http://www.businessweek.com/articles/2013-10-03/for-constellation-cerveza-makes-money-the-way-beer-never-could

Companies & Industries

For Constellation, Cerveza Makes Money the Way Beer Never Could


For Constellation, Cerveza Makes Money the Way Beer Never Could

Photograph by Susana Gonzalez/Bloomberg

Constellation Brands (STZ) put out a nice recipe for a profitable cocktail today:

• 4 parts beer (must be Mexican)
• 3 parts wine (Arbor Mist, Ravenswood, Robert Mondavi)
• a splash of spirits (Svedka Vodka, Black Velvet Canadian Whisky)

Beer success is what had been in short supply at Constellation before June, when it closed a $4.8 billion deal to buy the brewery that makes Corona from Anheuser-Busch Inbev (ABI:BB) . The transaction, which included distribution rights, effectively left Constellation with a single-handed grip on the tap that lets Mexican beers, including Modelo, flow into the U.S. Corona remains the No. 1 imported beer, and in the big-beer business—excluding anything considered “micro” or “craft”—south-of-the-border brews are some of the only brands enjoying steadily growing demand.

“There’s no question their portfolio is strong,” says Eric Shepard, executive editor of Beer Marketer’s Insights. “Modelo Especial, in particular, is kicking butt. They just don’t have a stinker.”

Here’s a look at the sales gains this year through September for Constellation brews:

• Modelo Especial +18%
• Negra Modelo +6.3%
• Corona Extra +3.9%
• Corona Light +3.9%
• Pacifico -0.4%

Numbers like those are hard to find in the beer business these days. Per-capita consumption in the U.S. has been steadily declining for at least two decades, and dropped by an additional 2.1 percent through August this year, according to tax data published by the Beer Institute, a trade group.

Not surprisingly, Constellation is calling its Grupo Modelo purchase “transformational.” Financial results seem to back that claim. Sales roughly doubled, to $1.6 billion, for the second fiscal quarter ended Aug. 31, and the company increased its earnings outlook for the full year.

Now the challenge for Constellation is to build on its success. Its priority on that front is getting Modelo stocked in all the places where drinkers find bottles of the more ubiquitous Corona. The company is also working to sell more kegs. About one-tenth of the volume for most big beer companies is in draft sales, yet at Constellation that figure is about 2 percent.

And there’s a perennial problem: Winter is coming, and who wants a cold Corona when it’s snowing? Constellation’s plan to beat the weather includes commercials set to the tune of Feliz Navidad. It’s also thinking about making Mexican brews with much more alcohol in them. Just picture it: a Corona winter warmer.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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