Molson Coors Beverage Co
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Molson Coors Beverage Co
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Good day and welcome to the Molson Coors Beverage Company Third Quarter 2020 Earnings Conference Call. You can find related slides on the Investor Relations page of the Molson Coors' website. Our speakers today are Gavin Hattersley, President and Chief Executive Officer and Tracey Joubert, Chief Financial Officer.
With that, I'll hand it over to Greg Tierney, Vice President of FP&A and Investor Relations.
All right. Thank you, Danielle, and hello everyone. Following prepared remarks from Gavin and Tracey, we will take your questions. Please limit yourself to one question. If do you have more than one question to ask, please ask your most pressing question first and then reenter the queue to follow-up. And if you have technical questions on the quarter, please pick them up with me or Traci Mangini on the IR team in the days and weeks that follow.
Today's discussion includes forward-looking statements and actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements and GAAP reconciliations for any non-U.S. GAAP measures are included in our news release or otherwise available on our website. Also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars.
And with that over to you, Gavin.
Thank you, Greg, and thank you all for joining us today. Well, what a year it's been so far? If you're like most people, you put a lot of words that come to mind when you think of 2020, but for Molson Coors this year can be summarized in three words: persistence, perseverance and progress. That is how 2020 has been defined by the Molson Coors Beverage Company as we drive for top-line growth. We're very pleased with our performance in the third quarter as we beat top and bottom line expectations and made tangible progress on our revitalization plans.
We had bold plans at the beginning of 2020, to build on the strength of our iconic core brands, aggressively grow our above premium portfolio, expand beyond the beer aisle, invest in our capabilities and support our people and our communities. Year 2020 has presented new obstacles for everyone for which we've had to adjust. Like all other beverage companies, one of the biggest challenges this year has been packaging supply. To put into perspective the scope of the challenges, we sold 300 million more cans of beer in the first nine months of 2020 than we did in the same period in 2019 in the United States alone.
And there have been times over the past few months when demand for tall cans was four times what it was in 2019. I'm pleased to report that while work remains inventory is steadily improving in the U.S. We are approaching historical levels of paperboard supply. We are confirming most orders for bottled beer and seeing steady improvements in supply. A 12-ounce industry standard can supply stabilizing and we anticipate it will continue to increase through the year as we returned to full inventory. And we are starting to more fully cover demand for tall cans and expect steady improvement in inventory through the balance of the year.
When 2020 has brought us challenges like this, we've met each challenge head on and we have never lost sight of our plan. Now, we're able to show what's possible as we execute that plan as we drive toward top-line growth. Coors Light and Miller Lite grew 6% and 9.5%, respectively, in the U.S. off-premise so far this year. As of today, the combined segment share has grown for 24 consecutive quarters that is six straight years. And our aim now is to stabilize our biggest brands in the total beer category.
Above premium products are a record higher portion of our U.S. portfolio, since the business formed in 2008, despite the on-premise restrictions. By the end of 2021, we plan to capture a double digit share of the U.S. seltzer market, backed by what arguably is the most complete seltzer portfolio in the business. Truss, our Canadian joint venture, has quickly become a market share leader of ready to drink cannabis beverages in Canada. The company estimates market share of over 50% in key markets, such as Quebec.
And we believe that our emerging drug division can become $1 billion business in revenue terms in three years time. We are expanding our production capacity for seltzers by over 400% and for Blue Moon LightSky by approximately 400%. We will continue prioritizing capital projects that will allow us to further expand our seltzer and innovation production capacity. We redefined our company values fit to increase representation of people of color at all levels of our company and redirected some social media spending, support organizations dedicated to social justice, equity and empowerment.
We will continue to take tangible steps to build a brighter future for our people and our communities. I want to pause here. I know there are questions about the complexity of our revitalization plan and about our ability to execute. But not only can it be done in the future, we are already doing it today. As you can see, we are building on the strength of our core while growing our above premium portfolio and planting the seeds for future growth beyond beer. And we're investing in our capabilities and our people to make it all possible. I want to drill down on each of these a little more.
As I mentioned earlier, it’s a great sign of strength of our core brands that Coors Light and Miller Lite grew 6% and 9.5% respectively in the U.S. off-premise so far this year. And the combined segment share of our two largest U.S. brands has grown for six straight years. And Coors Light again achieved a record high segment share in the U.S. since the business formed in 2008 per Nielsen. And our market research shows Coors Light has seen the biggest year-to-date improvement in consideration across the category, especially with 21 to 34-year-old consumers. In Canada, Molson Ultra has performed very well this year, up 32% so far, and has surpassed a large competitor in share of grocery in Quebec based on the recent four week data per Nielsen.
Our national champion brands in Europe showed significant trend improvement as a large percentage of the on-trade had reopened at the beginning of the third quarter. In 2020, we have increased our number of major sports alliances across all of North America and while we aren't spending money against a lot of them this year during the pandemic, these partnerships should benefit our biggest brands for years to come. We have also seen great progress in growing our above premium portfolio. Above premium products grew in the third quarter and have reached a record high portion of our overall portfolio in the United States since the business was formed in 2008.
Blue Moon LightSky, which launched in February has sold over 1.6 million cases through the end of the third quarter and is 2020's top selling new beer in the United States per Nielsen. And LightSky is highly incremental to the Blue Moon brand. Blue Moon Belgian White, the largest craft brand in the United States has seen a third highest growth in the off-premise among all craft brands in 2020 according to Nielsen.
With the LightSky number one, the Blue Moon family has easily achieved the highest off-premise growth in 2020 among all craft franchises according to Nielsen. And this progress in above premium beer extends to Europe. In Europe and outside of the market, the Staropramen brand grew by 9% in volume in the quarter. And our export and licensed team grew volumes by 3% in the quarter thereby expanding the footprint and size of our premium position brands across the wider European segment.
