Dear Client:

Another deal for a multi-generational wholesaler went down last week in Tennessee, this one including beer and non-alcs.

Ajax Distributing Company of Memphis announced Friday the acquisition of Memphis and Shelby County MillerCoors distributor, BarDett Distributing (“A.S. Barboro”).

Ajax told BBD the transaction would more than double their current volumes.

Ajax covers 10 counties from Montgomery County to the northwestern part of the state, while 142-year-old BarDett Distributing (“A.S. Barboro”) serviced Memphis and surrounding areas. It will add “over 1,500 retail accounts” to the operation.

Much of their portfolios are the same: Ajax will take over “a vast portfolio of brands” from BarDett that were already in Ajax’s portfolio, including MillerCoors, Heineken USA, Pabst Brewing, Boston Beer Company, Diageo Guinness USA, Geloso Beverage, Mark Anthony Brands, FIFCO USA, Lagunitas Brewing, Gambrinus, Meddlesome Brewing, Paulaner USA, Arizona Beverages, Fiji Waters and more. Ajax also has Keurig Dr. Pepper and Old Glory Distilling.

Both distributorships are family owned: BarDett was owned by Malcolm Wood, Fred Dettwiller, and Hall Crawford.

Ajax started as a Dr Pepper house. Owner Jeff Turner, whose family has owned Ajax since 1933, said his family “looks forward to building on A.S. Barboro’s legacy and being a part of the Memphis, Shelby County community.”

They plan to continue operating out of A.S. Barboro’s warehouse, per announcement, where the wholesaler employs 126 people.

A-B’S ZX WILL BE THERE AS ONLINE BEER SALES GROW

According to A-B’s “disruptor” arm, ZX Ventures, not everyone realizes they can actually buy beer online, and only a fraction actually do it.

ZX works on ecommerce solutions and insights with retailers in all channels in the U.S., as well as with companies in the on-demand delivery space.

“Right now we’re working with eRetailers like Walmart, Drizly, Amazon PrimeNOW, Total Wine, and GoPuff, as well as up and comers like 7-11’s 7now app, DoorDash and Shipt,” Vicky DiDonato, director of eCommerce strategy & category management at A-B, told BBD. (By the way, if you didn’t know, Walmart is the top online beer seller in the U.S. partly due to “strong investment in their Walmart Online Grocery Pickup media campaign,” A-B’s North American head of eCommerce, Carolyn Brown, said.)

But recently, it’s consumers they’ve been interested in mining. Last week ZX published the findings of a survey they did with Mintel of 1,000 U.S. shoppers to figure out their impressions of the online beer space.

One headliner: 28% of those surveyed don’t realize they can buy beer online.

Further, “consumers who have purchased beer online in the past represent only roughly 6% of the adult (21+) beer purchasing population in the U.S.,” per survey results.”

There are other more obvious findings too: “convenience is king” (removal of physical barriers like how much you can carry means bigger basket sizes online); “deals for days” (people want a better deal online than in store [or at least be able to price compare]); and “free shipping reigns” (shoppers want free delivery).

As for the current size of the online beer market, it’s pegged, as it has been for a couple of years, at less than 1% of the overall market.

As for beer’s relation to the overall online grocery market: online grocery still only represents less than 2% of that overall market. Natch, “as grocery shopping becomes more ubiquitous we expect online beer shopping to as well,” per ZX/Mintel survey findings.

And you best believe that as the online beer sales platform develops, A-B will be there.

BCG analysis shows U.S. alcohol internet retail sales have been growing ~20% over the last few years, compared to total off-trade alcohol sales, at 4%.

“Shopper awareness is one of the biggest obstacles for the online beer category as a whole,” Vicky told BBD.

So, “they’ve been working closely with retailers to make the path to purchase easier with simple things like reducing the amount of clicks it takes to get to a purchase, improving search and taxonomy on their sites. We’ve also been helping them better understand the different types of online customers so that they can cross-merchandise and better target.”

