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Modelo Especial is ‘hottest’ US beer brand: Constellation Brands

By Ben Bouckley , 08-Oct-2012

Constellation Brands claims that Mexican brew Modelo Especial is now the ‘hottest’ beer brand in the US, and CEO Robert Sands says he expects it to become the next Corona.

Sands (who is also company president) said that Constellation was excited about its $1.85bn takeover of Crown Imports – the largest beer importer in the US – which is due to close in Q1 of calendar year 2013.

Constellation snagged the 50% of Crown it didn’t already own in a deal that stemmed from AB InBev’s agreement to buy the balance of shares in Grupo Modelo for $20bn in late June 2012.

The former deal will make Constellation the largest, multi-category supplier for beer, wine and spirits (and the third largest total beverage alcohol company) in the US.

Outperforms US beer industry

Crown holds the exclusive right to import, market and sell Grupo Modelo brands in the US: notably Corona Extra, Corona Light, Modelo Especial.

On a call with analysts last Friday to discuss Constellation’s Q2 results for its fiscal year 2013, Sands said Crown Imports outperformed the US beer industry and the import category for the tenth consecutive quarter, driven by Modelo Especial in particular.

Crown generated net sales of $788m for Q2 of its fiscal year 2013 (+8%), and operating income of $143m (+14%) primarily driven by volume growth.

Constellation’s broader wine and spirits business turned in a more muted performance, with net sales up 1% to $699m but operating income down 5% to $141m on a comparable basis.

The company blamed the slump on increased Selling, General & Administrative Expense (SG&A) and a higher promo spend for its US wine and spirits business, in part to support innovation initiatives.

Sands said Crown had outperformed the market and import categories across both on- and off-premise channels in Q2 2013, with volume sales up mid-single digits and successful marketing campaigns during the key summer selling season.

He conceded that strong quarterly sales had benefited from distributors buying-in beer prior to Crown taking price this autumn in some markets, but nonetheless predicted volume and operating growth for the full fiscal year in the mid-single digit range, contrary to previous guidance of low-single.

Benefiting from ‘every trend’

With Corona back in what he described as “low growth” territory, analyst Mark Swartzberg from Stifel, Nicolaus & Co, asked Sands about the brand’s dynamics as well as smaller brand Especial.

Sands said that premium Mexican beer brand Modelo Especial (4.4% ABV) was the third-largest import brand in the US, and “the hottest significant beer brand in the country today”.

“Growing, continuing to grow at strong double-digit rates, taking advantage of almost every positive trend that you can imagine, okay?”

Modelo Especial held appeal for Hispanics, Sands said, a key growth market in the States. “I fully expect Modelo Especial, basically, to become the next Corona.

“It’s number two in the convenience store channel, which is the largest channel for beer at the current moment in time.

“At its current growth rate versus the competition, I fully expect that in a relatively short period of time, a couple of years, it will become the number two import in the US.”