Will Corona Keep Constellation Brands Growing?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Beer is very important to Constellation Brands (NYSE: STZ). Its Corona and Modelo families of Mexican beer helped the segment account for 64% of the company’s total sales and almost all of its operating income.” data-reactid=”11″>Beer is very important to Constellation Brands (NYSE: STZ). Its Corona and Modelo families of Mexican beer helped the segment account for 64% of the company’s total sales and almost all of its operating income.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Mexican beer also happens to be crucial to the current growth of the craft beer industry. Imported beer accounted for 20% of craft production in 2018, and Mexican beer represented over 72% of all imports. Constellation told investors last quarter that its beer portfolio was the primary growth contributor to the U.S. beer market last year and all of its imported brands achieved record sales volumes.” data-reactid=”12″>Mexican beer also happens to be crucial to the current growth of the craft beer industry. Imported beer accounted for 20% of craft production in 2018, and Mexican beer represented over 72% of all imports. Constellation told investors last quarter that its beer portfolio was the primary growth contributor to the U.S. beer market last year and all of its imported brands achieved record sales volumes.

With Corona and Modelo an essential part of the future — for the company and the industry — let’s look at the role they might play as Constellation prepares to report its first-quarter earnings at the end of the month.

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Image source: Constellation Brands.

Brand dominance

Data from the market researchers at IRI give the combined Corona and Modelo brands a 61% share of import dollar sales and 60% of case sales. Modelo’s dollar sales surged 18% higher last year, substantially better than the 11.6% increase in Corona sales, and more than twice the amount of the next closest brand, Constellation’s Pacifico, at 8.4%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The only imported beers not owned by Constellation that also showed any kind of growth last year were&nbsp;Diageo‘s Guinness, which rose 0.9%, and MillerCoors Foster’s, which was up 0.7%. Every other major brand family suffered declines in dollar sales, and only Corona, Modelo, and Pacifico saw case sales rise.” data-reactid=”28″>The only imported beers not owned by Constellation that also showed any kind of growth last year were Diageo‘s Guinness, which rose 0.9%, and MillerCoors Foster’s, which was up 0.7%. Every other major brand family suffered declines in dollar sales, and only Corona, Modelo, and Pacifico saw case sales rise.

Yet that growth did not extend across the brand families. Corona Extra, for example, Constellation’s flagship brand, saw sales fall 4% last year while losing 0.1% of market share. The beer distributor’s second-biggest beer, Corona Light, tumbled 11.5%.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Constellation was more than able to make up for it with brand extensions like Corona Premier, a super-light beer targeting Anheuser-Busch InBev‘s (NYSE: BUD) perennial favorite Michelob Ultra, and Familiar, a beer targeted to Latino males that blew up with sales growing almost 140% last year.” data-reactid=”30″>Constellation was more than able to make up for it with brand extensions like Corona Premier, a super-light beer targeting Anheuser-Busch InBev‘s (NYSE: BUD) perennial favorite Michelob Ultra, and Familiar, a beer targeted to Latino males that blew up with sales growing almost 140% last year.

But CEO Bill Newlands has told analysts that the line extensions cannibalize sales from existing labels, noting that the better they do, the more they have some impact on its other franchises.

Getting sales growing again

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Earlier this year, Constellation also began distributing Corona Refresca, another extension it took nationwide last month. It's a sparkling flavored malt beverage imported from Mexico that seeks to capitalize on the popularity of hard seltzers like Truly from&nbsp;Boston Beer&nbsp;(NYSE: SAM), which are also helping push craft beer sales higher.&nbsp;” data-reactid=”33″>Earlier this year, Constellation also began distributing Corona Refresca, another extension it took nationwide last month. It’s a sparkling flavored malt beverage imported from Mexico that seeks to capitalize on the popularity of hard seltzers like Truly from Boston Beer (NYSE: SAM), which are also helping push craft beer sales higher. 

While it’s smart to use the Corona name to build up a broader portfolio that might otherwise succumb to brand fatigue, perhaps more worrisome are the reports of Constellation now discounting certain labels heading into the summer.

Corona has typically been positioned and priced as a premium beer above even Michelob Ultra, but industry site Beer Marketer’s Insights reported the brewer was dropping the price on Corona Extra, Light, and Premier by about $2 a case, which would still allow it to be ranked above the likes of Budweiser and Bud Light, but would now be equal to or slightly below Michelob Ultra.

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