- AB InBev’s Mexican arm Grupo Modelo filed a lawsuit against Constellation Brands accusing the company of violating a brand licensing agreement when it launched Corona Hard Seltzer, according to Reuters. The lawsuit said that the agreement only allowed Constellation to use Corona in the U.S. when it came to beer. (AB InBev owns the rights to Corona in Mexico and the rest of the world.)
- Constellation told the wire service it was "very surprised" by the development and said the claims, including that its seltzer should not be classified as a beer, were without merit and an attempt to suppress a competitor. In a statement to Food Dive, Grupo Modelo said the company "never agreed" that Constellation could use its Corona name for products such as hard seltzer. "We are filing this lawsuit to protect our rights to this iconic brand," the company said.
- The lawsuit marks the latest skirmish in the beverage space where companies looking for growth are increasingly entering the same product category. Hard seltzer, in particular, is among the fastest-growing segments of the alcohol sector, with nearly every major beer company having at least one offering.
After AB InBev took full control of Grupo Modelo in 2013, AB InBev had to divest the Corona brand in the U.S. to Constellation, following a deal with regulators who were concerned its market share would have been too high. Fast-forward eight years later and the hard-seltzer market is a coveted space among large brewers who have watched sales of their iconic beers struggle as consumers drink less alcohol or turn to spirits, craft beers, ciders and other offerings.
In January, Evercore ISI reported a strong start for hard seltzer in 2021. Mark Anthony Brands' White Claw and Truly, owned by Boston Beer, collectively hold 75% of the market, according to Seeking Alpha. Bud Light Seltzer had 9.7% market share. Constellation, which launched Corona Hard Seltzer a year ago, estimated last fall it already had a 6% market share.
It's not hard to see why AB InBev is feeling a little concerned. Anheuser-Busch, part of AB InBev, has invested heavily in hard seltzer in recent years, introducing Bud Light Seltzer, Natural Light Seltzer, and cocktail-inspired hard seltzers. It recently launched Michelob Ultra Organic Seltzer for the hard seltzer consumer who is 35 to 54 years old, an age group driving half of the growth in the segment. Anheuser-Busch said this month it will spend more than $50 million this year on new seltzer brewing capabilities to meet growing demand.
With Anheuser-Busch and Constellation battling it out for third in hard seltzer, there are hundreds of millions of dollars in sales on the line. The hard seltzer category didn't even exist when the two parties signed their deal. Constellation no doubt believes hard seltzer should be considered a beer, and lists it under the beer category on its website. It told Reuters it "fully and completely" complied with the terms of the sub-license agreement and would defend its rights.
Analysts appear split on how big of an impact this could have on Constellation's business. Truist said in a report cited by Seeking Alpha that the lawsuit is likely to create an overhang for Constellation for at least the next few quarters. "We do believe the suit adds risk to the product line and could potentially temper the company's opportunity in the hard seltzer segment," according to Truist analyst Bill Chappell. Jefferies analyst Kevin Grundy, however, said it appears that facts remain on Constellation's side.
The disagreement between the two parties is not the first in the beverage space. Among the most high-profile skirmishes came when Coca-Cola announced plans to introduce its own energy drink, upsetting Monster Beverage. The soda giant owned more than 16% of Monster's shares and had a deal to distribute its drinks. Monster claimed they had a noncompete agreement, but an arbitrator later ruled Coca-Cola could move ahead with its offering.
A federal appeals court last May overturned a lower court's ruling that backed Molson Coors in an ongoing battle about corn syrup against its bitter rival Anheuser-Busch. In a short but sharply worded ruling, the Seventh Circuit Court of Appeals said Anheuser-Busch can advertise and use packaging that implies its rival's beers contain corn syrup. How the court rules in the Constellation-AB InBev case is unlikely to be the end, with the loser likely to appeal. One thing that is for certain: This won't be the last court case between bitter rivals in the alcohol sector fighting for sales in a hyper-competitive market.