Constellation Brands may have lowered its fiscal year 2025 (FY25) guidance earlier today, but the company has not lost confidence in the continued growth of its beer brands.
Constellation Brands president and CEO Bill Newlands and executive VP and CFO Garth Hankinson sat down for a fireside chat today at Barclays’ Consumer Staples Conference in Boston. The conversation came hours after the beer giant announced several changes to its bev-alc guidance, as well as a non-cash goodwill impairment charge of $1.5 billion to $2.5 billion on its wine and spirits business, taken in Q2 (ending August 31).
Included in the changes was a lowering of net sales growth for its Mexican import brands – including Corona, Modelo, Pacifico and Victoria – from between +7% and +9%, to between +6% and +8%.
Newlands assured conference attendees that Constellation is still confident in its beer brands, but noted a slowdown in its top five markets (California, Nevada, Florida, Texas and Illinois). The slowdown is in part due to consumer buying patterns during election years. Consumers tend to decrease spending while there is uncertainty around who will be the next U.S. president, Newlands said.
In addition, there has been an increase in unemployment that has disproportionately impacted Hispanic consumers, who make up more than half of Constellation’s consumer base.
Constellation is the second largest beer vendor in Circana-tracked off-premise channels, increasing dollar sales +6.3% and volume (case sales) +5.3% year-to-date (ending August 11). The company has gained +1.32 share points of total beer dollar sales YTD, which increases to +4.5 share points when including all CPG products, Newlands said.
Trends have slowed in the last four weeks (dollar sales +0.5%, volume -0.5%), but Constellation is expecting consistent performance throughout the remainder of FY25.
“If you look at many of the macro trends, the belief is that unemployment was going to stabilize,” Newlands said. “Inflation continues to come around. The election will be behind us, and people will understand exactly where we sit, that usually opens up people’s purses a bit. So, we believe this [revised guidance] is reflective of what you would expect to see for us for the rest of the year.”
Additionally, Constellation has achieved “cost saving initiatives” faster than the company initially expected – including contract negotiations and logistics initiatives, Hankinson shared. The company plans to use some of the “incremental benefits” from those savings on brand building, including national TV and at-retail marketing, and will be spending more on marketing in H2 of FY25 than the company initially planned, also contributing to the guidance changes.
Here are other highlights from the conversation:
On the company’s outlook for the beer category through FY 2028 … Newlands said that despite the “obvious” changes that have happened to the beer industry in the last year, “beer has fairly consistently been in that range of +1% to -1% [growth] for a number of years,” and that is “likely to be roughly what you see going forward.”
“The important part is that we’re in a position to continue to gain share in that marketplace,” Newlands said. “Our view is we’re going to continue to be the share gaining leader, you’re going to continue to see a strong growth profile, and – as Garth and I often joke – I’m sure most any CPG company would love to have our income statement.”
Constellation expects to deliver +7% to +9% topline growth through FY28, Hankinson said. Between 40% and 50% of that growth will be from distribution gains, while about 30% will be from demographic growth and 20% to 40% will be from innovation, he shared.
“And it’s important for everyone to understand that innovation for us isn’t just new-to-world products – that’s line extensions, flavor enhancements, and that’s pack size,” Hankinson said.
On opportunities with targeting different demographics … Hankinson noted that the population of legal-drinking-age (LDA) Hispanic consumers is expected to increase at double the rate of the “general consumer,” providing “a real tailwind” for Constellation, which sells more than half its volume to Hispanic consumers.
However, Constellation is also focused on gaining more “general consumers” – something it has already done with Modelo. Constellation has been advertising Modelo to the “general population” for about seven years, Newlands said. In that period, the percentage of Modelo’s business that comes from general consumers has increased from 20%, to about 45%. And the company expects that percentage to increase, as general consumers make up nearly 70% of Corona’s volume.
“When you think about the possibilities for a brand like Modelo going forward, I don’t want to say they’re endless, because that would probably be a little ridiculous, but it’s massive,” Newlands said.
Still, the company plans to prioritize authenticity while expanding its consumer base and “stay true to what these brands stand for.”
“We’re not trying to do an IPA in Modelo, it just wouldn’t be relevant or appropriate,” Newlands said. “These are Mexican heritage brands that are reflected in a great product in the bottle, and very refreshing. And therefore, we think there’s a long runway, particularly for Modelo.”
On if Modelo can be the No. 1 beer brand in all 50 states … Newlands said it is a viable goal for the brand that is already the No. 1 beer brand on a national scale by YTD dollar sales.
