Molson Coors Beverage Company (TAP) Earnings Call Transcript & Summary

All right. Well, good afternoon, everybody. Thank you for joining us here today. We are delighted to have Molson Coors here. So we have Gavin Hattersley, President and CEO of Molson Coors; as well as Tracey Joubert here, CFO. Now before I get into the many questions, I'm interested in asking you both just a housekeeping item. If you would like to submit questions, there should be QR codes around the room as well as on your badges. That will take you to a link where you can submit questions, and I will get it here on the iPad.

So let me kick off with a broad question. So Gavin, since you became CEO, you have had some big changes, the revitalization plan. You've had to navigate the business through COVID. Now if I look back at the last 3 years, how can you characterize how your business has changed over that period?

Thanks, Nadine. Thanks for having us. Look, I mean, given the context and even without the big environmental context in which we've operated, I think we've made tremendous progress. If you look at the 5 sort of parts of our revitalization plan, the first part and important for us because it's such a big part of our business is stabilizing the core and getting it into a really healthy position. And we think we've made tremendous progress there. You just have to look at the performance of Miller Lite and Coors Light in the U.S., Coors Light in Canada and some of our core brands in our Central and Eastern European and U.K. markets to see that. We're growing share of both of those brands in segment. We occasionally grow share in the overall beer category with those 2 brands. And frankly, they're as healthy as they've been in a very long time. Our inventory levels are where we need them to be. So supply and out of stocks is not a problem to support the health of those brands. The second part of that was Above Premium. And we struggled a little bit with that in the beginning of the pandemic because our Above Premium portfolio skews to the on-premise. With the on-premise coming back in a meaningful way, particularly overseas, but also here in the U.S., brands like Blue Moon and Leinenkugels, Peroni, Madri in the U.K. are all performing very well. So we're pleased with the progress there. In our beyond beer space with seltzers, that's where we've made tremendous progress with Topo Chico Hard Seltzer and with Vizzy. I mean we essentially came out of the -- into the revitalization plan with effectively no share of the fastest-growing segment. And now, today, we have the fastest-growing share of the seltzer segment. We've narrowed the gap substantially between ourselves and the #3 player. They're in our sights. We've got 2 very differentiated healthy brands. So we're very, very pleased with how we've done with from a seltzer perspective. And then beyond beer, we've made more progress than I could have imagined at the time with some of the new partnerships that we've got and new spaces that we've entered into with ZOA being the lead contender there. But we've also done this in Canada. We've also done it in Europe. From a building capabilities point of view, which was the fourth part of revitalization plan, that is not only from a people point of view, but also from a capital point of view. And we've now got slim can capability in many of our breweries. We've got seltzer capability on all 3 of our big territories where we operate. And we've grown exponentially in terms of how we're going to market in the digital arena. And then the first leg, we've essentially finished that. That was the cost savings reorganization, which was needed to fund the first 4. And by and large, that's complete. We are a more efficient, effective organization now. We're less -- we've removed whole layers of leadership. The space between people wanting decisions and the decision makers is very narrow, and we're just much, much quicker. So I would characterize our progress as I'm very pleased with where we are. We've got momentum. We've got tailwinds behind our brands and Tracey and her team have done a tremendous job kicking up the balance sheet which is -- to as good a place as it's been in a long time, and I'm feeling really good about where we are.

And while we're on the topic of what has changed over the last 2 years looking at COVID, the on-trade, that has obviously been through a roller coaster. So if you could give us an update on where your on-trade business is, both for perhaps the Americas and then EMEA, APAC. And then a step further, do you think we will get back to pre-COVID levels of on-trade opening?

Yes. It's very different between the -- in the different markets in which we operate. So in the U.K., we're pretty much back to where we were pre-COVID, and that's holding its own. That's a very important market for us. 75% of our sales in the U.K. go through the on-premise. We're very good at it. Our share is strong. It's getting better. So we feel really good about that. Canada is a little bit further behind everybody. I think we said on the Q1 call that we were at about 55%. So that's improved a little bit, but they are still trailing. And then in the U.S., we gave a number of 87%, I think it was in the first quarter. And I do think that that's going to get back to a 100%. I just think it's going to take a bit of time. There are some places where the on-premise is not back. New York would be a fine example of somewhere, which is taking a little longer to get back to "normal." So -- and then in Central and Eastern Europe, that's probably the market which is feeling the recession potential and inflation and pricing a little bit more than anywhere else. On-premise is important during the summer months there. So the jury is still out on that.

