All right. Good morning, everyone. Welcome to the UBS Global Consumer Retail Conference here in New York City. My name is Peter Grom, I'm the UBS US Beverages and Household Products analyst. We are very excited to have joining us this morning, Gavin Hattersley, President and Chief Executive Officer; and Tracey Joubert, Chief Financial Officer. Joining us from Molson Coors. Thank you so much for being here. Gavin and Tracey, you both have been very integral parts of the Molson Coors turnaround over the past several years and were instrumental to the company's you know, revitalization plan with the goal of delivering sustainable, you know, top and bottom line growth longer term. You know, I would love to kind of go over that today.
Just for all you aware, for those that are listening on, we have a series of questions that I plan to run through. If you have any questions you'd like me to ask, please submit them through the apps and they can show up there. If time allows, I could just call on you and ask on your behalf, if that's easier. Before we start, you know, I am required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company of which I express a view on this call today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me and I can provide them to you after the call.
You know, just to start, I kind of wanna go back to the revitalization plan and before we kinda like think about the path ahead, I think it'd be helpful to just kind of take a step back and look at the evolution of Molson Coors over the past, you know, few years. I think this is a question for the both of you, right? I think when you look at kind of the five pillars of the strategy, what has worked well? What needs improvement? Like, what are you most proud of? Conversely, you know, is there anything that you and the team think you could really do better?
That's a great question. Thanks for having us. Peter, I'll take the sort of, I think, first part of that, you can take the second part. You know, we launched our revitalization plan, as you say, three years ago, we had the goal of driving top and bottom line growth, which is something that as an organization we hadn't been able to do for a very long time. You know, if there's a lot I'm proud of the team of, but I'm most proud that we actually got to that goal within the three-year timeframe, particularly given everything that we had to face over the last three years, which I think you're all, you're all well aware of all the challenges that we faced.
The first thing we did was we restructured our organization, so we went down from four business units to two. We took a lot of complexity out of decision-making. We took a lot of bureaucracy out. We narrowed the lines between the decision makers in the field and the actual decision maker, and we just got to market a whole lot quicker. We also wanted to take a chunk of cost out of our business, $150 million at the time. I would say that worked really, really well, and we are through that now. We, we've realized all those cost savings.
If you look at the rest of the pillars, there was our core brands. The team have done an amazing job there of improving the health of our core brands. We talk a lot about Miller Lite and Coors Light. We don't probably talk enough about Molson Canadian up in Canada, which has turned around, and Carling in the U.K., which remains our number one brand in the U.K. Each market has got their number one core brand, whether it's Ožujsko in Croatia or Staropramen in the Czech Republic and so on. You know, I think the health of all of those brands is substantially better now than it was three years ago.
We can talk more about that later on if you, if you'd like. Our push into above premium was a core component of the plan. We had a relative disadvantage to our competitors in the above premium space. When we started this journey, I think we were at about 23% of revenue came from above premium. We're now at 28%. We've set a medium-term goal of getting that to 33%. You know, we're playing in spaces that we hadn't played in before. The seltzers, the hard seltzer space as an example. We've had an amazingly successful launch of Madrí in the U.K.
Probably the best innovation that we've ever come up with, certainly from a, from a standing start to where it is today. We pushed into the beyond beer space, categories and spaces that we just haven't been in, whether that was energy drinks or hard liquor with Five Trail Whiskey Company. That's from a brand point of view. Maybe you wanna talk about the capabilities and culture and people.
I mean, you know, cost savings is really important. As Gavin mentioned, we delivered on our cost savings. We had a $600 million cost savings program for three years, and $150 million of that came with the revitalization. We've delivered on that. But as part of that, we've invested in our business. We've invested in capabilities in our breweries, and we've modernized our breweries. We've got two new modern breweries up in Canada, one just outside of Vancouver and one just outside of Montreal in Longueuil. We are modernizing our Golden Brewery, and we've built capabilities in our breweries, like in Fort Worth, where we now have seltzer capacity. We brought the production of Simply Spiked into our Fort Worth brewery as well.
