CEO Rob Sands says the company is investing now to ensure long-term capacity and quality, following on from ‘remarkable’ results in beer in its latest quarter.
He adds the high-end beer segment has consistently grown in mid-to-high single digits in recent years, and is expected to continue at the same rate in the future.
Tremendous growth opportunity
Constellation Brands is the third-largest beer company in the US, with a focus on high-end, iconic imports. Its portfolio includes Corona Extra (the US’s #1 imported beer), Corona Light (#1 light imported beer) and Modelo Especial.
Over Q3 2015, Constellation saw beer net sales increase 8%, primarily thanks to volume growth.
Constellations’ beer business has “incredible momentum and strong prospects for future growth,” said Rob Sands, president and CEO, Constellation Brands, speaking during Thursday’s Q3 earnings call.
“It is because of this tremendous growth opportunity that we are making smart investments now to ensure that we have the capacity, quality, control and flexibility to help us meet expected demand for our iconic beer brands well into the future,” he said.
Sands sees strong and growing consumer demand for Mexican beer brands and high-end products in the US.
“Our additional investments in production capacity are designed to ensure that we are well positioned to capture the continued momentum and growth opportunities we see in the high-end segment of the US beer market, which has consistently grown in the mid-to-high single digit range and is expected to grow at these levels into the foreseeable future,” he continued.
Constellation announced plans for its new 10m hectolitre brewery in Mexicali, Mexico, last week. Costing around $1.5bn to build over four to five years, an additional investment in land and infrastructure of $500m will accommodate scalability to 20m hectolitres.
The site has been chosen because of its proximity to California, the largest beer market for Constellation.
Meanwhile, Constellation will continue expanding its Nava brewery, eventually reaching 27.5m hectolitres in 2018.
Current expansion projects will see capacity reach 20m hectolitres by June, then 25m hectolitres in 2017. Constellation has now announced a further 2.5m hectolitre expansion, which will increase capacity to 27.5m by 2018.
Constellation Brands made headlines in November with its $1bn purchase of Ballast Point Brewery, eyeing up a “high-growth premium platform [to] enable Constellation to compete in the fast-growing craft beer segment.”
In Thursday’s earning’s call, Sands said the purchase price was justified by Ballast’s growth potential. It is growing at 125% in IRI channels, and is on track to sell 4m cases with $115m in net sales for 2015 (100% growth the previous year).
The acquisition was completed in December. Constellation Brands is a good fit for Ballast Point, Sands said, because Constellation focuses solely on the premium end of the beer and wine business.
“Our strategy with Ballast Point is actually pretty simple and it's why we were so particularly interested in the brand. Our strategy is we don’t really have to do too much other than what they’re doing right now,” he said.
He said the brand will continue to expand distribution, and increase its velocity per point of distribution in its existing major markets such as San Diego.
“The key to Ballast Point is maintaining the growth; and I think the maintenance of the growth is going to be a function of maintenance of the award-winning stature and high quality of the brand. It's a very sought-after product.”