Dear Client:
Molson Coors reported its third quarter results this morning, which saw U.S. shipments grow 1.4% and U.S. depletions drop only 0.9%.
The company touted how it “earned the second highest overall dollar share gains across the U.S. beer industry” during the quarter, and its core brands “continued to strengthen over the frame” with “Coors Light, Miller Lite and Coors Banquet combining to grow over a full share point of the Premium beer category and Miller Lite and Coors Banquet growing brand volume.” Beyond core, Molson Coors highlighted that “Simply Spiked Lemonade was the fastest growing new flavored alcohol beverage in the [U.S.] in the third quarter.”
Net sales in the Americas were up 6.8% on a reported basis for the company, while net sales per hectoliter (on a brand volume basis in constant currency) were up 7.5%, “primarily due to positive net pricing and favorable sales mix.”
A NOTABLE PERFORMANCE IN THE U.S., THEIR LARGEST MARKET. It certainly seemed like a good quarter stateside for the brewer. In fact, the company shared, their -0.9% depletion trend “was the best quarterly performance we have seen in over a decade,” and they claimed “the best U.S. dollar share trend improvement in the quarter relative to the latest 52 weeks.” They did background their U.S. STR trend against the backdrop of “softer” industry performance overall.
COMPS. The latest U.S. depletion trend was also a marked improvement from the sequential period, and the comp. In Q2, Molson Coors’ U.S. depletions were down 1.7% and shipments down 8.2%, (due to cycling of the U.S. distributor inventory recovery in the prior year, ’cause of the Q1 21 cybersecurity incident and Texas storm). And Q3 ’21 depletion trends were down 5%. North America net sales were slightly negative in both Q2 and the comp period.
GLOBALLY, the company has now logged six straight quarters of net sales revenue growth, “with our global net sales revenue now above 2019 levels through the third quarter on a constant currency basis,” per MC. Overall, their net sales were up 4% on a reported basis and 7.9% in constant currency, “primarily due to positive net pricing and favorable sales mix.”
Global shipments dropped just a hair (-0.2%) “due to lower Americas brand volumes.”
And depletions declined 2% “primarily due to a 1.5% decline in the Americas as a result of softer industry performance and the continued impacts of the Québec labor strike as well as a 3.1% decline in EMEA&APAC due to markets impacted by the Russia-Ukraine conflict.” (That’s Europe, the Middle East, and Africa, and Asia and Pacific.)
HARD MTN DEW HITTING ILLINOIS
We’ve learned through our nefarious back channels that Hard MTN Dew will enter Illinois, despite concerns from a local beer wholesaler group.
In a letter to members Monday, Associated Beer Distributors of Illinois president Robert Myers confirmed that Hard MTN Dew “is arriving in the marketplace” despite the group’s “overwhelming objections” to the Illinois Liquor Control Commission not to issue Pepsi’s Blue Cloud a distribution license.
“The ILCC ignored our legal interpretation that Blue Cloud did not qualify for a Distributor’s license per the Liquor Control Act,” Robert wrote, adding that ILCC “has sternly warned Blue Cloud about merchandising this beverage alcohol with its non-alcohol product family and warned them not to display the Hard Mountain Dew in NA aisles.”
Recall, Blue Cloud general manager Emiliano Di Vicenzo told BBD they plan to go national next year. But in its original three launch states (Fla, Tenn. and Iowa) Hard MTN Dew has been sloughing share in recent weeks [see BBD 10-31-22].
In its objections to the ILCC, ABDI apparently “submitted several photos” showing Hard MTN Dew had been merchandised inappropriately in other states “by displaying the product near NA products, candy and, in some cases, even toys.”
Robert signed off by advising Illinois distributors “should you come across Hard Mountain Dew near Pepsi, Mountain Dew or other Pepsi products or see the product in nonalcoholic areas” to send a photo to ABDI so it can be reported to the ILCC.
ABDI’s board of directors plans to discuss the ILCC’s distribution license to Blue Cloud at its next meeting Nov. 15.
