Technomic’s Take: The Changing Face of Foodservice Purchasing

Dave_articleBy David Henkes, Senior Principal on August 17, 2017
https://www.technomic.com/newsletters/technomics-take/changing-face-foodservice-purchasing

Independent restaurants have been central to the success of both foodservice distributors and food and beverage companies serving the industry. They are more profitable (mostly due to inefficiencies of the purchase process and pricing practices that aren’t transparent), and their health has been a stabilizing force in an industry where many chains (particularly large casual-dining chains) have struggled to grow as saturation, value issues, competition and lack of differentiation have impacted their success.

However, while independents are generally healthy (relative to the rest of the industry), distributors and manufacturers cannot assume that these operators will continue to drive incremental profitability. As costs increase at the operator level, due to commodity swings, labor costs, rent and other input costs that continue to rise, operators are increasingly looking for options that are perceived to save them. As a result of this changing nature of foodservice purchasing, Technomic estimates that there is $1 billion to $2 billion in additional manufacturer profitability at risk over the next five years. This will be driven by the following:

Penetration of GPOs is continuing across all foodservice segments, but critically we see that many GPOs are now focused on growing share within the independent restaurant segment. Recent Technomic research indicates that nearly 14% of independent operators are active within GPOs and a larger number than ever before are considering joining in the near future.

While chains don’t have the same growth trajectory that they did several years ago, they continue to add units, and smaller midsize chains continue to excel. Most of these operators negotiate directly and receive contract pricing, further reducing the profitability of the market place.

Most major noncommercial segments (not only healthcare, but colleges, B&I, etc.) are heavily driven by contract pricing. For most of these segments, actual discretionary purchases that are not part of a GPO or foodservice management firm contact amount to 10% or less of their purchases.

These dynamics have several major implications for the foodservice industry, most notably:

  • Distributors and manufacturers have less leverage as chains and group purchasing organizations become power buyers. To a large degree, the growing nature of contracted procurement in foodservice has prompted many of the mergers and acquisitions over the past several years.
  • Distributor economics don’t work as well with contracted business. Most of this is cost plus and distributors, who covet the higher profitability of the true independent operator, need to become much more efficient in terms of logistics and drop sizes in an environment where the margin is generally under 10%.
  • GPOs have taken their negotiated prices meant for certain customers and have extended them into adjacent operator segments, often without manufacturer or distributor approval, further suppressing margins throughout the value chain.
  • The nature of the operator sales call, particularly for manufacturers, changes to one where they are not truly selling their products or solutions, but working to ensure compliance with a contract. It also impacts the fees and compensation that manufacturers are willing to pay to brokers and distributors, given that manufacturers often perceive selling to a GPO account to be less valuable to the manufacturer than bringing in a higher-margin independent account.

Technomic predicts that over 70% of the foodservice purchases will be contracted within the next five years (up from about 65% today) and the industry needs to be prepared as this shift continues. Margins, which have already been compressing over the past several years, will continue to tighten, and forward-thinking companies should strategically address this as part of longer range strategic planning and work to manage the change proactively to ensure the continued health and strength of the business. To do so, Technomic recommends that companies:

Fully understand the sales and volume incrementality of GPO and other contract business relative to the lower overall margin.
While lower margin, contracted business can be desirable if it provides incremental sales or volume opportunities. Manufacturers and distributors must understand and view GPOs and other contracted business in light of strategic priorities and which segments, products and entities will drive growth. While often lower margin, contract business can benefit distributors by increasing drop size and giving primary distributors a bigger share of purchases.

Understand and expand upon your leverage.
Contracted business is often viewed negatively because of the perceived loss of control of the operator. However, understanding key leverage points is critical, particularly for manufacturers to create pull at the operator level to avoid the commodity trap.

Audit contract compliance.
Another reason that GPOs and other contracted business is often viewed negatively is due to compliance and the complex nature of the purchase. Auditing and managing trade-spending programs, understanding true cost to serve and having dedicated personnel to oversee contract compliance are all best-in-class methods of reducing the leakage of funds that can have a negative impact on profitability.

Construct proper guardrails to ensure that higher margin business remains profitable.
Contract pricing should only be used for the entities for which that pricing is intended; manufacturers and distributors must ensure that guardrails are in place to avoid price-extendibility, where favorable pricing based on the contract is offered to other operators.

Realize that sales force realignment may be necessary.
As the industry heads toward higher share of contracted business, the nature of the sales call is changing. This may necessitate deployment of sales as activities change from demand creation to driving compliance.

