Constellation Brands' (STZ) — the parent company of beer brands Modelo and Corona, alongside other alcohol products — overall sales figures fell below expectations as outlined in its fiscal third-quarter earnings results.
Citi Vice President of Equity Research Filippo Falorni examines Constellation's beer sales growth linked to its line of Modelo drinks.
"The Modelo Especial brand is the largest brand in the beer division, that grew depletions — which is a measure of volumes — about 12%. Overall, the beer segment grew 8.2% depletions, which was above what the consensus was expecting," Falorni explains to Yahoo Finance. "Again, driven mainly by Modelo Especial, but also strong results in the other brands, like Pacifico growing 19%, Modelo Chelada growing 22%."
Falorni also comments on the market share opportunities for Constellation as Anheuser-Busch InBev (BUD) faltered under 2023 boycotts.
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
- Let's start with what you guys saw in the beer segment here from Constellation, particularly, Modelo brand has been such a strong driver of this story. What you saw in this quarter and how you think about that as a growth driver for them going forward.
FILIPPO FALORNI: Yeah, absolutely. Thanks for having me, guys. So look, it was a very strong result, quarter for constellation in the beer business. As you mentioned, the Modelo Especial brand is the largest brand in the beer division. And that grew depletions, which is a measure of volumes-- about 12%.
Overall the beer segment grew 8.2% depletions, which was above what the consensus was expecting, and the buy side around, 6%. Again, driven mainly by Modelo Especial, but also strong results in the other brands, like Pacifico growing 19%, Modelo Chelada growing 22%. So there's a strength in the overall portfolio.
Modelo Especial, as I mentioned, is the largest beer brand. And this year, it reached the number one beer brand in the US, surpassing Bud Light. So I still think there's a lot of runway for the Modelo Especial brand. When you look at the distribution opportunity, there's still less distributed compared to like, larger brands, like La Domestic, like including Bud Light, Budweiser, but also, of course, Lighter, Miller-Lite.
- Yeah, and you mentioned the Bud Light story, which was such a big part of the beer market in the early part of 2023. Modelo, a huge beneficiary of that. But now, that we've moved past maybe the most acute phase of that. What do you think continues to drive Modelo consumption, its rise up, the rankings for US drinkers? And maybe just like in simpler terms for our audience, what are the drivers for a brand like-- are we talking getting into more stadiums, getting into more bars, more home consumption? How does that kind of shake out in your view?
FILIPPO FALORNI: Absolutely, absolutely. So obviously, the Bud Light controversy this year was probably the most important driver within the beer industry. I would say from a consumer standpoint, though, Modelo Especial didn't see as much benefit compared to the other domestic brands, like Coors Light, Miller-Lite. We estimate that those brands capture about 80% to 85% of the share losses from Bud Light.
So from a Modelo Especial brand, a lot of the benefit was from a brand recognition. Consumers got to know Modelo Especial better because it was in the headlines. But from a distribution, there's still a lot of runway for the Modelo Especial brand. And particularly, as you get into the spring of 2024, to your point, Myles, when you get into getting more facing in retail stores and liquor stores, but also in the on premise channel, getting more tap handles at bars, restaurants, stadiums. There's still a big opportunity for the Modelo Especial to gain distribution.
And then the last big driver for them is the Hispanic population, which is the fastest growing sub-population within the US. And that continues to be a tailwind of 1% to 2% in terms of volume growth into this brand, which tend to skew more towards the Hispanic consumers, which are about 50% of the consumer base for the Modelo Especial brand.
