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”.