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Corona Light on tap can beat ‘tiny little’ craft beer brands: Constellation Brands

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By Ben Bouckley+

09-Jan-2014

Photo: Jimmy Baikovicius/Flickr
Photo: Jimmy Baikovicius/Flickr

Constellation Brands expects ‘great things’ after launching Corona Light on tap and is confident it can boost draft sales to 10% of its business while beating craft beers on premise and at retail level.

Despite tough competition for taps – given the craft beer revolution – CEO Robert Sands told analysts yesterday during the firm’s Q3 2014 results call that there was “pent-up demand” for taps carrying its beers, with on premise customers actively calling for the products.

Due to the acquisition of Grupo Modelo’s US beer portfolio in June 2013 – and the consolidation of Crown Holdings’ sales – Constellation’s Q3 net income for the three months ending November 30 rose 88% to $1.443.3bn ($766.9m: 2013) while net income rose around 93% to $211m.

Corona on tap ‘additive not cannibalistic’

Historically, Grupo Modelo’s strategy for the Mexican brands – Corona, Modelo Especial, etc. – in the US did not involve selling them on draft.

“We didn’t think that was a great position and we disagreed with it. But fundamentally, we didn’t have any choice there,” Sands said.

Since acquiring the brands Constellation has introduced draft in the US, and Sands insisted the move had been “completely additive to the business as opposed to cannibalistic, especially given the brands that we focused on for draft”.

“Think about the craft business, okay? You’re talking about tiny little brands that nobody’s ever heard of outside their city…so yes, that requires a strategy to get people to put taps in on brands…in a crowded and fragmented category,” Sands added.

“In our case, you’re talking about the largest import brands that haven’t had draft and now have draft that have a lot of consumer acceptance…and therefore, our retailers are calling and asking for the taps,” Constellation’s CEO said.

Sands told analysts there was no reason why draft sales couldn’t account for 10% of Constellation’s beer business over time, where it is currently only 2-3%.

Confusion in the beer aisle…

Constellation’s chief also enthused about the strength of total beverage alcohol (TBA) generally, where the company is the largest multi-category player due to its beer, wine and spirits interests.

“TBA is probably the most important category in grocery and to the mass merchandisers today. Of the major categories, it’s the only growing category from a dollar, top line and bottom line perspective,” Sands said.

“And it’s providing much, much more profitability than any of the other major categories basically in grocery,” he added, citing carbonated soft drinks, cigarettes and dairy as the other major categories.

Discussing competition from craft beers, Robert Ryder, Constellation CFO, said it was “a little confusing in the beer aisle these days” but insisted both Corona Extra and the firm’s other brands deserved more shelf space.

“Corona Extra…turns much better than craft beers, it also grows like craft beers, right? Another reason to give it more space. And it has a higher ring and more profitability to the retailer like craft beers.”

Constellation’s beer brands also lent retailers the benefits of craft beers alongside greater scale, Ryder added, coupled with “much more tenure in the industry to help the do some category management that maybe the smaller, newer craft beers aren’t as expert with yet”.

7 comments (Comments are now closed)

Corona draft will not impact craft sales

The growing trend I see is for bars to offer ONLY craft on draft and macros in bottles, if at all. The sorts of places that are experiencing crazy growth from craft beer do not have a substantial Corona demand. I can see it doing well at Hooters or Buffalo Wild Wings or macro-heavy sports bars, but craft beer and macro beer generally reside in two different worlds in terms of physical location.

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Posted by Charles
16 January 2014 | 23h26

Ryder is possibly correct - but he's framing the argument

The big chain on premise accounts - Applebee's, Olive Gardern, Chili's TGI Fridays, Hooters, etc., would certainly sell a LOT of Corona Light on draft, but I dispute Ryder's contention that it doesn't cannibalize the bottles. His "tiny little brands" remark is either disingenuous or ignorant, I suspect the former.

Constellation's problem is, most of the energy and growth is in the craft segment and the vast majority of destination locations are scaling back their mainstream and import taps in favor of higher dollar ring craft.

Corona won't seriously compete for taps in these accounts and instead will draw the vast majority of the benefit at the expense of Bud and MillerCoors. This will cause troublesome internal conflicts for the Corona distributors who are primarily AB/InBev houses. AB/InBev will staunchly defend their "Core-Four" brands (Bud, Bud Light, Shocktop, Stella Artois).

Constellation will likely show continued but small percentage growth with Modelo, primarily at the expense of Bud and Bud Light.

EDITOR: Great comment - thanks!

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Posted by Mike Pierce
16 January 2014 | 21h47

Ostrich

A prime example of how inept big beer is, just sticking their heads in the sand....

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Posted by AnthonyG
16 January 2014 | 21h33

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