Gary Leibowitz - Senior Vice President of Investor Relations
David Dunnewald - Vice President of Global Investor Relations
Tom Long - Chief Executive Officer
Andrew J. England - Chief Marketing Officer and Executive Vice President
Thomas J. Cardella - President of Tenth and Blake Beer Company
Ed McBrien - President of Sales and Distributor Operations
Tracey Joubert - Chief Financial Officer
John A. Faucher - JP Morgan Chase & Co, Research Division
Bryan D. Spillane - BofA Merrill Lynch, Research Division
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Vivien Azer - Citigroup Inc, Research Division
Lauren Torres - HSBC, Research Division
Robert E. Ottenstein - ISI Group Inc., Research Division
Molson Coors Brewing Company (TAP) Divisional Seminar June 18, 2013 2:00 PM ET
Okay. Welcome you all to the New York City to SABMiller's approximately 30th addition of the quarterly divisional seminar series. I'm Gary Leibowitz, Senior Vice President of Investor Relations. Welcome to all of you here at the Hyatt, New York City. Welcome to all of you across the U.S. and worldwide listening in our live webcast today. We're delighted to co-host this seminar as usual here in the U.S. with our joint venture partner, Molson Coors Brewing Company. You'll hear from Dave in a moment. If we could just ask everyone here in the room to keep your cellphones or what-not switched off.
As usual, today's presentation will contain hopefully many forward-looking statements. They represent our best view and judgment as of now based on the uncertainties that you could see written up in this paragraph. And as usual, we need to disclaim any obligation to update these statements outside of our usual reporting and seminar routines.
On to our next order business where I position the business at hand on our part within the global SABMiller picture. SABMiller continues to deliver very strong growth results in both top line and profitability. We recently reported our F '13 full year results, as you know, with organic constant currency revenues growing by 7%, operating profit by 9% and EPS was up 11%. So continued strength in results despite a mixed picture in terms of the economic backdrop.
Our footprint is, we think, still unrivaled, full of #1 or sometimes #2 positions in nearly all of our markets. More importantly than the footprint is the growth orientation both of those markets and of our strategy and our business positioning. Focusing on leading brands and portfolios that are driven more bottoms up by deep local insights than we think others across our category, really focused in this bottoms up deeply rooted way on building the beer category for consumers within broader alcohol, for retailers who haven't necessarily, in much of the world, had a lot of experience in the category management and then so doing on insightful in a segmented way, building the profit pools.
On the subject of profit, over 3 quarters of our profit is derived from emerging markets, as many of you know. But this is to take nothing away from the fact that our positions in developed markets, Africa [ph] today with MillerCoors and in markets like Australia with CUB, are critically important to us. And I just wanted to highlight that lastly, MillerCoors is very strategically important to SABMiller and is expected to continue to be so for a number of reasons.
What it brings to our group in terms of -- as it says here, enhanced brand portfolio and commercial capabilities, which the rest of our group can learn from. That's going to be embodied today with the excellence of the presenters that you're going to hear from, their expertise, the way that, that's applied into the sophistication of this market, which is greater than any of our other markets, and the sheer scale of this market provides a platform for them to deploy that expertise in a way that, actually, frankly, isn't the case initially in many of our smaller fragmented markets. And so being able to develop those skills with this expertise on this kind of scale platform and then to be able to leverage that globally is invaluable.
And this is alongside the strong unit revenue and profit growth that MillerCoors has been delivering for SABMiller, recently touching 4% -- even more than 4% in terms of revenue per barrel growth and from a profit point of view, even post-delivering the synergies still on track to deliver an attractive profit picture.
Throwing out some numbers that are not here, cumulatively in the last 4 years, MillerCoors has delivered $6 billion of EBITDA and $4 billion of free cash flow and also $4 billion of upstream dividends to its parent companies, for which SABMiller takes 58%, so very pleased with that.
And with that, I'll just hand over to Dave Dunnewald to say a few words on behalf of MillerCoors. And remind me, please, if I don’t forget it at the end of this, we're going to roll out an invitation to you at the end of today for our next U.S. market visit in the fall.
Thanks, Gary. Hello, everybody. I'm Dave Dunnewald, Vice President of Investor Relations for Molson Coors Brewing Company. And I'd also like to thank you for joining us today. As many of you know, Molson Coors is the fifth largest brewer in the world. We have a 42% economic interest in MillerCoors and a 50% voting interest. Over the last 5 years, MillerCoors has become an increasingly important source of profit and cash for Molson Coors. And as you can see from this chart, MillerCoors now represents nearly half of our total company beer volume, net sales and underlying profitability and that's at our 42% economic ownership interest. So as a result, we have a very strong interest in not only in the business, but also in the direction that the team here today is taking that very important part of our company.
And so with that as a brief introduction, before I turn the meeting over to Tom Long, CEO of MillerCoors, I'd like to show you a video with some perspective on MillerCoors and the U.S. beer industry.
Greetings. It's a pleasure to be here with you here today. Thanks for coming out to be with us. We want to talk to you about our plans to compete and to win in the world's most dynamic beer market, the United States. The U.S. beer market is undergoing a period of rapid change, very exciting change. And it's a great opportunity for a company like ours with the history, the heritage and the experience that we have.
You're going to see today that our entire organization is moving forward to seize that opportunity. We're going to do that by innovating with new brands and packs, by making our existing brands more powerful and relevant through the delivery of news and by getting tightly aligned with our customers and our consumers and our distributors such that our vision is well known and understood and that we're able to win in this dynamic business. And today, you're going to hear about our plans to do that.
Fortunately, we're starting from a very strong foundation. We delivered nearly $900 million in savings and synergies since the formation of the joint venture. We've delivered $5.5 billion of net income, and we've delivered more than 63% shareholder return since that time. Combining MillerCoors has also enabled us to reinvest in our business to be more competitive. Probably one of the things that we're most proud of is Coors Light becoming the #2 beer in America, and Tenth and Blake is the largest craft brewer in America.
And it begins with a 17-year history with the Blue Moon brand, which was invented out at Coors Field in Denver, Colorado at our microbrewery. And then with the Jacob Leinenkugel Brewing Company, which we acquired almost 25 years ago, and it has emerged as the fourth largest craft brewer in America based up in Chippewa Falls.
Thirdly, our quality has never been higher. We've elevated both our brewing quality and our packaging quality to levels that are above either of the companies that merge to create MillerCoors. Our advantage in chain and servicing our large chain customers is significant. And we do that -- we've, gained that advantage by demonstrating a capability to grow the size and the value of the category when we take leadership with those chains. And that sets us apart from our primary competitor and all other competitors.
And building capability is something that we're proud of. We've embarked on MillerCoors University. We've built that platform in our Milwaukee campus and it's been voted one of the strongest corporate training programs in America. And just this year, we've hired over 200 new sales and marketing partners to help build the feet on the street, calling on independent customers around the country.
Let's talk for a minute about the strategies that we're using to make us more competitive and what the underlying causes are some of the changes that we see in America. It really starts -- next slide -- it really starts with some rapid consumer changes that you've heard about. You know about the millennial consumer, you know the legal drinking age. Consumers are more diverse than their predecessors in almost every respect. They skew more to spirits and wine. And the beers they drink, they're very promiscuous or are not as brand loyal as our generation, or at least my generation was.
Today's consumer, not just millennials, are in search of much bolder flavors. And we see that in food culture across America and it's not unexpected that, that would spill over in the beverage culture. We see it in softdrinks, we see it in still and carbonated beverages and we also see it in beer. So the market is ready, willing and able to tap into this. You know that there's a new craft brewer everyday in America capitalizing on this. And you know that our distribution network has the capability and demonstrated capability to bring this variety to retailers.
It's a scenario in the value chain in beer that's unlike any other value chain in consumer goods. And this rapid fragmentation offers us great opportunity. If you add it up, this hyper fragmentation market is really resulting in an accelerated pace of change, even in the last 3 years. And we believe that the winners over the next 3 years are going to be those who can read the tea leaves properly, develop new products and packs to serve the needs of emerging consumers, and move quickly to double down on what's worked and what's not working to call quickly.
In the end, through this process, the trade map of what's selling will ultimately determine who's going to win. But because of the shift to the high end that's going on right now, the potential margin and net revenue growth is significant if you move quickly indecisively and we have a strategy that positions us to do just that. And it trades on our decades of long experience in premium brands and growing the size and value of the beer category with our customers. We call that strategy Winning in Beer 2.0. It was designed specifically to deliver growth in this challenging environment. It does this by focusing on really 5 strategic pillars, and I'm going to walk through them very quickly and end up on the piece transforming our portfolio and evolving our portfolio to the top end.
The first is earning customer preference. This is about driving execution at retail with our distributors, giving our distributors the tools that they need to win and especially, the win in chain. And Ed McBrien, our Head of Sales, is going to speak to that.
Embracing sustainability. Legal drinking age consumers want brands that they identify with, brands from a distinct place with a distinct set of values and values that they understand. Sustainability is part of that. And therefore, you'll see more sustainability efforts driven not just by the company in an entity, but by the brands themselves. And we believe deeply in sustainability because it matters to the reputation of our firm and the endearing qualities of our brands.
Engaging people. Winning in Beer is really about putting the best people in position to win and putting the best team on the field. We're making sure that our team is as diverse as the American consumer is and motivated and performance-driven.
Fueling growth. Well, this is all about making sure we're investing where we need to, and operating in the most efficient way possible to win long term. Tracey is going to speak about that a little later during her presentation. Let me just say that taking cost out of our system is just the way we work. We've done it consistently year-on-year and we will continue to do so.
Now all of these objectives feed into one, the one I want to spend most of the time today talking about, and which Andy England and Tom Cardella will speak to as well, and that's the evolution of our portfolio. Bottom line, this is making sure that we have powerful positions in all of the growing segments in beer, making sure that our portfolio resonates with consumers today and is leading to where consumers are going tomorrow. So let me speak about that for just a moment.
We have a strategy to play harder in the fastest-growing categories. If you look at 2012 industry, you'll see the mix of volume in each of the sectors. The sectors are Economy, Premium Regular, Premium Light and Above Premium.
Now Above Premium, for your information, is defined for us as having a more than 100 index. 100 index would be the premium lagers in America, typically defined as Budweiser, MGD, or Coors Banquet. You can look at the differences in the mix. You'll see this blue section which is Premium Light. We have a commanding position in our portfolio in Premium Light. It accounts for a great deal of our volume, 57%, and even a higher percentage of our earnings. We like that position.
We believe Premium Lights will be an important part of the portfolio going forward and an important part of the American consumers choice base going forward for the foreseeable future, for sure. They represent more occasions than any other segment. Consumers are more loyal to this segment than any other segment, and they deliver a great deal of gross margin return on investment for retailers per square foot.
But as you can see, we need to build a strong Above Premium portfolio to complement our Premium Light business. And you can see that we're significantly underindexed here, despite nice positions with Blue Moon, nice position with Leinenkugels and other import beverages. We have a huge opportunity to play and a solid quarter to play off of. By 2016, we expect our position to be much improved, and we think it will look more in line with the industry. And you can see that will essentially take our share of Premium Lights up about 50% and we'll take our portfolio where the consumer's moving.
We have a two-pronged path to growing our share in Above Premium. First, we're stepping up our investment behind our Coors, Tenth and Blake families, Blue Moon Brewing Company and the Jacob Leinenkugel Brewing Company and the Crispin cidery. The second prong is with new brand innovation, new brands that we've launched this year like Redd's Apple Ale and Third Shift, and we're spending behind these brands. They're different than the brands that we talked about with the cidery and Blue Moon and Leinenkugel's. Those are discovery brands. They're rolled out very slowly. Consumers find these brands in a marketing methodology that we call Create, Build and Expand. Third shift and Redd's are mass brands. They became nationally available this year and we're spending behind them. We're spending over $30 million behind Redd's this year and that investment is driving excellent results, and Andy and Tom are going to update you on those results shortly.
