Soft Read on Labor Day


Dear Client:

Latest IRI included trends for the four weeks to September 4 -- AKA, the Sunday before Labor Day Monday. So how'd beer do? Keep in mind this isn't a full read on the holiday period by any means; a full assessment typically looks at the actual holiday (of course) and even a little time after.

But it's interesting (in a furrowed brow manner) that all channels saw soft beer volumes for the period: Beer volumes were down 0.9% in food, down 1.6% in c-stores, and down 1% in the most inclusive channel, multi-outlet and convenience. Dollars were all slightly up, but below 1% growth.

WHY? Domestics got hammered.

Bud Light was down 3.6% in dollars; it's down 1.1% YTD. Coors Light, up 1.2% YTD, fell to -0.2%. Budweiser stayed: it was down 2% from 1.9% YTD. But Miller Lite had quite a swing -- down 1.3% for the four-week period, it's up 1.5% YTD.

IMPORTS/SUPER PREMIUMS SNAG GROWTH. The only top 15 brands with significant growth in the period were imports -- and one super premium.

Corona, amazingly, continued to gain share, up 0.39 dollar share and up 9% in dollars for the four-week period in MULC. Right below that, Mich Ultra and Modelo were up in the 20% range, and together gained almost 1.5 share of beer dollars.

Brand Heineken is holding on to growth, up 1.9% YTD and 2.1% for the latest four weeks. But while the big other HUSA brand, Dos Equis, is also still growing, it's up only 2.2% in dollars vs. up almost 6% YTD.

Stella is the other impressive gainer among top 15 brands: it's up 16%-17% YTD and in the latest period; for four weeks it's gained 0.13 dollar share.

CRAFT DIPS NEGATIVE. Also interestingly: craft volumes actually dipped into negative territory for the four-week period in food. As CBD reported yesterday, craft volumes in the channel and period were down o.1%. Dollars were up 2.2%. Craft is still growing in c-stores: there, for four weeks, dollars were up 6.4% and volumes were up 4.4%.


Earlier this week CBD reported on Chicago's Revolution Brewing Co. They're opening New York with Manhattan Beer and Wisconsin with General Distributors next month.

But it's their movement in certain chains and their new brand trends that make them so relevant to the larger "brewniverse."

Consider a recent article on how the nation's fourth largest food retailer, Target, is trying to turn around shrinking sales and traffic trends by focusing on segments like craft. (In recent months the retailer, second overall to Walmart, "has been adding hundreds of new items to its shelves ... and bolstering key categories for its fill-in grocery trips such as snacks, yogurt, and craft beer," per StarTribune. What SKU proliferation?)

What's this mean for Revolution Brewing? Partners like Meijer and even Target are turning them on across the nation. The drug channel is a significant and growing chunk of their sales.

HOW CHAIN RELATES TO EXPANSION DRIVE. Besides their current new market plays, Revolution founder Josh Deth and sales chief Donn Bichsel said they expect to open between 1-3 states next year. (The immediate priority is filling out all of Illinois.)

"The original thought was, not to do the contiguous states because we didn't have the power of a New Belgium, where when they expand get instant chain distribution," said Donn.

"But what we found over the last four years is that chains are more willing to do subsets of their sets within their footprints - they're more open to having the local, regional crafts that are available. So you don't have to give them the full footprint - but you damn well need to give them a solid distributor partner that can cover their stores and you better give them a chain person" that can communicate where the supplier stands on availability, etc.

CHAIN CRIB NOTES: MEIJER AND MORE TURNING THEM ON. So these small brewers can expect some pretty big partners to support them in far-flung markets.

Michigan-based Meijier is a big partner Revolution: they started with the grocer in Illinois, but they're supporting them in expansion markets too, like Ohio. ("It didn't take us filling in their home market for them to give us great visibility, great cooler placement, and a pretty wide variety of our SKUs," said Donn.)

