Americans are over cheap wine.
Constellation Brands is getting dragged down by inexpensive wine. But it’s hoping more premium products will help turn things around.
The company, which makes Corona and Modelo beers, reported Wednesday that wine and spirit sales slumped in the last quarter of 2018, and said that it expects the trend to continue throughout the year. The company slashed its yearly forecast because of the poor results, spooking investors.
Shares of the company plummeted around 12% before the market opened Wednesday. They were down about 10% in the afternoon.
“We’re disappointed with the performance of our wine and spirits business as we’re facing challenges with the low end of the portfolio,” Constellation Brands (STZ) president and incoming CEO Bill Newlands told investors.
Constellation’s premium wine lines, including Kim Crawford, Meiomi and Prisoner, which cost more than $11 per bottle for the most part, are performing well, Newlands said. New products like Meiomi Rosé and SVEDKA Blue Raspberry are “exceeding our expectations,” he noted.
Premiumization has been working for Constellation. Corona Premier, Corona Familiar and Modelo Especial gained the most market share among high-end beers over Labor Day and Thanksgiving, the company said. Newlands said that Constellation’s beer business was the “highlight” of the third quarter results, and that growth was driven by Corona and Modelo products.
“Corona Premier has virtually done twice what we expected it to do heading into this fiscal year,” he said. “It’s been a phenomenal success.” Premier, which launched last year, was the first extension to Corona’s main line in 29 years.
Constellation has not been afraid to sell underperforming brands and make bold bets. Over the last several years, Constellation has grown its high-end wine and spirits portfolio. It acquired Grupo Modelo’s US beer business, including Corona and Modelo, in 2013.
The company is also branching out into other industries. Constellation made waves when it invested in in Canadian cannabis company Canopy Growth. Constellation took a small stake in the company in 2017, and increased its investment to $4 billion last year. Additional expenses from the deal contributed to the company’s decision to decrease its outlook for the year.
Analysts are bullish on the company’s cannabis prospects. Last year, Canada legalized recreational cannabis, paving the way for alcohol and CPG companies to potentially sell cannabis-infused products.