Let's talk about Premium Lights. We're committed to winning in Premium Lights and that means fundamentally, that we have to grow share of that segment, because that segment, which grew beer for the last 40 years, isn't growing at the rate it has historically grown. So it becomes a share battle, and we are taking share of that segment we aim for that accelerate. We plan to take share every year between now and 2016, and we believe that we'll be able to do that because we have 2 powerful brands, Coors Light and Miller Light, that have differentiated brand propositions with large followings. And we think that having 2 brands gives us geographic opportunity and positioning opportunity, especially against our principal competitor.
We're going to take share by bringing new ideas to these brands. We know that to keep recruiting new consumers, that we have to bring your ideas every single quarter to these brands to make them relevant and we have a history of doing that. We've learned that bringing packaging innovation to Coors Light has grown that franchise. And last year, we turned the can business on Miller Lite around by offering the punch-top can.
This year, on Miller Lite, we've launched the pilsner bottle, so that we can recruit a new generation of drinkers to the brand. And the on-premise sector is very, very important to Miller Lite. The on-premise, in fact, overindexes significantly from Miller Lite, so this effort, we expect to pay results. We're also investing a lot of resources to win with a multi-cultural consumer, including advertising and promotions and sponsorships. For our core brands, becoming more relevant is important, especially with the Latino business. And we're all going to do this all in a way that reflects the learnings and experience of today's elder [ph] consumers, and Andy's going to have more on our marketing methodology.
Now let me turn to our Economy portfolio. Our Economy portfolio, it's very important to our business. We've been at it for a long time. We have a multitude of brands. It's a big part of our distributors' competitive advantage. And it keeps our business and our breweries efficient. But the fact is the Economy sector has been declining for some time, and we are disadvantaged relative to ABI. We have 3x the number of SKUs that they have, but our sales in the sector are 30% lower.
Our mantra there is, therefore, simplify and amplify. This is a great opportunity for us to reduce costs and inefficiencies in our network, and one way of doing that is by eliminating the non-core SKUs. When we do that, the SKUs that remain get more space, they're more powerful and they have a stronger position in the retailers. It also allows us to take costs out of the Economy sector of our business through complexity simplification, and invest those savings in the remaining core brands. And those brands are going to be Keystone Light and Milwaukee's Best Light in the Light sector, and we'll elevate and expand our Coors Miller High Life brand and the Hamm's brand, particularly in the Midwest where it has great strength. And we'll put innovation in new brands like Icehouse Edge and our PET singles initiative, which offers a much lighter weight position on heavy glass bottles.
So how are were doing against our strategy to compete in each of these sectors? We're looking at ACNielsen data for the first quarter. You can see that we took share in every single segment. However, because our portfolio is significantly weighted in declining segments, we lost share overall. We saw a significant share gain in our Above Premiums, but we want more there. Our Premium Light gain was led by the continued strength of Coors Light, and we need to do better on Miller Lite. But we're just getting started in our movement towards the top end. And we want about top line to be green.
And now we're going to share how we're going to turn our vision into a reality. And I'd like to start by bringing our Chief Marketing Officer, Mr. Andy England, to the stage. Andy, if you'll come up.
Andrew J. England
Thank you, Tom, and good afternoon. It only seems appropriate to the join Stanley Cup Finals with our being the official brewer of the National Hockey League, with Coors Light being a sponsor of the Bruns and the owner the Blackhawks being a major Coors distributor that I should quote Wayne Gretzky who, at one point, I might misquote him slightly, but he essentially said, "The great hockey players skate where the puck's going to be." And that's really what's transforming our portfolio is all about. And if you're going to think about where the puck is going to be, you have to think about who's going to be there, and it's millennials who are going to be there.
And there's a few things I want to highlight about what millennials are about. And I once believed that we, as humans, adapt to our circumstances. And millennials, essentially those born between 1980 and 2000 are essentially doing that. So if you look at the truth that they live with, diversity is obviously a truth. It's perhaps not a surprise you that one in 4 men turning 21 this year are Latinos. And so they live in a very diverse world, they also live in a world where women are reinventing the parent, women in the marketplace and in life more generally. So they live in a very diverse world and their reaction is to be inclusive.
They have environmental concerns for lots of reasons, well-publicized reasons, and their action to that is to look for companies who are concerned about such things and have shared values. They believe, for perhaps a good reason, that corporations can't be trusted, present companies obviously accepted. In those environments, obviously, if you believe that large corporations can't be trusted, you go small or go authentic or go with companies that you believe you can trust, and it's our obligation to make sure that they believe that about us. We also live in a world of income disparity and underemployment in college graduates, not being able to get jobs and therefore, their action to that is to seek value. And of course, last but probably most important, the transformational nature of technology. And whatever has background, today's legal edge all-digital on the time, and that is truly reflected in their behavior. This is who we need to appeal to if we're going to transform our portfolio.
So we're obviously adjusting our communications. I'm sure you see many statistics on this. But the average adult in America today consumes 12 hours of media everyday. There are more than 100,000 -- excuse me, 100 million smartphone and tablet users out there and media is being consumed and generated, and that's a key difference, generated everywhere by everyone all the time.
Whether it's on Twitter, whether it's on Facebook, whether it's on Pinterest, media is being generated by everybody all the time. So we live in a world where media is adapting to what we call the paid, owned and earned model, where what we pay for is clear. We pay to have a placement on the ESPN, you know that. But we also own some assets, not the least of which being many billions of packages we put out there every day. So we own a platform for our own communication. We own websites, we own Facebook pages, we have plenty of owned media in order to get our message across.
But we also have to think about earned, and earned is when others choose to write about you, hopefully good things about it. And the way we have to think today is that we don't own our brands, consumers own our brands, and it's our opportunity to steward those brands and influence the way the consumers think and talk about those brands. So we're adjusting our communications.
And to Tom's point, we're also evolving our portfolio. It's an extremely competitive world we live in. And everyone's looking at breakthrough all the time. We compete every day in every market in every store with wine, hard liquor, national brewers and today, more than 2,000 craft brewers. This is the world we live in. So the alcohol space is competitive. It's extremely dynamic. According to the SymphonyIRI, there are currently 3,600 beer SKUs in the supermarket channel alone. According to Nielsen, 8,900 new beverage alcohol SKUs were introduced over the past 3 years. So clearly, it's a highly, highly competitive market. And therefore, we are transforming our portfolio to build scale and fast-growing segments with clearly positioned brands that resonate with millennials.
I won't dwell on this next chart. This basically puts a math behind Tom's point that compared our key competitors, we have a fragmented economy portfolio. We need to remove brands, we need to remove SKUs and we need to simplify the portfolio and amplify what's really important.
So what is really important? To Tom's point, we need to win in Economy Lights. Economy Lights is still incredibly important, and Keystone Light is a core brand for us and it's a brand that is near and dear to our core consumer, the kind of guy who really cares a whole lot about NASCAR and about FLW. The sheer number of fishing licenses that are sold in Walmart on an annual basis is perhaps not surprising when you consider that fishing is the largest participation sport in the United States today. And so it's activities like that, that we're going to bring Keystone Light to our core consumer.
When you look at our classic brands, Hamm's is a fast-growing regional brand originally from the state of Minnesota, but -- tons of heritage and growing very nicely. High Life is 110 years old in 2013, as is Harley-Davidson interestingly, which, for those of you who have been to Milwaukee, is the company that's literally right across the street from the Miller brewery there. And that explains why High Life and Harley-Davidson are tied into all sorts of promotions all summer long.
In the higher ABV space, we have some great entries, as Tom pointed out, Icehouse Edge is doing very nicely. It has something of a discrete launch last year, but growing very nicely. Steel Reserve is a terrific brand for us and one that we plan to expand starting this September with Steel Reserve Black [ph] and we look forward to that introduction. And Mickey's is another sort of core regional brand for us in high alcohol.
Tom also mentioned PET. PET has done extremely well in parts of the world, particularly in Eastern Europe. And one the benefits of having 2 parent companies is we get plenty of data points on things like PET. We don't need them to work out, that a case of 40-ounce PET weighs 12 pounds less than a case of 40-ounce glass. And so you can imagine the benefits to the distributor both in terms of saved fuel and saved spines in their workforce, notwithstanding the fact that glass also has a habit of breaking much easier than PET. So we have tested this broadly and I'm very excited to introduce PET to half the country early next year. So that just gives you a sense of our economy portfolio.
In Premium Lights, Premium Lights are the economic driver of our business obviously, 56% or 57% of our volume, 59% of our net producers' revenue and over 60% of our net contribution. We obviously have to win in our Premium Light portfolio. That starts with Miller Lite. And Miller Lite, as you know, has been a struggle for us. And as we've broken down that struggle, the fact of the matter is, we have to recruit a new generation of drinkers to Miller Lite. That is the answer to our challenges. We have to address the brands on-premise losses, where so many beer habits and preferences start and we have to drive the brand's social relevance, so we are about doing exactly that.
Miller Lite loyalists consumers are choosing our brand less frequently. That's a challenge for us. We've not claimed our fair share of millennial or Hispanic consumers, and there's an opportunity to increase relevance amongst these strategic targets. And then on-premise, it's the single largest source of loss for Miller Lite in 2012, on-premise made up 29% of the business of 63% of the losses, so you'll understand why we believe on-premise is a key ground where we have to win for Miller Lite. And on-premise Miller Lite 12-ounce bottles, by the way, represent just over 24 million case equivalents, and that was down about 8% in 2012. So a key package in a key channel, and that's why we have chosen to address that issue specifically.
If you talk to millennial consumers in the on-premise, they'll tell you that there are also some exciting offerings, and Premium Light beer live in a world of brown bottle sameness at the end of the shelf. Brown bottle sameness is obviously not what we're looking for. And so that's why we have gone for differentiation, and that's why this is the new look of Miller time. This bottle interestingly was preferred 2:1 by consumers. It was -- it wins with all ages in research, it wins dramatically with Hispanics, you prefer the new bottle by 20 points. And it was launched last month, just in on-premise and in the words of Jim Doney, who is President of Chicago Beverage Systems, one of our core distributors, we're beginning to see momentum on the new Miller Lite bottles. So to the extent on-premise bottles are key problem for Miller Lite, that's exactly why we designed this bottle to go after that challenge. And we have, as you might imagine, plenty of outdoor advertising to make consumers aware of this new bottle.
We also have advertising on television, and this next but gives you an idea on what's running right now in ESPN and many other places, and millennial consumers are watching.
Andrew J. England
Coors Light has gained share and volume for the last 8 years. From 2005 to 2012, we've grown that business every year, both in volume and share. We've gained share year-to-date, but with category's softness, we're down just a little bit. But with an 8.2% share of the beer category, there's no doubt in our minds that this brand has in it to be a 10-share of the beer category in the medium term. So our strategy for Coors Light is very much about attracting multicultural drinkers with programs like Liga MX, the [indiscernible] or fans of the cold program that we built behind that iconic mix [indiscernible] property. And our partnership with Wisin y Yandel, who are the very famous Puerto Rican singing duo.
