Dive Brief:
- Glass packager Owens-Illinois is extending its joint venture with Constellation Brands in Mexico, after seeing its third-quarter sales grow by almost 5%, according to Food Bev Media. The new agreement adds 10 years to the previous commitment, continuing the 50-50 joint venture until 2034.
- This expanded partnership will allow for a fifth glass furnace to be built at a production plant in Nava, located in northeastern Mexico. The facility is used to supply beer bottles to Constellation’s adjacent brewery.
- According to Owens-Illinois, that move will make Nava the largest glass container factory in the world. The capacity expansion, estimated to cost approximately $140 million, will be financed by equal contributions from both partners.
Dive Insight:
Drinkers in the U.S. are turning away from industry giants such as AB InBev and MolsonCoors, in favor of craft beer, wine, spirits, and Mexican beer imports. Constellation’s portfolio of Mexican beers, including Corona, Modelo Especial and Pacifico, continue to grow margins and market share. Its most recent quarter was the ninth straight one where Constellation brands beat Wall Street’s profit estimates.
At a recent industry conference, Constellation executives noted around 36 million Hispanics of legal drinking age currently reside in the U.S., and that number is expected to grow to 46 million by 2025.
Constellation also has been very successful marketing its Corona and Modelo brands to non-Hispanic consumers in the U.S. with festive, sun-soaked advertising, including the company’s “120 Days of Summer” campaign. According to Ad Age, Modelo Especial recently overtook Bud Light as the top-selling beer in the very important Los Angeles market.
The beer maker’s expanded agreement with glass packager Owens-Illinois signifies they expect sales to continue to remain strong, and grow enough to warrant investing in an additional glass furnace.
As consumers increasingly reach for a Modelo over a Bud Light, Owens-Illinois has helped Constellation meet the higher demand. In return, Owens-Illinois' third-quarter sales grew by almost 5%, a solid gain for the company. The 50-50 joint partnership between the companies has benefited both sides, so it’s understandable they were both eager to lock down the deal for an additional decade.
Even though Constellation Brands is based in Victor, New York, it’s important that it’s Mexican beer is produced and bottled in Mexico. Consumers are reading labels now more than ever, and would likely not respond favorably if they saw Pacifico beer was made in Ohio. Brand integrity requires a Mexican bottling company, and Owens-Illinois helps in this regard. The fact that many of its brands are imported to the U.S. also gives Constellation more leeway to charge a higher price, which in turn, could help sales.