Constellation Brands CEO on the bar recovery, strength in beer sales

Constellation Brands CEO Bill Newlands joins Yahoo Finance Live to discuss the company's growth outlook & investments in hard seltzer.

Video transcript

- The ongoing recovery in bars and restaurants globally from the worst of the pandemic continues to be a tailwind for Constellation Brands. In the most recent quarter, Constellation called out particular strength in Corona, Modelo, and higher end wines. It did, however, have to write down some hard seltzer inventory due to that market's continued slowdown.

Let's check in with Constellation Brands, president and CEO, Bill Newlands. Bill, always nice to see you here. What is the state of bars and restaurants? Because I see another good quarter out of you guys in Modelo and Corona, how do you see things out there?

BILL NEWLANDS: It depends a lot on the market, Brian. Some markets are returning to almost normalcy and others aren't. What you're seeing is 4 out of 5 meals are still being consumed at home, which is disproportionately high compared to what it was before the pandemic started. And about a third of people are not going out as often as they used to.

So again, you see variation going on within that particular market. So unfortunately, there's not a one size fits all answer to that.

- You know, I did get the sense Bill, from listening to the conference call that consumer tastes are changing, whether that's in hard seltzer, we'll talk more about that in a second. But consumers are demanding certain things. What changes are you seeing from consumers right now?

BILL NEWLANDS: You consistently see lower calorie, lower carbs, obviously, our premiere from Corona addresses that particular issue but you also see higher flavor interest. We've-- we've noted in the seltzer consumer that more and more consumers are looking for more flavor. And-- and we're bringing that to them.

Our Fresca, product under Corona has done extremely well. Our Limonada seltzer goes right after that market as well. So it's a bit of a changing dynamic where consumers are asking for more flavor.

- Hey, Bill, it's Julie here. You know, that-- that definitely stuck out to me when I was looking over your conference call, that discussion about seltzer and increasing flavor. Is that another way of saying that hard seltzer in its first iteration just didn't taste that great?

BILL NEWLANDS: It depends on how you want to answer that. Some people like something that-- that has limited flavor. It really depends. What we are finding is more and more consumers are looking for a little more richness, and a little more flavor in seltzer. And admittedly, seltzer is fairly bland or can be.

[LAUGHS]

So this gives a real opportunity to enhance the flavor characteristics, and that's exactly what we're doing, going forward.

Bill, where's-- there appears to be a shakeout happening right now in hard seltzer. How committed are you to hard seltzer?

BILL NEWLANDS: We're committed. Although, keep in mind, it's still a relatively small proportion of our overall business. Our main business growth is still going to come from our beer business, our core beer business led by Modelo. But we still think the seltzer business is going to be an important part albeit, at a smaller growth profile than what everybody had predicted.

- So let's talk about that beer business then because you guys saw a big quarter for beer at last quarter. How are you going to continue to expand market share there in the sort of traditional business? Is it is it about geographics? Is it about expanding in existing markets? How are you guys attacking that?

BILL NEWLANDS: Modelo is clearly our leader, and Modelo has a lot of tailwinds. First of all, it's very strong in the Hispanic community, which is a growing sector of the overall market. Secondly, the household penetration for Modelo is still relatively small compared to even Corona, never mind some of the other brands.

So while Modelo is up 17% in the quarter, the opportunity for the future remains immense. And then-- and then you think about brands like Pacifico, which smells a little bit like a young Modelo. It's the number seven beer in the state of California and growing, and it's expanding across the United States.

But don't forget Corona Extra. Corona Extra was the second fastest growing share gainer in the quarter for us. So again, we our beer portfolio, our core beer portfolio is just doing outstanding. And we're putting the right capital investment in the ground to make sure we can continue to meet demand.

- Bill, really the whole beverage industry continues to deal with inflation, I mean, it's transportation, it's glass bottles, it's aluminum cans. So how much have you had to raise prices because of this inflation?

BILL NEWLANDS: We have always said we're going to raise prices 1% to 2%. We're probably toward the high end of that this year, not because we raised overall pricing but we added some skus into the mix, where we raise price. So our price realization will be a little bit better. But we also work very hard to hedge ourselves against a number of things.

As you probably know, we co-own a glass plant in Mexico, and that certainly helps mitigate any challenges around glass. And we are hedged at about the 65% level on aluminum. So we work very hard to make sure, although as you acknowledge, there's-- there's a lot of inflationary pressure out there.

- And what about on the trucking front, and getting product where you need to go. You guys aren't as subject perhaps to some of the port congestion because you're just taking it across the border. But are you finding that you have enough people to-- to transport the product?

BILL NEWLANDS: Largely, yes. Although we have had some issues with port as it relates to bringing some of our wines in from overseas. But much of our-- much of our shipping is done via rail in our beer business. And therefore, it's been a little bit less of a challenge for us than perhaps some other players.

- Bill, hop water. Talk to me about it. You mentioned it on the call, fell under one of your innovation categories. What is this drink, and what else you working on in your pipeline?

BILL NEWLANDS: Hop water is one of our newest venture investments. As you know, we have a venture arm that invests in things that we think have potential for the future, and hop water is one of those. This brings some unique characteristics to the table that can help with stress and brain clarity.

We believe it's an interesting opportunity, and we decided to make a minority investment in this, and-- and give it a chance to have a run.

- And Bill, you know, I know that this is minority and it's early stage, et cetera, et cetera. There are a number of these new beverages out there. There's something called psychedelic water, they just put that right on-- right on the package. There's Kin, which-- whose CEO we talked to a couple of years ago.

They have something called either what nootropics. It's basically herbs, plants, et cetera, that are supposed to evoke a feeling. At some point, is the FDA going to come in here and-- and regulate these things? Because as of now, I don't believe they are very regulated.

BILL NEWLANDS: I think it's always important and this is part of the reason we invested in hop water, that you invest in things that-- that are legitimate, and that are very carefully run. And hop water certainly fit into that in our judgment. It's always important in the consumer always looks for something in which they can have confidence and trust.

And that's exactly why we chose to invest in hop water because you're absolutely correct. It's important to make sure that-- that you've invested in-- in the right players, who are putting the right thing in front of the consumer.

- Bill, you had me at stress-relieving drinks. Sign me up for 36 pack. Constellation Brands President and CEO Bill Newlands. Have a great weekend. Cheers.