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Constellation Brands to spend $40 million to launch Corona hard seltzer in the spring

Constellation says it’s the biggest investment it has ever made in a single brand

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By Tonya Garcia, MarketWatch


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Constellation Brands is bullish about the prospects for Corona hard seltzer

Constellation Brands Inc. said it will make its biggest-ever single-brand investment to launch its Corona brand hard seltzer this spring — $40 million.

Corona hard seltzer will come in four flavors: tropical lime, mango, cherry and blackberry lime. Retailers have already made space on the shelves for the new brand, said William Newlands, Constellation’s chief executive officer, who talked about the launch during the Wednesday earnings call.

“Our research shows that seltzer is taking share across the board from beer, wine and spirits,” he said, according to a FactSet transcript. Most of that share is coming from the beer category.

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Constellation /zigman2/quotes/207737284/composite STZ -3.10%   brands include Modelo and Corona beers. Corona is the most popular brand among Latino beer drinkers and the total population between the ages of 21 and 54, Newlands said.

He also notes increased hard seltzer consumption from new consumers and those who already drink the beverage.

“[W]e still believe that there’s a lot of upside in the total size of the seltzer business,” Newlands said. “It was roughly 60 million cases in 2019, and we believe there could be two-to-three times the opportunity going forward, and we expect to take a significant share of that opportunity.”

Nielsen /zigman2/quotes/204674663/composite NLSN -4.49%   data shows that hard seltzer sales in the latest 52 weeks were $1.44 billion, up more than 208% from the previous year.

The hard seltzer category is a crowded one, with names like White Claw, Truly, the Boston Beer Co. Inc. /zigman2/quotes/205338227/composite SAM -2.36%   brand, and Bon & Viv.

White Claw had the highest brand awareness and loyalty as measured through repeat purchases, according to a UBS report on hard seltzer published in September 2019.

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A UBS Evidence Lab survey found that nearly half of respondents (47%) drank hard seltzer on a regular or occasional basis, while 39% had never tried hard seltzer or were “not familiar” with the category. More men than women (49% versus 43%) said they were hard seltzer consumers.

Hard seltzer, spiked seltzer or hard sparkling water is an alcoholic beverage containing carbonated water, alcohol, and often fruit flavoring. The alcohol is usually made by fermenting cane sugar; sometimes malted barley is used. The alcohol by volume is around 5% and the calorie-content is relatively low.

“Corona/Modelo could be at risk as 30% of respondents in the 18-to-34 age group claimed to drink less premium/imports as a result of drinking hard seltzer,” UBS wrote. “That said, the Corona brand equity may lend well to the hard seltzer opportunity with the most compelling cohort.”

Constellation’s Newlands is also confident that the Corona brand will propel the new hard seltzer to success.

“The strength of Corona in that whole refreshment, relaxation, beach experience is perfect for this,” he said.

“[T]he seltzer consumer has generally been increasing their overall consumption of the total alcoholic beverage category, which I think speaks well for the overall category of seltzers going forward, and the strength of the Corona brand name. Together with the investment that we’re going to make against it, we’re quite bullish on.”

Constellation stock was up 5.1% in Wednesday trading after the company reported a fiscal third-quarter profit and revenue beat and raised its outlook.

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“Constellation’s core beer business continues to post solid results and take market share in the face of declining U.S. beer consumption (quarterly shipments were +6.8%), offsetting weak wine and spirits segment volumes (-13.5%),” wrote CFRA’s Garrett Nelson.

Constellation’s wine brands include Robert Mondavi and Kim Crawford.

CFRA maintained its hold opinion on Constellation shares, and $200 price target.

Constellation stock is up 28.3% for the past year, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -3.03%  is up 26.7% for the period.

/zigman2/quotes/207737284/composite
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$ 195.29
-6.25 -3.10%
Volume: 1.37M
Feb. 25, 2020 6:30p
P/E Ratio
49.19
Dividend Yield
1.54%
Market Cap
$36.97 billion
Rev. per Employee
$842,260
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/zigman2/quotes/204674663/composite
US : U.S.: NYSE
$ 20.42
-0.96 -4.49%
Volume: 3.79M
Feb. 25, 2020 6:30p
P/E Ratio
N/A
Dividend Yield
1.18%
Market Cap
$7.27 billion
Rev. per Employee
$141,630
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/zigman2/quotes/205338227/composite
US : U.S.: NYSE
$ 395.54
-9.56 -2.36%
Volume: 253,126
Feb. 25, 2020 6:30p
P/E Ratio
43.12
Dividend Yield
N/A
Market Cap
$4.81 billion
Rev. per Employee
$645,268
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/zigman2/quotes/210599714/realtime
US : S&P US
3,128.21
-97.68 -3.03%
Volume: 3.13B
Feb. 25, 2020 4:59p
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Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

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