2017 Predictions: How Did We Do?

FILED DECEMBER 29, 2017

Dear Client:

Today we look over our 2017 predictions which we made at the beginning of the year. Dang we made a boatload of them, so light a fire, get comfortable, grab a beer, and let's see how we did.

So here goes:

-PREDICTION: ABI will pay down their debt faster than expected, mostly with already-announced divestitures, and will be on the hunt for their next great purchase. Coke? Yes. Starbucks? Maybe. That's where their top execs' bonus structure points them to … a big acquisition.

OUTCOME: No great acquisition as of yet. This may be a rollover prediction for next year.

-PREDICTION: Heineken USA will integrate Lagunitas on the back end more seamlessly, but will continue to struggle on the front end until they make a transformational deal. Pabst? MillerCoors? Something. Or step it up a notch, Heineken NV buying Molson Coors?

OUTCOME: Partially true. They integrated Lagunitas by buying it all. As far as a transformational deal, selling the US rights of Sol to MillerCoors may be a precursor to a larger deal. Stay tuned.

-PREDICTION: HUSA -- even the global team -- will also seek more advice from Lagunitas on operations and culture, as they continue to evolve into a modern high-end supplier. They'll look to partner with more craft, too, as the segment's top players continue to look for exit strategies.

OUTCOME: Pretty much spot on. When Heineken acquired the remaining stake in Lagunitas they announced that Lagunitas chief "Tony [Magee] will take a leading advisory role to Heineken and its Executive Team on the global and local craft strategy." A few months later, Lagunitas U.S. Holdings aka LUSH, made a big splash by grabbing a 20% stake in Michigan's Short's Brewing.

-PREDICTION: Pabst will make more bolt-on acquisitions to make it more attractive to a buyer and to combat the tough comps from Not Your Father's Root Beer. They'll drum up some more hot hands (maybe not like root beer) with new interesting brands and arrangements, and could see some improvement with heritage brands due to craft snobbery exhaustion.

OUTCOME: True on the heritage brands. They came out with Not For Your Father's Bourbon. But no new hot brands….

-PREDICTION: Boston Beer will be sold, maybe to a strategic Asian buyer, much to everybody's eternal sadness.

OUTCOME: Ha, nope. Hold this one over to next year. But the Asian breweries are on the hunt, Japanese companies in particular.

-PREDICTION: Scan data aggregators (IRI, Nielsen, others) will struggle with how to categorize beer brands as the boundaries and price segments get fuzzier. Domestic Super Premium? Seriously? There's only one major brand in that segment (Michelob Ultra). It's an issue.

OUTCOME: I don't know if they've "struggled" but the categories are still confounding.

-PREDICTION: It will be a year of reckoning for craft, as both BA-defined small/new craft brands, BA-defined large craft brands, and aging non-BA defined craft brands all see their growth slow. High single digit growth will go to mid-single digit growth. Seasonals will continue their decline, among so much choice. Amid that, chains will start to rationalize craft shelf and tap space.

OUTCOME: I think this is largely true. Craft SKUs are indeed being rationalized at retail. However, craft does remain the fastest growing bev-alc category.

-PREDICTION: FMBs will make a comeback, but with something completely new.

OUTCOME: Yes. While hard sodas struggles, flavored malts have fared well (at least, Mike's and Twisted Tea have), and new innovation of hard seltzers are showing signs of being a legit new category.

-PREDICTION: Cider will continue its slow climb back up, but no great shakes.

OUTCOME: Eh, kinda. It's slowly heading in the right direction, down 5.9% YTD, per latest IRI.

-PREDICTION: Diageo Beer Company USA (formerly Diageo Guinness USA), asleep for two years, will wake up and sell beer again -- or something like it (remember their plays with Smirnoff Ice extensions, and dabbling in the hard soda trend by pairing up with brand/Hendrick's mastermind, Steven Grasse). Guinness, with its innovations push, modest ABV and import cred, could have a decent comeback.

OUTCOME: I think this is spot on. Shortly after we put this prediction out, Diageo announced plans to build a U.S. version of Dublin's popular Guinness Open Gate Brewery in Relay, Maryland.

-PREDICTION: Constellation will stumble on Corona Premier (or it will have a very short trial run). But it won't matter, because Modelo Especial, Corona, and every other brand they have will continue growing apace, including draft, despite product shortages, pricing glitches, and logistic problems….

OUTCOME: Still too early to tell on Premier, but early readings are better than I imagined. And the rest is true.