OLYMPIC EAGLE FIRES BACK AT CONSTELLATION, CLAIMS COLUMBIA HASN’T MADE AN OFFER
The latest volley from the Olympic Eagle vs. Constellation lawsuit in Washington State, sees the distributor maintain that losing Constellation would result in a “Hindenburg type event” for the company. Filings show that Constellation represents 21% of Olympic Eagle’s sales volume and 27% of the company’s gross profit. Then too, Constellation has represented “about 80 percent” of the company’s “profit growth over the last year.”
Recall Constellation attempted to dismiss Olympic Eagle’s request for a preliminary injunction as well as the entire case last week, with its main argument boiling down to the fact that the agreement allows for it to terminate without cause.
And in this latest filing, Olympic Eagle argues in its response that the contract does not grant Constellation the right to terminate without cause.
CONTRACT DOES NOT GRANT STZ RIGHT TO TERMINATE WITHOUT CAUSE, SAYS OLYMPIC EAGLE. “While the agreement gives Constellation the clear and affirmative right to terminate with cause in several circumstances, it assumes the right to terminate without cause will come from outside the contract—likely through state law—and then outlines the procedural steps if that happens. Some state statutes give beer distributors the affirmative right to terminate without cause, others forbid it, and still others are neutral.”
And in this particular circumstance, Olympic Eagle believes it is protected under Washington’s Franchise Investment Protection Act from termination without cause.
AND EVEN IF IT DID, OLYMPIC EAGLE WOULD BE PROTECTED UNDER WASHINGTON’S FIPA. “Even assuming for argument’s sake the agreement allows termination without cause,” Olympic Eagle says it would still be “protected from termination under FIPA’s ‘franchisee bill of rights’ because it meets the statutory definitions for a franchise: (a) it paid $3 million directly to Constellation for a ‘national advertising fee’; (b) operated under a marketing plan required by Constellation; and, (c) was required under that marketing plan to ‘substantially associate’ with Constellation trademarks and advertising in dealing with customers.”
CLAIMS COLUMBIA HAS YET TO MAKE AN OFFER. But perhaps, the most eye-catching bit of info relayed in this latest filing is the claim from Olympic Eagle that “Columbia has not made any offer for the business.”
Indeed, a declaration from Olympic Eagle’s VP of sales, Chris Hagle, states that Columbia chief Chris Steffanci did indeed reach out to Olympic chief Steve Knight in early September informing him that Columbia was “Constellation’s preferred successor” and “discussed the possible valuation for the transfer of those rights as a seven times multiple of trailing 12 months earnings.”
But the Columbia chief “did not then and has not since made any specific offer, nor has he or anyone else, including Constellation, indicated that Columbia will be the successor distributor,” according to Olympic Eagle’s VP of sales.
WHY STZ SALES ARE DOWN AT OLYMPIC EAGLE IN OCTOBER. Olympic Eagle also refuted Constellation’s claim that it has seen its business suffer at the distributorship following notice of the supplier’s intent to terminate.
In fact, Olympic Eagle said it has “implemented an all-company incentive” over September and October “to ensure that each Olympic Eagle department maintains focus on Constellation and continues to service the brands at a high level in this period of uncertainty.”
And over the month of September, Olympic Eagle said Constellation sales increased by over 50%.
But following “a successful month” like that, “we typically see a drop off of sales for a short while.” So, the “poor sales” referenced by Constellation – being down 17% at Olympic Eagle through the first three weeks of October – is owed to a lull coming off “such a successful” September, and “the fact that October 2021 was a very strong month because some products that had been unavailable could be sold once again.”
The distributor adds that “even while our status with Constellation remains in question, we have every incentive to continue selling its products to the best of our ability. It is a profitable product line, so more sales means more profits to us. And if we are required to sell the brand to another distributor, our most recent sales and profits will be a significant factor in the valuation.”
Olympic Eagle maintains that it would be “irreparably harmed if Constellation’s termination is not enjoined” and continues to call on the court for a preliminary injunction to “preserve the status quo.”
Until tomorrow,
Harry, Jenn, Jordan & Bianca
“It is better to know some of the questions than all of the answers.”
– James Thurber
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