Turning to seltzer, Vizzy has risen to number eight on the Nielsen top 10 growth brands chart in 2020, selling over 2.5 million cases since its April launch. And it is seeing the highest repeat purchase rate amongst seltzers made by the major beer suppliers. And we are incredibly excited by the early results of Coors Seltzer, which has matched Vizzy's hot cells in its first months on shelves. In some key retailers, the Coors Seltzer variety pack is outselling the Bud Light Seltzer variety pack.
Perhaps we are building out arguably the deepest most diversified portfolio of hard seltzers in the industry, we came into 2020 with an under two share of the segment, we are now four share. And by the end of next year, we plan to capture a double digit share of the U.S. seltzer market. That is possible because of the depth and differentiation of our seltzer portfolio. We believe Vizzy with its Acerola Cherry high antioxidants from vitamin C is the best position product on the market in the better-for-you space.
We believe Coors Seltzer can become the number one beer brand in the segment through the strength of its name and its social mission around restoring America's water ways. Topo Chico Hard Seltzer has something no other product offers the benefit of the massive following of the Coca-Cola Company's Topo Chico sparkling mineral water in a number of major markets across the United States. Proof points will also launch next year, differentiating itself with premium ingredients like real spirits.
And I would remind you that with our distribution deal for Bodega Bay hard seltzer in the UK and Ireland also causes an early mover among European hard seltzers. We have even more about premium brands opportunities coming in 2021 when we bring Yuengling westward under our new joint venture. There are 25 States open for expansion under the JV, all with zero Yuengling distribution today, tens of millions of legal age drinkers. That is a significant growth opportunity for our company and for Yuengling.
Our emerging growth division has been doing a great job, planting the seeds for future growth opportunities beyond the Bureau. Earlier in the year, we launched Movo, our first canned one and the Truss joint venture launched very well CBD and THC drops in Canada. And in the third quarter, we stepped it up. Truss launched its first ready-to-drink cannabis beverages in Canada, parkway through the quarter and already it has become our market share leader.
The company estimates market share over 50% in key markets like Quebec. We launched a new line of non-alcohol products created from the beverage incubator LA Libations. We took a minority stake in ZenWTR by noted beverage innovator Lance Collins. And we launched Vyne Botanicals hop water in Canada. In Europe, we signed an exclusive agreement with Miami cocktail companies to distribute the growing brands in the United Kingdom and Ireland.
This is really just the beginning for us. We learning in some of the spaces in a capital efficient way I would add. And we'll apply what we learned to future growth opportunities beyond here. That is why I'm confident that altogether our emerging growth division can become a $1 billion business. For as much activity as you've seen in the past few months, you can expect to see more coming.
In the next few weeks, our U.S. Truss joint venture with HEXO will launch its first CBD-based products in Colorado, making us an early mover in this area. And soon most inclusively distributor of La Colombe’s incredible lineup of ready-to-drink coffees in the off-premise, starting with drug and convenience store channels. Another great example of how we can leverage our strengths to find meaningful profitable top line growth.
And to achieve growth under our revitalization plan, we can't just rely on our stellar marketing team. We are investing in our capabilities to make it happen. We intend to expand our hard seltzer production capacity by over 400%. by the end of this year. By early 2021, we expect to complete a project to expand Blue Moon LightSky production capacity by approximately 400% as well. We just turned on a new sleek can production line at the Rocky Mountain Metal Company, a joint venture with Ball Corporation, capable of producing 750 million cans a year.
We're modernizing our brewery in Golden, Colorado, making it easier to brew the beverages of the future. During the coronavirus, we have improved online sales in the U.S. by approximately 200% through the three-tier structure, while also developing new e-commerce and direct-to-consumer channels for our business in Canada. These investments will help power our business forward and we will continue prioritizing capital projects to continue to expanding our production capacity for seltzer and innovations in 2021 and 2022.
I've talked a lot about how the revitalization plan shapes our business actions, and it's also shaping how we support our people and our communities. That started earlier this year when we redefined our company values, starting with putting our people first. We built from the all year long. Just this month, we held our first week of inclusion, full week of forums, presentations, and conversations about how to be more inclusive, how to be allies to our teammates, how to hold ourselves accountable.
We set out to increase representation of people of color at all levels of our company. And in the early months have showed a business and is growing more diverse. We redirected social media spending to 25 national and local organizations working to address issues of equality, empowerment, racial justice, and community building. We launched a new scholarship program supporting people of color and LGBTQ+ students seeking degrees in brewing or fermentation sciences.
We have the opportunity and the responsibility to drive change, and we are doing just that. And we're not going to slow down. We didn't complete the modernization project in Golden will significantly reduce CO2 emissions from the brewery. If we reduce energy usage by 15% and it will reduce our water usage by 100 million gallons per year.
Look, we've made a lot of news over the past two months. From our continued investments behind our core brands, expansion of seltzer production capacity to our joint venture with Yuengling to our new line of non-alcoholic beverages, to the launch of Coors Seltzer to the addition of Topo Chico Hard Seltzer to the distribution deal with La Colombe. These are not a series of one-offs. That all represents parts of one single strategy drive our business to top line growth.
Now we face a lot of criticism over the years about the shape of our portfolio in the U.S. where it is too heavily weighted towards our two premium light brands. I understand the viewpoint, but I believe our core is our strength. As I've outlined, a key part of our plan is to build on the strength of our iconic core brands. Interestingly, under the strategy, as we roll out plans to aggressively grow our above premium portfolio and expand into fast growing above premium beverages beyond the Bureau. There have been questions as to whether these actions add too much complexity or distraction. We should stick to our core, but to suggest that we must focus only on our core brands or only on innovations is a false choice. It's not binary, but part of our revitalization strategy we organized our business to do exactly that. The progress we are making is promising.
