Molson Coors Revenue Down 8.7% in Q1 2020; Depletions Decline 14% in April

After a corporate restructuring in the fourth quarter of 2019 and a bevy of new products hitting the market in the New Year, Molson Coors Beverage Company was poised for a strong 2020.

But then the COVID-19 outbreak shutdown on-premise bars and restaurants in mid-March, and everything changed. In the first quarter of 2020, Molson Coors’ net sales revenue declined 8.7%.

A mass shooting on February 26 claimed the lives of five employees at Molson Coors’ production brewery in Milwaukee, Wisconsin, and “changed the employee experience in our company forever,” CEO Gavin Hattersley said during a call for investors and analysts.

That brewery shutdown for a week after the shooting and it took some time to rebuild its production levels. As a result, shipments (sales-to-wholesalers) declined in early March, just as consumers were beginning to stock their pantries with the expectation of being ordered to stay at home to stop the spread of the novel coronavirus.

Hattersley said “inventory levels at the end of March were lower than we would have liked,” but added that this has since been corrected.

“Despite the early progress, our first quarter results were disproportionately affected by the coronavirus, a pandemic that has changed the world — not just for our business, and our industry, but for the entire global economy,” Hattersley said in a press release. “Like everyone else, the full impact and what our new normal looks like going forward is still uncertain, but coronavirus has had, and will have, a material impact on our business.”

The on-premise channel, which is now virtually shutdown across the globe, accounted for 23% of the company’s net sales in 2019. However, the loss is more acutely felt in Europe, where on-premise sales accounted for as much as 55% of net sales in 2019. In North America, 2019 on-premise sales accounted for 17% of the company’s business.

“In nearly all of our markets, the on-premise business has been effectively reduced to zero,” the release said.

While U.S. beer sales in off-premise retailers have had a sharp uptick due to pantry loading, the increase has not been enough to offset the losses of sales in bars and restaurants — as well as the costs of splitting the cost of out-of-code beer with its wholesalers. For the first four weeks of April, Molson Coors’ depletions (sales-to-retailers) declined 14%, due to the performance of the company’s economy and above premium brands.

Nationwide, off-premise dollar sales have begun to slow. For the week ending April 18, beer category sales increased 12.3%, to $856 million, the lowest growth rate of the last six weeks. For Molsons Coors, drinkers are gravitating toward familiar brands and larger pack sizes.

“In the off-premise, we’re seeing a meaningful shift into large pack sizes, and into brands that consumers know and trust, like Miller Lite and Coors Light,” Hattersley said. “Miller Lite and Coors Light’s performance has been particularly good. As we’ve headed into April we’ve seen an acceleration behind Coors Light and Miller Lite behind our marketing initiatives in 2019, ‘Made to Chill’ with Coors Light.”

Molson Coors reported net sales of $2.1 billion for the first quarter of 2020, an 8.7% decline compared to the same period in 2019. Complicating matters is the glut of untapped kegs the company estimates to have spent $50 million to buy back from wholesalers. This has led to a 1.3% decline in net sales per hectoliter. Brand volumes increased 0.4% due to off-premise pantry loading and a favorable shift in selling days compared to last year.

To offset the economic damages of the COVID-19 pandemic, Molson Coors plans to reduce capital expenses by $200 million, reduce discretionary spending, limit new hiring, decrease marketing spend, furlough some employees in Europe and in hospitality roles in North America, and protect its cash by tapping into savings from the revitalization program launched last year, according to the release.

During Q1, the company launched several new products: Vizzy Hard Seltzer, Blue Moon Light Sky, Saint Archer Gold and MoVo canned wine spritzers. Vizzy, a hard seltzer with antioxidants from acerola cherries, is the company’s big bet for innovation.

“While it’s still early — a few weeks into the launch — we’re actually very pleased with the early reads,” Hattersley said.

The launch of another hard seltzer offering, Coors Seltzer, has been pushed from July to the fall due to the pandemic.

Coors Seltzer marks the third hard seltzer line extension named after a top beer brand, following the launches of Bud Light Seltzer and Corona Hard Seltzer in Q1.

“We believe we’ve got the best proposition with Coors for a number of reasons: It best fits to play in the space,” Hattersley said. “We’ve tested the Coors Seltzer proposition head to head with other beer branded seltzers, and Coors won across the board on multiple levels, whether it was purchase intent, whether it was differentiation, distinctiveness and so on. Its history of Rocky Mountain freshness and water credentials are a perfect fit for hard seltzers.”