Dear Client:

Yesterday morning’s BBD was met with the following response from a distributor reader. (You will recall we detailed Nielsen data on “beyond beer” supremacy for the Memorial Day holiday, and flaccid trends for pretty much any other bev alc.) 

“First it was can shortage and now bottle shortage,” the distributor wrote. “Unfortunately the bottle shortage is straining our can supply” as consumers switch around. 

They continued: “I am not surprised in the strong numbers for seltzer [over Memorial Day], but … ABI is having significant supply problems, especially our high volume packages – Mich Ultra 24 pack cans, Busch Light 30 packs and 12 packs, Bud Light 24 pack cans,” per source, who says they have “lost tens of thousands of cases of volume YTD due to daily allocations to our sales and delivery teams of some of our higher volume packages. … 

“These product shortages, along with staffing shortages at retail to fill the shelves, must be impacting the scan data you referred to in this morning’s article.”

Of course, A-B is far from alone in the supply crunch boat. “We also see product shortages with our competitors, including Molson Coors and Corona beer products,” the source added. 

GLASS PRODUCTION DISRUPTED. But where A-B had seemed to do better than competitors at last year’s supply woes, now they seem to be at the eye of a more recent storm. The confluence of that cyberattack on a major bottle supplier of theirs, Ardagh, met with increased volume demand from the on-premise reopening, seems to be causing problems with A-B glass bottles. 

NR SHORTAGE TO LAST THRU SUMMER. Indeed, we’d reported on the Ardagh incident impacting supply last month. But now, many A-B distributors are flagging bottle supply as a potential issue for the whole summer. 

In fact, we hear that A-B’s VP Business and Wholesaler Development Bob Tallett and sales chief Brendan Whitworth shared a video broadcast on just such issues with distributors on Monday. So yeah, it’s a thing. As one distrib told BBD: “…We are told that our can supply will be better this summer than it was last summer, although still tight. However, the bottle shortage, which is widespread, is going to last throughout the summer.” (And that could lead to more can shortages as consumers switch).

Another wholesaler characterized the bottle situation as “awful” — though he noted that while their large pack can supply was still strained, that inventory is better than it was a couple of months ago. 

As for those bottles: “Bud Light, Ultra and Budweiser are essentially out of stock for the past two weeks” for this wholesaler. “Our DOI [days of inventory] has been strained for several weeks but the consistent OOS [out-of-stock] situation has been the past couple weeks.  … We will get very small allocations periodically but nothing consistent.” 

They were told that such issues stem from the cyber security attack, as well as a glass furnace outage. Another, who characterized bottles as “very problematic,” has been told the issue is most pronounced in the Midwest due to issues at the plant supplying St. Louis and Columbus breweries. 

Said another distributor, about their 12 oz. NRs, specifically: “With the production problems at the glass supplier, increased volume from on-premise reopening, and loss of inventory build due to glass supplier issues, we are down to 2-3 days of inventory across all A-B brands.  A-B is saying glass supply issues should resolve itself after Labor Day.  In the meantime they are suggesting that we leverage 12 oz. aluminum bottles and draft until they can get supply normalized.  They are stressing that we use the ALNR [aluminum non-refundable bottle] and draught for venues and special events.”  

The same distributor is also seeing A-B 16 oz. can shortages, but they are more used to that. “We will be down to zero days of inventory for 2-3 days then we will get a straight load that will build us back to approximately 10 days.  This is common for all our Bud, Bud Light, and Busch brands/packages.”

MANY LARGE PACKS CONSTRAINED. Said yet another wholesaler: “We are very tight on large packs,” specifically seeing “consistent outages on Ultra 24s, both cans and glass; Bud and Bud Light 20 pack glass; and Bud Light 30 pack cans. Other packs are low as well and we are frequently receiving loads and sending them straight out to retail the next day. …

“I know A-B is working hard to address but they are a step behind where they need to be going into the 4th of July holiday.”

GOOD PROBLEM TO HAVE. But, to offer some perspective, at least we are talking about increased demand. As yet another distributor offered:  “BOTTLES are a problem, in our operation mostly Bud Light and Bud.  Might be related to cyber might not, not sure.  For the most part, our other challenges have been due to outselling our forecasts for Memorial Day and then again this week.”  

SUPPLY AN INDUSTRY CHALLENGE. And note that yet another, large wholesaler did tell BBD that within their market, “the supply challenges are industry wide …. it’s not at all A-B specific. … Overall, A-B has handled the supply challenges the best. Their preparation and communication has been superior to that of the other suppliers. … Should be an interesting summer for all of us as we all navigate the supply challenges.”

Indeed. 

A-B TELLS DISTRIBUTORS… Yesterday, Bob and Brendan sent wholesaler partners a follow up on meetings and communications from earlier this week on the matter (and other updates). 

Despite shutdowns, shifts and volatility over the last year, “we’ve been able to continue servicing the market through a well- coordinated supply chain,” they said. 

“We continue to carefully observe and scenario plan as it pertains to maintaining supply continuity for both our partners and our consumers, and we have plans in place to effectively manage supply in the months ahead,” especially leveraging data and communications. 