Coors Light is gaining share more quickly among Hispanics and African-Americans than among Caucasians. And Coors Light gained 1.2 share of Hispanics and 0.4 share of African-Americans in the 12 months to April 1, 2013. So obviously winning with multicultural is key. Engaging that drinks through digital is a big part of what we're about, the Coors Light Explorers campaign that was developed by our agency Cavalry was developed with -- very much with digital in mind. And of course, delivering innovation and great design is another part of that core strategy with Coors Light. Just to give you a sense of what that means, these are our Aluminum Pints that have been doing extremely well for us. I'd like to point out our recycling program. The course recycles program really builds off that course heritage in the development of the 2-piece aluminum can and encourages the sustainability concern generation to do that bit, and that was a major program for us in the first trimester of this year. Another example, the world's most refreshing can, which just launched, along with the frost blue line of the cold activation, the Super Cold Activation. We added the double vented wide mouth to the end of the can to make this truly the world's most refreshing can. And our consumers love it. To tell you, when you look at that bundle of attributes on that can, key beer drinkers, 89% rated, they will probably or definitely would buy. This is important differentiation for Coors Light.
I'm going to show an ad now, which is a Coors Light ad that shows in the general market. What I draw your attention to before I show it to you is that this ad was created by our Latino agency out of San Antonio. It was shot in Mexico City. It was shot in entirely with a Mexican cast, and it was shot actually for the Latino market. But because we liked it so much and consumers like it, we run it with the English voiceover here on English-language television right here in the U.S. So let's take a look.
Andrew J. England
If you look at our above-premium portfolio and compare it to the industry, we're well-placed in craft, but we have also some whitespace beyond. So just to stop for a while and show the comparison. Tom mentioned that about 7% of our portfolio is in above-premium. That breaks down 5% in craft, 2% in import and a negligible amount of specialty, and I'll talk more about what I mean by specialty. If you compare that to the industry, about 9% of the industry is in craft, about 13% in imports, very much driven by Mexican imports obviously, and 8% in specialty. So when you look at that, it's fairly clear that we have a good starting position in craft, and that's very much the focus of Tom Cardella and the Tenth and Blake Group, and he's going to talk a bunch more about that. On the import side, there is a wealth of opportunity there, but obviously, lacking on Mexican portfolio that limits our opportunities. But specialty, really, is a whole world of opportunity for us and we believe we can play hard there.
But before I get into specialty, there's another area or another way of looking at the category that we believe is valuable. Most of the above-premium volume out there plays in the 140 to 160 space, around 150. Again, that's indexed against mainstream beer wall premiums, Premium Lights being at 100. So the vast majority of volume is around those 2 price points, and we believe there's a substantial opportunity in the middle, in the 100 to 150 price space. And so in order to go after that, we created Third Shift. It's an award-winning beer, it was brewed by a band of brewers, all of them a MillerCoors employees, of course, whose love of beer and passion for brewing doesn't stop when the day shift is over. And to give you a sense of what they achieved with this beer, and this is just one of many beers that have had such wins from us, this particular Amber Lager won a gold medal in the 2012 World Beer Cup, and a gold medal in the 2010 Great American Beer Festival.
So we have a great beer, and that's the beer that forms the initial offering from Third Shift. It's indexed at 110 to 120 versus Premium Light, so it really gives us a platform in trading craft. And to give you an idea of how we're doing, we have 100% of our authorized distributors ordering; we have over 100,000 points of distribution, thank you, Ed and the team for that; sharing velocity equivalent to historical Shock Top; and we're building our case share. In Rite Aid, it's the third largest Craft Beer, with higher velocity than Sam Adams. In 7-Eleven, our 6-pack is the fourth best selling craft multipack and we're doing well in Safeway as well. So we're off to a good start in Third Shift. A lot of work to do.
I want to share a commercial for Third Shift. But let me set this one up as well. Many of you I'm sure know Jimmy Fallon who has a program at Late Night with Jimmy Fallon on NBC. This is just one of the ways in which we introduce Third Shift to an unsuspecting public. Let's take a look.
Andrew J. England
Flavored alcohol and flavored malt beverages are on fire. Flavored malt beverages grew as a segment 49% year-to-date, so huge growth. If you look at 2012, flavored extension is accounted for 100% of the growth of Mike's Hard franchise and 50% of the growth of the Twisted Tea franchise. 6 and 10 use spirits SKUs of flavored products according to Nielsen, and flavored alcohol is growing fast because millenials love them. So earlier this year, we launched Redd's Apple Ale nationally. Redd's is an FMB that already exist in the SABMiller portfolio in about 5 different countries, but we brought it to the U.S., we've adapted it and launched it nationally. As we like to say, Mike's owns lemonade, Boston beer owns tea, Redd's is going to own Apple.
To give you an idea of what Redd's is about, not surprisingly, everything we do with Redd's is red And Apple is very much the theme. It is crisp like an apple, it's brewed like an ale. We have all sorts of outdoor billboards that will be reminiscent of various social trends. It's aimed very much at men and women, by the way. We -- this product does extremely well with women. A few aptly [ph] puns [ph] for you.
We're obviously sampling Redd's very broadly at all sorts of different events because we've had discovered that getting in people's mouths [ph] is pretty critical, like a lot of new products. We're obviously advertising in Spanish. And for those of you less adept to such things, what it says is dare to try something new: delicious like an apple, brewed like a beer. We're using existing assets. So many of you may be familiar that we sponsored Brad Keselowski, who is the current Sprint Cup champion, and he is typically seen driving the Miller Lite Blue Deuce for Penske Racing. And so for 2 races this year, we switch that to the Redd's Deuce, which if you're an NASCAR [ph] fan, is either brilliant or somehow illegal.
In terms of performance, Redd's is being doing extremely well. It's the #5 fastest growing brand in the category. We have over 160,000 points of distributions, thank you, again, Ed. It's velocities are twice that to be the Mike's Hard Lemonade Twisted or Smirnoff Ice. It's sourcing 86% of its sales from outside of the MillerCoors portfolio. When this deck was written, it had a 0.21 all outlet case share. As of yesterday, it had a 0.24, so it's obviously been moving very much in the right direction, which is why later this year, we're going to add strawberry Redd's Apple Ale.
Here's a sense of how we introduce Redd's earlier this year.
Andrew J. England
Going to hit you over the head, doesn't it? Just talk [ph] briefly about future innovation. We've grown the size of our innovation team by over 80% since 2011. We've grown the innovation budget sixfold since 2011, and that excludes the 2013 planned marketing spend on Redd's and Third Shift. So we have a rich pipeline of activity ready to go. If we're going to transform our portfolio, we're going to do it from the inside, and that's very much our intent.
So just to summarize, to come back to this chart, I talked about millennial truths and how millennials are reacting. I should also talk to how we're acting. So with millenials, diversity is a reality. They act with inclusivity. And we obviously react with inclusive communications, and my favorite example of that is that Coors Light ad that was shot in Mexico City. Millenials have environmental concerns, they're looking for shared value, brand-led responsibility campaigns like our course [ph] recycles are pretty critical to that. If millenials believe the corporations can't be trusted and they should go small or authentic, we certainly have great small brands from Tenth and Blake, we have some growing -- bigger brands from Tenth and Blake, but we also have wonderfully authentic brands, brands like Hamm's, brands like Coors Banquet, brands like High Life and I will put the authenticity of those brands up against any brands in the world because they really are wonderfully authentic and real. To the extent the millenials are dealing with income disparity and un- or underemployment and the focus on value, that's why trade and craft makes sense. If they like craft, it seems to us that craft did a better price would have to be a good idea. We also need to have a broad economy offering, we also need to innovate in economy to keep them interested in the value segment, and we will indeed, of course, do that. And as technology is driving information and the conversation becomes two-way and the world fragments, we believe that the paid-owned and earned model, of which I showed you a few example, is critical to our success going forward. So that's the story for the mainstream part of the business. To add some more texture to our craft and import business, I'd like to welcome our friend, Tom Cardella.
Thomas J. Cardella
Thank you, Andy, and good afternoon. You've heard throughout the morning or throughout the afternoon that for us to continue to win in the evolving beer business, we've got to evolve our portfolio on a more rapid basis. And we saw the shift, and 3 years ago, we actually created a specialized division, and that division was to focus on amplifying our opportunities in craft and specialty brands. And I can actually say over that time that we've learned a great deal, I think we've built some really great capability, and we have definitely accelerated the growth of our craft and specialty business.
Since 2010, August of 2010, we have become the largest Craft Beer supplier in the country. We're growing ahead of the overall craft industry each year behind 2 of the top 5 craft breweries, Blue Moon Brewing Company and Jacob Leinenkugel Brewing Company. And looking back over 2012, it was a pretty good year. Tenth and Blake represented nearly 1/4 of the craft volume growth in 2012 based on ACNielsen. Blue Moon Brewing Company increased double digits off of a very large base. Leinenkugel Summer Shandy nearly doubled and is poised for significant growth, as we now expand it nationally. And importantly, each of the 3 years of Tenth and Blake's existence, we have grown roughly 2/10 of a share each year of total industry, that's total industry.
Now the first 3 years have been pretty good to us. And we also know that the opportunity ahead of us is very significant. We've got to step-up our performance even more in the next 3 years, as the competition and the overall category intensifies.
One of the things that we did just recently is we took a step back because we wanted to make sure that we were even more disciplined for this part of the business. And really kind of grouped everything into 2 strategic pillars, great beers and ciders and great beers and cider merchants. Now when you look at the world of craft today, the world of the brewery as the brand is becoming a lot more relevant and more important to beer drinkers. Thus, the primary focus for Tenth and Blake is on our craft breweries and cidery, with the intent to bring these to further scale, Blue Moon Brewing Company, Jacob Leinenkugel Brewing Company and the Crispin Cider Company. To drive our great beers in cider's portfolio strategy, we continue to work daily to enhance our craft and specialty selling and merchandising capability through the second prong of our strategy, which is great beer and cider merchants.
So let me start with the Blue Moon Brewing Company. It's just an amazing success story. 18 years ago, this cloudy beer, Belgian white with the orange garnish, was innovative and experimental. And to be quite honest with you, 18 years ago, not too many people were interested in an orange cloudy beer. But since then, no other beer has actually opened the eyes and the lips to the world of Craft Beer more than Blue Moon Belgian White, and it continues to be a key industry gateway for drinkers into the craft world. This year, the Blue Moon brewing company will cross the 2 million-barrel threshold behind our flagship, Belgian white. Blue Moon Belgian White is an extremely healthy craft brand with scale, which I'll show you a little bit more of in just a minute. At the time when many of the larger craft competitors are actually experiencing soft trends on their flagships, Belgian White has the highest velocity per point of distribution within the industry, close to 50% greater than its nearest competitor. Our seasonals have grown more than 60% since 2008, and our variety packs have grown more than 50% in the last 2 years. But despite this incredible run, there is a lot of room for the Blue Moon Brewing Company and Belgian White to grow. Significant upside. Our flagship, Belgian White, supported by seasonals, will continue to post strong growth gains over the next 3 years, and we will continue to gain share of industry. Year-to-date, Belgian White is posting about 10% growth in Nielsen track channels. Our variety packs, featuring our seasonal in and out and in-and-out offerings will continue to grow double digits over the next 3 years, and we have significant upside in all off-premise channels.
Belgian White's distribution strength is in grocery. It is a mega brand in the grocery channel. However, our packages per account for Blue Moon brewing in this channel is still only about half of our largest competitor. So just building out package distribution in grocery is an avenue for growth for this franchise. Opportunity also exist to get deeper distribution in a lot of the other channels we do business with, but especially C-store, which, right now, significantly under indexes in craft.
