Dear Client:

Extraordinary times call for extraordinary measures. Yesterday we reported that Molson Coors took the extraordinary measure of agreeing to cover half of the wholesale cost of all untapped kegs in distributorship warehouses and in the retail trade, (subject to state laws). As one very large distributor put it to me:  “Harry, you don’t always hear distribs giving attaboys to Molson Coors but I just want to say that these guys made the right choice IMO. They chose to keep the quality of the beer that the consumer drinks paramount – even over short term profits.  They showed they’re actually brewers not bankers. We’ll gladly split the hit with them.”

So just how much of a hit is it to Molson Coors?  That number was not publicly revealed, but after speaking with several distributor sources, we got Blue to come up with some quick and dirty back-of-envelope estimates:

Number of MC distributors:  ~ 500

X

Est. National Avg. number of untapped half barrel equivs per distrib:  2,500

X

National weighted average FOB of MC half barrel equivs:  $70

=

$87.5 million

/2

Total estimated outlay for MC: 

= $43.75 million

Not a small number, and we suspect it may be conservative. We estimate it will cost Molson Coors $35 per half barrel equivalent taken back, less any excise tax credits they can recoup. If they account for it in the first quarter, about a 25 cents a case equiv. (again, less any tax credits). 

And keep in mind, there is also a lot of package beer sitting in back bar coolers aging as well which while are not subject to this program, somebody is going to have to eat. We estimate there could be as much as a billion dollars of total beer inventory in the on-premise trade right now. 

It will be interesting to see if other major suppliers follow suit. There are a helluva lot of kegs out there aging by the day.

BOSTON BEER HAS ALWAYS BEEN THERE

We should note that Boston Beer Co. has always split the cost of outdated beer with their distributors, and will continue to do such.  As chief of sales John Geist wrote to distributors yesterday, obtained by BBD through nefarious dark backchannels, “This includes honoring our 50% policy for full keg and package returns that we have had in place for years. We believe that this policy of splitting the cost with Wholesalers is a fair way to conduct business. During this unprecedented time, your local Boston Beer Sales Manager will virtually approve all out of code beer. Now, more than ever, we continue to show good faith by taking back kegs after they expire.” Bravo.

PULLING BACK THE THROTTLE ON SKU’S

We first noted that retailers were telling distributors to limit beer SKUs last week on our Sunday YouTube podcast in order to preserve days-of-supply and prevent cold box out-of-stocks of the faster moving products.  

At least one large distributor in a big chain market did just that, but it was more of an issue of night shift warehouse loading capacity than anything else.  “We still have the ‘governor’ on limiting some order sizes and some of the long tail so the loading crew survives. Last week was a record week, this week looks like it will be slightly smaller than the same week a year ago.  All our stores have sufficient, slightly above normal, inventories. The beer aisle is the best looking in the store.” Indeed, we’ve heard that takeaway from many distribute lately, so it begs the question…

IS THE FRIDGE FULL?

Earlier this week, we received a note from a large multi-state distributor telling us “the breaks” are on a bit as “retailers are figuring out they have enough beer.” 

That’s quite a shift from some of the notes we received just a week ago with various distributors telling us they had wrapped up their best weeks ever as a company.

Has demand in the off-premise really fallen fast enough that retailers are now starting to call “uncle” on beer supply? 

We pinged a handful of distribs across the country to determine just that.

IN A SLOW-DOWN, SAYS ONE. A wholesaler in the Northeast told us he “would not characterize it as calling ‘uncle’ just yet, however, we are beginning to experience a slow-down in business.” 

This wholesaler attributes the slowdown to “the pantry filling rush subsiding,” “disposal income drying up,” and the fact that consumers (in this particular market) now know that liquor and grocery stores remain open even under a “shelter in place” order, “eliminating the need and rush to stock up.”

ANOTHER SAYS IT WAS CRICKETS THIS WEEK. A wholesaler operating in the Midwest told BBD that “last week was like the 4th of July around here” but “this week crickets…back to seasonal volume while college is on Spring Break … the national accounts all had mandated purchases that were filled.” 

