Constellation Battles Debt, Builds Premium Brands
Constellation is mainly concerned with building its premium brands and paying down debt, ceo Rob Sands told listeners at the Morgan Stanley consumer conference today.
When asked about the negative effects of recent price increases on Constellation’s wine biz, Rob said everything was business as usual.
“We’ve been a leader in taking pricing in the U.S. and it always impacts volume growth. It [pricing] did as we expected.”
He said the company believes the impact will diminish over time as competitors start taking price. “We are seeing improvement in the growth rate, but as a result of pricing we are expecting the lower end of mid-single digit growth on a value basis.”
WINE’S REACTION TO THE ECONOMY. The wine biz remains healthy overall and is seeing mid-single digit growth of about 5%, “which is a healthy growth rate,” said Rob. Value wines are beginning to gain, while premium wine brands have slowed.
“We’ve seen a pick up in growth in the ‘everyday’ wine category (below $5) and some slowdown in the above $5 range. Trading up is not as strong as it has been in the past because you don’t see everyday wines shrinking and premium brands growing. You see the whole wine industry growing.”
Rob said consumers are trending more towards “tried and true” brands and are less willing to experiment with new brands. As a result, brands like Woodbridge, Franciscan and Simi are benefiting.
For now, Constellation said it is focused on using its cash flow to reduce debt. Rob said the company intends to build it current portfolio but it not entirely ruling out future acquisitions. However, we think it is increasingly unlikely Constellation would acquire troubled Foster’s Group.
ROB SANDS INTERVIEW WITH REUTERS
In other Constellation news, Rob echoed a lot of the same sentiments in a recent interview with Reuters where ceo Rob Sands says the company “expects sales to remain steady this holiday season,” despite consumer shifts to the off-premise.
"If people are out less at parties, if they're out at restaurants, bars, clubs, and hotels to a less degree than they have been, it doesn't mean they're necessarily drinking less. It means they're drinking more at home as opposed to being out at parties," Rob said.
The company is mainly focused on managing its current portfolio and paying down debt, but said it will not entirely rule out new acquisitions.
"We actually look at all acquisitions. But having made numerous acquisitions in the last year, I would say that it's certainly not our focus at the current time," said Rob.
He also claimed that Constellation is “unaffected by the credit crunch,” with positive liquidity and no current maturities coming due.
NIELSEN: CHANGING TRENDS THIS HOLIDAY SEASON
A new report from Nielsen says consumers are likely to view alcoholic beverages as an “affordable indulgence” this holiday season. In fact, Nielsen expects more Americans to give alcoholic beverages as gifts this year, “helped by the usual selection of special ‘value-added’ packs.” Nielsen’s report gives a much brighter outlook then other outlets that have suggested the business will suffer in November and December, which accounts for a big chunk of annual sales. For example, AdAge printed an article yesterday claiming Champagne sales are expected to take a serious hit.
Grocery stores, c-stores and other off-premise retailers will benefit most as Americans increasingly choose to drink at home. Meanwhile, restaurants, bars and nightclubs “are facing serious challenges in the current economy” during a period when more consumers go out than any other time of year.
When Americans are eating out, some people are cutting back on how much they spend by ordering fewer or lower-priced drinks, especially as it relates to higher-priced wines and spirits. Other consumers are trading down by visiting “fast casual” restaurants and quick service restaurants that may offer few or no alcoholic beverages.
“Given the importance of the holiday season to restaurants and bars, these establishments will need to pull out all the stops to lure consumer traffic back, using a variety of creative incentives as a hook,” said Richard Hurst, senior vice president, Beverage Alcohol, The Nielsen Company. “Watch for on-premise outlets to push customer loyalty programs to drive repeat business.”
Off-premise retailers are targeting consumers who used to go out more in order to drive repeat business. For example, Nielsen said grocery stores are targeting restaurant-goers with well-priced easy meals, and other stores are adding alcoholic beverages to their line up. Nielsen also expects to see a continued increase in online shopping, especially for wine, where legal to do so.
Richard suggests that off-premise retailers “consider multiple store display locations to capitalize on impulse purchasing, as well as providing gift accessories nearby, such as bottle openers, gift bags, mixed drink party pack ingredients and glassware.”