Our 2020 above premium innovations have already delivered an incremental 5.7 million cases for our business. The health of our iconic core brands continues to improve, and we are planting the seeds for new growth opportunities beyond the Bureau. That is the plan we announced last October. That is the plan we're executing. And that is the plan we believe will deliver top line drugs for this business.
And now I'll pass it over to Tracey for the financial highlights. Tracey?
Thank you, Gavin, and hello, everyone. I will first cover the quarter on a consolidated and regional basis, and then move to our outlook. So to recap the quarter, net sales revenue decreased 3.6% in constant currency, a significant improvement from our second quarter performance. In the third quarter, we saw volume decline principally in the on-premise channel, along with the corresponding negative channel mix implications across all major markets. These impacts were partially offset by higher net pricing, as well as the U.S. overcoming channel mix challenges to deliver positive brand mix behind strong performances in Vizzy, Blue Moon NightSky and Coors Seltzer.
North America shipment timing was positive in the third quarter, but remained impacted by packaging material constraints. Net sales per hectoliter on a brand volume basis increased 2.1% in constant currency, reflecting positive net pricing in the U.S. and Canada, more than offsetting negative mix effects globally due to the various market dynamics and consumer shift caused by the coronavirus pandemic.
While a significant number of the on-premise establishments were open throughout the quarter. Those that were opened we are not operating at full capacity. This had an [indiscernible] impact, albeit improving from second quarter levels on mix globally. As many of our higher-end products are skewed toward the on-premise, the closure of the restrictions in this channel has an unfavorable impact on our brand and channel mix. Worldwide brand volume decreased 5.2%, while financial volume decreased 5%.
Underlying COGS per hectoliter increased 1.5% on a constant currency basis, driven by inflation and volume deleverage partially offset by cost savings initiatives. Underlying MG&A decreased 7.6% on a constant currency basis driven by reduced marketing spend partially offset by a slightly higher G&A as we cycled one time benefits related to long-term incentive compensation reversal in the third quarter of 2019. This was largely offset by revitalization cost savings and lower discretionary spend.
As a result, underlying EBITDA grew 0.5% on a constant currency basis. Underlying free cash flow of $1,160 million for the nine months in the September the 30th 2020, was $275 million favorable to the prior year period driven by favorable working capital. The working capital benefit was driven by the deferral of over $200 million in tax payments from various government sponsored payment deferral programs related to the coronavirus pandemic of which we currently anticipate approximately half to be paid in the fourth quarter of 2020, while the remaining amounts to be paid beyond this fiscal year.
In North America, net sales revenue decreased 0.8% in constant currency, driven by financial volume declines of 4% reflecting lower brand volume. North America brand volumes decreased 5.2% as the on-premise closures or limited capacity reopenings during the quarter more than offset the strength in both the U.S. and Canada in the off-premise. Also contributing to the decline was packaging constraints, which primarily impacted the economy and premium segments as we prioritize higher margin SKUs. In the U.S., brand volumes decreased 5.3% compared to domestic shipment declines of 3.9%.
And our efforts to address the year-to-date under-shipment position attributed to aluminum can supply constraints. Net sales per hectoliter on a brand volume basis increased 3.6% driven by net pricing increases in the U.S. and Canada, and favorable brand and package mix in the U.S. partially offset by negative brand and channel mix in Canada attributed to the shift of volume from on-premise to off-premise.
In the U.S., net sales per hectoliter on a brand volume basis increased 4.6% driven by favorable sales mix and net pricing. The U.S. delivered its best quarterly sales performance in the last decade and the base brand mix performance is the first quarter of 2014. In Canada, negative mix more than offset the net pricing increases, while in Latin America net sales per hectoliter on a brand volume basis with largely consistent with the prior year.
Underlying EBITDA increased 2.5% in constant currency as MG&A reductions more than offset unfavorable gross profit from lower financial volumes and COGS inflation. The MG&A reductions were driven by lower marketing spend in areas impacted by the coronavirus pandemic, such as sports, events and festival. We also adjusted the timing of marketing investments behind brands and packs where we experienced supply constraints. However, media and advertising spent rent-up sequentially within the quarter and increased compared to the prior year period as we supported core brands and key innovation.
Also contributing to the MG&A reductions were other cost mitigating actions and the continued progress in realizing cost savings related to the revitalization plan. All of this was partially offset by packing low incentive compensation in the prior period, largely due to the [indiscernible] benefits from long-term compensation reversals in the third quarter of 2019 as mentioned earlier. In Europe, which is more heavily skewed towards the on-premise, net sales in our a reported basis decreased 15.3% in constant currency due to lower volumes and lower net sales per hectoliter reflecting the impact from the coronavirus.
Net sales per hectoliteron a brand volume basis declined 5.9% in constant currency driven by unfavorable channel, brand and geographic mix particularly in a high margin UK business partial offset by slightly higher net pricing. Financial volumes decreased 7.7% and brand volume decreased 5.4%, a significant improvement from the year-on-year decline experienced in the second quarter as more on-premise accounts were open. Even the many were not operating at full capacity in the quarter.
We have also greatly improved our capacity levels to meet the highest levels of demand in the off-premise. Europe's underlying EBITDA decreased 8% on a constant currency basis versus the prior driven by gross margin impact of volume declines and unfavorable geographic and channel mix, partially offset by lower MG&A expenses as a result of cost mitigation actions to navigate the coronavirus pandemic.