Now Blue Moon Brewing Company has 4 distinct beer collections, and they're all created to support and to link back to our flagship, Belgian White. The portfolio evolution is very critical because it helps us expand occasions, shelf presence, merchandising and really importantly, it provides more variety and flavor for our loyal drinkers that have come into this big invitational craft brand. Before collections, Blue Moon collection, which is Belgian White and the seasonals, the expression is collection, which are 2 beers that basically move us a little bit more to a flavor intense place than Belgian White. However, they are priced in line with Belgian White and the seasonals because the main objective for this series is really to build out shelf presence in the off-premise. There is the vintage collection, which you'll have an opportunity to try today, which is award-winning beer and wine creations, which in the early days of this business, we're seeing about 50% of the volume coming directly from wine occasions. And then the graffiti collection which are really bolder beers, higher ABV, available primarily in 22-ounce bottles, and both vintage and graffiti have margins structures that are double our core business, which is a really good thing.
These new collections strengthen our brewing credentials with drinkers, also showcases our passion for innovation and brewing. And they create news, they open doors and more craft-centric accounts, accounts where the Tenth and Blake beer merchants focus weekly. They help us get more Belgian White displays, and we like to think of these new collections as high margin display enhancers.
We're going to continue to look for ways to bring Blue Moon Brewing Company into more occasions, and we're actually currently looking at a collection that embraces Hispanic flavors. The creator of Blue Moon Brewing Company, Keith Villa, is passionate about this new direction, as it allows him to explore and bring to life his Hispanic roots. So more to come on that front in the future.
We're also one of the few craft brands that actually use television advertising. But we do it very carefully, we do it very selectively and we believe that we do it very effectively. Here's a spot that actually earned the top beer ad honors from AdMetrics in 2012. Based on AdMetrics, this was the #1 beer ad in the U.S. last year. Take a look.
Thomas J. Cardella
What excites me the most about the Blue Moon franchise is the huge and untapped source of growth with Hispanic consumers, especially with the Belgian White brand. Hispanic consumption of craft is extremely low. It's really only about 6% of the craft volume based on our current estimates. But it's growing, it's going evidenced by the fact that Hispanic share of total craft actually is up 12% over the last 3 years. And Blue Moon Belgian White is the perfect craft invitational beer because it presents a very, very attractive flavor profile to Hispanic drinkers, it's excellent in food pairing with many Hispanic dishes and we're going to continue to increase our investment in ramp up our plans to grow against this huge consumer of opportunity. I mean, right now in Hispanic accounts, Blue Moon Belgian White velocity is more than double the velocity of our general market accounts, which already is quite strong, but our distribution base is, again, very low with Hispanic consumers. So it is a huge, huge opportunity for future growth with the Blue Moon Brewing Company there. In 2013, we developed a 360 Hispanic-focused program with specialized merchandising point of sale, media support and a first time significant investment of our award-winning TV campaign on Telemundo.
So moving on now to our second craft brewery, the Jacob Leinenkugel Brewing Company. I mean, this business has been a stalwart in the upper Midwest since 1867. It's run today by Jake Leinenkugel and his 2 brothers, their fifth-generation family. Recently, 2 of Jake's children, sixth-generation family members, have joined the company because we believe that the continuity of family management is a key, key attribute in the breweries positioning and really in the core essence of what this business is about.
The brewery is the fourth largest craft brewery in United States today, and we are approaching the 1-million-barrel threshold. Now the interesting thing about this business is that 64% of its volume is actually based in the upper Midwest, the Great Lakes area of Coors. So there's obviously huge opportunity for us and strong growth as we build the franchise out geographically, and we're doing just that this summer. We really put a big push behind Leinenkugel Summer Shandy. And basically, year-to-date, or from March when we introduced the business to this point in time, the brand is actually growing at about 125% outside of the upper Midwest. It's the fastest turning national Craft Beer seasonal in the market, it brings an incremental dollars into beer and it boast [ph] one of the top repeat purchase rates within the above premium category.
Summer Shandy's national expansion has proven quite successful. It has allowed us to really put a stake in the ground outside of that upper Midwest, outside of the core markets. It's building awareness, trial and repeat with new consumers, and it is paving the way or us to be able to build distribution on our core seasonals and variety packs, so that we've Leinenkugel outside of Great Lakes on a year-round basis.
The slide here actually shows the ACV distribution penetration for Summer Shandy. And you can see in the Great Lakes, we're at fairly good level of 73% penetration, but relatively low levels in the regions. And I might add, this is an improvement over last year, but still a huge upside based on the way this brand performs and our support behind it. Even with low levels of penetration, we're seeing really stellar growth in markets where Leinenkugel has not had a traditional presence. East Texas, were up over 440%; Northern California and Nevada up over 300%; San Francisco, Hawaii, over 300%; and Southern California, up almost 300% versus last year on Summer Shandy. So we're looking at this and we're feeling pretty good about the fact that right now, we're just starting to scratch the surface in regards to this franchise.
We did introduce Summer Shandy this year nationally, and we did it with our first-ever national television campaign, so I'd like to show you one of the spots.
Thomas J. Cardella
In the peak summer season, Summer Shandy velocity for point of distribution, I mean, it really does top the charts, and I think it's pretty amazing for a seasonal brand that really be at the top, not only of craft but also above premiums in general. We've increased investment this year behind the business, we're driving new news, we're driving promotion, we're driving a lot of sampling events, we've got Jake and the brothers touring the country and talking about it in person. We're also innovating within the shandy segment. We will be providing year-round opportunities to basically build out Shandy as a year-round consumer offering. This fall, we're introducing a new variety. Orange Shandy, which will be available as a seasonal September through February. Orange was also available this year in our Summer Shandy variety pack along with Lemon Berry. And literally, we grew over 500% versus last year. Again, small base. Our performance far exceeded our forecast, as well as our production. But stories were prevalent throughout the country, where literally consumers were looking for this so they could try to Orange Shandy, so we think we've got a pretty good proposition on our hands.
And our distribution outside of the course, as I said, continues to improve. But basically, when you kind of blend out the whole country, we're still only at about 50% of our Blue Moon Belgian White penetration, which also is upside. So I think what I'm trying to say is that this -- both of these franchises have tremendous, tremendous room for growth by some of it just some of the basic blocking and tackling.
Shandy is our priority, but we do have a full line of award-winning seasonal beers. This year, we introduced a new spring summer seasonal, Canoe Paddler. Oktoberfest, which does really well each. And last year, we did Snowdrift Vanilla Porter, which sold out basically by the beginning of December. And we will be introducing new year-round brands in our traditional portfolio. This year is a brand called Hoppin' Helles. It's a Helles lager, but it basically gives you a really nice extra kick on the front end with hops.
The other thing that we're doing with the Leinenkugel Brewing Company, as with Blue Moon Brewing Company, is we're building out in the real experimental end. We've been out now for about 3 years with the Big Eddy series. That's concentrated in Leinenkugel's core geographies. But basically, this series really appeals to that much more sophisticated and experienced craft drinker. They're really intense, bold flavors and styles. But again, this is really important to continue to solidify our craft credentials for the Leinenkugel Brewing Company and importantly, the gross margins here are double our core business as well. So Big Eddy gets -- the Big Eddy gets the franchise also in a lot of these real snobby, craft-centric accounts. I mean, you've been in them. I mean, those places were basically -- if you -- you can only be in there if you can really pronounce the name. And at the end of the day, this is really important because this is opening doors for us as a brewery and really getting the cred that we need in the craft business.
Now moving on a few years ago, we were inspired by a hunch that hard cider might just be the next big thing in the United States. And our hunch led us to Crispin Cider Company and its founder, cider Joe Heron. Right now the cider market's growing at about 100%. The Crispin Cider Company, when you look at Nielsen track data, has been running the last 13, 26 weeks at 250%. So we're really gaining share every 4 weeks in those Nielsen track channels, and it's doing quite well.
What's different about this business is that we really look at coming into the business at the high end. Our average price to consumer on our Crispin line is $15 a case, higher than Angry Orchard. And we're focused on building that higher end of the cider business because we can because of the fact that we have, at least right now, a sustainable competitive difference in our liquid. And that is that we are the only national cider producer that uses fermented, fresh pressed apple and pear juice. The rest of the industry uses concentrate. There's nothing wrong with that. But basically, when you take fresh apples and you press them and you ferment them, you get a much cleaner and dryer cider and we think that basically, it's going to have a great position in the marketplace. And as we saw the beer business evolved to the high end, we think that it's positioning us really well.
We're going to continue to grow this business. We're focused on 3 core things: superior American liquid; building our worth-more credentials; also, building the male franchise. I mean, right now cider in general in United States does skew a little bit more female. That is a very good thing for us in the beer business. But at the same time, we think we can drive velocity by picking up some of the make drinkers.
We are the official hard cider of U.S.A. rugby, doing some events, not a major sponsorship, but it gets us in to a lot of different sports bars occasions. We're also driving a lot of food associations, both using our ciders for preparation as well as pairing. That's been integral from day 1 for the Crispin Cider Company and if you look on our website theciderkitchen.com, it is a great tool that promotes food pairings and recipes with our ciders.
And last but not least, we formed an association with COCHON, which is at the U.S. COCHON Tour, which is a high-end chef tour that hits about 20 cities around the country. They specialize in really interesting and fine dishes made with pork. And so that is another way that we're getting Crispin into the hands of consumers and getting awareness.
Beyond our big 3 franchises, we have additional opportunistic brands that we're also building out for future growth. Peroni, an ultra prestige import that plays in the high style and high end of the import category above Heineken, and we're working on growing Peroni through creating deep relationships with affluent consumers in trendsetting markets. Specifically, the majority of our investment is right here in New York and in Los Angeles. These 2 markets, L. A. and New York, actually represent 30% of the U.S. prestige import business, a piece of business that sits above Heineken and Corona. And we're growing Peroni close to 20% in L.A. and New York through targeted distribution supported with brand ambassadors, high-end events and merchandising. And we actually do believe that we're close to a tipping point here in New York, with Los Angeles soon to follow. And once we get to those points, we'll have really built confidence in the model. We'll start moving it to other major urban centers.
We also expanded Batch 19 nationally this year. Basically, this was after 3 years of very deliberate slow expansion. Slow build and scarcity actually created awareness and demand with retailers and distributors and even beer drinkers. And it's paying dividends out for us right now, and it's not a pretty good path. We're looking at a second pre-Prohibition recipe, a bock beer that we'll actually put into a very limited test in the future using that very slow scarcity build model.
So we've got the brands we need to win with Tenth and Blake. We're developing deep commercial capability in selling imports and crafts. That capability is adding value to our distributors and our retailer partners. This whole thing about great beer and cider merchants, we really do take seriously. We've created a deep learning culture. And basically, when you look at the fact that the craft momentum right now is creating this beer renaissance in the beer industry, it's really critical that the industry as a whole uses this momentum to change the dialogue with retailers and position beer more favorably within the competitive framework of wine and spirits. And we believe that Tenth and Blake, through the support and the resources of MillerCoors, can lead that change by providing retailers as well as distributors with the right knowledge and tools to maximize the returns on their beer portfolio.
This is the core of great beer and cider merchants, and it's initiatives like driving our Tenth and Blake beer merchant knowledge into our national accounts group. It's providing merchandising and category management strategies to manage the chaos that's out there in the off-premise with things like journey flow segmentation. It's developing more relevant and actionable account segmentation models. It's working to reinvent our sales organization to actually lead the sale with distributors and own the inventory and seasonals in specialty products. It's driving relevant beer education to consumers through merchandising programs, like our recently introduced Pints and Plates, which is a digital in-store merchandising platform that provides meal solutions and beer pairings to the customer and at the same time, for us and for retailers, it provides incremental margin through beer merchandising outside of the traditional beer sections.
