Every year we make predictions and every year we look back to see how we did.
-PREDICTION: Employment numbers will start to improve. As unemployment falls between 7 and 8%, you will start to truly see improved performance in domestic premiums and lights over the Summer.
-RESPONSE: Definitely true. Which is why I'm scratching my head at the next prediction.
-P: Overall beer volumes will improve slightly from this year's -1.5%, to being down -1%. Price increases will average out at a more nominal 2.5% increase.
-R: Um, nope. As I predicted in the first place, unemployment numbers improving created beer industry momentum. We will be up around 1.5% this year in volumes. The pricing number is close, however. I'll give myself a mixed verdict on that one.
-P: We will see an unprecedented number of new packages and brands coming from the big brewers this year, as they seek ways to bring drinkers back into the fold. This will cause some complexity issues with wholesalers and the requisite griping as their numbers of SKUs increase and blended margins erode.
-R: A resounding yes. Big brewers, importers, small brewers -- all have jumped on the SKU bandwagon. As one distributor wrote to me this morning: "We are up to 30 different package configurations just for Bud Light alone." Give me a price point, and I can make a package configuration to hit it.
-P: At the same time, the big two brewers will be actively courting craft brewers while also coming out with extensions of their craft brands. Tenth and Blake will make an acquisition, as will Pabst. Will A-B? Not so sure they're actively looking as they expand distribution of Goose Island.
-R: No acquisitions this year, but I think we can rollover this prediction into next year. And A-B has indeed expanded Goose distribution nationwide.
-P: Craft beers will continue to driving beer growth and take share within the category, to the tune of maintaining double digit growth. However, 2012 will be the year that we see in bas relief that demand isn't the problem -- it's supply. We really are going to see capacity constraints create shortages. Sierra Nevada and New Belgium will break grounds on new eastern breweries, but they won't come online for some time. The winners will be those who can supply the beer. I suspect more breweries will withdraw from markets.
-R: Yes, yes, and yes.
-P: We will see more private equity coming into craft, and ironically more under-capitalized breweries come online at the same time. Will it be another 1996? (I had a travel advisor contact me yesterday asking if I knew of a brewer consultant in his area so he could start a brewery). It won't be exactly like 1996, because today we have the social web and consumers are better informed. But there will be more bad beer out there. It's a problem.
-R: We wrote about this earlier this week. Perhaps is not as bad as all that, but this is a prediction to watch. What we didn't predict: That a "family office" private equity would buy a major distributor. One big private equity deal in craft this year kind of came out of left field: Fireman Capital buying majority stake in the Utah Brewers Cooperative for $35 million, which includes Wasatch and the Squatter's brewpub.
-P: Imports volumes will continue to be up nominally, and the Belgian imports in particular will continue to rock.
-R: Import shipments are up 3.2% and Belgian imports are up over 15%.
-P: 2012 will be the year of cider. As the larger craft players and even big brewers get into the cider game, and they will, not to mention current cider makers expanding and international cider makers entering the market, cider will start getting lots of press, industry attention, and a wider consumer base. I expect we'll see some regulatory issues in some states on whether cider is a wine or a beer.
-R: Yep, all those things. We have MillerCoors acquiring Crispin, A-B coming out with a couple of cider brands, Boston Beer expanding Angry Orchard, several craft cideries coming online, Heineken importing Strongbow, C&C buying Vermont Hard Cider, etc. Big year for cider. Scans show cider up 70% this year.
-P: PABs will continue their tear, but there will be some interesting regulatory hurdles to overcome, and there will be a lot of finger-pointing among the companies in the space about who is more responsible. The introduction of malt-based alcoholic pouches will only intensify the scrutiny of this category.
-R: Not really. While PABs have indeed continued on their growth trajectory, the regulatory scrutiny has been more on non-alc energy drinks. After the Four Loko deal with the FDA, it's been relatively quiet on the PAB front.
-P: Spirits and wine will continue to take share of ethanol, but the gap between their growth and beer's will narrow as spirits in particular takes pricing. High end beer will be our dog in that hunt.
-R: Yes. Wine and spirits continue to take share, but beer's growth in 2012 has narrowed the gap as indeed spirits have taken some pricing.
-P: We will see increased deregulation efforts at both the state and federal level. The fight to deregulate will intensify this year, with both privatization efforts, deregulation by defunding, turf wars between the FDA, FTC, and TTB, more deregulation lawsuits against states by winery interests. In addition, I think we will see a rash of new First Amendment challenges by craft brewers challenging state laws.
-R: Nope. We continue to see a lot of deregulation rhetoric, but not a rash of lawsuits.
-P: Larger craft brewers will get more into deeper discounting with chains, even with scarce capacity, out of fear of losing relationships and space with the chains. Like spirits did a few years ago, they are feeling the pressure from chains to offer the discounts to play with the big boys, and to a larger degree they will succumb.
-R: This one is hard to quantify. Craft as a segment had a robust average price per case increase in 2012 of over $1 a case. We've seen a smattering of hot deals on some major craft brands and big brewer craft brands.
-P: Brands with old time and authentic appeal will hit a tipping point in 2012. Yuengling, PBR, Lone Star, Rainier, Coors Banquet, even Budweiser in some instances will provide young drinkers who don't have the palate for heavier craft beer but still want to be seen with an authentic brand. This trend has legs.
-R: I think so. PBR is up 24% in YTD scans. Lone Star's volume is up 6% with a big price increase. This trend will continue to have legs.
