Should Constellation Brands Worry About This New Cerveza From Bud?
As part of the agreement with the Justice Department allowing it to acquire Grupo Modelo, Anheuser-Busch InBev had to give up to Constellation Brands its perpetual rights to Grupo Modelo's brands in the U.S., particularly Corona, a portfolio of brews that left the brewer with a large hole to fill in the growing Mexican beer movement.
According to Euromonitor International, Mexican beers are dominating imports, with brands like Heineken's Dos Equis and Corona leading the way. Constellation's other Crown Imports brand, Modelo Especial, has grown by 63% in the U.S. market since 2010.
Higher sales of Corona powered Constellation's fiscal 2015 first-quarter earnings that were released last week, with brand depletions growing more than 3% and accounting for 10% of the U.S. beer category's dollar growth. According to the market researchers at IRI, Corona Extra was the only top-five U.S. beer brand in its channels that posted dollar-share growth during the quarter, becoming the fifth-largest beer brand in the U.S. overall by overtaking Anheuser-Busch's Natural Light. Corona Light remains the top imported light brand in the U.S., with IRI estimating it owns 55% dollare share of the import light market, increasing its dollar share by almost two points this past quarter.
That kind of growth could slake Bud's own thirst for expansion. In North America, Anheuser-Busch experienced a 1.7% decline in total volume in its fourth quarter and a 2% drop in organic growth, capping a year that saw 2.6% and 2.7% declines, respectively, for all of 2013. While it was helped globally by the integration of Grupo Modelo's beers into its portfolio, the lack of a similarly positioned brew in the U.S. was conspicuously felt.
That helps explain why last month it revealed to the Just-Drinks website that it was committed to introducing a new Mexican beer into the U.S. later this year.
Montejo has been brewed in Mexico since 1960 and was acquired by Modelo in the late 1970s. As part of the Modelo portfolio that includes local brews Barrilito, Estrella, Leon, Modelo, Pacifico, Tropical, and Victoria, Montejo is perhaps seen as the successor to Corona that can stand up as an authentic Mexican brew to capture the expanding preference for beers from south of the border.
Sitting atop the Mexican beer market, though, Constellation isn't particularly concerned about Bud's new beer, with the Beverage Daily website reporting the brewer told ISI analysts that despite having been made in Mexico for decades, "It's not an established brand in Mexico, it's not known to the Mexican or Hispanic consumer -- it's just another brand, basically."
Although dismissive of Anheuser-Busch's plans -- and from its perch it can afford to be -- Constellation is still not taking any chances and has previously announced plans to aggressively expand the Corona brand, taking many of its cues from the craft beer market. For example, it's planning to put Corona on tap, a novel addition to how consumers can order the beer, and with strong sales and wide recognition, an easier sell for the brewer than craft beers experience.
Anheuser-Busch will also have an easier time than most brewers in getting placement for Montejo because of its strong distribution network and its advertising prowess, but whether that can translate into sales remains to be seen. However, following its World Cup sponsorship and the heightened attention the games got at home, a new beer from down south might just be enough to make Montejo the new cerveza of choice for U.S. drinkers of Mexican beer.
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The article Should Constellation Brands Worry About This New Cerveza From Bud? originally appeared on Fool.com.Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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