Dear Client: 

Questions abound about the curious letter Bang Energy parent VPX sent to select wholesalers, accusing them of “lost focus” against selling efforts, which the producer deems deficient since at least “the fourth quarter of 2019.” It asks recipient wholesalers to assure the company, over the next week, that they will not take on competing brands — specifically C4 (see BBD 04-09-2020). 

What is curious is the letter seemed to be a form letter, which leads many distributors to wonder if it is the first step in pre-planned mass  terminations for cause, which would allow Bang to terminate without paying the 1X gross as is written in their distributor-supplier agreement, according to sources. 

One distributor also believes that the timing is curious, as the COVID-19 crisis has “crushed” energy drink channels like c-stores, and consumers have shifted their NA spending to bottled water. “Of course Bang has suffered! They all have!”

To another distributor the letter seems especially tone deaf, to paraphrase, not only due to the general malaise wrought by COVID-19, but also because the virus is paralyzing the very channels, occasions and occupations — from truckers to students — that spur the energy category, including gyms, GNC, and, again, even c-stores in some areas.

Several distributors told BBD they found it ironic that they wished they had more communications with Bang before this letter, as they are a uniquely silent supplier.  As one said, “Funny thing is I was thinking I would love a phone call from them … every other supplier I hear from too much right now … they are literally the only supplier I don’t hear from enough. I can’t  even get a returned email or phone call.”

And they clearly don’t like Monster, which they have sued before more than once. Which is also ironic, as A-B distributors built Bang largely as a way to “stick it to Monster” who terminated them when they were bought by Coke.

And finally, a distributor told BBD he found it “awfully convenient to [sic] find deficiency at a time when they can’t physically come to the distributorship to fix the perceived problems. Doing it over the phone sure expedites the termination process cheaply and quickly,” if that’s what they’re after. 

But, as we’ve noted, Bang’s growth rates have slowed, particularly as the virus has shut down large swaths of the economy. This just may be a shot across the bow to get people focused on the brand. Stay tuned….

WE’RE MOVING BEYOND THE “STOCK UP” PHASE AT RETAIL, SAYS IRI; BUT DON’T WORRY 

Everyone knows these days of 30% and even high-teens growth for beer in the off-premise probably won’t last forever. 

But when will they “normalize?” And what will that look like?

We spoke at length this week with IRI’s bev alc guru, Patrick Livingston. To answer those questions, he fleshed out what he’s calling the three phases of COVID era shopping phases: Stockpiling, which has driven very high and volatile trends; Replenishment, where Patrick expects a level of sustained beer growth; and a Recovered period, whose trends will likely depend on what comes before it.  Read on for more. We’ll let Patrick take it away on this Fly on the Wall Piece.  

THREE PHASES: STOCKPILING, REPLENISHMENT, AND RECOVERED. “So really there’s three phases. There’s the stockpiling phase; I believe we’ve largely seen the peak of that. Then there’s the replenishment phase, which is going to continue for a period of time and likely will include longer purchase frequency and large purchase sizes — but not as large as that initial stockpiling. If you think of this idea of a consumer on a stockpiling trip, really the cart real estate becomes a limit. Whereas on the replenishment trips over the longer period of time, I believe consumers will be less limited, and have more of the ability to reintroduce the products that are potentially more individually focused, potentially some of the craft beers and some of the innovations as well that they may consider under a normal shopping condition.

SECOND PHASE: REPLENISHMENT. Also in the replenishment phase: “We have to remember that, given that consumers are going to be making up for those lost on premise occasions, there is likely to be sustained lift in the beverage alcohol space. That is our hope and that is our expectation. We also know that at least 10% — and now it’s up to 11% [via their latest consumer survey] — are claiming that they are consuming more alcohol, which is another key factor of not just where they’re consuming, but they actually are consuming more alcohol overall than they would have otherwise. So I do believe that there’ll be a sustained replenishment period, which should drive trends that were higher than our standard year to date trends through the end of February for that period.

THIRD PHASE: RECOVERED PERIOD. “Then there’s the recovered period, that’s the third phase. Of course that’s the hardest to project for, because all the other factors leading up to it will affect how the recovery phase plays out. But we are hoping for sustained trends in each category. 

We are also prepared for difficulties given a potential recessionary period that could affect us for the rest of the year and beyond. And whereas beer has been seen to be resilient during short recessionary downturns, it is not a recession proof category. That is not true. In fact, beer becomes affected not as much during recession, but there is a bit of an effect post recession as things recover; consumers tend to shift away from beer in some cases and back to some of the higher-priced, higher-end spirits products, and wine products in some cases, for longer or more prolonged recessionary periods like the Great Recession.”

