Dear Client:

Amid all of our coverage of various keg returns programs from many of the largest brewers, many have weighed in. Some distributors believe that covering 50% or even 70% of the FOB cost of kegs isn’t fair, because a brewer has already been paid for that keg. But many brewers (and some distributors) say it’s better than nothing. Everyone is hurting right now. 

Then too there’s the enduring question of decanting: Who does it, and who covers it? Generally, distributors don’t have a lot of experience here. 

Recently, BBD fielded some thoughts from industry vet Martin Roper, who until a couple years ago had of course been longtime CEO of Boston Beer Company. 

Now president at Vita Coco coconut water, Martin is still keeping abreast of trends in his prior industry. 

And frankly, he says: “I am surprised brewers have not stepped up more to support wholesalers and retailers handle this fairly,” he wrote to BBD.

“My view is the big brewers should step up and offer 100% credit, and pay the freight return, and take care of the decanting/return handling.” Noting that suppliers have made differing provisions for returns, his views do not represent a comment on any specific program, he said. 

But who does he consider “big” brewers? Those with “the financial capability to support and share the costs equitably with wholesalers,” he said. 

“Given the impact to on-premise tap rooms, I would say small craft brewers have enough challenges and cannot be expected to help. But for the bigger craft breweries, the importers and the major breweries – I think they have the capability to absorb costs to support on premise accounts (where legal) and on premise clean up (stale kegs etc.), particularly since they stand to reap the rewards of the pipeline refill. Even for the medium ones, they could say that they would credit the difference once the on premise opens up (where legal).” 

Martin outlined the reasons for his opinion:  

1. “Asking the wholesaler to absorb 50% of the keg price is an uneven distribution of costs of this event. … The brewers have made estimated 40%-50% gross margin on the original sale. So they have booked a profit. Only offering 50% credit means the brewers are not out of pocket on this transaction. The brewers break even,” but not the wholesaler. 

2. “When the business opens up again, the brewers will sell kegs to fill the pipeline (inventory) at wholesalers and retailers, and will more than recover in profits the costs of the kegs being returned for destruction.”

3. “The wholesalers absorb costs for keg pickups and storage so the wholesalers have costs they cannot reclaim, and no revenue if they issue a credit to the retailer (which seems like the sensible system thing to do where legal).”

4. “Expecting the wholesalers to decant is unrealistic. Decanting needs to be done safely and carefully and brewers (and their support service providers) are better set up to do this. Additionally, the waste discharge from a keg needs to be controlled and not directly sewered. There are service providers that can help with this and recover the alcohol and excise taxes, and centrally supplying that service should fall to the brewers and be efficient.”

5. “Most of the large brewers are well capitalized, benefiting from a surge of off-premise consumption and can afford to help the wholesaler community deal with the on-premise product issues in a fair way. As noted above, when on-premise returns, the brewers will cover their costs in kegs sold to replace the ones currently in market.”

Meanwhile, the WSJ writes that there are “millions of gallons of beer stuck in stadiums, concert halls, restaurants and bars are fast going stale,” as we have reported.  The Journal pegs the estimate at one million kegs. And that’s just at on-premise retailers.  If you include distributor inventory and in-transit kegs, “unsold and expiring beer could cost the beer industry as much as $1 billion, according to the NBWA.”

This is not an issue that is going away. 

WHITE CLAW VARIETY PACK #2 SHOWS THE CLAW’S RAW POWER

With the recent rollout of White Claw Variety Pack #2, we are starting to see the raw power of The Claw.

The new pack, which launched in March, had little to no marketing, in fact, we would say it snuck up on most consumers. 

Its category weighted distribution is still below 50% (47.2). 

And yet it is the second best-selling seltzer SKU in recent weeks, and a top 15-selling SKU in total beer in the latest week. 

In the latest week to April 19, the White Claw Variety Pack #2 raked in $7.4 million in IRI’s multi-outlet and convenience channel (data courtesy of Bump Williams Consulting).

How does that stack up next to other brands over the week?

Well, consider this: the $7.4 million brought in by White Claw Variety Pack #2 is more than the sales generated by Bud Light Seltzer Variety Pack ($4.1 million) and Corona Seltzer Variety Pack ($2.5 million) combined during the week.

Keep in mind that Bud Light Seltzer and Corona Seltzer each have national advertising campaigns; the former even had a Super Bowl spot. Plus, both Bud Light Seltzer and Corona Seltzer have higher distribution at 68.9 and 51, respectively.

Yet a SKU, that again seemingly popped up out of nowhere, is beating them out in the middle of this pandemic. 