He adds that the accounts are now “letting the displays sell down,” and that their “largest chain” just “discontinued all print ads for the foreseeable future.”

STORES LESS CROWDED, BEER HOLDING LONGER. Another Midwest wholesaler told us that one of his district sales managers reported to him saying “stores are much less crowded and beer is holding longer than last week.” Still, “looking at our orders being delivered today and yesterday, we still had a lot of 400+ case orders, with some Walmart and Sam’s stores taking more than 800 cases just today or yesterday.” However, this distrib believes “we are at the tail end of that behavior” and thinks “people are going to cut their spending.”

THE PANTRY LOADING IS GOING TO CATCH UP AT SOME POINT. Another Midwest wholesaler told us that “this week’s volume remains higher than last year,” but “at some point the ‘pantry loading’ and hoarding has got to catch up.”  

LIQUOR SALES DOWN IN THIS STATE, WHAT’S GOING ON? But here’s an interesting observation: This same wholesaler said he received some numbers this week that showed spirits in the state (a control state) were “actually slightly down.” It’s the “first time in a while I have seen that,” he said, “us up big and them down at all.”  That said, “it appears with the On Premise closed not only are we selling some or much of through the Off Premise, but we may be getting some share back from Liquor…..(I hope).”

OUT ON THE WEST COAST, a California distributor told us they’re “seeing a slow-down from last week, but still have cases leaving the warehouse this week.” This distrib estimates that they’re “maybe at 60% of what we’d have going out on a normal March 26th (which would also include on-prem).” 

IN TEXAS, TRAFFIC SLOWING DOWN. “Business has certainly slowed down since our best ever week last week,” said one distrib in the state. “So far there’s been minimal turn-downs, but not the big bulk drops we experienced last week,” he added. “We just finished our Leadership Team Conf call & no big issue with retailers, just traffic slowing down.”

Next week we expect beer sales and most long tail approved SKUs to return to a semblance of normal. Big question is will people continue to drink if they are largely sequestered at home with no sporting events, venues, concerts, bars, happy hours, etc.  We really don’t know what the ‘new normal’ looks like, particularly as unemployment skyrockets, but I suspect we have a good idea by the end of next week (the week starting Monday, March 30), which will mark the two week point of the start of the shutdown. 

Regardless, I suspect the industry, while more resilient than most, must prepare itself for some more hard times ahead, particularly if communities remain in lockdown. And that even includes distributors.  As one distributor put it sanguinely in a text, “We can only redeploy our On Premise people for so long. If Off Premise slows down we’ll have to consider layoffs unfortunately but we’re not there yet.”

Got feedback on this issue?  Email me at [email protected] or text 210-772-0123 in confidence.

BUD LIGHT SHINES A LIGHT ON BARS AND RESTAURANTS OPEN FOR TAKEOUT WITH NEW CONSUMER RESOURCE

In an “effort to serve those who serve us,” Bud Light is launching “Bud Light: Open for Takeout,” a new “consumer resource” that will see the brand offer their platform “to help consumers locate bars and restaurants across the country that are #OpenForTakeout,” per company announcement. 

The hope with the site, BudLight.com/OpenForTakeout, is to “make it easier for people to support local businesses and their employees during these uncertain times.” 

They are currently building their database for the site, BudLight.com/OpenForTakeout, and on-premise establishments that wish to be included can submit their business by filling out the online form found on the site. 

Additionally, Bud Light said it “will be diverting some of their media spend to drive awareness of this consumer resource, offering added visibility for #OpenForTakeout.”

MOLSON COORS ANSWERS DISTRIBUTORS’ PRESSING QUESTIONS ABOUT THEIR KEG RECOUP PROGRAM

Yesterday, Molson Coors announced it will reimburse distributors 50% of their fully-loaded FOB [freight on board] for all eligible untapped kegs that go through their new program requirements [see BBD 03-26-2020]. 

They also pledged 50/50 splits with distributors on “any tax reimbursements, deductions or credits from eligible returned kegs” and that they plan to “provide a per-keg credit to distributors for decanting eligible kegs on or near their premises, or cover offsite third-party decanting costs, thereby saving freight costs on keg returns to breweries.”