So a lot of things going on to build capability. And I sort of look back at the fact that Tenth and Blake this August will turn 3 years old. And I feel pretty good about where we've been, and I feel even better about where we're going. We have outpaced the craft growth every year. And our plans over the next 3 years are ambitious, but we've got confidence that we can continue to shape this segment growth behind our 2 core missions of great beers and ciders and great beers and cider merchants. And we really do believe that this equation and this focus will be very powerful and yield continued great growth results for us in the above premium segment for years to come.
Thank you. And now I'd like to bring up Ed McBrien who is the President of Sales and Distributor Operations.
Thomas J. Cardella
You're welcome, Ed.
Good afternoon. It's good to be with everyone today. You've now heard a little bit about how we are working hard to address the big consumer shifts, and I want to spend a little time now talking about what we're doing as an organization to earn preference with our most important customers: our retailers and our distributors.
So I'll start by talking about our chain customers. Retailers very much are gatekeepers. They decide how consumers experience our brands in their stores. And for years, for decades, ABI really dominated this space with chain accounts, largely because of their share advantage. So when MillerCoors came together 5 years ago, it wasn't a lost on anybody that we have an opportunity to take more control of our destiny at retail with these big chain customers. So we set about the task of making our system, the MillerCoors system, a viable alternative to ABI. And we did it by creating something that we call the MillerCoors advantage.
MillerCoors advantage is all about bringing solutions to our retailers brands, ideas, thought leaderships, service such that we build the size and the value of the entire category. This approach, MillerCoors advantage, has very much set us apart from our peers in the eyes of those customers, our distributors and our retail partners. So CM Profit Group, they do an annual survey. They talk to all the big chain retailers across America and last year, we were named by these chain retailers as the best alcohol beverage supplier in the business. Not the best in beer, the best in total alcohol, better than ABI, better than Diageo and better than Gallo. Tamarron does an annual survey with all the distributors across the U.S. And for 2 years running, we've been named the #1 chain sales team in the beer business.
Now we've also won a series of awards directly from our retail customers. You see a list of some of our most recent accomplishment. One that we're particularly proud of is that 7-Eleven, the world's largest c-store outlet or chain across the world and also our third largest customer, just named us as Supplier of the Year last year. And the question might be, well, why is that? Why this recognition from these important customers?
And I'd like to characterize it by saying, facts are [ph] friendly. Because the reality is, when we take over a category partnership from ABI, focused on building the size and the value of the beer category, our retailers do better. And I want to share with you a story that illustrates that point, and the story comes from the Upper Midwest. So when we put the JV together 5 years ago, we went on the hunt for some category wins, and Meijer was arguably our first win. Meijer's a big Midwestern chain. They operate in 5 Upper Midwest states. They've got about a couple hundred stores, and they are a big player in the Upper Midwest.
Since we've taken over category partnership with Meijer from ABI, we've consistently grown the size and value of their business. We've done it every year, and we've done it at a faster rate than the balance of their beer business. And this success story, the Meijer story, has been replicated literally dozens of times over the last 5 years because when MillerCoors' category captain, our retail partners performed better than their competitors and they do so at a much faster rate than when ABI is a category captain. That performance delta between when we're the captain and ABI is the captain is worth almost 5 points.
It's also good for us. Where we're the category captain, we have 5 points more distribution, 6 points more out of Premium Light. And the trend change difference between when we're captain and when ABI is captain on our brands is 1.5 points. It's a big number in the beer business. So that's a little story, a little background on what we're doing to earn preference with these chain customers and take more control of our fate in a really important part of the business.
But in the U.S., before we can sell a single case to a single retail customer, we first have to sell it to our distributors. In U.S. beer business, we go-to-market through a 3-tier system, with distributors acting as the conduit between ourselves and retailers. They are -- I'd like to think of them effectively as the pipe through which everything we do must pass, and they have a couple choices. They can narrow the gauge of that pipe and make it difficult for us to get our ideas and brands through to consumers, or they can open it wide open and they can propel us faster and further in their markets. And it's our job to open up those pipes, to make our distributors ambassadors, to make them advocates on behalf of our brands in their markets.
So in the spirit of opening up those pipes, we're spearheading a brand-new approach. We're doing with 7 of our largest distributors. They represent about 20% of our business, and we call that a framework for growth. This framework for growth is essentially a handshake agreement between ourselves and our largest distributors. And it establishes, first and foremost, that performance matters, that winning at retail matters and that we are both accountable jointly for destination of seeing us beat ABI in every market in which these distributors compete with our brands.
We expect these distributors to be among our very best, both in terms of performance and in terms of execution in the marketplace. Now for that to happen, we all have to be on the same page. You need real transparency, clear understanding of what's important to us and what's important to them as our customers. And when you do that, at least to align goals, people working together, mutually accountable and it also result in shared investment at the local level.
Now this new approach is rooted in a deep commitment at the very top of MillerCoors in our largest distributors, and that it translates into new management routines at the local level, jointly held scorecards, monthly reviews and an acknowledgment that we're in this together, winning in the market is a shared accountability, and that we can learn from each other and that we can make each other better. Now we're just getting started with this work, but we are off to a very good start.
And so I'd like you to take a minute and listen to what Ray Guerin, who is Chief Operating Officer for Reyes Beverage Group, our largest distributor, has to say about this new approach.
Now as you heard from Ray, this new approach is already bearing some fruit. A couple of things. Our local leaders, we are deeply engaged and collaborating like never before because both sides have the same goals and shared outcome. Execution at retail has become a real focus, and it shows up in the numbers. Reyes is beating all of their distribution goals on the new items. They are also beating ABI in the marketplace in terms of display penetration, both primary and secondary displays on MillerCoors brands, and Reyes is committed to being one of our very best performers. Together, we track their performance against what we call benchmark groups. We have 42 benchmark groups across the U.S., and we rack and stack distributor performance every single month. And because performance is a two-way accountability similarly, we measure together how our brands are doing against in-house competitors with Reyes Beverage Group.
So that's a little bit about what we're doing to open up the pipes with our biggest distributors, propelling our brands and our ideas faster and further. But if you look more closely at our distributor network, regardless of whether you're a big multistate distributor or one of our local partners, your business is the face of our brands to those local retailers and to consumers. Distributors are stewards of our brands, and we've got certain expectations of distributors to take the form of distributor standards. Those standards are designed to protect the equity in these jointly held brands and set a national baseline for execution.
But those standards, they need to be actionable. That's why we recently completed an exhaustive process working closely with our national distributor council, this is over a year in the making. And together, we've simplified our standards, focusing only on what matters most and only on what we can measure. The new standards go into effect the 1st of July, so right around the corner and they're going to revolve around the key drivers of what winning looks like at retail. Product quality, it's the heart of our business. Deep and broad distribution is foundational in the beer business. Ubiquity matters. Display is really important for us. They increase awareness for our brands. Brands are built on premise. We want deep and broad distribution of our brands on draft. We also need to have great service in the marketplace, competitive against ABI. And finally, to win repeat business from chain customers, you need seamless execution in every market, and that execution needs to be exactly as programmed by the retailers.
So when it comes to distributor standards, we know clearly that what gets measured gets done. So for every single standard, we've got a measurement vehicle and an overarching management routine to track distributor compliance. Those standards, the details of the standards, how they're measured, the follow-up actions, they're all summarized in a tracking matrix and we're going to conduct our first review of distributor compliance against the standards before the end of the year.
Now distributor standards are words on paper and no ways [ph] the game for our entire network. They'll make us all better. At the same time, we thought it was important to paint a picture of what success looks like at the market level so we created something that we call channel blueprints. And quite literally, these channel blueprints are laminated pieces of paper that local reps and managers can take into the market to evaluate execution opportunities. We've now got over 500 of these channel blueprints in place. They are customized by market, and those blueprints define what good looks like at retail for our brands. We build them with our local distributors, and they capture everything from our distribution priorities, space requirements, pricing guidelines, merchandising, those kind of things.
And those blueprints, importantly, are also supported by short integral management routines in which we audit retail accounts using our proprietary beer survey. So every month, our teams are in the market, and we will audit no less than 21,000 accounts every month, sometimes as many as 27,000 accounts. We roll up those results. We then get together with our distributors to compare performance against the channel blueprints and identify gaps. We do that every month across the U.S.
And one of our biggest opportunities when it comes to execution at retail is display because put simply, we need to get more beer on the floor, and we need more points of interruption for the beer category. So as a result, our new distributor standards call for distributors to track display support every week and to submit that information to us through a secured portal. And we're essentially asking distributors to report 3 numbers. We want to know the total amount of MillerCoors beer on display. We want to know the number of brands on display, points of interruption. And we also want to know whether our big, beautiful premium light brands, Miller Lite and Coors Light are separated from each other because they are distinct brands with different positioning.
The idea here is we want to create a display baseline for every market in the U.S., and then improve our performance over time. Now our very best distributors already track displays every single week because they know what we know. They know that beer's a weekly business, and they know that displays make a difference. But where distributors don't track displays, this new standard is going to raise the bar for our entire system, goes into effect July 1.
Finally, we have a brand-new approach to taking some of the variability out of distributor execution, and we call this new process sales improvement. And it begins with measuring distributor performance against those benchmark groups that I talked about earlier. We've got over 500 exhibitors across the U.S. They're divided into 42 different benchmark groups. Those benchmark groups have common characteristics: same pricing environment, similar geography, same kind of sales and tax regulations and things like that. Every distributor in the U.S. now knows what benchmark group they're in, and they get a report from us every single month so they can see how their performance stacks up against their peers.
And internally, we have a brand-new team. It's a fully dedicated team, and it's their job to evaluate volume performance every quarter and if results dip below a threshold level, the idea is we can intervene quickly before those trends worsen. And when a local sales improvement plan is called for, that new dedicated team goes into the market and they're going to work hand in glove with underperforming distributors to identify the root causes and make sure an action plan is in place. This new approach is good for our entire system, and it's going to benefit all of us when we have a distributor network that executes more uniformly across the U.S.
So we here about [ph] what's going on? We have MillerCoors chain advantage, frameworks for growth, new standards, channel blueprints, beer surveys, display tracking, the sales improvement process, and that is a lot to change. And for that change to stick, for the management routines to become rote, we need to ensure that we teach this to our organization so it will become just part of how we operate, part of our culture.
So that's what we've done in creating MillerCoors University. MillerCoors University is effectively the extension of our business plan. It's built by salespeople for salespeople. It is leader led. Our managers learn the material and may teach it, and nobody graduates from MillerCoors University by passing a classroom test. Instead, they have to be observed by their manager using the tools and demonstrate the new management routines in the market with their customers. We track it to the person, and it is a very powerful model and yields great results for us. And I'd be remiss if I didn't mention our learning and development team was recognized as the best corporate university in America by CorpU, joining past winners like Raytheon and Accenture. It is a big investment in dollars, in time, but it's the kind of investment that builds muscle for us into the future.
Okay. So speaking of the future, I want to give you a little peak under the tent. I think we've made a lot of progress, but the truth is we are not satisfied with where we are. We have much more to do. So we are piloting a new program, we call it targeted distribution. This pilot is up and running in North Carolina. We believe it has the potential to unlock significant value in a class of trade that's historically been dominated by ABI, and that class of trade is independent, small-format accounts where their scale advantage typically translates to more distribution and more floor presence. The goal for us is to get the right brands and the right packs in the right accounts.
So here's what we're doing. We go into the market, and we group all of these independent, small-format accounts into 1 or 4 different segments or archetypes. So you have upscale, you have mainstream, you have economy and you have accounts that specialize in economy singles. The second thing we do is we take every single SKU we sell. We run the numbers, and we find out where does it sell, not just an A or a B account, whether what type of account does that brand pack really, really sell in. Once we do that, we then identify where we have distribution gaps against those high-velocity packs, and the output is we hand the sales rep a piece of paper that says, "Hey, baba, you got 3 distribution opportunities in Joe c-store. We want them filled by Monday. This is an approach we've never used before. It's revolutionary in the beer business. It takes an awful lot of analysis. I'd like you to hear what our distributor in North Carolina has to say.
