Corona Extra’s big year

After more than a decade of growth, Corona Extra skidded abruptly to a halt in 2018.

The No. 1 imported brand to the U.S., which has amassed a nearly 5 share in the industry with a consistent promise of taking consumers to a beach, swung to a decline in sales last year after several years of bumpy growth, setting it up for a seminal 2019.

Buoyed by the launch of two line extensions — Corona Premier, a lower-calorie light lager; and Corona Familiar, a niche brand for which Constellation significantly expanded distribution — the Corona family as a whole grew 7.5 percent last year, outpacing the beer industry as a whole, which dipped into the red.

Constellation Brands, Corona’s importer, plans to further expand the franchise this year with the national roll out of Corona Refrescas, a line of “premium spiked refreshers” targeted at women.

While company executives say they’re happy with the performance of the franchise, the sagging performance of Corona Extra raises questions about the future health of the brand as a whole.

During the company’s most-recent earnings call, new Constellation CEO Bill Newlands characterized the growth of Corona’s line extensions as a “good news, bad news situation.”

“Premier has done so well,” he said during the call. “And even though the incrementality is over 70 percent … the better it does, the more it has some impact on our other franchises.” Still, he said, the rate the two extensions steal sales from Corona Extra and Light is “exactly as we expected.”

A Constellation Brands spokeswoman did not respond to a request for comment.

Top growth brands

Both Corona Premier and Corona Familiar earned spots on Nielsen’s top 10 growth brands list for much of the year; Premier has been nothing short of a smash hit, with sales edging near 5 million cases in Nielsen’s scanned channels. Corona Familiar, which is targeted at male Latino drinkers, exploded for 138.9 percent growth, selling more than 6 million cases for 2018, per Nielsen. Another Constellation Brands Mexican import, Modelo, also posted a big year, with sales up 12.1 percent.

But the massive growth of Familiar and Premier, as well as Modelo, masked a troubling trend for the flagship and by far the franchise’s best-seller, Corona Extra, which dipped 4 percent for the year and shed 0.1 percentage points of share. Corona Light, the second-largest brand in the franchise, also floundered in 2018, dipping 11.5 percent in sales volume and shedding 0.1 percentage points of share.

It’s a trend Kimberly Clements, managing partner of beer consulting firm Pints LLC, expects will continue.

“I think they’ve positioned themselves very carefully, and they’re saying ‘why not capitalize on Corona’s success as a recognizable brand by extending with Premier and Refrescas,’” Clements says. On the other hand, “with Corona (Extra), I see the flagship continuing to decline as the cannibalization of that brand continues.”

In the short term, Corona Extra’s decline “doesn’t matter,” Clements says. “Over time, it could be a concern for Constellation, but right now, they’re coming from a position of strength, and I think they’ve positioned themselves very well.”

The trick is ensuring the cannibalization that is coming from within Constellation’s own portfolio is by a brand that's built to succeed with consumers.

Investors skittish about flagship's health

Either way, some analysts and investors appear unsettled about the performance of the flagship, as well as the company’s non-beer holdings in wine, spirits and marijuana.

Following Constellation’s most-recent earnings results, Beer Marketer’s Insights (subscription required) raised the question of whether the company’s story is “fraying a little around the edges.” The publication said the basic takeaway from analysts was: “More uncertainty about Constellation’s best-in-class results combined with (lots of) non-beer issues to make investors more skittish about (its) stock.”

Beer Marketer's Insights also highlighted Corona Extra and Corona Light’s declines, which declined as the year wore on, and raised the question of whether another Corona line extension slated for broader roll-out in 2019, Corona Refrescas, “will complicate (the) portfolio further and cannibalize” more core sales.

Robert Ottenstein, an analyst with Evercore ISI, put a fine point on the question on many investors’ minds: “Why shouldn’t we be concerned about trends for Corona Extra, which represents (about) 40 percent of the firm’s beer volumes?” he asked in a Jan. 14 note to clients. Ottenstein, which has an “outperform” rating on Constellation’s stock, also questioned whether rising sales of Premier and Familiar are starting to cannibalize Extra at a rate higher than the company would like and questioned whether it was “throwing in the towel” on Corona Light.

Ottenstein later reported he came back “incrementally more positive” about Constellation’s prospects following a Jan. 16 investor event the company held in Chicago and “with the sense that the firm continues to operate from a position of increasing strength."

Pablo Zuanic, an analyst with Susquehanna International Group, also expressed deep reservations about the effect Corona Premier and Familiar are having on the flagship.

"We are starting to worry about core brand dilution, and the cannibalization of Corona Familiar and Premier to the base Corona Extra brand (and Corona Light) and to the entire Modelo Especial platform," he wrote in a Jan. 8 note to clients.

While he noted that the two extensions should be considered successful "given their relevance to the overall portfolio and contribution to growth ... the question remains on how much the core brands will be diluted as a result."

Zuanic compared Corona's line extensions to Bud Light's, which "have had little impact to the core Bud Light brand, but have not been supportive to growth as a whole," and he aired concerns about Constellation's "increased reliance on extensions and hefty dilution of the core base."

While Constellation will continue to invest behind Corona Premier and Corona Familiar in 2019, it also will increase its marketing support for Corona Extra and Corona Light, including new summer packaging.

Whether that will be enough to return Corona Extra to growth is an open question. What is certain is that it has been one of the strongest brands in beer for years, and its performance in 2019 will go a long way in shaping what the franchise looks like in the future.