“We are taking a strategic and proactive approach to facing the ongoing challenges, including investing in additional capabilities, planning ahead and making hard but informed decisions to prioritize top performing products and packages.”

DISTRIBUTORS INCREASINGLY FACING CYBER-ATTACKS, RANSOMWARE

Speaking of cyber attacks, this is a growing issue that is:  1.  Difficult to get details to report on, because the victims of this crime typically do not wish to publicize it, and 2. Is more widespread in the beer industry than previously known. Yes, big companies like Molson Coors and A-B’s bottle supplier Ardagh are targeted by hackers, but increasingly small to mid-sized companies are now being targeted and beer distributors, with so many time-sensitive and mission-critical systems tied together — and their perceived fat pocketbooks — appear to be the mark du jour. 

Over the past few months we have gotten whispers of several beer distributors — small, mid, and large — who have been the victims of hackers breaking into their computer networks, shutting them down, and then demanding a ransom to reinstate their networks. You know what happens when your network is shut down? Exactly: Nothing. Nothing happens. 

So you pay the money or your trucks don’t go out, your drivers can’t check-in, your EFTs aren’t sent, deposits aren’t made, pre-sold orders aren’t received, trucks aren’t routed, employees aren’t paid — you get the picture. 

Indeed, consultant Joe Verno told me recently, “In the past two years we know of four beer wholesalers that have been hacked and their data/system held hostage until a ransom was paid.  Some of these wholesalers are in smaller markets and others in major metro areas. If we know about four wholesalers getting hacked, the total number being hacked in the entire US is probably more than 10 wholesalers.” (Ed. Note:  Again, because of lack of reporting, this number is likely to be much higher). 

Joe advises all wholesalers to check with their insurance companies and make sure they have cyber insurance. “The typical ransom payout we have heard is around $500,000. The insurance company will negotiate with the hijackers and make the payment. As far as getting help from the FBI, we can paraphrase what the FBI tells wholesalers when they call for help: ‘This is agent 38. Do you know how many of these calls we get every day? We don’t have time to help you.'” 

NOT A SURE THING.  The thing is, even if you or the insurance company pays the ransom, there are no guarantees that the hackers will restore the computer network. Says Joe: “One of our clients told us that there is actually a service that rates hackers and their likelihood of releasing your system once you pay the ransom.”  

NOT ABOUT SOPHISTICATION.  Think you are too small, or your system is too secure, to be hacked? Don’t be so sure. Most of the wholesalers that were hacked have top notch IT departments, and they still got hacked. But these hackers are international players. As Joe says, “that’s like playing high school baseball and the hackers are the major league.”

Joe hopes wholesalers who have been hacked will become more vocal about their experience so others can prevent it. “This message needs to get out.”  

Ed. Note:  We agree.  Let us know your hacker stories in confidence:  [email protected] or TEXT ‪(262) 345-2501‬. Also, we will have a cyber-security expert who has worked with hacked wholesalers speaking on the subject at our Distributor Productivity Summit next month. 

COURT DENIES CONSTELLATION’S MOTION TO DISMISS GRUPO MODELO’S LAWSUIT

Yesterday, the U.S. District Court, Southern District of New York heard oral arguments on Constellation’s motion to dismiss the complaint that Grupo Modelo filed against the U.S. beer company in February for alleged breach of contract. Recall, at issue is Corona Hard Seltzer, which Anheuser-Busch InBev-owned Grupo Modelo contends violates their 2013 agreement allowing Constellation to use the Corona name [see BBD 02-15-2021]. 

Two months after that suit was filed, Constellation filed a motion to dismiss it, arguing their sublicense indeed allows for a usage such as Corona Hard Seltzer, and that Grupo’s claims are simply “another page out of ABI’s well-worn playbook for taking out its competition in the domestic beer market,” as A-B also has some seltzer brands that compete with Corona seltzer [see BBD 04-06-2021]. 

The Court’s decision on Constellation’s motion to dismiss came down yesterday. It was terse: “While there appear to be strong arguments on both sides of the case, and they have been ably and well presented by all counsel, the complaint states plausible claims for breach of contract and trademark infringement,” wrote USDJ Lewis A. Kaplan. “The motion to dismiss is denied in all respects.” 

ABI offered comment to BBD shortly after: “Grupo Modelo is pleased with the United States District Court’s decision denying Constellation’s motion to dismiss in all respects,” it said. “We look forward to proceeding with our claims for breach of contract and trademark infringement.”

GAVIN:  WE ARE “NICELY AHEAD OF PLAN”

It’s been a tough two years for Molson Coors.  They’ve experienced a tragic shooting at their Milwaukee brewery, they continue to suffer systemic volume market share losses on large legacy brands, their huge Fort Worth brewery was shuttered due to a freak 100 year Texas blizzard for eleven days, they’ve experienced product shortages, can shortages, and a crippling cyber-attack which also shut them down for several days ….. Oh, and a global pandemic. 

