Dear Client:
“What was old is new again,” so said one A-B distributor who was on a conference call with A-B brass yesterday to talk about the importance of distributor alignment with A-B’s equity. The call centered around their Wholesaler Equity Agreement compliance which seems to have not been a big priority in the last seven years.
A-B will now be apparently performing the assessments twice a year on some wholesalers and put a large emphasis around the scoring and compliance aspects. Does that include exclusivity? One distributor told BBD that they didn’t mention exclusivity in particular, but “that’s a large part of the equity agreement….. People thought August III was tough on exclusivity, I don’t think we’ve seen anything yet.”
If that’s true, what’s the argument? Well, as another distributor pointed out, the purchase of Goose Island and Blue Point and Elysian and 10 Barrel have given A-B a decent portfolio of craft brands (not to mention the CBA brands). A-B will likely use that fact to persuade wholesalers to be exclusive with A-B and all their craft brands and get those footprints fixed. “The argument that we used to make, which was that the A-B branches themselves weren’t exclusive, is virtually gone with the departure of Constellation [and other brands from branches]. There are some dark clouds on the horizon, Harry.”
This new initiative may also help clarify who is an Anchor wholesaler or perhaps more importantly who is not. A-B is playing hardball: You go against their competitive or political strategy, you’re out.
REDD’S “ONE OF BIGGEST SUCCESS STORIES OF DECADE”
There wasn’t a whole lot of U.S. or MillerCoors focus during an SABMiller session at CAGNY yesterday. But director of Investor Engagement Gary Leibowitz did pile the accolades on the Redd’s franchise when running down MillerCoors’s positive trends, most of which centered on Miller Lite’s return to growth, due to its Original White Can packaging. (Per that: “When you look at the demographic breakdown of the Miller Lite resurgence, it’s remarkably equal between young LDA consumers that never remembered ‘taste great, less filling’ vs. those that are sadly old enough to remember that,” he said.)
But back to Redd’s, which Gary boldly predicts “will prove to be one of the biggest success stories of the decade when we look back at alcoholic beverages here,” he said. “It’s not a line extension from another brand. It’s not a craft extension from a craft franchise. It’s a brand new proposition, it was marketed from scratch … it’s fulfilled a significant untapped part of the market in terms of flavor range. And it’s been a knock out smash success — it’s basically a million barrel brand in Year 3 and still going. So it’s gone through its lapping of its cycles.
“It’s done wonders for mix and margin growth for the company; and make no mistake – sales mix has driven a significant part of MillerCoors’s outperformance for the last several years versus its medium-term guidance for margin growth.”
SABMILLER LOSES CFO
As reported earlier, Jamie Wilson, the chief financial officer of SABMiller, has resigned from the South African beverage giant for personal reasons, the company said yesterday. The departure marks the latest in several high level departures at SABMiller and it’s subsidiary, MillerCoors (MC chief Tom Long and Tenth & Blake chief Tom Cardella have both announced their retirement). What does this mean, if anything?
Tom Long and Jamie Wilson both announced their departures without any hint of an obvious successor. Could this signal a possible deal to sell SABMiller to ABI? Or just a coincidence at a huge company?
Honestly, if a deal were imminent, it seems unlikely that such high level executives would leave given that most have change-in-control provisions in their contracts which would afford them some sort of generous compensation to stay through the transition. Or vested stock options.
On the other hand, maybe somebody sees the writing on the wall and doesn’t feel up to working late nights to put such a complicated deal together, only to be replaced by a some young punk fresh out of B-School once the transition is done.
Jamie steps down from the board with immediate effect and will leave the group officially at the end of the financial year on March 31. “I am saddened by Jamie’s departure,” said chief Alan Clark.
Our gut: It’s a coincidence.
STATE SHIPMENTS UP FOR 2014, BUOYED BY CALI, FLA, MORE
The big get bigger, as they say. That certainly seemed the case for the big beer-drinking states in Beer Institute’s full year state shipment data.
Craft mecca Oregon showed the highest gains for the year (though down almost 3% for month of December), up 4.3% to 2.9 million barrels. Washington wasn’t far behind, the third largest gainer at +3.6% t0 4.16 million barrels. Both are craft centric, naturally.
Top beer drinking market California came in second for gains, up almost 4% to 23.6 million barrels shipped. Wow.
In fact, all the biggest beer markets posted gains: Texas was up 0.8% in shipments to 19.8 million barrels. Florida was up 1.5% to 13.3 million. New York was up a little more than 1%, to almost 11 million barrels.
Some surprise gainers, too: Hawaii and Utah rounded out the top five gainers for the year, up 3.3% and 2.3% respectively.
There was a nearly 50/50 split for gainers and losers among the states. Overall, shipments were up 0.5% for the year (and 4.1% for December) to 206 million barrels. Besides the top five gainers, the bottom half the States seemed to fare better.