-PREDICTION: The Trump administration could very likely create a border tax on goods imported into the US, and unless we can get a beer exemption, it would either dampen demand for Mexican imports if they pass the tariff along to consumers, or cut gross profits. suppliers eat it, or both. Either way, it could be a major thorn in the side of Constellation and Heineken USA.

OUTCOME: Nope.

-PREDICTION: Speaking of politics, overall tax reform will finally occur and most brewers (read: domestic) will benefit from the changes to our tax code.

OUTCOME: Yes, spot on.

-PREDICTION: Flush with cash, Constellation will get acquisitive to inoculate themselves from the potential damage of an import tax and will take a long look at companies like Mike's Hard Lemonade, New Belgium and Boston Beer Company.

OUTCOME: They did buy Florida's Funky Buddha Brewery and STZ acquired a stake in Canadian weed company, Canopy. But the rest of this prediction is bunk.

-PREDICTION: Constellation will also become more of a rival to ABI in the chain convenience channel, (and with chains in general). They will expand on their can business and drive the Mexican category hard. Like hard.

OUTCOME: Yes, for sure this has happened.

-PREDICTION: After years of idling, Yuengling may finally come into play either through as acquisition or partnership as they need access to brewing out West at some point soon. (I don't actually believe this, but enough people do that I felt obliged to include it).

OUTCOME: Didn't happen, as my gut told me.

-PREDICTION: NBWA, the National Restaurant Association, and especially state beer wholesaler associations will finally start pushing back on tap rooms; and on-premise retailers will start culling brands on tap that compete with them in the same zip codes.

OUTCOME: I wouldn't say the NBWA has "pushed back" in any meaningful way, but the Texas wholesalers pushed back for sure in a huge way, limiting tap rooms ability to sell over a certain barrelage [see CBD 06-16-2017].

-PREDICTION: Distributors will make a more concerted effort to actively cut craft brands that aren't moving and they damn sure won't be paying to acquire brands at the level that they used to.

OUTCOME: Again, in Texas, distributors passed a law making it illegal to acquire craft distribution rights from brewers, although in other states this practice is still going on. And yes, I do believe distributors have been rationalizing some slow moving craft SKUs, while adding others.

-PREDICTION: A-B and MillerCoors will continue to step on their sausages until they're black and blue. Wrong brands, wrong messaging, wrong medium, wrong demographic, at exactly the wrong time. Retailers and then distributors will jack into reverse with the pedal on the floor on them, unless…….

OUTCOME: Yes. With the exception of Dilly Dilly, this is true.

-PREDICTION: Both ABI and MillerCoors will change ad agencies behind at least one of their major brands, but that's not why they could improve performance, it's because…….

OUTCOME: Yes, there have been agencies changes.

-PREDICTION: Budweiser will elude growth by a hair.

OUTCOME: Off by a bundle of thick hair. Budweiser is down 6% in IRI multi-outlet ytd to mid-December.

-PREDICTION: Bud Light will elude growth by thicker hair, like Mariah Carey's hair.

OUTCOME: Yep. It is down 5.3% in the same period, despite Dilly Dilly. But the campaign is recently going viral, so Super Bowl will be a big test on whether this viral campaign sells beer, or is just another ‽Whaassup!”, which was popular and a meme but failed to sell beer.

-PREDICTION: Miller Lite will elude growth by…. well let's not be rude.

OUTCOME: Lite is down 1.6%, so not so bad.

-PREDICTION: Coors Light will do what Coors Light does… bounce back and forth between -1 and +1% each year.

OUTCOME: Coors Light stumbled, down 2.6% in IRI scans.

-PREDICTION: Sub-premiums could benefit from the craft crash backlash a bit. Or, maybe they'll finally be right-sized, relegated to "special occasion" packages.

OUTCOME: Yes. Sub-premiums have fared better this year. In Nielsen scans, for most of the year, sub-premiums accounted for nearly half of the top 10 growth brands in beer. The usual suspects being Keystone Light, Rolling Rock, Bud Ice (I've got my eyes on you), and Hamms.

-PREDICTION: Imports will become the "new craft," with last year's growth continuing into the new year (as craft's slides) based on their centuries-old stories, less cutesy branding and so much craft exportation.

OUTCOME: Well, Mexican imports are still on fire, or should I say Constellation's Mexican imports are on fire, with almost all of them up double digits

Ed. Note: (7 Constellation brands are in IRI's "Top 100," and five are growing double digits. No offense Bill Hackett, but since you "retired" you brand performance has accelerated. It's like when I took a month sabbatical last year, my company never did better).

