A-B Placing Ingredients Panels on At Least One Other Bud Light Line Extension

Dear Client:

This just in: BBD has received word from alert distributors that A-B is placing ingredient panels on the packaging of at least one other brand, in apparent response to criticism by MillerCoors and others about not being transparent with their other brands.

Bud Light Orange is already hitting distributor warehouses this week featuring a prominent nutrition panel on secondary packaging. And while the packaging still features a logo saying it is not brewed with corn syrup, it does list “corn” as an ingredient, along with barley, cane sugar, natural flavors, citric acid, orange peel, and hop extract. It weighs in with the same calorie count as BL Orange last year, 142 cals.

Recall that BL Orange is a seasonal product, so it can hit the shelves almost immediately if there was a change in ingredients and/or packaging, because there’s no trade inventory. But having the packaging ready — this wasn’t a snap decision — I think A-B is playing a long game here, clearly. I would suspect this is just the first of other of their brands to feature information panels as they run through legacy packaging, and perhaps ingredients. (Note that A-B has more flexible brewing capabilities with regard to the range of ingredients possible than their competitors, according to sources, albeit ill-begotten).

IS IT A LEGAL THING? Yes, of course it’s legal, but no, it’s not official. A-B’s “Ingredients” panel is not covered under the 1990 law which directs the FDA to require nutrition panels on most packaged foods, as alcohol is exempt. In other words, while A-B’s Ingredients panel looks like an official FDA panel, it is just actually a packaging option. However, A-B says it lists all the regular stats of the FDA-sanctioned nutritional label, but it doesn’t fall under any law.

A-B DEPLETIONS DOWN 2.8% in Q4, BUT PLENTY OF BRIGHT SPOTS

ABI’s results for the fourth quarter and full year hit this morning. Here are the highlights from the U.S.

U.S. depletions were down 2.7% in the full year, and down 2.8% in Q4. Shipments on the other hand were down 2.6% for the full year, but only down 0.1% in Q4.

REVENUE UP IN Q4. A-B’s U.S. revenues grew in the fourth quarter, up 1.3%, but down 0.7% for the full year. Meanwhile revenue per hectoliter for the brewer grew both in Q4, up 1.4%, and the full year, up 1.9%, thanks to “management initiatives and continued premiumization of our portfolio,” A-B noted in the release.

BEST ANNUAL SHARE TREND PERFORMANCE SINCE 2012. One highlight A-B noted up and down the release was this: it delivered its “best annual share trend performance since 2012” in the U.S. A-B estimated its decline in total market share to be 40 bps for the full year. Then in the fourth quarter, the brewer estimated a decline of 20 bps, which marks their “strongest quarterly trend performance in 24 quarters.” A-B attributed this achievement to the “evolution of our commercial strategy, led by premiumization and innovation.”

Indeed, A-B’s “above core” portfolio and suite of innovations had a killer 2018. Check it out:

MICH ULTRA CONTINUES TO DRIVES ABOVE CORE. Their above core accelerated share gains to 90 bps in 2018 versus 50 bps in 2017, which A-B attributed first and foremost to Michelob Ultra, a brand that “accelerated” its growth in Q4, “solidifying its position as the top share gainer in the US for the past 4 years.” The brewer also noted that its regional craft portfolio, Bon & Viv SpikedSeltzer and innovations in the segment also contributed to its share gains during 2018.

CRAZY STAT ON A-B INNOVATION. A-B shared that its “2018 innovation pipeline contributed 50% of total industry innovation volume.” The heavy lifters in this innovation pipeline? Michelob Ultra Pure Gold, Bud Light Orange and the Budweiser Reserve series, all of which “had a strong year and continue to gain share, enhancing the premiumization of our portfolio,” said A-B.

BUD AND BUD LIGHT “PERFORMING BETTER,” BUT… A-B shared that Bud and Bud Light are “performing better” than the year prior in their respective segments, but the “core and core light segments remain under pressure as consumers trade up to higher price tiers.” All in, Bud and Bud Light lost 35 bps and 80 bps of estimated total market share, respectively, for the full year, and 30 bps and 70 bps, respectively, in Q4.

EBITDA UP IN Q4, BUT DOWN FOR THE YEAR. A-B’s EBITDA grew by 6.2% with margin expansion of 191 bps to 41.4% in Q4, “as a result of top-line growth and lower SG&A costs related to the timing of variable compensation accruals and lower freight cost pressure as we cycle the previous year’s increase.” Still, for the full year EBITDA declined by 2.3% with margin contraction of 65 bps to 40.3%, “as an improved top-line performance was more than offset by commodity headwinds and higher distribution expenses related to a tighter US freight market.”

ROUGH WEEK FOR HEINEKEN N.V.

Yesterday was a tough news day for Heineken, NV. They cut a big portion of their sales staff in the U.S., they lost exclusivity with Mexico’s largest c-store operator, OXXO, to A-B’s Modelo; and in other news, their big purchase announced last summer of China’s top brewer is reportedly hitting antitrust barriers.

Recall last summer Heineken purchased a 40% stake in China Resources Beer Holdings Co., maker of the country’s best-selling Snow brand, which ABI had spun off as part of their SABMiller acquisition. Now there are gathering clouds on that deal, as it is apparently facing antitrust scrutiny, according to Capitol Forum. They say China has opened a round 2 inquiry (rather than waiving it through), so another 60 days for this, and if there is a phase 3 another 90 days.

U.S. BACK TO LEAN GREEN? It was no big secret Heineken USA was making the tough decision to cut sales staff as sales have stalled. I believe that was one of the reasons Maggie Timoney was hired to lead HUSA in the first place, to assess the situation and make those tough decisions. “I’ll be judged on my results,” she said. And that includes bottom line.

Heineken NV has always struck me as a “thick” organization, which I don’t mean as an insult, just meaning it is used to growing (and continues to globally), so they err on the side of adding resources rather than cutting, as ABI does.

But I sensed their CEO Jean-Francois van Boxmeer was growing weary of HUSA’s performance on their last conference call two weeks ago when he said, “It is true that the market is suffering and you have very little winners and a lot of losers in 2018,” he said of the U.S. “We are a small player and we are also rather at the side of the losers… I have to admit that.”

“We are not satisfied with it,” Jean-Francois continued. “We have to work hard to put ourselves in the camp of the winners, obviously. But again we are a very small player. And it’s perhaps disproportionately a bit harder for us seeing our size in the U.S., but we have always good plans in the drawer and we hope to do better.”

Heineken 0.0. And an FMB? Stay tuned…

Until tomorrow,

Harry, Jenn, and Jordan

“A good name, like good will, is got by many actions and lost by one.”- Lord Jeffery

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