Convenience store retailers had a “slightly more pessimistic outlook” for beer trends in Goldman Sachs’ Q2 Beverage Bytes survey, citing “broader economic pressures/fears of recession, impacts from cooler weather” and the continued “negative impacts from the recent Bud Light controversy.”
Respondents in Goldman Sachs’ quarterly survey represented 36,000 c-store retail locations, representing about a quarter (24%) of the channel, according to Goldman Sachs analyst Bonnie Herzog.
Retailers are “slightly more optimistic” about total beverage sales (non-alc and bev-alc), expecting sales to increase +6% this year, up from their +5% prediction in Goldman Sachs’ Q1 survey. However, retailers were “slightly more guarded” in their expectations for beer category growth, projecting a +3% increase in dollar sales this year, below +6% expectations shared in Q1.
In Q1 and Q2, the beer category recorded a +4% increase in sales, according to Herzog. The lowered expectations for the rest of the year reflect predicted headwinds, including continued poor performance from hard seltzer and “trade downs to lower priced point beer.”
Retailers are more optimistic about energy drinks, with a “very positive” outlook on the category and expected double-digit growth this year. The outlook was emboldened by a +7% year-over-year (YoY) increase in non-alc beverage sales over the July 4 holiday weekend, “despite many retailers citing poor weather trends” and flat traffic YoY, Herzog wrote.
Out-of-Stock Concern ‘Most Severe Level’ Since April 2022; Pricing Concerns Lessen
The majority of survey respondents said they saw “only a few” out-of-stock (OOS) issues in Q2, down from about 75% in Goldman Sachs’ Q2 survey. However, one-third of respondents characterized the OOS situation as “bad” in the quarter, above the 13% of respondents who said the same in Q1 and the “most severe level we’ve seen since our April ’22 survey,” Herzog wrote.
Retailers specifically called out “broadly worsening” OOS levels from Molson Coors, Mark Anthony Brands, Boston Beer and Heineken.
More than two-thirds of respondents (67%) said they expect “further pricing actions” across bev-alc this year “by all manufacturers.” While still the majority of respondents, it’s a significant decline from the 90% of respondents who shared the belief in the Q1 survey.
Half of the 67% who expect increases said those increases will be “modest,” or less than +3%. One-tenth of that 67% believe increases will be “significant” (more than +3%).
The majority of respondents (80%) also noted an uptick in promotional activity in the quarter, the majority of which was from Anheuser-Busch InBev (A-B), which has launched several new promotions in an attempt to counteract declining sales.
One-fifth of respondents said they plan to allocate more shelf space to bev-alc brands this year, above the 11% who said so in Q1. The biggest gainer is expected to be Constellation Brands, with 80% of respondents planning to allocate more space, followed by Molson Coors. The biggest losers, according to 60% of respondents, are expected to be A-B and craft brands.
Here’s a breakdown of performance and expectations by company.
Constellation: Known for its Mexican import brands, Constellation is of the “best growth stories,” due to its “attractive volume-drive” topline growth – “especially in a period where growth is becoming increasingly scarce” – and its “clear path to margin recovery,” Herzog wrote.
Respondents noted continued high performance from Modelo Especial, with one retailer stating the brand was up +20% to 30% YoY in their market. Modelo Oro, the low-calorie extension Constellation launched this year, had more mixed reviews from retailers, with some noting “limited brand support.”
Molson Coors: Herzog has a “more constructive” outlook for Molson Coors through the rest of the year, due to “increasingly positive feedback” from retailers on company trends and Molson Coors’ “ability to retain some of their recent share gains.”
Positive trends are expected to continue as about half of retailers said they plan to allocate more shelf and cooler space to Molson Coors – up from about 13% in Q1 – while the other half plan to give the same amount of space.
The majority of respondents (90%) said Molson Coors’ Miller Lite and Coors Light brands have also benefited from the decline in Bud Light sales, with 60% believing the brands can maintain those recent share gains.
Boston Beer: Herzog is “modestly more cautious” on Boston Beer due to retailer feedback, including weak hard seltzer trends, with segment sales declining -4% YoY in Q2. Retailers expect the hard seltzer segment to decline -5% YoY in 2023, a stark contrast from the +5% YoY growth predictions shared in Q1.
The majority of retailers (78%) said they have “not seen any sign that Truly’s momentum is improving,” despite Boston Beer’s attempt to reverse trends with new packaging and larger investments in media campaigns. Retailers also expressed skepticism that the “newly rebranded Truly Vodka Soda,” Boston Beer’s spirits-based ready-to-drink canned cocktail (RTD) extension, will be successful,” Herzog wrote.
A-B: A-B’s beer sales declined -11% in Q2, significantly below the +3% growth expectations shared in Q1, according to Herzog. Retailers expect those declines to continue through the rest of 2023, despite the company now being nearly four months removed from Bud Light’s influencer partnership that sparked a conservative-led boycott of the brand.
Retailers expect A-B’s total beer sales to decline -13% YoY by the end of 2023, below their previous +3% growth expectations. The majority of respondents (60%) plan to allocate less shelf and/or cooler space for A-B through the rest of 2023, up from 38% of respondents in Q1. The remaining 40% of respondents plan to allocate the same amount of space.
Beast Unleashed and Simply Spiked Top Crossover Products for Retailers
Monster remains one of Goldman Sachs’ “top picks” for investors, despite a risk with gross margin, Herzog wrote. Analysts predict “tremendous outside growth over the long term” for the energy drink brand “over the long term, given its full innovation pipeline, further international expansion,” and its “opportunities and incrementally from alcohol,” such as The Beast Unleashed.
Retailers are “broadly positive” about The Beast Unleashed – the 6% ABV flavored malt beverage (FMB) Monster launched earlier this year – and expect it to gain incremental shelf/cooler space in the rest of 2023. One-fifth of respondents indicated volume trends for the FMB brand are “very strong,” while 40% characterized trends as “strong.”
More mixed expectations were shared for another non-alc beverage brand’s bev-alc offering: Jack Daniel’s & Coca-Cola, a spirits-based RTD, with half of retailers seeing “modest” volumes for the brand and 13% seeing “weak” volumes.
Simply Spiked was the most favorable crossover product for retailers after Beast Unleashed, with 20% of respondents indicating “very strong” volume trends for the Molson Coors’ FMB, and 30% indicating “strong” trends.
Mixed feelings were shared for Hard MTN Dew (25% “strong,” 50% “modest” and 25% “weak”); Vita Coco Spiked (57% “modest” and 43% “weak”); and Fresca Mixed (28% “modest” and 63% “weak”).
Retailers also commented on Monster’s planned acquisition of Bang. Respondents were uncertain of Bang’s future, but viewed the deal “favorably,” focused on its positive impact on Monster, including access to a new production facility in Arizona that will help “grow the Monster brand,” Herzog wrote.
Beyond Monster, retailers expect to allocate more space to Celsius and C4 this year. Retailers also expressed “mostly upbeat” opinions about innovations from Celsius, Monster and PRIME.
Herzog also shared that analysts are “more cautious” on Keurig/Dr. Pepper, lowering net sales growth estimates to +3.7%, below +4.6% expectations in Q1. Herzog credited the drop mainly to lower expectations for the company’s coffee business.