Well, as someone who lives in London, I've been doing my fair share to help the on-trade reopen.

Thank you.

So with the on-trade reopening, we're also seeing consumer wallets getting squeezed. So through the lens of your business, what would you say is the health of the consumer today?

I think the consumer is pretty healthy. We have seen a slowdown in premiumization, but we haven't seen a reversal of it. So you would -- you perhaps would have expected with inflation where it is, with consumers' disposable income getting a little bit squeezed that you would have seen down trade. We haven't seen that yet. If we do see it, I think we've got the perfect portfolio in all the territories in which we operate to cater for that. We've got a strong economy portfolio. We've got a strong Premium Light portfolio, which is, as I said, as healthy as it's been in a very long time. And I think we're well positioned there. Unlike some of the competitors that operate in this space, we don't have 100% of our portfolio sitting in Above Premium, which will be much more susceptible to down trade.

And so if I draw on your incredibly long experience in beer, how has consumption habits changed in recessions previously? Or can we even use that comparison to what might happen today? Is that even a relevant comparison?

I think the more recent financial crises, recessions haven't demonstrated what you might expect, which is a trade down. It just didn't happen. In fact, almost the opposite happened, and the same thing happened coming in into the coronavirus, right? You would have expected the -- all of the fear that existed around the pandemic and concerns and the unknown that would have driven people down. It actually didn't. It drove people up. Now I think we're heading into a different time. I do think this is more severe than anything we've seen for the last 30 years. And so we'll have to wait and see how the consumer reacts. But as I said, so far so good. We haven't seen it.

And so, Tracey, maybe one for you. We've been focusing at all on the strategy and the brands. But as coming out of COVID, what are the key financial aspects that Molson is really focusing on achieving over the next 1 to 2 years as consumption patterns hopefully normalize and we return to, dare I say, more normal environment?

Yes. I mean, I'll take you back to the revitalization plan. I mean we put that pen in case, and the aim is to grow both our top line and our bottom line sustainably over the long term. So the stuff that we're doing on the portfolio, premiumizing the portfolio is growing that top line. Some of the stuff that we're doing from a cost savings point of view, from our marketing efficiency spend helps drive the bottom line. So for us, it's maintaining our investment grade and over time improving our investment grade. So from a balance sheet point of view, that's really important to us. From a P&L point of view, it's growing the top and the bottom line sustainably over a period of time. And then the third is around returning cash to shareholders and our capital allocation.

Maybe it's your mic that have the issues. No, that's very clear. Right. So you guys mentioned your brands. So let us dive into that portfolio a little deeper. So you had mentioned the goal -- one of the goals of the revitalization plan was to stabilize the performance of the iconic Miller Lite, Coors Light, but also position them for "sustainable growth". And so putting the odd COVID comps to one side, how do you plan on bringing those 2 brands not only to growth today because I know we've discussed that, but thinking 1, 2, 3 years ahead?

Well, if you look at the performance of those 2 brands, we grew the top line for both Miller Lite and Coors Light last year for a full year for the first time in I don't remember when, certainly a long time. We grew them both again in the first quarter. And as I said, the health of those brands is strong. I mean I think the marketing team has done a tremendous job differentiating those 2 brands, being very consistent with messaging, the consumers understand them. They've used marketing extremely efficiently. And as I said, they're in great shape. They have continued to gain segment share for a very long time. They are gaining share from a -- on a dollar basis in the category and not far off from a volume perspective. Any trade down that we might see out of Above Premium, I think will benefit both of those brands meaningfully because they are so healthy, particularly vis-à-vis their largest competitor. So that's not only the -- what we're seeing in the U.S. In Canada, Coors Light is in a great place. They have used the campaigns that we're doing here very effectively up in Canada. It's all under our Chief Marketing Officer, Michelle's leadership. And I think they've done a tremendous job putting those brands in a place where they can be sustainably successful.

And what do you think those marketing initiatives pinpointed exactly to get the consumer reinvigorated behind those brands, especially given that you are gaining share of segment compared to your other premium light competitor?