“The beer category did take a volume hit during the recession, and then even worse after the recessionary period.” Bottom line: Eventually, “we can’t expect the same trends that we had leading into the year.” 

EXPECT TRADE DOWNS… BUT ALSO FOR HIGH END TO LEAD GROWTH, FOR NOW. “We also should expect more potential trade down for this period of time during the stock-up. It is very important to know that even though consumers are shifting into, in some cases larger, more valuable packs, more trusted brands, below the ‘high end’ … it is also true that the high end continues to lead the growth in the category, that has not flipped. High end beer for the three weeks ending 3/22, is up 31.9%. [That segment is] clearly leading the [overall] beer category, which is up 21.9%.”

Premiums and sub premium beer did flip from a negative to a positive trend in the last three weeks, but that “does not mean that they have the gun to lead the growth in the beer category overall. That still is attributed to the high end and specifically, the top growth brand families: White Claw, Michelob family and the Modelo family, they continue to lead the growth in the category.”

CAN WE EXPECT THE HIGH END TO CONTINUE TO GROW? But can we expect high end brands to continue to grow during all three periods? 

“The consumers that are most affected by some of the financial difficulties of the current period and potentially in a recessionary period going forward, for the most part: middle income and upper income consumers are having less difficulty. That’s a fact. The lower income consumers that are having more difficulty … have lost jobs; that are service related, that are in specific depressed economic areas that were already struggling before the crisis. In fact, 44% of those consumers say that they’re having difficulty affording groceries and of course, if you can’t afford groceries, you’re very likely to trade down in some other categories like beer, wine and spirits or maybe even reduce frequency.” They “probably [won’t] go to a point of soberness or dryness because that is unlikely in many drinking households … [So] the trade down effect could be driven by those lower income households.”

THE ECONOMICS OF TRADING DOWN. Sub premiums, box wine, etc. will continue to be affected in this climate, “and there could even be sub-trade down, meaning there could be trade down within those segments of consumers kind of go into their most valuable option. Box wine is a great example of that…”

So: “I think for the lower income consumers there will be challenges to price points and consumers seeking maximum value in the category. The best bang for your buck, if you will. (Whereas the upper income consumers and the middle income consumers, which, by the way, is where hard seltzers are skewing, are going to be less affected.)” 

However: “I think very seldom does trade down cross multiple pricings, usually is to the next lowest price segments: If I was buying a premium light, I may have to consider a below premium product as a kind of close trade down. It’s one price point away. There’s a price gap interaction there that is higher than, for instance, a six pack Imperial IPA craft drinker trading down, which might be more to a mainstream craft rather than all the way down to a 30 pack.”

SO, WHERE ARE WE AMONG THE PHASES?  NEARING THE END OF THE FIRST. “Yeah I think we’re near the end of the stockpiling phase.There were phased orders of shelter in place that are driving kind of three weeks of some levels of stockpiling across the country.”

The prior three weeks worth of data have stockpiling in them; but Patrick believes “the latest week is really a blend. There’s probably some states where there was more stockpiling going on and other states where there was more replenishment going on. I live in San Francisco, we’ve been sheltered in place now for three full weeks. And the stockpiling trips have subsided; I believe that we are in a replenishment phase and that’s how I see consumers shopping the stores. 

“If you look at Florida or you look at Texas potentially they’re a little bit later in the curve and maybe there [was] still stockpiling going on to a greater degree toward the end of March. 

MORE ON SUSTAINED GROWTH TRENDS IN REPLENISHMENT PHASE.”I do expect in the next week of data, most of the stockpilings to be cycled through and we’ll be mostly to a replenishment phase and maybe the next two weeks of data will really tell us where we may settle, as these replenishments settle in for a little longer. Stock-up will be 3 to 4 weeks, replenishment could be 8 to 12 weeks or more depending on how things go.” 

That could be good for beer. “Given the fact that the on-premise is closed and the only place that consumers can fulfill their beverage alcohol needs is the off-premise, and also that consumers are drinking more, I believe that there will be growth. I do not foresee the category is going to a decline during this replenishment phase. Now that might change when we get into a more kind of normalized recessionary period after this current period.”

CONSUMERS SEEKING “JOY,” NORMALCY. Indeed, IRI’s weekly “Pulse” Survey of consumers is asking them “a number of questions about how they’re changing their purchase habits related to COVID-19 impact,” and it shows the place of bev alc.

