Constellation Brands’ beer portfolio recorded another period of growth in shipments, depletions and net sales, the Victor, New York-headquartered beer, wine and spirits company announced today during its fiscal year 2020 third quarter earnings report.
The company’s beer brands, which include Mexican imports Corona, Modelo and Pacifico, as well as craft brands Funky Buddha and Four Corners, posted a 6.8% increase in shipments (sales-to-wholesalers) over Q3 2018. Depletions (sales-to-retailers) increased 7.3%, while net sales increased 8.3% for the three months ending November 30, 2019.
Constellation Brands CEO Bill Newlands opened the company’s earnings call with investors and analysts Wednesday with a reflection on Constellation’s stock’s performance over the past decade, which has increased from a little more than $15 at the end of 2009 to almost $190 per share at the close of business at the end of 2019.
“This incredible increase of over 1000% over the last 10 years made Constellation the best performing stock in the S&P 500 Consumer Staples Index during this timeframe,” he said.
Newlands credited the growth to Constellation’s 2013 acquisition of Grupo Modelo from Anheuser-Busch InBev, calling it “game-changing” and saying it “solidified our position as the leader of the high-end U.S. beer business.”
Newlands noted Modelo Especial’s growth during the decade, which grew from a 35 million case equivalent brand in 2010, to 140 million case equivalents in 2019, and has grown double-digits every year since.
In Constellation’s FY 2020 Q3, Modelo Especial’s depletions grew 15%, and the brand was the country’s fourth-best selling beer year-to-date in off-premise accounts tracked by market research firm IRI.
Another bright spot in the company’s beer portfolio for the decade has been the Corona brand family, which gained about 20 million cases in volume, Newlands said. In Q3, the Corona family — which includes flagship Corona Extra, Corona Light, low-carb Corona Premier, fuller-flavored Corona Familiar, and flavored malt beverage Corona Refresca — grew 7%, according to IRI.
Constellation’s big innovation play for 2020 is Corona Hard Seltzer, which the company announced in October. To support the launch this spring, Constellation is investing $40 million in marketing behind the brand.
“We’ve already started to take orders from distributors and have received incredibly positive feedback from retailers who are excited about the prospects of Corona Seltzer and have already incorporated our newest portfolio addition into their shelf set programming plans for the spring selling season,” Newlands said.
Corona Hard Seltzer will launch in four flavors: Tropical Lime, Mango, Cherry and Blackberry Lime. The product enters an increasingly crowded market space with a clear leader in Mark Anthony Brand’s White Claw, which has sold 22 million cases year-to-date through December 1, according to IRI.
When investors and analysts asked how Corona Hard Seltzer will stand out, Newlands replied that the company’s research found that Corona’s “refreshment DNA” resonates with consumers. He added that the category’s 60 million case sales last year could double or triple in the future.
“We expect to take a significant share of that opportunity,” Newlands said.
Newlands also shot down the notion that Corona Hard Seltzer will cannibalize drinkers from its other beer brands, namely Corona Refresca.
“Our research shows that seltzer is taking share across the board from beer, wine and spirits,” he said. “While a significant amount of this growth is sourced from the beer category, it is primarily coming from domestic premiums, craft and FMBs, with minimal interaction of seltzer consumption with imported brands.”
Newlands pointed to 70% to 75% of Corona Premier’s drinkers being new to the brand family as evidence that seltzer would likely follow suit.
Similarly, Newlands told investors and analysts that Corona Hard Seltzer will not steal shelf space from the rest of the Corona family.
“Seltzer is, in all likelihood, not going to take space from our core beer franchise; the consumer views it is something different,” he said. The retailers [are] viewing it as something different, whether it’s on the shelf or in the cold box, so we think there will be a distinct differentiation of product location versus just cannibalizing existing shelf space.”
Constellation’s other beer innovation for 2020 will be smaller-sized Modelo bottles, called Modelitos. Newlands called the Modelo brand family the company’s “single largest opportunity.”
“It is just beginning to crack into the general market,” he said. “It had a very, very strong run with its core Hispanic base and continues to grow with that audience.”
Newlands was joined on the call by outgoing Constellation chief financial officer David Klein, who will become CEO of Canopy Growth, the Canadian cannabis company in which Constellation owns a 38% share, starting January 14. In FY 2020 Q3, Constellation’s $4 billion investment in Canopy declined $534 million, taking the company’s gains on the transaction down to $233 million.
“We’re obviously excited about the appointment of David Klein as Canopy’s next CEO,” Constellation senior vice president of corporate communication Mike McGrew told Brewbound in an email. “David is a seasoned, well-respected business leader who will bring strong focus and a disciplined strategic approach to this business, which continues to be best positioned to win over the long term in the emerging cannabis space.”
Newlands and Kline briefly touched on the December divestment of San Diego craft brewery Ballast Point, which the company purchased for $1 billion in cash, to Chicago-area craft brewery Kings and Convicts for an undisclosed sum.
When asked what Newlands and the company had learned from its four-year ownership of Ballast Point, Newlands said the sale shows “we are prepared to take action to make sure we are focused on where the consumer is going rather than where they have been.”