Dear Client:

It’s been awhile since we’ve heard from the folks at Chicago-based Phusion Projects, makers of Four Loko and Mamitas tequila seltzer, among other concepts. Phusion is undoubtedly one of the OG disrupters in the bev-alc space with the introduction of Four Loko, which from 2005 to 2012 was a roaring success until it famously got clipped by various state and federal agencies, ultimately resulting in an expensive removal of all caffeinated product from the shelves, reformulating, and re-launching. It almost ended Phusion. 

But a funny thing happened. All the over-hyped volume-shooting publicity thrust Four Loko squarely on the international stage. In some ways, that event put Four Loko solidly on the bev-alc map as a strong, widely recognizable global brand.

It got started in Mexico, where Four Loko is in 15k of the 20k OXXO c-stores there, they enjoy a 42 share of RTDs in Peru, a 27 share in Columbia, and the “fastest growing RTD in the UK and Ireland,” Phusion co-founder Jeff Wright told BBD. “So our business internationally is 20, 25% of our US volume. And it’s growing at a hundred percent year over year.” (Note: outside the US there’s little distinction between RTDs and FMBs.)

In the U.S., Four Loko maintains a 0.65 dollar share of beer in c-stores in YTD IRI scans, capturing an additional 0.03 points of share this year, on a big $2.55 a case average price increase. Volumes are down 1.1%. Phusion is the no. 11 overall beer supplier in c-stores by dollars, sitting between Geloso and Yuengling. 

But whatever folks have thrown at Four Loko over the years in that very specific FMB c-store singles market, one can’t deny the brand has staying power and sticks like teflon. “Competition has come in and one thing’s been constant in that c-store set, it’s Four Loko,” Phusion co-founder Jaisen Freeman told BBD.  “There’ve been many things that have come and gone” but in the end, Four Loco “is consistently in the set. I think we’ve innovated well. The flavors have gotten better and it’s part of pop culture, it’s part of history.”

In keeping up in the flavor wars and on the heels of their successful 2022 innovation of Four Loko USA, Phusion has cut a deal with Warheads to create Four Loko Warheads Sour Cosmic Punch (see brewpic below).    

MAMITAS.  Phusion has built a relationship with Barstool Sports, the most influential media platform for men 21 – 35, through their tequila canned cocktail line, Mamitas, where it’s prominently displayed on the popular Barstool show, Sundae Conversations with Caleb Pressley — the latest episode of which garnered over 11 million views alone (featuring Aaron Rodgers being very awkward). You may be asking what Phusion, a company known for its ‘FMB-singles-in-c-stores’ props, is doing selling a higher priced canned RTD-spirit best fit for larger format stores? 

Jaisen acknowledged the project stretches their wheelhouse. “It is definitely a different game,” he says. “There’s obviously less outlets available. C-store  isn’t the biggest channel, as large format and grocery, which we touched before but hadn’t really infiltrated. So we had to really take a look at strategy and hiring and have a different approach from that perspective.” Jaisen stresses that building this type of brand “takes time” and patience.

Still, they are making progress on distribution, with Kroger and Publix expanding territory, and velocity growing as well. “2023 will be a real breakout year” as they wil break into more “national big large format distribution, which we’ve never had anything in.” The brand is distributed through Southern Glazers, which is also new for Phusion.  

PIRATE WATER. That brings us to today. Leveraging their relationship with Barstool and in collaberation with them, Phusion is launching Pirate Water (in a nod to Barstool’s Dave Portnoy and their pirate imagery). The FMB will initially come in 16oz singles cans at 10% abv, noting that FMBs are the number one single serve segment in c-stores and growing.  Barstool tends to give bev-alc brands in particular a turbo boost, most famously for High Noon, but also for New Amsterdam’s Pink Whitney (also a Gallo brand) and Owen’s mixers, which got a 23% and 54% incremental boost in sales, respectively, after collabing with Barstool, according to a deck we spied on the sly. 

RUSH TO VALUE. Jaisen said the decision to go into the smaller 16oz tallboy rather than the usual 24oz oilcan was deliberate. Sensing that we are seeing a change in buying behaviors, especially in the 21 to 35 age cohort, Phusion opted for the smaller package at a smaller price point as inflation rages and the economy is uncertain. They’re looking for a $1.5o to $1.75 a can at retail, or more likely a BOGO at two for $3 or $3.50 “or somwhere in there, depending on the state and taxes out the door,” says Jaisen.

