April 11, 2019

Constellation Brands has announced another massive deal as it continues to realign its business. The leading alcohol beverage company announced it has divested approximately 30 wine brands and related facilities – located in California, New York, and Washington – from its wine and spirits portfolio to E&J Gallo for $1.7 billion.

The sale, which centered on wines selling for under $11 per bottle, was driven by Constellation’s strategic plan to “better align its portfolio with consumer premiumization trends,” reports Forbes.

“One of the hallmarks of our success over the years has been our ability to evolve and stay on the forefront of emerging consumer trends,” said Bill Newlands, president and chief executive officer, Constellation Brands. “This decision will help enhance organizational focus on a more premium set of wine and spirits brands that better position our company to drive accelerated growth and shareholder value.”

Being held out of the sale by Constellation are some of the top wine brands in the U.S. including Kim Crawford, the number one sauvignon blanc brand in the U.S. market; Meiomi, the number one pinot noir in the U.S.; the Robert Mondavi brand family; The Prisoner Wine Company brand family; as well as SVEDKA Vodka, the number one imported vodka brand in the U.S. Other high-end names that will stay with Constellation are SIMI, Schrader Cellars and Mount Veeder Winery wine brands, High West Whiskey, Casa Noble Tequila, and innovative wines such as Cooper & Thief and Spoken Barrel.

Meanwhile, Gallo has gained some of the top economical wine brands in the U.S. including Clos du Bois, Ravenswood, Hogue Cellars, Franciscan, and Mark West, along with winemaking assets in three states.

The deal will give Gallo a U.S. wine market share of approximately 22 percent by volume, figures Jon Moramarco, managing partner at bw166 LLC and editor and partner at Gomberg & Fredrikson.

“…Gallo is acquiring a collection of great brands that complement their operational model and business strategy to provide quality products to consumers at every price point,” said Newlands.

Big Money Moves

In recent years Constellation has spent billions pursuing a reconfiguration of its business.

As U.S. consumer tastes shifted away from low-priced and light beers toward more flavorful and meaningful beers, Constellation began making huge deals to gain a greater presence in the craft beer category.

In 2013 the group paid $4.75 billion to acquire Grupo Modelo’s U.S. beer business from AB InBev, giving them control of the Corona and Modelo brands in the U.S.

Two years later, the group paid $1 billion for California-based craft brewer, Ballast Point Brewing & Spirits, representing a record amount paid for a craft brewing company, according to the Wall Street Journal.

The following year, in 2016, the group paid another $600 million to acquire the Obregon brewery, located on Mexico’s west coast in the state of Sonora, from Grupo Modelo, and subsequently acquired other, smaller craft brewers such as Florida’s Funky Buddha for undisclosed amounts.

But perhaps Constellation’s boldest move (and smartest hedge) happened between October 2017 and August 2018, when it made two investments: the first, $191 million, and the second, $4 billion, in publicly traded Canadian marijuana grower Canopy Growth.  

The investments positioned both Constellation and Canopy as the undisputed front-runners once federal legalization occurs in the U.S. while serving as a hedge bet for Constellation. Food Dive reports that cannabis poses a real threat to the beer industry – a statement reflected in the fact that 82 percent of adults stated that they would stop drinking beer if marijuana was legalized in their state, according to a survey conducted by IRI and CannaBiz Consumer Group, which also concluded that the legalization of recreational marijuana has the potential to snatch 7.1 percent of beer industry revenue.

~ Lynda Kiernan