November 1, 2016

The United States’ number three beer company, Constellation Brands, has agreed to acquire a brewery located on Obregon, Mexico from Grupo Modelo for $600 million. Constellation already owns the Corona and Modelo brand rights in the U.S. through its 2013 acquisition of Grupo Modelo’s U.S. beer business from AB InBev for $4.75 billion. However, a supply deal with Grupo Modelo that was created in the 2013 deal will be eliminated with this most recent brewery acquisition.

Located on Mexico’s west coast in the state of Sonora, the acquisition of the Obregon brewery will add four million hectoliters of production capacity for Constellation after closing. This will support and drive Constellation’s rapidly growing premium Mexican beer portfolio, while also giving the group greater ability for innovation.

“We believe this is the right strategy to provide near-term capacity and greater flexibility to support our growth and innovation plans, while allowing for the buildout of our Mexicali brewery over an extended time period,” said Rob Sands, president and chief executive officer, Constellation Brands.

The group is planning production expansion at Mexicali that will meet five million hectoliters by December 2019, with an eventual production target of 20 million hectoliters. This buildout will help serve the group’s largest beer markets in the western U.S. and to tap into demand from a growing U.S. Hispanic population.

“As originally outlined, Mexicali is scalable to 20 million hectoliters to support the future growth of our beer business, which continues to significantly outperform the U.S. beer market,” said  David Klein, executive vice president and chief financial officer, Constellation Brands.

Constellation Moves on Beer

This acquisition follows Constellation’s announcement in June of last year that it intended to invest $2 billion into its Mexican operations.

“Constellation Brands is investing because we believe that premium Mexican beer will keep growing and will keep leading this segment of the U.S. beer market for years to come,” said Robert Sands, Constellation’s chief executive officer at the time.

Constellation also announced in November of last year that is had agreed to pay $1 billion for California-based craft brewer, Ballast Point Brewing & Spirits, representing a record amount paid for a craft brewing company. In the first half of 2015, Ballast Point doubled its production and sales, reaching sales of 118,831 barrels and net revenues of $51.7 million, or $357.66 per barrel, for a first-half net profit of $5.9 million according to Townsend Ziebold, Managing Partner at First Beverage Group.

As U.S. consumer tastes shift away from low-priced and light beers, toward more flavorful and meaningful beers, the Brewers Association, which represents more than 3,000 U.S. craft brewers, estimates that the U.S. craft brewing segment will grow to account for 20 percent of the country’s $100 billion beer market by 2020 – up from the current 10 percent market share.

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Lynda Kiernan