I think consistency is one of the big drivers. I think the teams have been very consistent in establishing what the message was earlier. Chilled Refreshment for Coors Light and Great Taste, It's Miller Time for Miller Lite, and they've stuck to those themes. Even when we were faced with the pandemic, I mean, Miller Lite's whole focus, their campaign at the time was going to be on-premise. And of course, that was not going anywhere. And the way that, that team pivoted on a dime and within a matter of weeks or even days pivoted but stayed true to the message, I think, is being recognized by the consumer. They understand what those brands are and what the role they're trying to play.

And so if I look across other large categories within U.S. beer, obviously, the true standout has been Mexican imports which is an area most imports under indexes. So where do you see yourself within that category playing a more meaningful role over the next 1, 2, 3 years? Or is that something that is the barriers to entry are just so high that it would be very difficult for anybody, even Molson Coors, to do it?

Well, I think trying to create a Mexican import in the U.S. is not doable. And so that's not a -- it's a contradiction, right, a Mexican import that's created in the U.S. I think our performance with Sol Chelada has been very good. It's a very small base, though. But we've put -- our emphasis with Sol has been in the Chelada space and that brand is growing quite nicely. I do think when you look at the switching data that Miller Lite and Coors Light have the ability to attract consumers from the Mexican imports and in fact they do. And so as those 2 brands get healthier and healthier and healthier, we believe we can [ source sprinters ] from our big Mexican import consumers.

And so another category you've spoken a lot about as part of your revitalization plan has been the -- your Emerging Growth division, which you have put a $1 billion net sales target for that segment by 2023. So could you give us a sense of where you are today versus that goal? And then if I can preempt, of that growth, how much of that has come from your existing craft and Latin American business and how much of it has come from the new initiatives like cannabis-infused beverages, the RTDs, the energy drinks, et cetera?

Yes. So the short answer is we're ahead of our goal. So we're ahead of our plan to get to $1 billion by the end of next year. Within the sort of core sort of historical part of our Emerging Growth division, the Latin American, South American called our export business is doing exceedingly well, had a very good year last year, notwithstanding the impacts of coronavirus, and that's continued into this year. So really in a good place. Our distribution businesses had an -- is performing outstandingly. And our craft businesses, whilst not performing as well as those 2, is holding its own. I mean they are very on-premise focused. And so with a stop-start nature of the on-premise, opening and closing, it's been more tricky for our craft business. But from a health point of view and a share point of view, feel good about it. Almost all of the growth that has come from our new businesses, whether that's our joint venture with Yuengling; whether that's ZOA; our energy drink, La Colombe; our cannabis-infused beverages where we have a market-leading position in Canada. That's where all the growth is coming from. We've had a steep learning curve in some of those spaces. And I think we're just hitting our stride now. We're only now getting into some of the big chains. With a brand like ZOA we made some mistakes, as you would expect, as you're getting into new spaces. We have fixed those mistakes. And I think our platform in spring waters is now ready for us to accelerate. And then retail is supporting us. Our distributors are supporting us. And it's an exciting new part of our business.

And what are those mistakes? And what did you learn from them for the next iteration of innovation?

I think there were a couple. The biggest with ZOA was we put too much emphasis on the fuller calorie sugar version of ZOA when actually the consumer wanted the zero sugar version. And so we've spent the last 6 months flipping the dial on that. We don't even produce the fuller calorie version at all. All of our emphasis is on the zero calorie, which is what the -- zero sugar, sorry. It's not zero calorie. It's about 15 calories -- on the zero sugar side of ZOA. If I had to look back, that's probably the biggest mistake that was made and we fixed it.

Yes. And I know we've discussed previously having that faster reaction time with core seltzer as well. So maybe that's a great transition to the seltzer category, which has gone through a roller coaster this year. What's your view on the long-term potential for that category? Where do you think it will end up in terms of whether that is share or presence of mind for consumers in the long term?

