Dear Client:

After yesterday’s note on seltzer’s boom during recent shopping weeks, we were able to coax the Mike’s Hard gang out from their relative quiet. 

In recent weeks, the fast-growing producer seems to have been lying low, even as seltzer continues to fly off the shelf. 

But chief Phil Rosse did give us a bit of color and update on their hopes for the year. 

We reported yesterday that the White Claw Variety Pack was the top selling SKU in the latest set of IRI scan data by a wide margin. That is incorrect. The data combined the sales of White Claw’s original Variety Pack with its latest Variety Pack, which explains the healthy lead it had on the other SKUs. 

If you take out the week sales from the recently launched Variety Pack — which were pretty impressive, by the way, at $6.9 million, making it a Top 20 SKU in its own right in multi-outlet and convenience over the week — then the original Variety Pack “only” stands as the third highest selling SKU during the week at ($14.8 million in MULC). That’s less than a million dollars behind Corona Extra 12-pack bottles ($15.7 million) and Bud Light 24-pack cans ($15.4 million). All that to say, a singular White Claw variety pack is not tops yet– but it might not be long.

Anyway, Phil also shared that their recently launched second Variety Pack, which again has only been in the market for a few weeks, “would already be the 3rd largest brand in seltzer on its own.”   

WHITE CLAW AT 60 SHARE OF SELTZER YTD, SAYS PHIL. With Bud Light Seltzer’s belly flop into the category earlier this year, some data had seemed to show some wavering share trends of White Claw, which had reached a pinnacle of 60ish share last year. 

But Phil says the brand has “shown significant strength and resilience to sustain in the 60 share range YTD, especially with another onslaught of new brands, significantly resourced, entering the space.” (That includes Molson Coors’ recent national rollout of its Vitamin C-infused play, Vizzy. It’s still very early days for that brand, but Molson Coors told BBD that “early indications affirm our excitement about the potential of Vizzy as we’re getting great responses from distributors, retailers and consumers.”)

“Our partners have been nothing short of exceptional in executing once again this year, especially during these unprecedented times,” Phil said. 

HOW HIGH IS UP? NORTH OF 10 SHARE THIS YEAR, PHIL BELIEVES.  

“We have been saying this consistently for a few years now but we continue to believe the seltzer category growth is a fundamental consumer behavior shift and all metrics point to continued acceleration and significant upside.”

His reasoning: “In 2018 seltzer finished around 1 share, 2019 grew to around 4 share and already in recent periods in 2020 is now closing in on 8 share.” 

SELTZER ALREADY 15 SHARE IN SOME MARKETS, WHITE CLAW ALONE IS 10. In fact, “we have markets and distributors in recent periods where seltzer is now 15 share of beer and White Claw on its own is already 10 share of beer.  The seltzer category could very well hit teens national share during key periods in 2020 and finish this year north of 10 share in the US.”  

FMB/SELTZER NOW SECOND LARGEST CATEGORY IN BEER. Phil continues: “The flavor category (FMB + Seltzer) has also recently become the second largest category in beer, only behind domestic lights.  This is happening not over decades but really in months / years.  It is a consumer movement, a movement with momentum and a long runway ahead of it.” 

STILL SLATED TO FINISH FACILITIES IN NEXT COUPLE MONTHS. Asked about the progress on their two facilities, in New Jersey and Arizona, which they’ve promised would come online by June, Phil says they’re still aiming for that target date.

“Mark Anthony is continuing to do everything possible to keep up with our accelerating demand, and is not restating any of our previous 2020 forecasts or planned supply capabilities,” he told BBD.

HEINEKEN Q1 RESULTS REFLECT THE INITIAL COVID IMPACT; MARCH VOLUMES “HEAVILY AFFECTED”

As expected, “the spread of the COVID-19 crisis to all geographies” is having “a significant impact on HEINEKEN’s markets and on its business in 2020 and is already visible in the volume reported for the first quarter,” the global brewer stated in its Q1 trading update this morning.

Indeed, when you look at the company’s beer volumes for the month of March (when most countries implemented containment measures for the pandemic), you see that volume dropped double digits across all regions Heineken operates in.

