Constellation Brands’ Beer Division Brews Up Success

Constellation Brands’ beer division is set to realize its potential.

Constellation Brands' has bucked the trend of lackluster sales across the beer category, posting 7-percent growth to over 180 million cases in 2013.
Constellation Brands' has bucked the trend of lackluster sales across the beer category, posting 7-percent growth to over 180 million cases in 2013.

It’s been quite a year for the beer division at Constellation Brands. Corona Extra has now become the fifth-largest beer in the U.S. market. Modelo Especial—one of the country’s fastest-growing beer labels—is expected to jump into the No.-2 spot among imported brews this year. And Constellation’s beer division (formerly known as Crown Imports) has secured exclusive perpetual import and marketing rights to the Grupo Modelo brands in the United States and has acquired a state-of-the-art Mexican brewery. So far this year, Constellation Brands’ beer division is firing on all cylinders.

Constellation acquired Modelo’s U.S. beer business in June 2013, and the company’s top labels have continued to succeed while the overall beer industry remains relatively lackluster. “It’s been transformational,” says Bill Hackett, president of Constellation’s beer unit. “We’ve never been better positioned to realize our potential as a player in the business, and our partners are beginning to realize that as well.”

The strong performance at the beer division follows Constellation Brands’ $5 billion-plus acquisition from Anheuser-Busch InBev last year, a result of the A-B InBev purchase of Grupo Modelo. The deal—the largest ever for Constellation, headquartered in Victor, New York—included ownership of Modelo’s Piedras Negras brewery in Nava, Mexico, a facility currently undergoing major expansion to keep pace with U.S. demand. The company lost St. Pauli Girl, which moved to A-B as part of the acquisition.

Sales volume at Constellation’s beer division jumped nearly 7 percent in 2013 to 180.2 million (2.25-gallon) cases, from 169 million cases (excluding St. Pauli Girl) in the year prior, according to Impact Databank. Last year’s performance also marked the fourth consecutive year that the unit—the third-largest beer company in the country—has increased its share of the category. Indeed, for both fiscal year 2014 and the first half of 2015, Constellation reports that its beer division, which now employs about 1,200 workers in the United States and Mexico, has exceeded sales expectations. “Within our beer business, we continue to capitalize on our industry-leading performance and excellent retail execution across our entire Mexican beer portfolio,” according to a July statement from Rob Sands, president and CEO of Constellation Brands. Hackett—a beer-industry veteran now in his 30th year with Constellation (formerly Crown and Barton Beers)—projects continued growth for all the company’s key brands.

Last year’s acquisition solidified Constellation Brands’ position as the top multi-category supplier of beer, wine and distilled spirits in the United States. Constellation Brands was founded as a bulk wine supplier named Canandaigua Industries by Sands’ father, Marvin, in 1945 and now operates as one company with two divisions: the Chicago-based beer unit and the wine and spirits division headquartered in upstate New York. Hackett says the beer unit is in a good position to leverage the clout and knowledge of its sister operations. “Many retailers look at total beverage alcohol as one category and are looking for insights as the consumer shops across categories,” explains Bruce Jacobson, chief sales officer at Constellation’s beer division. The ability to provide information across all three categories “presents us with the opportunity to give more value to the retailer” than other beer marketers, he says.

As a result of last year’s deal, Hackett notes that the business can now be viewed in the long-term—a development that has spurred an increased workforce at the company. “We now run a brewery and have a responsibility to take on and build out the operational side of the brewery, and that’s a critical priority,” he adds. In early October, Constellation announced plans to add 5 million hectoliters (4.3 million barrels) of production capacity to 25 million hectoliters (21.3 million barrels). Further expansion is likely in the coming years. The company is also acquiring a glass factory adjacent to the Nava brewery in a $300 million deal with A-B InBev, a move that will supply more than half its glass needs.

Constellation recently took over the Piedras Negras brewery in Nava, Mexico.
Constellation recently took over the Piedras Negras brewery in Nava, Mexico.

Big Brands

Constellation’s beer division is the largest beer importer in the United States, accounting for 45 percent of the total import category. It boasts five labels among the top 20 imports—Corona Extra, Modelo Especial, Corona Light, Pacifico and Negra Modelo. Corona Extra’s volume increased 2.4 percent last year to 103.1 million cases from 100.6 million in 2012, according to Impact Databank, marking its fourth consecutive year of growth. The gain lifted the Mexican brew into the No.-5 position among all beer brands, overtaking A-B’s Natural Light. Corona Extra alone accounts for one-quarter of the imported beer market.

