Jury sides with Constellation over AB InBev in Corona and Modelo hard seltzer dispute

Dive Brief:

• A Manhattan federal jury ruled Constellation Brands did not violate a U.S. distribution agreement with AB InBev’s Grupo Modelo by selling hard seltzers branded with the Modelo and Corona names, according to Reuters.
• The wire service said the jury agreed with Constellation’s argument that its license to distribute beer bearing Modelo’s brand names also allowed it to sell alcoholic beverages such as Corona Hard Seltzer and Modelo Ranch Water.
• As consumer tastes in alcohol change, one of the biggest winners in recent years has been the popularity of Mexican imports, with Corona and Modelo among the leaders. 

Dive Insight:

After AB InBev took full control of Grupo Modelo in 2013, AB InBev had to divest Corona, among other Mexican brews sold in the U.S., to Constellation, following a deal with regulators who were concerned its market share would have been too high. A predecessor of Constellation started distributing Modelo’s beers in 1996.

The Corona and Modelo beer brands have surged in popularity in recent years as more consumers gravitate toward Mexican brews. Modelo Especial is the No. 2 beer brand in dollar sales in the U.S. market, according to Constellation, with more growth it can still tap into.

“All these considerable upside opportunities for Modelo Especial, share, demographics, awareness, penetration give us massive confidence in the significant growth potential that the brand still has,” Bill Newlands, Constellation’s CEO, told analysts last month.

At the same time, he touted the “strength” of Corona, noting the high single-digit depletion growth of Corona Extra, particularly as it gains more traction with consumer demographics that have been underpenetrated by the brand. 

Given their success, brand recognition and room for growth, it stands to reason why Constellation would want to bring them into other categories, and AB InBev would want to prevent them from doing just that. In an email, a Grupo Modelo spokesperson said they are “disappointed with the verdict and are evaluating all options.”

AB InBev’s Mexican arm Grupo Modelo filed the lawsuit against Constellation Brands accusing the company of violating a brand licensing agreement when it launched Corona Hard Seltzer. 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.) 

Modelo added Modelo Ranch Water to the lawsuit last year after Constellation launched the alcoholic sparkling water drink, Reuters said.

The dispute is less about hard seltzer, which remains a strong category despite its recent struggles, or boozy sparkling water, and more about the ability to take Corona and Modelo into other areas. As consumer tastes change, Constellation wants to maintain its ability to take the strong brands it controls in the U.S. beyond just beer.

In an email, a Constellation spokesperson said the company was “pleased with the outcome of this trial and [that it remains] committed to continuing to operate in accordance with the terms of our sublicense agreement.”