Which takes me to our financial outlook. On March 27th, we withdrew our guidance due to the uncertainty driven by the pandemic. With the rise in the new virus cases in both North America and Europe, governments are mandating new closures when posing lockdowns to varying degrees and thus that uncertainty remains. As a result we have not reinstated guidance, but are providing additional visibility on forward trends and if it speaks about how we believe we will be impacted by the coronavirus.
We do not expect to continue to give this visibility once condition is stabilized or we resume guidance. And we are very proud of our performance and agility in navigating the coronavirus pandemic and executing against our revitalization plan. The [indiscernible] so hit me in the head. The pandemic continues to impact our businesses due to on-premise losses and across all our geographies and disproportionately in Europe. Also, we continue to face supply constraints.
However we do expect to return to full inventory of 12 ounce industry standard cans by year-end, and we're making progress on remediating constrains for the Coors Slice tall can. As a result, we expect domestic shipment trends in U.S. to be higher than brand volume trends in the fourth quarter, as we continue to build inventories. For MD&A, we expect marketing investment to increase in the fourth quarter from the prior year, as we build on the strength of our co-brand and ramp-up support for key innovations like Blue Moon Light Sky, Vizzy and Coors Slice in alignment with additional supply coming online. We will continue to be nimble adapting to the environment to ensure we are achieving the highest possible return on our marketing investments, while supporting strong brand equity. Therefore, as of the third quarter some of our anticipated fourth quarter spends will be dependent on factors, including the occurrence of live sports and events.
And finally, as discussed in our second quarter call, in the fourth quarter we will stock a lower incentive compensation and a non-recurring vendor benefit, which occurred in the fourth quarter of 2019 and totaled approximately $2,700. In response to coronavirus pandemic, we've shifted our focus to ensure adequate liquidity for the near term, while positioning the business for medium and long-term success. This included a desire to maintain our investment grade rating, which is important for all of us stakeholders. Being investment grade rated reduces our cost of goods, improves our access to capital markets including commercial paper and gives us more operational flexibility to execute against our strategy.
As previously discussed, we have significantly improved our liquidity position by favorably amending the covenant terms of our $1.5 billion revolving credit facility, adding GBP300 million commercial paper facility for our UK business, which is incremental to the borrowing capacity under the $1.5 billion facility, sustaining the dividend in May for the remainder of 2020, reducing previously paying capital expenditures by around $200 million for 2020, and generally reducing discretionary spend is possible.
And in the third quarter, we continue to reduce our data position with the payments of CAD500 million that is due, using a combination of cash and commercial paper. As of quarter end, we had reduced our net debt position by just over $1.2 billion since we began the revitalization program. And we have maintained strong borrowing capacities on both our facilities. As of October 29, 2020 we had $1.4 billion under our U.S. facility and the full GBP300 million under the UK facility in available capacity.
So we invested in our business to support medium and long-term growth objectives. In addition to necessary safety and maintenance projects, we are making capital investments that deliver cost savings and high return growth initiatives, such as our significant investment behind hard seltzers and innovations in our Fort Worth and Milwaukee brewery. Now over the next few years, we painted prioritized capital investments to include hundreds of millions of dollars to add significant capacity for our innovation, including salsas and slim can capacity.
Given the operating environment, we are very pleased with our third quarter financial performance, making another quarter of progress on our revitalization plan to drive long-term value creation. We achieve solid financial and operating results, and again exceed top and bottom line expectation. And we did so while navigating the continued challenges posed by the coronavirus pandemic, further improving our liquidity and investing in [indiscernible] long-term goals. We are mindful of the challenges and continued uncertainty ahead and remain focused on doing what is this, not only in the near term, but positioning the business for medium and long-term success. And we look forward to updating you on our continued progress.
And with this, we look forward to taking your questions. Operator?
[Operator Instructions] Our first question comes from Bill Kirk of MKM Partners. Please go ahead.
Thanks for taking the question. Gavin, I guess this one's for you, as aluminum can supply improves what are the brand priorities? Do you reintroduce some of the economy brands and packs? Or do you put the cans toward the premium offerings? And I guess I'm asking it in the context of what you expect from consumer spending strength going forward?
Thanks, Bill, and good morning. Look our programs industries can supply stabilizing and we've really seen it increase incrementally over the last four to five weeks and we expect that to continue incrementally increasing through the balance of the year. And with that two constraints particularly, one would be the tall can for 12 ounce, which is what Coors Light and Keystone might go into primarily. And then obviously the 12 ounce tall slim can, and that's been more driven by the success of Vizzy and Blue Moon LightSky that has necessarily been by shortages. In terms of prioritization, obviously Coors Light gets first priority for us when it comes to the tall can and we've made some adjustments on slow moving products that have been packaged in that can and to make sure that we can fulfill Coors Light.
That to your second question from a trade down point of view, but we haven't actually seen that at this point in time. In fact, we're seeing quite the opposite both in the U.S. and in Europe as well as Canada. I think consumers are finding that their dollar stretches a little further in the off-premise than it does in the on-premise. We're actually seeing the opposite.
That's super helpful. I'll jump back in the queue for a follow-up.
Thanks, Bill.
The next question comes from Lauren Lieberman of Barclays. Please go ahead.
Great. Thanks, Good morning. Gavin, I mean it was great that in your prepared remarks, you addressed the complexity conversation. But I would like to just go maybe a step further to understand how you're evolving the organization to handle the increased complexity, and then with regard to distributor relationships and how do you work with them to prioritize – to set priorities, I guess, and to manage sort of what's working; what's not. How long do you give some of the activity to click into, okay, this one's got some legs, that's really push it because the activity has been tremendous. And obviously looking at the price mix this quarter, it's helping and mattering and it's getting attention. But there will be a point where resource allocation and having to make choices comes into play? And I'd love to know a little bit more about that.