All right, a little peak under the tent. The early results of the test are very encouraging. We just finished up the 4-month pilot. Distribution is up almost 8%, and volume is 5 points better than the composite benchmark group. The early numbers look really good. We're going to expand this to 4 more markets yet this year, and we should have those final results in before the end of this year. The only catch is that today, all of that analysis is a manual, hundreds of accounts, thousands of SKUs, lots of permutations.
So to really unlock the full potential of targeted distribution, we need a technology solution. So concurrent with those field tests that I talked about, we're building a system, a technology solution to automate the analysis that will allow us to sort for all of those opportunities, literally one straw at a time regardless of the market. We expect that targeted distribution tool to be done by the end of this year, and we plan to expand this approach to dozens of new markets in 2014. And of course, we're going to teach this approach as part of our sales academies, so it becomes just part of how we do business in those markets.
So when it comes to earning customer preference. We have a lot on our plate, and we are making good progress, but I know that we can do even more. Because in the face of what is a rapidly changing and more complex selling environment for everybody, both retailers and distributors, they are looking for partners who can bring them solutions and thought leadership, solutions like the MillerCoors advantage where we are growing the size and the value of the beer category for our retail customers; solutions like our framework for growth that combines the collective power of MillerCoors with our biggest distributors such that we can go toe-to-toe with ABI at the market level; solutions like distributor standards, channel blueprints, display tracking, our new sales improvement process, all designed to raise the level of execution for our entire network; solutions like targeted distribution that will unlock value in a class of trade historically dominated by ABI; and solutions like the MillerCoors University that builds muscle for the long term.
So we got a lot on our plates, but we are really excited about the future for MillerCoors and with our most important customers, our distributors and our retailers. And with that, I'm going to turn it over to Tracey Joubert. Tracy? Thank you.
Hey, good afternoon, everyone. So you heard about our strategy to grow the business and evolve our portfolio and how we're executing against it. As Andy said, our macro and consumer landscapes have changed significantly. We have acknowledged these changes, and we have the right strategy in place to drive profitable growth.
So I'd like to share how we're managing the numbers behind our plans and our actions. To achieve our profit targets, we must deliver both top line revenue growth while continuing to deliver additional savings from across the organizations to our bottom line. You heard from Andy and Tom how our portfolio evolution will drive our revenue growth, and it covered how we're improving execution and distributor relationships to drive growth within our aftermarket efforts. Now I'm going to cover what we're doing to enhance our revenue management capabilities and how we're continuing to manage our costs.
Through the actions we're taking, we're accelerating delivery of our strategy by simplifying and standardizing our work processes and systems, which includes consolidating our legacy system platforms and better to finding the way we work to drive stronger consistency across our organization. We're also improving decision-making through enhanced insights and better data and analytics. And we're delivering improved capabilities and flexibility so that we can reinvest cost savings to accelerate growth as we evolve our portfolio. So let's take a closer look at how we plan to accomplish our financial objectives.
The evolution of our portfolio is underway, but let me provide some additional numbers here. In Q1, we increased the percent of volume that the above-premium segment contributes to our portfolio by 120 basis points over the prior-year comparable quarter. The increase was led by the introduction of brands such as Redd's Apple Ale, Third Shift Amber Lager and Batch 19 as well as our leading craft brands that you heard about, Blue Moon and Leinenkugel's. And while we are happy with the progress we have made, the opportunity to increase our portfolio in above-premium segment is significant.
At the end of 2012, our above-premium brands accounted for only 7.3% of our total volume, and when compared to the industry average of 30.3%, it's obvious we have plenty of headroom to grow in this segment. And the sheer [ph] growth comes revenue growth, especially with our above-premium brands. Based on ACNielsen data, the average price to consumer for brands within the above-premium segment sold at 140 to 145 index to premium brands and about 180 index to economy brands in 2012. So as you know, with higher prices, we get higher revenue for our retailers, our distributors and of course, for ourselves. So I think you'll agree that our portfolio evolution strategy is correct, and delivering against it will certainly drive our top line revenue growth. But that's not all we're doing to drive our topline growth.
We have revamped our general increase planning process to identify specific opportunities to drive revenue growth across the geographies. Using historical data, we will classify each local market into 1 of 4 backwards based on how share changes with brand segments are impacted by price gaps. This information will enable us to become more exact on price gaps within different markets and segments in order to maximize revenue and share growth. Local planning targets will be developed after considering the role that each market plays based on MillerCoors' share and profit expectations, and volume and price elasticity of each market and also brand and package mix opportunities. Chiefly developing revenue plans will help identify gaps that need to be delivered by incremental volume, as well as opportunities to deliver on price promotion savings.
We're also building capability. We believe that organizational structures and the right level of accountability for decisions are key drivers of holding revenue management capability. And as we've said many times, the beer business is local, and our pricing strategy is managed on a market by market basis. With that in mind, we added new revenue management talent to the sales regions by hiring dedicated revenue management expertise in each of our 5 regions. Adding this position to our regional teams will result in several benefits within revenue management, which include: Helping to drive consistency across our regions through the standardization of processes and tools, while increasing compliance to standards. Also improving the quality and data for strategy thinking with respect to revenue management that will both specialize skills in pricing and provide clearer career passing within the critical area of our business.
And finally, strengthening the link between corporate, regional and local revenue management personnel. So we have enhanced the focus on revenue management and increased our ability to make pricing decisions at the local level to drive volume and profit.
To illustrate the power of the new organization, let's review some work that has been completed on effectiveness of our price promotions. Trade promotion spend increased from 2010 to 2012, with minimal impact on overall volume trends. As a result, we are focused on changing the growth trajectory of promotional spending by reallocating promotional investment to initiatives with high return on investments. To achieve this, we built the necessary infrastructure and management routines, required to identify higher ROI initiatives at the local market level.
So for example, a simple tool to analyze promotion effectiveness was developed and distributed to the teams. Then a standard trade promotion initiative tracker was developed to monitor all initiatives by regions and management units. And this allows the evaluation and reallocation of spend by management unit across brand pack, depths of discount, execution, time and channel to maximize our ROI. This culminates as monthly review meetings, which are held to track progress against revenue targets and shared learnings.
Our increased level of understanding and responsiveness to consumer reactions to our promotions will help us identify specific opportunities to deliver price promotion savings that we can then reinvest in growth initiatives. So while we are clearly focused on driving additional topline revenue, we remain focused on cost management as well.
So we have a great track record of strong cost management. And since the formation of MillerCoors, we have delivered nearly $900 million in cost savings. While approximately 61% of the total cost savings to date was attributable to our synergy savings realized within the first 3.5 years of the company, we have worked to continually drive cost out of our organization while increasing efficiencies. And this is evidenced by the $127 million of cost savings realized in 2012 and the first quarter of 2013, primarily within our integrated supply chain organization. So hopefully, it's evident that cost savings is inherent in the way we conduct our business at MillerCoors. And we've implemented several initiatives that will drive savings and deliver savings in both the short and the long term.
So let me tell you about some of them. Our energy and waste reduction efforts were accelerated in 2012 with the establishment of our brewery sustainability improvement team. In 2012, we delivered 5.4% and 6.1% energy and water reductions respectively, resulting in year-over-year savings of just over $6 million. And the continued focus on employee engagement, accelerated implementation of water and energy process improvements and focused leadership in all of our breweries, we've established a target for 2013 to reduce water -- energy and water usage by 4.8% and 5.8%, respectively. The overall objective of our packaging labor work is to understand the base packaging labor utilization practices across our 8 brewery networks and then implement those practices in all of our breweries. This initiative will reinforce the MillerCoors manufacturing way principles, our standardized team structure, teamwork and manufacturing flexibility and in total, this work should generate nearly $13 million of savings over the next 3 years.
The goal of our asset management work is to increase machine availability, measured by the machine efficiency KPIs and also reduce the maintenance cost per bell to competitive levels as measured by some global benchmarks.
So with an unwavering commitment to quality, we continually seek to improve our brewing processes. Those improvements are allowing us to increasingly improve our flexibility as well. And that increased flexibility better enables us to adapt our portfolio through smaller bench brewing where needed, while at the same time reducing our cost complexity.
We started developing and implementing initiatives designed to better streamline and standardize processes to significantly reduce costs, evaluate new technologies and free up and reallocate our assets, all while improving the quality of the beers that we produce.
Opportunities are identified and prioritized in 3 phases according to complexity, resource needs and speed of return on effort. We're implementing improvements in water preparation, fermentation and aging that have shown to improve quality, productivity and flexibility in the brew process. So while improving quality, we're also generating savings, savings that we can reinvest in our business. I think Andy's just trying to put me off now.
We also looked at logistics this year. We initiated a logistic sourcing review, which was focused on designing and conducting a network-wide request for proposal to secure capacities, secure business needs and implement strategic initiatives while fundamentally lowering our logistics costs.
The RFP process is complete and the results indicate reduced base rates, reduced fuel expenses and cost savings being driven through a higher average load weights. So as a result of the actions we've taken and those actions we have taken and will be taking, we are confident in our strategy to grow the top line revenue and continue to deliver cost savings, and we are confident in the impact it will have on our profit. As a result, we are increasing our medium-term EBITA margin guidance from 25 to 50 basis points to a range between 30 to 60 basis points average annual growth rates over a 3-year period.
And finally, here's a broader look at our medium-term value drivers. We expect an average annual volume trend in the range of flat to down 1%, an improvement on results over the last couple of years.
Now this provides for modest industry growth on an improving trend within broader alcohol, it also provides for MillerCoors segment share gains, but it's also constrained by MillerCoors portfolio skew as we've discussed today.
In terms of revenue per barrel, we anticipate that to be in line with our recent performance of between plus 2% to 4%, maintaining the increased positive contribution from our favorable mix evolution. And again, we're confident in growing our EBITA margin at an average of 30 to 60 basis points annually depending on reported volume trends and driven by both strong revenue management and our continuing cost reductions.
So I hope you can see. Focused, disciplined execution of our strategy, strong revenue management practices and continued focus on cost containment, in conjunction with our increased flexibility and capabilities, put us in a good position to deliver long-term sustainable growth to both our top and our bottom lines.
Now let me hand it back over to Tom.
Right. So you've heard how MillerCoors sees the future and how we plan to build growth brands in all the growing sectors of the business. You've seen that our strategy is coherent through all the functions of the company, and you've seen how our people are committed to delivering a new capability, in step with consumers, as they move forward into an increasingly changing environment. We believe this changing environment offers an opportunity to MillerCoors. We believe that because our heritage, our history and our capability put us in position to win in this environment.
And now, I'd like to open it up for your questions. And what I'd suggest -- thank you. Thanks very much. I cut you off, but you may continue, now thank you very much. That was very polite. Thank you.
So I'd like to offer questions. If you don't mind, the way we'll handle that is if you'll just offer the questions forward, I'll take the questions and then assign it, either take it myself or perhaps assign to one of the experts here on the stage, if that works.
This is also the moment where we invite our webcast listeners to submit any questions through the website. A couple of you already have, and we will interject those within the flow here in the room. Let's start in the room. If everyone could mention their name and where you're from before your question.
