Restaurant sales slow in November (USFD)
US Foods presented at a conference yesterday. The company guided Q4 adj. EBITDA to be even with Q3, which was $209M, much lower than the consensus expectations of $264M. Legacy case volumes declined 18-20% in November, decelerating since October as seen in the following chart. Management’s guidance for case volumes was for a decline of 15 to 20%. Since management’s last conference call on Oct. 24th, the change has been the additional indoor dining restrictions.
Management estimates the percentage of restaurants that have closed during the year is in the MSD% range. With the shares up on the day, the sentiment appears that worsening near-term trends from additional lockdowns are soon to be behind us. Investors are looking forward to when vaccines are widespread and food away from home recovers. The analysis that matters then is future earnings power and whether there have been any structural changes from the pandemic. Management points to cost savings initiatives taken during the pandemic and additional new customer wins. The majority of the cost savings are from headcount, and the margin profile of the customers gained vs. lost is unclear. Our projections do not factor in legacy revenue or margins returning to pre-pandemic levels in 2021 or 2022.
Off-premise beer sales soared during the pandemic (BUD)
According to IRI, year to date through November 1, beer category dollar sales grew 15.5% in the off-premise channel driven by on-premise restrictions. Yet, for most brewers, sales are lower than in 2019. This year, the flavored malt beverage (FMB) segment (includes hard seltzers) accounted for half the dollar sales growth. FMBs grew 72.5% YTD, outpacing domestic super-premium growth of 20.1% and non-alcoholic beer growth of 38.9%. Craft beer grew 14.6%, imports grew 13.2%, cider grew 11%, and domestic sub-premium grew 1%.
The three brand families that gained the most dollar share in the first ten months of 2020 were White Claw Hard Seltzer +2.5%, Truly +1.2%, and Bud Light Seltzer +.8%. The Budweiser brand family lost the most share points at -2.1%, followed by Coors -0.5%, and Natural -0.5%. Truly’s sales grew 155% through the first ten months of 2020, followed by 154% for White Claw. Michelob grew 22.8% among beer brands, followed by 20.8% for Modelo, 9.7% for Corona, 9.5% for Busch, and 8.9% for Miller Lite. Michelob Ultra grew 23.7% in 2020, becoming the #2 beer brand. The Budweiser family grew 2.3% while the Natural brand increased by 0.6%. Blue Moon Light Sky, which launched in February, is the only new product in the top 30 craft beer brands in the off-premise channel. Blue Moon Light Sky (TAP) is the lower calorie version of Blue Moon Belgian White, the #1 craft beer brand in the off-premise channel, which grew 10.6% in the first ten months of 2020 compared to the prior-year period.
Looking out to 2021, after the vaccines are meaningfully distributed, on-premise sales will recover, but the scanner data investors see will look weak. It will be a reversal of this year, but investor's visibility in trends will seem markedly less.
Hard seltzer growth plans (TAP)
Molson Coors announced some production capacity increases at a conference yesterday. The company said its Fort Worth and Milwaukee breweries have now increased production capacity by more than 400% for new products, including Blue Moon LightSky, Vizzy, and Coors Seltzer featuring new canning lines and filtration systems. The CEO said, “There’s no doubt in my mind it will take a very long time to recover to 100% of bars and restaurants if we ever get back to that level.” The slower on-premise recovery represents a larger headwind in Europe than North America. Europe's sales mix is 55% on-premise with the U.K. at 65-70% while North America is 17%.
The CEO also added he thought hard seltzer and RTD beverages are not gaining share from Molson or Coors, but winning customers new to alcohol, crossing over from wine, hard spirits, or craft beers. He does not see share loss in big premium lites and import brands. Molson Coors has doubled its share in hard seltzer to 4% this year, and management expects further gains with further investments, more supply, and new products like Topo Chico.