• In Africa, Middle East & Eastern Europe – volume fell 14.5% in March.
• In the Americas – volume fell 13.8% during the month.
• In the Asia Pacific region – volume dropped 10.8% over the month.
• And in Europe, – the company’s volume declined by 15.3% during the month.

TOTAL BEER VOLUME DOWN 2.1% IN Q1. Despite these significant drops in volume over the month of March, total company volume for the entire first quarter was only down 2.1%. Brand Heineken actually grew in the first quarter, up 5%, despite a 2.4% drop in March.

BUT IMPACT WILL “WORSEN” IN Q2. However, Heineken expects the impact in its volume performance to “worsen in the second quarter of 2020.” They also anticipate the “second half” of 2020 “to be impacted, as lockdowns may be lifted but the impact on the economy is likely to remain.”

Still, Heineken chief Jean-François van Boxmeer noted in this morning’s release that the company “entered the crisis with strong brands and a strong balance sheet,” and have “taken necessary measures to reduce our costs, secure additional financing and adapt to the fast changes we see in our markets.”

EXECS TAKING 20% CUT IN SALARY. The update this morning noted that Heineken’s Executive Board and Executive Team have “collectively agreed to reduce their base salary by 20% between May and December 2020.” And all “bonuses for 2020 will be cancelled for Senior Managers, including the Executive Board and the Executive Team.”

ALL NON-COMMITTED CAPEX SUSPENDED. Additionally, the company is reducing “discretionary expenses,” stating how “international travel, corporate events and hiring for all positions have been suspended.” Then “all non-committed CAPEX has also been suspended, unless absolutely necessary,” and “projects and technology upgrade programmes are being temporarily paused or scaled down and will be revaluated.”

At the same time, Heineken is donating a hefty amount of money to try and provide some relief to those affected. We reported earlier this month that Heineken announced a €15 million donation to support the International Federation of Red Cross and Red Crescent Societies (IFRC) relief efforts for the most vulnerable people affected by COVID-19.” And today, Heineken shared that “the de Carvalho-Heineken family together with their holding company have decided to donate €10 million to eight charities supporting the Covid-19 relief efforts, four in the Netherlands and four international.”

All in, Heineken chief Jean-Francois says “I am proud of the leadership, the commitment and the courage of our teams and I fully trust their talent, creativity and energy to steer HEINEKEN through this unprecedented situation and protect as well as develop our brands and businesses.”

HUSA DOWN MID-SINGLE DIGIT IN Q1. Zeroing in on Heineken USA’s performance over the quarter, we see that HUSA beer volume “declined mid-single digit,” with brand Heineken growing low-single digit driven by Heineken 0.0.”  Lagunitas, meanwhile, “declined high-single digit.” 

THE SITUATION IN MEXICO. We asked HUSA about any color they could offer about the ongoing situation in Mexico (breweries seemingly considered nonessential, at least through May 17th now), and here’s what they had to say:

“The situation in Mexico is fluid and we continue to monitor as it evolves,” HUSA’s Dayna Adelman told BBD.

“In order to assure supply chain business continuity, ahead of the early April decree, we increased the inventory of our Mexican portfolio in the US” (this morning’s release shared that HUSA and its distributors “held inventory to supply around two months of our Mexican brands portfolio at the end of March”).

Dayna added, “we are keeping a close eye on inventory levels in the U.S. of core SKUs for our Mexican brands across demand points and distributor warehouses and are working closely with our distributor partners as necessary.”

When it comes to brand campaigns, “for Dos Equis, we paused the new Dos Equis ‘Interesting Beer for Interesting Times’ campaign. The campaign was developed to be lighthearted, but also to promote social interaction. Until we can hit play on the campaign again, we developed a credential spot, which began running on April 6th. For Tecate, one of the new 30-second spots launched earlier this year, the credentials spot continues to run on air.”