Then we're also doing things like, building variety packer lines. Instead of sending our brands out to repack, we now do it in-house. So that's delivered the capabilities that also has contributed to our cost savings. Then another capability, building that we really are proud of is we've brought a lot of our creative agency work in-house. That delivers, speed to market as well as, you know, cost savings.
Our analytic capabilities we've built as well coming out of revitalization. Yeah, we're particularly proud of those two areas as well.
Okay, that's really helpful. I guess maybe despite all that, you know, the top line has improved, right? You know, your stock price has kind of been range bound over the last three years. I think, you know, I guess it just kind of, you know, based on the questions I get, it seems like some are less convinced that the turnaround is sustainable, right? It's more of a function of the current environment. I guess what gives you confidence that that's not the case?
Yeah, I mean, there are the skeptics out there, right? There were the skeptics out there when we started on this journey, three years ago, and we hit what we said we were gonna do. There were a ton of skeptics around there, out there about the fourth quarter, and we hit that. We've now delivered top line growth two years in a row, 2021 and 2022. We've got guidance out there that says that we're gonna deliver it again this year. That feels like a trend, Peter.
Yeah.
From a bottom line point of view, we delivered last year, and we plan to deliver again this year. You know, I think the health of our brands are much stronger than they were three years ago. As I said earlier, our innovation pipeline is full. We've launched some really strong innovations last year, both in Europe and in the United States, which we're gonna build on this year. Our capabilities, as Tracey mentioned, are stronger. Our balance sheet is certainly in a significantly better place now than it was three years ago. You know, the progress we've made over the last three years, notwithstanding everything, sets us up really nicely for the future.
No, that makes a lot of sense. I mean, I guess, you know, one of the things that has evolved, I think, during your time as CEO, you know, has kind of been this shift away from, you know, volume and kind of more total revenue focus. We've seen kind of similar transitions in beverages, you know, carbonated soft drinks is a category that kind of comes to mind. Can you just talk about that shift in focus? You know, I guess I know this year from a top line perspective, it's expected to be more price, more rate driven. I guess can the company get back to volume growth as you look out beyond 23?
You're right. I mean, our focus has been on the revenue, the top line. That was first and foremost important for us because as I said, we hadn't done it before, in any meaningful way, and certainly not consecutively. That was important for us, and that required us to make some tough decisions. Narrowing our focus in the economy space, for example. We just had too many brands that were just not relevant anymore but took up a lot of time, took up a lot of energy, took up a lot of space in the brewery. Narrowing our economy portfolio into the four focus brands that we've got now was important. Driving into the above premium space was and still is really important for us.
Making just tough decisions around contract brewing, which is not necessarily beneficial for us from, for a variety of reasons, and obviously impacts, in this instance, both volume and revenue, was something we wanted to do. We want to ultimately get to volume growth. That is certainly something that over the medium to long term we want to be at. Right now, our focus was on revenue and profit.
When you think about that volume growth, is that you just need to kind of improve the mix of above premium to kind of get back there? I know it's kind of at 28%. You know, you have a target of 33%.
That's right.
Is that kind of really just the underlying driver or are there kind of other avenues, if you will, that would drive that return to growth from a volume perspective?
Well, certainly almost all of our innovation is focused in the above premium space. The innovation comes both from a, you know, created brand, from our perspective, like Madrí, or Blue Moon LightSky, or it comes from some of the partnerships that we entered into with Coca-Cola, for example, with Topo Chico and Simply. Not a partnership in the legal sense of the word, but a, you know, relationship. That growth is gonna come from innovation, it's gonna come from above premium, it's gonna come from the new spaces that we're not in at the moment. Of course, it's gonna come from the existing brands which we've got, which are powerful.
