Constellation Brands is one of the more interesting major food and beverage companies operating in America. It was started 75 years ago in upstate New York, where it acted as a wholesaler for the Finger Lakes Region’s many wineries. In the last twenty years Constellation underwent a series of rapid acquisitions, and today it owns a variety of brands across the wine, beer and liquor industry.
The 3Q 2021 financial results were a victory lap. The Wine and Spirits business saw revenue rise 10 percent. Beer, led by brands Corona and Modello, saw a 28% increase. The company is making investments across a new array of channels, including direct-to-consumer and more traditional e-commerce. “Our business remains extremely healthy,” CEO Bill Newland told investors, “and these strong results are truly a testament to the strength of our team and our brands.”
What else did we learn?
Constellation Brands is looking to dominate subscription shopping
Retail, specifically food and beverage, is undergoing massive changes. Today, so many consumer purchases are made in store, by impulse. Think about the last time you purchased beer from a store. If you’re anything like me, you headed towards the craft beer section and started looking through the selection. Maybe you were in the mood to try something new, so you went with the new local six pack with a cool logo. Ten minutes ago, you didn’t even know a Munich Lager was an option! That entire aisle experience, where you’re evaluating a variety of different products at once, is at risk with e-commerce. Retailers and manufacturers are pushing customers into subscription or auto-replenishment models where decisions will be made based on past purchases biased by algorithms and previous purchases. The company that figures out the magic mix of branding and discounts will find itself with an incredible first mover advantage.
Bill Newland explained:
In fact, our wine Power Brands competing in the e-commerce space are outpacing the overall wine category as our early investment in the category is providing us with a meaningful first-mover advantage. During the quarter, we became the first CPG company to partner with Instacart to feature our products on Facebook ads, propelling Constellation to the next level of three Tier e-commerce media by enabling us to refine and optimize our ad creative and targeting based on real-time data. Furthermore, it is important to our growth and margin profile that we continue to invest in this space, since DTC is heavily weighted toward the higher end of the wine category as wines priced $20 up, make up nearly 90% of total DTC sales.
Premium is a good price point
Constellation Brands recently sold off a number of low-end wine brands to Gallo. Today it is almost exclusively a premium company. Last quarter is started to experience the benefits.
Fortunately, the robust demand that we’ve seen in many of our Power Brands above $11 where we had lots of double-digit growers, our demand has been very strong and that has been the single biggest driver of our improved wine results is the sheer demand for our products and the fact that the consumer is looking for brands and products that they have great faith in, especially as their shopping patterns have changed some.
Direct-to-consumer CPG may work with premium brands
I’ve been fairly negative on direct-to-consumer CPG. The customer acquisition costs are too high. Alcohol may be the exception. Constellation purchased Empathy Wines, a direct-to-consumer wine brand founded by Gary Vaynerchuk. At the time of the acquisition, Empathy shipped 15,000 cases across America. Constellation is expanding that operational model across its portfolio.
Since our acquisition of Empathy Wines, we have continued to make significant progress in leveraging their unique platform and capabilities across our portfolio within the DTC and three Tier e-commerce space. We have launched several new DTC sites, leveraging the Empathy platform, including The Prisoner Wine Company, Double Diamond and Simi.
Constellation Brands has a de-facto Monopoly on the Hispanic market
Latinos are perhaps the biggest undeserved segment of the US consumer market. The Latino population has averaged about 2% population growth over the last decade—while the rest of the population sits around .5%. The buying power is phenomenal. A study cited by CNBC found that U.S. Latino GDP now hovers around $2.3 trillion a year—up from $1.7 trillion in 2010. To put that in context, Italy’s GDP is around $1.8 trillion.
Constellation holds an effective monopoly on the beer market for this group. Ironically, they purchased the Corona and Modela brands due to concerns about an In-Bev monopoly.
According to Beer Marketer’s Insights the top selling Mexican beers in America were:
|Brand||Barrels Sold (millions)||% of US Market|
Constellation owns three of the four brands: Corona, Modelo, and Corona Light. Additionally it owns Pacifico and Victoria.
What’s interesting is that in their own estimations it isn’t taste or culture that is driving demand.
Constellation Brands are using their existing Space and Distribution networks, built up via acquisitions, to drive placement and sales.
Photo by Raphael Nogueira on Unsplash