In a summer plagued with out-of-stock issues, Constellation Brands’ beer depletions still increased 4.7% in the second quarter of the company’s fiscal year, the company shared today.
“In what was expected to be our most challenging quarter of the year, our team overcame COVID-related headwinds to deliver solid business performance in Q2,” CEO Bill Newlands said during a conference call with investors and analysts.
The Mexican government forced the shutdown of beer production due to the COVID-19 pandemic in the spring, which decreased stateside inventory of Constellation’s import brands — Corona, Modelo and Pacifico. Q2 shipments declined 1.6% and beer sales were flat at $1.635 billion. The company expects inventory levels to return to normal by the close of its third quarter, which ends November 30.
The brightest spot in Constellation’s beer portfolio during the quarter was Corona Hard Seltzer, which launched in March and has topped $118.8 million in sales year-to-date through early September, according to market research firm IRI.
“Our intention is to become a top three player in the hard seltzer market, as we believe there’s a natural and compelling connection between what the Corona brand stands for, and what consumers want in a seltzer: refreshing great taste and flavor and ours is zero carbs, zero sugars and only 90 calories,” Newlands said. “In the future, you’ll see us expand, with new flavors, new packages, and even new platforms.”
Since its launch, Corona Hard Seltzer has become the fourth best selling hard seltzer in the country, behind Mark Anthony Brands’ White Claw and Boston Beer’s Truly, which combined account for nearly three quarters of the market, and Anheuser-Busch InBev’s Bud Light Seltzer in a distant third, with 10% market share of the hard seltzer segment. Corona Hard Seltzer holds a 6% share of the segment, according to IRI data shared in Constellation’s Q2 earnings release.
Corona Hard Seltzer over indexes with Hispanic drinkers relative to other hard seltzer brands, Newlands said. The brand sourced 15-20% of its volume from the Hispanic market, where Hispanic consumers account for 10-15% of other seltzer brands’ volume. This “unlocks an untapped opportunity for this category with the fastest growing demographic in the country,” Newlands said.
Earlier this week, Molson Coors struck a deal with Coca-Cola to manufacture, market and distribute its Topo Chico Hard Seltzer, an alcoholic line extension of the Monterrey, Mexico-based, 125-year-old sparkling mineral water brand that the soda giant acquired in 2017. Asked if he was concerned the new entrant would steal share from Corona Hard Seltzer, Newlands pointed to consumers’ gravitation toward familiar alcohol brands.
“As I’m sure you’ve seen, there’s been a lot of introductions in the seltzer category, but you know consumers have a tendency to go with tried and true trusted brands,” he said. “There is really no stronger brand that’s trusted in the minds of consumers than Corona, and certainly Corona Hard Seltzer will fall into that zip code as well.”
Overall, the Corona brand family’s dollar sales are up 10.5% year-to-date, according to IRI, which Constellation attributed to the success of Corona Hard Seltzer, Corona Premier and Corona Extra. Pacifico grew nearly 30% in IRI-tracked channels.
Depletions of Modelo Especial, Constellation’s best-selling beer brand, increased 9% during the quarter. The Modelo family’s dollar sales increased 9.7% in the 12 weeks ending September 6, to $717.3 million, according to IRI. Newlands credited the growth to Modelo’s deep roots within the Hispanic community
and the company’s recent efforts to reach other drinkers.
“Quite honestly, I don’t know how high is up,” Newlands said. “There remains tremendous opportunity to extend that franchise both with its core Hispanic community, as well as the non-Hispanic marketplace, into which we started to advertise.
One thing not in the cards for Modelo’s future though is a hard seltzer.
“I highly doubt that we will do a seltzer under that brand,” Newlands said. “We believe that the core essence of that brand focuses much more on full-flavored beer, and any innovation that we might approach on that particular brand will follow more of the brand essence of the Modelo brand, rather than what we have done with Corona, where we feel the whole refreshment platform matches up perfectly with the hard seltzer sub-segment.”
Constellation’s share of Canopy Growth, the Canadian cannabis business it invested in three years ago, reported a $31 million loss for the quarter and a $48 million decrease in Constellation’s investment was recognized. Still, Newlands praised Canopy’s work.
“We’re pleased with the progress that the Canopy Growth team has made in prioritizing their strategic direction to focus on what’s needed to become a world class CPG company,” he said.
Next summer, Canopy Growth and Acreage Holdings, the New York-based cannabis company Canopy has an agreement to acquire if cannabis becomes federally legal in the U.S., will introduce cannabis-infused beverages in the U.S. In March, Canopy launched THC-infused beverage Rec 2.0 in Canada and has shipped 1.6 million cans.
“We believe beverages and other Rec 2.0 products will attract new consumers to the market and further drive conversion from the illicit market,” Newlands said.