Thanks, Lauren, and good morning. Look, it depends what lens you look at this through, right. So if it's through three lenses, from a retailer point of view, they’re well-prepared for innovation, they're hungry for it and expecting it. So I see no issue there. From a distributor point of view, 80% of them already carry non-alcohol products and 50% of them carry wine and spirits already.
So they're actually ahead of us. We're playing catch up with them. They manage and deal with tons of complexity. And Lauren, I would tell you the vast majority of them are very excited about the moves that we're making, and can't wait to have these brands in their houses. And then you look at our business and that's exactly why we structured ourselves as we did at the time of the joint venture and formed this emerging growth team under Pete Marino's leadership. It's a small team of passionate and very dedicated specialists in the field.
And Lauren, arguably there's even more focus behind the core since we actually made this organizational structural shift under the revitalization plan. And you can see that in the strength of core brands and the innovation coming through and above-premium. Of course, we're going to continue to leverage capability through the CCOE and back office. But there's little additional complexity for ourselves and marketing groups that focus on our core business and our above-premium business.
And then from a supply chain point of view, these products are not going through our breweries. They had no complexity to our breweries at all. We are expanding our warehouse capacity and obviously, they use the same ordering systems and tools. And then the final point I would make is these things are, although we announced them all within a tucked, probably two months period – these things are all – the timing of them is all different. Yuengling will come in the back half of next year, La Colombe will come in the front half of the first quarter. Topo Chico Hard Seltzer will be in the second – second to first quarter or early in the second quarter.
So from a timing point of these things are not all landing at the same time. So I think there – obviously, there are questions about it, but we're managing it now and we're managing it effectively.
Okay. That's great. And then with regard to sticking with portfolio, with some of the bigger brands, obviously the work on Blue Moon really rejuvenated that franchise. But as you're thinking about adding, is there anything in the portfolio that you're also looking at in terms of trimming because we still get back to the question of some bigger brands that, it's still been slower to turn. And maybe there's a point at which we say, the new is way better use of our resources. And we need to kind of cut our losses on some bigger brands in that portfolio. Is that part of the thought process as well?
Some of the can shortages in the coronavirus pandemic have forced us into making decisions around slow moving brands and SKUs, Lauren, and we've done that. And I would expect some of those SKUs won’t come back. So from a complexity point of view, from a brewery point of view, I would expect that we will have less SKUs coming up when we come out of this pandemic than we did coming into the pandemic.
Okay. That's great. I can keep going. But Greg said, we were only supposed to ask one, so I'm passing it on. Thank you.
The next question comes from the Laurent Grandet of Guggenheim. Please go ahead.
Hey, good morning, everyone. Congrats for a strong quarter. My question will be about the seltzer category, I mean, you mentioned you're planning to achieve double-digit market share in the seltzer category next year. It gets you to 8% next year. So could you give us a bit more granularity or color as to how you get there and build the level of confidence for investors? And also I mean, resume that how are you now planning to motivate or incentivate your wholesalers in most part, already carry in the brands like Truly or White Claw. So I’d like to understand this a bit more, thank you very much.
Thanks Laurent. Look, I mean, we've got what we think is arguably the strongest portfolio of seltzers for both consumers and for our distributors. If you look at Vizzy, we’re positioning Vizzy to lead for the better-for-you space. We're aiming for Coors Seltzer to become a number one beer brand in this segment. The addition of Topo Chico is going to help drive a meaningful scale for us with a portfolio approach. It's a known and loved by a very large number of consumers in the United States.
And then proof point, we expect you to lead spirits based seltzers. So we think we've got a highly differentiated, very powerful and very attractive seltzer portfolio for consumers. And our distributors are getting behind them. You can see that in the performance of Vizzy and you can see it in the performance of Coors Seltzer and I've not seen them as excited in the while around Topo Chico, particularly in the markets with Topo Chico, mineral water does so well for the Coca-Cola Company. So we think we've got the portfolio and we think we've got the distributor buy-in.
Thanks Gavin. And if I may add on seltzer, is the manufacturing, MillerCoors contract manufacturer for Topo Chico, something we should expect just for this coming year as you’re filling up your capacity in seltzer. And we should think about you’re perpetuating these in-house from 2022? Thank you.
In 2021, it will be primarily outsourced and in 2022 and beyond it will be insourced Laurent. So you got that. You got that, right.
Okay. Thank you very much. I’ll pass it on. Thanks.
The next question comes from Andrea Teixeira from J.P. Morgan. Please go ahead.
Thank you. Good morning. So I was hoping if you can give us an idea of the cadence of the STRs in 3Q and particularly your exit rate in September. And if you're going to help us, we looked over STR, how it shaped up in the U.S. and also in European life has the new lock downs. And I would say if we step back broadly, how do you feel inventory levels – if the inventory levels normalized at the trade at this point?
Tracey, why don't you take the sort of shipments in STRs for Q4, and then I'll take Europe.
So let me start with Q3. So as we see the shipment act as brand volume trends in Q3 as we stated. When we look at the September year-to-date on the U.S. shipments, shipments were down 6.1%. Our brand volume was down 3.8%. And for Q4, we expect shipments to act as brand volume trends as well as we both inventory during the balance of the year. So we do expect a further reduction in this gap, as it relates to giving STRs for fourth quarter, we actually moved away from that a couple of quarters ago. Andrea so I'm not really going to comment on that. Gavin?
Yes. Andrea, from an overall environment point of view, the off-premise in the North America continues to remain strong. And the on-premise seems to have settled down at sort of roughly 60% of historical levels from a sales point of view. So down roughly 35% to 40% on an ongoing basis, and we haven't seen much move on that recently, so that that's sort of North America.