“Our household penetration on Modelo is less than Corona, and that’s still less than some other domestic brands,” Newlands said.
“Last year, we were No. 1 in 13 markets,” he continued. “We’re No. 1 now in 14 markets. When you think about that, I don’t think that’s a big number, even though we’re the No. 1 beer in the country by dollars. So our belief is [there’s] tremendous runway, purely talking about Modelo.”
In Los Angeles, one of Modelo’s top markets, the brand is not only No. 1, but is larger than the next four brands combined, and is still gaining share, Newlands said. That continued growth demonstrates “the upside that exists” for Modelo is other markets, he said.
To achieve the milestone in other markets, Constellation is expanding how and where it advertises Modelo, including an increased presence during college football season.
“If anybody watches college football, you’ll see our presence … particularly with the SEC [Southeastern Conference],” Hankinson said. “That really is meant to attract and drive demand in some of those states that would be less obvious states for us to win.”
Modelo total brand family dollar sales have increased +9.7% and volume +9.1% in Circana-tracked off-premise channels YTD. In the last four weeks, Modelo dollar sales have increased +2% and volume +1.4% year-over-year (YoY).
On Pacifico … Newlands said the brand’s positioning – including its “living life to the fullest” messaging – is “in a good spot.” The brand is also attracting consumers that are “a bit younger” than the rest of the company’s portfolio.
“You’ve got places like New Jersey and Texas and Illinois and Florida that are up anywhere between +25% and +70%, depending on the individual market,” Newlands said. “You’re seeing real penetration with new audiences.
“The one thing that we’ve worked really hard at is to do it slowly and intelligently,” he added. “You never want to find yourself in a position where you put something into the market then have to pull it out, that’s never a great scenario. We’ve been very careful as to where we put it, and it’s reflective of the sheer growth profile that it’s had over the last few years.”
Pacifico total brand family dollar sales have increased +24% and volume +23.2% in Circana-tracked channels YTD. In the last four weeks, Pacifico dollar sales have increased +21.5% and volume +20.2% YoY.
On Corona … Newlands said the brand has struggled a bit more, in part due to its consumers skewing more towards the East, which has had weather issues this year, particularly around major holidays.
“The brand family and what Corona as a brand entity stands for is still very strong, and we think Corona is going to be just fine in the near term,” Newlands said. “We don’t expect it to have the same growth profile that Modelo or Pacifico has, but it’s still going to be just fine.”
Corona total brand family dollar sales have declined -1.3% and volume -2.9% YTD. In the last four weeks, dollar sales have declined -5.3% and volume -6.9% YoY.
On wine and spirits … Hankinson acknowledged that cost saving efforts have not moved as quickly as they have with beer, and the company’s offerings within the two categories have seen harsher trends than its beer products.
“The macroenvironment on wine in particular has been very bad comparatively – worse than we expected,” Newlands said. “I’ll say this: I’m very glad we sold 90% of the low-end brands that we did over the last few years as we’ve weaned our portfolio down to a much more higher-end portfolio.”
To combat declines in the division, Constellation is focusing its attention and investment on 10-12 brands “that really matter,” as well as “doing a lot of cost work on the wine side” and working more closely with distribution partners, Newlands said.
“Garth and I spent months at the early part of the calendar year with our wine and spirits team working out what do we need to be doing, what the focus needs to be on, and what our operating plan was going forward,” Newlands said. “It doesn’t turn on a dime, particularly when the macroenvironment is not as healthy as we’d like to see, but we’re expecting to see incremental progress in the back half of this year against many of those initiatives that we put in place, as we start to track to that nine- to 12-month timeframe.”
On total bev-alc consumption trends … Newlands said the company is focused on three trends – flavor, betterment and premiumization – that it believes will continue to be a priority with consumers. Corona plans to address those trends by “investing in areas that can be approachable if the consumer does change.”
“Twenty-plusyears ago, the category that was viewed as dead on arrival was bourbon,” Newlands said. “Well, today, you would argue it’s one of the healthier categories that exists in spirits, because it’s interesting and dynamic, [and] new things were brought to the table that opened up the aperture for people to look at it in a different way.
“I would argue our Corona SunBrew opens up that same kind of window for a consumer, a new consumer, to look at these products that have particularly been in this category in a slightly different way,” he continued. “I would argue Modelo Aguas Frescas could do the same thing.”