-P: A-B will make attempts to repair relationships with their wholesaler network, while simultaneously pushing for efficiencies through more centralized control in supplying back-office systems in their wholesalers like payroll, Mobility on the cloud, buying equipment centrally, etc. In addition, A-B will accelerate efforts to source cash from wholesalers through pushing costs down to them (like truck decals, printing POS, and freight).
-R: I think distributors would agree this is happening in various degrees.
-P: We'll see a bifurcation within the red system, with those making the play for Anchor Wholesaler status, and those (more) who abandon that goal in favor of aggressive brand acquisition.
-R: Kind of. I think just about all distributors are aggressively seeking out new brands, but some are also making the play for anchor status, although it's a fuzzy goal post.
-P: There will be enormous pressure on A-B from investors to profitably grow its US business and prove they can market beer and aren't just cost cutters, particularly as the synergies are over. In many ways, 2012 will be a make-or-break year for A-B. This year will be the first full year of their NFL deal, and a lot is riding on growing Bud Light, continuing Bud stabilization rates, and maintaining Bud Light Platinum's distribution from free-falling after the curiosity and initial trial periods wear off. I think the first two are likely to happen, as unemployment abates and they leverage their sports properties to the fullest. As for the third -- it's a tougher sell.
-R: Yes. A-B proved it can grow topline, and they were even able to maintain Bud Light Platinum's distribution levels. A solid year for A-B. They lost half the share that MillerCoors lost, and were able be flat on dollar share.
-P: MillerCoors will also be seeking to beef up relations while also sourcing more cash. Both A-B and MC have completed the majority of their synergy savings programs, so they will look elsewhere for cost savings. MillerCoors will have to do it while initiating a huge IT project. Miller Lite stabilization is job 1, and I think it is likely its trends will stabilize as employment improves (Lite is more impacted by employment going both up and down) and they improve its marketing, not to mention easier comps. But Coors Light's trends will continue to soften a bit as their successful messaging on that brand starts to get some age and they meet with more distribution saturation. Tenth and Blake will continue to rock.
-R: Mixed bag here. Not sure about cost savings, but stabilizing Miller Lite has been tough. Miller Lite's trends have improved from last year, although still in negative territory. Coors Light's trends have remained strong.
-P: Craft brewers will experience more sharp elbows among each other as regional brewers expand into others' back yards, shelf space tap handles relative to the number of SKUs becomes more of an issue, and talent gets poached.
-R: Perhaps. But craft brewers seem more aligned and cohesive than they have been in the past. There's been some talent poaching, but this prediction may be more a propos down the road.
So, how did I do? I think these predictions were better than in previous years, though they are never perfect. I give myself a B+, being generous with myself since it's the holidays.
SO, WHAT PREDICTIONS SHOULD WE HAVE FOR 2013? I will start working on 2013 predictions over the holidays, so if you have any I'd love to hear them. Ping me at firstname.lastname@example.org.
BIG BRANDS LOSE GROUND ON-PREMISE
According to on-premise POS data from GuestMetrics, A-B experienced a share loss of in on-premise at -55 basis point, and MillerCoors and HUSA had share losses of -50bps and -45bps, respectively.
‽The share losses experienced by the ABI, MillerCoors, and HUSA came directly at the hands of craft beers, which gained over 2 points of share in 2012,” said Peter Reidhead, VP of Insights and Strategy at GuestMetrics. Additionally, while ABI experienced the largest share loss in 2012 among the beer suppliers, when looking at the specific beer brands, the largest loss in share was experienced by Miller Lite. ‽Generally speaking, the largest beer brands are the ones that continue to encounter the greatest difficulties in on-premise,” said Reidhead. According to data from GuestMetrics, through the first three quarters of 2012, the largest share losses were experienced by Miller Lite (-65bps), followed by Bud Light (-45bps), Budweiser (-40bps), Corona Extra (-35bps), and Heineken (-30bps).
BUDVAR AND A-B STILL AT IT, BUT TALKS COLLAPSE
The very first issue of BBD in January of 1997 covered this issue. Fifteen years later and it is still not resolved. They've been arguing this issue for 95 years before even that, so we're relative newcomers to this story.
Settlement talks between state-owned Budejovicky Budvar and ABI have collapsed, according to Budvar's director general, Jiri Bocek via USA Today.
Budvar recently rejected a proposal for a global settlement by AB InBev, which in turn refused a counteroffer. Bocek said negotiations on these proposals were over. "Any new deal proposed by Anheuser-Busch wouldn't be working for us," he told The Associated Press.
Budvar has won 88 of 124 disputes between 2000 and 2011 and holds exclusive rights in 68 countries, mostly in Europe, preventing AB Inbev from selling its Budweiser brand in some key markets, including Germany.
When the companies do not have exclusive rights to the Budweiser brand in a country, they resort to using slightly altered names. AB Inbev sells its Budweiser as Bud in many European countries. Budvar sells its lager as Czechvar in the U.S.
DOMESTIC BEER SHIPMENTS were up 1.7%, or 250k barrels, according to the Beer Institute. That brings YTD shipments up 1.4%.
PIPING ALL HANDS. Every year or so we like to take your temperature to gauge how we're doing. Please take a quick minute to fill out our reader survey here: https://www.surveymonkey.com/s/7NQV89X
HAPPY HOLIDAYS. It's that time of year again. I wanted to take this opportunity to tell you how much of a privilege it is to continue to work in this great industry, and to bring you the beer news every day. I never take it for granted. I hope you and yours have a safe and bountiful holiday season. Unless big news happens, our next issue will be January 2, 2013.
Until then, Harry
"I once wanted to become an atheist, but I gave up - they have no holidays."
-Henny Youngman (1906 - 1998)
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