Patterns are changing, but people are still buying alcohol: Constellation Brands CEO

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Bill Newlands, CEO of Constellation Brands, the maker of Corona, about the state of the beer and wine industry in the COVID-19 pandemic.

Video transcript

BRIAN SOZZI: Hey, Constellation Brands is coming off a mixed quarter this week. Some good areas of growth, such as Corona Hard Seltzer, but some pressure from beer and wine sales, as bars and restaurants continue to struggle during the pandemic. Joining us now is Bill Newlands, president and CEO of Constellation Brands. Bill, always good to see you.

I think I might be popping the top on a 24 pack after today's news. But last time we talked was at the height of the pandemic. Are people still consuming alcohol at home at the same rate as they were a few months ago?

BILL NEWLANDS: They are. In fact, their buying pattern is changing a bit, because three-tier e-commerce and direct-to-consumer has gone up immensely, three to four times what it was a year ago. But people are still consuming. You're also seeing a radical shift from the on-premise to the off-premise. On-premise in our first quarter was off 75%, in the second quarter was off 50% versus a year ago. So you have quite a bit of shifting as to where consumers are consuming. But they're still consuming.

ALEXIS CHRISTOFOROUS: Bill, are you starting to see things come back a little bit from restaurants and bars? As we know, in so many places across the country, those places are still not up and running, or not up and running, of course, to 100% capacity?

BILL NEWLANDS: They are. As I said, the first quarter was awful. The second was 50% off. We're tracking now more like 25% to 30% off prior year.

I think the big question that's an open question is what happens in the northern tier of states during the time when it gets colder? A lot of states have had outdoor tents and those kinds of things. That becomes a little more challenging if it's 10 degrees out.

So we shall see. Fortunately, most of that volume has been picked up, certainly in our business, in the off-premise. And for us, we're a little bit less skewed to the on-premise anyway. So we're a little less susceptible to that question than many of our competition.

BRIAN SOZZI: Bill, somewhat under the radar, I think you're becoming the Amazon of wines. You've acquired Empathy Wines. We had Gary Vaynerchuk on a couple of months ago to discuss that deal, took a stake in Booker Vineyard, both direct-to-consumer brands. What are your plans for growing that direct-to-consumer model next year?

BILL NEWLANDS: Well, those were always important areas for us anyway. And we've really doubled or tripled down our efforts in those areas in the past year because the consumer is changing. The consumer, much more today, is buying or either direct or in three-tier e-commerce. So we have we have radically changed our approach, and Empathy was one example. It gives us a chance to speed up our understanding and our ability to do direct-to-consumer business, where we expect to be a leader.

Similarly with the Booker Vineyards business, it's a very great, high-end group of wines. I personally am a fan. And this, again, gives us a chance to build out that high end of our portfolio, emphasizing our premiumization strategy.

ALEXIS CHRISTOFOROUS: Bill, I know that Constellation Brands has an equity stake in the cannabis producer Canopy Growth. I know recently that investment has been losing money. Are you still fully committed to Canopy Growth at this point?

BILL NEWLANDS: We are. As you know, we made that as a long-term play. And since we put David Klein in place as the CEO, we've been very pleased with the work he's done to right size the business, get the right sort of product mix in place. And one of the best examples is what he's done in the beverage area.

Since March, when the cannabis beverages were introduced in Canada, they've sold 1.7 million cans of cannabis-infused beverages. To give you a perspective, in all of 2019 in the United States, there was only 4 million cans sold. So we think this is a great opportunity. And these beverages are outstanding.

BRIAN SOZZI: Bill, take us through your hard seltzer approach. I think somewhere out of the blue, you are now the number four largest hard seltzer brand with Corona Hard Seltzer in the US. Now, you did tease some potentially new SKUs coming to market next year. What are your plans with that Corona brand? But also, you have a VC investment in PRESS, in your premium hard seltzer brand. What are your plans here?

BILL NEWLANDS: We felt that Corona was the perfect brand to get into the seltzer space. It matches up entirely with what Corona's brand essence is and what people were looking for in seltzer, that being refreshment, good taste. We have no carbs. And it's played out very well. We've sold 5 and 1/2 million cases since we launched right in the start of the pandemic. And we're going to more than double our capacity next year.

What's interesting is we are getting an Hispanic consumer into the space. As you know, Corona is one of the most loved brands by Hispanic consumers. So it's a natural. But this is something new. The Hispanic consumers, by and large, had not bought into seltzers before. So we're very bullish on that.

And then, as you said, we have our investment in PRESS. There hasn't been a great deal of price stratification in seltzer so far. But we believe there are those opportunities for step-up brands, premiumization brands. And PRESS is a great example. And, as you can see by looking at the numbers, PRESS is doing extremely well.

ALEXIS CHRISTOFOROUS: Bill, I want to talk on about this investment you made. You're committing $100 million in Black and minority-owned businesses. You committed that over the summer. Tell us exactly what kind of support you're giving to those businesses and why.

BILL NEWLANDS: Well, in our venture arm, we invest in early-stage companies. You might recall two years ago, we announced a female founders investment fund, very similar, because we felt both women and minority and African-American businesses are undercapitalized and do not have the same level of capital that broader businesses do. We thought this was a way for us to get a broader perspective within our business. And it also helps us to invest in the communities we serve.

And we serve those communities very well. So we've been thrilled by the level of interest that's occurred around us since we announced it. We're evaluating businesses as we speak. Today, over half of our investment portfolio in our ventures group is in women-owned or women-run businesses. We think we can do the same thing for the African-American and other minority businesses as well.

BRIAN SOZZI: Real great to see what you're doing here. Let's leave it there for now. Bill Newlands, president and CEO of Constellation Brands, we'll talk to you soon.

BILL NEWLANDS: Thanks very much.

BRIAN SOZZI: Of course.