Constellation Makes Its Case
In a wide-ranging presentation to analysts at the Goldman Sachs consumer goods conference, Constellation Brands' chief Rob Sands painted a pretty good picture for premium wine and spirits, which happens to be the sandbox in which Constellation plays.
Summarizing their strategy in one sentence, Rob said: “The foundation of our strategy is based on generating growth from sources that create returns above our cost of capital, whether it comes from our existing portfolio, the introduction of new products, or through acquisitions or strategic alliances.”
That just about sums it up. But how to do that? The key, says Rob, is to focus on premium and super-premium brands. In spirits, Rob explained how STZ is the fourth largest spirits company and is growing, particularly Svedka Vodka which they acquired in March of 2007, “which significantly increased our premium spirits mix.” Svedka is a 1.5 million case brand in calendar 2007, it's the fourth largest vodka, and “the fastest growing major imported vodka brand in the United States. It's actually the fastest growing major premium spirits brand, period, in the world with a five year CAGR of approximately 50%,” says Rob. Now Constellation is focusing on “leveraging our distribution infrastructure to capture additional opportunities in all major channels.” Constellation has grown the mix of premium spirits from about 10% to about 30% in fiscal 2008.
RECESSION PROOF? What about consumer softness due to the economy? Rob says don't sweat it:
“The alcoholic beverage business is generally pretty resistant to economic trends. People tend to drink not more or less because of economic cycles. I would say, talking about it category by category: the wine category remains very healthy, especially in the categories that we participate in [premium and above]. These categories continue to grow in double digits......the value business, interestingly enough, has been pretty weak as of late...... Spirits also continues to have pretty strong growth in the premium category in particular. I would say there has been a little bit of a slowdown in spirit growth, but nevertheless, it remains pretty strong and pretty healthy. In general compared to what it has been, say, three or four years ago, spirits has really come back strong and has gained market share, especially against beer...”
“There has been some channel shift.....there's been a shift away from on-premise consumption to off-premise consumption...... The interesting thing is that people don't drink less, they just sell at home.......we're seeing some shift from supermarket chains to mass merchandisers.”
GRAPE GLUT OVER? Regarding the wine market and grape supply, Rob says we are entering an era of better margins:
“I find it interesting. Grape supply is very cyclical. Depending on who you're talking to, they tend to go in 7 to 10 year cycles, from over supply to under supply. I would say that the world has been in a state of oversupply for the previous cycle. Australia was in oversupply, Europe was oversupply, South America was in oversupply, even California was in oversupply. I would say that we're right on the tipping point of seeing the world go into under supply.....we're definitely seeing that shift.....That generally creates a pretty strong pricing environment and should be a positive thing for margins.”
Lower priced wines and private labels (Two Buck Chucks) can't find cheap juice, and that creates “a healthy market.”
CONSTELLATION DONE ACQUIRING? With STZ's high debt load, analysts were wondering if the buying binge is over for the acquisitive company. Rob says kind of, but hedges his bets: “All of our free cash flow goes to paying down debt. We're about 5.3 times debt to EBIDTA, which is traditionally high since we run in the low fours our high threes.....We're well below our covenants......We're targeting to be down in the low fours by the end of this fiscal year......It doesn't prevent us from making an acquisition” although they are more focused on generating free cash right now and “fine tuning” the business they own.
CHIVAS REGAL SIGNS EURO RSCG
Pernod Ricard has transferred global creative duties on Chivas Regal to Euro RSCG from TBWA/Chiat/Day, reports Jeremy Mullman of Ad Age. Sources tell Jeremy that spending may reach as high as $90 million globally.
Chivas, a Scotch whisky, is Pernod’s biggest brand by retail value and had estimated 2007 retail sales of about $1.5 billion, based on Impact data.
TBWA handled Chivas for 14 years and most recently produced “The Chivas Life” campaign. TBWA will continue to handle brands such as Jameson and Seagram’s. Euro does not currently handle any Pernod brands other than Chivas.
DIAGEO DENIES REPORTS OF MOVING TO IRELAND
An Irish newspaper reported this weekend that Diageo is considering moving its headquarters to Ireland to save money on corporate taxes. According to the Sunday Independent, Diageo managers, including chief Paul Walsh, held talks with Ireland’s deputy prime minister Mary Coughlan about moving its headquarters to Ireland to benefit from lower corporation tax rates.
Diageo denies the report. Rather, Diageo said the meeting was set up to brief the Irish government on the recently announced brewery plans in Ireland.
"I was absolutely stunned by the article in the Sunday Independent because no such discussion took place," Michael Patten, head of corporate relations at Diageo's Irish operations told Reuters.
The corporate tax rate in Ireland is among the lowest in Europe at 12.5%.
The Sunday Independent reported such a move by Diageo would save the company 250 million euros ($386.5 million) in taxes a year. The newspaper cited one well-placed source as saying the company's board was divided over whether to relocate.
WSD BRIEFS:
YOUNG’S MARKET COMPANY announced that Geoff Labitzke, vp of import sales and wine education for its Estates Group, is being promoted to the newly created position of corporate vp of fine wines. Young’s has operations in California, Hawaii, Arizona, Oregon, Washington, Alaska, Utah, Idaho, Wyoming and Montana.
WSWA NAMED JERRY BROWN AS ITS NEW VP for Communications and Public Affairs.
Brown was most recently Director of Public Affairs at the Society for Human Resource Management (SHRM).