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Global restaurant scene leaves U.S. market in the dust

left-behind_1509634835http://www.restaurantbusinessonline.com/consumer-trends/global-restaurant-scene-leaves-us-market-dust

By Peter Romeo on Nov. 02, 2017

Although overseas expansion rates have slowed, the global foodservice market is still growing at a clip that makes the U.S. piece of the business look like a minivan chasing a Maserati, according to a just-released snapshot.

Overall, global sales are increasing at an annual pace of 5.6%, compared with the U.S. rate of 3.4%, according to the study, conducted by Technomic for The Coca-Cola Co. and presented at the Global Restaurant Leadership Conference this week.  The figures are nominal and not adjusted for inflation.

The researcher pegged the current size of the international foodservice market—U.S. sales included—at $3 trillion, of which the American market contributes about $872 billion. Nearly two-thirds of that amount, or 60%, is generated by restaurants, with the remainder coming largely from so-called noncommercial facilities.

The figures verify that the U.S. remains the globe’s biggest restaurant market in terms of sales, outstripping China’s $624 billion in annual intake. But Technomic noted that China’s restaurant revenues are surging at the rate of 10.9% per year, the highest in the world by far.

It already sports more restaurants than any other nation, with nearly 9 million outlets.

Many of the trends driving U.S. sales are also boosting business abroad, according to the picture presented by Technomic. Delivery and takeout, for instance, are universal phenomena, noted Joe Pawlak, a managing principal of the research company. On a global basis, “dine-in visits are the minority,” he said.  The one exception to that new world order among the major markets tracked by Technomic is France, where dining in a restaurant is an entrenched part of the culture.

Similarly, from the North Pole to Antarctica, “the availability of healthy items is becoming as important as affordability and variety,” said co-presenter David Henkes, Technomic’s senior principal. Globally, 69% of consumers cited the availability of healthy options as being a very important factor in choosing where to buy a meal.

Henkes stressed that the sensitivity is now literally universal; in every market monitored by Technomic, more than half the consumers spoke of being profoundly influenced in their choice of restaurants by health considerations.

And that quest isn’t just for healthful food options, Henkes added. “Consumers are asking for better-for-you beverages, and what they’re asking for is changing,” he said.

Henkes explained that the definition of “healthy” continues to evolve.  “We asked consumers what healthy actually means,” he said. “The No. 1 attribute among the consumers that we surveyed was ‘natural.’ Forty-four percent of consumers say that is the leading way to define healthy.”

Another universal sales driver is snacking, Pawlak observed. “In all countries save two, over 70% of consumers snack daily,” he revealed.

The exceptions: China, where three-meal-a-day dining is still the dominant pattern, and France, where eating is regarded as a celebration best reserved for a full meal.

The Global Restaurant Leadership Conference drew some 1,233 restaurant leaders from around the world to Dubai for three days of discussions on tomorrow’s opportunities. The conference is presented by Winsight, the parent company of Technomic and Restaurant Business.

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Why Hasn’t McDonald’s Gotten Rid Of Artificial Additives In The Big Mac’s Special Sauce?

It seems like every day we hear about yet another fast food chain that’s cleaning up this or that menu item to appeal to health-conscious consumers, and McDonald’s is no different: only last week, the Golden Arches announced 100% antibiotic-free McNuggets, and that it would remove high fructose corn syrup from its buns. But there’s still one popular item on its menu that contains a slew of artificial preservatives, and that same HFCS: the Big Mac’s special sauce. What gives?

The trend these days is all about simplifying recipes and cutting down the ingredients lists, but as The Street points out, McDonald’s famous “special sauce,” which is slathered on every Big Mac, has a whopping 32 ingredients.

Included in that list is high-fructose corn syrup and as many as five artificial preservatives, including potassium sorb ate and caramel color. Those are the kinds of additives one might have expected in the 1980s, but not in the current food mood guided by health-conscious consumers.

The Street cites an insider who says McDonald’s is looking for ways to improve its ingredients across its menu, but there’s not going to be a cleaner special sauce that’s free of artificial ingredients coming anytime soon. And when asked by The Street if HFCS and preservatives would be removed from special sauce this year, a McDonald’s spokeswoman echoed the company’s press release from last week regarding the changes to its buns and McNuggets.

So why not jump on the healthy bandwagon and just ditch all that stuff? One reason could be the iconic status of special sauce, experts say, which plays a large part in making the Big Mac the Big Mac. The company might not want to risk ticking off dedicated customers if they get the reformulation wrong, for example.

