Constellation looks to sell US wine brands
- Constellation Brands is reportedly planning to sell some of its U.S.-based wine brands in a deal that could be valued at more than $3 billion, multiple sources told Reuters Monday. The company hired investment bank Goldman Sachs Group to explore the opportunity for a sale, according to Reuters.
- Wine sales have decreased for the company best known for its Corona and Modelo Especial beers. Two years ago, wine made up 44.7% of Constellation's net sales. But in the 12 months to the end of February, wine accounted for only 38.6% of Constellation’s net sales of $7.6 billion, Reuters reported.
- Some of the wine brands that Constellation is looking to sell are Clos du Bois, Mark West, Arbor Mist and Cooks. Sources told Reuters that these wine brands generate annual earnings of more than $260 million.
Constellation's plan to shed some of its wine brands highlights its shift away from its original portfolio and toward beer and cannabis products. This potential sale of its wine portfolio also emphasizes the company’s goals of targeting millennials and getting ahead of the competition when it comes to the changing consumer demand for alcoholic beverages.
Since the company was founded as a small wine producer about 73 years ago, there has been a lot of change. Constellation has grown to be worth more than $40 billion and is now the third largest brewer in the U.S. This latest move from the company — which controls 90% of the premium beer market — isn't surprising considering its recent performance in wine. Although Constellation has seen profits as beer sales have continued to grow, wine and spirits sales have dropped considerably. Trimming these brands from its portfolio could give them more room to expand in other areas.
A Constellation spokesman told Reuters in a statement that the company is "considering a variety of potential actions to optimize value at the low end of our portfolio, so we can direct our growth efforts and investment dollars more fully towards our focus brands."
The alcohol space is constantly shifting to meet consumer demands and Constellation wants to stay on top of them. Studies have shown that millennials don't have strong loyalty to alcohol brands and seek out new drinks and innovations. That has caused traditional beverages to be in tight competition with craft spirits, cannabis-infused beverages and alcohol-free drinks. Constellation has been one of the major alcohol companies investing in emerging brands.
This shift away from wine comes as the alcoholic beverage company takes a chance on the marijuana business with its $3.9 billion investment in Canopy Growth in August. The deal will allow Constellation to develop cannabis-infused beverages.
Although Constellation is already looking to experiment and spur growth with the Canopy Growth investment, this news of a wine sale could mean that there is more innovation to come. With an influx of $3 billion in cash, Constellation could look to invest in more new, experimental categories.
This isn't the first time the beer giant has considered selling some of its wine brands. Constellation sold its Canadian wine business in 2016 to Ontario Teachers Pension Plan for about $775 million, so its long-term strategy could be to trim all of its wine brands completely.
This announcement also comes less than a week after the news that CEO Rob Sands plans to step down. Bill Newlands will become the company's chief executive officer on March 1, 2019. Constellation picked an insider for the next CEO who will likely follow the same line of thinking when it comes to big portfolio moves, like this one, that follow consumer trends.
Both Sands and Newlands told The Wall Street Journal last week that Constellation will continue to make these forward-thinking decisions. With a new CEO coming in the next year and the potential for a big sale of its wine brands, Constellation could be setting itself up for more growth in beer and cannabis products in the near future.
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