Constellation adjusts beer demand strategy as depletions decline
Constellation posted stronger beer revenue and shipments, but a slight depletion decline is prompting targeted marketing, pricing restraint and an RTD deal.
By Daniel Okafor · Business Editor
2 min read
Constellation Brands is adjusting its beer demand strategy after quarterly beer shipments and revenue rose while depletions declined slightly. The maker of Modelo, Corona and Pacifico beat Wall Street expectations, CNBC reported, but the depletion result points to softer demand than shipment growth alone would suggest because the company had been rebuilding distributor inventory.
Constellation reported fiscal second-quarter adjusted earnings of $3.74 a share on $2.63 billion in revenue, compared with analyst estimates of $3.56 a share and $2.54 billion, respectively, CNBC reported. Beer revenue increased 5% to about $2.47 billion, and shipments rose 5.5%.
Depletions are sales from distributors to retailers and other customers. They fell slightly during the quarter, according to CNBC. Chief Executive Nicholas Fink said the company had spent much of the first half replenishing distributor inventories, and he said September depletions were improving. That is a management assessment rather than evidence of a sustained recovery.
Why did Constellation beer shipments rise while depletions fell?
Shipments can increase when a producer sends more product to distributors, including to restore inventory, without a matching increase in distributor sales to retailers and other customers. In Constellation's case, CNBC reported that inventory rebuilding helped lift shipments even as depletions edged down.
The broader beer market has also been weak. U.S. beer sales fell 1.8% from a year earlier in the two weeks through Sept. 19, according to Nielsen data cited by CNBC.
How Constellation is responding to weaker beer demand
Fink said consumers are more often choosing beer for particular occasions instead of buying it as a default item. Constellation is directing marketing toward sports, music and beach events, while adapting product choices and pack sizes for different retail channels and occasions, CNBC reported.
Chief Financial Officer Garth Hankinson said the company has kept price increases at the low end of its typical range because of pressure on consumers. The company has particular exposure to Hispanic consumers: about 40% of spending on its beer comes from Hispanic shoppers, compared with about 15% for the overall beer category, according to company data cited by CNBC.
Constellation has also announced an acquisition of spirit-based ready-to-drink brand SpikedAde. The deal calls for $75 million at closing for full ownership, plus as much as $278 million in performance-based payments over five years, according to Constellation's Oct. 6 announcement.
SpikedAde is a vodka-based, zero-sugar, 100-calorie, non-carbonated ready-to-drink beverage with sports-drink-inspired flavors. Constellation said it plans to place the team in its Beer Division and take over production oversight, marketing and distribution. The company said the deal expands its presence in ready-to-drink beverages; its plans for distribution and growth remain forward-looking.
This story draws on original reporting from CNBC.