THE GIST
Beer distributors in the U.S. have historically been divisible into three camps: those which carry products from Anheuser-Busch InBev (ABI) or Molson Coors Beverage Co., and others affiliated with neither, but which carry a collection of smaller, craft brands. Today, there’s a fourth force reshaping that landscape, and it’s increasingly able to assert its priorities in the beer industry’s middle tier: Constellation Brands.
The largest beer companies in a distributor’s portfolio legally don’t have direct say over its operations, but they exert great sway over wholesalers’ priorities. Riding the unmatched strength of its stable of Mexican imports—Modelo Especial, Pacifico, and Corona—and its alignment with the country’s largest (and most powerful) beer wholesaler, Reyes Beer Division, Constellation has begun wielding its influence on wholesalers’ business practices in new ways with the knowledge that its products are the lifeblood of those wholesalers, and only growing in importance.
In July, Constellation informed its wholesalers it would effectively prohibit those distributors from using e-commerce ordering platforms that belong to other beer companies.
These include ABI’s “BEES” and its counterpart, “my Molson Coors.” Such platforms allow retailers to order products from their wholesaler online, download marketing assets, and more.
The concern among Constellation’s leadership is that competing beer companies could capture data about Constellation’s products through their online ordering platforms, potentially using that information to undercut Constellation in the market. Because of this potential issue, Constellation informed its wholesalers that the use of supplier e-commerce platforms would constitute a breach of contract, something that a distributor would not want to deal with given the sales volume and unstoppable growth of Constellation’s beer portfolio. Beer Marketer’s Insights called the move “striking” and “a shot across the bow.” (ABI and Constellation did not respond to multiple requests for comment; Molson Coors declined to comment.)
ABI-aligned wholesales have sued to keep Constellation’s brands in their portfolios, putting a dollar value to just how valuable the supplier is to distributors’ bottom lines.
Last year, a lawsuit filed by Olympic Eagle sought to block Constellation from terminating its distribution rights in Washington State. In its filings, Olympic Eagle stated that without Constellation’s products, the company would lose $5.5 million annually, making it unprofitable. After more than a year of legal wrangling, courts finally ruled that Constellation can transfer its business to Columbia Distributing, effective Nov. 12.
In Massachusetts, Constellation is attempting to prevent its current wholesaler, Quality Beverage, from selling its portfolio (including Constellation’s beers) to wine and spirits distributor Martignetti Companies. In mid-October, Quality sued Constellation over this “interference,” stating that the loss of Constellation’s Mexican imports would reduce Quality’s sale price by $34 million. For its part, Constellation reportedly told Quality it would approve a sale to either of the two Massachusetts wholesalers in Constellation’s network that aren’t aligned with ABI.
WHY IT MATTERS
Realizing that its products are the most successful mainstream beer brands today, the company is able to make moves in the middle tier that further its interests: namely, shifting away from ABI-aligned houses and toward the Reyes network of distributors. The strategy worked in California; now, Constellation appears to be taking it national. In a second quarter earnings call, the company’s CEO Bill Newlands praised the beer division’s “relentless focus” on closing gaps in distribution.
“Anything [Constellation is] asking for right now is well earned because they’re saving gross profits and growing [wholesalers’] businesses right now,” says Austin Sawyer, president at Countermeasures Solutions Company and a former sales employee at an ABI-aligned distributor that also carried Constellation beers. “Everyone’s bought in, from chain buyers to retailers to distributors. It’s [Constellation’s] time to flex any muscle they need to.”
The U.S. beer landscape has changed this year to make such moves even smoother. ABI continues to reel from steep declines in Bud Light sales that began in April as a result of transphobic backlash to a marketing campaign. Though sales have since stabilized, Bud Light’s volume share fell from roughly 14% of off-premise U.S. beer to roughly 10%. ABI-aligned wholesalers have felt that downturn acutely, with an HSBC analyst saying some had seen their revenues from ABI products fall by a third.
These changes have been impossible to miss in chain retail sales, where Constellation can point to a years-long shift in popularity toward its portfolio of brands:
From 2018-2023, Constellation's four Mexican import families—Corona, Modelo, Pacifico, and Victoria—have increased their total share of dollars spent on beer by +8.3%, now amounting to almost 22% of dollars spent on beer in U.S. stores tracked by market research company Circana.
In the same timespan, eight brand families from ABI—including some of the best-selling individual brands in the country like Bud Light, Budweiser, Natural Light, Busch Light, and more—lost -5.5% of dollar share. ABI's collection of brands now hold just under 35% of dollars spent on beer in these stores.
This has taken place as Modelo Especial made national headlines when it became the U.S.’s top-selling beer by dollar sales in chain retail stores—a milestone it was already poised to hit, but one accelerated by Bud Light’s struggles. With ABI-aligned wholesalers in turmoil, Constellation sees itself negotiating from a position of strength. That’s notable beyond even the beer industry, with the IRI and Boston Consulting Group’s 2022 annual report naming Constellation the top growth leader among all large consumer packaged goods companies.
But this didn’t happen overnight. Sawyer says Constellation has for more than a decade pushed the concept of a “gold network” (a Constellation-focused counterweight to the ABI-aligned “red network” and MolsonCoors-aligned “blue network”) with its wholesalers. He recalls that Constellation consistently brought valuable data to its distributors to show that it sold faster on shelves than competing domestic beers. When retailers swapped out slower-moving products in favor of Modelo, Corona, or Pacifico, they nearly always saw return on that investment.
“Constellation can make the warranted ask, throwing their weight around because they’ve earned it. There is guaranteed ROI,” Sawyer says.
Seeing its main rival diminished as its own star continues to rise, Constellation is in a place to write its own destiny. It’s bolstered by its alliance with Reyes, the largest beer distributor and the overall sixth largest privately held company in the U.S. Already dominating the U.S.’s second-largest beer selling state, California, Reyes last year made inroads into the largest: Texas. Today, it owns distributors as far West as Hawaii and as far east as Tennesse. But Reyes and Constellation’s combined force is destabilizing the middle tier’s status quo.
Its strength puts pressure on MolsonCoors and ABI: Anything they ask from their wholesalers—a floor display at a particular store, sponsorship of a summer music festival, other promotional support—has to show better returns than what beers from Constellation would deliver if given that same opportunity. He calls Constellation’s brands and sales support the benchmark by which all other companies are now judged.
“If you're AB or MolsonCoors, you can’t really rest on ‘We’ve done this for 20 years’ or ‘We’ve been partners for this long.’ It’s about the jump ball,” Sawyer says. “Anything I’m asking for has to be able to compete with Constellation’s opportunity. That’s where they’ve changed the game.”
Words by Kate Bernot