• ✨ Constellation Raises Beer Growth Guidance
• 🗳️ NJ Lawmakers to Vote on Taproom Operations
• 📈 The Drivers Shaping RTDs, Spirits and Non-Alc
• 💖 House of Love Expands RTD Offerings
• 💰 BeatBox Generates $100 Million in 2023 Revenue

Constellation Brands has raised its full-year operating income guidance for its beer brands to +7% to +8% (previously +6% to +7%), following another quarter of shipments and depletions growth, the company reported today in its Q3 earnings results. 

Beer depletions (sales to retailers) increased +8.2% year-over-year (YoY), above the +7.9% increase recorded in Q2. Beer shipments (sales to wholesalers) increased +3.4% YoY. While the growth is less than half of what Constellation recorded in Q2 (then +8.7%), the acceleration in shipments can be attributed to more than half of the company’s business (about 55%) typically occurring in the first half of the year. 

Net beer sales increased +4%, to nearly $1.97 billion, and operating income increased +7%, to more than $757 million.

Operating margin for beer increased 100 basis points, to 38.5%, driven by “benefits from net sales growth, pricing and marketing spend and cost efficiencies,” which offset raw materials costs, incremental depreciation and increased operating costs, according to the earnings release. Packaging and raw materials resulted in “a $17 million headwind for the quarter,” on top of a $11 million increase in depreciation from capacity expansions, Constellation CFO Garth Hankinson told investors on a call following the earnings release. 

Constellation is projecting to end the fiscal year with beer operating margins of +39% to +40%. 

Beer business growth was driven by Modelo Especial, which grew shipments +12% YoY. Modelo Chelada (22%) and Pacifico (+19%) also posted double-digit gains. Pacifico also doubled its volume versus five years ago, reaching the 20 million case mark on a rolling 12-month basis in the quarter, CEO Bill Newlands said. Corona Extra increased shipments by nearly +1%. 

Constellation also continued to gain share of beer dollars in the quarter, increasing overall share +2% and share of high-end beer by nearly +3%, “frankly, an acceleration of what our share gains had been earlier in the year,” Newlands said. 

Newlands said: “The high end continues to be where the strength is and we continue to be the leader in the high end. I think the important part, as you think about the overall beer sector, is to look at it bifurcated. The low end has not been successful and has been challenged on a volumetric basis, but the high end continues to perform well. And we're fortunate that we're leading at the high end.”

Insiders can read more, including comments from Newlands on the company’s wine and spirits division, and the departure of the division’s EVP and president, Robert Hanson.

The New Jersey Legislature is expected to vote later today on a bill to revise restrictions on New Jersey craft brewery operations, among other alcohol-related reforms.

Senate Bill 4265 would allow Garden State breweries to host “an unlimited number of on-premises special events and private parties,” as well as sell or offer “packaged crackers, chips, nuts and similar snacks” and non-alcoholic beverages. 

A previous version cleared the Legislature unanimously, but was conditionally vetoed by Gov. Phil Murphy last fall because he said he wanted to see further reform of the state’s complicated liquor license system for retailers. 

Because of that veto, breweries were forced to grapple with the return of a stringent set of restrictions from the the New Jersey Division of Alcoholic Beverage Control (NJABC) that prohibited craft breweries from selling food of any kind in their taprooms or collaborating with food trucks or food vendors, and limited taprooms to 25 special events annually, which included activities considered weekly staples at breweries in other states, such as weekly trivia nights, yoga classes and televised sporting events. The restrictions were largely unenforced until July 2022, due to the COVID-19 pandemic.

In addition to loosening restrictions on craft breweries, SB 4265 would create a farm-brewery license for breweries producing up to 2,500 barrels annually using “hops or other ingredients grown or cultivated on the license holder’s tract of land.” The bill would also establish a system to transfer inactive retail liquor licenses to new licensees, and create special licenses for eating and drinking establishments within shopping malls.

In 2023 spirits faced a slight downturn, non-alc continued its rise, and innovation continued to create growth for ready-to-drink cocktails (RTDs). But what drivers are bev-alc experts watching in these categories for 2024? 

BevNET spirits editor Ferron Salniker checked in with a data analyst, consultant and major retailer buyer on their outlook, including what investors will be looking for, where there might be white space in hot categories, and how retailers are making buying decisions.

⁉️ Where’s The Volume?

Data analysts are continuing to track the disparity between volume and value across bev-alc, with fewer brands posting volume progress over the last year. With RTDs extracted, off-premise volume in total beer is down -2.7%, spirits -1.9% and wine -4.4% in the 52-week period ending December 2, 2023, according to NIQ. Dollar sales are up for all segments except for wine, and RTDs are more even, with value up 0.1% and volume flat.

