Constellation CFO: Corona Premier Could be a 100M Case Brand

Dear Client:

How bullish is Constellation on Corona Premier? Well, outside of getting into beer in the first place in 2013, Corona Premier is “one of the most exciting things” the company has ever done, CFO David Klein said at yesterday’s Goldman Sachs Global Staples Forum.

But wait, there’s more. When Constellation began to play around with the idea of Premier a few years back, David said they sort of sized it up against Corona Light and wondered if it could match its volume and become a 15 million case brand?

“As we sit here today, there’s no reason to think [Premier] couldn’t be a 100 million case brand,” David said.

So pretty dadgum bullish, and David explained why. As he tells it, there are still tons of opportunities with the brand both from a distribution and consumer standpoint.

As it relates to distribution, the brand currently holds a “really good ACV,” but it’s “not well distributed from an effective standpoint,” he said.

“Right now, many of the accounts carry only one or two pack sizes of Premier,” he said, typically 12-pack cans and/or 12-pack bottles. So they “don’t have the entire spectrum of 6-packs [up to] 18-packs.

“When you get that combination of SKUs in retail, we see a real improvement in overall sales trends,” he said. And in order to convince retailers to take on that “entire spectrum” you have to have the velocity growth to back that up, David said, and “we have all that.”

Indeed, in the most recent 12-weeks, velocity on the shelf for base Premier (Premier that’s not on promotion) is up 22%.

From a consumer standpoint, Premier is an “outstanding brand that hits an intersection play of a couple of trends,” he said. One is the wellness trend, and the other is building off the “power of brand Corona,” and the “demographic tailwinds that surround the brand.”

Still, David isn’t so sure the consumer is “fully aware” of Corona Premier. The packaging lists the brand’s “functional attributes,” but Constellation “hasn’t really done much in the way of educating the consumer on exactly what the brand is in terms of functional attributes. That’s starting to happen right now.”

So all in, this can be “a massive brand,” David said, and held on to Premier’s growth projection of up 35-40% for the full year.

TOO EARLY TO MAKE A CALL ON REFRESCA. While David was incredibly bullish on Premier, he was a little tamer on the latest Corona line-extension: Corona Refresca.

Mainly because it’s still “way too early” to assess the brand, he said. Constellation just expanded the full-flavored FMB to all 50 states on May 1, and even that was a bit of a “soft launch,” he added, as their “supply chain wasn’t fully geared up for the volume quantities required.”

Just last week, they gave their distributors the “go-ahead to go all out in terms of the launch of Refesca.” And this week, they’re beginning their national advertising campaign related to Refresca. So, again, still “a little early to assess, but we’re happy to be in the market leading into the summer selling season.”

Are they still on track to spend $25 million in marketing for the brand this year? David wouldn’t put a number on it, but said they would “invest heavily” behind Refresca. They need to get the brand on shelf at retail before they begin brand spend activity, he said.

For David, a successful year for Refresca would be “to get in the market and have good velocities across the system and add a little bit to our overall growth.”

STILL LOOKING FOR A RESPONSE TO SELTZERS. Speaking of FMBs, what’s Constellation’s answer to the sizzling seltzer segment (one that David says is “here to stay”)? It doesn’t sound like they’re sold on one just yet.

Yes, they have Svedka Seltzer in some markets, but David noted that they’re “repositioning it a little bit this year.” As he tells it, “we have to get comfortable behind our seltzer offering before we’re going to be willing to put the marketing dollars behind it that would be necessary to break through the couple of big guys.”

EXTRA NEEDS TO HOLD ITS OWN. When asked about expectations of Corona Extra moving forward, David said, Extra “needs to hold its own.”

Extra doesn’t need to be the “driver of growth,” it simply needs to be in the black and not the red. He noted that they’re “pretty confident” with some of the “incremental SKU work” taking place on Extra, and they still have “a little runway in distribution,” though conceded that “maybe that’s closing down for us.”

Still, they feel confident that both the Corona brand family and Corona Extra will “continue to do really well.” If the whole brand family continues to achieve mid to high single digit growth they’ll be “really happy.”

STILL LOTS OF RUNWAY WITH MODELO. Meanwhile, Modelo is “not even at the ACV level,” nor the “effective distribution level” that brand Corona is, David said, “so we think there’s a lot of runway on Modelo.” It’s a brand that “a lot of people still need to discover… And we’re working on that.”

All that said, Constellation feels “really comfortable” with their net sales guidance of up 7-9% this year. David reiterated that February and March “weren’t really good consumer takeaway months.” April, however, was “quite strong.” And though the latest scan data doesn’t fully capture Cinco de Mayo just yet, they “feel confident” that they “once again won Cinco.” Their sales team delivered “more displays” and “more cases on the floor at retail than we’ve ever had before,” David said, “and it seems like the weather cooperated everywhere except maybe New York.”

ON BALANCING GROWTH VS. MARGIN EXPANSION. Regarding margins, “we will grow our margins as much as we can,” David said.

“We have these big pressures on us from a cost standpoint,” (everything from COGS inflation, wage inflation in Mexico, to price increases on glass, and transportation), said David.  And he believes there’s “a lot” of things they can do from “a production environment standpoint to offset a lot of those cost increase.” Then of course, they’re looking at taking a 1% to 2% price increase, similar to what they’ve done the last several years, Dave reminded. “So all of that holds together and suggests that you don’t necessarily get margin expansion.”

They don’t want to do anything with pricing or marketing spend that would actually slowdown that 7% to 9% top line growth or lose their momentum on share gains.

“Now, if we see an opportunity to take more pricing and not slowdown our growth or if we have the ability to do different things from an operational standpoint that drive more cost savings, yeah, our margins will expand,” Dave said.

“We just want to make sure that everyone understands that we’re balancing growth versus margin expansion and it’s hard to feel bad about our margins given where they are being best in North American brewing sort of operating margins.”

WHOLESALER TRADE GROUPS GROUPS COME OUT AGAINST LATEST USPS ALCOHOL SHIPPING BILL

As reported earlier this month, California Congresswoman Jackie Speier has introduced yet another bill to allow the US Postal Service to get in on the alcohol shipping action.

The bill, dubbed the USPS Shipping Equity Act, would allow USPS to ship alcohol directly from licensed producers and retailers to legal drinking age consumers in states where direct-to-consumer shipping is permitted.  

While the bill has gained a fair amount of support from suppliers and retailers – including the Distilled Spirits Council, WineAmerica, and the Wine Institute among others – distributors have come out against the legislation, reports sister publication Wine & Spirits Daily.

“Our concerns with the bill really focus on the fact that the Postal Service is really not accountable to state law enforcement or government authority,” Wine & Spirits Wholesalers of America svp of government affairs Dawson Hobbs tells WSD. “If they were to deliver into a dry county or a state that did not allow wine, beer or spirits to be delivered or ship to it, the state would have no recourse. Whereas other common carriers, like FedEx and UPS, have common carrier licenses and are accountable to state authority.”

In response to the bill, the WSWA, National Beer Wholesalers Association and American Beverage Licensees sent a joint letter to Congress yesterday, urging lawmakers to oppose the legislation.

The trade groups contend that the bill would “create a delivery pipeline immune to state oversight and enforcement,” per the letter, because they believe that the USPS is “not equipped to deal with state regulations of the alcohol industry and its sale” and there’s “no legal mechanism” for states to enforce those regulations.

Until tomorrow,

Harry, Jenn, and Jordan

“Any clod can have the facts, but having opinions is an art.”

– Charles McCabe

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