MegaBrew at Risk?

FILED SEPTEMBER 21, 2016

Dear Client:

While most everybody and their dogs have declared the acquisition of SABMiller by AB InBev as all but done, there may be a chink in the armor due to technicalities. As the WSJ reports, "If more than a fourth of [eligibly voting shareholders] - amounting for just 15% of overall SABMiller shares - vote against the transaction, this would be enough to kill the deal, according to an analysis by Stifel Nicolaus & Co."

Here's why: The majority shareholders of SABMiller -- Altria and Colombia's Santo Domingo family cannot vote for the deal because they are getting a different cash and stock compensation. In addition, many of the large hedge funds who owns shares in SABMiller don't own them directly, but rather through derivatives and stock options. In order to convert those to voting stock, they'd have to pay a tax estimated at $90 million. That can sour the mood around any board table.

"And if hedge funds choose to stay on the sidelines, only 40% of SABMiller shareholders would get to vote on the deal - meaning that only 10% of shareholders could effectively block the acquisition," says the Journal.

The vote is set for September 28 so we'll know what happens soon. Most analysts are still confident the deal will get shareholder approval. Stay tuned….

BRIAN GROSSMAN ON SIERRA'S TAPROOMS, OWNERSHIP, AND CHANGE

Sierra Nevada founder Ken Grossman's son, Brian Grossman, knows how to order dinner at a restaurant. I know because I've seen it. It was amazing. And I think he may have even paid. But he also runs Sierra's Mills River Facility. He took the stage at yesterday's Sierra distributor meeting to give a sort of state of the union.

Yes, it's craft brewer distributor meeting season, a phenomenon that started starting just a couple years back. But it's really a thing now: Sierra had a turnout of about 500 distributors.

Anyway, Brian's speech centered on the heavy reasons why Sierra ain't goin' anywhere: The massive craft breweries, the family ownership, and the second generation's (himself included) adaptability to change.

TAPROOM MAGNITUDE. We all know that taprooms are great for brewer profitability (Jim Koch has famously said "they basically generate [in the] order of magnitude of $1,000 keg versus $100 keg selling it through a distributor.")

We also know that taprooms are a great R&D and marketing opportunity. And Sierra has built the Taj Mahal of taprooms in Mills River, North Carolina.

To give you an idea of just how many consumer touch points they get at Sierra: Over the last year, Brian shared, they did almost 850,000 pours out of their Mills River taproom and almost 500,000 pours in Chico. They did 100,00 tours in Mills River and 28,000 in Chico.

And in their North Carolina taproom alone they've done 119 beers year to date .

"CHANGE COMES NATURALLY" for the second generation, said Brian. He knows they've gotta evolve the Sierra Nevada brand.

Moreover he stressed their family ownership, which makes them nimble. There are "no shareholders to keep happy; we have instant ability to change."

Other advantages: Sierra is "through the battle" of capital investment and infrastructure that some at this juncture would be scared or unprepared to make.

SO: "WE ARE BUILT TO LAST," Brian closed his portion of the meeting.

SIERRA ON INNOVATION. Look for a coupla Big New innovations out of Sierra this year. We all know fruit-infused beers are hot, and dovetailing with this trend, Sierra is launching Sidecar Orange Pale Ale. It's a pale, brewed with orange peel. "We brought it to our distributor council back in April," said sales chief Joe Whitney. They were a bit "'worried about the idea of having it be too close to Pale Ale." But the look and taste is different. It should be Pale's little "side car" on the shelf. Besides 6- and 12-pack 12 oz. bottles, it's also on draft; they're putting it in 16 oz. cans too.

Tropical Torpedo is big bet number two. It plays in all the top new brands hot spots: IPA, fruit-inspired (the fruitiness comes from the hop bill) and, of course, new. "We don't think anybody's brought two brands like that in one year," said Joe. What makes these innovation plays different? They're designed to be "good long-term plays."

SMALL TOWN BREWERY AND MILLERCOORS INTRODUCING NEW FMB FLAVORS

Small Town Brewery appears to be steering away from the hard soda space and into hard iced tea with its latest offering, Not Your Mom's Iced Tea. The new product, clocking in at 5% ABV, is brewed with "tea leaves from India and lemon juice." My Beer Buzz unearthed the 12-oz. bottle label, which you can view here.


LATEST HENRY'S HARD FLAVOR: GRAPE. MillerCoors has also applied for a label for a new flavor in their hard soda line, Henry's Hard, will be Hard Grape, per label. The hard grape soda, which holds an ABV of 4.2%, will come in 12-oz. bottles and cans.

LATEST NIELSEN: SUPER-PREMIUM, IMPORTS, LEADING THE WAY

The latest Nielsen data for the four weeks ending September 10 reveals that trends are remaining steady, running at slightly less than 1%.

The above premium segment increased case volume, up 3.9%, and case share grabbing 1.4 points. Taking a deeper look inside the above premium we saw:

Super premiums were the fastest growing segment, up 7.3%. Recall we took an in-depth look at what's driving this the segment earlier in the week (hint: Michelob Ultra). Imports followed, up 6.1%. FMBs are really losing steam, up 0.8% over the four weeks, which is a sizable fall from its YTD trend of 7.7%. Crafts as defined by Nielsen are up a mere 0.1%. And Cider is deep in the red, down 15.5%.

BUD LIGHT LOSING SHARE OF PREMIUM LIGHTS. The premium segment had a rough-go with volume down 3.1% and lost 1.1 points in case share. Inside the segment premium lights experienced the biggest decline, down 3.4%. But there are some bright spots in here. Coors Light and Miller Lite both increased their share in the segment, gaining 0.8 points and 0.1 points, respectively. Coors Light even grabbed half a point of case share. Bud Light on the other hand saw its share within the segment drop 0.6 points and its case share fall 0.77 points.

BANQUET AND YUENGLING LEAD FULL CAL. Premium regular volume dropped 1.7% over the period, but there are a couple hot brands in here like Coors Banquet and Yuengling Amber Lager. Coors Banquet increased its share within the segment by half a point, taking it to 9.0 case share. Yuengling Amber's performance was a bit better, increasing its share of the segment by 0.7 points taking it to a 9.9 case share. Budweiser saw its share within the segment decline 0.6 points.

BREWER RUNDOWN. Constellation's numbers are still head and shoulders above everyone else's. The brewer continues to outpace all the major brewers in total category share, gaining a full share point in the latest set. Its volumes are up 12.6%. Mike's had the second biggest gain in category share up 0.1 points. Its volumes are currently up 8% for the set and 7.6% YTD.

Constellation and Mike's were the only two brewers in this specific set of data that saw its volumes in the black.

MillerCoors volumes are down 2.3% and the brewer lost 0.4 points in total category share. A-B volumes are down 2% and experienced the largest loss, among major brewers, in total category share losing 0.6 points.

Until tomorrow, Harry

"Beer contains soluble fiber; it makes you fart. But at least you know you are alive." -- Charlie Bamforth

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Today's Sell Day: 15
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Fri.
This month last year ended on a: Wed.
YTD sell days Over/Under: +1
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