A Conference Note From Donna Crothers

Anheuser-Busch InBev N.V.’s proposed $106 billion takeover of SABMiller PLC was top of mind for attendees at the National Beer Wholesalers Association’s 78^th Annual Convention and Trade Show Oct. 11-14 in Las Vegas, as is the case for Wall Street. A scheduled panel discussion featuring five top executives from leading brewers went on as scheduled on Tuesday, just hours after the deal had been formally announced. Joao Castro Neves, ABI’s North American zone president, sat next to Gavin Hattersley, CEO of MillerCoors, the U.S. joint venture between SABMiller and Molson Coors Brewing Co. Neves spoke of how ABI admires SABMiller, saying the proposed combination of the two brewers is “highly compelling. Both companies together will be better than they are independently.” He said the merger would be “good for consumers and good for shareholders,” and would drive continued innovation within the beer market. “It’s a win-win situation,” Hattersley said.

 Anheuser-Busch InBev display of its core brands at the NBWA convention in Las Vegas - OTR Global photo

Ronald den Elzen, CEO of Heineken N.V. USA said the deal was “not a big surprise.” He added, “What happened in the past is a good indicator of what will happen in the future,” likely referencing the U.S. Department of Justice blocking ABI’s purchase of the remaining stake in Grupo Modelo S.A.B. de C.V. until ABI agreed in 2013 to sell Modelo’s U.S. business to Constellation Brands Inc.

The overall sentiment from beer executives and distributors is that MillerCoors will go forward as a separate entity from ABI, with Hattersley commenting that MillerCoors will remain a “stand-alone company, whether we’ve got one or two shareholders.” Some sources said they expect Molson Coors to gain ultimate control of the JV. “Molson Coors is in the driver’s seat,” a beer industry executive said of the expected negotiations regarding MillerCoors. Some beer industry sources also speculated that a few SAB-owned brands -- such as Pilsner Urquell or Peroni -- may be required to be divested from MillerCoors. Some suggested that Heineken could emerge with rights to some brands.

Craft Beers Remain Popular
Craft beers remained the most popular offerings at the NBWA show, with the section of the trade floor devoted to crafts packed with distributors. Attendees and speakers expect the acquisition of and partnering with craft breweries by major brewers and other investors to continue. A-B’s Neves said, “Craft brewers are innovating better than we are.” However, some craft brewers and distributors expressed concern that craft beer of poor quality could drive down the fast-growing segment. “There’s no room for mediocre craft beer,” said one craft distributor.

Hard root beer was named as a top seller in the beer category - OTR Global photo

Hard Root Beer: Fad or Trend?
Pabst Brewing Co.’s Small Town Brewery’s Not Your Father’s Root Beer was cited as one of the fastest-growing beers on the market. After facing shortages all summer, Pabst said availability should no longer be an issue. Indeed, the company said in the last few weeks, six-pack bottles of the brand have emerged as the No. 1 craft beer SKU, per syndicated data. Pabst is now rolling out six-pack cans of the hard root beer. Close on Pabst’s heels, Boston Beer Co. Inc.’s Coney Island Brewing division has rolled out its Hard Root Beer in bottles and cans, with draft coming soon. But despite the hype, a few attendees questioned the longevity of the products. One source called hard root beer “a fad,” and a distributor said he already is seeing seasonality associated with hard root beer.

Cider Slowdown
Several cider marketers and distributors confirmed the slowdown in growth rates for hard cider, including Boston Beer’s Angry Orchard. “Large ciders are losing ground to craft ciders,” said one beer importer. Another attendee noted that Angry Orchard is facing “large comps,” making continued yy growth more difficult.

Additional Quotes
“[The proposed ABI/SABMiller deal] won’t change my business, but it will change ‘the [overall beer] business.’” MillerCoors distributor

“The worst thing that ever happened to Coors was the joint venture with Miller. The focus was always on the Miller brands.” MillerCoors distributor

“Some distributors are concerned that the [ABI/SABMiller] deal may adversely affect them and force consolidation or a loss of some brands.” Beer marketer

“Sales [of Not Your Father’s Root Beer] have slowed this fall.” Beer distributor

“[Constellation’s] immediate focus is on organic growth. There is still significant runway.” Beer industry executive

“Investors like craft beer because it is one of the few industries showing continued growth at a double-digit rate.” Industry consultant