Yes. I don't want to fall into that. I told you so, a category, right? But I guess I'm going to because we said right from the beginning we didn't see this category growing at the triple-digit rates that it was. I know some folk had a different view. Folks thought it would get as big as premium lights. We didn't think it would. It has sort of settled down in this from a value perspective around 10 share of the overall beer category and somewhere between 8 to 9 from a volume share point of view. It's declining at the moment. I don't necessarily think that that's the way it will be always. But I don't think we're going to see the -- certainly we won't see the explosive growth rates. But we probably won't see teen growth rates either. It will be smaller growth rates. From our perspective, though, the opportunity is vast because we've got 2 really differentiated products. We have got products which retailers and consumers love. We've got a relatively low share. As I said, we came into this -- into the pandemic with essentially no share at all. And in the 13 week in the track data, we're already strongly into the 8% range, which is substantially higher than it was even coming out of the end of last year. And some of the shorter reads, the 4 week and the 1 week, we're 9%. We hit 10% at one point in time. And Topo Chico is gaining momentum. We launched it nationally in January. We've got great distribution. We've got great placements, but we've got a lot of runway for that brand, and I'm very excited about the opportunity for that brand. I mean some of our first launch markets for seltzers, we're well into the mid-teens from a share point of view. So the rest of the country is catching up and catching up quickly. So I feel very good about our position in the seltzer space. It is a big segment. Even though it's stopped growing, it's still a big segment in the beer category, and I think it will remain so.

Well, Topo Chico Hard Seltzer and Vizzy are 2 of the very few brands that are now in growth in that category. And so what do you think the driver behind the success of those 2 brands today has been when so many other brands are struggling to deliver growth?

You're right. They are. I mean collectively, we are the fastest-growing big company from a seltzer point of view, from a share point of view. I think we've got 2 great tasting liquids. I think we've got 2 very differentiated brands. In Topo Chico, we've got a name that's been around in Mexico for, I don't know, 160 years. So it's got name, recognition already. And I think our marketing team and our sales teams are doing a great job marketing that brand and getting it out there.

And from memory, you were introducing the last bottle Topo Chico Hard Seltzer in an attempt to increase penetration in the on-trade. Now from memory, that was before Omicron. What was the update on that? Has that helped increase on-trade penetration for seltzers?

It has. It's helped us. Topo Chico has got a very iconic model. And I think we launched strawberry guava in the on-premise. We haven't launched it nationally. We're being very deliberate about our rollout strategy from a capability point of view. And so we've launched it primarily in the South. I think Texas, Oklahoma, maybe a few other states that slip my mind, but that's where we've launched it. And it is giving us the opportunity to grow our on-premise profile.

You made the bold decision to rationalize your portfolio. Mostly looking at economy squeeze, about 100 of those have been rationalized I think starting just over a year ago. But you made a clear point to emphasize that economy still held an important part of your long-term strategy. So what was behind your conviction of maintaining an emphasis on the economy beer category?

No. We've always said that consumers drink through all categories, right? They do. There's a space for every price point. And so some people have erroneously concluded that we're walking away from the economy space. We're not. Not at all. What we have done has become way more focused. It's helped us right throughout our value chain. So it's helped our breweries from an efficiency point of view. We've taken a lot of complexity out of our breweries. It's helped us make sure that our inventory levels are as good as they've been since before the pandemic. Our out of stocks are as low as they've been in 3 years. So it's taken a lot of complexity out of supply chain. It's given a lot more focus to our marketing and sales teams. They don't have 20 different brands to focus on in the economy space. We've got 4 now we're focusing on: Keystone Light in the light space; Miller High Life in the regular space; Icehouse in the ice space; and Steel Reserve. So those are the 4 that we're placing a lot of emphasis on. It's helped us from a retail point of view and a total focus point of view. So it was not necessarily a wildly popular decision in some quarters, but it's certainly, from our perspective, is proving to be absolutely the right decision. We'll continue to cycle that for about -- probably until the end of the third quarter at an ever-decreasing rate because we did pause some SKUs early on after the cyber attack last year. And we really only completely eliminated everything towards the back end of the third quarter. But you can already start to see an improvement in our overall economy portfolio. Although it's the only part of our business right now that's not doing well from a share point of view, the reasons are obvious, and we'll start to cycle that Q3.

I want to move on to a topic, which I think has had a lot of attention across different companies and sectors over this conference, which has been input costs. So maybe for the generalists in the audience, could we kick off with highlighting and perhaps quantifying the sources of input cost pressure Molson Coors is facing this year or next year?