DOMESTIC VS IMPORTS. Domestic wine, spirits and beer is now outperforming imports for a couple of reasons. For one, a weak USD is making imports more expensive. Also, “consumers are often biased toward national or local products” in tough economic times. According to Nielsen, domestic and imported wines were growing at the same double-digit rates last year, but domestic growth is now ahead of imports.
“While there is evidence of consumers reducing on-premise consumption, as well as trading down to less expensive beverages, they are reluctant to cut back significantly on beer, wine and spirits, especially for at home consumption and entertaining. With the prospect of limited economic recovery in 2009, consumers are likely to consider alcoholic beverages as an affordable indulgence during the holiday season.”
TARGET AIMS TO MEET WAL-MART’S PRICING
Wal-Mart is one of the few retailers that has actually benefitted from the current economic crisis. After slowly losing share to organic and upscale retailers (such as Whole Foods and Target) in recent years, consumers are increasingly shopping at Wal-Mart in search of the best price. However, Target says it is determined to matching prices with Wal-Mart in all identical markets.
Target is "absolutely committed to being priced with Wal-Mart in all identical markets," said Kathee Tesija, executive vice president of merchandising.
The retailer said it will open fewer new stores for at least the next four years but will aggressively battle Wal-Mart’s low-cost price strategy.
JIM MYERSON OF WINE WAREHOUSE DIES
Jim Myerson, co-founder of Wine Warehouse (along with his brother Bob Myerson) and president of 21st Century Spirits, died on November 10, 2008, at the age of 82. Today, Wine Warehouse sells and distributes more than 10,000 wines, beers, spirits, non-alcoholic beverages and glassware, as one of California’s largest distributors with branches in both Northern and Southern California. He also inspired the launch of Blue Ice Vodka in 2001 for his family’s 21st Century Spirits company, according to a statement.
He is survived by his wife of 50 years, Diane Myerson, and his two daughters, Dana Myerson Agamalian, her husband John and grandchildren Alexa and Grant and Carol Myerson Sever, her husband Jim and grandchildren Ellery, Olivia and Rory, his brother and sister-in-law Bob and Barbara Myerson, nephews James P. Myerson and Allen Myerson and niece Linda Myerson Dean.
TENNESSEE RETAILERS DEBATE WINE LAWS
Tennessee retailers and lobbyists battled it out yesterday (Nov. 18) over whether the state should allow wine to be sold on grocery shelves and over the internet. State Senator Bill Ketron invited both sides to debate the issue for a special pre-session hearing before the legislature returns to work in January. Recall that two bills died in committee last year without coming to a vote.
Grocery stores argue wine and food pair together, so they should be sold together. Proponents also claim wine sold in grocery stores could increase sales tax revenues by more than $10 million a year. Small liquor stores, however, claim they’ll go out of business if grocery stores are allowed to sell wine, and the state will spend millions patrolling both grocery and liquor stores for illegal sales.
Last month, a federal appeals court upheld Tennessee’s ban on direct wine shipments, although it ruled that special provisions unfairly favored local wineries. Tennessee’s Grape and Wine Law is basically designed to boost the local industry by allowing residents to buy wine at wineries that use at least 75% of ingredients produced in the state. As a result, the appeals court sent the case back to a lower court to make the regulations more in line with federal law.
TESCO’S NEW STRATEGY BODES BAD FOR AUSTRALIAN WINES
UK supermarket Tesco is implementing a new strategy that could make things even tougher for Australian exports. The retailer it cutting 15% of its total wine range over the next six months, spelling bad news for Australian wines which account for 25% of the total UK market. Foster’s Group and Constellation Brands are among the top five global suppliers in the UK wine market, of which Tesco accounts for 25% of all wine sold in the UK.
Why the new strategy? Tesco is attempting to protect its profits amid the global economic downturn and heavy competition in the UK. Unfortunately, Australian exports to the UK are already declining, falling 16% in the year to October 31. British retailers have been largely blamed for over-promoting alcoholic beverages and undergoing price wars in recent years that have put huge amounts of pressure on suppliers. As a result, beer, wine and spirits are sold for next to nothing in the UK. Retailers also turn cheap, bulk Australian wines into inexpensive private labels that make competition for other brands even harder. Australian grape growers are having a hard time making profits because not only are British retailers driving prices down, but oversupply and the strengthening Aussie dollar has made competition even harder.
