WILL A NEW FISCAL YEAR SPELL TROUBLE OR RECOVERY FOR CONSTELLATION?
Constellation is scheduled to announce its first-quarter 2008 earnings next Thursday, June 28, so we wanted to take a look at some of the things that are helping and hurting the world’s largest wine company. Let’s start with the good news.
Two words: United States. As consumption levels grow and trading up continues, the U.S. is sitting pretty in the eyes of the wine industry. Trading up is driven by both the boomers and the millennial generation, with the latter being perhaps the most important of the two. For one thing, there are about 35 million youngsters that are considered millennials but have yet to turn 21. That’s a lot of new wine glasses to fill in the next couple of years and we feel confident that Constellation will be up to the task.
These 20-to-30-something aren’t drinking the cheap stuff. They are more willing to pay over $10 for a bottle of wine than ever before, which has encouraged U.S. retailers to stock more high priced wines.
With that said, trading up trends do have a downside. Everyone wants to discover the next “big thing,” and demand is driving an influx of premium brand competition in the U.S., which consumers are more than willing to partake. In other words, there is little if no brand loyalty among premium and super-premium wines. Small wineries dominate the high-end sector, while established brands, like those belonging to Constellation, are feeling the pain.
Snatching up some of the more lucrative small wineries is always an option, but new ones are popping up before you can say “profit loss.”
THE AGE OLD BULK PROBLEM. Talk of retailers reminds us that Constellation isn’t faring so well across the pond. While Americans are trading up to more expensive wine brands, the Brits are trading down no thanks to big retail chains that are only making matters worse.
UK retailers took advantage of Australia’s grape glut to sell private label wine brands for next to nothing. Constellation says it expects UK wine prices to start creeping upwards with news of an Australian drought, although many in the industry remain skeptical. British supermarkets say they will simply start using bulk imports from other regions, such as Chile, in order to keep prices low.
British consumers are used to paying roughly $5 or less a bottle and wouldn’t take kindly to sudden price increases. Also, wine gets people in the supermarkets, so retailers are more than willing to sell it really cheaply with promises of a larger shopping basket.
The Australian grape glut combined with markdown-happy UK retailers made for an often volatile year for Constellation. In fiscal 2007, Constellation was forced to lower its outlook twice and in May projected fiscal 2008 earnings below Wall Street.
We’ll be listening next Thursday and keep you updated with the results.
Two words: United States. As consumption levels grow and trading up continues, the U.S. is sitting pretty in the eyes of the wine industry. Trading up is driven by both the boomers and the millennial generation, with the latter being perhaps the most important of the two. For one thing, there are about 35 million youngsters that are considered millennials but have yet to turn 21. That’s a lot of new wine glasses to fill in the next couple of years and we feel confident that Constellation will be up to the task.
These 20-to-30-something aren’t drinking the cheap stuff. They are more willing to pay over $10 for a bottle of wine than ever before, which has encouraged U.S. retailers to stock more high priced wines.
With that said, trading up trends do have a downside. Everyone wants to discover the next “big thing,” and demand is driving an influx of premium brand competition in the U.S., which consumers are more than willing to partake. In other words, there is little if no brand loyalty among premium and super-premium wines. Small wineries dominate the high-end sector, while established brands, like those belonging to Constellation, are feeling the pain.
Snatching up some of the more lucrative small wineries is always an option, but new ones are popping up before you can say “profit loss.”
THE AGE OLD BULK PROBLEM. Talk of retailers reminds us that Constellation isn’t faring so well across the pond. While Americans are trading up to more expensive wine brands, the Brits are trading down no thanks to big retail chains that are only making matters worse.
UK retailers took advantage of Australia’s grape glut to sell private label wine brands for next to nothing. Constellation says it expects UK wine prices to start creeping upwards with news of an Australian drought, although many in the industry remain skeptical. British supermarkets say they will simply start using bulk imports from other regions, such as Chile, in order to keep prices low.
British consumers are used to paying roughly $5 or less a bottle and wouldn’t take kindly to sudden price increases. Also, wine gets people in the supermarkets, so retailers are more than willing to sell it really cheaply with promises of a larger shopping basket.
The Australian grape glut combined with markdown-happy UK retailers made for an often volatile year for Constellation. In fiscal 2007, Constellation was forced to lower its outlook twice and in May projected fiscal 2008 earnings below Wall Street.
We’ll be listening next Thursday and keep you updated with the results.
posted at 12:02 PM
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