Yes. I'll take that one. So on our Q1 call, we did speak about seeing the inflation, like everyone else is, I'm sure. And we expect to see continued inflation for this year. There's been a couple of things that have improved. So for example, we're seeing freight rates come down. As more drivers into the market, we're seeing those rates come down. So it's -- there's some puts and takes. But when we had our Q1 call, we spoke about our COGS per hectoliter going up about 8.6%. Now roughly half of that was due to inflation and the other half was due to the premiumization of our portfolio. So as we move our portfolio to Above Premium, it comes at a higher COGS, but it also comes at a benefit to the margin line. So that was Q1. A couple of things just to point out as we look at COGS going forward and the input costs and some of the levers we've got to pull. So we hedge all our commodities and every commodity that we can hedge and that we use will hedge. And our hedging program is not sort of systematic or programmatic. We don't just layer on 10% a month, for example. We have a team that tracks this minute by minute. They watch the markets 24/7, and they operate within guardrails. But really, it's the insights on what they believe the commodity is doing, the liquidity of the market. And that's how we make our hedge decisions. So for example, when Russia invaded Ukraine, we didn't all of a sudden have to layer on aluminum at $4,000 a metric ton. We were able to sit back. We felt we were in a good hedge position, sit back and wait for it to come down. And if you've been tracking aluminum, you'll see it's come down significantly since the beginning of the year or at least end of February when Russia invaded. So our hedging program certainly helps us offset a lot of the inflation that we're seeing from input costs. We've also built up a lot of inventory and a more diversified supplier. So that gives us a little bit of leverage. But other levers that we pull is the premiumization. So that helps offset some of the inflation at higher margins. Pricing, we did put pricing into the market a little bit earlier than usual, a little bit more than we typically would. So that helps us offset. And then we've got this cost savings program. At Molson Coors, we're always looking at being more efficient. We're looking at cost savings. So we've got the $600 million cost savings program that we put in place at the beginning of the revitalization plan, and we're delivering against that. So yes, we expect to see inflation continue, but we have got levers to help mitigate some of that.

And so zooming in on that pricing point, if I look at the latest Nielsen Scanner Data, from memory, it's price/mix growth year-on-year, about 6%. I appreciate there will be a channel mix, et cetera. But are you seeing any elasticity impacts on demand from these price increases yet?

Not that which you would expect. Certainly, the elasticity hasn't proven to be as much as we thought it would be, but we really are only a few months into these price increases. And the price increases are more than double what we've normally put into the market. We normally historically put in 1% to 2%. And this time around, we put in 4% to 5%. The answer is no. I mean we have seen a slowdown in premiumization. I think that's largely due to the slowdown and negative turn for seltzers. But we are not, at this point in time, seeing a trade down or an overly large impact from an elasticity point of view.

And so your -- this might be an unfair question, but your largest competitor has announced that it would be taking pricing earlier than usual in the fall of this year as well as the earlier pricing that they took this year. Would we -- could we fairly expect you to follow that pricing increase given the amount of pressure that everybody in the industry is facing?

Not an unfair question. I'm just not going to answer it.

It was worth a shot.

We -- as a matter of practice, Nadine, we don't talk about price on to the future. What we do, do, though, is we've been very clear. We manage our brands in a brand-by-brand, pack-by-pack, market-by-market basis. We don't follow. We, in many markets, lead pricing. And we surely look at what the competitive space is doing. We look at it broadly, though. We're not just within the beer segment, but also outside the beer segment, what's happening from a marketing point of view -- from a pricing point of view. I think Tracey mentioned that we have a number of levers to pull. Price is one of them. Cost is another, both our premiumization. If you saw the first quarter with our revenue per barrel was double digits. Half of that was pricing and the other half was primarily mix related and primarily Above Premium related. So we do have a lot of levers to pull. Of course, we'll look at what's happening in the environment and what's happening internally and we'll make a call at the right time.

I mean could you compare and contrast the input cost pressures you're feeling in your North American business versus your European business?

Yes. So look, we hedge across all our geographies. So that program is pretty much in place and covers all the countries. I think if you look at some of the -- just the structural operations, so in the U.S., we have a 3-tier system. The distributors really distribute the beer. We have a freight and fuel program that we share with them. In the U.S. -- in the U.K., Central Europe, it's a little bit different. So we distribute our own beer. And so just the setup is a little bit different. But we're seeing similar types of inflation and input rates across all our geographies. I think you can -- Gavin spoke about Central and Eastern Europe feeling a little bit more of inflation in Central and Eastern Europe just because of just the sort of dynamics there in terms of earnings, et cetera, and disposable income. But at this stage, we're pretty -- we're seeing it pretty much uniform across the -- across our geographies.