MICHIGAN GETS TO CALL THE SHOTS ON DIRECT SHIPPING OF ALCOHOL IN STATE, SAYS THE 6th CIRCUIT

It didn’t take long for the 6th Circuit to issue their ruling on the ongoing dispute in Michigan over direct shipping. 

After hearing oral arguments last month on the state’s direct shipping law — which the US District court ruled to be a violation of the dormant Commerce Clause as it allows in-state retailers to ship to state residents, but bans out-of-state retailers from doing so — the Appeals Court handed down their answer yesterday, reversing the District Court’s decision, basically saying Michigan gets to make its own rules on the handling of alcohol with the 21st Amendment.

Here’s the money shot: “Because the Twenty-first Amendment permits Michigan to treat in-state retailers (who operate within the three-tier system) differently from out-of-state retailers (who do not), we uphold the law,” the Appeals Court wrote.

As you can imagine, after the Tennessee v. Total Wine case last year, this was a much-needed shot in the arm for the 21st Amendment. 

Indeed, “this opinion is a strong opinion for the state right to regulate alcohol and the importance of the three-tier system,” per the NBWA’s Alcohol Law Review blog. “It notes the importance of in state wholesalers and that efforts to go around them, while potentially creating short term economic efficient arguments, raise real life concerns for the state.”

NBWA president and CEO Craig Purser also provided a statement on the decision, saying the “NBWA is pleased to see the Sixth Circuit recognize that states have the primary authority to regulate alcohol within their borders.” Adding, “This decision is a clear victory for physical presence requirements and a strong endorsement of the control state model. The opinion rightly recognizes the essential role played by the three-tier system and the important role of a state’s distributors in promoting a fair alcohol marketplace.”

LONE STAR RELEASING ITS FIRST EVER SEASONAL, A MEXICAN-STYLE LAGER

Lone Star Beer continues to add to its lineup. 

Last year the Texas heritage brand from Pabst rolled out an ultra-light Lone Star, Lone Star 24/7, and this year the brand is launching a Mexican-style lager, Rio Jade.

The beer, pronounced (Ree-Oh Hah-Day), is “inspired by the appreciation for Texas’ diverse lands and waterways,” per company release. Packaged in “bold turquoise cans,” the beer pairs “with floating the river, sunbathing at a favorite swimming hole, or watching the sunset from your backyard to practice ‘social distancing’ at this time.”

Indeed, Rio Jade marks Lone Star’s “first seasonal beer.” The beer, which clocks in at 4.5% ABV, will be available throughout Texas later this month, and begin full distribution in May, “for a limited time until the end of summer.” 

What’s more about Lone Star’s Rio Jade is it will be “locally brewed in the Hill Country of Austin.” That’s interesting because Lone Star is primarily brewed by contract at Molson Coors’ Fort Worth facility.  We’ve been told by representatives that the new beer is “being brewed at Lone Star’s partner brewery, Oasis Texas Brewing Company.” 

LAUNCHING “GOODWILL INITIATIVE” TOO IN RESPONSE TO COVID. Lone Star also noted in the release that it’s “launching a goodwill initiative called ‘Keep The Lights On Y’all’ to help support members of the bar and restaurant community during these uncertain times.” The brand has teamed up with local online print shop, Texas Humor, to create an “exclusive Texas t-shirt inspired by the classic neon lights… as a call to action for Texans to support local bars and restaurants.” Lone Star said that “100% of the profits” from the new tee will go towards Southern Smoke, a local nonprofit organization that supports the food and beverage community and their suppliers.

BEER BRIEFS:

MARCH DOMESTIC TAX PAIDS DOWN 0.5%. Three months in the books and all three just a hair in the red. January domestic tax paid shipments were down 0.1%, February’s were down 0.7%, and now we have March’s tallies, down 0.5%, representing a 70,000-barrel drop-off, per Beer Institute estimates. All in, domestic beer shipments are now down 0.42% YTD (through March), a little over 160,000 barrels off of last year’s pace. 

Until tomorrow,

Harry, Jenn and Jordan

“I would not waste my life in friction when it could be turned into momentum.” – Frances Willard

———- Sell Day Calendar ———-

Today’s Sell Day: 15

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