Dear Client:
Yesterday we reported that F.X. Matt announced the completion of their $34.7 million brewhouse and tank farm expansion, with plans for another $11 million in brewery investments, and the immediate need to fill 25 positions. They expect to grow 100% this year.
A lot of their growth has been driven by F.X. Matt’s explosive contract production services, as well as COVID shopping trends that have fueled their own brands in the off-premise.
Their transformation to a contract producing powerhouse is as incredible as it is a sign of the times. F.X. Matt is, after all, the fourth oldest family-owned brewery in the U.S., having brewed beer since the late 1800s.
We asked: Do they attribute their skyrocketing growth — especially on the contract side — to the advent of seltzer?
“In a way, yes,” said president Fred Matt. But he could sense a need to diversify away from so much craft centricity, even before that.
Three years ago their business was 85% beer, now it’s about 55%.
“We were heavily, heavily into the craft side of the business,” Fred told BBD. But “we, as a company, got worried about 4-5 years ago,” when everyone was riding the “‘craft bonanza.’”
But it was clear to Fred and company that “markets were changing,” and the brands were aging – some craft reaching “30 years old” and getting kinda “‘been there, done that.’
“So we just needed to diversify our business.”
Accordingly, F.X. Matt became “much more proactive on contract, 2-3 years ago,” Fred recalls. They “made a list of potential people” to work with and started calling. Now, besides seltzer, “we got into distilled spirits, canned wine … organic juices. All I was trying to do was put some more ‘legs on our stool,’ so if someone comes along and chops off craft, we’re not screwed.”
He does note that COVID off-premise buying trends have accelerated their beer business as well. “Trusted brands …have seen a nice COVID bounce. The Saranac brand was up 2.3% last year — but that’s losing all on-premise; off-premise, it was up 27%.
“Even our soft drinks, which are a nice piece of our business,” though seemingly a bit indulgent for current wellness trends, “was growing at 30-40% … if you like root beer, we have the best one out there,” he says.
“So, you’re just seeing things very differently coming out of COVID. For us, as a company, we’ve been in the contract business since ’81. We do it well. [But a few years ago], we weren’t as focused on it as a company. … We made a decision a few years ago to say, ‘we do this well, people like working with us,’” why not make it larger.
GETTING MORE INTO SPIRITS-BASED RTDS. And so we dug in on that contract business. First, we wondered about the spirits space.
They are working on a “few” things there, including the The Finnish Long Drink, a gin-based canned RTD, which Fred says is “crushing it.”
But they’re also involved with “some branded names” that he can’t mention just yet.
It all goes back to the ongoing need to innovate and diversify.
“I have 3 Millennials, and watching them drink is very interesting: One, they have a much broader set of drinking items: Start with craft, and by the end of the night, they’re drinking seltzers. Then they go on their hiatus of drinking, which I can’t stand. … They don’t drink for a week.
“But I just think there’s this better-for-you category that is growing.” Across categories, “Coming out of COVID, I think people are looking at, ‘can I do less negatives?’ So, lower alcohol, lower calories, less sugar… those are all important. But I also think there’s tremendous demand for ‘new and different,’ and so… crossover categories are gonna grow. And I think that, you better be innovative, or die.”
That applies to non-alc and even CBD beverages, too.
ON NON ALC… they’re working on that, too.
“First thing we did last year was, we started working on an immunity drink, which is in final packaging… the product is ready to go, we’re working on a path to market.
“We’re in a lot of beer distributors, and as much as I’d like to go that route, it’s such a different sale for them,” he muses.
And F.X. Matt should know: “We have that. We have a line of Saranac soft drinks, root beer, ginger beer, Shirley Temple; and Saranac Splash, which is like [the juice flavored] San Pellegrino.”
SELTZER… We’re not sure about all their current seltzer partners, though F.X. did produce the original SpikedSeltzer for Nick Shields, who sold the brand to A-B. And they currently make their own Saranac Green Tea Spiked Seltzer.
On the subject of seltzer, Fred said: “People are willing to give up some calories to get more flavor. One thing I look at is, as everyone goes to ‘non flavor,’ how do you come back the other way,” but also in a way that’s perceived as “better for you.”
…AND CBD BEVERAGES. They’re working on CBD beverages, too.
In fact, F.X. Matt and Brooklyn Brewery are “doing a JV with a New York hemp farm,” which is an organic vegetable grower as well as hemp grower and processor.
“We’ve got the liquid done, and we’ve done our testing… so if we say there’s 20 grams of CBD in there, there’s 20 grams of CBD. We’ve done a ton of research and are in the final stages of naming and packaging.”
There’s likely some regulatory stuff to wade through, but Fred says they’ll soon be “ready to go.” They are hoping to go through beer distributors for that.
We were certainly curious on their route to market.
“Beer distribution is what we know; in most cases, a lot of non-alc products over the years — Snapple, Sobe, Bai — the guys that have done best with them are the beer guys. They’re in the stores, they’re selling and they know how to do it.”
But aren’t CBD beverages still somewhat hard to distribute to mainstream channels?
“Certain stores are already carrying [these types of beverages],” says Fred. “The question is, do you put a dietary label supplement on it. What our legal team says is, just don’t make outrageous claims.”