Jaisen says that at least “for a certain consumer, it’s ‘what am I paying and what am I getting back for that? Whereas in the last couple years it was just there, ‘I’m grabbing it, let’s go. I don’t really care about the price.’ I think you’ll see some more people really taking a look at what they’re getting for what they’re spending.” And from a practical standpoint, that often includes a mental calculation of the price relative to the volume and the ABV. 

—- SIDEBAR. That “sea change”, or point of inflection that we perhaps may be now starting to see in the data, could stress-test the price elasticity models the analysts have and are reviewing for beverages (i.e. elasticity may not be as low for beer as we initially thought, as data and purchasing behavior both lag the actual implentation of general price increases (GIs), often by several weeks). On the other hand, consumer spending in general remains strong, so it’s really too early to tell, except at the margins. I believe the holidays and NFL playoffs/Super Bowl will provide an excellent snapshot of how baseline consumer behavior is really changing at a macro level for beer, if behavior is actually changing tectonically at all.

SOCIAL MEDIA.  Phusion Projects was arguably the first bev-alc company to utilize social media effectively to create connections with their drinkers, starting with, believe it or not, as Jeff pointed out, MySpace in 2005.  Today it’s no different. “Social media is one of the most important things within the Four Loco brand,” says Phusion’s VP Marketing Samantha Catalina to BBD. “Quarter over quarter we look at [share of voice in socials] and we’re routinely number one, by margins.”  Phusion owns 45% of the “overall share of voice online within FMB” and “consumers are absolutely still talking about us, they’re searching for us, they’re sharing.”

WE TALKED ABOUT LOTS MORE, WATCH THE ENTIRE interview with the Phusion leadership team on BeerNet Radio:  Youtube  |   Spotify  |  Apple

PABST GETTING BACK TO BASICS; eL JIMADOR FMB COMING

Speaking of another company that is uniquely situated to benefit from a possible ‘rush to value’ in 2023 is Pabst. It’s been exactly a year since Pabst Brewing Co. tapped longtime CPG exec Paul Chibe as CEO, succeeding Eugene Kashper in that role while he remains Chairman. Paul started in confectionary at Wrigleys, then spent nearly three years at Anheuser-Busch as CMO starting in 2011, and later at Ferrero Group (Tic Tacs, Nutella, etc.), the third-largest candy company in the world, where he served as Global President of Sugar Confectionery before returning to beer with Pabst. The beer business — like the mafia and Russia — never truly lets anybody really leave.

As it turns out, there are interesting parallels between candy and beer, (as there really are with all branded CPG categories, as much as we in the beer industry like to imagine we’re special). Given the almost embarrassing way leading industry players flocked to hard seltzer with me-too products, even going so far as slapping major beer brands on seltzers, and the predictable crypto-like crash afterwards, there are surely lessons to be learned.

“The confectionary industry is a bit more disciplined on innovation” than beer, Paul told BBD last week with understatement. When Snickers was rolled out, for instance, “you didn’t see the next guy launching Bicker’s.” Even after Snickers was a hit, “you don’t have fifty versions of Snickers out there.” Can’t argue with that. “We need to be better at disciplining ourselves and saying, listen, if we’re not bringing a true incremental, differentiated innovation, we can’t expect any other result than what Bump Williams was saying,” referring to Bump’s recent analysis of scan data which showed “the lifecycle of brands is down to 12-18 months with very few exceptions”, (see BBD 10-16-2022).

From a beer perspective, “I don’t believe that there’s any intrinsic reason why the beer business can’t be successful,” Paul maintains. “I think that a lot of the things that have hurt the industry are self-inflicted. It’s not focusing on the core, it’s how we as an industry present our brands, how we go about pricing”, and of course, too much dang churn. 

With that said, Paul says that in 2023 Pabst will be focusing on three main initiatives:  Focus on execution with their core beer brands, build out Jack Daniel’s Country Cocktails, and, yes, Pabst will be rolling out one new FMB line with Brown-Forman using their el Jimador marque.

Focusing on the core is something Paul stressed “from the day I walked in the place”, and has been “received incredibly well by the wholesalers.”  That means “making make sure that from an executional standpoint we’re doing the right things in the right way”, including and especially “closing gaps on distribution”.

