Constellation Brands CEO talks beer demand, cannabis reform, and sustainability

Constellation Brands CEO Bill Newlands joins Yahoo Finance Live to discuss beverage demand, non-alcoholic Corona, cannabis legalization, sustainability efforts, and Constellation's venture unit.

Video Transcript

- Constellation Brands topped earnings estimates for its most recent quarter and saw a big pop in beer sales, as the Modelo and Corona maker saw net sales grow 15% for the beer business. Joining us now to discuss is Constellation Brands CEO Bill Newlands. Bill, great to see you, as always.

Let's lock in on depletions. That fell a little bit below arguably some high estimates on the Street. Have you seen any slowdown in consumer demand?

BILL NEWLANDS: No, consumer demand has been very strong, Brian. In fact, our buy rate, which is the amount of times that a consumer goes to the store by how much they buy when they're there, is actually up, both for our beer business and our high-end wine and spirits business. So we're very optimistic. We have the benefit in this industry, in this category of being somewhat recession resistant. And we certainly have seen no slowdown at a consumer level of purchasing against our brands.

- Bill, you always give it to us straight. So you caught my attention with something on the earnings call. You mentioned you're going Corona nonalcoholic. When does this stuff come to market? And why are you going into the nonalcoholic segment? Who's drinking this?

BILL NEWLANDS: We'll be out with that next year. But one of the things we found, Brian, was that a number of consumers who drink nonalcoholic products also drink high-end beer and high-end spirits. And we felt that this could be a natural extension, because it gives people another option on a night or an event where they, frankly, just don't want to consume, but they want to enjoy a great-tasting product like we can bring from Corona.

- Bill, walk us through what it's going to take to continue to improve some of the depletion for Constellation Brands, and particularly what time lines you're tracking against for that.

BILL NEWLANDS: Well as you saw, we were-- our volumetric on the beer side was up almost 9% this quarter. And we see no suggestion of slowdown whatsoever. Modelo had its 36th consecutive quarter of double-digit growth and continues to be just on fire, as we extend the demographic beyond its core Hispanic base to more general market consumers. So we see just tremendous opportunity for growth.

When you then add in some of the new things-- we just tested in three test markets Modelo Oro, which is the gold standard of light beer, we're going to roll that nationally at the beginning of next calendar year. And that we think, again, provides a very good opportunity to bring new consumers into the fold. It was very incremental in the test markets.

- Bill, I'm going to take a little bit of a left turn here and go to the cannabis issue, because we did have some news on that yesterday, obviously, with President Biden issuing federal pardons for people who had been convicted of simple possession of marijuana. As you saw, pot stocks went crazy on this, on the perception that this is going to have bigger implications beyond just that. You guys own that stake in Canopy Growth. Can you talk me through the implications in your mind of whether this does presage a bigger push towards legalization?

- I think Brad said something right a couple of segments ago and you talked about this before, which is it's a step in the right direction. I think it remains to be seen where it goes or how quickly it goes. The important part, I think, from our perspective is that Canopy is well positioned if the legalization occurs in the United States. They have deals in place with Wana and Jetty and Acreage that will put them in a superb position when and if we see a broader legalization.

But I think we've seen steps in this direction before. So again, it's early days. But certainly it gives us some more reason for optimism.

- Bill, the spirits industry is just on fire, notably tequila. When I look at your portfolio I say, wow, they could really add something here. Are the prices for some of these brands out there, or are they just too high and that's what gives you pause?

BILL NEWLANDS: Well, we have two tequilas that we're quite pleased with, Case Noble in the luxury area and Mi Campo, which, frankly, is just on fire in the $20 price point. So we're quite pleased with that. But yes, certainly the values and the price points across tequila at this point if you were trying to acquire have gotten quite heady, shall we say. But our tequila business is up double digit. And we're quite pleased with where it's going.

The other thing is we have a couple of mezcals in our venture arm that are also doing very well. So we're keeping our eye on that subcategory as well.

- You said something in the-- something else in the earnings call, Bill, that you're about to release a new sustainability report. What's been the feedback when you talk to institutional investors? How important is this topic? And how are you thinking about that will play in just reinventing your business?

BILL NEWLANDS: It's more important to more investors every day. And we've been very careful about how we think about that topic. And we try to do it in ways that is beneficial for the communities in which we operate, as well as for the overall environmental impact.

A lot of focus on water. We've reduced our water use at our Nava facility over the last three years by 18% per unit, by 13% at our Obregon operation. We've also invested within the communities that we serve there to help the infrastructure and to make sure good-quality water is available in those communities where we operate.

So we strongly believe that this is good, not only good for the world, but good for business. And I think everyone-- we hope everyone will take a hard look at what we've done. We've worked very hard on this topic. And we think we're contributing to the world around us while we're still doing good business.

- Bill, to paraphrase Jerry Maguire and Beyonce, you had me at mezcal. And so as I think about some of the spirits that you've looked across the brand portfolio with and seeing some strength, in this environment, where some businesses are looking to just shore up extra cash, extra capital, and perhaps some acquisitions become ripe, are there certain companies that you're looking at and kicking the tires to see where there are more brands that you could add to Constellation?

BILL NEWLANDS: We always look to see where there are opportunities. And we identify the white space within our portfolio where we might be able to add some things. But we're also smart about it, I think, in terms of how we think about where we can get a good return. And again, as I alluded to a moment ago, the venture arm has been a very good way for us to put our toe in the water with some great new ideas.

And we've done it in a couple of interesting ways, our focus on female founders program as an example. We said just a few years ago that we were going to spend $100 million against women-owned and women-run businesses over the next 10 years. And we're already 76% of the way there. So we're seeing a lot of ways that get our toe in the water on some new and exciting ideas early on, maybe before it hits big, but we're there and ready to go when it takes off.

- Bill, real quick before I let you go, boxed wine sells were on fire. Is that the ultimate recession signal? When I see that, I think back to my college days. I had no money, but there I was with my boxed wine, pouring it into Solo cups and playing some beer pong or wine pong.

BILL NEWLANDS: Boxed has been a very strong sector. In fact, in the wine business, our Woodbridge boxed wine was the number two growing SKU in that particular sector. So we're pretty pleased about that. And it's going well for us. But it is.

And it's also a convenience thing. You see more and more consumers looking for convenience. And boxed can go places that glass can't, as an example. So you often see that in tailgating or beaches and things of that nature. So it covers a lot of angles, for sure.

- And PS, boxed wine gets a bad rep. I remember years ago my sister brought back boxed wine from Sicily. It was fantastic. So there you go, Bill.