Retail sales of Molson Coors Beverage Company’s Topo Chico Hard Seltzer increased +67% year-over-year (YOY) in Q1 2022 compared to Q1 2021, according to the most recent “Beverage Bytes” retailer survey by Goldman Sachs analyst Bonnie Herzog.
The hard seltzer brand recorded the largest YOY increase in sales, followed by E&J Gallo’s High Noon (+19%), Anheuser-Busch InBev’s (A-B’s) Michelob Ultra Organic Hard Seltzer (+19%) and Boston Beer Company’s Truly Hard Seltzer (+9%). The overall hard seltzer segment increased +7% YOY in Q1, decelerating from its +13% increase in sales YOY in Q4 2021 and +18% increase YOY in Q3.
Retailers expect the segment to increase +4% in 2022, a decrease in expectations for the year compared to Goldman Sachs’ Q4 survey (+10% projected 2022 growth) and Q3 survey (+8%). In 2021, retail sales of offerings within the segment increased +18% YOY.
Retail sales of Mark Anthony Brands’ White Claw, which holds the largest share of the hard seltzer segment, increased +1% in the quarter, with an overall projected -1% decrease in sales for 2022. Some retailers expect Truly to outperform White Claw in the 2023 fiscal year, possibly taking the No. 1 spot.
A-B’s Bud Light Seltzer declined -0.2% YOY in the quarter, and is expected to decline -0.6% in 2022.
Molson Coors First Quarter Sales -2% Compared to Flat Q4
Despite the growth of Topo Chico, Molson Coors Q1 retail sales across all its beer/flavored malt beverage (FMB) offerings decreased -2% in the quarter after a flat Q4 2021. Retailers expect the company’s offerings to post +9.9% growth YOY in Q1, compared to -11.1% YOY in Q1 2021, and overall flat growth in 2022 versus 2021.
Molson Coors posted $10.279 billion in net sales in the 2021 fiscal year (+6.5% YOY), the company wrote in its Q4 2021 report. While shipments worldwide declined -0.5% and brand volume declined -1.7% in 2021, the company’s price and sales mix increased +5.2%.
Retailers showed some optimism for Molson Coors’ Simply Spike Lemonade, launching nationwide this summer in collaboration with Coca-Cola. While surveyed retailers said the offering “tastes good,” they noted some concerns about the distribution of the product.
Boston Beer and Constellation Lead Beer Category Growth; Hard MTN Dew Entry ‘Bumpy’
Overall, retail sales of the beer/FMB category increased +4% YOY in Q1, after +8% YOY growth in Q4 2021. Herzog said the slowed growth is likely due to returning on-premise sales, as well as continued out-of-stock pressures.
Boston Beer led the category in Q1 YOY growth (+17%), followed by Constellation (+14%). A-B (+1%), Molson Coors (-2%), and Heineken underperformed versus the category after flat or near-flat YOY growth in Q4. Retail sales of total craft brands increased +2% YOY in the quarter, after flat growth in Q4 2021 and -4% YOY declines in Q3.
Looking ahead, retailers expect the beer category to increase +3% in 2022, down a point from projections in Q3 and Q4 2021 (+4% projected 2022 growth). Craft is expected to increase +2% this year, in-line with Q4 predictions, but up +3% from Q3 expectations of a -1% decline in sales.
About a quarter of retailers said they plan to increase shelf/cooler space for beer/FMBs in 2022, down from 68% in 2021. Respondents said that shelf space would primarily go to hard seltzer brands such as Topo Chico (75% of retailers), Truly (43%) and White Claw (38%), as well as ready-to-drink cocktails (75%).
Retailers also noted they are “bullish” on Constellation offerings this year – which include import brands Corona, Modelo and Pacifico – and cautious of A-B and Molson Coors offerings, due to continued out-of-stocks and “concerns about their pricing strategies spurring race-to-the-bottom promotional activity.”
Additionally, retailers were excited about recent innovations from Truly, including the Truly Margarita variety pack (released in January) and Truly Poolside variety pack (launching this summer). Respondents were “split” on the performance of Hard MTN Dew, Boston Beer’s collaboration with PepsiCo which launched in February in three states with more to follow in the summer. While some retailers “are seeing the product perform well, route-to-market has been bumpy,” with some questioning the two companies’ decision to distribute through PepsiCo’s newly created Blue Cloud Distribution, rather than Boston Beer’s existing distribution network.
Hard MTN Dew launched in Florida, Iowa and Tennessee. In Boston Beer’s Q4 earnings call, Dave Burwick, Boston Beer president and CEO, said the offering would expand into 13 more states by May, however some retailers in Goldman Sachs’ survey said they “have yet to secure Hard MTN Dew inventory, thereby delaying their expected launch dates.”
Top Brands to Win Out As Price Increases are Expected to Continue in 2022
The majority of retailers (88%) expect additional price increases to occur in 2022, on top of 2021 and early 2022 increases, due to supply chain disruptions and inflation.
With these increases, Herzog projected that companies “with topline momentum and strong pricing power are likely to outperform” smaller brands.
Herzog warned investors that Molson Coors and Boston Beer could lower their 2022 guidance ranges, “especially on the gross margin & bottom lines, to reflect pressures from elevated cost inflation.”
In its Q4 earnings report, Boston Beer projected depletions and shipments in FY2022 to increase between 4% and 10%, with a gross margin between 45% and 48%. However, in the company’s Q1 earnings call Thursday, founder and chairman Jim Koch said that if the company was at “the midpoint” of that range in February, it is “not quite as high now,” due to geopolitical events and economic trends. Herzog said Goldman Sachs’ estimates are “already at the low end” of that guidance.
Additionally, Herzog said the “most negative risk/reward” companies within the beer company are Molson Coors, “given negative sentiment among retailers as they worry about [Molson Coors’] continued underperformance relative to peers,” as well as Boston Beer, “given the ongoing uncertainty and slowdown of the hard seltzer category” and the “risk” that company’s gross margin “will be pressured more than feared.”
Out-of-Stocks Continue, But Improving
Less than half of retailers surveyed said out-of-stocks (OOS) pressures in retail remain “bad,” down from 60% in Q4. However, the majority of retailers (70%) expect the OOS situation to continue beyond Q3 2022.
“Overall, retailers are waiting to see if corrective steps taken by manufacturers, including size/pack changes and discontinuation of certain SKUs, will help them keep sufficient stock in stores,” Herzog said. “That said, some retailers expressed pessimism that any supply improvements from manufacturers will be able to overcome broader supply chain bottlenecks in distribution and logistics.”
Constellation OOS improved the most out of the large beer brands, with about 80% of retailers noting “moderate” OOS pressures in April versus March, while about 20% said the situation has become “significantly better.”
Boston Beer also had some improvements in the quarter, with about 40% of retailers categorizing the OOS pressures as “modestly better” this month versus last month, while the remaining respondents said it was “broadly the same.”
Out-of-stocks for Molson Coors and A-B are mostly unchanged in April versus March, while about 40% said OOS for Boston Beer and Mark Anthony Brands are moderately better now.