Constellation Brands’ expansion plans receives backing from Mexican government

MEXICO – New York-based alcohol beverage giant, Constellation Brands has confirmed receiving backing from the Mexican government for its existing brewery and the new expansion plans in Mexico.

The company, which sells Corona and Modelo beer in the US, responding to concerns that it could be barred from using water in the country’s northern arid region said that President and the Mexican government “have expressed full support for its existing brewery operating plans in Mexico”.

The plans, according to the company, include the construction of a new plant in Veracruz state, along the Gulf coast. 

President Andres Manuel Lopez Obrador had stated that Mexico, the world’s largest beer exporter, should stop making beer in the country’s north amid severe water shortages.

He noted: “This is not to say we won’t produce any more beer, it’s to say that we won’t produce beer in the north — that’s over.”

If they want to keep producing beer, increasing production, then all the support is for the south or southeast.”

Constellation has however made a statement that it is having “ongoing discussions” about the construction of a plant in Veracruz with the relevant stakeholders.

The company added that it is working together to start construction of its new brewery in Veracruz in an area with ample water supply and a capable workforce.

These plans for a Veracruz plant follow the rejection of a brewery in Mexicali, in the northern state of Baja California.

The abrupt suspension of the project resulted in a US$666 million impairment charge, recorded in the first quarter of fiscal 2022 by the largest beer import company in the US, measured by sales, and has the third-largest market share of all major beer suppliers in the country.

The company’s investments in Mexico are key to its growth strategy in the beverage sector which is projected to continue to witness growth.

Analysts say value growth for alcoholic drinks in the country is mostly driven by premiumization as well as by growth in the out-of-home segment.

Statista market research firm projects the revenue in the alcoholic drinks market in Mexico amounted to US$25.22bn in 2022 to grow annually at a CAGR of 9.75% in the forecast period of 2022-2025.

In addition to the Veracruz plant, Constellation Brands seeks to expand and optimize existing production sites in Nava and Ciudad Obregon, both of which are located in Mexico’s north, according to a June regulatory filing.

The company estimates that it will spend approximately US$1.2 billion in its current fiscal year to expand Mexico operations.

Constellation, which is rated overweight by JPMorgan, is experiencing strong demand for its products that are estimated to be currently produced at 75% to 80% from the Nava site.

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