Constellation Brands leaders laid out a vision for “dialing up” growth for its portfolio of Mexican import offerings over the next five years during Monday’s opening session of its Gold Network Summit at Caesar’s Palace in Las Vegas.
Constellation Brands president and CEO Bill Newlands said the company is anticipating companywide net sales to grow between +6% and 8% from fiscal year 2025 to fiscal year 2028, generating an additional $3-4 billion by fiscal year 2028, compared to fiscal year 2023.
“Needless to say, that’s a significant wealth of profitable growth that will enable us to continue investing aggressively to fuel the sustained performance of our core beer business, which make no mistake about it, is priority No. 1 for us,” Newlands said.
Newlands said he’s frequently asked how Constellation can sustain the levels of growth as its portfolio has grown in size and scale while the overall U.S. beer category has faced headwinds. His answer was simple: “Yes, we can.”
Newlands pointed to Constellation growing annual depletions at an 8% compound annual growth rate (CAGR) from fiscal year 2011 to fiscal year 2019, driven by its core three brands: Modelo Especial, Corona Extra and Pacifico. Those brands have surged over the last five fiscal years.
In that period, Modelo Especial has grown 70 million cases, to 180 million cases shipped, going from the No. 6 brand in the U.S. beer market by dollar sales to No. 1, and from the No. 2 high-end brand to No. 1.
Corona Extra has grown shipments 10 million cases to 120 million cases in that time, going from the No. 7 brand in the U.S. beer market to No. 5 and holding steady as the No. 3 high-end beer in the U.S. market.
And Pacifico doubled shipments over the last five years to become a 20 million-case brand, going from the No. 33 brand in the U.S. beer market to No. 20 and cracking the top 10 high-end brands list at No. 9.
“There aren’t many companies in our industry, or frankly in any industry in recent memory, that have driven this level of growth over such an extended period of time,” Newlands said.
“We see that there’s a unique window of opportunity to further accelerate our performance as we approach the spring shelf resets and the key summer selling season given the sustained strength and momentum of our brands, and particularly given all the noise and potential distractions surrounding some other players in our category,” he continued. “We are extremely well positioned to capitalize on this window of opportunity and now is the time to double down on our portfolio.”
Jim Sabia, ConstellationEVP and beer division president, shared that the company has committed to grow revenue by +7% to +9% over the next five years by driving mid-single digit depletion growth and taking “1% to 2% price increases when and where appropriate.”
“Many CPG companies over the last several years have successfully taken price to achieve their revenue goals. But you know what? They haven’t been able to grow volume. They take price but can’t grow volume. They realize they don’t have pricing power to achieve both. However, we do. We’ve been taking price and growing volume for many, many years.”
In terms of volume growth, Constellation has committed to adding 100 million cases over the next five years. The company will get there through three growth avenues: distribution, innovation and demographics, Sabia said.
Constellation expects distribution to be the biggest growth driver, increasing by 40% to 50% over the next five years as the company is targeting 500,000 new points of distribution (POD), Sabia said. The main focus of that drive will be Modelo Especial, with 250,000 PODs dedicated to the brand, which is now the No. 1 beer in the U.S. in dollar sales over the last 52-week period, overtaking Anheuser-Busch InBev’s (A-B) Bud Light.
Innovation from new brands, packages and new-to-world brands will account for 20% to 40% of the company’s growth in the next five years, Sabia said. Innovation will be focused and the company won’t waste distributors’ time, he promised.
Newlands promised a focused slate of innovation brands, noting that over the last five years, the company’s new products have grown at a 95% CAGR in tracked channels.
“Our goal is to work closely with you to introduce innovations that resonates with consumers, that has staying power on the shelf in the marketplace, and adds incremental value to our business, your business and our retail partners businesses,” he said
To emphasize the point later, Sabia shared a slide comparing Constellation Brands’ brand family performance by SKU to A-B and Molson Coors.
The 150 SKUs of Constellation’s five brand families generate net sales per SKU of $54 million. That’s compared to A-B’s 100 brand families with 1,500 SKUs that generate $10 million per SKU and Molson Coors’ 50 brand families with 750 SKUs that generate $11 million per SKU.
“Due to the growth of our core brands and the other brands in our portfolio, we don’t have to introduce new brands and new SKUs just to make an annual number,” Sabia said.
Demographics make up the last piece of the growth puzzle for Constellation, which expects 20% to 30% growth coming from new legal-drinking-age consumers and Hispanic consumers.
To fuel those three growth drivers, Constellation is focused on creating “powerful emotional consistent marketing,” Sabia said. He pointed to a thesis by RBC analyst Nik Modi that the beer industry needs to shift its narrative from category dynamics to brand dynamics that cited Modelo Especial and Corona Extra as examples of beer brands that are resonating with consumers due to their consistent marketing.
To handle the increased volume, Constellation has committed $4 billion over the next five years to expand capacity and capabilities to meet existing and future demand. Constellation has 370 million cases of capacity at Nava and 170 million at Obregon, with another 70 million in process at Obregon and its new brewery in Veracruz. In all, Constellation will have more than 600 million cases of capacity by 2025.
“In the next five years, we will have the ability to produce over 700 million cases a year,” Sabia said.
Other notes:
- Modelo Especial is now the No. 1 beer brand in Los Angeles, Chicago, Las Vegas, San Diego, Sacramento, San Francisco, Dallas, Austin, Denver, Raleigh, Houston, Seattle, Salt Lake City and Atlanta. The brand is No. 2 in Miami, New York City, Boise and Portland, Oregon.
- A Modelo Especial branded bar will be coming to Harry Reid International Airport in Las Vegas in mid-Q2 2024. The bar will be run by HMSHost by Avolta. The company tripled Modelo Especial’s draft presence last year and saw a double-digit increase in draft sales, Tyler Pitman, Avolta Senior VP of concept development, brand partnerships adult beverage, shared in a pre-recorded video.
- Northgate Market EVP of marketing and merchandising Mike Hendry said during a video that Constellation Brands’ portfolio holds a 60% share of the store’s beer sales. Northgate operates grocery stores from the Mexican border to South Central Los Angeles. In those stores, they’re closing in on selling 1 million cases.