I mean, Blue Moon, for example, is the number one craft beer in the country. Obviously had a little bit of a tougher time during the early stages of the pandemic because the on-premise closed, and it's a very on-premise focused brand. Has now regained its footing. The same comments without being repetitive around our core portfolio. Healthy, and gaining share, collectively Coors Light, Miller Lite in the fourth quarter is now bigger than Bud Light from a share point of view. I think we've laid the foundation to get there.
No, that's really helpful. I guess, you know, going back to that above premium move, you know, the 500 basis points you've kind of captured in your portfolio from 2019 today. You know, can we just take a step and walk back and, you know, just understand the components of that? How much of that just Simply from faster growth? How much of it was it, you know, just from, you know, exiting economy SKUs? Just kind of help us bridge from that 23- 28. Then I guess going from the 28- 33, you know, what are the building blocks to that, right? I guess, is there any sort of timeline that you have in terms of, you know, getting to that 33%?
Yeah. Look, I mean, just because of math, right? The taking out a bunch of economy SKUs did help that ratio. The much bigger part of that 500 point swing has come from the new innovation and the focus on brands like Blue Moon, like Peroni, in the U.S. Madrí, as I said, has just been a phenomenal success in the U.K. Probably the best innovation that we've ever had from a time point of view. I mean, its distribution and velocity is amazing quite frankly, and that plays in the above premium space.
Of course, we're into spaces we weren't in any meaningful way three years ago. I mean, we've a standing start with our seltzer portfolio, with Vizzy and Topo Chico. We launched Simply last year. We've got some new innovation coming. Good. Yeah, it's across the board.
Okay. Gavin, you know, during the fourth quarter earnings call, you mentioned that you expect medium-term growth to exceed the targets you've outlined in 2023. Can you maybe just elaborate on that a little bit? Does that kind of imply mid-single digit top and bottom line growth? I know this is a multi-part question, so I apologize. I just would be curious what really drove the inclination to offer that perspective, right? Like, there's Going back to an earlier point, there's still a fair amount of investors that are skeptical of kind of the Of just low single digit growth. just kind of, you know, any, you know.
I think it'd be helpful to understand why you wanted to offer that and maybe kind of the building blocks if mid-single digits is what you're, what you were trying to point to.
Yeah, we thought it would be helpful actually to state the obvious, right? Which is, I mean, our revitalization plan was designed to deliver not top and bottom line growth in one year and then move on from that, but to deliver it consistently into the future. We thought it would be helpful.
Yeah.
It also directionally says that, you know, this year's a little bit of an uncertain year. Still cost pressures, which we don't see in the out years. You know, certainly, offering up that over the medium term, we do see top and bottom line growth as well, was we thought would be helpful for the market.
Okay. That's very helpful. I guess, you know, maybe shifting gears to more of recent performance, you know, it was clear based on some of the public data, the Q4 was a bit more challenged, You've said that relative to your expectations. You know, you talked about the industry-wide impact on volumes from the price increases. You know, I guess just on that pricing, is that similar to what we've seen in the past, where you've seen, you know, these outside pricing increases and you see an initial shock, and then it kinda comes back? I guess, you know, you mentioned on the call that trends have really improved in January and the data's kinda suggested that that's continuing to a degree. What's really driving the improvement, I guess?
Is it just kind of that initial sticker shock and the consumers are getting over it? Is it some sort of from an anomaly perspective? Is it like easier comps in January a year ago? You know, I know California's been challenged from a weather perspective, but it's, you know, something in the past few weeks that's been pretty warm across most of the country. Just how would you frame kind of the improvement and the drivers of that?
Yeah. There's a lot going on in, both in the question and in the answer. You know, we haven't put such big price increases into the beer space probably for as long as I've been in the US. We didn't really have any particular comparison to look at. Certainly the spring price increases, we saw that. We saw a little bit of softness post the price increase, we saw the same again in the fall. You know, that could be driven by load-in ahead of the price increase. We certainly saw the same effect coming out of the fall price increase as we did out of the spring price increase.