"In Wisconsin," one of their most recent new markets, "they were the first chain partner to turn us on," said Donn. Then came Whole Foods.

"But the big one is Target -- Target turned us on right away in Wisconsin, and is turning us on in all their Ohio stores."

TARGET TARGETING CRAFT. Revolution guys tell us Target has infiltrated the urban core of downtown Chicago. One Target, likely among the top 5 in the country, is "taking in new breweries without any history of off-premise sales because craft is so hot for them."

"We have an entire cooler door at the Target in our neighborhood," [in Logan Square] said Josh.

He describes the chain's proposition as a mixture of high-velocity, some fresh beer, and pricing "in between Binny's and Costco."

So for Revolution, "Target in Illinois is up to 3.2% of our entire off-premise business - that includes all your indies," Donn said. "They were 2.4% last year. ... For comparison, the industry leader here is Binny's - they're 11.5% of our overall off-premise business."

But the other thing to talk about in Illinois is the drug category -- Walgreens is 8.5% of our off-premise business."

"CVS and Walgreens together are almost 11% of our off-premise business," said Donn.

DRUG BEER SHARE UP FOR GRABS? That's another wide-open opportunity. "I think what you're going to see, with Walgreens taking over Rite Aid - Walgreens is fulling dedicated to the idea of selling beer again. ... I think the drug chanel is really going to explode over the next 2-3 years; but it's gonna be whoever gets to it first, whoever develops those relationships," he said.

Josh said he sees Walgreens investing in their lifestyle-concept stores downtown: "They've got pricing tiers, they're getting crafty, they're doing every end cap display. And they're serving the downtown urban population. That's our core customer base. ... In Logan Square [and around] there are 6-8 of them."


Constellation stock has skyrocketed over the past five years, up 750%, but does it have any jet fuel left in the tank? Morgan Stanley analyst Dara Mohsenian seems to think so.

In a note gearing up for Constellation's earnings call next month, Dara said he feels Constellation is the "most undervalued company" in their beverage coverage. Dara and company believe the company's stock "should be revalued upwards once again," because:

It has a "significant beer margin expansion" on tap as it builds out Nava efficiencies.

Its wine results are improving through "organic improvement and from recent high growth acquisitions."

And the sustainability of its higher topline beer growth has been proven.

MORE ON THAT LAST BULLET POINT. Dara noted that Constellation's Q2 2017 will likely mark its "tenth straight quarter" of at least 8% y-o-y beer depletion growth.

FORECASTING DEPLETIONS AT 12% IN Q2. He's forecasting beer depletion growth at 12% for Q2 so it could be the "sixth straight quarter" with beer depletion growth in the double digits as well, Dara added.

HOW Q2 WENT ACCORDING TO NIELSEN. Depletion growth may be even higher than Dara predicted for Q2. Nielsen scanner data stretching from May 29 to August 27 ("which closely aligns" with Constellation's Q2) reveals beer volume is up 16.3%. The Nielsen data over that timeframe also shows a nice recovery from Corona, up 10.5%, after a weak Q1, which saw the brand only up 4.6%. Modelo continues to do wonders, up 30.2%, in the data.

SLOWDOWN IS IN THE FUTURE: TOUGH COMPS. Still, Dara said, "looking ahead, beer momentum will likely slow." This slowdown will occur in second half of the year, Dara said, as "comparisons become more difficult." Dara expects volume growth in Q3 and Q4 "to slow to 9% and 11%, respectively, vs 16% over the last year." Depletions are also likely to decelerate over the next four quarters as a result of tougher comps, Dara said. Over the course of the four quarters, Dara expects depletions to drop to 9.6% from 12.9%.

Until tomorrow, Harry

"Never be haughty to the humble; never be humble to the haughty." - Jefferson Davis

---------- Sell Day Calendar ----------
Today's Sell Day: 12
Sell days this month: 22
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This month last year ended on a: Wed.
YTD sell days Over/Under: +1

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