ON R&D. Finally, we were curious whether they offer R&D services for their contract partners.
“We don’t do development for our contract partners…We really urge people to come with a formula. We do look at the formula, and we will advise. I am fond of saying, ‘the benefit you get of us is, we’re in markets, we know what it’s like to go to market with something new, and deal with distributors and retailers… whether you like it or not, you’re going to get our opinion.’ It’s a side benefit we offer. And take it or leave it,” he says, in New York-ese.
“Mostly what we try and do is pick people we like to do business with. You look at people we’ve [contracted for] over the years: Blue Moon started here … Keith Villa and Coors brought it here to start up. Harpoon, we’ve worked with; Brooklyn; Sam Adams was 12-15 years. We like long-term relationships with people that we like. And we’re very likable, so it’s not hard … all you gotta do is find people you like. Most people are really good.”
MOLSON COORS NOW SHIPPING A MILLION BARRELS A WEEK, BUT STILL BEHIND ON CORE INVENTORY
The biggest highlight from Molson Coors’ first quarter earnings call yesterday wasn’t Q1 related – it was how the brewer has performed so far outside of Q1.
The latest scan data would suggest the brewer has had a rough go of it so far in April, with volume down 12.8% and dollars down 9.3% in the latest four weeks to April 17, per NielsenIQ.
But Gavin contended on the call that the latest scan data doesn’t paint an accurate picture of how the company is currently doing, due to the lapping of the pantry loading last March, and its omission of the brewer’s performance of on-premise channel, of course.
Indeed, we guess the on-premise demand really is back, because Gavin painted a much rosier picture on performance so far in April, stating that U.S. depletions are up mid-single-digits over the last four weeks.
SHIPPING OVER A MILLION BARRELS PER WEEK. He added that they’re now shipping over a million barrels per week in the U.S., something they haven’t done in nearly a year.
Does that mean they’re pretty much all caught up on supply now? No.
They’ve seen “sequential improvement” in their core brands’ inventory, but “we’re not where we want to be just yet,” Gavin said.
He expects they’ll be “much closer to where [they] want to be” with core brand inventory by Memorial Day, “and then fully recovered on core brands towards the back end of the second quarter.”
After that happens, they can begin to focus again on some of the brands they have temporarily paused during this recovery plan, Gavin said.
Outside of the highlights above it was a whole lotta talk on seltzer.
TOPO CHICO SUPPLY WILL BE “A LITTLE CONSTRAINED.” Ya think? Speaking on the big new Topo Chico Hard Seltzer launch, which snagged 3.2 share of the overall seltzer market in its debut week despite only being in 16 states, Gavin admitted that they’ll be “a little constrained” to meet the “huge unexpected demand for the brand.” But as the “weeks progress,” and Molson Coors works with Coke to increase its supply of the brand, “I think you’ll see progressively those shelf spaces being filled,” he said.
Gavin added that they made the “right decision” in keeping the launch to “the limited number of markets that [they] did,” and they won’t expand it until they feel “quite comfortable” that they can “meet the substantial demand” that they’ve seen in its existing markets. But make no mistake, this brand has “national potential,” Gavin said.
VIZZY NOTCHED “RECORD SALES WEEK” LAST WEEK. The company is still high on its largest and oldest seltzer brand too, Vizzy. And it appears consumers are too, as the brand put together “a record sales week” last week, said Gavin.
Of course, some of the new packs hitting for Vizzy, like Vizzy Lemonade and Vizzy Variety Pack #2, played a big part in that record week.
Indeed, Gavin noted that Vizzy Lemonade is the “second-fastest turning” lemonade seltzer out right now, beating out big launches this year like Mike’s Hard Lemonade Seltzer and Bud Light Seltzer Lemonade, and sitting behind only Truly Lemonade.
And Vizzy VP #2 is “already turning faster” than Vizzy VP #1, according to Gavin.
So with Topo Chico Hard Seltzer and the new Vizzy variants now in market and performing well, how’s Molson Coors doing on its goal to reach a 10-share of seltzer by year’s end?
MC CURRENTLY HOLDS ABOVE A SIX SHARE IN SELTZER. Gavin noted that the company reached a 7-share during Topo Chico Hard Seltzer’s debut week. And that share has fallen slightly to a 6-plus share, BBD understands. So they’ve got their work cut out for them still.
But primetime seltzer season is right around the corner, and they still have some seltzer innovation in the hopper like spirits-based seltzer Proof Point, which is just now hitting, as well as the imminent Vizzy Watermelon Variety Pack and mysterious Coors Seltzer flavor that they’ve hyped up.
Then too, the on-premise could be a favorable factor for Molson Coors in reaching that goal, as Gavin shared that “distribution of seltzer and velocity for us in the on-premise is actually increasing” noting that they’ve actually “had triple-digit growth in our [seltzer] placements this year” in the channel. He added that they’re launching “two draft seltzers on a regional basis” through their craft companies too, though didn’t know which ones.
So lots of irons in the fire, let’s see what happens.
Until Monday,
Harry, Jenn, and Jordan
“Try to learn something about everything and everything about something.” – Thomas H. Huxley
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