Yes, in the United States, the January was, from a comp point of view, a little easier, mostly in the on-premise because if you remember last year, we had the Omicron scare which drove people out of the on-premise in January and a little bit of February. We didn't have that this time around, so that certainly helped. You don't actually see that data in the track data because that's. It's not really tracked very much. That was where more of the benefit took place. Yeah, you're quite right. I mean, California's been a little difficult from a weather point of view. That certainly has made that challenging. Yeah, a lot going on.
Yeah. Then I guess just going back, you mentioned that beer actually gained share despite that weaker volume. Can you maybe just unpack that a little bit? Is people just simply drinking less of total alcohol?
From a, from a dollar point of view, the overall alcohol space went up by about 3 points as I recall. 3%. Beer went up a little bit more than that. Hard liquor went up a little bit more than beer and wine was the loser. Wine actually declined from a dollar sales point of view. Certainly from an overall alcohol space, yeah, we grew a little bit of share and so did hard liquor at the expense of the wine guys.
Okay. Tracey, kind of, you know, U.S. pricing, right? You kinda touched on, you know, 2023 revenue growth being more price driven rather than volume. Can you just remind us of the building blocks of that? You know, how much of that is rollover from 2022? Do you expect further pricing actions? I think the answer to the latter is yes, but can you just maybe talk about how the external environment kinda may impact your thought process? I mean, there's just a lot of volatility day to day, right? You know, how does the external environment, you know, impact your ability or willingness to take further price?
I think if we look at last year, let's just go back to last year. I mean, we took a 5% increase in the spring, then we took another 5% increase in the fall. You know, Gavin's spoken about the sort of volume impact and the consumer impact. That pricing was significant. I mean, we haven't seen that kind of pricing in the beer industry for forever, I think. But the consumer's been pretty resilient. You know, even if we look at our outside of the US markets, UK, the consumer there has returned, you know, to the on-premise. We took pricing there as well. You know, on-premise is back to sort of pre-pandemic levels.
The beer consumer, you know, is proving to be quite resilient, as I say. In terms of, you know, as we look at this year, we wouldn't take the spring increase like we did previously. There's some small markets where we didn't take an increase last year, you may see in some markets a bit of an increase. As we get to the fall, you know, we'll evaluate what the consumer's doing, what our competitors are doing. I mean, there's still a lot of uncertainty as it relates to the consumer, we'll visit that as we sort of get, you know, closer to the fall.
Okay. Then, you know, Gavin, you alluded to this earlier, Coors Light and Miller Lite performing exceptionally well. It's been that way for several years at this point. I guess, and I know this is a question you used to get a lot, you know, it was harder to see, you know, the brands to kind of grow share at the same time. It was one versus the other. I guess what has allowed them to kind of both perform well at the same time?
Yeah, that's a great question. I mean, I think our marketing and sales teams have done an amazing job bringing those two brands to life. Our marketing team has done a nice job of differentiating Miller Lite and Coors Light. You know, Coors Light standing for refreshment and chill and everything that goes around that, and then Miller Lite standing for, you know, what, you know, tastes like a beer. Beer taste has been its focus. They've done a nice job of single-mindedly driving those two particular tracks. I think the other important thing is that we've done that consistently. If you had to level criticism against us in the past, I would say that that would be it, right?
In some cases, the consumer didn't really understand what the brand stood for because you would move from this campaign to that campaign to this campaign. They were all quite different. The marketing team has been really, really solid on how they've brought those two brands to life, and they've been very consistent about it. You know, that's a big driver for us, making it really relevant with the different age demographics that are so important to each of those two brands. We've driven really strong execution through our distributors and our sales teams from a feature and display point of view. In fact, that accelerated in the fourth quarter on the publicly available data.
You know, both those brands outperformed, their biggest competitor, Bud Light, from a feature and display, point of view. You know, it's the total package, and consistency. You can see that in everything we do, even March Madness, you know, getting Dick Vitale to chill when he's not exactly known to be a chill guy, is just another way of bringing that to life.