From a Europe point of view, in Central and Eastern Europe, we saw about 85% of outlets reopen. I would point out that the fourth quarter is – on-premise is less of an impact for Central and Eastern Europe because there's much less tourist activity during that time period. That takes place more in the second and third quarters. In the UK, for the third quarter, we had good weather that was supported by the government's program to eat out at on-premise outlets.
And so we saw a much better performance from an on-premise point of view in the third quarter. And obviously, as we head into the fourth quarter, there's a lot of uncertainty around that because it has obviously sparked in the UK and there are all localized lockdowns. So we'll have to, I guess, see how the quarter in the UK progresses. Your third question there was around inventory levels, certainly our 12-ounce industry standard can supply stabilizing, it has improved consecutively for the last four or five weeks, and we see it continuing to improve into the balance of the year.
The shortage for some of our exciting innovations like Vizzy and Blue Moon LightSky is driven by the strong success of those two brands. And we would expect to see the inventory for both of them improve meaningfully as we head into the fourth quarter and that new capacity comes online in Milwaukee and Fort Worth. Obviously, the shortage would be more pronounced for 12-ounce tall cans. And we are seeing that stabilizing and starting to improve.
Super helpful. Thank you so much.
Sure.
So the next question comes from Sean King of UBS. Please go ahead.
Hi, thanks for the question. I guess looking into 2021 what math – what metrics or cash generation levels would you need to see to consider returning the dividend?
Tracey you want to take the dividend question.
Yes, so, hi, Sean. Look, as you know, we suspended our dividend in May for the remainder of 2020. The situation remains fluid. And we had ongoing conversations with the Board, so we cannot really comment on our dividend policy beyond 2020. What I can tell you though is, the company has got a very long history of paying dividends and we fully intend to reinstate the dividend as soon as appropriate.
And right now the current focus is to ensure we had adequate liquidity. And as I mentioned in the prepared remarks, we think grate improvements to our liquidity, we've reduced net debt by $1.2 billion, as I said, since we announced the revitalization plan. And we continue to reduce our net debt to EBITDA ratio quarter-after-quarter. So that's about as much as I can tell you until we have further discussions with the Board.
Thank you very much.
The next question comes from Bryan Spillane from Bank of America. Please go ahead.
Hey, good morning, Gavin and Tracy. Thanks for taking the question. Gavin, I guess, my question is just around the Seltzer portfolio and like what it will take to support the market share ambition that you articulated earlier. So maybe if you could just give us a little bit of color in terms of how you are approaching that, is it – will it come with significantly increased like amounts of advertising is there – will it will require spending to get product on the shelf? It just seems like – there's a big opportunity, but there's also a lot of brands trying to get into the market next year. I’m just trying to understand kind of what resources it'll take to really differentiate with what looks like a pretty good product lineup for next year. Thanks.
Thanks, Brian. Look, I mean, from a focus point of view next year, as we look at marketing spend, obviously we've got a big focus on our core brands, Miller Lite, Coors Light, and Blue Moon. And then we've got a really big focus on our sell support portfolio. So, we will be giving the required investment behind Vizzy, and Coors Point, and Topo Chico, Coors sales the next year that they need in order to be successful.
In the third quarter, we actually spent – we doubled our media spend from Q2 behind Coors Light, Miller Light and our two big bits, Vizzy and LightSky. And in the fourth quarter, you can expect to see a ramp up of support for both of those Seltzer and Blue Moon, LightSky as the additional supply comes on online. So, those are our two primary focus areas. Our core brands and our Seltzer portfolio, Brian, and we will put the necessary money behind it to make sure they are successful. The early signs are good. They're very differentiated. They are clearly resonating with consumers. And lots of excitement from the distributors as well.
And Gavin is there any sign that just that competitors are spending to get shelf space? Just trying to understand if there's anything that we should be thinking about there in terms of slotting, or just, any – is it getting too expensive to get product on the shelf?
Yes, Bryan in the alcohol space, it's illegal to pay sliding fee, so they wouldn't be – in the United States, so they wouldn't be doing that, or if they would, that would be a problem for them. Certainly from a media and national spend point of view and the strength of our chain teams and our selling teams that's how you get shelf space in the U.S. And we're confident we're going to get it for our four brands.
Thanks Gavin.
The next question comes from Steve Powers of Deutsche Bank. Please go ahead.
Yes. Hey, thanks. So I'm not sure if this is disclosed somewhere that maybe I overlooked today, but can you talk about where the above premium part of your portfolio sits as a percentage of the total in the U.S. at least, I know you said it was at an all-time high, and which makes sense. I'm just wondering if you can give us an order of magnitude.
And more importantly, around that, just given all the learnings you've had and all the new initiatives that you've developed in that space, Seltzer inclusive, but not limited to Seltzer. How are you thinking about the aggregate above premium opportunity going forward? I mean, how much can above premium growth contribute to total Molson Coors portfolio growth over time? Thanks.
Thanks, Steve. Look our above premium share about portfolio in the U.S., which I think was your question is just north of 10%. And as you rightly out what we pointed out, it grew very meaningfully in Q3. As far as the potential is concerned, look, we've tried to give you some indication of where we think the above premium portfolio can go. We do believe we can get a 10% or double digit market share of the of the Seltzer category. We think that that is a big category and it's – despite some of what you might have read recently, we don't see it slowing down meaningfully. I mean, 50%, 75%, 100% growth in 2021. There isn't another part of the beer category that, or the industry that has that kind of growth potential. I think everybody has always said that it's not going to grow 300% forever.
So, I'll take 50%, 75% or a 100% anytime from an overall segment point of view, and we believe that our differentiated portfolio can get a double digit share of that, which would have a meaningful impact on our above premium share of our portfolio.
