Dear Client:
As reported yesterday, A-B posted a tough first quarter with STRs down 4.2% against several headwinds (see BBD 04-30-2013 ). A-B predicts the industry was down 3%, suggesing A-B lost a half a share point. Indeed, domestic shipments were down a big 4.3% in March, bringing the quarterly domestic shipments down 2.7%, according to Lester Jones at the Beer Institute.
“As expected volumes in the U.S. in the first quarter were impacted by a very tough weather comparable as well as macro factors, including increased payroll taxes, delays in tax refunds, and higher gasoline prices, all of which put significant pressure on consumer disposable income,” said Brito on the conference call with investors.
“We believe that weather played a significant role in the weak industry performance with many parts of the country seeing negative temperature variances of more than 10 degrees Celsius or almost 20 degrees Fahrenheit during the quarter.” Indeed, Lester showed BBD a chart showing the temperature deviations and how they neatly correlated with shipment trends. The colder the temperature, the worse the trend.
But we can’t control those things. “We know that a lot of the pressures that we saw in the first quarter are deemed to be temporary. Those temporary pressures could remain a couple quarters. We don’t know. But for sure they are pressuring consumers, and that’s what you see other analysts and economists saying. So but those are things we can’t control. I think the things we can control, the innovations we’ve put in place, the marketing programs.”
BRITO ON PRICING AND MIX. A-B is still rocking when it comes to pricing and mix. “Despite the pressure on volumes, U.S. revenue per hectoliter grew by 4% in the quarter, another strong performance. This includes approximately 150 basis points of favorable brand mix ….. The strategy of positioning our innovations at higher price points continues to have a very positive effect on the revenue per hectoliter performance of the individual brand families.”
BRITO ON MARGINS. Margins weren’t so hot. “EBITDA margin in the U.S. was under pressure in the first quarter as a result of lower volumes, as well as high distribution expenses and sales and marketing investments. As we have mentioned previously distribution costs will moderate during the year, as we expand production of Lime-A-Rita and Straw-ber-Rita from one to three breweries , starting in the second quarter…… I mean our DNA is really to continue to increase margins, continue to look for opportunities to operate in a more efficient way. We’ve always said it’s not every quarter, not every year, but that’s the long term. And if you look at our history, that’s what we have delivered. But in the quarter when volumes go down by 4% it’s – that’s hard to have margin expansion. But again that’s one quarter. We’re here for the long term, and the fundamentals of our business have not changed…… When we arrived to this business as you know, it was 28%. Now it’s 40%. So there was margin expansion for sure. As you know from now on, the margin expansion will be not at the same rate, not every quarter, not every year.”
ON INNOVATION. “Our innovation pipeline in the U.S. remains strong. During 2012, we added two more successful innovations in the beer category, Bud Light Platinum and Lime-A-Rita. And we are already seeing great results from Straw-ber-Rita, which as I said is on track to be even larger than Lime-A-Rita.
“In the next few weeks Stella Artois Cidre will arrive in the market alongside the iconic Bowtie Budweiser can. We’ll also introduce a summer sampler pack from the Shock Top brand family. And as the summer gets under way, we will launch a new 25 ounce can across our entire brand portfolio. And there is more to come so stay tuned.”
ON SUB-PREMIUMS. “The direction of sub-premium in our price strategy remains the same. We wanted to continue to decrease that price gap. If you remember many years ago, four or five years ago, it was around 30%, 28%. Now it’s around 22%, 23%.”
IMPROVING SHARE IN Q3. “And if you look at our share performance in April, according to IRI public data, it’s already much better than in the first quarter, because we don’t have the Bud Light Platinum launch as a tough comp. So it’s more of a normal type comp situation. And our share is already almost flat – it’s 0.1% negative for the first two weeks of April, which is a much better position. But the industry of course is something we can’t control, and it’s very hard to predict at this point.”
ON OWNING TOP BREWERIES GLOBALLY. “When you think about it, we’re going to have a leading position in four out of the top five beer profit pools in the world, being then Brazil, Canada, U.S., and Mexico. So that’s very exciting. We have lots to do. We have great people and great tools in the marketplace to be introduced.”
CROWN AND A-B WILL COMPETE HARD
We should point out in response to our issue on Monday featuring comments from Bevmark consultant Tom Pirko, Crown Imports has proven so far that it can compete effectively against A-B and others. In fact, it is the only Big Four supplier with positive volumes in the first quarter. One Crown distributor writes that “Harry, I know Tom likes to take the contrarian view and I respect that, but I have to also respectfully disagree with his assessment of Crown as it has proved it can compete against Big Red. Just look at the results you published this morning compared to Crown’s. They are fierce competitors and I don’t have any reason to believe that won’t continue. And as for running a brewery, I’m sure they can hire most of that out and keep Bill, Jim and Bruce focused on selling beer.”
A-B also took issue with several points in that column, pointing out that alignment is really not about punishing wholesalers who carry competing brands. Indeed, one A-B wholesaler emailed to BBD, “ever since Peacock made his egregious comment we’ve been wondering when the other foot will drop, but it hasn’t yet. We just focus on selling all the beers in our portfolio.” And we should point out that as far as A-B buying up branches or craft brewers, they would have to pass Hart-Scott-Rodino anyway, whether they had this deal or not, so perhaps they’re not as “collared” as we suggested.
Until tomorrow, Harry
“When a thing ceases to be a subject of controversy, it ceases to be a subject of interest.”
-William Hazlitt
——— Sell Day Calendar ———-
Today’s Sell Day: 1
Sell days this month: 23
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Thurs
YTD sell days Over/Under: 0
—-
(c) 2013 BeerNet Communications, Inc. – All rights reserved. Please, no forwarding or copying. Individual subscriptions $580/year. Corporate rates available.
Editor & Publisher: Harry Schuhmacher – hs@beernet.com
Twitter: @beerbizdaily
Blog: www.harryschuhmacher.com
Craft Beer Editor: Jenn Litz – jenn@beernet.com
Customer Service: Kim Griffin – admin@beernet.com
Check beernet.com for back issues or to subscribe or renew. Phone: 210-805-8006. Email: admin@beernet.com
We have a new mailing address:
909 NE Loop 410, Suite 720
San Antonio, TX 78209