No, that makes a lot of sense. You know, shifting to below premium, you know, and kind of the economy SKUs, I mean, and the data's kind of suggested that, you know, the category, the segment of the category sees some solid momentum over the past few months. I mean, where do you think this incremental volume is coming from? And do you kinda expect this, you know, if you wanna call it a trade down dynamic, do you kind of expect it to continue as you, as you look out over the next few months?
We haven't seen much of a trade down, frankly. I mean, certainly premiumization has slowed-
Yeah.
primarily driven by the seltzer space. We haven't seen a lot of trade down from a brand point of view. We have from a pack point of view, particularly with lower income households who are driving down into the smaller pack sizes. On the other side, the higher income households are driving up into the larger pack sizes. A little bit of a less in the sort of mid-sized packs.
From our perspective, you know, the focus that we've brought to our economy portfolio by getting rid of so many SKUs and so many brands and now focusing just on the four core economy brands, you know, Keystone Light and Miller High Life, Steel Reserve Alloy Series, and Icehouse, has really reaped the benefits. From our perspective, we've been able to have more focus on them. We've been able to put more investment behind them. There's more consistency in supply. It's just all around been solid for us.
Great. I guess shifting to beyond beer and maybe specifically Topo Chico and Simply Spiked. Can you just talk about the partnership with the Coca-Cola Company and how these brands are kind of performing versus your expectations? I guess, you know, just from your perspective, we've seen a lot of these brands that are traditionally non-alcohol move into the alcohol space. Is there further opportunity to add more traditional non-alcoholic brands?
Yeah. A lot of questions in that question. Look, our relationship with Coke is strong. We work very well together with them. You know, we're very pleased to have Simply and Topo Chico as two of the brands in our portfolio. The way we're looking at this space is more from a flavor point of view. You know, there's much talk about hard seltzers coming off, but at the same time, the spirit side of it is lifting up. Flavored malt beverages, which has actually been around for a long time, is also starting to perform better. We've got brands in each of those three spaces.
To your question about how have they performed, I mean, honestly, they've performed better than our expectations, much better. Particularly with Simply. I mean, we launched Simply out of cycle, in late June of last year. The response was very, very positive to the extent that we couldn't meet demand. Now we've brought the brand in-house, so we're producing it in-house, which has two benefits. One is it improves the margin, and secondly, we control, you know, supply and it can be more stable. We're looking forward to a really strong summer with Simply. Topo Chico, we had a two-pronged launch.
We launched in some specific markets a couple of years ago. We expanded in January of last year to the whole country. Because of that, we obviously had a lot of loading in January, and we're cycling those now. You know, we're through that and the brand is positive coming out of that. From a growth point of view, we've got new innovation coming around Simply with the new peach flavor. We've got Topo Chico Spirited, which is gonna play more in the spirit side of the flavor house. We've got a, you know, complete refresh of the visual identity of Vizzy and a more focused approach there. Beat our expectations, love the innovation we've got coming.
Relationship with Coke is strong, we think it's gonna be a meaningful driver to the 33%.
Great. I mean, I guess, you know, you kind of alluded to this in your, you know, the initial portion of that response. I'd be curious how you think about kind of the relationship between hard seltzers and FMB. I guess what's kind of striking to me is just the number of new brands and SKUs that are coming into FMBs. It, it almost feels very similar to what happened in hard seltzer, right? To some degree, where the consumer got a little confused and, you know, consumers kind of, you know, maybe, you know, went back to traditional, you know, alcohol beverage categories like beer.
I mean, I guess, do you view that as a risk as you kind of look ahead with just all these new products and all these new brands kind of coming to go after the share in FMBs or, you know, ready-to-drink cocktails?
I would see it as an opportunity more than a risk.
Okay.
If you've got strong brands that are meaningful to a consumer, and you've got brands which they like the taste of, because taste is really important, in this space, you can be a winner. You know, notwithstanding the fact that seltzers have slowed down a lot, it's still a very big space. You know, it got to about 10% from a value share point of view, and that's dropped off to about 8-ish. There are gonna be some clear winners in that space, and there are gonna be some clear losers. We plan to be one of the winners with Topo Chico and Vizzy, primarily. The other reason why we've structured ourselves around flavor is the consumer does move around between these flavors.