ALCOHOL DELIVERY SERVICES MAY BE HERE TO STAY
Alcohol delivery services are shaping up to be a massive business. Take the frontrunner Drizly: Still tiny, they currently employ 33 people and expect more than $5 million in revenue for 2014. They’ve also raised $4.8 million in venture funding. The company is in 14 cities and plans to be in 12 to 15 states by year’s end. All this and they’ve been up-and-running for two years, per New York Times report .
Devaraj Southworth, founder of Thirstie, another app at the head of the pack, admitted that he “saw alcohol, wine, spirits delivery as the last frontier in convenience and on-demand delivery.” But after their launch last year, Devaraj said, “that it was growing 50% month-to-month, with an average order size of $65, and that he expected revenue of $1.5 million to $2 million this year.” The New York-based company now employs 12 people and operates in Chicago, Los Angeles, Miami and San Francisco.
There isn’t a secret formula; most of these apps follow similar business structures. They’ll partner with local retailers and charge the stores “flat fees or a percentage of orders.” Companies like Drizly establish a flat monthly fee with each store, “which ranges from hundreds to thousands of dollars.”
For most services, money is only exchanged between the consumer and the store, so the apps aren’t burdened with state regulatory laws as they’re considered “third-party marketing businesses.”
New York’s Vino Fine Wines and Spirits has teamed up with several apps including Thirstie. The store owner, Adam Linet, said that since they’ve partnered with Thirstie in March, “the store has been taking in $1,000 to $2,000 more a month just through that service.”
But one downside Adam has noticed is a loss in the personable side of the business. “We do touch almost every customer who comes into the store. We help them pick things out and they trust us,” he said. “That is something that unfortunately isn’t in the delivery platforms right now.”
Devaraj of Thirstie foresees a shakeout in the near future and expects “failures, consolidation and buyouts by larger companies watching the start-ups test the market.
“Indications are they’re looking around to see how they can leverage other companies out there that are small and nimble like ours to help their customers,” he said.
Walt Doyle, of the venture capital firm Highland Capital Partners, has already made a personal investment in Drizly. “We see a big business here, not just from consumer demand,” he said.
And the largest Internet retailer in the U.S., Amazon, has already unveiled their take with AmazonFresh, an on-demand grocery and alcohol delivery service launching in NYC, Seattle and parts of California.
HERZOG: C-STORES EXPECT PROBLEMS WITH MONSTER TRANSITION
It’s already been six months since Coca-Cola made an equity investment into Monster and announced a change in distribution from A-B distributors to Coke bottlers. C-store trade journal CSP Daily News reports that retailers are nervous.
“I expect to have many, many delivery and stock issues immediately and in the foreseeable future,” one convenience-store retailer told Wells Fargo Securities in its most recent Beverage Buzz retailer survey.
More than half of the retailers–representing more than 15,000 c-stores–surveyed said they expect disruptions during the transition to Coca-Cola bottlers, although not all of them anticipate dire situations.
“Just normal transition disruptions and pockets where better existing DSD (direct-store delivery) wholesalers are being transitioned out, but overall should be minimal,” said another retailer in the survey.
“I receive 2x a week delivery from [A-B]. Coke delivers 1x a week,” said a retailer, suggesting out-of-stocks could become an issue.
Another retailer lamented the fact that some of his stores exclusively stock Pepsi and private-label products. “Coke does not currently service these locations,” he said. “We are discussing removing Monster coolers from all of [these] stores due to this.”
Says CSP News: “That’s a major shock to a retailer considering Monster is one of the best-selling brands in many c-stores with active new-product rollout and promotion strategies. In c-stores, Monster’s energy drinks own 38.7% of dollar share of the category, just a step behind Red Bull’s 40.5% share, according to IRI 2014 year-end data.”
“Of those [survey respondents] receiving distribution from both [Coca-Cola and A-B], many suggested that A-B generally has better levels of services,” Wells Fargo analyst Bonnie Herzog concluded.
BEER BRIEFS:
DON’T BE AN APRIL FOOL. YOU KNOW YOU’RE COMING TO “HARRY’S DEAL”, SO MIGHT AS WELL SAVE TWO HUNDRED BONES. Beer Business Daily is hosting its 13th annual Beer Industry Summit January 25 – January 26, 2016 at the historic Roosevelt Hotel in New Orleans, LA. Sign up from now until April 1, 2015 to take advantage of the $1,100 early bird special (regular price is $1,300). This is the lowest rate we will offer. Our Beer Summit has sold out for the past twelve years straight, so get a jump on 2016 and register online here: http://beernet.com/beer_summit.php
Until tomorrow, Harry
“I like life. It’s something to do.”
– Ronnie Shakes
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