notes Nick. Heineken is “back in black” (in Nielsen), Dos “chugging along” at near 20% CAGR last several yrs, Tecate Light up almost 50% (again in Nielsen) and Newcastle “bigger than 99%” of craft brands. Newcastle hasn’t gotten its “fair share of promotions,” said Nick. “When it does, it outperforms.”

Largest distiller Diageo also released results this morn and its US spirits biz showed strong growth in contrast to ABI’s beer biz, tho emerging mkts have challenges. Diageo’s US spirits biz up 3% for 12 mos thru Jun, net sales up 8% and North American oper income up 10% to $2.3 bil. Despite this overall strength in US, Diageo’s DGUSA unit continues to struggle with volumes down 7% for 12 mos. Ouch. Beer volume down 2% (an improvement from 4% drop after 6 mos, implying flat Jan-Jun) but its ready-to-drink volume down 10%. DGUSA had “a difficult year,” said Diageo North America prexy Larry Schwartz, “with increased competition from new entrants in flavored beer.”