On-premise Re-openings (SAM)
According to BeerBoard, which tracks $1B in draft beer sales nationwide, the open rate for on-premise locations pouring beer increased 2% points to 93% during the weekend of December 16-19 compared to the first weekend in November. It was the first increase since late May. Open rates have been above 90% since late January and remained at 91% since July 22-25. Despite the additional openings, national volumes decreased 5.8% in the latest period, but up 22.3% YOY. The average number of taps per location was up by one-third YOY. The percentage of taps pouring decreased 1% to 74%. For several months it appeared the 91% open rate represented a permanently closed 9% of pre-pandemic locations. Despite the rise in Omicron cases, governments have not closed on-premise locations, but some have required indoor masking or vaccinations.
Moving to best idea long (STZ)
We are raising Constellation Brands to the top of our long list reflecting the company’s historical strength in quads 1 and 4. STZ's quad 4 performance would be even better if we excluded the last quad 4 period that coincided with the unpopular decision (mistake) to take a minority equity position in Canopy Growth (CGC), a cannabis company outside of its core competency. After the torrid growth of hard seltzer has subsided, the beer category has returned to one in which Constellation Brands is the only share gainer of note. The on-premise recovery is still a tailwind in 2022. The company has settled its production needs in the out years with a new site in southern Mexico. This will enable the numerous plans it has for brand extensions to continue its growth. Constellation Brands shares have performed best when sales have exceeded expectations.
According to media reports Monster Energy has held discussions with Constellation Brands to explore a merger. We think a collaboration or JV in hard seltzer or hard energy drinks is the most likely scenario. It would tie up the two large players in alcohol and non-alcohol that do not have dance partners. The market has not priced in the upside that a collaboration with Monster Energy in hard seltzer or a non-beer joint venture could generate.
Our updated position monitor:
Wine sales remain robust (VWE)
Total wine sales increased 14% in November. For the year ended November total wine sales increased 11%, flat with the year ended October. Off-premise wine sales decreased 7% in November, lapping the strength in the first year of the pandemic. Wine DTC shipments increased 2.6% in November, despite the difficult comparisons and the re-opening of on-premise this year.
Winter Storm
The National Weather Service said that the snowpack over the Sierra Nevada range has increased meaningfully over the past week. The water equivalent of snowpack gapped up from 19% on December 10 to 98%. The storms gave California the wettest start to its water year in more than 40 years. The USDA’s meteorologist is predicting another six to seven inches of snowfall by month-end. If the predicted snow arrives, California could be halfway to a normal winter water season with three more months left. California has endured two years of drought and seven in the last ten. California grows over a third of the country’s vegetables and two-thirds of the fruits and nuts.