In his presentation at Morgan Stanley’s conference, Constellation chief Rob Sands said British retailers are in a price war amongst themselves and are driving down price in product and putting pressure on suppliers.
“We haven’t given in but buy up has been weak,” he said. Constellation has increased pricing in that market and passed on 100% of the import duty.
WSD BRIEFS:
GUY LAWRENCE LEAVES BACARDI. Bacardi’s global brand director, Guy Lawrence, is leaving the company after 16 years to become the ceo of Quintessentially, a luxury concierge service, reports BrandRepublic.com. His new position is effective in January. He replaces Aaron Simpson who is becoming executive chairman. Bacardi has yet to announce Guy’s departure.
CALIFORNIA RETAILERS OPPOSE TAX HIKE. Members of the Neighborhood Market Association issued a press release saying they strongly opposed the $4.4 billion dollar tax plan introduced in the Legislature today that would dramatically increase the cost of alcohol beverages. The group says the tax increase would hurt jobs statewide and significantly reduce sales for on and off-premise establishments. "With slumping sales and declining revenues, our businesses just can't take another hit," said Auday Peter Arabo, president of the group.
WHOLE FOODS FIGHTS BACK. The organic retail giant has hired a lobbying firm (Glover Park Group) to raise support in Congress in its fight with the FTC over its recent acquisition of Wild Oats. A company spokeswoman said the goal was to make Congress “aware of FTC procedures that violate the company’s due process rights as the commission attempts to unwind the year-old Whole Foods-Wild Oats merger.” An administrative judge will hear both sides next February.
Until tomorrow, Megan
“I think we're having fun. I think our customers really like our products. And we're always trying to do better.”
Steve Jobs
--------- Sell Day Calendar ----------
Today's Sell Day: 12
Sell days this month: 19
Sell days this month last year: 21
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1
BEER SUMMIT 2009 - The Four Seasons, Austin, Texas - Join us for great speakers, intelligent discourse, good food, and of course great beer at the next Beer Summit on March 1 - 2, 2009. Click here: http://tinyurl.com/beersummit
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.
When asked about the negative effects of recent price increases on Constellation’s wine biz, Rob said everything was business as usual.
“We’ve been a leader in taking pricing in the U.S. and it always impacts volume growth. It [pricing] did as we expected.”
He said the company believes the impact will diminish over time as competitors start taking price. “We are seeing improvement in the growth rate, but as a result of pricing we are expecting the lower end of mid-single digit growth on a value basis.”
WINE’S REACTION TO THE ECONOMY. The wine biz remains healthy overall and is seeing mid-single digit growth of about 5%, “which is a healthy growth rate,” said Rob. Value wines are beginning to gain, while premium wine brands have slowed.
“We’ve seen a pick up in growth in the ‘everyday’ wine category (below $5) and some slowdown in the above $5 range. Trading up is not as strong as it has been in the past because you don’t see everyday wines shrinking and premium brands growing. You see the whole wine industry growing.”
Rob said consumers are trending more towards “tried and true” brands and are less willing to experiment with new brands. As a result, brands like Woodbridge, Franciscan and Simi are benefiting.
For now, Constellation said it is focused on using its cash flow to reduce debt. Rob said the company intends to build it current portfolio but it not entirely ruling out future acquisitions. However, we think it is increasingly unlikely Constellation would acquire troubled Foster’s Group.
ROB SANDS INTERVIEW WITH REUTERS
In other Constellation news, Rob echoed a lot of the same sentiments in a recent interview with Reuters where ceo Rob Sands says the company “expects sales to remain steady this holiday season,” despite consumer shifts to the off-premise.
"If people are out less at parties, if they're out at restaurants, bars, clubs, and hotels to a less degree than they have been, it doesn't mean they're necessarily drinking less. It means they're drinking more at home as opposed to being out at parties," Rob said.
The company is mainly focused on managing its current portfolio and paying down debt, but said it will not entirely rule out new acquisitions.
"We actually look at all acquisitions. But having made numerous acquisitions in the last year, I would say that it's certainly not our focus at the current time," said Rob.