Not all details have been worked out, but the company tried to pre-empt several questions on the program with some FAQs, including: 

My state’s law does not allow my operation to pick up product from retail before its expiration date. Can I still participate?

Yes. Distributors must make their own decisions about product returns based on relevant state law and the direction of their own legal counsel. Distributors are still eligible for the program if they recover overage product from retail after its expiration date. Molson Coors does, however, encourage distributors to engage their state alcohol beverage agencies on temporary measures that would allow distributors to pick up near-coded product from retail before the expiration date. At the same time, we will work with industry peers to ensure that the parties taking financial responsibility for overage keg product are able to claim any tax credit.

It costs distributors time and money to pick up kegs from on-premise accounts and it costs time and money to return empty kegs from distributor warehouses to Molson Coors breweries. Who will pay this cost?

Draught beer is aging quickly at on-premise accounts. Distributors will need to pick product up from retail whether or not they participate in this program. By choosing to participate in this program, distributors have the opportunity to visit the account, pick up package product that can be redirected to other outlets in the market, collect aging draught beer, ensure fresh beer will be in place when the account reopens and demonstrate to retail customers distributors’ understanding of the difficult situation those customers face. Distributors will bear the costs of collecting keg product from retail but will receive a credit for decanting costs if they run the decanting process. And, distributor keg FOBs already include the costs of shipping empty kegs back from warehouses to the breweries. With a 50/50 split on keg FOBs with Molson Coors, distributors will recoup 50% of those baked-in reverse logistics costs.

How will the keg decanting process work? What is the per-keg credit amount for decanting?

Distributors must either decant kegs on their own in accordance with acceptable decanting processes (in which case distributors will receive a per-keg decanting credit) or coordinate with Molson Coors to engage a Molson Coors-approved third party to decant kegs (in which case distributors will be responsible for freight on transport of eligible untapped kegs from distributor warehouses to third party decanting sites, but Molson Coors will cover the decanting payments directly to the Molson Coors-approved third party). We are currently surveying third party vendors and distributors regarding decanting costs and expect to soon arrive at a national per-keg credit amount that reflects an average of costs on the open market.

Hope that helps. 

BEER BRIEFS:

FEBRUARY DOMESTIC TAX PAIDS DOWN 0.7%. Domestic tax paid shipments for the month of February are in. Beer Institute estimates show domestic beer shipments fell 0.7% during the month, representing an 81,000 barrel drop-off from the previous February. That’s just a hair worse than the trend recorded in January this year, down 0.6%. All in, domestic beer shipments are now down 0.6% YTD (through February), a little under 155,000 barrels off of last year’s pace. This data point is a bit meaningless though as March has gone haywire, so don’t touch that dial. 

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HOUSEKEEPING ITEMS:  We are in the process of fixing and updating our Apple and Android SchuPub app.  We know our app has been plagued with bugs for a long time. (If you’ve ever dealt with software developers, you know the special level of hell you endure). 

So we made the painful and expensive decision to throw out all the old code and just start from scratch. Our new app will be free of bugs as well as having cool new features, including the ability to read our publications on iPads and tablets both vertically and horizontally. The coolest feature in my view: Every time we publish, you’ll hear a beer can opening (if you enable alerts, which you should). 

But hold your horses, it’s not ready yet. We’ll let you know when we go live. In the meantime, please delete our current app if you have it because it sucks and you will need to completely re-upload it once we go live with the new and improved version. Stay tuned…

ON ANOTHER NOTE:  In light of these crazy times, we are extending the temporary suspension of our copyright and leaving our website paywalls open for another month, through April 30.

Be safe out there, and have a good weekend. 

Until Monday,

Harry, Jenn and Jordan

“Nothing is too small to know, and nothing is too big to attempt.”

– William Van Horne

———- Sell Day Calendar ———-

Today’s Sell Day: 20

Sell days this month: 22

Sell days this month last year: 21

This month ends on a: Tues.

This month last year ended on a: Fri.

YTD sell days Over/Under:  +1