Net sales of Constellation Brands’ beer portfolio — including Mexican import labels Corona, Modelo and Pacifico — topped $6 billion, an 8% increase, in fiscal year 2021, the company shared today while reporting its full-year earnings.
Constellation’s beer shipments and depletions increased 7.3% and 7.1%, respectively, for FY2021, which concluded February 28, 2021. The company shipped 334.6 million cases of beer last year, a 22.7 million case increase year-over-year.
The company attributed its depletions growth to “strong performance in off-premise channels,” which “more than offset the COVID-19 impact of the 51% reduction in on-premise channels.”
Constellation’s overall beer, wine and spirits business recorded a 3% increase in net sales, to $8.6 billion, for fiscal year 2021.
Highlights of the year included Modelo Especial becoming the third best-selling beer in the U.S., with 145 million cases sold last year and depletions growth of 12%.
During a call with analysts and investors, Constellation Brands president and CEO Bill Newlands noted that Modelo Especial is the only imported beer ever to surpass 10 million barrels in volume. He added that “there’s really no end in sight” for Modelo Especial’s “double-digit growth profile.”
“It continues to grow with the Hispanic community, and obviously there’s a nice tailwind because of the growth in the Hispanic community, but we still have great distribution opportunities,” he said. “We continue to grow our velocities on that brand. And when you think about the penetration increasing in the non-Hispanic community 25% over the last couple of years, we’re barely scratching the surface.”
To boost the Modelo brand in FY 2022, Constellation will increase spending by 50% in digital, social, and e-commerce media, including sponsorships, advertising or activations around the Gold Cup soccer tournament, the summer Olympic Games and the UFC.
Meanwhile, the Corona brand family is “thriving,” Newlands said, adding that Corona Extra is the sixth best-selling beer in the U.S. with $2 billion in retail sales last year.
The launch of Corona Hard Seltzer, which sold nearly 10 million cases last year, and Corona Premier, which posted nearly 20% depletion growth, helped propel the growth of the Corona brand family.
Newlands called Corona Hard Seltzer the company’s “most successful innovation yet,” becoming the No. 4 brand family in hard seltzer with just one SKU, a variety pack. He added that the brand was 90% incremental to Constellation’s overall portfolio, and nearly 20% of Corona Hard Seltzer’s volume last year came from Hispanic consumers.
This year, Newlands expects Corona Hard Seltzer’s business to double, with the introduction of a second variety pack, as well as Corona Hard Seltzer Limonada (100 calories), which will launch in June in a variety 12-pack line-priced with the core line.
Constellation will invest $60 million in marketing during the summer to support the growth of its hard seltzer brands.
Newlands also heaped praise on the Pacifico brand, which he said has the potential to be “the next scalable national beer brand” in Constellation’s portfolio. Quoting legendary Constellation executive Bill Hackett, Newlands said Pacifico is starting to resemble Modelo 15 to 20 years ago.
“This brand very much over indexes with Gen Z consumers,” he added. “So we’re bringing in a somewhat different audience than what we have with some of our other franchises.
“We really think this could easily be the next big franchise within our overall portfolio,” he said.
$1.37% Billion in Sales in Q4
Net sales of the company’s beer portfolio increased 16%, to $1.37 billion, for the three-month period ending February 28, 2021. Q4 shipments and depletions increased 15.9% and 6.4%, respectively. Q4 shipments total 75.7 million cases, a 10.4 million case increase.
Q4 depletion growth was attributed to “strong” off-premise channel performance, which offset the impact of COVID-19, which caused a 43% reduction in on-premise channels.”
Looking Ahead to Fiscal Year 2022
Newlands said Corona’s growth strategy for FY2022 is built on three pillars: 1) reigniting the core with a brand with new packaging and advertising and marketing 2) launching new products, including in the “betterment” space 3) and “establishing a beachhead” in the “alternative beverage alcohol” (ABA) subspace, notably hard seltzers.
Newlands ran through some of Constellation’s innovation plans for the new fiscal year, including:
- A Modelo Chelada line extension, Pina Picante;
- Modelo Cantarito-Style Cerveza, a 100-calorie, better-for-you play, which Newlands said was the highest-scoring new Modelo product concept with consumers in the company’s history;
- Corona Refresca variety pack, which will return after a one-year hiatus during the pandemic;
- Corona Refresca Mas mango citrus, a higher ABV (8%) entrant sold in 24 oz. single-serve cans;
- Pacifico Citrus Agave Lager, which will launch this month with three SKUs in San Diego and Dallas.
For fiscal year 2022, Constellation Brands is projecting net sales growth in the 7-9% range.
Mexicali Cannot be Repurposed
After the Mexican government forced Constellation to pull the plug on its production facility in Mexicali, the company said it “will be unable to use or repurpose this site for future use.” As such, the company will record an impairment charge of about $650 million to $680 million in its first quarter 2022 earnings report.
“The company will continue to work with government officials in Mexico to pursue various forms of recovery for capitalized costs and additional expenses incurred in establishing the brewery,” the company said in a press release.
That includes working with the government to find an alternative location in the southeast of Mexico with an ample water supply and a skilled workforce, Newlands said during a call with investors and analysts today.
Nevertheless, the company said it is planning capacity expansions in Mexico for its beer and beyond beer offerings. Constellation’s annual capital expenditures will be in the $700 million to $900 million range to support this 15 million hectoliter (about 12.8 million barrels) expansion from FY2023 through FY2025.
Newlands vowed that Constellation wouldn’t let the setback interfere with the company’s growth plans.
Constellation Files Motion to Dismiss Grupo Modelo Lawsuit
Newlands addressed Anheuser-Busch-owned Grupo Modelo’s lawsuit claiming that Constellation went outside of its licensing agreement by producing a Corona-branded hard seltzer line. Newlands said Constellation filed a motion to dismiss the lawsuit earlier this week.
“We find these claims to be completely without merit, a blatant attempt to restrain a strong and well-established competitor in a high-growth segment of the U.S. beer market,” Newlands said. “We have fully complied with the terms of our sublicense agreement, and we will vigorously defend our rights under our sublicense agreement and applicable law.”
Newlands is anticipating several months before a decision on the motion. Until then, Newlands said the company will operate “business as usual.”
Canopy Growth Strikes Deal for Supreme Cannabis Company
Canopy Growth Corporation, in which Constellation Brands has invested $4 billion in and holds a 38.6% stake in the business, today announced a deal to acquire The Supreme Cannabis Company in a transaction valued at $435 million. The deal is expected to close by the end of June 2021, pending court, regulatory and shareholder approval.
A joint press release said the deal will boost Canopy’s portfolio of recreational cannabis brands, with the addition of 7ACRES, which the company said is Canada’s No. 1 premium flower brand, No. 1 in PAX vapes and top five in pre-rolled joints.