“I suspect that they’re working to make sure the flavor profile doesn’t change on that sauce,” Technomic Advisory Group Senior Principal David Henkes told The Street. “Making menu items healthier is important, but for such an important part of the menu as the Big Mac, I’m sure they want to make sure it’s right.”

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In Wake of E. Coli Outbreak, Chipotle May Have Another Scare to Contain

Amid a growing number of E. coli cases stemming from visits by people to certain Chipotle (CMG – Get Report) locations in Washington State and Oregon, the popular burrito joint may have another scare to contain.

That is, investors continuing to flee its stock should the company miss its sales guidance for the full year as consumers across the country avoid one of their favorite lunch and dinner spots due to health concerns. Shares of Chipotle are already down about 6% this week as the E.Coli news has gained nationwide attention, hinting investors are worried about fourth quarter sales trends. And they should be.

As Chipotle points out in its annual report, “instances of food-borne illnesses, real or perceived, whether at our restaurants or those of our competitors, may subject us to liability to affected customers, and could result in negative publicity about us or the restaurant industry that adversely affects our sales.”

Chipotle’s full year guidance calls for a same-store sales increase in the range of a low to mid-single digit percentage. For the nine month period that ended Sept. 30, Chipotle’s same-store sales have increased 5.5%.

Consumers voicing concerns about eating at Chipotle on Twitter suggest the restaurant chain may be currently dealing with sluggish sales more broadly.

 

Tweets

“Certainly there will be a short-term sales impact, say over the next month, given the attention and social media buzz — consumers don’t tend to think of food safety issues until they actually happen,” said David Henkes, vice president at food industry research firm Technomic.

But Henkes added that “I don’t think there will be a longer term impact as Chipotle has built up a nice reservoir of goodwill among people who believe in its food with integrity mission and they have responded proactively to the latest incident.”

Not helping Chipotle’s attempt to reach its sales goals for the year is that sales prior to the E.Coli outbreak, which were first reported last Saturday, were somewhat lackluster. The company admitted on an Oct. 20 earnings call with analysts that sales in October had been “very, very choppy” and cooled in August and September following a burrito giveaway promotion in July.

Chipotle did not return a request for comment on the status of its sales guidance. In a statement from Chipotle founder and co-CEO Steve Ells on Tuesday, no mention was made of current sales trends or financial guidance. “The safety of our customers and integrity of our food supply has always been our highest priority,” said Ells, adding, “We work with a number of very fresh ingredients in order to serve our customers the highest-quality, best-tasting food we can. If there are opportunities to do better, we will push ourselves to find them and enhance our already high standards for food safety.”

Ells’ comments come on the heels of more people reporting E. coli symptoms following recent visits to several Chipotles in Washington State and Oregon. On Saturday, the number of E. coli cases in the two states stood at 22 but that has since increased to 37.

In Oregon, the number of confirmed cases increased from 3 on Saturday to 12 on Tuesday, with at least eight of those people becoming ill after eating at a Chipotle. Meanwhile, health officials in Washington State reported six new confirmed cases of E. coli, bringing the total sickened in the outbreak in the state to 25. A Washington State health official said 23 of the 25 people ate at Chipotle restaurants.

A total of 43 of Chipotle restaurants, or about 2.3% of its total U.S. locations, remain closed in Oregon and Washington. According to Chipotle’s statement on Tuesday, it’s taking multiple measures to correct any problems at the closed locations. Specific actions underway include conducting additional deep cleaning and full sanitization of the restaurants in the area, replacing all food items in the restaurants closed, and batch testing some ingredients before resupplying.

For the full story, visit www.thestreet.com

http://www.thestreet.com/story/13350634/2/in-wake-of-e-coli-outbreak-chipotle-may-have-another-scare-to-contain.html

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Fast-casual outlets are a small part of the UK’s restaurant trade – but the sector is growing rapidly, with sales growth outpacing the number of locations opening. Technomic’s David Henkes argues fast casual is set to take off in the country.

Franco Manca does not entirely use locally-produced ingredients but has "a good food story to tell that lends credibility and authenticity"

Franco Manca does not entirely use locally-produced ingredients but has “a good food story to tell that lends credibility and authenticity”

George Bernard Shaw’s quip the United States and Great Britain are two countries separated by a common language might apply to the words we use for some foods -especially chips,which you might take to mean French fries but makes me think of crisps.

