Molson Coors CEO Gavin Hattersley spent the last quarter century engrossed in beer, and the last 22 months learning more about nearly everything else.
Since taking over the top job at Molson Coors in September 2019, Hattersley has become an expert in energy drinks, beverages with THC, hard seltzers and plant-based diet sodas as the beer giant moves to "fundamentally change" its portfolio amid a rapid shift in consumer tastes and preferences.
"It was clear that people were looking for other alternatives and other choices and we were being at a clear disadvantage because we didn't play in some of those spaces," Hattersley said in an interview. "Our portfolio was pretty challenged."
A little more than a month after becoming CEO, the Zambia-born Hattersley streamlined the company to make it more nimble and to free up cash it could use to grow the business. He cut 500 jobs, overhauled the corporate structure into two business units and dropped "brewing" from the company's name in favor of "beverages" "to better reflect its strategic intent to expand beyond beer and into other growth adjacencies."
Molson Coors' business was "at an inflection point" and needed to change direction, Hattersley said in 2019. "We can continue down the path we've been on for several years now, or we can make the significant and difficult changes necessary to get back on the right track," he said.
Today, Hattersley is upbeat about the company's prospects and ability to resonate with consumers bombarded by an endless sea of beverage choices.
He points to a slew of partnerships Molson Coors has struck with up-and-coming brands like Zoa, a nonalcoholic energy drink made with better-for-you, natural ingredients, and Coca-Cola with Topo Chico Hard Seltzer. The Chicago-based company also is seeing promise in innovations made to existing brands to keep pace with current trends like its 95-calorie Blue Moon Light Sky and Coors Pure, its first USDA-certified organic beer.
"Obviously, there is more work to do," Hattersley said. "But I think it's going incredibly well when you consider the challenges that have been thrown at us."
Beer sales turn flat
Hattersley's efforts to turn around Molson Coors have been complicated by a steady drumbeat of obstacles.
The brewer, whose roots date back to 1786, has seen its business weighed down by the pandemic that has decimated beer consumption at stadiums, bars, restaurants and other places where people gather.
Then as parts of the world were showing signs of moving beyond COVID-19, a freak winter storm pummeled Texas in mid-February, forcing utility companies to shut off power to major businesses, including Molson Coors' Fort Worth Brewery. The facility, which makes many of its signature beers, was shuttered for 11 days.
A month later, Molson Coors disclosed it was hit by a cybersecurity incident that briefly disrupted brewery operations, production and shipments around the world. The company warned the attack would reduce the company's earnings before certain expenses were factored in by tens of millions of dollars.
Those headwinds come as Molson Coors, the fifth-largest brewer in the world, and other large beer makers grapple with a persistent erosion in sales of the alcoholic beverage that makes up the lion's share of their revenue.
According to IWSR Drinks Market Analysis research, beer consumption in the U.S. plunged 7.5% from 2015 to 2020. During that same time, market share for beer in the U.S. alcohol space slipped 3.5 percentage points to 44%, data from Statista showed. Going back to 2000, the drop is even more pronounced, with the category plunging 11.5 percentage points.
"It was clear that people were looking for other alternatives and other choices and we were being at a clear disadvantage because we didn't play in some of those spaces. Our portfolio was pretty challenged."
CEO, Molson Coors
Americans — most notably younger consumers such as millennials and Gen Zers — are drinking less alcohol or skipping it altogether. And when they do imbibe, they're more likely to turn to spirits, wine, craft beers, Mexican imports, low- or no-alcohol brews and ready-to-drink products such as hard seltzer.
Analysts are skeptical the beer category will turn around anytime soon, and predict flat sales as industry pressures show little sign of abating.
For his part, Hattersley was far more upbeat. The beer industry as a whole "has stabilized" in part because of robust demand for hard seltzers, he said. Molson Coors' own brews also are picking up momentum, with its biggest sellers Coors Light and Miller Lite seeing an uptick in volumes and grabbing market share from similar offerings made by its archrival AB InBev-owned Anheuser-Busch, according to the company.
Still, the decline in beer sales has weighed on the giants that make it — providing an impetus for companies like Molson Coors to expand their portfolios into other liquids.
Molson Coors' market share in beer has fallen nearly 8 points since 2010 to 21.1% last year, according to Beer Marketer’s Insights. The Beverage Marketing Corporation said the company's two most popular brews, Coors Light and Miller Lite, which are responsible for about 60% of its annual beer volume, have posted a compound annual growth rate of -4.3% and -2.3%, respectively, between 2015 and 2020.