“A large number of consumers claim that they’re … seeking joy. That’s the term that is being used, and that could be experienced through social media, virtual hangouts and connections. But [it’s] also trying to recreate a sense of normalcy in the home that they may have enjoyed out-of-home prior. 

“I read your article on Truly and the “Your Birthday Isn’t Canceled” campaign [see BBD 04-08-2020]. Today, I have a great example of consumers finding ways to continue to enjoy their lives and to do so from the confines of home. And I’m also recommending to our clients, [who were] heavily invested in large beer holidays and events as well as the on premise, to kind of redeploy some of those efforts. Maybe there are stadium cups sitting around that were specifically driven toward March Madness and or maybe there are Memorial Day or 4th of July [swag] that they would normally decorate the bars with. Maybe they should find ways to redeploy this kind of excitement into consumer’s homes and really allow consumers to create the best kind of case within their own homes and kind of recreate that normalcy.”

ON RETAILERS: THROTTLING THE FLOW? Finally, we asked what IRI is seeing from retailers: Are they throttling the flow of beer? What do they need?  

“Retailers are focused on feeding America, and I think that’s important to remember. This is a patriotic period that our retailers are showing their ability to feed our country and which I think is their primary goal during this period of time. I also believe that the beverage alcohol categories are essential and consumers do need to continue to enjoy some levels of normalcy of life, and beverage alcohol brings that to many consumers. I believe retailers know that. So I would say that the way that our three tier system has shown its ability to be resilient during this period and to overdeliver on consumer needs is really going to go down in the history books when the dust settles.

“We do see consumers shifting to kind of a more narrow assortment. And I believe that retailers and distributors are also going to do the same out of the need for efficiency and safety.” 

IS A CO2 SHORTAGE AROUND THE CORNER?

The Brewers Association put out notice earlier this week warning of a possible CO2 shortage in the wake of the COVID-19 outbreak.

The trade org cited preliminary data that shows “that production of CO2 has decreased by approximately 20%, and experts predict that CO2 production may be reduced by 50% by mid-April.”

This is no bueno because “a shortage in CO2 would impact the U.S. availability of fresh food, preserved food and beverages, including beer production,” according to the BA.

So, to try and address the potential shortage, the BA and the Beer Institute teamed up with a number of trade orgs (mostly meat and gas associations) to pen a letter to Vice President Mike Pence urging him to provide temporary, emergency federal assistance “to prevent shortages in CO2 by providing federal incentives to industrial manufacturers to put CO2 producing plants back into service.” Stay tuned.

BEER BRIEFS:

MORE BIG CRAFT LAYING OFF PUB WORKERS. Regional media outlets have reported big craft brewers having to lay off more employees (especially pub workers)  as COVID’s impacts continue. Earlier this week, the San Diego Tribune reported that “San Diego County’s largest craft beer maker laid off 306 workers locally, with employees at its Bistro restaurants and Tap Rooms hit hardest,” but the layoffs also included some on their distribution sales force. The brewer at hand is Stone. In all, the Tribune estimates that 30% of Stone’s workforce was affected. 

MORE DISTRIBS DOING GOOD: We’re happy to share the stories about three tiers doing good in the community, such as Crescent Crown’s efforts: “We are already picking up all kegs if they are over-stocked or going out of code between now and the end of April,” GM Joe Cotroneo told BBD. “If they have any full case package beer that codes before May we are picking that up too. We are doing cleaning and helping retailers shut down their systems if necessary. We have provided hundreds of signs advertising that they are open for take-out. We have also donated $250,000 to the ARA (local restaurant association) and ALBA (licensed Beverage association) so they could help the displaced staff in our market who are in need.

Not only that but we already have the business building ideas and we will be the first ones back in to get things rolling when things open back.” Why? 

“On premise is critically important to beer, the Moffett and Goldring Families are extraordinarily generous, and because we can and we care.  We are part of the three tier system, when one tier hurts the others must come together to help! We are seeing that with our suppliers who are helping in so many cool ways. I hope every distributor will also do its part, I can only speak for this one and we are!” 

HAVE A SAFE, prosperous, and healthy Easter and Passover weekend.  We’ll see you back here bright and early on Monday morning. 

Until Monday,

Harry, Jenn and Jordan

“Facing it, always facing it, that’s the way to get through. Face it.”

– Joseph Conrad

———- Sell Day Calendar ———-

Today’s Sell Day: 8

Sell days this month: 22

Sell days this month last year: 22

This month ends on a: Thurs.

This month last year ended on a: Tues.

YTD sell days Over/Under:  +1