THE GIST
Skittish investors panicked last week after Constellation Brands reported a minor slowdown in momentum for its imported Mexican beer portfolio, which includes Modelo Especial, Corona Extra, and Pacifico. There were also concerns about beer pricing ahead of a potential U.S. recession.
The fluctuations of the U.S. stock market depend on subjective assessments. But in this case, neither worry actually presents significant short- or long-term challenges for one of the largest beer producers in the country, which lost about $20 per share in 24 hours last Thursday.
While 2022 was difficult for beer generally, Modelo Especial—the jewel of Constellation’s portfolio—proved immune to the industry’s larger woes. It grew volume sales in national chain retail stores by +10.6%, outperforming the broader imported beer category (+2.3%) and trending in a positive direction versus overall beer’s declines (-4.5%). Even the seemingly invincible Michelob Ultra (+5%) couldn’t match its pace.
And yet, a mere breeze of a headwind within its third-quarter earnings caused Constellation’s stock price to fall -10% on January 5, its worst single-day performance in two years. Trembling shareholders should not be read as a sign of ill health for Constellation’s beer portfolio, in which every family of beers—including Victoria and Modelo Negra—grew at faster rates in 2022 than the overall beer category.
WHY IT MATTERS
It bears stating plainly: Any other beer company would kill to have Modelo Especial in its roster. Since 2018:
The beer brand moved from being the country’s #7 beer in chain retail by dollars to #2. It went from seventh to fourth by volume.
Modelo became the top-selling beer brand by volume in California, selling almost twice as much as Bud Light in the country’s #1 beer market.
In 2022, Modelo outsold Bud Light by roughly 800,000 barrels in California—more than the 2021 production of SweetWater Brewery, Deschutes Brewery, and New Glarus Brewing Company combined.
Nationally, Constellation’s portfolio of imported beer grew +8.5% in chain retail volume last year, well ahead of its direct competitors. And even while Modelo’s sales slowed toward the end of 2022 (like many others), it proved much more resilient than beer overall.
Part of the decline is explained by deadly rain and cold that rocked California starting in December and carried into this month. The state accounts for 23% of Constellation’s total volume, according to investment banking advisory firm Evercore ISI.
Storms have killed 17 people in California since December, and have forced thousands of people to evacuate. Evercore notes that “weather has a significant impact on consumption in the state” and further states that extreme cold was likely a contributing factor to slow Constellation sales.
Despite this, Constellation proved much more resilient than total beer whether in recent weeks, months, or all of 2022. For the last three months of 2022—the time period that has most concerned investors—Modelo Especial’s national chain retail sales volume grew +4% versus the year prior, while Constellation’s whole import portfolio was up +7.7%. Total beer? Down -4% against the same period in 2021. The import category, meanwhile, was +1.8%.
The Wall Street eyebrow-raising over Constellation’s imported beer performance has echoes of the “hard seltzer is dead” pronouncements that followed Boston Beer Company’s revised forecasts for Truly Hard Seltzer. Neither should be read as death knells for their respective categories.
“Modelo is still outperforming the beer category, and other brands like Corona Extra, Pacifico, and the Modelo Chelada family are also gaining share,” a Constellation spokesperson told Good Beer Hunting in a written statement. “As [CEO] Bill [Newlands] mentioned on earnings, trends are starting to normalize, which is reflected in recent IRI [market research] data, with strong week-over-week numbers showing our portfolio grew 11% in dollar sales in 2022.”
Mexican beers essentially are the imported beer category, and Constellation is leader of the pack. Mexican imports make up 80% of beer volume imported to the U.S., according to data from the Beer Institute. Beer Marketer’s Insights notes that Constellation’s beer shipments to distributors did slow in the third quarter, up “just” +2.7%. But that still puts them up +10.5% during the last nine months, adding more than 2.1 million barrels of growth between February and November—roughly double the entire 2021 production of Sierra Nevada Brewing Company.
Of the top-10 beer brands by volume in the U.S., only four added volume last year, and two of those are Mexican imports from Constellation: Corona Extra and Modelo Especial. (The other two are Michelob Ultra and Busch Light; Modelo added nearly twice as much volume as Michelob Ultra did.)
Despite these strong trends, there is no denying a downshift in sales for Constellation’s imported beer portfolio toward the end of 2022, but it came at a time of year where beer sales historically slow and even then, Constellation’s import beers (+4.8%) had more holiday-influenced month-to-month growth in December 2022 than all of beer (+2.2%) and was on par with imports (+4.9%).
Constellation also owns two U.S.-based craft brands, Four Corners Brewing Company and Funky Buddha Brewery, though they’ve never appeared to be a priority for the parent company. Their sales reflect it, with Four Corners down -35% and Funky Buddha down -18% in sales volume last year. Instead, it’s Mexican imports that have the full attention of Constellation and its stockholders.
Given the last few years of momentum, there’s ample reason to expect strong growth for Mexican beer brands—and for Constellation—in 2023. Mexican imports, and Modelo Especial in particular, have a swath of products with which to attract new customers, including popular flavored cheladas, ranch waters, and a Michelob Ultra competitor called Modelo Oro that launched in 2022. What’s more, as Modelo Especial in particular wins over new fans, they’re likely to stick around: A report from multinational financial services company Royal Bank of Canada notes that “new Modelo buyers are posting strong repeat rates consistently rising to [about] 56%, showing solid brand loyalty.”
An object in motion—especially one as large and powerful as Constellation’s Mexican beer portfolio—remains in motion, barring a massive force. Cold weather and economic challenges may temporarily slow Constellation’s roll, but its brands have proven able to crush competitors as sizable as Bud Light.
Words by Kate Bernot