Constellation Brands, known for beers like Modelo and Corona, is quickly reorganizing its portfolio to offer on-trend spirits. Despite being one of the few big beer companies to prosper amid slipping beer sales, spirits still seem to be the growth path for the company.
Constellation, one of the major beverage companies investing in emerging brands, appears to be tentatively dipping its toes into the market by taking minority stakes rather than outright acquisitions. Durham Distillery joins a list of recent minority investments from the company, including a stake in El Silencio, a California-based craft mezcal maker, and Black Button Distilling, a New York-based maker of craft gin, bourbon and whiskey.
This investment adds a craft gin to its portfolio as well as more RTD cocktails, a segment that has experienced triple-digit growth this year. Premium spirits could be a good area for Constellation to invest in since sales volumes were up 2.2% to 231 million cases last year, which is 5 million cases more than 2017, according to the Distilled Spirits Council, but it is not the only growth category that Constellation is looking at. In 2018, the company invested $3.9 billion in Canopy Growth, the world’s largest publicly traded cannabis company. This disruptive gamble shocked the industry and then quickly led to other brewers like Molson Coors investing in the marijuana industry.
The stake in Durham Distillery is also the next step in the company’s commitment to invest $100 million into female-founded alcoholic beverage companies by 2028. To kick it off last year, Constellation invested in Austin Cocktails, which makes bottled craft cocktails, and Vivify Beverages, a hard soda maker. The initiative could be appealing to many segments of the population as consumers look to support brands that have more diverse leadership.
Durham Distillery also stands to benefit from the stake. The alcohol giant will give the distillery access to its supply chain, distributors and brand-building resources. However, the distiller faces a potential pitfall in consumer perception.
As large alcohol conglomerates look to grow and attract younger consumers, they are taking a stake of successful smaller craft distilleries and breweries, which can lead to acquisitions down the line. However, after an investment or acquisition, consumers can sometimes turn away from the brand. This happened when AB InBev acquired Karbach Brewing Co. and consumers felt the craft brewer sold out and began retracting their support. That could be one reason why Constellation is instead taking only minority stakes in multiple companies. Constellation can help the grow while still providing the original founders’ autonomy.
So far, it appears Constellation’s investments may be slowly paying off. In its last earnings report, net sales were up 2% from this time last year. By testing the popularity and longevity of current market trends, this company could continue to see growth while the rest of the beer industry struggles.
By Jessi Devenyns
Source: Food Dive
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