No-Moat Molson Coors Faces an Uphill Battle To Expand in Premium Aisle

Molson Coors TAP owns well-known brands, such as Miller, Coors, and Blue Moon in North America and Carling in the U.K. However, heavy exposure to secularly challenged midrange and economy beer segments has resulted in falling volume and less relevance. This is preventing the firm from maintaining brand-driven intangible assets that would underpin a durable competitive edge. Furthermore, the firm has had limited success so far in parlaying its legacy brands into higher-end beer, which is more conducive to brand prowess. As such, we don’t believe the firm has carved out an economic moat.

Under current CEO Gavin Hattersley, Molson Coors has revamped its long-term strategic roadmap to accelerate expansion in premium beer and rationalize investments in the economy segment where the profit outlook is unattractive. We believe the new strategy steers the firm in the right direction. In a bid to realign its business, the firm has allocated significantly higher investments to modernizing brewing and distribution capacities and in research and marketing for high-end malt beverage offerings. We also applaud the technological enhancements being implemented throughout the supply chain, which should facilitate data-driven planning and better utilization. These investments are partially funded by cost savings totaling $600 million between 2020 and 2022. In the coming years, we expect management to wring out more efficiencies by consolidating its sprawling brewing and packaging footprint to five major U.S. locations.

We give Molson Coors credit for premiumization efforts on multiple fronts. These include licensing and distribution agreements with Asahi for well-regarded Peroni and Pilsner brands in the U.S., a long-term brewing and distribution partnership with craft beer leader Yuengling since 2020 for central and Western regions of the U.S., and a series of hard seltzer and hard lemonade launches under the Topo Chico and Simply brands licensed from wide-moat Coca-Cola. That said, we expect Molson Coors to face an uphill battle in the premium sphere against entrenched wide-moats Constellation and AB InBev, which enjoy superior brand equity and distributor support.