The second priority is building on their Jack Daniel’s Country Cocktails line of FMBs in partnership with Brown-Forman. “We still have a long way to go and we’re not gonna be distracted”, says Paul, pointing out that Jack Daniel’s enjoys arguably the most valuable brand equity in global spirits. Combine that equity with “focus and execution and we’ll have a long-lasting, durable brand that will be here for many years.” 

And lastly, at NACS Pabst showcased a new FMB line — again in partnership with Brown Forman — using their el Jimador tequila brand to launch in 11 markets in the west and south. “The product and the liquid have been received incredibly well by our retailer and wholesaler partners,” says Paul. “And we’re gonna build the business the right way, build it for the long term, and try to bring durable innovation to our partners and stop this churning of innovation that doesn’t make money for our retailers, and it doesn’t make money for our wholesalers, and certainly doesn’t make money for us.”

For its part, Pabst Brewing proper was heading into OND in scans with dollars up over 7% with volumes down slightly. 

FORMER SENATOR BLASTS FLAVORED LIQUOR TAX CREDIT IN WSJ OP ED

Is now the time to revive legislative talk about repealing the tax credit favoring flavored distilled spirits which never came to pass under the Obama administration? Former Montana senator Max Baucus – a Democrat – seems to think so. 

He had a recent OpEd in The Wall Street Journal raising awareness of the special subsidy, which provides a benefit to distillers who blend spirits products with wine and alcoholic flavorings. 

Calling the Section 5010 tax credit “an example of the innumerable special-interest credits and deductions that litter our tax code,” Sen. Baucus argued the rationale behind the 1981 law is “lost to history.” And while wine and liquor suppliers may have been the initial advocates for the tax credit, it “is primarily used by large foreign liquor manufacturers, so the money isn’t going back into the U.S. economy or creating American jobs.” 

Plus, the tax credit “lacks transparency” because “the Treasury hasn’t conducted public audits” or empowered the public to determine if “the credit is actually being used appropriately,” according to the senator. At a time when inflation i.e. “unimaginable challenges have been thrust on every community and household across the country,” Sen. Baucus questioned: “Why on earth are we still giving foreign liquor companies a special subsidy?”

“LEGAL CANNABIS NOW A FORMIDABLE COMPETITOR TO ALCOHOL,” SAYS COWEN

The competition between legal cannabis and alcohol in the U.S. is heating up, per a recent comprehensive analysis from Cowen. 

Yes, alcohol is still a much larger industry than legal cannabis, but the discrepancy seems to be narrowing quite rapidly. 

LEGAL CANNABIS NOW ONE-TENTH THE SIZE OF BEV ALC. Five years ago, legal cannabis sales were just 2% the size of alcohol. Now in 2022, legal sales are expected to ring in at $26 billion, making it one tenth the size of alcohol. 

So, cannabis is catching up, and catching on. 

CANNABIS TO ADD MORE CONSUMERS THAN ALCOHOL OVER COMING YEARS. Cowen highlighted that cannabis use has particularly been on the rise among 18-25-year-olds for some time, noting that “between 2002 and 2020, the percentage of 18-25 year-old past year cannabis consumers who are past month consumers increased 8.9 pts from 58.1% to 67.0%”

“The opposite is true” with alcohol among this group over that frame, “as past month alcohol consumers as a percentage of past year consumers declined 3.6 pts (from 77.7% to 74.1% in 2020).”

This signals to Cowen more user adoption in cannabis over the coming years, projecting that cannabis will add four times the number of consumers than alcohol over the next five years. 

DOES GROWING ADOPTION COME AT THE EXPENSE OF ALCOHOL? Cowen’s research suggests that this rise is already translating into headwinds for bev alc. 

Looking at data from the Bureau of Economic Analysis, Cowen highlights that bev alc’s revenue growth has lagged as of late in legal cannabis states – pointing out that bev alc spend “in non-cannabis states has grown at an 8.6% CAGR over the past 3 years, compared to 7.9% in adult use states and 7.0% in medical use states.”

It’s a similar story with Nielsen trends, Cowen noted, as states with legal cannabis sales saw more muted growth relative to non-cannabis states. “Indeed, the gap between the rolling 3- year CAGRs for cannabis and non-cannabis states was ~60 bps in October 2022, with the 3-year CAGR for non-cannabis states decelerating 1.0 pt, compared to 1.2 pts for cannabis states,” per note.

