Jefferies Distributor Survey: Optimism for Spring Recovery, Led by Mexican Imports

The majority of distributors (70%) are seeing better growth for beer this spring, respondents told financial services firm Jefferies in a survey published Friday.

Early spring has been a nice relief for the industry, after what the majority of distributors (95%) said was a slow start to the year. More than half of respondents (55%) blamed this year’s slow beginning on tough 2021 comps, while half also pointed to the hard seltzer slowdown compared to early last year. Two-in-five (40%) said out of stocks from the constricted supply chain were to blame, followed by effects of the Omicron variant of COVID-19 (45%) and continued labor shortages (25%).

Additionally, two-in-five distributors surveyed (40%) said on-premise beer business this spring has been in line with or above pre-pandemic levels, and the majority (85%) expect the on-premise to fully recover by the end of 2022. The responses indicate renewed optimism for the channel, as 65% of respondents in Jefferies’ Fall 2021 survey said they expected recovery by the end of 2022, which was a decline from 73% in the Spring 2021 survey.

About 6% of respondents said the on-premise will never return to pre-pandemic levels, a significant decline from the Fall ’21 survey (25%) and Spring ’21 survey (20%).

Mexican imports continue to lead growth in the beer category, driving some of that recovery. Constellation Brands accounts for the majority of Mexican import sales, with its portfolio of brands such as Corona, Modelo and Pacifico.

While Jefferies noted that the sustainability of continued growth from Constellation is in debate among distributors, respondents expect the segment’s volume to grow 5% in 2022 – the largest expected growth for any segment. In Jefferies’ fall survey, distributors expected 6% growth for the segment in 2022.

Additionally, two-thirds of respondents “saw merit” in the rumored future merger of Constellation and Monster Beverage, and continued growth for the beer giant as a result of its potential relationship with the energy drink maker.

Distributors are less optimistic for hard seltzer, with the majority expecting flat or <1% growth for the segment in 2022, compared to +3% 2022 growth predictions in the Fall ’21 survey.

Jefferies said the segment “needs to go through a ‘shakeout,’ or period of culling low velocity SKUs/brands, this year” if it wants to “stabilize” and deliver consistent growth long-term.

For the overall beer industry, distributors expect volume growth at or below 1% in 2022 and in the next three to five years, despite import and super premium gains. Volume levels for economy brands are expected to decline -5% this year (compared to -2% expectations in the Fall ’21 survey), while domestic premiums are expected to decline -2% (down from the -1% Fall ’21 decline prediction). Craft is expected to decline -1% (predicted to be flat in Fall ’21). Expectations for hard cider to decline -2% were consistent with Fall ’21 predictions.

Supply chain constraints have continued past Q1 2022, and the majority of distributors (70%) expect them to persist in 2022, compared to 40% who believed so in Fall ’21. Nearly half of respondents (46%) said the strain will end in the second half of the year, while 23% said it will not let up until 2023. One-in-five respondents said supply chain tightness has already returned to normal, while 9% said it will be resolved by Q2 2022.

Pricing is also a concern for distributors, as 61% said they see pricing as a “risk to volumes” this year. Distributors are expecting beer price hikes in 2022 to reach +3%, in line with what beer brands have been sharing in earnings reports.

Nearly two-in-five respondents (39%) think consumers’ beer-buying habits will be sustained even with higher pricing.

Out-of-stock issues that plagued 2021 may have started to settle, as the majority of respondents (60%) said inventory levels are in line with or above targeted levels. Still, two-in-five (40%) said in-stock levels are below targeted levels.