Constellation Strikes a Deal with The Wine Group
Constellation has entered an agreement to sell the Almaden and Inglenook wine brands, and the Paul Masson winery located in Madera, California, to The Wine Group for $134 million in cash. The sale is a part of the company’s “ongoing effort to focus on its premium wine offerings in the U.S.” The transaction is expected to be closed by the end of Constellation's fiscal year on Feb. 29. The company says it will use the cash to reduce borrowings.
The transaction in addition to Constellation’s recent purchase of Clos du Bois from Beam Wine Estates has the company better positioned for premium growth than ever before, said chief Rob Sands. We should probably expect Constellation to sell off more of its low-priced wines in the future as it continues to trade up to premium and super-premium positioned brands.
Constellation says it will retain the Mission Bell Winery, also in Madera, Calif., which allows the company to increase premium wine production in the San Joaquin Valley. With that said, Mission Bell will provide wine production services to The Wine Group for a period of time on a contract basis.
This move by Constellation came as something of a surprise to many in the industry, but perhaps the writing was on the wall all along. During the company’s third quarter conference call earlier this month, Rob said the following in relation to the Beam Wine Estates acquisition:
"We are also rationalizing our U.S. wine product portfolio, primarily related to our value products, which we believe will generate efficiencies and enhance our focus on higher growth, higher margin brands.”
Bill Pecoriello with Morgan Stanley views the sell “as a modest, incremental positive.” He points out that while the sale is slightly dilutive, it should improve North American wine sales growth by somewhat less than 100bps. Morgan Stanley continues to rate shares of Constellation equal-weight.
QUICK BACKGROUND. Almaden and Inglenook are some of California’s best known cheap table wines, retailing for less than $3.00 per 750 ml bottle. Growth of dollar sales in the 52 weeks to December 15 was down -0.7% for wines priced below $3.00, according to Nielsen scan data. Volume was down -1.2% for the same period.
WHAT THIS MEANS FOR THE WINE GROUP. The Wine Group has now taken Constellation’s place as the second largest U.S. winery in terms of annual case shipments. (Constellation is now third). The purchase of Almaden and Inglenook gives TWG about 10 million extra cases a year, pushing it to approximately 53 million cases total on an annual basis. Constellation now has somewhere around 50 million cases. E&J Gallo is the leading U.S. winery by volume, holding something like 65 million cases.
NY FAST FOOD CHAINS MUST DISPLAY CALORIE COUNTS
Restauranteers might be able to sympathize with the alcohol beverage industry, which is battling and/or welcoming proposals from the TTB to display serving size facts on the back of bottle labels. The New York City Board of Health voted Tuesday to approve a new version of a law requiring fast-food outlets to display calorie counts on their menus or menu boards, the AP reports. The new regulation applies to any chain that operates at least 15 separate outlets.
Meanwhile, the TTB proposed that all alcohol beverages display serving size facts on the back of their labels. Smaller producers, particularly wineries and craft brewers, worry about the added expense. Some wineries also worry the serving facts would take up space where they usually display a story about the winery. Large distillers, particularly Diageo, welcome the move and see it as a chance to promote “equivalency” among beer, wine and spirits. Brewers as a rule are against equivalency.
The Center for Science in the Public Interest (CSPI) is unhappy with the proposal. It basically says that while its nice for alcohol beverages to reveal calories, ingredients, serving size, ect., they should also list alcohol contents with the other serving facts. The CSPI doesn’t like the fact that the TTB’s proposal allows companies to display the alcohol content elsewhere on the bottle and in a smaller font.
“In 2003, CSPI, the National Consumer League, and others called on TTB to develop an easy-to-read, standardized Alcohol Facts label, similar to the popular Nutrition Facts labels on packaged foods. In 2007, TTB responded by proposing a "Serving Facts" label which would include calories, fat, carbs, and protein, but which would let manufacturers disclose alcohol content elsewhere, and presumably in much smaller print, on the label,” the group said in a statement.