BEER BRIEF:

MOLSON COORS NAMES NANCY BEDWELL AS ITS NEW VP OF CATEGORY MANAGEMENT. Molson Coors shared with distributor partners on Friday that it has appointed Nancy Bedwell as its new VP of category management. Nancy steps into this new role at Molson Coors with “more than 30 years of CPG experience leading category management, marketing analytics and insights teams.” Nancy’s latest post was at Reynolds Consumer Products, where she served as SVP of sales strategy, insights and analytics; and she held roles at other prominent CPG organizations prior to that, like Mars/Wrigley, Kraft, Coke and IRI.

BREWPIC.  Phusion Project’s new FMB collabs with Barstool and Warheads.

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WHOLESALERS: TAKE OUR YEAR-END SURVEY. Distributor readers, please take our quick, 5-minute survey HERE about year-end and forward-looking trends. This is your chance to be (anonymously) heard. When we get enough responses, we’ll report on the general results. 

BEER SUMMIT ALERT – It’s just one month away, and we still have a few seats available for our Beer, Wine & Spirits Summits, with a true bounty of deep talent from across the three tiers. Indulge me and just take a quick gander: 

Beer Industry Summit Speakers

• Benoit Garbe, Chief Marketing Officer, Anheuser-Busch
• Brandy Rand, Chief Strategy Officer, IWSR Drinks Market Analysis Global
• Greg Serrao, CEO, JuneShine
• Bronya Shillo, founder, Fishers Island Lemonade
• Kyle Cooke, founder, Loverboy
• Justin Fenchel, Aimy Steadman and Brad Schultz, Co-founders, Beatbox Beverages
• Alva Mather, Chair, Alcohol Regulatory & Distribution Group, McDermott Will & Emery
• Chris Steffanci, CEO, Columbia Distributing
• Kit Wanty-Lambert, President, O&W Inc.
• Laura Markstein, President, Markstein Sales Company
• Phil Rosse, President, Mark Anthony Brands
• Maggie Timoney, Chief Executive Officer, Heineken USA
• Mallika Monteiro, EVP and Chief Growth, Strategy & Digital officer, Constellation Brands
• Evan Athanas, CEO, Chesapeake Beverage
• Deacon Nauslar, VP Sales at Breakthru Beverage Nevada
• Teo Hunter and Beny Ashburn, co-founders, Crowns and Hops
• Gregory Butler, Chief Commercial Officer, Cresco Labs Inc

Wine & Spirits Daily Summit Speakers

• Brandy Rand, Chief Strategy Officer, IWSR Drinks Market Analysis Global
• Heidi Scheid, EVP, Scheid Family Wines
• Joshua Carlos, SVP North America, Lyre’s
• Daniel Stiller, CEO, Better Rhodes
• Greg Hughes, President North America, Beam Suntory
• Danny Brager, Brager Beverage Alcohol Consulting
• Jon Berg, VP Beverage Alcohol Thought Leadership, NielsenIQ
• Kat Hantas, Co-Founder & CEO, 21 Seeds
• Robert Furniss-Roe, Co-Founder, Samson & Surrey
• Russell Stanley, COO, Patco Brands (Rancho La Gloria)
• Ugo Fiorenzo, Managing Director, Campari America
• Monique Huston, VP Spirits Portfolio, Winebow Fine Wine + Spirits
• Mike Hermann, VP Marketing & Business Development, Allied Beverage Group
• Sue Mills, VP Strategic Accounts On-Premise, Breakthru Beverage Group
• Tyler Pitman, VP Portfolio Development & Brand Partnerships, HMSHost
• Alex Ryan, President, CEO and Chairman, The Duckhorn Portfolio
• Jessica Altieri, Director of Beverage, Americas; Four Seasons Hotels and Resorts

-STARTS: January 8, 2023 at The Breakers, Palm Beach, FL. 

-AIRPORTS:  Palm Beach International Airport is the closest to The Breakers. The next best bet is Fort Lauderdale-Holywood International Airport.

-BUY TICKETS: Register and more info.

-Or if you’re more of the old-school type, give Jessica a ring at 210-805-8006 

-HOTEL:  If you haven’t booked your room at The Breakers, now is the time.  Click here for our group rate, or call 888-273-2537.

Until tomorrow,

Harry, Jenn, Jordan & Bianca

“Whenever you do a thing, act as if all the world were watching.”

-Thomas Jefferson

———- Sell Day Calendar ———-

Today’s Sell Day: 3

Sell days this month: 22

Sell days this month last year: 23

This month ends on a: Fri.

This month last year ended on a: Fri.

YTD sell days Over/Under: -1