Got it. One topic that I know I've discussed probably with a lot of people in the audience increasingly over the last 6 months has been blurring of the lines. Now we can look at this by partnerships or brands. But maybe if we start with what's coming up, I think this month, Simply Spiked. So maybe if I start broad, the Simply brand obviously has very strong brand equity. What do you think will give it the right to win in the FMB space beyond Simply, no pun intended, the -- it's branding?

Look, we're as excited as we were about the launch of Topo Chico. We're even more excited about the launch of Simply. And this is based on retail distributors, consumer reactions. So we think we've got a real winner here. I think the important thing to remember is it's not a seltzer. It's a fuller flavor. It's a FAB, FMB whatever you would like to call it. I think why Simply is going to be successful is you obviously hit the nail on the head, right? It is a well-known brand. It's in 1 of every 2 households in the United States. And I think our teams, together with Coca-Cola teams, have really cracked the taste profile of this -- of Simply Spiked. It tastes like you would expect it to taste. And that's baseline for the consumer. If the consumer doesn't like what -- the taste, it doesn't matter how good the branding is. And I think our teams have really cracked that with this one. I think the -- how we're bringing it to market, the flavors they've chosen are on the button. So I'm -- in case you didn't notice, I'm pretty exuberant about this one. I think -- and as you rightly say, it's going into the market right now, in June. So it shouldn't be hitting retail until the -- towards the end of the month, but we'll be ready for summer.

Well, we actually had someone in the audience asking has Molson brought any of their products that we could sample? So I think they'll be a little disappointed that Simply isn't on there yet, but perhaps next year when that product is out. So actually, keeping on the topic of Coke, can you actually expand on how that relationship works? So maybe starting off with the brand development process. How does that work practically between both of you taking Topo Chico, for example?

Without getting into the nuts and bolts of how we -- of our agreement with Coke, I would tell you that the team is working incredibly well collaboratively. So get to take the taste of Simply. I think the Coke team and the Molson Coors innovation team has got in the room for 3 days and got it right. And that's how we do everything. Our Chief Marketing Officer works incredibly well with her counterpart across at Coca-Cola about how we're bringing these brands to life. It's a great partnership. It's working well.

And how do you see that partnership developing longer term?

Well, we think we're doing a great job for Coca-Cola. We think we've done a great job with Topo Chico. We believe we're going to do a great job with Simply. And so on the basis that we do great jobs with 2 of the big brands, our hope would be that when they bring their next big idea, that, that come with us. We have just launched Topo Chico in Canada as an example.

So staying on the topic of blurring of the lines, I spent a lot of time thinking about Pepsi's Blue Cloud over the last few months. So I'm purposefully going to keep this question broad. What do you think about its chances of succeeding? We don't have any beer distributors in the room, so you can say what you think.

Look, I think it's -- the alcohol industry in the United States is exceedingly complex. It's almost like you're dealing with 50 different countries because every state has got their own rules, regulations, laws, processes, what you can do, what you can't do, how you show up in the market, what point of sale material you can use. Some point of sale material can't be made out of metals. Some can be. I mean, it is a very complicated world. And starting from scratch is hard, very hard, I think. And so, of course, I think Coca-Cola have made the right decision. And we think that they're going to be very successful with the choice that they've made. I think the complexities of operating in this 3-tier system with all of those laws is hard.

And what sort of upward feedback have you received from your beer distributors? Are they worried about this? Or is this something that they share your opinion and aren't giving it too much attention just yet?

I don't think our distributors like the fact that the -- a third distributor has -- a sort of network has been introduced. I don't think they like that at all. And I think certainly, in a quiet way, they've been pretty clear about that.

And do you think -- I remember when the your agreement with Dwayne "The Rock" Johnson with ZOA was announced and other partnerships, I believe Molson had said that actually a key selling point was the strength of its beer network -- beer distributor network. So maybe those in the audience who are less familiar with 3 tier, could you actually help give some color around why Molson's beer distribution network is actually a key asset, especially in that 3-tier world that we have in the U.S.?

