The initial news sounds shocking—and maybe it is.
As first reported (behind a paywall) by Beer Marketer’s Insights, then publicly by the MillerCoors Blog, Constellation Brands is cutting prices on cases of Corona Extra, Corona Light, and Corona Premier cans by around $2. The discount is expected to run through at least July, bringing retail prices to around $23–$24 per case or $13–$14 per 12-pack, depending on location. That latter price range is similar to the temporary reductions that imports like Stella Artois and Heineken typically see on a weekly basis, and isn’t far off from what the largest U.S.-based craft breweries—like Samuel Adams, Sierra Nevada and New Belgium—might discount week to week.
Annually, the entire Corona portfolio has been doing fine, growing by an average of 8% in IRI-tracked grocery, convenience, and other stores from 2015–2018. But a glance at individual brands suggests that something is changing for Corona.
As has been the case for some of the world’s largest beer companies, Corona’s flagship brand, Corona Extra, took a hit in the U.S. in 2018. After steady growth from 2014–2017 in IRI stores, Corona Extra lost 2% in volume sales in 2018 compared to the year prior. For a brand synonymous with Mexican imports, Corona may have fallen victim to flagship fatigue, but Constellation is making up for it with another strategy employed by breweries big and small: brand extensions.
Perhaps spurred on by a notable lag in Extra's sales, 2018 turned into a big year for Corona Familiar, which is branded as a beer that "tastes like Corona Extra, but with a richer flavor." The brand certainly had an enrichening impact on Corona's bottom line: it jumped from $92.3 million in IRI sales in 2017 to just under $217 million in 2018.
Over the course of a year, Corona Premier’s sales were even more meaningful. Launched to compete with Michelob Ultra (along with a variety of other brands from Big Beer and craft), Premier is a 90-calorie, low-carb extension that raked in $155.3 million in IRI stores in 2018. Through May 12 of this year, it had already sold $56.3 million.
Continuing this trend, 2019 will see the launch of Corona Refresca, a “premium alcohol-spiked refresher” that sits in the ever-growing, ever-changing flavored malt beverage category.
These continued releases, along with the variety of discounts timed for this summer, seem to partly fly in the face of Constellation Brands’ longtime strategy of catering to the pricier, higher end of alcohol sales. As recently as February, the company doubled down on this idea, selling a group of 30 lower-priced wine and spirits brands to competitor E. & J. Gallo Winery for $1.7 billion. Many of the brands were priced at or below $11 per 750ml bottle.
Clearly, there’s still a commitment to the high end if Constellation is set on clearing out brands like these, and the beer side of the business is now trying to find new footing with the continued slide of Ballast Point, which has suffered from a staff brain drain and the recent decision to dump about 1,300 oak barrels of beer. The failure to turn Ballast Point into the $1-billion investment Constellation hoped it would be is a black eye, and the new price drop on Corona brands could provide an artificial boost for the publicly traded company.
According to MillerCoors’ blog, the timing behind the $2 Corona case discount is purposeful, as the deal would run through beer’s busiest time of the year. Memorial Day (#3), and the Fourth of July (#2) are both top-10 occasions for beer consumption; July 4 and Labor Day (#1 in 2018) typically duke it out for the top spot. This move by Constellation puts lower prices on the board when shoppers are spending the most. A focus on cans, often touted for their portability, is also key during a season when drinkers are flocking to beaches, pools, and other getaways.
At first blush, things look OK for the Corona family of beers in 2019. IRI sales volume for Corona brands increased 6% in the first quarter of 2019 vs. 2018, though that figure hides slides by two of those three discounted brands. When comparing that same timespan (Q1 2018 vs. Q1 2019), Corona Extra started this year flat and Corona Light was down 15.6%. Premier, which is on fire as a Michelob Ultra alternative, tripled its IRI volume sales. Lowering Premier’s price in cans could see its summer sticker price meet or dip below Ultra’s.
As previously mentioned, Extra lost 2% sales volume from 2017–2018, while Light’s sales decreased by 11.5%. Those figures, coupled with recent strategies, suggest that Constellation and Corona are working hard this summer to prop up those two legacy brands while also recognizing the sales power of their low-calorie, low-carb hit, like so many others. In terms of IRI sales, Light has already been passed by Familiar in volume; at its current trajectory, Premier has a shot at doing the same in 2019.
Last month, Beer Business Daily reported that Constellation CFO David Klein said Premier could be a "100-million case brand." In IRI sales, that would put it on par with the biggest brands in the country. In 2018, Budweiser was just shy of that mark, and Coors Light was a little above it. Michelob Ultra, for comparison, sold 72.7 million case equivalents in IRI stores last year.
During the Goldman Sachs Global Staples Forum, Klein said that moving a variety of package types (cans and bottles) and sizes (from six-packs to 18-packs) was going to be key, according to Beer Business Daily.
“When you get that combination of SKUs in retail, we see a real improvement in overall sales trends,” he said. The outlet continued, writing that "in order to convince retailers to take on that 'entire spectrum' you have to have the velocity growth to back that up," and Klein said that Constellation does have that.
Given these approaches, it makes sense that Premier is included in Corona’s trio of discounted brands. Extra and Light may need the sales, but Corona’s “better-for-you” beer option will use the next couple months as an opportunity to show retailers just how powerful it can be. That strategy could prove particularly important in helping the Corona brand, which is lagging a bit in comparison to Constellation’s other Mexican brands.
Modelo, which is reportedly on pace to be the top-selling beer in California (out of all beers in the state), grew its IRI portfolio by 15.4% in 2017–2018. What's particularly impressive is that flagship Modelo Especial increased volume by nearly 16% last year, and Modelo's own brand extensions are doing really well, too.
Modelo Especial Chelada, which sold $112 million in IRI stores in 2018, begat Modelo Especial Chelada Tamarindo Picante last year (it earned $22.5 million in 2018) and debuted Modelo Chelada Limon Y Sal in 2019 (it’s made $4.1 million through May 12). These brands are all part of a Michelada category that sells about $400 million of product annually.
In addition, Constellation’s Modelo Negra was up almost 12% last year, and Constellation's other two Mexican beers, Pacifico (+6.5%) and Victoria (+10.5%), continue to show growth.
Most tellingly, Modelo Especial outsold Corona Extra in IRI stores by about 342,000 barrels’ worth of beer in 2018—the first time that’s happened. Especial was already about 250,000 BBLs ahead through May 12, signaling that the change wasn’t just a blip. This lends more credence to the argument that Corona needs to diversify its portfolio. Constellation can build off the brand equity of arguably the most recognizable Mexican import in the U.S. while using a modern—and important—tactic: releasing brand spin-offs that create new flavor and shopping experiences for people who have come to trust Corona and its offerings.
This puts Constellation and Corona in a strange spot going forward, much like other companies with maligned flagship styles: Extra is too big to fail, but sales decreases ultimately prompt swift action to make up for that change. Corona Familiar and Premier were the source of IRI growth for the brewery last year, which is why Extra and Light are likely targeted in this latest round of price decreases. Premier, on the other hand, is perhaps seen as the savior of the portfolio, much in the same way that Michelob Ultra has performed for Anheuser-Busch InBev.
Given the price sensitivity of beer shoppers, the discount and volume play of this summer is bound to look good—but what it means in the long term for these brands will be a story for Labor Day and beyond.
Words by Bryan Roth