Constellation worried about dependency on single brewery
Do consumers really care where their beer is brewed? That’s the billion dollar question Constellation, the sole owner of Modelo’s brands in the U.S., will have to find an answer to in the next couple of years.
As part of their deal with AB-InBev earlier this year, they also own a brewery in northern Mexico right next to the border with the U.S., where they brew brands like Corona and Modelo Especial.
This brewery, the Nava Brewery in Piedras Negras, currently has a capacity of 10 million hl, which serves 60 percent of their needs. The rest is provided by AB-InBev in Mexico through a three-year service agreement.
Should all Modelo beers increase their sales in the U.S., Constellation will need to find extra capacity somewhere. The Piedras Negras plant can be expanded to produce 30 million hl. The capacity increase to 20 million hl alone will cost them USD 500 million to USD 600 million, which would cover 100 percent of their volume requirements, Constellation said previously
In effect, Constellation’s executives will need to make their minds up quickly where to brew 10 million hl after 2016 when their contract with AB-InBev expires.
In some way, theirs is a problem similar to Coors’. For decades, all of Coors beer came out of a single brewery in Golden, Colorado, for fear that consumers would stop buying it if it was not brewed with Rocky Mountain water. These fears proved unfounded once they formed a joint venture with SABMiller and Coors beers were produced all over the U.S. at Miller plants. In recent years, sales of Coors’ flagship brand Coors Light have risen while those of Miller Lite have declined. This seems to underline that it cannot have been the precious Rocky Mountain water that consumers hankered after when buying the beer.
Constellation now have several options: they can expand the Piedras Negras brewery, they can build a brewery elsewhere in Mexico, or they can build one (or several) in the U.S. which would be geographically closer to their markets, thus offering all kinds of benefits.
I would make the guess that deep down in their hearts Constellation’s top brass would favour the latter option. The only reason they keep silent about it for the time being is that they don’t know if that could lead to a consumer backlash. After all, is an imported beer like Corona worth its name and its price if it is brewed in the United States?
They could take heart from the fact that AB-InBev have done it too with Beck’s. Originally brewed in Bremen, Germany, for export to the U.S., it’s now produced domestically, as are former import brands like Bass Ale (England), Molson (Canada), Sapporo (Japan), and Red Stripe (Jamaica). Obviously, U.S. consumers neither know nor care.
In an interesting twist, Constellation are to open an office in San Antonio, which will house the new Beer Operations Group, whose 30 or so employees will manage and provide oversight of the brewery in Mexico. The new office will be 160 miles (260 km) away from the Mexican brewery. As a Constellation executive told U.S. media: "It’s hard to get talent that wants to move to Piedras Negras. Even if you open your checkbook, they’re still not going down there."
Incidentally (or not so incidentally), San Antonio is also the headquarters of the Gambrinus Company, which for decades used to share the importation of Modelo brands with Constellation.
