The US-based wine, beer and spirits business announced Q1 2014 net sales of $673m yesterday, up 6% year-on-year on a comparable basis.
But Q1 net income fell 3% to $74m, with Constellation blaming higher grape costs and Selling, General and Administrative Expenses (SG&A) expenses.
$4.75bn beer buy adds 'entirely new dimension'
During an investor call to discuss the firm's results, Lauren Torres from HSBC asked CEO Robert Sands what could be “done differently in beer” now it had full ownership of Anheurser-Busch InBev's (AB InBev's) US beer business.
Constellation completed its acquisition of Grupo Modelo’s US beer business from AB InBev on June 7 2013 for $4.75bn.
The deal includes AB InBev’s large-scale brewery in New Mexico (lending it dedicated beer production facilities for the first time), full ownership (the other 50%) of the import business for brands including Corona, Crown Holdings, and a permanent license to sell these brands in the US.
Sands said the acquisition had added “an entirely new dimension to our company”, and told analysts that Constellation was most excited about opportunities for innovation and NPD in beer,
The company had already introduced and was test marketing Modelo Especial Lite in the US, he said, adding that it plans to introduce Modelo Especial Chelado, a Bloody Mary-style beer, in the US later this year.
In response to questions about the product, Constellation referred us to Crown Imports (its import business for its Mexican beer brands), and spokesman said simply: "Thanks for your interest in the upcoming launch. We are very excited about the brand."
Grupo Modelo didn't innovate that much...
Modelo Especial Chelado is a tomato, salt and lime-flavored 3.5% brew and Sands described Bloody Mary beers as a “pretty large category” in the US, but said it was currently dominated entirely by one other supplier “so we see a lot of opportunity there”.
Constellation's rivals are certainly active in the RTD beer mix space, and Anheuser Busch (as was) launched a Budweiser & Clamato (containing tomato juice and clams) brewed in Missouri, in 2008, which is perhaps the closest big name rival to Modelo Especial Chelado.
And September 2012 saw Heineken launch its RTD Michelada, Tecate Michelada (beer, lime, spices, chilli pepper) in western and central regions of the US. Tecate marketing VP Felix Palau cited appeal for beer drinkers who like a "little something extra" and growing interest in beer mixes.
“With the ownership of our own production, we can produce new packages and new types that previously we were entirely reliant upon the consent of Modelo to produce,” Sands added.
“And generally, they didn’t really want to do much in the way of innovation, new products, new packages, new types. No less, new brands,” he said.
Glossing Constellation’s strong performance in beer, CFO Robert Ryder described Modelo Especial as the “current juggernaut” that continued to grow in the 20% range, now above 40m cases.
“I think the other thing that’s happening is that the import category is doing better than premiums or sub-premiums,” Ryder said, adding that Constellation’s marketing campaigns were effective.
Budweiser & Clamato Picture Credit: Seth Mazow/Flickr