Carlsberg shows adequate cost controls but lowers 2H outlook
Carlsberg had reported preliminary 1H figures on July 10. Organic revenue decreased 14.6% in Q2, with volumes contracting 7.8%. The company’s cost controls stand out in Q2. Organic operating profit fell 8.9% in the first half of the year. 25% of the company’s volumes are sold to the on-premise market. Management is optimistic about their alcohol-free beer, which grew 9% in Western Europe. Management also expects final approvals for the JV with Marston’s in Q4. Carlsberg has also acquired the rights to the Brooklyn Brewery brand in its European markets, where the brand has had a strong historical presence.
Management had suspended guidance on April 2 due to the pandemic but issued new full-year guidance as visibility has improved. Management now expects organic operating profit to decline 10-15% for the year somewhat weaker than consensus expectations of -11%. The more uncertain outlook for the 2H is due to postponed marketing expenses. In China, Q3 started strong, but the recent lockdowns in some key provinces have increased volatility in sales from Q2. In Western, Europe management expects a gradual recovery of on-premise sales from down by half in Q2 but noted they do not expect it to return to pre-crisis levels.
As for hard seltzers, management said they are testing it in some markets. One of the test markets was Norway, but it is still only 5% of the RTD category. The tests are encouraging, but the category is so small. It would seem like hard seltzer should succeed in Western Europe, but the early results suggest the adoption will be much slower than it has been in the US. Boston Beer has no intention of pursuing international growth outside Canada, and that would appear wise on a three-year projection from where the category is now.
AMLO’s strawman rant against Constellation Brands’ shuttered Mexicali plant
Mexican President Andres Manuel Lopez Obrador, also known as AMLO, has accused Constellation Brands of planning to proceed with opening its new brewery in Mexicali. In a very low turnout, referendum voters were 76% against the brewery and ended it when it was 70% complete. AMLO told reporters on Wednesday that he would not allow Constellation Brands to build its plant and that the company should respect the voters’ decision. After the company met with AMLO on March 31, the President commended them for agreeing to resolve the issue outside the courts and that they were an example of good behavior. On Wednesday, AMLO said, “I told them clearly that the plant was not going to be able to open in Mexicali, but now I have heard – it’s true – that they are looking to reverse [the referendum].” AMLO suggested that the southeastern region of the country had better conditions for such a plant. AMLO’s statements probably reflect a toughening stance in the negotiations as Constellation Brands is seeking the sale of the plant as well as approval of another location in Mexico. Mexicali was very desirable due to its proximity (COGS benefit) with its largest market (California).
Grocery demand decelerates but remains elevated (ACI)
Grocery demand decelerated in the week ended August 2, as seen in the following chart. Total CPG growth decelerated to 15% YOY from 19% in the prior week but remained elevated. The edible category decelerated from to 16% in the latest week from 21% in the prior week. Every edible category decelerated except the alcohol beverage category, which remained up 19%. Non-edibles decelerated to 10% YOY from 14% in the prior week. In fresh foods, the strongest category remained seafood up 28% while the weakest category remained deli prep at -20%. The meat category decelerated from up 23% to up 16% YOY.
