Constellation Brands warns of consumer sensitivity to price increases

Dive Brief:

  • Modelo and Corona brewer Constellation Brands said the company plans “more muted” price increases in its current fiscal year after recent hikes slowed demand.
  • Constellation CEO Bill Newlands told Wall Street analysts on an earnings call last week consumers are “overly sensitive to pricing actions” and that company needs “to be careful in balancing our growth profile and our pricing profile.”
  • While beer has shown signs so far of being immune to price increases affecting the broader economy, Constellation’s remarks show consumers are scaling back on purchasing their favorite brews or turning to lower-priced offerings in order to save money.

Dive Insight:

With its deep portfolio of Mexican beers such as Corona, Modelo and Pacifico, Constellation has been a standout in a category that struggled for some time. Beer giants such as AB InBev and Molson Coors have seen sales for many of their flagship brands decline as drinkers turn to wine, spirits and ready-to-drink offerings.

The economy has created further challenges for their businesses. Amid higher input costs and uncertainty throughout the supply chain, beer manufacturers such as Constellation have turned to price hikes to help offset elevated expenses. With prices rising across nearly all sectors, including food and beverage, consumers are feeling the pinch and altering their buying habits.

Newlands told analysts the company faced a “recent series of headwinds that developed towards the latter part of the quarter” brought on in part by its own round of price increases.

Constellation said its beer depletions, which measure the number of cases sold by distributors to retailers, was 5.7% in the quarter, down from between 8% to 9% during the last four quarters. Depletion growth for the company’s Modelo Especial brand was 4.4% in the third quarter compared to 9.9% for the fiscal year so far.

Beer imports also are being hit hard. After analyzing data from the U.S. Department of Commerce, the Beer Institute estimated last week that shipments from Mexico, by far the largest importer to the U.S., dropped 11.7% in November from the same month a year earlier.

If consumers continue to change their beer buying habits in a bid to curb expenses, large players such as AB InBev and Molson Coors could be poised to benefit given their range of options catering to varying budgets. 

In a research note, Goldman Sachs analysts said they do not believe that Constellation’s subdued pricing actions “suggest pricing power has peaked for others [in beer] although this remains a key focus area given continued inflationary pressures on the consumer.”

Beer makers have recently been adding options throughout the price spectrum. Molson Coors, for example, has added extensions including Coors Pure, its first USDA-certified organic beer, and Light Sky, a lower-calorie version of Blue Moon. These higher-end options complement Miller Lite, Coors Light and Coors Banquet in the middle, with brands including Keystone and Miller High Life in the lower-priced segment. 

“If [consumers] do trade down, we’ve got brands that are ready and waiting for them,” Gavin Hattersley, Molson Coors’ CEO, told Food Dive last May.

AB InBev noted in October that consumers would continue to buy beer because it was an indulgence they could afford. Still, The Wall Street Journal noted the brewer said it was introducing cheaper packages for cash-strapped consumers.

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