Beer Index remains in contraction (STZ, SAM)
The National Beer Wholesalers Association’s (NBWA) Beer Purchasers Index rose one point from October to 38 in November. A reading over 50 denotes expansion, while below 50 denotes contraction. Imports were the only segment in expansion at 59, flat compared to October and down from 68 last year. The index for craft beer improved by two points from October to 25. Premium lights fell four points sequentially to 41 in November. Last year premium lights were still in expansion territory at 54. Premium regular fell two points 30 sequentially in November. Below premium 47, much higher than last year’s 29 reflecting a consumer impacted by inflation. FMB/seltzer fell further from 26 in October to 16 in November, considerably weaker than last year’s 31.
The measure for at-risk inventory was 49, down from 56 last month as inventory levels improved to balanced after cautious ordering in November. Additional price increases by the large brewers are negatively impacting demand. Constellation Brands remains the sector’s growth story while the other categories remain under pressure.
The 4th Year of Drought? (STKL)
Federal water managers urged numerous California cities to prepare for a fourth consecutive dry year. The West has experienced the driest two decades in over 1,200 years. Despite some early rain, the U.S. Bureau of Reclamation said water storage is near historic lows in the reservoirs it operates in California. The Bureau warned of possible conservation actions. California’s rainy season begins in October and extends through March or April. Initial water supply allocations will be announced in February. Last year water allocations were reduced to 5% of normal for water agencies serving 750,000 acres of farmland. SunOpta moved its strawberry sourcing and packing from California to Mexico last year. The decision benefited the operating margins of the fruit-based business and also improves the sourcing of products (chiefly strawberries). California grows effectively all of the U.S. commercial supply of almonds. Oats require a fraction of the water that almonds need and can be grown on less fertile land across the country.
Beer shipments fall (BUD, TAP)
The Beer Institute estimates that domestic taxes were paid on 12.9M barrels (31-gallon barrels) in October. That represents a YOY decrease of 5.3%, a deceleration from the 0.9% decrease in September. With beer price increases accelerating in recent months the volumes are decreasing.
Senate preview (KR, ACI)
There was a Senate hearing yesterday by the Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights to examine the proposed merger between Kroger and Albertsons. Due to the limited overlap between the two companies in a handful of states and the proposed SpinCo to divest stores in the most concentrated markets the companies and their legal advisors believe it will pass FTC scrutiny. The hearing was a preview of the antitrust battle ahead. The CEO of Albertsons said, “The marketplace for groceries over the past decade has completely transformed making the competition for consumers fierce. The best way to compete with mega stores like Walmart and highly capitalized online companies like Amazon will be through a merger with Kroger.” With past grocery merger experience, a skeptical FTC, union opposition, and politicians wanting to appear as they care about food prices this combination will be contested and the battle lines are just being drawn.