You know, if you look at that whole flavor space, it's growing. There's a lot of focus on hard seltzers being down. When you look at the total space, it's still growing, and it's a big space. I see it as an opportunity as opposed to a risk.
We've spent a lot of time talking about the U.S., you know, maybe shifting gears international, maybe kind of give a state of the union in terms of what you're seeing in some of your core markets, you know, maybe the health of the consumer, and, you know, have you seen any meaningful shifts in kind of demand or whatnot since, you know, results a few weeks back?
Yeah. Look, I mean, from a U.K. point of view, it's remained resilient. Somewhat surprisingly, given the economic environment there and the level of labor activity which has taken place there. It's remained resilient. On-premises remained resilient. I don't want to oversell Madrí, but it is doing remarkably well and is one of our top five above premium brands in the world now and still growing strongly. Can't really say the same for Central and Eastern Europe. It's tougher there. Disposable income from consumers is being eaten up by the high gas, energy prices, food prices and so on. A little bit more challenged there. Small part of our business.
UK is more, much more important to us than from a volume and value perspective than Central and Eastern Europe. A bit bifurcated.
Okay. Tracey, you know, let's just shift to profitability. You outlined an expectation for inflation this year, albeit at a lower rate. Can you just maybe walk through the building blocks of that outlook and kind of where do you have visibility and where do you kind of still see the biggest pressures at this point?
Yeah. We did say that we expect inflation to continue to be a headwind this year, but sort of moderate slightly towards the back half of this year. A couple of things that goes into our profitability. We've spoken about the pricing and our premiumization, you know, the mix of our portfolio moving more to the above premium space. That obviously drives, you know, top line. From a COGS point of view, you know, there's a couple of things that obviously is really important that we focus on. One is commodities and the hedging. We've got really good visibility to that, and also we're comfortable with our hedging levels for 2023. We've got cost savings.
You know, I've mentioned a lot of the investments that we've been making in the business over the last couple of years is gonna drive the cost savings. It's driving efficiencies, it's driving capabilities and capacities that we didn't have before. That helps margins. You know, we'll continue to really drive efficiencies and cost savings. Now, having said that, there are some areas of COGS input costs that we can't hedge. Freight is one, but we are seeing, you know, the freight markets, you know, coming down a little bit. That's certainly helping. Then, some of our third-party co-manufacturing costs are linked to indices like PPI. That's not hedgeable, and obviously could be a significant input.
You know, we have given guidance out there that we expect our gross margin per hectoliter for 2023 to increase. We've also said, you know, over the medium term to have both top and bottom line growing, but bottom line growing at a faster pace or higher rate than the top line.
Okay. Then maybe building on that last point, I mean, you know, For the gross margin expansion, is that simply that there's just enough pricing to offset the degree of inflation, or is there kind of just cost savings that's also helping that?
It's sort of both. You know, over the medium term, we kind of are expecting inflation to sort of get back to more normalized levels. Obviously, the last couple of years with, you know, with COVID and the supply chain challenges and, you know, the Russian war in Ukraine has driven a lot of that inflation. You know, hopefully over the medium term we can kind of get to more normalized type of inflation levels. You know, that's what we've been putting into our assumptions.
Okay. Just on cost savings, you know, the company has a tremendous track record there. We've kind of reached the end of these, you know, official programs, if you will. How do we think about cost savings and productivity moving forward?
Look, it's just a way of life at Molson Coors. I mean, we're always looking at cost savings. We're always looking at efficiencies. As I said, some of the investments we've made over the last couple of years is gonna continue to drive those efficiencies and cost savings, whether it be our new breweries, you know, more automation, some of the things like we've done with the variety packer in Fort Worth and bringing some capacity from outsourced into in-house, that obviously helps margin. It's just something that we always gonna focus on and I think we're pretty good at delivering the cost savings. We're not gonna just stop.