And then of course, there's the beyond beer space in the emerging growth division, which all of it really is in the above premium space from a price point of view. And from a revenue point of view, we can see that getting to a $1 billion in the next three years. Yes, I think those are your questions.
Yes, that’s good. I can work with that. Thanks so much.
Thanks.
The next question comes from Rob Ottenstein from Evercore. Please go ahead.
Great. Thank you very much. So I want to kind of focus on the core brands, Coors Light, Miller Lite. And kind of two questions on those. Can you give us a sense of how you feel about kind of where you are on the creative marketing side of things whether you are getting the, kind of the right message across now, are you happy with that? Happy with how the brands are differentiated and how you're segmenting the business or the brands? And maybe, any data on brand health would be helpful?
And then tied to that and kind of back to prior questions on complexity, how do you keep the distributors focused on those when they've got so many additional brands that they need to get placed and put on the shelf? And are you going to have to kind of adjust some of your terms to distributors to make sure that you get their mind share, given the incredible proliferation of innovation and brands that's going on right now? I mean, it's got to be absolutely overwhelming for a lot of distributors. Thank you.
Hey, good morning, Robert. Yes, a lot in there. Let me try and parse that out. To start with the Coors Light, I mean, we feel really confident in the brand's direction. We're seeing strong brand healthy improvements, particularly amongst the 21 to 34-year-old consumers, which is really good. Coors Light’s improvement in consideration amongst 21 to 34-year-olds is high than any other brand in the category that we checked. So I feel very good about the direction of the Coors Light’s brand health.
The team continues to reinvigorate the brand. We launched a refreshed and modern packaging design across all of our skews in early August. And based on the testing that we've seen, we find that consumers found that the new design is much more refreshing, it's memorable, it's unique, particularly when you compare it to Coors Light’s competition.
And based on the early results that we've seen, we’re seeing volume and velocity gains as a result of that new packaging. And I think it will be fully retail through probably already there, if – if otherwise it will be there in the next week or so. From the “Made to Chill” campaign, we've had new assets that we've put out, plus we have a new brand campaign promoting all expenses, paid trip to your video conference background, which has been well received by the consumer base. So overall feel very good about Coors Light. We saw in Q2 the brand drive significant share growth in premium light, and have continued to gain, share of the segment in Q3. And we'll build on that as we head into Q4.
From a Miller Lite point of view, it's also accelerated both from a segment point of view and an industry point of view. It’s shared with, we very proud of the 24 consecutive quarters of share growth that we've had as a six years of growth. And we think it's got a nice opportunity to continue to accelerate. We have launched new creative, particularly around it's calorie message and targeting a competitor. And we believe that Miller Lite proposition can strongly challenge that competitor. And we also have big plans to continue to build Miller Lite during the tea beer moments including football. So we've launched the Cantina, we're leveraging NFL partnerships. And in November, I think, it is we'll launch a larger than ever holiday program behind Miller Lite. So, overall Robert in this environment, we're very pleased with the strength and the share guidance that both of those brands have gained.
And from a distributor mind share point of view, Coors Light and Miller Lite are really big, meaningful parts of our distributors houses. They lack what we're doing on those two brands and that's reflected in their ordering profile. So I don't have concerns with our distributors placing focus on Coors Lite and Miller Lite. It's the sort of foundation that many of the distributor ships.
Just want to make sure I summarize this. So at this point now, because it's been a little rocky obviously over time, you, believe that the creative is where it needs to be and the brand health trends are going in the right direction and you kind of like how the two brands are segmented.
Yes.
Great. Thank you very much.
The next question comes from Kevin Grundy of Jefferies. Please go ahead.
Great. Thanks. Hello, everyone. Gavin, question for you on the Yuengling joint venture, so three of them, if I may. One, how quickly do you intend to roll out the brand into new territories? Question number two would be, are you prepared to comment at on the financial impact level of spend or earnings accretion? I suspect not giving the guidance is off the table altogether for the company. But I think sort of weaving that in with the focus on the core within your portfolio and Seltzer, it doesn't sound like Yuengling is going to be a huge priority in terms of investment, at least for next year, but maybe you can correct me on that.
And then just lastly, it'd be helpful, I think, comments on the potential for cannibalization given the overlap with premium and premium lights in your existing portfolio. So thanks for all that.
Thanks, Kevin. Look from an economic point of view, it's a 50:50 ownership structure. So 50% of the benefit will come out and 50% of the benefit will go to Yuengling. From a speed point of view, we've – I think we'll expect to have Yuengling originates first market in the second half of next year. We'll be in a position to advise which market that's going to be soon. And we'll roll out in a deliberate pace beyond that.
If you look at where Yuengling has traditionally sourced its volume from when it's gone to a new territory, it has not primarily come from our brands, its source of market shares has come from one of our largest competitors and we wouldn't expect that to be any different as we roll out into new territories. We'll be accounting for it on the equity method. But you can be assured that we wouldn't have entered into this joint venture if we didn't believe that it was going to be accretive to our profit in our earnings.
That's very helpful. Thanks for the color.
You are welcome.
The next question comes from Kaumil Gajrawala from Credit Suisse. Please go ahead.
Hi, good afternoon, everybody. Please, you gave a lot of puts and takes on MG&A, and I just want to make sure I understand, I believe you're looking for the MG&A for the second half to beat up. However, obviously it was down in this particular quarter. I'm just curious if that has changed and is maybe 4Q intended to be a catch-up from these numbers perhaps coming in later in the third quarter.
And then if you could drill down a little bit on that MG&A number. Gavin, you provided some insights on your advertising spend. However, I'm just curious if you can give maybe a little bit more on what's your aspen was and its entirety for the third quarter and maybe where you expect it to go for 4Q. Thank you.
