2023 has been a breakout year for Constellation Brands (STZ), the beer brand behind Corona and the recently-crowned top-selling U.S. beer Modelo. Constellation Brands President and CEO Bill Newlands joins Yahoo Finance Executive Editor Brian Sozzi to discuss the beer lines' rapid rise in popularity — originally tied to consumer controversies — and sales growth.
"We expected that we would take over as number one in a couple years, we just didn't think it would happen quite as quickly as it did," Newlands says. "We've got a very strong situation with the Hispanic consumer, and we get tailwind because of the growth of that consumer in the U.S. but it's also much broadening its base as well — today, it's 55% Hispanic, 45% non-Hispanic."
Newlands also comments on the growth outlook for Constellation's other products, trends in the wine and spirits industry, and consumer trends reacting to economic headwinds.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
This post was written by Luke Carberry Mogan.
BRIAN SOZZI: There is a new king of beers in town, and it is Modelo.
And it certainly showed up in the latest financial results of Constellation Brands.
Let's get right to Constellation Brands CEO Bill Newlands.
Bill, always great to get some time with you.
Big quarter for your beer business, really double digit sales, strong on profits.
What are some of the drivers behind that?
BILL NEWLANDS: The first one is Modelo, as you pointed out, Modelo is now the number one beer in the country by dollars.
And it's also the share gaining leader.
We were up 9% with that particular brand.
Our chelada business, which is on screen for your viewers, at this point, was also very strong.
We're up 40% in the chelada business.
And we've had very good success with some of our new products.
Oro, which is a light beer from Modelo and Corona non-alcoholic were also very strong.
And of course, we can't forget Pacifico.
Pacifico was up 15% in the quarter and is now the number two selling beer in Los Angeles.
I mean, think about that.
So two Modelo of course.
But very strong quarter for the beer business.
BRIAN SOZZI: I followed your story for some time, Bill.
And I remember you telling me years ago Modelo is going to be strong, you just got to believe in it.
I wasn't really a big believer, but you've proven me and a lot of other folks out there wrong.
But what do you say to those people that your beer, Modelo, is now number one in this country because of all the troubles happening over there at Bud Light?
BILL NEWLANDS: We expected that we would take over as number one in a couple of years.
We just didn't think it would happen quite as quickly as it did.
Obviously, we've got a very strong situation with the Hispanic consumer, and we get tailwind because of the growth of that consumer in the US.
But it's also very much broadening its base as well.
Today it's 55% Hispanic, 45% non-Hispanic.
So we're seeing a real increase in broad based awareness of that brand.
And we just see it having a long runway for a long time to come.
BRIAN SOZZI: If the consumer next year, Bill, gets over their squabbles with that Bud Light brand, do you anticipate-- basically, what I'm trying to figure out is how resilient is your growth in Modelo do you think?
BILL NEWLANDS: Our growth has been going on, Brian, as you know, for about 30 years, which makes it not anything that is unique to a point in time.
This has been developing for a long, long time.
And it's growing now not only in the original base, which was on the West Coast of the US, but many markets across the US like Florida and the Carolinas and Illinois and Texas.
So we think this has a long, long runway.
And we've added some things into the franchise as I mentioned a moment ago with things like Oro.
So lots and lots of upside for the Modelo brand.
BRIAN SOZZI: Is that Pacifico brand-- and you told me about a year ago too to watch out for this brand, so I've been watching it very closely.
Is that the next Modelo for Constellation Brands?
BILL NEWLANDS: We think it could be.
It's done very similar to what Modelo had done, which was it created a very strong franchise on the West Coast.
I mentioned to you a moment ago it's now the number two beer in LA behind Modelo.
So it's got a tremendous franchise.
But you're starting to see very strong shoots of growth in other markets around the country.
And it tends to be a somewhat younger consumer.
So we're very enthusiastic about the future of Pacifico.
And we do think that it could easily be the third big leg on the stool with Corona and Modelo.
BRIAN SOZZI: Another tough quarter in the wine business.
And you guys have really tried to turn things around.
I suspect when you have your investor day in a couple of weeks, investors will hear more from you on that front.
At what point do you just say maybe we don't want to be in some of these wines and maybe we don't want to continue to reinvent a brand like Svedka Vodka?
BILL NEWLANDS: We've spent a lot of time over the last few years reinventing that business.
Just three years ago, 2/3 of the business was in the low end or mainstream portion of the business.
Today, it's one third.
And the higher end of the business is performing very well.
The mainstream, however, is not.
It's almost the tale of two cities.
But we're seeing excellent growth at the top end with brands like Meiomi and Kim Crawford and High West.
So-- and the prisoner.
We're seeing a lot of opportunity there, which we think will really turn around in the back half of the year as we see many of these brands accelerate.
BRIAN SOZZI: Of course, Bill, today is jobs day in America.
Really blow out jobs report.
I think shocked a lot of people on the street.
How aggressively are you hiring in your business?
BILL NEWLANDS: We're probably fairly stable within our business.
We're obviously growing our production footprint in Mexico because we're adding a third brewery.
So you're seeing quite a bit of increase in that particular area.
But I'll go back to your comment about the jobs report.
That speaks very well for us for the beer business.
There's-- good employment is very good for the beer business.
And obviously as the share leader and the growth leader in the category, we're there to absorb a significant portion of that added spending power that the consumer has.
BRIAN SOZZI: But still, I think you would agree, Bill, not everybody is benefiting in this economy, not everybody is doing great.
We just had the return of student loans here on October 1.
And a lot of the research I've been ingesting suggests consumers are pulling back, they're trading down to private label.
How concerned are you that happens in your business, and you see that trade down effect?
BILL NEWLANDS: One of the things that we're seeing is that the consumer is going to the store more often but spending a little less while they're there.
The good news for a company like ours is we have such strong brand support and brand recognition, that we are still getting the consumer purchasing power.
They're just doing a little differently.
And they're more careful about what they spend on any particular occasion.
But it really hasn't significantly impacted.
As you saw, our growth profile in this quarter in the beer business was up almost 8% on depletes.
That's a very strong takeaway.
And the takeaway in Circana data was even stronger, up double digits.
So you can easily see that our business continues to perform extraordinarily well.
And that really speaks to the strength and the brand loyalty that we have within our brands.
BRIAN SOZZI: Bill, lastly, I was going to bed last night I guess somewhere around midnight.
I'm like, let me just check the Yahoo Finance homepage one more.
I want to see what people are searching.
I'm curious on what tickers they're watching.
Some of the most trafficked and popular tickers on our page are Coca-Cola and PepsiCo.
And there are a lot of concern in this country that the beverage makers, snack makers, they feel an impact from these weight loss drugs that are proliferating throughout this country that there is reduced consumption.
Do you fear these weight loss drugs impacting demand for Modelo, Corona, or other products you sell?
BILL NEWLANDS: Interestingly, Brian we've never had-- we do a lot of consumer research.
We've never had a consumer bring that topic up with us.
And some of it is the whole social aspect of alcohol consumption.
A lot of it is engaging with other people.
There's a social element to it.
And while there is a segment of that population that's interested in betterment, as we talked earlier.
That's part of the reason why Corona non-alcoholic has done so well.
The majority of people are not as concerned when they bring an alcoholic beverage into their mix of what they're consuming, as they would in some other areas.
We think certainly for our sector it's overblown.
BRIAN SOZZI: Fair enough.
We'll leave it there.
Constellation Brands CEO Bill Newlands, always great to get some time with you.
As always enjoy happy hour.
We'll talk to you soon.
BILL NEWLANDS: Thanks.
Appreciate it, Brian.