All right. Yeah, that makes a lot of sense. You know, I kind of wanted to shift to kind of marketing and reinvesting a little bit. You know, the guidance clearly embeds, I guess, some degree of higher SG&A if you have low single digit top line growth and gross margin expansion and kind of low single digit profit growth. Can you maybe just walk through where you see the biggest opportunities for reinvestment?
from a marketing point of view?
Yeah.
Yeah.
Even supply chain or wherever.
Yeah. I mean, we have said that, for 2023, we do plan on investing, increasing our investment in marketing, and it will be behind the areas that Gavin's spoken about. Our core brands, you know, continuing to build on the strength of our core brands. Also around innovation. He mentioned some of the stuff that we've got in the pipeline. But we're also becoming a lot more efficient with our marketing spend. Driving a lot more return on marketing because of shifts that we've made into digital, into the digital space, where, you know, more than 50% of our investment now is in the digital space. But bringing some of the in-house. Sorry, bringing some of our agency and creative work in-house is helping drive that as well.
Yeah, in terms of investments, we'll continue to invest where it makes sense. I don't know if you mentioned, you know, we had an opportunity to invest in the Super Bowl this year. It's not something that we were planning on this time last year, but, you know, we are able to sort of shift the investments. We invested behind the Super Bowl this year. Last year in Q4, we had an opportunity to invest against Spanish language TV against the World Cup, and so we took that opportunity. We don't look at marketing on a sort of month-by-month investment. I mean, we have enough flexibility that we can take, you know, take advantage of opportunities that are given to us.
We'll continue to invest where it makes sense and where we get the highest return.
Okay. Then, you know, one more and then we can open it up to questions or see if there's anything on there. There's just kind of a lot of discussion in the industry around normalization of earnings versus kind of reinvestment as you look out beyond. I guess I just would be curious, you know, if some of these external challenges become more favorable, whether it be FX, you know, commodities, you know, how do you think about the potential benefit to the bottom line? In other words, how do you balance kind of, you know, letting some of these savings potentially flow through to earnings versus kind of maybe taking some of that favorability and reinvesting it back into the business?
Yeah. We've got these capital allocation priorities that we focus on. Three buckets. One is investing in the business. Whether that be, you know, in our breweries, building capacities or, around cost savings or investing behind, our brands or maybe small bolt-on M&A. You know, Gavin has spoken about a string of pearls approach. We look at, we look at that. We look at, you know, strengthening the balance sheet. We've done a really good job, I think, in paying down our debt to getting to the leverage ratios that we are at now. We've given a target leverage ratio of around 2.5x . You know, returning cash to shareholders. We look at those three buckets. We do it in a very disciplined way.
We've got models that, we run all of our investment decisions through and, you know, look at where we're gonna give the highest return, to our shareholders, and we have those discussions with the board. The models help us make those decisions, for sure. Those are the three buckets that we look at.
Okay. I don't see any. Are there any questions in the room if anyone wants to. Like an ask or? All right. Well, I have a couple.
There's one.
Oh, wait.
No, there's another one there, too.
Yeah. To take from?
Wine.
Look, I think in a world where moderation is becoming more important to folk, taking share from hard liquor is definitely something that we would focus on. Certainly, over the last while, wine has been bleeding share to the overall beer space and actually hard liquor as well. I do think from an overall... If you look at the overall alcohol category, there is an opportunity for beer to take an increasing share. Absolutely. Look, I think the highest priority we've got is to make sure our core brands are as healthy as they can be and as stable as they can be. That's where we put a lot of time and effort.
You know, it's well known that it's two-thirds of our volume profitability, give or take, right? It's sort of in that ballpark. It's important that we are successful with those brands. We spend a lot of time focusing there. Growing into spaces where we haven't necessarily been has been another focus area for us, and that falls into the above premium bucket. From a capability point of view, as Tracey said, you know, we sometimes learn as we go, and with any innovation, of course, we're gonna make some mistakes and course correct and improve. I would say that that's certainly the case for us as well. We also can be a little cautious, right? I think you mentioned the variety packing.