Thanks Kaumil. Look, I mean, we – I'm not going to give you specific numbers. We just don't do that. But I can give you some color. From a media and advertising spend point of view, it ramped up significantly within the quarter and compared to prior year. In the third quarter, we actually spent more in the U.S. national local media than the year previously. And as I said earlier, we doubled our media spend from the second quarter on Coors Light and Miller Lite, and our big bet Vizzy and LightSky.
Our media spend in Canada was also higher in Q3. We've really had been focused on trying to be nimble given the environment and particularly with areas like sports, events and festivals. We have the lack of sports events and the lack of perhaps effective sports events in some cases it's allowed us to renegotiate payment requirements and that's we've taken less expense in the third quarter based on those very successful renegotiations that we've had.
In terms of the fourth quarter marketing spend, we do expect our marketing investment to increase from the prior year as we continue to build on marketing, spend behind our core brands and the strength of the brand health of both Miller Lite and Coors Light. And we all going to ramp up spend on a Blue Moon LightSky, Vizzy and Coors Seltzer in alignment with when the additional suppliers coming on in the fourth quarter.
But of course we'll monitor what's going on. We'll monitor the environment and we'll be fluid and nimble if we have to be. But our plan is to spend more in marketing in the fourth quarter. From a G&A point of view, Tracey is anything you want to add to what you'd said originally?
Yes, I mean, I think for quarter three, we were broadly flat. This is the prior on the G&A side. We've spoken about our revitalization savings and we delivering well against those targets. And as well as, we targeting other sort of discretionary type spend due to the environments has guarantees that we operating in. When we look at Q4, I do want to remind you that we have got some unfavorability versus prior year. There definitely will be destocking of someone off actions, which related to one time being the benefits and then also lowering change of the accruals in the prior year end. We've given that number that’s roughly about $27 million in the quarter that we're going to be destocking, hopefully that helps a little bit on the G&A side.
Okay, got it. Thank you. Second, first of all, congratulations, you've announced quite a few deals in recent weeks, or I suppose, recent months. If we were to think about all of these deals collectively, is there any insights you could give us on how much of an incremental contributor, perhaps all of these new initiatives, JVs, product launches, how much they could contribute to the – at the group level?
Let me answer that question this way Kaumil. I said in my prepared remarks that we expect the emerging division on the Pete’s leadership to get to $1 billion in revenue in three years time. And so, under Pete's leadership, we've got the cannabis joint ventures in Canada, we've got the new cannabis joint venture in Colorado. We've got non-alc space which is primarily at L.A. Libations. We've got the Wine & Spirits group, which has got Movo in it at the moment. It was all sources of all our regional craft and an export license and distribution businesses fall under Pete. But to be more specific maybe to get to $1 billion we will have to grow that division by about 50% over the next three years. Hopefully that helps.
It does. Thank you.
The next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead.
All right. Thank you. Good morning. I actually had a follow on question from just a few of the earlier ones, but may be asked a little differently. I guess I'm wondering, how willing you guys are to let margins come under pressure as you potentially ramp spending overall behind all of your different initiatives in an attempt to revitalize your business. I guess I'm wondering if you might be entering a period of lower margins and maybe slower earnings growth, again, as you try to pivot your business, is that a reasonable expectation maybe for the next year or two until your top line accelerates to some of the goals you did call out such as the double-digit share in hard seltzers, the $1 billion from your emerging growth portfolio, et cetera. And I guess I'm thinking about in the context that there might not be a lot of scale from each of these different initiatives for some time. Thanks.
Hey, Bonnie. Good morning. Look, I mean, from a scale point of view, I'd guide you to the $1 billion. I just spoke about in a second and grow that division by more than 50% to get there. As we – I'll put you back to the revitalization plan, the revitalization strategy, which we're executing against. When you starting to see the benefits of that coming through on the mixed line certainly, very profitable brand mix improvements. The U.S. alone, we increased our brand mix favorability by 260 basis points in the third quarter. I'm not sure we've seen a level that high in quite some time.
Our revitalization strategy was designed from a structure point of view to take cost out of our business, so that we could actually invest in marketing. So what you're seeing now is a delivery of that exact strategy, which we put in place, change the structure, eliminate some office locations, make the necessary changes in order to deliver the firepower that we needed to execute above premium and beyond beer and at the same time and importantly supporting our core brands. So it's all, it's coming through as we had planned.
All right. Thank you.
As a follow-up question from Lauren Lieberman. Please go ahead.
Great. Thank you. Sorry. I lost my place. I just was – you've talked about the strategic review since late last year. And I just was wondering, would that the specific language around a quote strategic review? Is there anything you can talk about in terms of what's been looked at? Where that process stands and maybe where a refresh might be needed in terms of strategy or footprint. Thanks.
We talked about a strategic review, Lauren, so I'm not necessarily sure what you're referring to. All I've talked about is the revitalization strategy and what we're doing on the revitalization strategy, where our focus is, where we're trying to build capabilities, and where we're trying to take cost out of the business. And we tried to lay it out in the earnings release, very clearly all the actions we've taken under those five pillars of our revitalization strategy, and that's our focus. And we're all very pleased with the progress we've made right in the middle of a pandemic. So feeling good about it.
Great. Okay. Thanks so much.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Tierney for closing remarks.
All right. Thanks, operator. I appreciate everybody’s attendance and all the questions. If you do have additional questions that we weren't able to take, or that you weren't able to ask today, please follow up with our Investor Relations team and then Tracey and I will look forward to you – taking you through it as the year progresses. With that, thanks very much. And thanks for attending today.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.