The decline in beer has lead to a corresponding drop in overall sales, with Molson Coors posting revenue in 2019 — the year before COVID-19 took hold — of $10.58 billion, compared to $10.98 billion in 2016.
'A little bit scared, a little bit nervous'
Molson Coors' pivot into beverages beyond beer has included a diverse range of offerings in both alcoholic and nonalcoholic categories, showing the company isn't pinning its hopes on just a few products amid rapidly shifting trends and robust competition. It will need to find some successes among its broad array of bets though, with Molson Coors targeting $1 billion in revenue by 2023 from its emerging growth division, which launched just two years ago.
One of its most promising deals came in November 2019 when it took a 49% stake in L.A. Libations, a nonalcoholic beverage incubator famous for serving as an accelerator for Body Armor sports drinks and Core Nutrition, a nutrient-enhanced bottled water.
The investment led to the debut of decidedly unbeer-like products last September by Molson Coors, including Huzzah, a full-flavored seltzer with added probiotics; MadVine, a plant-based diet soda without calories, sugar and artificial ingredients; and Golden Wing, a grain-based milk alternative fortified with protein and nutrients.
Since the investment in L.A. Libations, the past 19 months also have brought a series of distribution deals for the company. In addition to Topo Chico Hard Seltzer and Zoa, Molson Coors has partnered with Casa Komos Beverage Group on its Superbird 100% blue agave tequila-based cocktail; La Colombe on ready-to-drink coffee products; and through Truss USA, its joint venture with Canada-based Hexo, it has launched a line of sparkling, nonalcoholic CBD drinks called Veryvell that are being sold in Colorado.
"We were literally starting from a standstill in nonalc, wine and spirits and cannabis," said Pete Marino, president of emerging growth at Molson Coors. "Anytime you are taking on a new job there is a bit of anxiousness: 'Hey, is this going to go the way we hope?' "
Marino admitted to being "a little bit scared, a little bit nervous" when he took over the new role in November 2019 after overseeing the company's craft division Tenth and Blake. The trepidation came as some executives at Molson Coors were hesitant to move beyond beer, a product the company had amassed more than two centuries of knowledge in and was deeply ingrained in its storied history.
Employees also had to get up to speed about the legal requirements in place to sell other beverages, such as a product that contained cannabis. At the same time, Molson Coors was now marketing some of its liquids to new demographics. Energy drinks, for example, are primarily consumed by males 16 to 25 years old, exposing Molson Coors to an audience under the legal drinking age.
"We've been a beer company forever, and so your brain is oriented. You're looking through a beer lens all the time," Marino said. "We never thought about 16-year-old males before."
Despite its swift entrance into once-unexplored categories, Molson Coors hasn't forgotten beer either. In January 2020, it purchased Atwater Brewery, a craft beer manufacturer. And eight months later, it formed a joint venture with Yuengling to brew and sell its beers in 25 states where America’s oldest brewery didn't have a presence.
Moving in the right direction
Analysts are decidedly mixed on the company's long-term outlook, but acknowledge Hattersley is making the necessary moves to at least position Molson Coors to compete.
Molson Coors' portfolio overhaul has pointed the company "in the right direction" even if it will take time for many of its recent changes to scale up to where they will provide a meaningful boost in sales, according to John Boylan, a senior equity analyst with Edward Jones.
"A lot of these products aren't going to move the needle, at least initially," he said. "But it's something they definitely needed to do to reorient the portfolio toward growth. It does seem like they are learning their lesson and trying to be on the forefront of things."
Garrett Nelson, a senior equity research analyst at CFRA Research, is much less optimistic.
In an April research note, Nelson reiterated his strong sell recommendation of Molson Coors stock, noting that the company is "lacking a positive catalyst" and he predicts "it will struggle against unfavorable secular trends in beer consumption." He also underscored the company's late arrival in hard seltzer against Truly and White Claw, and expects Molson Coors' volume in the category to "remain anemic."
Many of Molson Coors' emerging growth brands are going head to head with deeply entrenched offerings that will be hard to dethrone. In the case of energy drinks, industry juggernauts Monster, Red Bull and PepsiCo's Rockstar are responsible for much of the $14 billion in category sales.