Well, they've been operating in that world for a long, long time, right? So they've got a world of experience in operating in the 3-tier system. They service way more outlets than many of the other distribution networks do. So they get to many, many more assets than perhaps traditional non-alc distributors do. They have got and worked out economies of scale exceedingly well. So loadings over onto a beer truck is fairly simple. It is perhaps one of the areas we underestimated a little bit is we have 2 kinds of distributors, those that were already in non-alc and those that weren't. And obviously, those that were already in that space were much quicker up the learning curve than those that weren't. And I think we are through that learning curve with distributors that were not in the space, and we are ready to go forward with pace.

Moving on to Europe, why is Europe strategically important to you still?

Yes, it's a great question.

I know you get it every year.

We do. We like our European business. It is a business which obviously has been challenged through the coronavirus pandemic, more so than some of our other businesses and more so than its competitors because of its reliance on the on-premise, particularly in the United Kingdom. I think they've done a tremendous job premiumizing the portfolio. We've got some great innovations which have just launched into the marketplace. I mean I am very excited about Simply. I'm almost as excited about Madri, which is a brand we've launched in the U.K. about a year ago in the on-premise and is only recently launched in the off-premise. I mean that brand in some retail outlets is outperforming Peroni already, which has been around for 20 years. It's been a big brand in the United Kingdom. A lot of the growth that's come from our European business are brands we own. So Coors is a big brand in the United Kingdom. Blue Moon is growing very nicely in the U.K. and in other parts of our European business. Our Miller franchise is doing well. So a lot of the brands that are doing well in Europe are actually owned brands for ourselves, our international brands. We're growing, I think, 4 of the top 5 brands that we have -- we're growing globally. So that would be Coors. It would be Miller. It would be Blue Moon, Staropramen and the one that's not is Keystone. So we like our business there. We think there's a lot of upside for that business as the marketplace stabilizes.

And I know you mentioned for the U.K., in particular, that's a very on-trade focus business. From memory, I think it's 70% at least of your net sales in the U.K. are on trade normalized in normalized times. But the U.K.'s exposure to the on-trade has been declining for 40 years at a country level. Does that mean you're perpetually in a position of facing a headwind because that channel has been reducing?

Actually, we -- that is one of our strengths. So we've got a great portfolio of brands. We have an amazing team that has continued to drive share in the on-premise. It's about 3/4 of our business in the U.K. So we think we've got the brands and the portfolio to continue to gain share in that space, and we actually are at the moment. So that's a channel that's not going to disappear, that's for sure, not in the U.K.

No, it will not. So earlier in our conversation, you had mentioned your cannabis-infused beverages in Canada and how they've done very well from a share perspective. So before diving into those brands in particular, taking a step back, what is your long-term thinking regarding the cannabis categories that are complement to a portfolio like yours? Is it a threat? Could it cannibalize beer sales in the long term? What is your view on that category?

Well, to answer your second question first, we have not seen cannibalization from our beer category into the cannabis-infused beverages space. Certainly we did -- we haven't seen -- there's no evidence of that in Canada. In the U.S., where cannabis THC has been legalized in various states, we haven't seen an impact on our overall beer business. We've got a very well established business in Colorado. And so we've got a lot of data that has shown that not to be the case in Colorado, but particularly. As far as where we will use our capabilities, which we think are ready-to-drink cannabis-infused beverages, I don't ever see us getting beyond the beverage space from a cannabis point of view. We certainly will not be launching THC-infused beverages in the U.S. until it's very, very legal. And there are a variety of different views as to when that will or won't be. I think the work that we're doing up in Canada is we're getting a lot of learnings out of it. It's an even more regulated space than the alcohol space, unsurprisingly. So we're learning what's working. We're learning what's not working. We're learning how to market in the space, which is even more regulated. We've got the highest market share of the infused beverages space in Canada. I think we've got 5 or 6 of the top 10 brands in Canada. So it's a relatively small market where we're learning. We're making our mistakes, and we're growing from that. And if and when it's ever legalized in the U.S., I think we'll be in a great place to take a market-leading position.

And so your answer that you don't think it's a threat on cannibalized beer, is that because you think the occasion is different? Is that because you think the consumer is not ready to substitute one for the other, when they're at home, for example? What do you think is behind the fact that we haven't seen that substitution?

