California's Great Train Robbery

My friend (I use the term loosely) Jeff Alworth yesterday posted an article exploring the success of Michelob Ultra. It's a zany story, frankly. Ultra has been knocking it out of the park, showing huge growth over the last few years, though it tastes like carbonated water with a twist of light beer.

Go read Jeff's article if you haven't. He's basically saying the success of Ultra, alongside the continued growth of craft, suggests the old paradigm of craft beer vs light lager has collapsed and that consumers now think only of beer. Some chase flavor, some don't.

In fact, the success of Michelob Ultra reminds me of the success of Kona, which is a big winner for the Craft Brew Alliance in the same way Michelob Ultra is a winner for Anheuser-Busch. It's also true that neither can do enough to overcome the losses of their parents.

A case in point is California, the biggest market in the country. Despite the growth of Ultra, AB lost 10 percent of its volume in California over the past two years. Sales were down 446,000 bbls in 2016 and 386,000 bbls in 2015. AB, which once owned nearly half the California beer market, now controls less than a third of it.

MillerCoors is also taking a shellacking in the Golden State. It lost 10 percent of its volume over the past two years...500,000 bbls. Once a formidable player in California, MC now controls less than 20 percent of the market. And indicators don't look good.

Who's stealing market share? Constellation brands is a big winner, gaining more than 700,000 bbls over the last two years to 4.3 million total bbls. Constellation, which includes Ballast Point, Corona, Modelo and Pacifico, reached 18 percent of market share in California at the end of 2016. It will likely pass MillerCoors this year.

The other big winner in California is other (mostly local and regional) craft, basically anything but Constellation-owned Ballast Point. Other craft was up 20 percent (813,000 bbls) over the last two years and now has a 21.5 share of the market, second only to Anheuser-Busch.

Consider the magnitude of the "great train robbery" that has transpired in California in recent years. Anheuser-Busch and MillerCoors have lost 1.35 million bbls between them while Constellation and other craft gained 1.5 million bbls. These are shocking stats. And there's more.

AB's best selling beer, Bud Light, declined nearly 9 percent to $140 million in IRI last year. Meanwhile, Constellation-owned Modelo Especial grew 20 percent to nearly $138 million. Sometime this year, Modelo Especial will surpass Bud Light as the top selling brand in California.

What we're seeing in California, which accounts for some 15 percent of nationwide IRI, is Constellation gulping up market share with a mix of light and craft beer while craft brewers grow with their unique product. Michelob Ultra fits into a growth niche somehow.

These parallel universes will continue to exist. Craft beer will never conquer the world. Light lager will always have a place because many consumers don't and never will care about flavor profiles or who makes their beer. Some choose light lager because craft beer makes them fat. Indeed, a large segment of consumers will always be content with light beer, though at the moment a lot of folks are moving away from long-established, mainstream brands.

The ongoing implosion in California and elsewhere has Anheuser-Busch and MillerCoors on edge. Huge losses have a way of creating panic. Buying craft brands in hopes of reversing the negative momentum is part of their strategy, and it's working to some extent. But they simply can't replace what they're losing fast enough.

Interesting times. And train robberies.