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Diving overview:
- Constellation Brands is turning its attention to Mexican beer products as its wine and spirits division saw double-digit declines in its most recent quarter, CEO Bill Newlands told investors on an earnings call last week.
- According to its earnings report, the company reported sales of Pacifico were up 20% last quarter, Modelo Especial was up 3% and Modelo’s Chelada beer was up 4%, while Corona saw sales increase. Newlands said the liquor giant sees each of its three brands as on a growth trajectory.
- With overall consumption down and the threat of potential tariffs looming once President-elect Donald Trump takes office, alcohol producers are shifting away from less profitable items and focusing on growing their brands.
Dive Insights:
The unstable macroeconomic environment of the past few years continues to weigh on alcohol companies, with sales falling nearly 3% in the first seven months of 2024, according to the latest data from IWSR.
However, during the same period, Mexican beers increased their market share in the beer category, with Modelo surpassing Bud Light as the best-selling brand in the United States in 2023. Additionally, along with the growing Corona and Pacifico, Constellation is positioned to dominate the U.S. mid-price Mexican beer market.
Explaining the decline in overall alcohol consumption, Newlands noted that unemployment rates had increased in 31 states.
“We don’t see it as structural. We do not believe this is a long-term issue with this business,” Newlands said on the earnings call. “The overall basket is down, but the percentage of that basket remains the same.”
According to Newlands, a key part of Constellation’s strategy has focused on price. The company focused on price increases of 1% to 2% rather than “big changes” that could backfire and cause consumers to stop buying the product altogether.
Constellation’s wine and spirits sales fell $75 million last quarter. The company said it expects the segment’s organic net sales to decline 5% to 8% in fiscal 2025. But Newlands pointed to fine wines, including the company’s Meoimi and Kim Crawford brands, as a bright spot, growing 6% in the quarter. Going forward, Constellation’s wine and spirits portfolio will focus on luxury brands, Newlands told investors.
Corona Brewery’s strategy to respond to changing consumer spending habits has included offloading less profitable brands. Last December, the liquor giant announced it would sell Svedka vodka to Sazerac. In its previous earnings call last October, Newlands said the company would not focus on M&A activity in the wine and spirits sector, but instead would focus on stabilizing its current product portfolio.
Uncertainty over tariffs on imports that the Trump administration has said will apply broadly across the consumer goods sector continues to raise concerns among companies in the beverage sector. On the earnings call, Newlands said it was too early to make assumptions about tariffs and that the company would change its approach depending on how the situation progressed.
TD Cowen analyst Robert Moskow said in a note to investors that Constellation’s Mexican beers are “well-positioned to capitalize on U.S. demographic trends,” pointing to the company’s effective product marketing.
