Alcoholic Fresca ‘fits in with a lot of consumer trends’: Constellation Brands CEO

Constellation Brands CEO Bill Newlands joins Yahoo Finance Live to discuss the new creation of Fresca cocktails in partnership with Coca-Cola.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: Constellation brands dropped a better than expected earnings report this week on the back of top-selling beer brands Corona and Modelo. But the company did warn beer margins are being weighed down a touch by supply chain disruptions. Worth noting, though, Constellation did lift its full year sales outlooks for its beer and wine businesses.

Let's check in with Constellation Brands president and CEO, Bill Newlands. Bill, always nice to see you. Happy Friday. Let's put a hold on touching on earnings for a second, here. You signed a new deal with Coca-Cola, and you will bring to market an alcoholic Fresca. My question to you-- out of all the drinks in Coke's portfolio, why Fresca?

BILL NEWLANDS: Fresca, for us Brian, did a couple of things. First of all, it fits in with a lot of consumer trends. It's-- it's refreshing, it's convenient, it's low cal, obviously. And we were surprised that over 50% of Fresca drinkers already mix it with alcohol beverages.

So it seemed like a natural to be able to bring that to market in a ready-to-serve. And by the way, Fresca is the chief growth driver, the number one growth driver relative to the low cal sodas in their portfolio. So it would seem like a natural for us.

BRIAN SOZZI: And Bill, we were joking a bit about my-- my trip at a hotel earlier in the week. In the hotel bar, they had a-- really there was an explosion of ready made cocktails. They had espresso, or alcoholic espresso, in it can. I'm surprised by this explosion. But is that the next frontier for-- for beverage makers like you, these ready-to-drink, on-the-go cocktails?

BILL NEWLANDS: Ready-to-drinks have been a very hot sector. Part of it is it's that convenience factor of being able to get it directly. You know, we've done that with our High West brand, bringing out-- bringing out Manhattans and Old Fashions in a ready-to-drink format. Because a lot of consumers are looking for that convenience and speed today that-- that a ready-to-drink can provide.

JULIE HYMAN: Hey Bill. It's Julie, here. At the same time, sort of following these kinds of trends can be risky, right? As you and others in the industry found out when we saw the hard seltzer boom and then crash in a very short period of time. I shouldn't say crash.

You know, people still aren't buying these things. And so I'm just wondering, as you kind of make the calculus for getting into a new category in a more decided fashion, how you kind of weigh that, trying to stay abreast of trends while at the same time not betting the farm on stuff?

BILL NEWLANDS: Sure, Julie. One of the things that we think about is the importance of brand. We talked about Fresca. It's a well-known brand. It's got-- it's got great growth profile. I think the more that you get into some of these ready-to-serve categories, the consumer is looking for brands that they know and trust.

And then obviously, you have to put a great product in the bottle. But-- but that's-- that's something that we view as very important is-- is making sure you're using brands that are trusted by the consumer. It's a great example of why our Corona Extra business has done extremely well. In an environment where people are concerned about trust, some of those iconic brands like Corona Extra have done very well.

BRIAN SOZZI: Bill, in my recent trips to the supermarkets, I've seen, I would say, a pick back up and out of stocks on the shelves in many categories, I would venture because the Omicron variant. Are you seeing consumers hoard products again like alcohol?

BILL NEWLANDS: It's a little early to tell on that. Obviously, the holiday season is-- is a big season for consumption anyway. But we-- we're beginning to see, at least in our business, getting our inventory levels back to-- back to the spot where we'd like to see them.

So I think it's an open question. What has changed a lot is how the consumer buys. You're seeing a lot more three-tier, e-commerce, and people doing click and collect, and things of that nature, so that there's less high touch than there was back when we all just moseyed it into a store and bought what we wanted.

JULIE HYMAN: Bill, brown glass is a problematic area for you guys. Apparently now you're seeing rising prices for brown glass, which things like Modelo go into. And so there was some commentary on your conference call that you're going to have to raise prices more than you typically do, in part because of that.

Can you give us a little more color on that, a little more detail on that? By how much prices are going up and for which items?

BILL NEWLANDS: We look at pricing on a market by market, SKU by SKU, basis. And our general way of approaching it is roughly 1% to 2% growth annually. We were a little ahead of that this past calendar year. We'll probably be a shade ahead of that this coming year, because some of the cost challenges we have.

But we're very judicious and careful. We have an algorithm that we work from, and we're very careful to make sure that we're not losing the consumer as we enhance our pricing position.

BRIAN SOZZI: Bill, some food makers, Conagra first and foremost, this week has been talking a lot about absenteeism in their facilities, because of the variant. Are you seeing worker shortages in your own plants?

BILL NEWLANDS: We haven't significantly. One of the things that we're particularly proud about is the work that our team in Mexico has done. You know, more than half our population is based in Mexico. And we have in excess of 95% vaccination rate.

It's spectacular. And it's-- and it's allowed us to not only keep our people safe, but also continue to supply the product that consumers want.

BRIAN SOZZI: Interesting. Last but not least, we're getting a user question in for you here, Bill. Dry January, it's in full effect. Does that impact your business?

BILL NEWLANDS: Not-- not a whole lot. I think people are always careful about what they do at certain times of the year. But you know, one of the things you have is when people choose to do something a little less, they still do-- they still engage with those brands that are trusted.

And certainly, our December results were way ahead of what we had expected them to be, and ahead of our year to date trends. And I think that we're going to see a very strong January and February as we close out our fiscal year. So it hasn't been a big issue for us. And I think it's largely around the kind of iconic brands that we bring to the market.

BRIAN SOZZI: I can tell you this, my Friday is ending with a Corona Premiere. We'll leave it there. Constellation Brands President and CEO Bill Newlands, always good to see you. Have a good weekend.