Molson Coors Beverage Co. says the cost of reimbursing bars for untapped kegs and not being able to sell finished kegs soon enough will cost it around $50 million.
The company said it is reimbursing on-premise customers and retailers, which includes bars, restaurants and sporting, festival and other large venues, for untapped kegs that meet certain requirements. Sales to on-premise customers generally have a higher margin for Molson Coors and account for 23% of net sales revenue globally.
Around $19 million of that cost comes from returns and reimbursements in North America, where the on-premise business accounted for 17% of net sales revenue last year.
In Europe, the on-premise business accounts for around 50% of net sales revenue and the company said returns would cost around $12.5 million.
The remaining $18.5 million of the charge Molson Coors recorded covers cost of goods sold on kegs within the company’s inventory that are not expected to be sold within its freshness specifications.
The $50 million charge was part of a quarter where Molson Coors saw an 8.7% drop in net sales to $2.1 billion and net income went from $151.4 million last year to a $117 million loss. Adjusted net income was down 32% to $77 million.
Gavin Hattersley, president and chief executive officer of Molson Coors, said the quarter, which included a mass shooting at the company’s Milwaukee brewery and dramatic shifts in the economy from the coronavirus, was unlike any other in the company’s history.
“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,” Hattersley said.
He said that as the coronavirus outbreak hit in March, the company saw demand similar to the Fourth of July week as consumers stocked up on beer. While stronger demand has continued at lower levels in grocery stores, particularly large format ones, it is not enough to counteract the elimination of on-premise sales.
In the first four weeks of April, Molson Coors saw sales-to-retail drop 14% in the U.S.
The company said it expects the negative trends to continue through the end of the year and be particularly pronounced in the current quarter.
The coronavirus has also prompted other changes in the company’s operations, pushing marketing spending to platforms like social media, gaming and podcasts.
“Consumers are still drinking lots of beer … so it’s really important we keep our big brands top of mind when they’re shopping,” Hattersley said, noting Molson Coors has added links to e-commerce purchase options where possible and identified opportunities to “meaningfully and authentically” provide value. He highlighted the Miller Lite Tip Jar benefiting hospitality workers as one example.
Hattersley said the sales the company is seeing have trended toward large-pack products. Economy and premium products have performed better while above premium, particularly craft, has struggled.
“It’s not about whether or not drinkers will continue to consume, because they will,” he said, noting the question is more about where and how the consumption happens. “We’re well positioned because we play in all segments.”
Get more news and insight in the April 27 issue of BizTimes Milwaukee. Subscribe to get updates in your inbox here.