Constellation Brands Corona beer & President Trump

Constellation Brands did not do well with its purchase of BRL Hardy but did extremely well with the distribution rights of Corona in the US. For those not acquainted with Corona beer, it’s hugely popular, not only in the US, but in the UK and Australia. My personal opinion is that it’s a tasteless, pale, insipid drink that is a waste of the water it’s made from.

So well has it performed for Constellation that the company has plans (maybe “had” plans) to spend US$2.5 billion ($3.3 billion) to expand an existing brewery in Nava, Mexico, just south of the border with Texas, and another US$2 billion on a new brewery in Mexicali, Mexico, by 2021.

Just days before the 8 November US election, the company said it would also buy a Mexican brewery from Corona’s owner Grupo Modelo for US$600 million.

Though the breweries are in Mexico, about 40 per cent of the ingredients originate in the US, including almost 20 per cent of the glass bottles.

Mexican beer has been good for Constellation Brands. Back in February 2012 its share price was around the $21-$23 mark. From then it increased steadily until mid October 2016, when it hit US$169. Much of this can be attributed to the success of Corona.

As Donald Trump came closer to triumph in the elections and his rhetoric on building a wall, imposing taxes and expelling illegal immigrants (many Mexican) started to become reality, the people at Constellation had to be getting nervous.

The chart below shows the share price for January 2016. On the 27th it was down to US$148.92. Will it fall further? Will Constellation inadvertently become a victim of Trump policy?

 

Dudley Brown from McLaren Vale-based Inkwell Wines has posted an interesting note on yeast, containing this:

“In a project on wild yeast genetics in wineries, the Australian Wine Research Institute recently identified an entirely different species of yeast finishing Inkwell’s ferments than in most of the wine world.  

“Not a different strain of Saccharomyces cerevisiae (as might be anticipated), but a different species believed to be 300 to 700 million years older than typical wine and bread yeasts. The researchers seem as excited and curious as we are about this. Since this different species turned up in replicates of two different Inkwell Shiraz ferments, they are pretty certain it wasn’t a sample or testing error.” Full post

I’m not of a full scientific mind but do find this story fascinating and will follow it over the coming years. What perplexed me was Dudley’s final sentence:

“So, the next person who tells you all this wine talk about terroir is guff, tell them about this. We all have a lot to learn apparently – even the experts who say this isn’t how it works!” 

I’m obviously not getting TKR’s message across. I understand the concept of terroir better than I understand the workings of yeast. I am fully supportive of terroir and gaining greater understanding of it.

What I cannot support is the unsubstantiated and ill-explained theory that better understanding of terroir will lead to greater recognition and higher prices for all Australian wine around the world.

I asked Wine Australia to explain. This week I received a long email from CEO Andreas Clark. It’s in the Australian Wine News section and worth reading. Unfortunately, it replicates much of the media release and avoids the question of how exactly terroir research will increase retail prices of all Australian wine around the planet.

Nor does it answer the question of how the board came to such a conclusion.

Until Wine Australia openly answers the above points I will continue to say the board is not doing its duty and all should reconsider the reasons they are there.

Good karma.

Tony

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