We suspect the race to control the mouse — i.e., online category captainship — will become more prominent, too.

STZ IS ENTERING ITS BEER “MARKETING” PHASE, SAYS CREDIT SUISSE

Despite Constellation’s depressed stock, Credit Suisse’s Kaumil Gajrawala believes investors maybe can’t see the cooler for the beers.

Despite a “struggling wine segment, slowing yet on-plan beer
segment, and uncertainty around the Canopy deal,” which has led to shares falling 24% over the last year, the Credit Suisse team believes Constellation should deliver a best-in-class 6% top-line and 10% EPS compounded annual growth rate over the next 3 years.

And they argue the stock is underpriced compared to its contemporaries.

Kaumil thinks Constellation’s appetite for risk is clouding the full picture.

“Constellation is a controlled company with a greater appetite for risk than its Consumer Packaged Goods (CPG) peers,” he said, as evidenced by both the $1 billion Ballast Point deal and Canopy stake.

He likens their strategy to a “private equity approach,” which he believes will “perennially complicate the business valuation” — particularly at times like now.

Still, their approach to the beer business may be more orchestrated than is obvious. Kaumil gives them credit for four distinct phases.

NEWLANDS USHERING IN NEW “PHASE OF MARKETING.” He believes the new brass, Bill Newlands, will help usher in the current “Phase of Marketing,” considering his background.

They’ve already laid the groundwork, he believes, with Corona extensions: Having “no illusions” that their beer portfolio’s double-digit growth would continue forever — particularly given its 300 million case base, accounting for about 11% share of the U.S. beer biz — and considering the Big Three are collectively declining about aggregate 35 million cases per year, they expect Constellation’s beer to grow 9% or 10% for the next three years.

And so, “the company is carefully releasing an arsenal of innovations and regional Mexican brands across categories and new regions, which should collectively offset the expected fade effect of the core portfolio in the coming years.”

(Ed. note: The question, of course — at least, the question to us at BBD — is whether new brands like Familiar and Premier, together about $50 million in sales YTD in IRI, can offset the downtrend of juggernaut brands Corona, which is $212 million, and Corona Light, which is already (just) smaller than than Familiar.

But when you throw in the sixth largest brand in scandata [at $233 million] — Modelo — and its leading position in California (in Los Angeles, the beer is larger than Bud Light, Coors Light and Miller Lite combined), on top of its double-digit growth trend (in everywhere but eight states, per last week’s Gold Network Summit)…

… I mean, hot dang, this thing is a train: it’s now the largest brand at Dallas’ Andrews Distributing, surpassing Miller Lite… And the total Modelo family is about 120 million cases, with the goal to reach 200 million…

Yea, we’d say things are looking okay for Constellation beer. Ok, back to the note.)

HOW WE GOT HERE. If Constellation is entering its marketing phase — wonder what the other phases were?

Kaumil does a recap: “Constellation spent much of the 1990-2000s getting bigger (‘Acquisition Phase’) and spent 2007-2011 improving returns operationally and through divestitures (‘Returns Phase’).”

Of course, the company spent 2013 to 2018 gaining control of and building infrastructure for the Mexican beer business.

Now with its portfolio in place, they’re” modeling for “sustained
high-single-digit beer segment growth of 8-9% through FY21.”

RE: CANOPY, IT’S “DIFFICULT TO CHOOSE A WINNER.” As for Canopy, Credit Suisse’s take is “Prepare, Can’t Predict: Management leveraged its advantage as a controlled company to be first and be bold in its move into cannabis.” There’s credence to STZ/Canopy’s first mover advantage, and Canopy has scale that’s “difficult to replicate.” But Kaumil seems a bit less sure about this prospect, despite the investment fitting with STZ’s typical PE-type approach.

Still, “we believe there remain many uncertainties. … at a minimum, capital needs are underestimated, success is further out than planned, and it is difficult to choose a winner.”

Until tomorrow,

Harry, Jenn, and Jordan

“Mistakes are the portals of discovery.”

• James Joyce

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