But plenty of things about the USrestaurant industry translate perfectly to the UK, especially the growth potential for fast-casual restaurants, which have dominated foodservice in my home country for years. The same appealing price points and service style are likely to entice British consumers looking for something between fast food and traditional full-service restaurants.
Fast casual is quite young in the UK, with sales of just GBP1.1bnamong in theTechnomic UK poll of the top 100 restaurant brands in 2014. But the segment already has impressive momentum, with an 8.6% increase in turnover last year. The sales growth even exceeded the 5.7% increase in UK fast casuallocations last year, suggesting average sales per unit are also expanding at a healthy pace.

While that makes fast casual a relatively small part of the UK’s GBP31bnrestaurant industry, it also means there is tremendous potential for growth in the segment and virtually limitless upside. The field is about to get crowded very quickly, however, as homegrown fast-casual chains like Pret a Manger will soon be competing for retail space and consumer attention with American brands making their way to the market.

In this column, I’ve already discussed the so-called “better burger”chains eyeing the UKbut other fast-casual segments will be targeted as well, including Mexican and pizza. For instance, in September, American fast-casual brand MOD Pizza announced a joint venture with Sir Charles Dunstone and Roger Taylor to bring the concept to the UK, with the first location expected to open in London by mid-2016. Dunstone, founder of TalkTalk Telecom Group, and his partner operate 30 units of Five Guys Burgers and Fries in the United Kingdom and plan to expand that fast-casual burger chain in France.

Two practices stand out among the fast-casual brands succeeding in the UK so far, which can be found in their American counterparts as well.The first is a narrowed focus on a limited menu, which saves brands time and money by simplifying operations and minimizing needs for retail space and equipment. It also helps chains differentiate from the competition with a signature menu item, such as at The Meatball Shop in the United States, a six-unit brand that uses its namesake meatball as a canvas for experimenting with different proteins and new flavours.
Having fewer menu items puts a premium on customisation, which consumers continue to love in the United States and, increasingly, in Europe. This personalisation trend works to great effect at Chatime, which has 11 locations in the U.K. despite entering the market only in 2012. Consumers can choose from one of several Taiwanese-style bubble teas and pick the toppings and sweetness level they want in their drinks.

Another key practice for fast-casual success is honest sourcing. Providing more seasonal or locally grown ingredients fits with consumers’changing definitions of health, and the success of a concept like London’s salad specialist Chop’d bears that out. Being able to tell the story about where food and ingredients come from satisfies a big consumer demand.

But fast casuals don’t need to get everything from organic or hyperlocal sources, as long as they have a good food story to tell that lends credibility and authenticity. Take British chain Franco Manca, for example, which can crank out a personalized Neapolitan pizza in under a minute. Some of its ingredients are sourced from the UK, but many of its commodities crucial to baking a genuine Neapolitan pizza come from Italy, like Sicilian extra-virgin olive oil and San Marzano tomatoes.

On my side of the Atlantic, the fast-casual segment has been the dominant story of the restaurant industry for several years, posting double-digit gains in sales and locations even though it is a mature sector with some giant players. Britain’s roster of fast-casual companies is not as deep as that for the United States -yet -but Technomic nonetheless is forecasting serious expansion in this part of the UK foodservice industry.

To read the original article, visit www.just-food.com

http://www.just-food.com/comment/why-fast-casual-is-about-to-get-serious-in-uk_id131522.aspx

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Foodservice focus September 2015 – all-day breakfast, concept innovation

September saw McDonald’s make two significant announcements in the US, a one-two from Taco Bell and a new format from hitherto retro-focused Johnny Rockets.

McDonald’s hopes for all-day breakfast boost

The fast food giant announced plans to serve from its breakfast menu all day in the US, with the formal launch coming yesterday (6 October), its latest move to try to revitalise its performance in its domestic market.

Mike Andres, president of McDonald’s operations in the US, told The Wall Street Journal the roll out was the company’s biggest domestic strategic move since it took its McCafe line of drinks across the US six years ago.

“This is the consumers’ idea. This is what they want us to do,” Andres said. “That’s why I think this could be the catalyst for our turnaround.”

Analysts at NPD say breakfast is the “only restaurant daypart” to see “sustained visit growth over the last several years” in the US, so it is easy to see why McDonald’s has decided to allow US consumers to eat an Egg McMuffin at 3pm, should they wish. September also saw regional US chain White Castle start serving breakfast throughout the day.

