Constellation’s Plans for the Low End: “Sell it, Discontinue it or Milk it”
Constellation Brands’ wine and spirits business has been reporting lackluster results recently. As such, one of the company’s top priorities this year is to optimize its wine and spirits business, which includes rationalizing the low-end of the portfolio, said incoming ceo Bill Newlands during yesterday’s CAGNY presentation.
You may recall, Constellation was reportedly looking into selling some of its wine brands last October, including Clos du Bois, Mark West, Arbor Mist and Cooks [see WSD 10-22-2018]. Now Constellation brass has confirmed a sale is imminent and it may be happening sooner rather than later.
Constellation’s focus is in the $11+ price segment. Currently, about 60% of the company’s wine and spirits portfolio falls under that segment, meaning 40% of the portfolio could be up for grabs.
“Everything that’s not a power brand, you can assume that we’re either going to sell it, discontinue it, or milk it very quickly over the next year or so,” said cfo David Klein.
Note, what Constellation has dubbed ‘power brands’ are “brands that hold strong positions in the areas in which they play,” said Bill, which includes the likes of Kim Crawford, Meiomi, Mondavi brand family, Svedka, High West, The Prisoner and Casa Noble.
They’re looking to sell the lower end, underperforming brands at about 7x EBITDA, “which is consistent with transactions for flat to declining brands,” according to David.
“When we are complete with that, we will have a business that will grow mid single digits with margins in the 30%+ range,” added Bill.
“We have a portfolio of powerful brands and we’re poised to continue the strong innovation agenda that we have exhibited over the last several years,” said Bill. “As we get ourselves buttoned up in the high end, you will see a strong business…and one that we are very excited about.”
We’ll be keeping our ears to the ground.
REPORT: CANNABIS USERS MORE LIKELY TO BE BEER AND SPIRITS DRINKERS
In the short term, cannabis hasn’t really impacted alcohol sales. In fact, in states where cannabis is legal, alcohol consumption still remains higher than cannabis consumption, according to a joint report by IWSR and BDS Analytics. However, the report suggests it poses a risk to bev alc in the long run.
“Though not yet mainstream, cannabis adoption is certainly growing in states where it’s legal and does pose a risk to the beverage alcohol industry in the future,” says IWSR US president Brandy Rand. “It’s important that alcohol brands pay attention to their consumers, recognizing some occasions may result in a decrease in alcohol consumption in place of, or alongside, legal cannabis.”
37% of alcohol drinkers in legal cannabis states also consume cannabis. The report refers to these consumers as “dualists.” 45% of dualists are millennials. On average, dualists are more likely to drink craft beer and spirits.
Moreover, 44% of dualists say that marijuana should be sold in the same stores as alcohol.
But there’s still a difference in consumption occasions. “Our research shows that up to 40% of adults 21 and over consume cannabis in states where it’s legal. Cannabis presents substantial opportunities across consumer industries, including new occasions that alcohol cannot and will not play,” says vp BDS Analytics Jessica Lukas. Those occasions are typically associated with creativity, motivation, and health and wellness.
APPEALS COURT UPHOLDS CT PRICING LAWS
Yesterday, the Second Circuit ruled against Total Wine & More in its lawsuit challenging Connecticut’s minimum pricing laws, upholding a lower court’s decision.
QUICK RECAP. Total Wine filed a federal lawsuit against Connecticut in 2016, alleging the state’s practice of setting minimum prices for wine and spirits is “price fixing” and has created “artificially high price levels” [see WSD 08-24-2016]. Total Wine targeted three provisions it said violated the Sherman Antitrust Act: price discrimination prohibition, minimum retail resale price and the post and hold provisions.
In June 2017, US District Judge Janet Hall dismissed the case “because these provisions constitute hybrid restraints that receive rule of reason scrutiny and therefore cannot be preempted,” per court documents [see WSD 06-07-2017]. Shortly after, Total Wine filed an appeal.
