Beer inventories (TAP, BUD)
Beer distributor inventory levels have been rising as seen in the chart below. As the National Beer Wholesalers Association’s survey reported the April inventory reading was 61, up from 55. That indicated beer distributors holding more inventory at risk of going out of code. Beer distributor inventory is too high, but it’s too high for AB InBev products and soon to be short of Molson Coors products.
Beer Position Monitor Changes (BUD, STZ)
We are removing Constellation Brands from our short bias list. While not benefiting as much from Bud Light’s share losses, it is boosting sales. Constellation Brands for the first time in years is not short of capacity and is able to meet the increased demand. We still have concerns about margin pressure in the beer business, but the additional sales will be margin accretive.
We are also adding Anheuser Busch InBev to our short bias list. We had removed the company from our long list because of the Bud Light marketing debacle. The Bud Light brand is permanently impaired. Excess inventories are pressuring margins in the near term. The company is rebating customers to clear through excess inventories at retail rather than refund distributors. Making matters worse, some customers are also avoiding other AB InBev brands pressuring sales. Management has told stakeholders that it is pulling marketing dollars from international markets to support domestic sales. What was a brand specific problem has become a problem across all U.S. brands and international markets.
We hosted a Molson Coors Black Book on Tuesday. To watch the replay: CLICK HERE.
Our updated position monitor:
May SSS (COST)
Costco’s May SSS decreased by 0.3% for the total company. In the U.S. SSS decreased by 1.5%, but ex. gas and Fx SSS increased by 1.7%.
Ex gas & Fx May April
U.S. +1.7% +2.9%
Canada +7.9% +8.3%
Other Int’l +6.4% +7.5%
Total +3.3% +4.3%
E-commerce decreased by 7% in May, weakening from -4.9% in April. Traffic in the U.S. improved slightly from 4.0% in April to 4.3% in May. Food & sundries were up HSD% for the third straight month, despite inflation being less than in April. Fresh food was up MSD% for the seventh straight month, but inflation was less than in April. Non-food was down LSD% for the second straight month. May was a more difficult comparison than April on a one-year basis, but traffic and food trends remained steady. Costco continues to gain share in grocery.