That's, you know, that's an area we weren't 100% sure we wanted to invest meaningful amounts of capital. You know, as it became apparent we were gonna be very successful in this space, we were willing to invest the capital and course correct from that perspective.
All right. Well, I have a couple more. I'm assuming there's. Is there any more? Okay. Tracey, just going back to the leverage, right? Obviously, you know, the company has a strong history of generating significant free cash flow, and you're getting very close to your leverage target. Can you just outline uses for cash from here and maybe specifically, you know, share repurchases?
Yeah. Again, you know, we look at the capital allocation in those three buckets. Obviously, as we get down to the target of around two and a half times, there's more options for us. You know, the third bucket, I guess is, you know, your question around returning cash to shareholders. Firstly, we've increased our dividend twice since we reinstated it back in 2021. You know, as we look at dividends, you know, the target is to sustainably increase that dividend. That's the one area. In terms of share buybacks, we've got a small share buyback program, which is really an anti-dilution program, you know, from the sort of stock options that we give to employees.
In terms of bigger buybacks, again, you know, we'll make that decision through our models, you know, through discussions with our board and making sure that any capital allocation is going to give our shareholders the highest returns possible so.
Okay. That makes a lot of sense. I guess last question, and we'll, and we'll kinda leave it here, is just kind of, you know, Gavin, I guess it's for you. Non-alcoholic beer, right? I, and I know you're making investments, you're innovating around it. You know, we get this question a lot, just the younger demographic just doesn't seem to consume alcohol to the same degree. I, and I guess, you know, how would you frame that from Molson Coors? Is that a risk? Is that an opportunity? I guess how quickly do you or how big do you think non-alcohol can be really over time?
Yeah. Certainly, we see the same data as you're seeing, right. The new legal drinking age consumer is increasingly drinking in the non-alc space. That's one of the reasons why we pivoted to becoming a total beverage company. It was one of the underpinning reasons for that, is to make sure that we were relevant to all consumers. Obviously beer is gonna be a big part of our focus and always will be. Hard liquor will be as well because we didn't play in that space, and we've got the Five Trail Whiskey company, which has got off to an amazing start, given that we've only been doing it for a couple of years, winning awards in all the whiskey festivals.
Non-alc is equally important to us, and that's on both the beer side and outside of beer. You know, we do have some non-alc beers, Coors Edge would be an example. We've recently, and I mean literally recently, in the last few weeks, launched Peroni 0.0% , which has done very well overseas. It matches very closely the taste profile of the alcohol version of Peroni. We have just launched that. We have high hopes for that as well. I mean, Peroni, the mother brand is doing extraordinarily well now that it's reopened because it is primarily an on-premise brand.
Then we've got the, this sort of, non-beer side of non-alc, whether that's in energy drinks, which is a new space that we've gone into with ZOA and our relationship with Dwayne Johnson, and, you know, off to a tremendous start, given the competition which it's facing in a very, very big space, very, very big category. Really excited about the potential that ZOA can bring to our business. Then, getting into new and different spaces for us, like, non-alc cocktails. You know, we've recently launched in a number of markets in the U.S. a brand called Roxie, which is focusing on the person who wants to drink a cocktail, but non-alc version. It is definitely a space we're getting into.
It's definitely a space our innovation team is focusing on. How big it can get, you know, that's a hard question to answer because we don't know. It's certainly a space that we wanna be in. It's got a much bigger relevance in our European markets, we've got offerings there, in all of our markets that we operate in. Yeah, big focus for us. I see it as an opportunity, actually, not a risk, and the very reason why we went to being a total beverage company as opposed to just a beer company.
Great. Well, thank you for that. Well, we're kind of at time. Gavin, Tracey, thank you so much for joining us today. We thought it was incredibly helpful, insightful, and we wish you nothing but the best of luck moving forward.
Thank you.
Thanks, Peter. Thank you.