But the appeals court has agreed with the district court. “We hold that the challenged provisions of Connecticut law governing liquor pricing are not preempted by the Sherman Act,” per the ruling.
VA GOV. SIGNS STATEWIDE ALCOHOL SALES BILL
Earlier this week, Virginia Gov. Ralph Northam signed SB 1110 into law, making the entire state “wet” and requiring the 31 dry or partially dry counties to opt out of alcohol sales. The bill will take effect July 1, 2020.
“This legislation will help modernize alcohol sales in the Commonwealth,” said Distilled Spirits Council svp for state government relations David Wojnar in a release. “It provides adult consumers with new convenience, while step by step leveling the commercial playing field with beer and wine.”
FREE FLOW WINES EXPANDS OPERATIONS AT NEW SONOMA FACILITY. Free Flow Wines has relocated its headquarters from Napa to an expanded facility in Sonoma to meet increasing demand, per a release. The new 58,000-square-foot facility houses a new kegging line, increased canning services and temperature-controlled bulk wine storage. The company’s increased capacity will be able to accommodate filling up to 1.1 million kegs, 5 million cases of cans per year and store up 375,000 gallons of bulk wine. Moreover, they plan to add a high-speed canning line and increased office space later this year.
TERRALTA TEQUILA APPOINTS CHOPIN IMPORTS AS EXCLUSIVE US DISTRIBUTOR. Chopin Imports has been appointed the exclusive US distributor of Terralta tequila, effective immediately. The portfolio, which includes Blanco, 110 Proof Blanco, Reposado, Anejo and Extra Anejo, will be available nationwide starting May 1 and will retail between $49 and $229.
DIAGEO RELEASES LIMITED EDITION BUCHANAN’S. Buchanan’s DeLuxe Blended Scotch Whisky x J Balvin Limited Edition Design features a custom design by Latin music artist J Balvin, who teamed up with the brand as part of its Es Nuestro Momento campaign. The design celebrates the impact of Latin culture on art, music, fashion and beyond, per a release. The 12 year old blend will be available while supplies last in CA, TX, FL, NJ, NY, IL, AZ and CO at a suggested retail price of $31 a 750 ml.
BEAM SUNTORY’S COURVOISIER COGNAC INTRODUCES SHERRY CASK FINISH. Courvoisier Sherry Cask Finish was specifically crafted for the US market, per a release. The limited edition expression begins with an initial blend aged two to eight years, then matured in French limousin oak casks before undergoing a second maturation in sherry casks for at least four months and bottled at 80 proof. It is now available nationwide for approximately $40 a 750 ml.
DULCE VIDA TEQUILA LAUNCHES SPARKLING CANNED COCKTAIL LINE. Milestone Brands’ Dulce Vida Tequila is getting into the canned cocktail game, with Dulce Vida’s Sparkling Canned Cocktails. The line includes Paloma, Margarita and Watermelon Margarita flavors. The canned cocktails will be available in four-packs of 200ml cans and retail between $13 and $15 in TX, CA, FL, GA, NY and CO.
EL SILENCIO MEZCAL INKS DEAL TO SPONSOR LA GALAXY. El Silencio mezcal has signed a multi-year partnership agreement with the MLS team LA Galaxy and the team’s home stadium, Dignity Health Sports Park, making it the first mezcal brand to sponsor a professional sports team, per a release. As the exclusive mezcal partner, El Silencio will receive in-stadium and in-game visibility during each MLS regular season home game. El Silencio was also named the official partner for four Los Angeles music venues, including: The Roxy Theater, The Shrine Auditorium & Expo Hall, The Fonda Theater and The El Rey Theater.
“You can’t turn back the clock. But you can wind it up again.” – Bonnie Prudden
——- Sell Day Calendar ———
Today’s Sell Day: 15
Sell days this month: 20
Sell days this month last year: 20
This month ends on a: Thurs.
This month last year ended on a: Wed.
YTD sell days Over/Under: +1