John A. Faucher - JP Morgan Chase & Co, Research Division
John Faucher with the J.P. Morgan. Andy, in your presentation, you talked about -- when you're talking about Miller Lite in the new bottle, you talked about preference. And when you were talking about Coors Light and some of the packaging, you were talking about purchase intent. So I think as we look at Miller Lite, it seems like some of the things you guys have done over the past couple of years have maybe improved how existing consumers feel about it. But what -- how do we look at how you're going to be able to motivate those consumers to stay in? Is some of the packaging changed enough to get them to really sort of buy that more often?
Andrew J. England
John, I think that's a great question. I think obviously, Miller Lite has been a substantial struggle for us -- oh, thank you. Obviously, Miller Lite has been a substantial struggle for us and it's interesting if you look at the evolution of the beer category, while crafters clearly taking ABV in flavor and extreme direction at one end. In a way, that plays very nicely to Coors Light's positioning of being the world's most refreshing beer at the other end. And there's no doubt that refreshment occasions are still going to be an enormous part of the beer category going forward, if you look at it in any country, but if you also look at the way that American consumers behave refreshment occasions are going to be critical. So the challenge for us has always been making sure that we have clear distinct positionings for both Coors Light and Miller Lite. And Miller Lite has clearly been more of a struggle. Now it has a deeply entrenched position in the Midwest and Miller Lite has particular strength there. Interestingly, I think there are signs of life for Miller Lite in the Northeast, I think particularly in Pennsylvania but other parts of the Northeast, Miller Lite clearly has some vibrancy. My belief going forward is we have to solidify the positioning. It has to be built off of taste as being an important part of it, and we have to deliver a constant stream of news to keep the millennial audience engaged. So that's the way we're looking at it.
The core difference between the performance of those 2 brands is actually what's been happening with millennials. Miller Lite's franchise is very, very strong at 35 plus. And it hasn't been eroding, 35 plus. Where it has had real struggle is recruiting. And that is a challenge. It's a challenge that we haven't met yet, but we are on it and we recognize the root cause of the decay. And we believe that news and packaging and news and communications are really important for that brand. As you know, these brands do move sometimes in cycles. We don't believe in life cycles of brands, but we do believe in cohort discovery. Miller Lite is moving to the age where it has a chance to be reintroduced quite nicely to young people. So stay tuned for that. Yes?
A question for Tom, and maybe for Ed. Just trying to square what you both are saying. Tom, at the beginning, you said it's really going to be difficult to see the category grow in terms of the Premium Light category and it's going to be a really shared game. And a lot of what you said, involves going head-to-head basically with ABI. And a lot of what Ed said talked about growing the category and category crapped and then everyone working together kind of kumbaya and I just want to try and understand how those 2 play together for MillerCoors? Is it about growing the whole category? Is it about being a category captain and rising tide, lifting all boats? Or is it really about strongly going after ABI?
Yes, I'll take that. The question you ask is really about is it about a segment game or is it about an industry or category game. And when you're talking with a big customer that sells all the sectors, all of the sectors that we talked about, it is about being able to grow the size and value of the category and owning the growth. That disparity between what Ed showed you that our captain ships deliver and what ABI's have historically is across all those sectors. Now we'd like to say that the last 40 years are going to be like the next 40 years, where Premium Lights dominate the industry growth. We haven't seen that in the last couple of years and therefore, inside that sector strategy, we believe we're going to have to take share at an increasingly fast-pace from ABI. I hope that clears the disparity up that you mentioned.
Bryan D. Spillane - BofA Merrill Lynch, Research Division
It's Bryan Spillane from Bank of America Merrill Lynch. We look at targets that you've set, I guess you've increased the volume growth expectation from what was the targets that you'd set in 2011 and I guess you've also increased the revenue per hectoliter a little bit as well. So we're basically assuming that we'll be selling more beer at higher price. And so I guess underneath that, why the volume would accelerate? Why would the -- why would we be able to -- why would you be able to sell or grow volume faster, especially if more of the growth it seems like is going to come from the above premium segment where it's not a 30 pack usage occasion, right? It's maybe less beer per usage occasion. So just trying to understand why you think your volume growth would accelerate, given that, that's where the focus would be.
Yes. Thank you. Tracey, maybe you can come in right behind me, but you're right about the richer mix. So you'll see mix contributing more to our net revenue than it has historically, although it was quite good so far in the first quarter and last year. In terms of volume, one of the things that leads us to pick up our volume percentage a little bit is slightly improving economy, slightly improving jobs outlook, which we're beginning to feel just a very little bit, but -- so that's part of it. The second is the test and the rollout of the economy program. We've had a significant hit in our economy business as you've seen over the last 2 years. And we believe the results of the North Carolina test, where we've gone in and taken out the SKUs that are of less utility and focused on the brands that are more utility, given the trading area in these stores, we saw the lift in the turnaround that you've seen from that test. So those are 2 of the indicators that give us just a little bit more lift. Tracey?
Tom is correct. I mean it's really bigger plays in faster growing segments that's part of it. But we also do expect a little bit of uplift in the beer industry in total as they gain improvements in the total alcohol segments.
Okay, we're going to take a question that's coming from the web listeners. This is concerning Tenth and Blake. With the primary focus being on the Blue Moon Brewing Company and Jacob Leinenkugel, do you think there's a continuing role for partnerships like Terrapin to complement that growth in craft?
Tom, you want to take that, please?
Thomas J. Cardella
We still think that there's an opportunity for continued collaboration and expansion through acquisition. We are still actively engaged in making friends in the craft industry because I think that when you look at the next couple of years, it's my belief that there is going to be a lot more consolidation and exit strategies by owners that have been in the business for a lot of years. There's no great rush because I think first and foremost, obviously, you need a willing seller, and you also need a valuation that really makes sense in the context of a forward moving business case. So we're still interested. At the same time, when you look at the growth opportunity that we have with our core businesses, particularly going into areas of those businesses with more intense flavor profiles that expand our occasions for Blue Moon brewing and Jacob Leinenkugel to more of the discerning craft consumers. I think there's an opportunity for great organic growth as well.
Judy E. Hong - Goldman Sachs Group Inc., Research Division
So a few questions. First, just in terms of Third Shift, I know the last earnings call you've talked about a little bit of a slower start out of the gate. So if you could just update on kind of more recent trends and whether you are actually now getting more distribution for that particular brand? Secondly, Tom, you talked about the SKU proliferation and the need to really take down the number of SKUs in the economy segment. So can you maybe quantify how aggressive you can really make that move? And then related to that, what is the margin implication as you move that SKU out of the economy segment? And if you think about what ABI has done in the economy segment and the SKU cuts that they've made, how much do you think you can really close the gap? Just from a SKU rationalization in terms of the economy segment.
Yes, thank you. The 3-part question, Tracey, if you'd be thinking about the margin expectation from the economy sector based on the cuts in terms of the third shift and if you take that and then your second part of your question was the relative move in economy?
Judy E. Hong - Goldman Sachs Group Inc., Research Division
How aggressively can you do it?
How aggressively can we do it? Tracey, I'll give that to you too. So, Ed, would you start with Third Shift?
Sure. Thanks Judy, good question. On Third Shift, we sold about 106,000 points of distribution out of the gate. In total, by way across all of our new brands here that we sold over 600,000 new points of distribution. That's a very, very big number. The game for trade-in craft is to get into ad boxes. Ad boxes are typically dominated by 12 packs. Because Third Shift is a brand-new brand, we sold a lot of 6-pack distribution, the early results are very good. We're getting retailers picking up 12-packs on a faster rate. And last month, we picked up 2,500 new points of distribution with chain retailers on 12 packs. We'll continue to build out our 12 pack distribution throughout the year that will get us more ad boxes and it becomes a virtuous cycle. So the current positioning of Third Shift is quite good and our distribution will make them continue to get better.
I guess I'll take the 2 questions, the one was how aggressively we could move some of the SKUs. We are already doing some analysis around that and put some -- putting some action plans into place. We obviously need to be careful because we need to replace that shelf space with our brands. So we're analyzing that very closely market by market basis. We think that we could make some impact certainly within the next 12 months.
So if I could just add to that before you look at the margin expectation. One of the reasons for the disparate portfolio is the relative strength of those different brands distributor to distributor. And so we're trying to take the high-impact common SKUs that are low pretty much across the board with the minimum of paying relatively quickly as Tracey talked about. That's inside the 12 months. The others are really a state-by-state selling approach. So you would see the full impact of this move over 3 years when we will seek to get as much distributor alignment as we can over the next year to take the first quick hits. Margin expectation?
Yes. On the margin expectations I mean it would be a little bit early to tell now until we determine, which SKUs and which markets we're going to go off to initially. So once we got that analysis, we'll certainly update you in the quarterly earnings calls.
Another question to bring in from the website, concerns PET singles and PET's a packaging format overall. Where do you see that on the price ladder in terms of being an economy player or a premium play? And where does it fit into consumer locations and retailer, merchandising and stocking?
Thank you. Andy, will you take the question?
Andrew J. England
Absolutely. So our PET program has been specifically designed against economy portfolio. So if you think about where those brands and where those packages are in distribution right now it is primarily in the up and down the street business, which is really why there's such a benefit to moving to PET. So as we've tested it, the sort of benefits we've seen, there's fairly obviously a much reduced breakage issue, not just in retailers but in distributors. So that has been quite noteworthy. It's also interesting to note that people -- retailers feel much less of a need to bag or double bag the single item, which may seem like a trivial benefit, but I can assure you, if you run a C store or deli downtown, you'll totally understand that. So there are multiple benefits that's very much aimed at the up and down the street business and its restricted right now at least of the economy portfolio.
Vivien Azer - Citigroup Inc, Research Division
Vivien Azer, Citigroup. I was hoping to dig a little bit deeper into the ROI enhancement strategy, in particular, the absence of a volume benefit over last 3 years as you looked at that chart and the poor ROI that you were getting on certain of your initiatives. Are there any themes that hide across that, either from a channel perspective or a price point perspective, where you weren't getting your ROI?
Are you talking about trade promotion?
Oh sure -- Tracey was asking if I want to take that one. Yes, I'd love to take that one. So, yes, we've analyzed all of our trade promotion across the U.S. It's a handful of things and we have draft brands selling in certain parts of the U.S., [indiscernible], we're just underwater, from a profitability standpoint, 6-packs typically don't provide us with the lift that is required. We have a significant price. We have a big -- as you saw earlier, we have a big below premium economy portfolio. We tend to promote more brands in that space than we should. And so it's a series of things, different by market, but it adds up to a significant number. All of those have been identified. We have a heat map, literally, by market, that shows brand packs and whether they're green, yellow or red and then every one of those instances where we're red, we're working with the local teams to eliminate those promotions. Put those dollars to the bottom line or turn them back into something that's more efficient. Does that help?
Vivien Azer - Citigroup Inc, Research Division
Bryan D. Spillane - BofA Merrill Lynch, Research Division
I've got a follow-up. It's Bryan Spillane again. Just in terms of looking at the FMB or the above premium goals over for the next couple of years, and I like to understand your perspectives on how you think the above premium segment will grow? Meaning we've had, over the last 20 years or pick your timeframe. Historically, it's been driven by imports largely in really Corona and Mexican imports. So is your expectation that in the above premium segment, the growth is going to come from someplace else? It's going to be driven by craft. It's going to be driven by FMBs and that's really -- and you're going to be able to attack that -- those imports? Or is your expectation that, that growth will -- that, that share or that growth will come from sourcing from premium or other parts of the segments or other parts -- other segment to the industry? So I'm trying to understand, I guess, whether you think imports continue to grow at the same trajectory or whether import is slow while craft and FMBs grows faster?