Indeed, the data seems to show that White Claw Variety Pack #2 just on its own would be the third largest seltzer brand right now (behind White Claw, of course, and Truly).

How? 

Since it’s only a month and a half old and backed with basically zero marketing, there’s not much else you can attribute WC Variety Pack #2’s success to – other than its name… White Claw. 

That’s gotta be somewhat deflating for A-B and Constellation, when their answer to seltzer was ‘let’s see who consumers turn to when we put the Bud Light/Corona name on one.’

LATEST SET OF SCAN DATA REVEALS THE SLOWEST SALES WEEK IN THE COVID ERA

Total beer dollar sales grew 15.1% for the week ending April 19 in IRI’s all channel plus liquor universe, marking the slowest week of sales growth we’ve seen in this COVID era.

Of course, this particular week was destined to be a dip week as it cycled 2019 Easter sales.

But keep in mind that a dip week in the COVID era is still above and beyond what we would see in a “normal week” in April. Total beer sales grew $112 million over the week. 

For some perspective, beer sales grew about $150 million over the entire month of January, and grew just a little more than that for the whole month of February. So this recent down week isn’t too far off from the growth in beer dollars that we saw over a month’s stretch prior to COVID.

Still, that isn’t going to be enough to cover the on-premise.

Nielsen released its latest data for the week ending April 18, which showed similar growth, with total beer dollars up 12.3%, and said matter-of-factly that “these double-digit growth rates in off premise will not be able to offset the loss from the collapse of the on premise industry.”

NEW NIELSEN SURVEY REVEALS SHOPPING HABITS IN THE OFF-PREMISE. Nielsen also provided results from a recent consumer survey information yesterday, which aimed to provide a better look at “how consumers are shopping the categories.”

The 10,000-person survey of alcoholic beverage drinkers found that the growth in off-premise sales from March 27-April 17 was due both to the number of households making trips for alcohol (+27% compared to the same week last year) and money spent per buyer (+13.3%).

CONSUMERS UNAWARE OF PANTRY LOADING? The survey also showed the typical mismatch between reported behavior and scan data. While 41% of consumers reported purchasing the same amount of alcohol as this time last year, their actual scanned purchase behaviors revealed “that dollar spend for that group increased by 25% for the 4 weeks ending April 4, 2020 compared to last year,” according to Nielsen. “Furthermore, even consumers that said they were keeping about the same amount of alcohol on hand, had an increase of 13.3% in dollar spend compared to that same time period last year.”

That seems to tell us that a) people are either unaware of their stocking up habits; b) don’t want to admit it; or c) just not paying that close attention.

BAR REGULARS BUYING MORE IN STORE AND ONLINE. The survey had other interesting findings too, like: “frequent on premise drinkers” were found to be buying more in stores and online than the typical consumer, with 28% reporting purchasing more than usual compared to 15%, respectively.  They’re also “60% more likely to have purchased more alcohol in the past month through delivery or pick up from a store, 80% more likely to have purchased online from a bar or restaurant, and 55% more likely to have increased their online purchases from a brewery, winery or wine club, or distillery.”

And as we’ve come to learn in these chaotic times, people are playing it safe. As 69% of survey-takers reported buying brands “they know and trust,” and only 2.3% of consumers getting adventurous with more premium brands than they typically purchase.

BEER INSTITUTE LOBBIES FOR IMPORT TAX DEFERRALS

Last week the Beer Institute and other bev alc trade groups sent Secretary of Treasury Stephen Mnuchin a letter urging the Administration to extend tax deferral terms that have been granted to U.S. bev alc producers to importers as well.

The letter requests Customs and Border Protection to provide the same 90-day federal excise tax deferral for beer, wine and spirit importers as the Alcohol Tobacco Tax and Trade Bureau has authorized for domestic producers, to help with immediate liquidity.

The requirements for importers has been more “onerous,” according to the trade groups. That’s because Customs and Border Protection issued guidance last week that beverage alcohol importers could delay their federal excise tax payments only if they prove they have faced a more than 40 percent loss of revenue.

“As almost every business in the United States is experiencing interruption

and hardship in their business operations, the additional requirements placed by the Agency in order to qualify for the relief are not consistent with the President’s instructions to the Treasury Department on March 13, 2020 ‘to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7805A,'” per letter. 

BEER BRIEFS:

STAY TUNED for PepsiCo’s earnings today where they may announce what is likely to be just a distribution deal for Bang (but not the other brands).  

Until tomorrow,

Harry, Jenn and Jordan

“However beautiful the strategy, you should occasionally look at the results.” – Sir Winston Churchill

———- Sell Day Calendar ———-

Today’s Sell Day: 20

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