- Constellation Brands will acquire Empathy Wines, a direct-to-consumer wine producer co-founded by entrepreneur Gary Vaynerchuk, the alcohol company said in a statement. The purchase price was not disclosed.
- As part of the agreement, Constellation will work with Empathy Wines to scale the brand’s growth, as well as tap into its consumer insights and analytics, brand building expertise and digital technology. The insights will be used to build DTC and digital capabilities that Constellation plans to extend across its wine and spirits brands.
- Vaynerchuk established Empathy Wines in 2019 to make wines sourced from grapes grown by sustainable growers at a $20 per bottle price point. The brand has grown rapidly since its initial product launch, selling approximately 15,000 cases and acquiring more than 2,000 subscription customers to date.
During the last year, much of the focus on Constellation has been on brands it has been divesting. Earlier this week, the marketer of Corona announced it would sell its Paul Masson Grande Amber Brandy brand to the Sazerac Company for about $255 million. It also divested its Mega Purple, Mega Red, MegaNatural and Canandaigua Concentrate brands to Vie-Del Company this week for an undisclosed amount. And in a pair of deals, the company has agreed to divest its Nobilo Wine brand as well as a portion of its wine and spirits portfolio principally priced at $11 retail and below, for about $1.1 billion to E. & J. Gallo Winery.
But Constellation has not been hesitant to reposition itself into faster-growing areas, even if the investments themselves may be risky. Its boldest bet was doling out more than $4 billion to invest in Canopy Growth, the Canadian cannabis producer, starting in 2017.
The decision to purchase Empathy Wines brings Constellation into the faster-growing area of direct-to-consumer sales, which have gotten a boost in recent months as the coronavirus pandemic has prompted more homebound shoppers to get alcohol delivered. It also adds another wine brand to Constellation's portfolio, which includes Robert Mondavi and Ruffino. Prior to the pandemic, e-commerce growth in alcohol had failed to keep pace with other categories, including clothing or electronics.
Reid Greenberg, executive vice president of digital and e-commerce at Kantar, told Food Dive earlier this year that across all e-commerce channels, including alcohol, about 30% of new customers who try the service for the first time during the coronavirus will remain long-term users. In announcing the deal, Constellation recognizes the boost online alcohol purchases, which had been growing before the pandemic, have received under the current environment. It now wants to tap into Empathy Wines' expertise throughout the rest of its business.
Drizly CEO Cory Rellas told The Wall Street Journal in April he expects the pandemic to accelerate online sales to be as much as 8% of all alcohol bought from retailers, up from around 2% today. Robert Hanson, president of wine and spirits for Constellation, told CNBC that DTC was "growing at more than two times the rate of the general market in wine consumption pre-Covid,” but it has accelerated since then.
“We are committed to transforming our wine and spirits business into a high-performing brand portfolio that consistently delivers growth and shareholder value,” Bill Newlands, president and CEO of Constellation Brands said in a statement. “Key to our strategy is being consumer obsessed — building a direct relationship with our consumers, meeting them where they are shopping and engaging today, and pushing beyond to meet their evolving preferences well into the future."
The acquisition, he said, will expedite Constellation's "ability to more deeply connect with consumers and build the strongest direct-to-consumer and digital commerce business in the category.”
Seeking Alpha, citing Nielsen data, said Tuesday total beverage alcohol sales across all platforms during the past 16 weeks are up 26% from the prior year, led by spirits (+34.9%) and wine (+29.0%).
While Empathy Wines is relatively new, it has posted rapid growth since it was founded last year. Constellation is betting that pace will continue and that the upstart's insight can be applied to accelerate its e-commerce efforts. As part of the deal, Empathy Wines employees, including its co-founders, will join Constellation Brands. Vaynerchuk will continue to assist Constellation Brands and Empathy Wines as a consultant. This could be key as Constellation will be able to tap into the expertise that has made Empathy Wines successful in a short period of time.
“I’m not in the mood to start businesses to sell, especially this quickly. [But] you couldn’t even really comprehend the delta difference between their (Constellation’s) capabilities and what we did at Empathy," Vaynerchuk told CNBC. "That was too attractive to pass up."