Until tomorrow, Megan
“A conference is a gathering of important people who singly can do nothing, but together can decide that nothing can be done”.
Fred Allen
--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 22
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Thurs.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
Summarizing their strategy in one sentence, Rob said: “The foundation of our strategy is based on generating growth from sources that create returns above our cost of capital, whether it comes from our existing portfolio, the introduction of new products, or through acquisitions or strategic alliances.”
That just about sums it up. But how to do that? The key, says Rob, is to focus on premium and super-premium brands. In spirits, Rob explained how STZ is the fourth largest spirits company and is growing, particularly Svedka Vodka which they acquired in March of 2007, “which significantly increased our premium spirits mix.” Svedka is a 1.5 million case brand in calendar 2007, it's the fourth largest vodka, and “the fastest growing major imported vodka brand in the United States. It's actually the fastest growing major premium spirits brand, period, in the world with a five year CAGR of approximately 50%,” says Rob. Now Constellation is focusing on “leveraging our distribution infrastructure to capture additional opportunities in all major channels.” Constellation has grown the mix of premium spirits from about 10% to about 30% in fiscal 2008.
RECESSION PROOF? What about consumer softness due to the economy? Rob says don't sweat it:
“The alcoholic beverage business is generally pretty resistant to economic trends. People tend to drink not more or less because of economic cycles. I would say, talking about it category by category: the wine category remains very healthy, especially in the categories that we participate in [premium and above]. These categories continue to grow in double digits......the value business, interestingly enough, has been pretty weak as of late...... Spirits also continues to have pretty strong growth in the premium category in particular. I would say there has been a little bit of a slowdown in spirit growth, but nevertheless, it remains pretty strong and pretty healthy. In general compared to what it has been, say, three or four years ago, spirits has really come back strong and has gained market share, especially against beer...”
“There has been some channel shift.....there's been a shift away from on-premise consumption to off-premise consumption...... The interesting thing is that people don't drink less, they just sell at home.......we're seeing some shift from supermarket chains to mass merchandisers.”
GRAPE GLUT OVER? Regarding the wine market and grape supply, Rob says we are entering an era of better margins:
“I find it interesting. Grape supply is very cyclical. Depending on who you're talking to, they tend to go in 7 to 10 year cycles, from over supply to under supply. I would say that the world has been in a state of oversupply for the previous cycle. Australia was in oversupply, Europe was oversupply, South America was in oversupply, even California was in oversupply. I would say that we're right on the tipping point of seeing the world go into under supply.....we're definitely seeing that shift.....That generally creates a pretty strong pricing environment and should be a positive thing for margins.”
Lower priced wines and private labels (Two Buck Chucks) can't find cheap juice, and that creates “a healthy market.”
CONSTELLATION DONE ACQUIRING? With STZ's high debt load, analysts were wondering if the buying binge is over for the acquisitive company. Rob says kind of, but hedges his bets: “All of our free cash flow goes to paying down debt. We're about 5.3 times debt to EBIDTA, which is traditionally high since we run in the low fours our high threes.....We're well below our covenants......We're targeting to be down in the low fours by the end of this fiscal year......It doesn't prevent us from making an acquisition” although they are more focused on generating free cash right now and “fine tuning” the business they own.
CHIVAS REGAL SIGNS EURO RSCG
Pernod Ricard has transferred global creative duties on Chivas Regal to Euro RSCG from TBWA/Chiat/Day, reports Jeremy Mullman of Ad Age. Sources tell Jeremy that spending may reach as high as $90 million globally.
Chivas, a Scotch whisky, is Pernod’s biggest brand by retail value and had estimated 2007 retail sales of about $1.5 billion, based on Impact data.
TBWA handled Chivas for 14 years and most recently produced “The Chivas Life” campaign. TBWA will continue to handle brands such as Jameson and Seagram’s. Euro does not currently handle any Pernod brands other than Chivas.
DIAGEO DENIES REPORTS OF MOVING TO IRELAND
An Irish newspaper reported this weekend that Diageo is considering moving its headquarters to Ireland to save money on corporate taxes. According to the Sunday Independent, Diageo managers, including chief Paul Walsh, held talks with Ireland’s deputy prime minister Mary Coughlan about moving its headquarters to Ireland to benefit from lower corporation tax rates.
Diageo denies the report. Rather, Diageo said the meeting was set up to brief the Irish government on the recently announced brewery plans in Ireland.
"I was absolutely stunned by the article in the Sunday Independent because no such discussion took place," Michael Patten, head of corporate relations at Diageo's Irish operations told Reuters.
The corporate tax rate in Ireland is among the lowest in Europe at 12.5%.
The Sunday Independent reported such a move by Diageo would save the company 250 million euros ($386.5 million) in taxes a year. The newspaper cited one well-placed source as saying the company's board was divided over whether to relocate.
WSD BRIEFS:
YOUNG’S MARKET COMPANY announced that Geoff Labitzke, vp of import sales and wine education for its Estates Group, is being promoted to the newly created position of corporate vp of fine wines. Young’s has operations in California, Hawaii, Arizona, Oregon, Washington, Alaska, Utah, Idaho, Wyoming and Montana.
WSWA NAMED JERRY BROWN AS ITS NEW VP for Communications and Public Affairs.
Brown was most recently Director of Public Affairs at the Society for Human Resource Management (SHRM).
Until tomorrow, Megan
“A conference is a gathering of important people who singly can do nothing, but together can decide that nothing can be done”.
Fred Allen
--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 22
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Thurs.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 3:49 PM
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