There are the obvious logistical and culinary challenges but McDonald’s has been testing the day-long offer in parts of the US. Not all breakfast items will be available all day, everywhere, and the move is unlikely to solve McDonald’s domestic on its issues but the decision does suggest the fast food giant is listening to what its customers want and prepared to act.

eggmcmuffin

And eggs from caged hens to be phased out at the Golden Arches

Egg McMuffins on sale in the US and Canada will increasingly be made only with eggs from cage-free hens, the second significant announcement from McDonald’s last month.

The move is the latest initiative on animal welfare from McDonald’s after its pledge in March on the use of antibiotics in chicken. Driven by the likes of Chipotle Mexican Grill, the US fast-casual chain, food “with an integrity focus”, as Technomic analyst David Henkes puts it, is becoming more important for consumers and, consequently, foodservice operators.

“Our customers are increasingly interested in knowing more about their food and where it comes from,” Andres said in a statement. Marion Gross, chief supply chain officer at McDonald’s North American arm, added: “This is a bold move and we’re confident in our ability to provide a quality, safe, and consistent supply.”

It appears it will take some time for McDonald’s to be able to only use cage-free eggs. The New York Times says less than 10% of laying hens in the US are housed as cage free but moves are afoot for more suppliers to switch part of their production to the mark. In the meantime, the opportunities for egg suppliers majoring on cage free are clear.

A one-two from Taco Bell

September saw two pieces of news from another major US quick-service player. The company, owned by Yum Brands, closed U.S. Taco Co., a restaurant it launched in California last year to try to attract a more upmarket clientele, particularly those frequenting fast-casual outlets.

According to The Orange Country Register, Taco Bell blamed “lower than anticipated foot traffic” and “hurdles securing alcohol permits. Taco Bell chief executive Brian Niccol added: “U.S. Taco Co. remains a fantastic concept, and was very successful as a place to experiment and learn.”

The setback does not appear to have halted Taco Bell’s innovation in store formats. Last month, the operator launched Taco Bell Cantina, a “new urban restaurant concept” targeting five consumer trends the company said “balance relevancy and brand authenticity” – urbanisation, unsurprisingly; second, digitisation; thirdly, localisation; the “green” trend; and transparency.

Two outlets, in Chicago and San Francisco, have been opened. Niccol said the new format shows Taco Bell was “adapting our traditional restaurant concept to fit [consumers’] modern needs”.

Format innovation from Johnny Rockets

The US retro burger chain has also been looking at formats and last month opened Johnny’s Burger Factory in Buffalo in New York state.

Johnny Rockets is focusing squarely on one type of consumer – millennials. “Every detail about the development of Johnny’s Burger Factory, from the first design to construction, product development and marketing had a new kind of consumer in mind. It’s not possible to ignore millennials and still be competitive in the better burger category,” president and CEO Charles Bruce said.

Technomic’s Henkes says Johnny Rockets saw its US sales fall 5% in 2015. Its international expansion has continued apace this year; the company admitted the new format launched in Buffalo was a way of expanding its customer base back at home. “Our goal with Johnny’s Burger Factory is to broaden our appeal and foster an immediate connection and loyalty with a tech-savvy generation looking for a new kind of restaurant,” James Walker, the president of global operations and development at the chain, said.

The company believes the quality of its food, the ability of customers to personalise meals and order dishes themselves, will “differentiate” the format from other fast-casual brands. The segment has grown rapidly but is becoming fiercely competitive. Will Johnny Rockets’ foray take root?

More international expansion – and notable piece of M&A

September saw US fast-casual chain Firehouse Subs enter Canada, its first move outside its domestic market. Krispy Kreme said it would open stores in Peru. And Starbucks announced plans to make Cambodia its 16th market.

On the M&A front, Burger King’s franchise joint venture struck a deal to buy European fast-food chain Quick. Burger King’s owner, Restaurant Brands International, and Groupe Bertrand, the majority investor in the Burger King France venture, said Quick’s outlets would be converted to the US insignia over time.

“This transaction represents a significant step forward for Burger King France, which will have more than 500 restaurants and EUR1bn of system sales following the transaction. Following the conversion, Burger King is expected to be the number two QSR brand in France and France will become one of the largest markets for Burger King globally,” Josh Kobza, Restaurant Brands International’s CFO, said.

Read the story at just-food

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Corona, Modelo maker unveils first craft beer, with Rick Bayless

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.

constellationbeer

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.

Read the story at Chicago Tribune

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