The company says it has outperformed the US beer industry for the fifth consecutive year, with growth in each of its Mexican beer brands.
Over the next fiscal year, the beer business is targeting mid-single digit volume growth, high-single digit net sales growth and 10 - 12% operating income growth.
With cans only representing 3% of flagship brand Corona Extra’s sales, the company says there is a great opportunity to grow this format in 2016. It will also put more money into boxing sponsorships and national TV advertising.
The company is expanding its Nava brewery and glass production plant, with progress on track.
New products, new packaging, new SKUs
Constellation Brands is the number three beer company in the US, with its imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico.
The company reported 24% growth in net sales to $6.03bn for the year ending February 28, 2015. In its beer division, net sales were up 12% to $3.19bn in the year ending February 28, 2015 (from $2.86bn in 2014). Gross profit in the segment was up 29% to $1.47bn (from $1.13bn in 2014).
Speaking at the earnings call last week, Bob Doctor of Morgan Stanley cited Constellation’s pledge to double the beer business by 2024 - implying a 6% 10-year CAGR. He asked if this was a real target - or simply ‘a number thrown out to distributors.’
“It’s definitely not pie in the sky,” responded Rob Sands, president and chief executive officer, Constellation Brands.
“I would say that doubling the business over the next ten years is based on what we think is going to happen in the beer market and in particular how imports are going to continue to grow and then how our portfolio is going to continue to grow based on what we see or know is going to happen with the Hispanic demographic group.
"We think that doubling the business over the next ten years is certainly a doable number.
“We are going to have to have new products, new packaging, new SKUs etc, to keep the growth of the portfolio as it is.”
Constellation Brands’ flagship beers include Corona Extra and Modelo Especial.
“These brands are not only the biggest but have contributed the greatest incremental volume growth,” said Sands.
“Our flagship Corona Extra brand is the best selling imported beer in the United States. This brand sold more than 105 million cases in fiscal 2015 and posted depletion growth of more than 3% for the year.
"Corona Extra was the only top five beer brands in the U.S. to achieve growth last year with volume trends for this brand continuing to maintain their solid momentum.
“In fiscal 2016 we expect to capitalize on the growth of Corona Extra through increased national TV advertising, sports media, boxing sponsorships and by leveraging our acquisition of Casa Noble [tequila].
“Most importantly, fiscal 2016 will represent the year of the can for Corona Extra. We see great opportunity for growth with cans as this format currently represents less than 3% of total sales for Corona Extra.”
Corona Light cans will also be relaunched with redesigned secondary packaging, Sands added.
Brewery expansion on track
In October Constellation Brands announced it was expanding capacity at its brewery in Mexico. It acquired a glass production plant in Nava, Mexico, from AB InBev for $300m, which will be run jointly with Owens-Illinois.
The venture will provide bottles for the neighbouring Nava Brewery, with capacity increasing from 20m hectolitres to 25m.
“All areas of the brewery expansion are well underway with the project expansion on schedule from both a budget and timing of completion perspective,” said Sands.
“The packaging area and high density warehouses are progressing on schedule as well as utilities and waste water projects. Fabrication of beer tanks has been completed and we recently added capacity to our can line.
“Overall, I am extremely pleased with the outstanding commercial and operational performance of the beer business.
“This has been driven by a combination of robust consumer demand, strong sales execution, excellence support from our wholesalers, creative new marketing and advertising programs, as well as the outstanding efforts of our commercial team and our brewery team in Mexico.”