He also claimed that Constellation is “unaffected by the credit crunch,” with positive liquidity and no current maturities coming due.
NIELSEN: CHANGING TRENDS THIS HOLIDAY SEASON
A new report from Nielsen says consumers are likely to view alcoholic beverages as an “affordable indulgence” this holiday season. In fact, Nielsen expects more Americans to give alcoholic beverages as gifts this year, “helped by the usual selection of special ‘value-added’ packs.” Nielsen’s report gives a much brighter outlook then other outlets that have suggested the business will suffer in November and December, which accounts for a big chunk of annual sales. For example, AdAge printed an article yesterday claiming Champagne sales are expected to take a serious hit.
Grocery stores, c-stores and other off-premise retailers will benefit most as Americans increasingly choose to drink at home. Meanwhile, restaurants, bars and nightclubs “are facing serious challenges in the current economy” during a period when more consumers go out than any other time of year.
When Americans are eating out, some people are cutting back on how much they spend by ordering fewer or lower-priced drinks, especially as it relates to higher-priced wines and spirits. Other consumers are trading down by visiting “fast casual” restaurants and quick service restaurants that may offer few or no alcoholic beverages.
“Given the importance of the holiday season to restaurants and bars, these establishments will need to pull out all the stops to lure consumer traffic back, using a variety of creative incentives as a hook,” said Richard Hurst, senior vice president, Beverage Alcohol, The Nielsen Company. “Watch for on-premise outlets to push customer loyalty programs to drive repeat business.”
Off-premise retailers are targeting consumers who used to go out more in order to drive repeat business. For example, Nielsen said grocery stores are targeting restaurant-goers with well-priced easy meals, and other stores are adding alcoholic beverages to their line up. Nielsen also expects to see a continued increase in online shopping, especially for wine, where legal to do so.
Richard suggests that off-premise retailers “consider multiple store display locations to capitalize on impulse purchasing, as well as providing gift accessories nearby, such as bottle openers, gift bags, mixed drink party pack ingredients and glassware.”
DOMESTIC VS IMPORTS. Domestic wine, spirits and beer is now outperforming imports for a couple of reasons. For one, a weak USD is making imports more expensive. Also, “consumers are often biased toward national or local products” in tough economic times. According to Nielsen, domestic and imported wines were growing at the same double-digit rates last year, but domestic growth is now ahead of imports.
“While there is evidence of consumers reducing on-premise consumption, as well as trading down to less expensive beverages, they are reluctant to cut back significantly on beer, wine and spirits, especially for at home consumption and entertaining. With the prospect of limited economic recovery in 2009, consumers are likely to consider alcoholic beverages as an affordable indulgence during the holiday season.”
TARGET AIMS TO MEET WAL-MART’S PRICING
Wal-Mart is one of the few retailers that has actually benefitted from the current economic crisis. After slowly losing share to organic and upscale retailers (such as Whole Foods and Target) in recent years, consumers are increasingly shopping at Wal-Mart in search of the best price. However, Target says it is determined to matching prices with Wal-Mart in all identical markets.
Target is "absolutely committed to being priced with Wal-Mart in all identical markets," said Kathee Tesija, executive vice president of merchandising.
The retailer said it will open fewer new stores for at least the next four years but will aggressively battle Wal-Mart’s low-cost price strategy.
JIM MYERSON OF WINE WAREHOUSE DIES
Jim Myerson, co-founder of Wine Warehouse (along with his brother Bob Myerson) and president of 21st Century Spirits, died on November 10, 2008, at the age of 82. Today, Wine Warehouse sells and distributes more than 10,000 wines, beers, spirits, non-alcoholic beverages and glassware, as one of California’s largest distributors with branches in both Northern and Southern California. He also inspired the launch of Blue Ice Vodka in 2001 for his family’s 21st Century Spirits company, according to a statement.
He is survived by his wife of 50 years, Diane Myerson, and his two daughters, Dana Myerson Agamalian, her husband John and grandchildren Alexa and Grant and Carol Myerson Sever, her husband Jim and grandchildren Ellery, Olivia and Rory, his brother and sister-in-law Bob and Barbara Myerson, nephews James P. Myerson and Allen Myerson and niece Linda Myerson Dean.