And yet we saw a spry and upbeat Gavin Hattersley, Molson Coors’ chief, telling investors at the ISI Evercore Consumer & Retailer Summit event that given all that has happened, he is still reiterating Molson Coors’ guidance of flattish earnings in 2021. (Specifically, MC’s guidance is to be “flattish” on constant currency EBITDA for FY 2021).

How? The math is easy: Increase topline sales while keeping expenses flat. That works every time it works. And as Gavin points out, it’s much easier to dig yourself out of a hole in the summer when the cases are flying off the conveyors at full capacity (a million barrels a week in MC’s case). As long as consumer demand remains steady, Molson Coors can increase topline shipments just by Autumn pipe-refilling. 

So Gavin plans to rebuild inventories big time after July 4 and recoup some of those lost shipments due to the Texas blizzard and cyber-attack that depleted trade inventories to the bare bone. 

Here is Gavin to explain more in his own words, as told to Evercore ISI’s Robert Ottenstein and excerpted by BBD:

ON MC’S PROSPECT OF FLATTISH EARNINGS IN 2021. “Well, look I mean we put that guidance out as you say, I think we put it out in our fourth quarter earnings call that can back in February. And we’ve reaffirmed that actually twice since then. And we reaffirmed it on our 8-K which we put out after the cybersecurity attack. And we reaffirmed it again after our first quarter earnings call. At a high level it’s growing our top line mid-single digits and keeping our EBITDA relatively flat. I think we’ve said flattish. If you look at the drivers of those, right, I mean from a volume perspective our intention is to shift to consumption. And certainly the second quarter is always a big quarter for us right, it doesn’t matter which year it is, it settles Memorial Day and July the 4 ….. Our plan is and has been and remains to shift to consumption and rebuild those inventories that we lost for those two events that you that you referred to and then the flattish EBITDA.”

AHEAD OF PLAN.  “You know I’ve said you know multiple times to both distributors and publicly that we’re ahead of our plan nicely ahead of our plan. And we’ve been shipping over a million barrels a week which I don’t think we did too many times last year. I think we did it once or twice maybe right at the beginning of the pandemic. And so that side of it, we’ve said it’s on track.” 

GAVIN ON-PREMISE’S SURPRISING RE-BIRTH. “And then if you look at the reopening of the on-premise there are some puts and takes there as we’ve progressed through the year certainly in the United States which is the biggest market we have. We’re ahead of where we thought we’d be.  More outlets are open and velocity is somewhat higher than we thought they would be ….

“Even though we think that there’ll be some attrition on-premise outlets, it’s less than what we had originally thought it was going to be in the height of the pandemic. I think we thought we were going to be at 20% to 25% of outlets just never reopened and I think we were probably closer to 5% to 10% now. I mean it’s obviously just an estimate, but certainly more outlets are going to reopen. I think it’ll take six to nine months for us to get back to 2019 levels. Again that’s a forecast. You know sports stadiums and events are coming back quicker than perhaps we had originally thought in terms of getting back to full capacity in some parts of the country and other states there are not there. So overall for our business we certainly see a path to getting back to getting back to 2019 levels next six to nine months maybe.”

GAVIN ON STOCK OUTS. “The decisions we made around what we were going to focus on have surely driven out-of-stocks in our economy portfolio. No question about that. And so if there is a distributor out there that’s heavily dependent on economy [brands], that’s certainly suffering more than a distributor that’s not.

OUT-O-TOPO.  “The other area out of stocks, which you are probably hearing, is Topo Chico hard seltzer and that’s got nothing to do with either of those two events. That is just simply we were expecting a great launch and it wasn’t great, it was spectacular and you know it put us a little bit on the back foot from filing the pipeline point of view. 

“So different dimensions about our stuff:  We’re certainly not back where we need to be, no, but we’re ahead of where we thought we’d be.”

ON MC’S SELTZER PERFORMANCE.  “We’ve been criticized for lack of share in that space. I know there’s a lot of skepticism about our ability to get to 10 share. We came into 2020 at less than one share. We came out of 2020 under four shares so almost 400% growth. And you know we’re not even halfway through the year and we’re over six share and we’ve got two very clear winners [Topo and Vizzy].”

GAVIN:  DISTRIBUTOR NETWORK COMPETITIVE ADVANTAGE. “Our distributors are very used to complexity and you know what are our competitive advantages? We don’t want to put words in their mouth right but Coca-Cola did the due diligence, they looked at our competitors and look at us and they liked what they saw, they liked our chain selling capability, they liked the strengthen and execution capability of our distributors, the three tier system is – they did a really nice job, they liked our marketing capabilities and they chose us and now you know I think that’s a reflection of what our core competitive strengths are.”

PODCAST:  The fateful plague year of 2020 was the best year for bev-alc volumes in 20 years. Which category won? Listen to our brief daily hot takes on the industry’s news here>>   (harryspod.com)

Until tomorrow,

Harry, Jenn, and Jordan

“You never know how a horse will pull until you hook him up to a heavy load.” – Paul “Bear” Bryant

———- Sell Day Calendar ———-

Today’s Sell Day: 13

Sell days this month: 22

Sell days this month last year: 22

This month ends on a: Wed.

This month last year ended on a: Tues.

YTD sell days Over/Under: -1