Constellation Brands acquired a majority stake in Nelson's Green Brier Distillery through its Constellation Ventures arm, the company announced. The move will make the Tennessee-based craft whiskey distiller the first venture capital investment to be fully integrated into the international producer and marketer of beer, wine and spirits. Constellation made an initial minority investment in Nelson's in 2016.
Nelson’s Green Brier is a family-run business that makes Belle Meade Bourbon. It will introduce a Tennessee whiskey later this year, Constellation said. Nelson’s will continue operating with its existing management team and employees running day-to-day operations, Constellation said.
"Whiskey is a red-hot category, and Tennessee whiskey fills a white space for us," Constellation President and CEO Bill Newlands said in a release. "Once integrated into our wine and spirits division and benefiting from our market reach, distributor partnerships and consumer insights, we see Nelson’s Green Brier scaling even further in the next few years."
It's not surprising Constellation would want to increase its stake in Nelson's. The two companies have been collaborating on craft spirits and whiskey trends since the larger firm bought a minority interest in the smaller one more than three years ago. And, as CEO Bill Newlands indicated in the release, Constellation has been wanting to broaden its higher-end spirits portfolio. This move gets it closer to that goal.
Constellation has been making other changes to try to focus on that market. Last month, it announced the sale of 30 lower-end wine and spirits brands and six U.S. winemaking facilities to E & J Gallo Winery for $1.7 billion, suggesting a pivot to more premium beverages. The divestment boosted Constellation's latest earnings report, which was also helped by sales of beer brands Corona and Modelo.
Constellation also recently bought a minority interest in El Silencio, a California-based craft mezcal maker, for similar reasons as the Nelson's purchase. Newlands called mezcal "one of the hottest trends in spirits right now," so the company is clearly interested in adding more on-trend and popular beverages to its lineup.
In February, Constellation announced it had acquired through its VC arm a minority stake in Black Button Distilling, a New York-based maker of craft gin, bourbon and whiskey. The company also said its VC arm will invest $100 million in alcoholic beverage companies led by women. It also plowed new ground last year by putting $3.9 billion in Canada-based Canopy Growth — the world's largest cannabis company — boosting its stake to 38%.
Whiskey and other spirits are growing in popularity because of new consumers, shifting millennial tastes and liquor ads on television. Last year was the ninth straight year of record sales and volumes, according to the Distilled Spirits Council. It reported that supplier sales rose more than 5.1% to a total of $27.5 billion and volumes were up 2.2% to 231 million cases, which is 5 million cases more than 2017. Much of that was fueled by high-end blended scotch and whiskey, tequila and vodka.
For big food and beverage companies with VC arms, buying a minority stake in a promising startup or smaller firm can give the larger one time to assess the business and observe whether it's worth taking a bigger share — or buying the smaller firm outright. There's a less of a risk that way, plus the smaller company can beef up production and distribution with the help of operational advice, market insights and expertise from the larger company's seasoned executives.
With much to gain and little to lose, it's likely Constellation and its VC arm will continue to take this path with minority investments — and potentially majority ones — in order to take advantage of the quality and popularity of craft spirits and any competitive advantages they can bring.