The CSPI believes it makes “zero sense” for the TTB to try and find a compromise between what distillers and brewers want at the expensive of the “public's health or the convenience of consumers.” As you can imagine, the group disagrees with distillers’ arguments of equilavency and brewers’ dislike for the entire serving facts proposal. It seems to us that the CSPI won’t be happy unless the TTB’s proposal makes everyone in the alcohol industry angry.
U.S. WINE REACHES “TIPPING POINT” IN ‘07
There’s no doubt that 2007 was a strong year for the U.S. wine industry. Wine Market Council
president John Gillespie said the industry reached a “tipping point” with consumers in 2007, particularly Millennial consumers. His conclusion was based on the following factors:
1. Consumption is on the rise. He estimated that wine consumption in the U.S. exceeded 300 million cases for the first time -- and annual adult per capita consumption was more than three gallons
2. The U.S. topped Italy in 2007 as the second largest wine market in the world and is heading towards beating France as the world’s largest market
3. Men now equal women in wine consumption for the first time. In addition, wine consumers are getting younger.
However, there is a bit of bad news. The troubled economy has played a role in slowing the rate of sales growth for high end wines, according to Danny Brager of Nielsen.
NY GOV. PROPOSES PERMANENT SUNDAY SALES
On a lighter note, New York Gov. Spitzer included a provision in his budget proposal to permanently extend Sunday spirits sales. According to a recent economic analysis by DISCUS, New York gained $92.3 million in new retailer revenue from Sunday sales in 2006 alone. That translated into an additional $14.2 million in new tax revenue for the state and New York City that would not have otherwise existed.
Governor Spitzer’s budget updates current New York law allowing seven day sales, which is set to sunset on May 15, 2008, and includes a revenue clause permanently extending the seven day alcohol license sales law. The budget must now be approved by the State Legislature by April 1. It would take effect immediately upon passage.
Until tomorrow, Megan
“One of the symptoms of an approaching nervous breakdown is the belief that one's work is terribly important.”
Bertrand Russell
--------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Wed.
YTD sell days Over/Under: 0
The transaction in addition to Constellation’s recent purchase of Clos du Bois from Beam Wine Estates has the company better positioned for premium growth than ever before, said chief Rob Sands. We should probably expect Constellation to sell off more of its low-priced wines in the future as it continues to trade up to premium and super-premium positioned brands.
Constellation says it will retain the Mission Bell Winery, also in Madera, Calif., which allows the company to increase premium wine production in the San Joaquin Valley. With that said, Mission Bell will provide wine production services to The Wine Group for a period of time on a contract basis.
This move by Constellation came as something of a surprise to many in the industry, but perhaps the writing was on the wall all along. During the company’s third quarter conference call earlier this month, Rob said the following in relation to the Beam Wine Estates acquisition:
"We are also rationalizing our U.S. wine product portfolio, primarily related to our value products, which we believe will generate efficiencies and enhance our focus on higher growth, higher margin brands.”
Bill Pecoriello with Morgan Stanley views the sell “as a modest, incremental positive.” He points out that while the sale is slightly dilutive, it should improve North American wine sales growth by somewhat less than 100bps. Morgan Stanley continues to rate shares of Constellation equal-weight.
QUICK BACKGROUND. Almaden and Inglenook are some of California’s best known cheap table wines, retailing for less than $3.00 per 750 ml bottle. Growth of dollar sales in the 52 weeks to December 15 was down -0.7% for wines priced below $3.00, according to Nielsen scan data. Volume was down -1.2% for the same period.
WHAT THIS MEANS FOR THE WINE GROUP. The Wine Group has now taken Constellation’s place as the second largest U.S. winery in terms of annual case shipments. (Constellation is now third). The purchase of Almaden and Inglenook gives TWG about 10 million extra cases a year, pushing it to approximately 53 million cases total on an annual basis. Constellation now has somewhere around 50 million cases. E&J Gallo is the leading U.S. winery by volume, holding something like 65 million cases.
