IRI: Hazy Little Thing on a Tear, Other Share Gainers

Dear Client:

Craft did pretty well in this latest round of IRI, to February 24: Where its 52-week numbers are at only up 2.6% (in dollars) in multi-outlet and convenience, the YTD trend is up 3.8%.

It’s still tough at the top. In fact, almost all the top five craft brands — Blue Moon, Sierra Pale, Lagunitas IPA and Shock Top Belgian White — are down YTD in MULC, except Shiner Bock, which is up 0.8%, a break from its 52-week slightly negative showing. Still, most of that top five is doing better than the 52-week period trends.

But when you get a little farther down, you see some real movers — most of the usual suspects: Founders All Day, Elysian Space Dust and Firestone Walker 805 (which together have gained more than .80 dollar share of craft YTD).  

To be sure, there were other winners, too. But get a load of Sierra Hazy Little Thing, which in just a little over a year existence is a top 20 brand in IRI craft — and it has gained more than half a dollar share of craft just YTD. It’s up 207%, at roughly a dollar more than craft’s average price per case of $38.41 (Hazy is $39.31, and according to IRI, up $1.79 vs. YA).

CBA IS TARGETING MID TO HIGH SINGLE DIGIT DEPLETION GROWTH IN 2019, HERE’S HOW THEY PLAN TO DO IT

With “improved operating performance and strengthened financial position,” Craft Brew Alliance said on today’s earnings call that their “top line strategy will shift in 2019 to accelerate growth.” Recall CBA put forth a shipment and depletion guidance range of +5% to +8% in 2019 in yesterday’s earnings report. (That’s much better than 2018’s -2% depletion trend.)

The “shift” in strategy, “will be driven by investing in and fueling the momentum behind the Kona brand and our newly acquired breweries,” CMO Ken Kunze said on the call.

Kona, in particular, “will see a significant ramp up in investment in commercial spend,” he said, “bringing spend levels to competitive benchmarks for the first time.”

KONA LAUNCHING NATIONAL CAMPAIGN. Indeed, the brand will run its “first-ever national media campaign” during the biggest event of the spring, March Madness, bringing the brand’s “Dear Mainland” campaign (you know the spots featuring the two Kona brothers) “to everyone across the U.S.”

The campaign around March Madness, includes “a national TV presence, heavy regional buys, and a strong national digital presence on live streams of the games on CBS and Bleacher Report,” Ken shared, adding that the “spending to support these efforts will be up over 50%.”

ALSO, BIG DISTRIBUTION DRIVES IN STORE. That’s not the only “first” CBA has in store for Kona either, the brewer will also execute the “first national distribution drive” for the brand “in the February through April time frame,” focused against flagship Big Wave Golden Ale and Longboard Island Lager. Ken noted that “A-B wholesaler alignment and commitment is at an all-time high behind this program,” as “100%” of their “top A and B wholesalers are fully participating.” With this push, they “expect to accelerate the pace of distribution gains historically achieved.”

A PEEK INTO THE DISTRIBUTION DRIVE. During the Q&A section of the call, CBA chief Andy Thomas gave listeners a little “peek” into what this acceleration of distribution may look like.

In markets where they already have good ACV coverage with Kona, they’ll look “to go deeper with additional packages, not necessarily additional packages with all additional brands,” he said, “but maybe different pack forms.”

For example, in markets where they have “good distribution on six packs for Big Wave bottles,” you may start to “see 18-pack cans or you’ll start to see us expand kind of our case business in those markets.” Then in other markets they may just be looking to “get on the shelf for the first time and then spread out from there.”

Andy added that the great thing about kicking off this distribution drive in the spring is it enables CBA to get Kona “on the shelf in time to really hit the peak selling season and to really try to hit chain resets as effectively as we can.” They’ll follow the spring time push with their “second national wholesaler incentive over the summer to drive velocity across the Kona portfolio,” and expect “strong participation again” during this frame.

EXPECTING BIG GROWTH FROM KONA IN 2019. “I think when we look at the acceleration, we expect to see a high double-digit number on Kona,” perhaps even “get another digit to it,” Andy said.

ACQUIRED BREWERIES RECEIVING INVESTMENT TOO. CBA didn’t go into too much detail on their plans to “fuel the momentum” behind their newly acquired breweries: Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing, but did note that each brewery will “receive ramped up investment [in 2019] to competitive levels to build these brands.” Combined, the trio of brands were up 17% in 2018.

EXPLORING POTENTIAL OF LA RUBIA. One other interesting note regarding CBA’s acquired craft – Ken said they’re “exploring the potential” of Wynwood flagship, La Rubia blonde ale, “to resonate with Latino and Hispanic consumers more broadly beyond just the craft play and beyond just Florida.” We’ll keep an eye on that for you.

ANOTHER DISAPPOINTING YEAR FOR WIDMER AND REDHOOK… Elsewhere in the CBA portfolio, Ken shared that “2018 was a challenging and quite frankly disappointing year for both Widmer Brothers and Redhook in their home markets and overall.” Indeed, shipments of Widmer and Redhook declined 20% and 24%, respectively, over the year.

As Andy tells it, “you almost couldn’t have picked a worse set of circumstances converging for Widmer Brothers and Redhook,” between the age of the brands and the market conditions up in the Pacific Northwest.

Without going into too much detail, Andy shared that one of many things they’ve learned in their massive consumer research undertaking, is “Washington and Oregon and the Northwest are different… There really is something different going on here.”

With that understanding, they feel “smarter” about what’s going on with the two brands, and they’re being more “realistic,” he said.  

AND: YOU WILL NOT SEE A POSITIVE NUMBER OUT OF THOSE TWO. To wit: “You’re not going to see a positive number in front of those brands, I can say that unequivocally,” Andy said. Still, “you shouldn’t see a more accelerated negative number” either, he added. “We expect to see at least a stabilization in the decline, if not an improvement in the trend, but still not all the way to zero or positive on either one of them.”

BUT THEY WON’T DRAG ON CBA AS MUCH ANYMORE. However, Andy notes that these two brands have “kind of contracted to a point” [20% plus or minus of CBA’s volume base] to where “they’re not going to have the disproportionate impact on kind of usurping growth or negating growth that they once had.”

Keep in mind that Kona now makes up better than 60% of CBA’s portfolio, and if you couple that with the growth opportunities from their partner breweries, as well as the steady trends from Omission (up 3% in 2018), Andy said they believe “gives us a much stronger force of brands moving forward that in the face of that the 20% that isn’t moving forward won’t have as disproportionate an impact on our overall result as it did.”

NEW CFO SHOULD BE ANNOUNCED SOON. Last little note we’d like to share from today’s call regards the status of CBA’s search for a new chief financial officer. It seems they’ve found a person to fill that role. “I’m happy to share that we are in the final stages of negotiations with an outstanding candidate and anticipate announcing our new CFO in the coming weeks,” Andy said, adding that the individual will be “in place by the Q1 call.”

Until tomorrow,

Jenn, Jordan, and Harry

“All generalizations are dangerous, even this one.”

– Alexandre Dumas

———- Sell Day Calendar ———-

Today’s Sell Day: 5

Sell days this month: 21

Sell days this month last year: 21

This month ends on a: Fri.

This month last year ended on a: Fri.

YTD sell days Over/Under:  +1