-PREDICTION: Spirits will continue to kick our ass. It's a given now, not a prediction at all. Lines are blurring anyway, and everyone drinking everything.

OUTCOME: Yes.

-PREDICTION: Wine too.

OUTCOME: Yes.

-PREDICTION: Big Beer will return to cruder frat boy humor, because they'll find it actually works. (For the record, Jenn vehemently disagrees with this prediction).

OUTCOME: If you consider Dilly Dilly to be frat boy humor, then yes. It's not crude (unless you look up its meaning on Urban Dictionary), but it's definitely a hit.

-PREDICTION: Craft brewer sale multiples will dwindle like old hops on a vine. The investment banker-type money will leave the building. After all, this business is a cash hungry monster if you want to grow. Cash flow after cap ex and hiring new sales reps? Bwahahahahahahah.

OUTCOME: Hard to quantify, but this rings true, particularly lately. Multiples are down, but First Beverage's Townsend Ziebold III said at a Brewbound Session earlier this year that the multiples of 15 to 20 X EBITDA can still be reached if the brewers have distributor alignment, taprooms, and healthy flagships. "Ultimately it is a buyers market for most, and a seller's market for some," Townsend concluded.

-PREDICTION: Someone will finally document that marijuana is indeed stealing share of high from beer (and wine and spirits), though it will appear, so far, small.

OUTCOME: Jury is still out on that.

-PREDICTION: Taprooms will continue to grow, with some surprising estimates as to how big of share they have of the on-premise marketplace.

OUTCOME: Yes and yes. Brewpubs accounted for 6% of craft volume according to BA estimates, but we suspect it's more than that.

-PREDICTION: More pay to play scandals will elicit more regulatory action, with a couple surprising examples made of players.

OUTCOME: Yes, Massachusetts, Illinois, and Miami. And it's continuing, stay tuned.

-PREDICTION: Retailers will take some heat and get some more clear rules to prevent their part in pay to play.

OUTCOME: I don't think so at this point, but again, stay tuned.

-PREDICTION: Meanwhile, the alcohol industry will have another one of those years of beatings in the mainstream press, with health news scares and calls for lower legal driving limits. Regulatory agencies will feel pressure to be stricter on some line-blurring products; some mainstream headlines will ensue (no more hard soda?)

OUTCOME: Yes and no. We've gotten our share of hits, but perhaps not more than unusual.

-PREDICTION: Distributors will pick up more non-alc and non-beer bev alc products (duh). Craft beer could lose a little share of mind to craft spirits, among all tiers and customers.

OUTCOME: This has been going on, for sure. The extent of it is still in the weeds.

-PREDICTION: On the other hand, large, multi state wine and spirits distributors will make much bigger pushes in beer.

OUTCOME: Yes.

CONCLUSION. So…… I'd say, objectively, that we did better this year than in previous years, particularly given the sheer amount of predictions. I would give myself a B+.

So what do you think? Let me know if I'm right, wrong, or just plain ugly. Your choice. Also, give me your predictions for 2018. hs@beernet.com

==== IMPORTANT YEAR END ANNOUNCEMENTS FROM HARRY ====

BEER SUMMIT SOLD OUT!

DREAM TEAM OF SPEAKERS. I look forward to seeing over 400 of you at the Breakers on January 15-16. Honestly guys, as I look at the program, I don't think I've ever seen a better collection of speakers addressing the exact right topics right now. Hat tip to my exhausted staff honestly for cobbling this all-star program together. Check out the program here: https://www.beernet.com/files/2018%20Beer%20Summit%20Agenda.pdf

CONNECT WITH WINE & SPIRITS WHILE YOU'RE THERE. Kill two birds with one plane ticket. We do still have seats available for the Wine & Spirits Summit, directly after the Beer Summit at the Breakers. Info here: https://winespiritsdaily.com/summit.php

HAPPY HOLIDAYS! As is our tradition, we're going to take a breather on daily publishing to give our editors a break for the rest of the year (barring breaking news). See you again on January 2, 2018.

PIPING ALL HANDS: One final note: As I said, I'm working on my 2018 beer industry predictions and I need your help. Send me your ideas to consider in confidence at hs@beernet.com

Until the New Year,

Harry, Jenn, and Jordan

"And we'll fight them with the butt ends of broken beer bottles because that's bloody well all we've got!" -Winston Churchill, to a colleague after his famous "we shall fight them on the beaches" speech to the House of Commons in 1940.

---------- Sell Day Calendar ----------
Today's Sell Day: 20
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: -1
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