"I need a drink." That's what people often say when dealt with an unwelcome situation. Others don't say anything and go right for their drink of choice to wash away their worries. On the other end of the spectrum, many people drink for celebrations, and in social settings. Taken altogether, people simply like to drink alcohol. That's not going to change. Therefore, investing in alcohol is likely to be a profitable venture over the long haul. The three beverage companies featured in this article are innovative leaders in the industry.
Even Dave Matthews plays a role
Constellation Brands (NYSE: STZ ) has been a consistent winner over the years, and the future looks bright. For starters, the company's fiscal-year 2014 earnings per share guidance had been raised from $2.55-$2.85 to $2.60-$0.290, and then again to $2.80-$3.10. If that doesn't drum up any optimism for you, then consider that Constellation Brands recently completed its acquisition of Grupo Modelo's U.S. beer business from Anheuser-Busch InBev (NYSE: BUD ) . Constellation Brands is already the largest multi-category supplier of wine, beer, and spirits in the United States. However, the focus of this article is innovation. And having a celebrity like Dave Matthews involved in creating a wine is certainly a unique and innovative approach that creates a great marketing opportunity.
Constellation Brands' "The Dreaming Tree," launched in late 2011 has received accolades that include "Best New Wine" by MarketWatch. According to Constellation's website:
"When award-winning winemaker Steve Reeder and [musician] Dave Matthews first met, they realized they had a few things in common, like a passion for making wine at least as strong as their passion for drinking it. For The Dreaming Tree wines, they set out to create an approachable Cabernet Sauvignon, Chardonnay, and Red Blend, finding inspiration in the down-to-earth characters and unforgettable flavors that give California's wine country its rare charm."
(For a memorable experience, sit back, relax, and enjoy watching how "The Dreaming Tree" became a reality.)
Constellation Brands' focus on innovation, brand building, and inorganic growth will likely lead to continued market share gains, which is a positive for investors.
Anheuser-Busch is the largest brewer in the world, with household brands like Budweiser, Bud Light, Beck's, and Michelob to its name. In addition to aggressively cutting costs over the past several years, Anheuser-Busch also aims to grow through innovation.
The company's "Project 12" refers to limited-edition beers that are the finished products of 12 Anheuser-Busch brewmasters working on riffs off the Budweiser formula. These beers are labeled with the ZIP code where the recipe was created and which inspired it. For example, Batch 94534 from Fairfield, Calif., used North Pacific hops varieties. The biggest winner was Budweiser Black Crown (ZIP code: 91406), which is brewed with toasted caramel malt and a variety of American hops. This beer received so much positive feedback that it's now a part of the everyday lineup.
According to Anheuser-Busch, 85% of people who participated in Project 12 last year had a greater appreciation for Budweiser. That number jumped to 93% this year.
This is another example of how innovation drives success.
Johnnie Walker Houses
Diageo (NYSE: DEO ) has admitted to a lack of innovation in its beer. The good news is that the company has made up for these shortcomings in other areas. For instance, its Johnnie Walker Houses can now be found in Scotland, Shanghai, Beijing, and Seoul. With these locations, Diageo is targeting a higher-end consumer. Diageo explains its approach to the House in Shanghai:
The design of the Johnnie Walker House has been inspired by the theme 'whisky conversations,' a place to help Chinese consumers discover the status and rich heritage of Scotch whisky. Every room, display and interaction engages guests in stimulating discussions and will become host to a variety of inspirational events, lectures and master classes. The Johnnie Walker House will inspire the next generation of individuals through the voices of those who have become leaders in their field.
In its Seoul location, rare whiskies can be sampled at a rooftop bar.
Since the feedback from guests has been so positive, Diageo plans on added more locations in the future.
Diageo has also innovated on the product side with new flavors of Smirnoff vodka. Recently, it introduced Wild Honey and Cinna-Sugar Twist. This is in addition to other Smirnoff flavors like Root Beer Float, Iced Cake, Kissed Caramel, Whipped Cream, and Fluffed Marshmallow.
While past performance doesn't guarantee future success, it does indicate management effectiveness. Considering the ability of all three companies to continuously drive their share prices higher over the past several years, these management teams have proven to be effective:
Constellation Brands has been the big winner. While that might continue, Constellation doesn't pay a dividend, whereas Diageo and Anheuser-Busch yield 3% and 1.90%, respectively.
The bottom line
The combination of consumers' continuing love for alcohol and the ability of these companies to consistently innovate should lead to long-term rewards for shareholders.
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