So why the disparity? Much of it has to do with moderation trends, including non-alc product proliferation and consumers choosing quality over quantity, according to Jon Berg, vice president of thought leadership BevAl at NIQ.

The volume dip is also a downside to the recent flurry of innovation and SKU saturation, added Berg.

Berg said: “Consumers of beverage alcohol continue to be inundated with options and for some this creates new product fatigue and product loyalty confusion.”

That rapid overexposure of a category, which can lead to customer apathy, is common in CPG, according to Southern California marketing and sales consultant Arthur Gallego. Retail buyers may respond by doubling down on a higher velocities threshold per month and per store in hot categories like non-alc.

Insiders can read more here.

Last week ended with a big deal. Asahi announced plans to acquire Waunakee, Wisconsin-based contract producer Octopi Brewing. 

Octopi produced 220,000 barrels in 2022, according to data from the Brewers Association. The Octopi facility gives Asahi its first U.S. production facility, where it will brew Asahi Super Dry for the North American market while continuing contract production. 

Deal activity also picked up in the middle tier. Matagrano, an independent South San Francisco-based Anheuser-Busch distributor, inked a deal to acquire Bottomley Distributing, which services Silicon Valley and the South Bay Area.

Once the transaction closes in February, the deal will add roughly 1.8 million cases, taking Matagrano’s total case volume to as much as 6.5 million cases. 

Another wholesaler deal crossed the finish line, with Martignetti Companies closing on its acquisition of Quality Beverage in Massachusetts, which was first announced in April 2023. The proposed deal hit a hitch when Constellation Brands refused to accept the sale of its rights to Martignetti, leading to lawsuits. Constellation is now distributed by Burke Distributing and Atlas Distributing.

Go deeper into the state of the M&A market with our Brewbound Live conversation with Arlington Capital Advisors’ Ryan Lake, Simon Thorpe and Three Weavers’ Lynne Weaver.

Catch up on last week’s Brewbound Podcast, a recap of the top stories of 2023, featuring Christopher Shephard of Beer Marketer’s Insights and Kate Bernot of Sightlines. 

Looking ahead to 2024, Bump Williams sees the misaligned priorities of brewers, retailers and wholesalers creating issues for industry growth. 

Following up on the lawsuit among Tree House Brewing shareholders, co-owners Nate Lanier and Damien Goudreau denied allegations against them by minority owner Eric Granger that they misappropriated company money, failed to offer shareholder dividends and withheld tax documents.  

In Lanier and Goudreau’s response, the two claimed that Granger received more than “$850,000 in distributions from Tree House,” including more than $250,000 that was “in excess of the amount he needed to pay taxes on income of Tree House,” resulting in a 2,500% return on his investment.

Finally, get a look at what’s ahead for cocktail flavor trends as we head into the new year.

Which brings us to this week …

This week’s Brewbound Podcast will feature an interview with Meagen Anderson, the founder and CEO of Aficionado, the first alcohol-free and non-alcoholic (NA) adult beverage professional training and certification program. Think Cicerone, for NA adult drinks. 

Look for the podcast midweek.

House of Love Cocktails, the ready-to-drink canned cocktail (RTD) brand from RuPaul and World of Wonder, the creators of RuPaul’s Drag Race, is extending its RTD brand to cater to however you choose to celebrate (or not celebrate) Dry January.

The company has added two new low-ABV offerings and one 0% ABV mocktail to its lineup:

• Vodka Soda Citrus, a 4% ABV vodka-based RTD with lime juice;
• Passion Fruit Margarita, a 4% ABV tequila-based RTD with “natural passion fruit flavor;”
• And Totally Tropical Mocktail, a 0% ABV mocktail with guava, passion fruit and citrus flavors.

House of Love’s existing lineup ranges from 0% to 12% ABV.

Party punch maker BeatBox sold 55.2 million tetra packs (4.6 million 12-pack cases) in 2023, on the way to reaching $100 million in revenue, the Austin, Texas-based company shared via Linkedin. 

The company wrote: “To break down the numbers even more, 55.2 million BeatBoxes is: 151,232 sold every DAY; 6,301 sold every HOUR; 2 sold nearly every MINUTE.”

BeatBox shared additional highlights, including employing 174 full-time workers and reaching 50-state distribution. 

During last month’s Brewbound Live business conference, Brewbound named BeatBox its 2023 Beyond Beer Company of the Year.