Constellation seeks to expand Hispanic market
Constellation Brands Inc. of Victor, the beverage behemoth whose serendipitous move into imported beer has made a lot of people rich, begs comparison to Eastman Kodak Co. in its heyday.
Without, of course, the digital revolution and without the sheer dominance of the market that Kodak enjoyed for so long.
But the serendipity part seems about right.
Kodak's invention brought film and cameras into public use — more so, perhaps, that even George Eastman envisioned. What was a growing Rochester company became a national phenomenon in a short time.
For decades, good fortune shone on Kodak. And a lot of people got rich.
Good fortune has shone on Constellation Brands, too. The purchase last year of the huge and profitable imported Corona beer business — in a deal that spun out of antitrust concerns about Anheuser-Busch InBev's purchase of Corona parent Grupo Modelo — instantly made the company a player in the greatly lucrative race to serve beer to the American consumer.
"I wouldn't want to make too much of the Kodak comparison," Constellation Brands CEO Rob Sands said recently during an interview in his Victor office. Rob and his brother, Richard, are the sons of winemaker Marvin Sands, who started Constellation in Canandaigua.
"Kodak's market share was far bigger than ours in beer," Sands said. He sat in a chair before a huge office window with a view of the valley below. Canandaigua, the home of the company, was in the distance.
"Anheuser-Busch and Miller/Coors have more than 80 percent of the beer market. We have less than 10 percent."
Still, Sands said, the goal is to chip away at that dominance. The Corona brands continue to do well, though overall beer consumption is down slightly nationwide. The "Find Your Beach" TV ads for Corona are familiar and popular. The growth in America of the Hispanic, and especially the Mexican Hispanic population, will likely mean a greater thirst for Mexican beer brands, of which Corona is the champ.
Though beer sales as a share of overall U.S. alcohol sales fell in 2012 to 48.9 percent in dollar terms, imported beers like Corona are doing better in growth terms than Budweiser and Miller. Mexican beers represented five of the biggest 10 imports in 2012, according to Beer Marketer.
"Our goal is to double our beer business over 10 years," Sands said.
But what does a wine and spirits company know about beer?
Sands said that Constellation Brands has had beer in its portfolio since 1993 and, through its Chicago-based division, Crown Imports, engaged for years in a joint venture with Modelo in U.S. beer distribution.
"This isn't new to us," Sands said. A key, he said, is to get the strategy right, to make the right moves at the right time.
To that end, he said, he spends a lot of time scouring the trade press and information sources in general to stay abreast of industry trends.
Sands said the company has become fully invested in the U.S. Hispanic market, which is growing as the population does. The population of that segment of America is expected to triple by 2050. Most of those, Sands said, are Mexican-Americans.
In that light, Constellation recently bought the Casa Noble tequila brand —Tequila is a Mexican province — and with the Mexican-American guitarist Carlos Santana as an equity partner will pitch the new product to American consumers.
"I met Santana when he did a concert at CMAC," Sands said. Constellation also has a deal with rocker Dave Matthews involving The Dreaming Tree wines.
Sands said that one of the company's focuses before it got into beer was to reduce company debt, streamline distribution channels and place a greatest emphasis on the North American market. Constellation in 2010 sold its Australian and United Kingdom operations to an Australian company.
"That worked well for us last year when we purchased the Modelo brands," Sands said. "Maybe that was serendipitous. Or maybe it was just being in the right place at the right time."
A dip in the financial road was encountered last month, when Constellation's fiscal second-quarter results missed Wall Street's estimates. A voluntary recall of some beer bottles slowed things down, and the company later announced that it is buying a controlling interest in a Mexican Anheuser-Busch Co. glass-bottle factory for $300 million.
That factory, which Sands said would become, once it is expanded, one of the largest in the world, will serve the soon-to-expand Nava, Mexico, brewery. That plant will increase its capacity by 4.2 million barrels by the end of 2017.
And then there is the company's wealth. Employees holding company shares saw their investments take off once the beer deal was sealed.
Take off as in rocket.
In June 2012, the Constellation Brands share price was $19.11. Monday, it closed at $85.06.
In terms of market capitalization and stock value, Constellation may be Rochester's richest company. Because the company has had a stock-based profit-sharing program for years, even middle-management employees have taken in thousands of dollars over the past two years.
"The good thing is that I haven't seen people take the money and run," Sands said. "We haven't lost people. In fact, we've gained." He said that the added wealth is a good thing for Rochester and vicinity, giving the local economy a boost in all the ways that local families spend.
The Sands family and Constellation have separate philanthropic operations that Sands said will continue on its path of giving in the Rochester area. Volunteering remains an important part of the community outreach, with a company-wide program called "Nourishing Neighbors" addressing the growing problems of hunger and poverty.
"I think Rochester has a great tradition in this regard, going back to George Eastman," Sands said.
"You can say Kodak missed out on the change in technology," Sands said. "But we're an alcoholic beverage company. We have to be vigilant and not get too smug. But I don't think technology is going to affect us as it did Kodak."
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