Well, I think it is occasion-based. Certainly, consumers are not drinking cannabis-infused beverages in the on-premise. And so that's the biggest driver. I mean, it's borne out by what we think of is the data and the facts. We're just not seeing it.

I'd say it's a very topical question. As the Canadian, I think a lot about it. So -- all right, Tracey, one for you here. So could we start broadly here and remind everybody what are your capital allocation strategies over the next few years?

Yes. So coming into the revitalization plan, it was really important for us to invest behind our business, invest behind our brands and invest behind the capabilities. So for example, if you looked at our marketing spend over the last few quarters, you'll see our marketing has gone up. We're spending behind our innovations and we're spending behind our core brands like Miller Lite and Coors Light. And then capabilities, we've invested in our breweries, so that we have the capability to make hard seltzers, which helped as we bring more, for example, of Topo Chico in-house. It helps the margins. So we've invested to grow our business. The second bucket of allocation was to strengthen our balance sheet. And I think we've done a really good job paying down our debt, reducing our leverage ratio. As I said earlier, it's really important for us to maintain our investment grade. And over time, we want to really improve that investment grade. That certainly helped us through the pandemic. So our balance sheet is healthy and strong. And then our third bucket is returning cash to shareholders. So we reinstated a dividend last year. We increased that dividend by 12%. Just recently, the Board approved that increase. The Board also approved a $200 million share buyback, which is primarily to buy back the employee incentive shares. And as we sort of get further along and our business is healthier, we've got our leverage ratio to a level that we are comfortable with. This year, we've said it to be below 3x. We'll have a look at our various capital allocation decisions, have those discussions with the Board, run it through our models to make sure that we are returning as much as possible to our shareholders. But as we get closer to those sort of decisions like paying down debt, we make those decisions with the Board.

And so once you get that leverage ratio down, would there be any scope for any M&A, small, perhaps bolt-ons? What do you view as that? Or are you just focusing on the partnership model and using that as a way to expand your reach of brands?

Yes. So look, we have said that we would look at bolt-on M&A. We're not going to do any major M&A. I think Gavin is quite honest about that. We haven't -- we're not good at that in terms of big M&A. But we have made some smaller sort of bolt-on. One of our investments in -- for example, in L.A. Libations, small investment, but it was that partnership and that investment that brought us together with Coca-Cola and also brought us together with Dwayne Johnson with ZOA. So those are the type of things that we'd look at, but it would be more bolt-on [ tile times ].

And I appreciate the honesty of reflecting back on your experience with larger M&A. What are some key learnings that you've taken from those past deals into how you run the organization today?

Well, I think it's repeating a little bit what Tracey said, right, is, I mean, candidly, we just haven't got the capacity to do large acquisitions. It requires an enormous amount of people capacity, not just financial capacity. And we have not proven successful with that. I think, as Tracey said, where we have proven successful is in bolt-on acquisitions. And obviously, not all of them have been successful. We probably wouldn't be stretching and taking enough risk if every single one of our bolt-ons were successful. But we've got some tremendous successes. Sharp's Brewery in the U.K., for example; our partnership on Cobra in the U.K.; the repatriation of the Staropramen brand; Creemore, Granville Island up in Canada; Brasseur de Montreal in Quebec are fine examples of where we've been successful. Hop Valley up in Oregon. These are all what we call the string of close acquisitions. I think that's the biggest learning for us is when we want to do things that's where we're going to go. Now I'm not saying that every acquisition we'll do is going to be under the $50 million, but it's certainly not going to -- it's not going to be stretched too far beyond that.

Understood. So with the 2 minutes we have left, I want to ask you, what is one thing about Molson Coors that you think is underappreciated or misunderstood by investors?

I think it's the progress that we've made against our revitalization plan. I think there was a lot of skepticism at the time we launched this plan. And I think there's an under appreciation under realization of the amazing progress we've made the middle of a pandemic, cyber security attacks, you name it, we've had it, the storms and so on. And the fact that we are where we are with the wind in our sails in 3 of our 4 subsegments, I think it's totally unappreciated by the market. And we grew revenue last year, and we've given guidance this year that we're going to grow revenue and the bottom line. That was the fundamental output of the revitalization plan and we're on track. And I don't think that's appreciated enough.

Well, it has definitely been a busy 3 years. Wonderful to see you in person. Thank you so much. It was a delight to have you. Thank you, everybody.

Thank you.