TENNESSEE RETAILERS DEBATE WINE LAWS
Tennessee retailers and lobbyists battled it out yesterday (Nov. 18) over whether the state should allow wine to be sold on grocery shelves and over the internet. State Senator Bill Ketron invited both sides to debate the issue for a special pre-session hearing before the legislature returns to work in January. Recall that two bills died in committee last year without coming to a vote.
Grocery stores argue wine and food pair together, so they should be sold together. Proponents also claim wine sold in grocery stores could increase sales tax revenues by more than $10 million a year. Small liquor stores, however, claim they’ll go out of business if grocery stores are allowed to sell wine, and the state will spend millions patrolling both grocery and liquor stores for illegal sales.
Last month, a federal appeals court upheld Tennessee’s ban on direct wine shipments, although it ruled that special provisions unfairly favored local wineries. Tennessee’s Grape and Wine Law is basically designed to boost the local industry by allowing residents to buy wine at wineries that use at least 75% of ingredients produced in the state. As a result, the appeals court sent the case back to a lower court to make the regulations more in line with federal law.
TESCO’S NEW STRATEGY BODES BAD FOR AUSTRALIAN WINES
UK supermarket Tesco is implementing a new strategy that could make things even tougher for Australian exports. The retailer it cutting 15% of its total wine range over the next six months, spelling bad news for Australian wines which account for 25% of the total UK market. Foster’s Group and Constellation Brands are among the top five global suppliers in the UK wine market, of which Tesco accounts for 25% of all wine sold in the UK.
Why the new strategy? Tesco is attempting to protect its profits amid the global economic downturn and heavy competition in the UK. Unfortunately, Australian exports to the UK are already declining, falling 16% in the year to October 31. British retailers have been largely blamed for over-promoting alcoholic beverages and undergoing price wars in recent years that have put huge amounts of pressure on suppliers. As a result, beer, wine and spirits are sold for next to nothing in the UK. Retailers also turn cheap, bulk Australian wines into inexpensive private labels that make competition for other brands even harder. Australian grape growers are having a hard time making profits because not only are British retailers driving prices down, but oversupply and the strengthening Aussie dollar has made competition even harder.
In his presentation at Morgan Stanley’s conference, Constellation chief Rob Sands said British retailers are in a price war amongst themselves and are driving down price in product and putting pressure on suppliers.
“We haven’t given in but buy up has been weak,” he said. Constellation has increased pricing in that market and passed on 100% of the import duty.
WSD BRIEFS:
GUY LAWRENCE LEAVES BACARDI. Bacardi’s global brand director, Guy Lawrence, is leaving the company after 16 years to become the ceo of Quintessentially, a luxury concierge service, reports BrandRepublic.com. His new position is effective in January. He replaces Aaron Simpson who is becoming executive chairman. Bacardi has yet to announce Guy’s departure.
CALIFORNIA RETAILERS OPPOSE TAX HIKE. Members of the Neighborhood Market Association issued a press release saying they strongly opposed the $4.4 billion dollar tax plan introduced in the Legislature today that would dramatically increase the cost of alcohol beverages. The group says the tax increase would hurt jobs statewide and significantly reduce sales for on and off-premise establishments. "With slumping sales and declining revenues, our businesses just can't take another hit," said Auday Peter Arabo, president of the group.
WHOLE FOODS FIGHTS BACK. The organic retail giant has hired a lobbying firm (Glover Park Group) to raise support in Congress in its fight with the FTC over its recent acquisition of Wild Oats. A company spokeswoman said the goal was to make Congress “aware of FTC procedures that violate the company’s due process rights as the commission attempts to unwind the year-old Whole Foods-Wild Oats merger.” An administrative judge will hear both sides next February.
Until tomorrow, Megan
“I think we're having fun. I think our customers really like our products. And we're always trying to do better.”
Steve Jobs
--------- Sell Day Calendar ----------
Today's Sell Day: 12
Sell days this month: 19
Sell days this month last year: 21
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1
BEER SUMMIT 2009 - The Four Seasons, Austin, Texas - Join us for great speakers, intelligent discourse, good food, and of course great beer at the next Beer Summit on March 1 - 2, 2009. Click here: http://tinyurl.com/beersummit
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 1:50 PM
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