NY FAST FOOD CHAINS MUST DISPLAY CALORIE COUNTS
Restauranteers might be able to sympathize with the alcohol beverage industry, which is battling and/or welcoming proposals from the TTB to display serving size facts on the back of bottle labels. The New York City Board of Health voted Tuesday to approve a new version of a law requiring fast-food outlets to display calorie counts on their menus or menu boards, the AP reports. The new regulation applies to any chain that operates at least 15 separate outlets.
Meanwhile, the TTB proposed that all alcohol beverages display serving size facts on the back of their labels. Smaller producers, particularly wineries and craft brewers, worry about the added expense. Some wineries also worry the serving facts would take up space where they usually display a story about the winery. Large distillers, particularly Diageo, welcome the move and see it as a chance to promote “equivalency” among beer, wine and spirits. Brewers as a rule are against equivalency.
The Center for Science in the Public Interest (CSPI) is unhappy with the proposal. It basically says that while its nice for alcohol beverages to reveal calories, ingredients, serving size, ect., they should also list alcohol contents with the other serving facts. The CSPI doesn’t like the fact that the TTB’s proposal allows companies to display the alcohol content elsewhere on the bottle and in a smaller font.
“In 2003, CSPI, the National Consumer League, and others called on TTB to develop an easy-to-read, standardized Alcohol Facts label, similar to the popular Nutrition Facts labels on packaged foods. In 2007, TTB responded by proposing a "Serving Facts" label which would include calories, fat, carbs, and protein, but which would let manufacturers disclose alcohol content elsewhere, and presumably in much smaller print, on the label,” the group said in a statement.
The CSPI believes it makes “zero sense” for the TTB to try and find a compromise between what distillers and brewers want at the expensive of the “public's health or the convenience of consumers.” As you can imagine, the group disagrees with distillers’ arguments of equilavency and brewers’ dislike for the entire serving facts proposal. It seems to us that the CSPI won’t be happy unless the TTB’s proposal makes everyone in the alcohol industry angry.
U.S. WINE REACHES “TIPPING POINT” IN ‘07
There’s no doubt that 2007 was a strong year for the U.S. wine industry. Wine Market Council
president John Gillespie said the industry reached a “tipping point” with consumers in 2007, particularly Millennial consumers. His conclusion was based on the following factors:
1. Consumption is on the rise. He estimated that wine consumption in the U.S. exceeded 300 million cases for the first time -- and annual adult per capita consumption was more than three gallons
2. The U.S. topped Italy in 2007 as the second largest wine market in the world and is heading towards beating France as the world’s largest market
3. Men now equal women in wine consumption for the first time. In addition, wine consumers are getting younger.
However, there is a bit of bad news. The troubled economy has played a role in slowing the rate of sales growth for high end wines, according to Danny Brager of Nielsen.
NY GOV. PROPOSES PERMANENT SUNDAY SALES
On a lighter note, New York Gov. Spitzer included a provision in his budget proposal to permanently extend Sunday spirits sales. According to a recent economic analysis by DISCUS, New York gained $92.3 million in new retailer revenue from Sunday sales in 2006 alone. That translated into an additional $14.2 million in new tax revenue for the state and New York City that would not have otherwise existed.
Governor Spitzer’s budget updates current New York law allowing seven day sales, which is set to sunset on May 15, 2008, and includes a revenue clause permanently extending the seven day alcohol license sales law. The budget must now be approved by the State Legislature by April 1. It would take effect immediately upon passage.
Until tomorrow, Megan
“One of the symptoms of an approaching nervous breakdown is the belief that one's work is terribly important.”
Bertrand Russell
--------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Wed.
YTD sell days Over/Under: 0
posted at 1:21 PM
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