Hard seltzers face a similar challenge with Mark Anthony Brands' White Claw and Truly, owned by Boston Beer, collectively commanding 75% of the category. Molson Coors so far has achieved a 6% market share combined with Vizzy and Topo Chico Hard Seltzer, Hattersley said during its April earnings call, despite having only one SKU for Vizzy in 2020 and Topo Chico launching in just 16 markets.
"A lot of their innovative products are making some degree of inroads but it’s a matter of there are a lot of other players out there that are potentially doing it better and finding more success in the same exact avenues," said Nathan Greene, an analyst at the Beverage Marketing Corporation. "It’s a mixed bag at best, is how I would describe their current position.”
While scaling its emerging growth brands into a $1 billion business in just a few years is a big goal for the company, Molson Coors may benefit from a few factors that would increase its chance of success.
It is positioning some of its drinks with desirable characteristics to separate them from competitors.
Zoa, for example, is positioned as an above-premium energy drink with natural ingredients, vitamins, electrolytes and amino acids. Vizzy is made with acerola cherry, a superfruit that features 30 times more vitamin C per cup than an orange. And Molson Coors is developing a drink for the gaming community that contains antigens that help relieve eye strain.
"A lot of these products aren't going to move the needle, at least initially. But it's something they definitely needed to do to reorient the portfolio toward growth. It does seem like they are learning their lesson and trying to be on the forefront of things."
Senior equity analyst, Edward Jones
Even as beer sales slide, Molson Coors remains a dominant player in the space, which gives it influence over what products make it to store shelves. This unique positioning increases the likelihood that retailers will listen when a new product — either in beer or another beverage category — is introduced because they're confident Molson Coors will use its vast distribution network and marketing heft to support it.
Nascent startups also are attracted by these same attributes when looking for a partner to increase their reach — adding further credibility to Molson Coors' strategy.
"We've set ourselves up to be a little different with our emerging growth division," Hattersley said. "There is a reason these world-class companies are choosing us. They like our capabilities."
The decision to partner with companies that have already done much of the development work allows Molson Coors to get a product to market faster without spending the time or money upfront to create its own beverages while trends change and competitors flood the market.
"This gives [Molson Coors] a little bit of help because it's not like they are starting the process from a standing start," Boylan said. "They do have the opportunity to work with these partners to hit the ground running."
Fear of missing out
The accelerated push into other products beyond beer has cast some doubts among analysts whether Molson Coors risks siphoning time and attention away from its core to pursue this strategy, hurting the company in the process. Hattersley was quick to rebuff the skeptics.
"We got criticized in the past for not having a more balanced portfolio toward the above premium, and we're doing that now and somewhat getting criticism for being too complex," he said, pointing to drinks like La Colombe, Blue Moon LightSky and Vizzy. "We're delivering against our plan and delivering against it extremely well given the circumstances."
Greene with Beverage Marketing Corporation said Molson Coors had little choice but to move quickly to uncover new areas of growth. He said the company was slow to change its focus away from craft beer a few years ago when the segment's pace of growth was easing while other categories like hard seltzer were expanding at a faster rate.
"This directly explains all the activity right now and the willingness to invest in it because they don't want to miss the boat on whatever may be next," Greene said. "There is definitely [the realization] that it's going to be catchup for the short term, but they are in so many different areas that if one pops, they'll be ready to go."
Analysts said even though it's too early to predict which brands are likely to resonate with consumers, there is mounting optimism that Molson Coors' multiple-shots-on-goal strategy is likely to generate its fair share of wins.
Among the most promising is nonalcoholic drink Veryvell. The U.S. launch in January — the brand was previously offered in Canada, though the beverage there had the psychoactive ingredient THC — was Molson Coors' first entry into the American CBD market.
Zoa also has shown promise early on and should benefit from having actor and entertainer Dwayne Johnson as a partner, as well as from the sheer popularity of energy drinks. And while Molson Coors was slow to enter hard seltzers, Topo Chico Hard Seltzer has gotten off to a strong start. Greene speculated its success could lead to more partnerships between Molson Coors and Coca-Cola.
Hattersley said he's upbeat about Molson Coors' prospects, and noted favorable trends in many of its beers and "some very clear winners emerging" from its push into premium and alternative beverages. Molson Coors also stands to be among the bigger beneficiaries as the country comes out of COVID-19 and consumers venture out to places that were once popular destinations before the pandemic.
"[Our] plan isn't about choosing one or the other, beer or beyond beer. It's about doing them both and doing them well," he said. "When I stand back and look back at the 18 months since I took over, I'm incredibly proud as to where our organization is."