In the company’s fiscal second quarter ended August 31st, Constellation’s beer stable posted a 9-percent net sales rise, with strong contributions from Impact “Hot Brand” Modelo Especial, the flagship Corona Extra, along with the newly launched Modelo Especial Chelada and an expanding footprint for Victoria lager. Corona Extra was hit in late summer with a recall of some packages containing 12-ounce bottles over concern that the bottles may have contained small particles of glass.

Hackett  points to the brand’s marketing and sales efforts for driving its growth in recent years. “We’ve added more distribution across more channels in multiple packaging formats,” he says. According to the beer divison’s chief marketing officer Jim Sabia, the company takes a “360 degree approach” to marketing the brand, including major media, digital and on- and off-premise support, and spending for Corona is up 29 percent this year. Incredibly, the brand’s long-time creative—while tweaked over the years—continues to focus on what Sabia calls “the Corona beach state of mind.” Started 30 years ago, the campaign—now with the tag-line “Find Your Beach”—continues to resonate with consumers. Corona’s “120 Days of Summer” campaign is being followed this fall with ads featuring NFL coach Jon Gruden, while the “Feliz Navidad” commercial will return for the holidays.

The growth of Modelo Especial, meanwhile, has been nothing short of remarkable. The beer surged 18 percent in 2013 to 50.9 million cases from 43.1 million in 2012, according to Impact Databank. Indeed, Modelo Especial has increased 63 percent since 2010. Strong double-digit growth continues this year, and Hackett projects that the Mexican brew will overtake Heineken as the No.-2 import in 2014. He doesn’t expect Modelo Especial, which is popular among Hispanics, to slow down anytime soon, pointing to big opportunity in the multicultural and general markets. “Our retail partners are discovering so much upside opportunity for Modelo Especial,” Jacobson adds. “So many retailers are looking at emerging multicultural consumers and asking how to capture more of them. Modelo Especial is one of the answers.” Historically supported with Spanish-language ads, the brand has been receiving increased general-market support, largely themed around soccer. Modelo Especial’s first national general market ad campaign is expected to launch next year.

Sales of Corona Light, the eighth-largest beer import in the country, grew about 3 percent last year, but the brand was up 6 percent through July, according to Hackett. He attributes some of the growth to the recent expansion of the brew on tap. This year’s advertising for Corona Light touts the brand’s flavor versus other light beers. Among other Constellation brews, both Pacifico and Negra Modelo posted gains last year as well. Pacifico, which Sabia says is the No.-4 import in San Diego County, is supported with the “Yellow Caps” programming while Negra Modelo has partnered with chef Rick Bayless and is promoted as a great pairing for food.

While Hackett says the company is interested in launching new products, he points to production constraints and the need to fulfill demand for existing products first. But the company did introduce Modelo Especial Chelada in limited markets late last year, followed by national distribution in the spring. The consumer response has been good. “We’re selling everything we can make,” Hackett says.

Marketing for Constellation's top beer brand, Corona, continues to emphasize warm-weather fun with
Marketing for Constellation's top beer brand, Corona, continues to emphasize warm-weather fun with "Find Your Beach" and other campaigns.

Packaging Opportunities

Draft and canned beer offer additional opportunities for the company. Constellation lags industry averages in both segments, but Sabia notes that “draft and cans are two formats that we’re really focusing on.” While Modelo Especial and Pacifico have been available on tap for some time, Corona Light first tested draft distribution in 2012, and earlier this year, it rolled out nationally to 35 major markets, promoted as a trade-up from domestic lights. Corona Extra, meanwhile, was introduced on draft for the first time ever in three test markets—Cincinnati, Houston and Sacramento, California—in March and is served with a lime wedge. “The response has been very favorable overall,” Jacobson says. However, Hackett points to the challenges of draft beer as well. “Our intention is to ensure that we’re fully supporting the brands available on draft before expanding Corona Extra,” he says, noting that nationwide distribution could happen someday.

With the canned beer segment experiencing a revival, Constellation’s beer executives see expanded opportunity for their brands. Sabia says a redesigned Corona can will launch next year with significant ad support. “Cans are definitely a big part of our future,” he adds.

Jacobson concedes that while Constellation’s beer division may not have the resources that its larger competitors do, when it comes to supporting the on- and off-premise trade, the company’s emphasis on 360-degree marketing and consumer research insights sets it apart. “Our marketing team does deep research to understand our brands and how they interact with consumers. That information is valuable for retailers and allows them to best utilize our programming,” he says.

Despite all the excitement around craft beers, Hackett isn’t concerned about any negative impact on his brands, noting that the focus shouldn’t just be on new flavors and styles, but on brand building as well. “Corona is a great example,” he says. “After 30 years, this brand continues to grow due to the equity and investment we have made in it for so many years.”

Jacobson adds that Constellation’s beer brands gain significant support from other sectors of the industry. “Great brands can’t be successful unless we have retailers who are willing to support them and find value in them,” he says.