Constellation Brands Pricing Spineometer: 5 of 5 Vertebrae
Constellation Brands, a beverage alcohol company, had a positive Q2 2024. Revenue rose 6.6% to $3.1 billion and earnings before interest and taxes rose 20% to $979 million over the same period last year on a comparable basis.
A review of Constellation Brands’ October 5th earnings call and financial report provided insight regarding the importance of pricing on performance.
Bill Newlands, CEO, discussed a variety of topics. Constellation brands has an ESG effort underway, including an effort to manage water resources sustainably. Sales of Modelo and other beer brands have been in an extraordinary growth streak recently. Across categories, a growth in premium brands has had an outsized importance on growing revenue and profitability. And, as a solid CEO, Bill Newlands is focused on prudent capital allocation.
On the other hand, Garth Hankinson, CFO, spoke at length regarding the importance of pricing on Constellation Brand’s performance and reported it with a Price Volume Mix analysis, separating beer from wine and spirits. (See Normative Decomposition of the Profit Bridge into the Impact of Changes in Marketing Variables for an explanation and proper set of accounting equations.)
“Our beer business increased net sales by 12%, representing an uplift of $253 million. This was driven primarily by volume growth of 8.7% as demand for our beer brands accelerated through the first half of the fiscal year. This growth also benefited from favorable pricing which contributed $59 million of the overall net sales increase. As a reminder, we continue to expect pricing to account for 1% to 2% of our net sales increase this fiscal year from the combination of the wraparound impact from the significant pricing actions taken in Q3 of fiscal ’23 and targeted pricing actions we are taking in fiscal ’24.” Garth Hankinson, CFO.
“We continue to expect the wine and spirits business to significantly improve its net sales growth trajectory for the remainder of the fiscal year through a combination of increased contributions from our higher-end portfolio as well as incremental pricing actions.” Garth Hankinson, CFO.
In both segments, price and mix impacts contributed positively to revenue and profits.
- Based on revenue, industry standard metrics would suggest Constellation Brands to have 20 to 100 pricing professionals on staff.
- Due to large differences regional tastes and government policy, Constellation Brands should have pricing professionals located in multiple markets across many locales.
- Due to variations in channel structures, Constellation Brands should have different approaches to different channel structures and for different retailers.
- With the importance of sell through, we would expect Constellation Brands to have a robust rebating program on top of their discount management efforts.
- As a fast-moving consumer brand, Constellation Brands would need pricing professionals focused on promotional strategy and promotions management.
- Given the breadth of brands across categories and between segments within categories, we would expect Constellation Brands to have individuals focused on product pricing working with product and category managers.
- Along with elasticity studies, we would expect Constellation Brands to conduct conjoint analysis at times related to new brand launches and offering expansions, such as Chelada.
- And, some pricing strategist needs to keep in touch with the impact of macroeconomic events and industry changes, such as inflation, recession, and emerging alcohol delivery services, to ensure Constellation Brands is able to manage the industry cycles.
Research into the investment by Constellation Brands in pricing yielded encouraging results. The number of pricing professionals identified was well within expectations. Their titles ranged from analyst, coordinators, and managers to directors. A VP of pricing could not be identified but should exist. The focus of pricing professionals varied between insights (market research) and operations (discount and rebate management) with a few focused on revenue management overall.
Given the importance and capability of pricing at Constellation Brands as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of November 2023.
Constellation Brands Pricing Spineometer: 5 out of 5 Vertebrae.
STZ (Constellation Brands, Inc.) fell from 249 the day prior to their earnings call to 228 one week later. FY 2023 revenue of $10 billion with a 28% operating margin and P/E ratio near 30.
For FY 2023, a 1% improvement in price would yield 3.6% improvement in operating profits holding all else constant at Constellation Brands.