AB InBev sues to stop Corona Hard Seltzer (STZ)
Grupo Modelo filed a lawsuit against Constellation Brands on Monday, accusing the company of breaching an agreement on using the Corona brand name and applying it to a product other than beer. Constellation Brands has been marketing hard seltzer in the U.S. under the brand name Corona Hard Seltzer. The suit is filed in the southern district of New York. AB InBev said it had failed to settle the matter with Constellation Brands directly. As part of the licensing agreement with AB InBev, Constellation Brands has access to any future innovation by Corona and Modelo. Constellation Brands said, “We find these claims, including the insinuation that Corona Hard Seltzer should not be classified as beer or a version thereof, to be complete without merit, a blatant attempt to restrain a strong and well-established competitor in a high growth segment of the US beer market.”
Constellation Brands launched the Corona Refresca brand, a flavored malt-beverage, in April 2019. We are not aware of an attempt by AB InBev to stop Constellation Brands from marketing that product. Under Alcohol and Tobacco Tax and Trade Bureau regulations, malt and sugar-based hard seltzers are considered beer and taxed as beer. The hard seltzer industry has been complying with FDA label requirements for beer. In our opinion, AB InBev is better off using Corona Hard Seltzer's innovation developed by Constellation Brands outside the U.S. It is not clear how AB InBev will convince the court that hard seltzer is not beer when federal and state alcohol and tax authorities treat hard seltzer like beer.
Brewery production decelerates (BUD)
Domestic brewery shipments of cans and bottles increased 6.6% in October, decelerating from 10.7% in September, according to the Alcohol & Tobacco Tax and Trade Bureau (TTB). Shipments of kegs were 39.0% lower YOY, up slightly from a 39.5% decrease in September. On-premise volume use was 41.2% lower in October than the prior year. Production in October was 1.5% less than the prior year slowing from the +5.7% YOY increase in September. Through the first ten months of 2020, total domestic beer production was 1.0% lower than the prior year.
Livestock challenge (PPC)
USDA data shows that the average price paid to livestock producers at the farm level dropped by nearly 20% in April. At the same time, consumer prices for meat, poultry, fish, and eggs began increasing. By June, consumer prices were 10% higher than the level before the pandemic. Once the packing plant disruptions eased, the price trends reversed, as seen in the following chart. The data shows that consumer prices for meat and other animal products declined by more than 5% between June and November, while farm-level prices increased by 20% between April and November. Price trends have not returned to pre-pandemic levels yet, with consumers still paying slightly higher prices, but the situation has improved. Livestock producers have weathered the worst of the pandemic impact, but looking forward, rising feed costs will add a different challenge.
