What's going on?
Molson Coors’ stock price fell flat on Wednesday after America’s third largest beer maker said its costs would rise more than expected… D’oh!
What does this mean?
Molson Coors’ footprint expanded significantly last year when it bought the remaining 58% of MillerCoors that it didn’t already own from SABMiller for $12bn (it was formerly a joint venture). Following that huge acquisition, Molson Coors views this year as an “investment” year in which it’s spending money on things like marketing and distribution in order to, hopefully, boost its future sales. It turns out that it’s going to spend significantly more than investors were expecting – and, given the stock sold off almost 7% on Wednesday, they don’t seem to be the biggest fans!
Why should I care?
For markets: Ice… cold…. beer just ain’t what it used to be.
People are drinking more cocktails (note the big rise in tequila sales!) and alternatives like rosé wine, which millennials have, apparently, made popular. When beer is the choice, it’s now often a craft brew or one of the options from Mexico (like Corona) rather than the go-to brands of yesteryear (like Coors). The big players have tried to adapt by altering their offering (e.g. selling cider) and acquiring craft brewers – but if beer consumption doesn’t start increasing that might not be enough to overcome the challenge of our changing tastes.
The bigger picture: Investors tend to get nervous around execution risk.
Young people are consistently told to invest in themselves: go to college, take that job “for the experience”, learn a new skill etc. That will, supposedly, pay big dividends in the future. Yet when a company says that it’s going to spend more money preparing itself for a better future, investors often sell the stock as if investing in oneself is the craziest idea they’ve ever heard. Sometimes, this is justified: the company’s plan may be a bad one. But the fears of execution risk are often overdone.