Yes, so let me take a general crack and then Amy come in behind me. First is industry and then it's MillerCoors and we see them as different because of the place that MillerCoors starts. We're quite disparate from the industry. So you mentioned FMBs first. We have a tiny presence there. It's less hotly contested and therefore, for both of those reasons, we believe we'll over index in our growth in FMBs, it's partly based on the good start that we have with Redd's Apple Ale and coming this fall at the strawberry derivative. So we believe FMBs are a good place for our growth, whether in fact that net category grows for the industry, I don't have a position on. We do believe that crafts are a more powerful part of the growth story in above premiums and imports. That's partly a straight-line projection of what has occurred recently. But we do believe that imports, particularly Mexican imports, are going to be important. Death, taxes and demographics, Drucker says don't ignore them. We wouldn't. And we would ignore those at our peril. So we do believe that, that's going to continue. Now whether the aggregate level of Mexican imports grows, it's an interesting question. The intensity of competition for that consumer will hot up too and then you have to begin to look at it. So, in general, we believe the above premium space will continue to grow. We think crafts is the larger portion of it. And that would be the largest portion of absolute growth for us, as well given our presence there. Andy?
Andrew J. England
Yes. No, I think -- I would argue that where above premium is going to grow is partly going to be based on innovation pressure. So if you look at crafts obviously, there's been a ton of innovation pressure there and I would argue that craft, really an explosion of different styles and beer and there are many, many different styles in beer, some of which have been heavily exploited, most recently IPAs by the craft industry but I think there are, as my colleague Mr. Cardella, would tell you, there's a whole world of the beer out there that Americans have discovered. With that said, how craft delivers growth or how other styles deliver growth we believe will morph over time and we could all speculate that -- speculate about how that plays out over beer. I think when you look at the import piece, I'm obviously not going to talk about future pricing, but if you look at past pricing, the growth of imports over the last 5 years has varied enormously based on what pricing those key brands have chosen to take. So the idea that imports grow with just as a general basis, I would certainly dispute because if you look at the current growth that's going on, it's very important to look at the value, not just the volume. And I think as an industry, we frankly have been too focused on volume and not enough on value. So I think imports will depend. And when it comes to FMBs or specialty, specialty is in many ways really a catch off or a domestic above premium. Anything where we're charging more than premium that's produced domestically is we kind of call it specialty because there's no convenient name for it. When you add all of that up, I think what's really going to matter more than anything else is innovation pressure. And that's what's going to deliver growth.
Thomas J. Cardella
Ed just sort of bumped me too. And don't forget about new entries like cider. Obviously, the pricing structure on that is above premium. So that's part of -- a good part of industry growth and part of our growth plan as well.
Okay, we've got a couple of questions from the website on craft. One of which, do we still think there will be a shakeout in ownership in the craft segment, which I think, Tom, at least in part, answered already. The other one was at a consumer level. Do you feel that brand preferences and consumer tastes are continuing to fragment further as we go along in craft? Or has it started to tip the other way and consolidate towards larger craft brand?
Thomas J. Cardella
Well, I think, obviously, we're sort of at the pinnacle of fragmentation that this point when you look at the industry, the number of craft brewers that exist. I do think that the barriers to entry, to get into being a craft brewer, are very low. The barriers to entry to continue to come into the industry are really going to, I think, become more evident at the distribution level and the retail level. So I think that there is going to be a transformation over time of what the supply side of craft looks like. I do think though that the consumer will continue to move in the direction of experimentation and looking for new adventures in beer as well as other beverages. And I don't think that, that is something that we'll see move in a different direction any time soon. However, with that said, you really have to dissect what's really going on out there, because -- and we're starting to get better data to really understand occasions and how consumers are actually operating in. What we're actually starting to see is you have consumers that sort of consider themselves craft drinkers. Most often, I'm a craft drinker. But when you really dig into the actual consumption data, you actually see that these folks are maybe only consuming craft at 20%, 25% of their time and they're consuming other things. Particularly Premium Lights, a good portion of their time as well. So I do think that consumers will play this experimental game on the fringes, but I do think that the validity and the importance of branding and brands is going to continue to play out as well in sort of a dual path. Andy, I don't know if you agree with that or not, but I think that...
Andrew J. England
No, I do. I think fragmentation starts with media. if you look at this fragmentation of media and the expectation that sets up with the American consumer that they can have whatever they want and they constantly seek new and differentiate it, it's huge. I think the only other thing I'd point out with Craft is local matters. Across food and beverage, local matters and how much is local going to matter, how important is that going to be to those with higher income. We can all speculate but it matters.
I think one thing to think about as you begin to -- I know you all are looking at your models and speculating on growth is one of the things that we certainly hope to do through innovation, is to bring women into the beer franchise. It's deeply underserved. They drink spirits and wine disproportionally. And there's a wonderful opportunity for the beer industry through innovation to bring more and more women into the franchise. And if we start thinking about as a beer industry, we continue to think about how to take historical wine and spirits occasions and bring them into the beer or fold, then we can open up a new avenue of growth for the beer industry. And we believe we would like to see some of the movements that we've seen in craft bring more spirits and wine drinkers and it's certainly something that we're focused on as a company.
Lauren Torres - HSBC, Research Division
Lauren Torres, HSBC. I was hoping you could just give us an update on the health of the U.S. consumer, particularly on versus off premise trends as you said that MillerCoors -- sorry, Miller Lite sources more on-premise. You talked about the new bottle, but what are you saying from a consumer standpoint? Are people returning to the on-premise? And by introducing new products with people but maybe not returning, how do you generate that interest to improve the channel mix?
Yes. It's -- we get this question every quarter and I think that things are going to get clearer every next quarter. And I am consistent. Ed, you want to take a crack of that, please?
Sure. I agree with you completely, Tom. Thank you for that. We're seeing some movement back in on-premise, that business is a little healthier today. The work for us to do is to make our Premium Light brands interesting and relevant in that portion of the business and to tell the economic story. The economic story is that Premium Lights are the #1 consumed type of beer for every beer drinking occasion in America, every single one. And it's our job to go to those on-premise retailers and remind them the role that premium lights have in bringing consumers into the bars and providing a sensible drinking experience such that they can continue to raise their tickets because typically, we know that craft drinkers drink less, proceeding than a Premium Light drinker would. So we've seen some -- the on-premise business is a little better, but it's not markedly better.
Can I just ask as a follow-up on that? As you're very skewed to Premium Lights and you talked about growing above premium. Would you sacrifice that Premium Light share for the other categories? Or you want to hold that 56% or that number that you stated?
No, we want to take share there and we believe that we can because we believe that gross margin return on investment for space and increasingly, tap handle return will enter the dialogue with retailers. Of course, there was a -- and bartenders. Of course, there is a time and there is always a time to have your product offering drive traffic. But at some point, when there's saturation, and all of the bars on the block look like you, you're no longer delivering that difference in your offering. And so then, you begin to look at the cost of not offering some well-known imports or light beers. And when that traffic differentiation is no longer there, dollars and cents come in. And so the profit story of what's the cost of the -- the opportunity cost of a lost handle of one of our imports or one of our light beers to a craft beer becomes real. And so that dialogue is picking up in America. How long that will take, I don't know. I just know that that's a dialogue we're having with folks.
Okay, we're going to close out with just 1 or 2 more here and then we're going to return. Robert, here in front.
Robert E. Ottenstein - ISI Group Inc., Research Division
Robert Ottenstein from ISI. I think you guys showed a lot of really great and exciting liquid innovations today and I think that's terrific. I'm just wondering and in terms of elevating the category, which I think is important, I do get a little bit worried though when I start hearing talk about an introduction of a PET and the potential of maybe moving that a little bit further. And so I just want to get your thoughts on that and the potential negative implications of that. And then also, I wanted to get your thoughts. I think -- I like the new label on the Miller Lite. My question is when you were thinking about that label, did you decide -- I mean how well did you think about the idea of staying with kind of a paper label or going to film? And whether film would have maybe elevated the packaging a little bit? And just curious how you think about that decision.
Yes, thank you. On PET, let me just be really clear. Do you understand what we've been talking about on our PET was in our large bottle size. And as you know, most of that is in the independent on trade. It's almost all economy. We wouldn't plan to accelerate that beyond that sector, the large sized bottles. One of the reasons that simply makes sense is all in the logistics and the safety issues that we talked about. So that is not a large quality issue, because those brands trade more often on price, especially at that size, which is price per ounce. Andy, would you take the question about our using the film labels on Miller Lite?
Andrew J. England
Yes, absolutely. I think if I may, I'd just bolt on some thoughts on PET as well. And if you have watched the consumer packaged goods business, as I know that you have over the last 20 years, this is a dilemma that many industries have gone through before us. Our recent Vice President of Insights was that quaker when Gatorade moved from glass to PET. And he tells stories of wrist slitting in the bathrooms over the sort of sheer fear of moving to PET because Gatorade was all in glass. And that brand moved to PET in the, I believe, the mid-'90s. And Heinz would be another example, where -- for those of you who's as old as me, you'll remember that the idea of not slapping the bottom of the glass bottle of Heinz in the food service establishment was almost unimaginable because that's such a sort of core part of what Heinz was about. So to Tom's point, we see this as very low risk, partly because we've tested the heck out of it and because we're doing on the singles on economy, but also because we observe pretty much every other category and there's a reason why when we talked to our colleagues and suppliers in at Owens-Illinois, the alcohol business is the only guys they really work with anymore. So I just offered that for perspective. On the label piece, we look hard at different labels and substrates that we could use. Interestingly, we went through an exercise of switching MGD to a plastic pressure sensitive label and then back again a few years later. It's substantially more expensive and it didn't actually, in the case of MGD, gave any impact in terms of consumer purchase intent. So it's certainly something we continue to look at, the different types and sizes and substrates of labels, but we don't believe there's a compelling argument for Miller Lite moving to a pressure-sensitive label until, of course, we make one.
Robert E. Ottenstein - ISI Group Inc., Research Division
If I can just -- one last question. There was no mention, I don't think, of kind of ultralow calorie beers. What's happened to that segment?
Yes. So as you know, we were the innovator in that sector with MGD 64, now, Miller 64. It was copied by a competitor. And neither one of those sectors performing particularly well now. Perhaps positioning changes could enhance that category again. However, we remain committed to this sector. We had a nice turnaround in the business when we advertised it. So far this year, that category is not particularly strong. We don't know how much of that is weather. The light category has been hit pretty well with the well-documented weather issues. We're going to have to fight that sector out. We do know that there is occasion for that. And we know that, that occasion surprisingly is more gender-neutral than you might think. And so for the time being, we'll stick with that segment and give it a fight.
Okay, on that note, I think we're going to have to adjourn here. Thanks to all of you in New York here and for those on the webcast for sticking with us for a 2.5-hour seminar marathon. Upcoming, most immediately, is I want to say, you know that SAB Miller runs a series of 4 to 6 local market visits per year and one of the highlight that the next one of those that is coming up related to the U.S. beer business will be starting on the 27th of October, that's a Sunday, for a MillerCoors and SAB Miller hosted NASCAR event in Martinsville, Virginia, followed by Monday, the 28th of October, the next day, outlet market visits with our sales and distribution teams in North Carolina. So please let us know if you're all interested in that.
Next up on the seminar series roster, here in New York on Tuesday, the 16th of July, is our Asia-Pac division. Followed by the next day, Wednesday, the 17th July, the same in London. And then Alan Clark, our new CEO, and Jamie Wilson, taking a run within the seminar series to talk overall business update, Monday the 16th of September in London and here in New York on Tuesday, the 17th of September.
That concludes our webcast, and thanks to those of you on that. For those of you here in the room, we've kept the temperature in here intentionally high because we've got a huge, huge wall of mouthwatering beer product selection outside to join us with now. Thanks a lot.
Thanks, again, for joining us.
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