Constellation Brands, best known for Corona and Modelo, is now making craft beer too.
Life is good these days for Constellation Brands, as American beer drinkers have a seemingly unquenchable thirst for Mexican beers.
Now it’s jumping into the craft beer game, teaming up with Chicago celebrity chef Rick Bayless for a line of Mexican-inspired beers called Tocayo Brewing Company.
All this comes as Constellation, which reports its fiscal second-quarter performance Wednesday, could become the country’s second-largest beer company, should AB InBev indeed make a formal offer for — and win — SABMiller, as has been reported.
On a recent afternoon though, Constellation executives were thinking in smaller terms about Tocayo Hominy White Ale, their first craft beer, to be unveiled this week. The plan is to market the beer only on draft early on and grow the brand gradually in Chicago, said Bill Hackett, Constellation executive vice president and president of the beer division.
“I think it’s going to do very well. Our challenge is going to be can we (produce) enough of it. That’s a great challenge to have,” Hackett said.
Mexican imports and craft beers have surged in recent years, as sales of domestic mainstream beers continue to decline. In such a climate, Constellation’s recent success has been unparalleled, buoyed by shifting demographics in the U.S. and increased popularity of Mexican imports among mainstream consumers. In 2013, Constellation landed all U.S. rights to its beers, which recently produced double-digit growth in the first quarter of this year.
The Tocayo Hominy White Ale, a Belgian White-style beer, is intended to be an accessible and “sessionable” beer, meaning it’s relatively low in alcohol (5.5 percent by volume), making it well-suited for drinking more than one.
A proven craft brewer, Two Brothers Brewing, has been contracted to produce the beer at its facility in Warrenville. Future Tocayo styles will be developed and tested at Bayless’ Cruz Blanca brewery, which is expected to open this spring.
Jason Ebel, who founded Two Brothers with his brother, Jim, said their brewery is “proudly independent,” but respect for both Hackett and Bayless helped persuade them to produce the beer. “If it’s other people, we don’t contract out,” Ebel said.
Constellation executives declined to disclose the financial details of the partnership with Bayless or Two Brothers.
If Tocayo takes off, it will add to the frothy sales the company is reporting. In the first quarter ended May 31, Constellation’s beer sales increased 11 percent to $965.8 million, compared with the same period a year ago.
In that same period, Constellation’s wine and spirits net sales rose about 1 percent to $665.5 million.
During the July call with investors, CEO Rob Sands said Constellation would shift resources to the company’s beer business to maintain the “hit-it-out-of-the-ballpark growth.”
Case sales for the Modelo and Corona brand families have steadily grown during the past six years, according to IRI, a Chicago-based market research firm. For the 52-week period ending Sept. 6, case sales for the Corona brand — including Corona Extra and Corona Light — were up 8.3 percent to 55.9 million cases compared to a year ago.
For the Modelo line, which includes Modelo Especial, Modelo Chelada and Negra Modelo, case sales increased 23.7 percent to 31.9 million cases compared to a year ago, according to the IRI data.
Last year, Modelo Especial surpassed Heineken as the second-largest import beer, according to David Henkes, vice president of Technomic, a Chicago market research firm. Corona Extra is the top-selling import beer in the country.
Constellation’s beers haven’t just benefited from the increased popularity of Mexican beers, they’ve helped drive that trend, Henkes said. The Mexican imports have taken the place of premium domestic light beers for many consumers as a sort of counterpoint to heavier craft beers, he said.
“They go down easy and smooth,” and they’re perceived as a more premium product, said Henkes, who was bullish on the Tocayo concept.
“You’re almost checking all of the boxes, aren’t you? A craft beer that pairs well with Mexican cuisine and has Rick Bayless’ imprint of approval,” he said.
That such a sentiment even remotely makes sense is testament to how much the beer industry has changed since Hackett, 64, first started with Barton Beers in 1984, importing Corona when few people knew anything about Mexican beer.
“I thought, my goodness, this Mexican beer in clear bottles with no six-pack. This just isn’t going to work,” Hackett chuckled. “That shows how smart I am.”
Hackett’s guided some iteration of what is now Constellation’s beer division for about 30 years, enjoying a rare longevity in the beer industry that’s helped earn him the respect of competitors and wholesalers alike.
In 1993, Barton Beers was acquired by Canadaigua Wine Company, now known as Constellation Brands, an international producer and marketer of beer, wine and spirits. And in 2007, Constellation formed a 50-50 joint venture called Crown Imports with Grupo Modelo to distribute the Modelo brands, which includes Corona, Corona Light, Pacifico and Negro Modelo, throughout the U.S.
During the recession, Constellation Brands “got smacked just like everyone else” but began rebounding well in 2011, Hackett said. He pushed for more investment in the beer business.
When AB InBev acquired Grupo Modelo in 2013, the Justice Department intervened and forced the consolidated company to divest its share of the U.S. rights of the Modelo brands. Constellation bought those rights, along with a brewery in Nava, Mexico, for just over $5 billion.
That brewery is undergoing an expansion that will allow Constellation to produce all of the beer it imports into the U.S., said company spokesman Michael McGrew, a project that’s expected to be complete by June.
The acquisition of the remaining U.S. rights was a key turning point for the company, cementing its relationship with distributors for the long haul.
As the sole owners of the U.S. rights for Modelo brands, Constellation had newfound freedom in advertising and package design. As one example, the look of the Corona can was redesigned last year. Previously, such decisions had to be approved by the Grupo Modelo partners in Mexico.
Last year, Constellation’s beer ad spending increased 28.4 percent to $108.3 million, according to data provided by the Beverage Information Group.
Jim Sabia, Constellation’s chief marketing officer, pointed to Modelo Especial as an example of a brand that’s now crossing over from Latino consumers to a more general market audience because of a bigger marketing push.
“We’re spending more money than we ever have on marketing,” Sabia said.
“And Jim keeps trying to spend more and more,” Hackett interjected, laughing. “But it’s OK because it’s working.”
Eric Shepard, executive editor of Beer Marketer’s Insights, a trade publication covering the beer industry, said Constellation Brands has been able to weather challenging times through a consistent marketing message for each of its brands and through Hackett’s steady leadership as a well-respected figure in the industry.
Or, as Shepard puts it, Hackett’s “a beer guy.”
“Momentum is its own reward to some extent,” Shepard said. “Right now, the (Constellation Brands) story is kind of extraordinary.”
Hackett aims to keep that momentum going and has challenged his staff to double the number of cases sold to wholesalers, from 180 million cases in 2013, to 360 million in 2024. Tocayo is expected to be part of that success.
“We certainly have visions that it will absolutely be a critical part of our business,” Hackett said.
Jim Vogel, vice president of marketing for Chicago Beverage Systems, a Chicago-area distributor, said he saw promise in the Tocayo Hominy White Ale, which he considered to be a “gateway” beer for people new to craft beer.
“Once the liquid hits people’s lips, I think they’re going to like it,” Vogel said.
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