Recent investments by Constellation Brands have included the June acquisition of Empathy Wines (a ’high performing, digitally-native wine brand and direct-to-consumer platform’) and a minor investment in the Booker Vineyard’s business (a super-luxury, direct-to-consumer focused wine business).
"While we’re already a leading player in the 3 tier ecommerce, we’re excited about our renewed focus on the direct-to-consumer space with our acquisition of Empathy and our minority investment in the Booker Vineyard's business as we believe e-commerce, including DTC, can become a key growth driver for our business,’ says CEO Bill Newlands.
Shift to off-trade will change the foundations of the alcohol beverage market
The caveat, of course, to predicting any changes in a COVID-19 world is that no-one really knows what will happen next. But a brutal shift from the on-trade to off-trade during lockdowns is turning into a broader trend that doesn’t look to be going away anytime soon – and helps lay out the foundations of the market within which beverage companies will operate in the future.
“It's very difficult in a COVID year to make lots of predictions about what will be sustainable and what will maintain itself once we come out of the COVID scenario and what won't,” said Newlands in the company’s Q2, 2021 earnings call this month.
“I do think it's very fair to say there will be some fundamental change. Some of that fundamental change will be about 3 tier e-commerce and direct-to-consumer, things that we're investing a lot of our energy and focus on going forward.
“I do think there will be some fundamental change about how the consumer buys. And to some degree, there almost has to be because there has been a significant shift from the on-premise to the off-premise. And the long-term trend of that, I still think, is too early to predict.”
As with other beverage giants, Constellation Brands notes a shift to e-commerce. Before the pandemic alcohol e-commerce was growing but remained a small fraction of off-premise sales in the US. Now, investing in this category is key, says Newlands.
“E-commerce for beverage alcohol has exploded due to the pandemic, increasing three to four times in volume versus [the] prior year. We were focused on e-commerce as a growing channel even before COVID-19, and have further accelerated our strategy with increased resources and focus on digital shelf management, and redeploying marketing dollars to support our digital commerce channels.”
Premium is still the priority
With the categories of beer, wine and spirits – not to forget hard seltzers – all jostling for attention, Constellation highlights the importance of a carefully constructed portfolio (it plays in all the aforementioned categories with brands such as Corona, Modelo Especial, Meiomi, Svedka and High West).
Newlands refrains from making predictions about which categories will come out on top of a COVID-19 shake-up: but rather highlights ongoing growth in premium products. It’s a direction the company has been taking in the last few years and one it remains committed to moving forward (most recent is its acquisition of the remaining interest in Kentucky-based craft spirits producer Copper & Kings).
And he points out the success of the strategy so far in wine and spirits: over the latest quarter, Constellation Brands saw the 'staying power of the consumer-led premiumization trend' with premium price point segments continuing to outpace value price segments.
“We have worked aggressively, as you've seen, to make sure that our portfolio is positioned for where the consumer is going, not where the consumer has been.
“We've invested in craft spirits, which we think has tremendous upside. Our beer business plays in the high end, which is where the growth in the category is. We're extending our capabilities in seltzer to more than double what we have done in this fiscal year going forward. And our wine business is tremendously positioned to continue to leverage the premiumization trend that's going on.
“In addition to that, we're doing the kinds of innovations that the consumer is looking for: in things like betterment and convenience. You're seeing that in some of the new products that we've talked about this year.
“That's where our focus really lies, and I think there's tremendous opportunity within our portfolio no matter how it shakes out post-COVID.”