Constellation: Pricing Will Pay Off
With the economy and recent price increases taken into account, Constellation performed well in the third quarter particularly in North America where the branded wine business grew 2%. Chief Rob Sands was careful to note throughout the conference call that although the company is meeting earning expectations, the economic environment remains extremely challenging and unpredictable. Some of Constellation’s key strategies in preparing for the future include pricing, growing dollar sales, paying down debt and reducing supply chain initiatives.
The company’s price mix benefited from the acquisition of higher profit premium brands and the divestiture of lower margin value brands. However, sales were a bit below expectations for several reasons. The US wine category continued to experience a slight slowdown in growth, while consumers were trading up less frequently. As a result, recent price increases taken by the company across the majority of its wine portfolio in the U.S. unfavorably impacted volume in the short-term more than they originally anticipated. While Rob admitted pricing took more of a toll on volume than expected, he said volume is not as big of a concern for Constellation.
“We’re 100% positive the pricing actions we’re taking is the right thing…worrying about 1% of volume growth is not where our focus should be…paying down debt, lifting margins…is where our focus is,” said Rob.
On the bright side, Rob said Constellation’s wine portfolio is in a good spot because consumers tend to buy well known, trusted brands that represent good value during tough economic times.
Recent 12-week IRI data shows that the overall US wine market remained healthy at mid-single digit growth rates in the quarter. Many premium brands (including Woodbridge, Wild Horse and others) posted strong dollar growth as well. Once the company completes its ongoing value brand and SKU rationalizing in 2010, it will be in a much better spot.
“We expect sales growth to return to normal levels as we lap price increase, which is expected to occur in next few months,” said Rob.
SVEDKA POSTS DOUBLE-DIGIT GROWTH. Once again, Svedka experienced strong double digit market growth, helped by increased distribution, national account penetration and flavor extensions. Ridgemont Reserve 1792 Bourbon, Black Velvet and di Amore Cordials also delivered strong sales growth.
“Black Velvet is outperforming the marketplace and really up about 6%, which for a mature brand is huge,” said Rob.
As a mid-priced brand, it’s in the right position for the current economy. Meanwhile, Svedka is the only spirits brand growing at such high levels. Rob said the Grey Gooses and Patrons of the world are slowing some although they are still healthy.
CONSUMER BEHAVIOR. U.S. market conditions remain pretty healthy as measured by consumer take away, said Rob, particularly marked by mid-single digit value growth for wine. The spirits category, however, is being hit the hardest.
“Spirits probably has been impacted by the greatest extent with growth getting near flattish but that hasn’t affected us because particularly we have very hot brands that are on fire.”
Meanwhile, the beer business has accelerated in general during the economic downturn but driven mainly by domestic premiums and the next tier up.
Based on IRI data and wholesaler feedback, “it appears the wine consumer takeaway was pretty good over the holiday season [for wine]. Once everything is reconciled we’re hopeful everything will look pretty good.”
BENEFITING FROM CLUBS. Constellation has made a bigger push in clubs and other mass merchandizing stores which are growing as the result of the economy. Much like how consumers are shifting from the on-premise to the off-premise, consumers are also choosing to shop at non-traditional retail stores instead of typical grocery stores. Rob said “we’re definitely seeing those categories perform and grow for our business as well as the marketplace in general at a higher rate. For our business a significantly higher rate.”
“Those channels are outperforming other channels in general…it’s no surprise they’re growing in the U.S. because one of the aspects of the economic downturn is a shift from on- to off-premise, and room more traditional retail channel to chains and mass merchandisers” where Constellation is a leader.
MERGERS AND ACQUISITIONS. When asked about potential M&A activity, Rob said the company is more focused on cash flow generation and paying down debt, and not actively seeking out acquisitions. If the right deal came along though, Constellation would consider it.
“We don’t feel compelled to do anything,” said Rob. “We are going to keep looking at the portfolio and making adjustments to favor higher growth business and eliminate businesses” that are a drag on growth.
ROB’S CRYSTAL BALL. Rob looked into his crystal ball during today’s conference call, predicting that the 2009 California wine grape harvest will likely stay in a fairly balanced state to slight undersupply, although it’s hard to tell so early on. If his prediction is correct, it “might suggest there should be some price/cost inflation on grapes out of California…especially certain varieties that tend to be in shorter supply.”
BEATING THE COMPETITION. In terms of competition, Rob said they’re not worried. “The economy has benefited some of the lower end brands and lower end companies (like Gallo) but not anything that we’re particularly concerned about. We’re not interested in that value category.”
He said Constellation will continue taking pricing in the wine business but also consistently refine the portfolio with new products and innovative brands that take advantage of new consumer trends, such as the recently released Malbec and Tempranillo.
“Pricing coupled with innovation is what really works.”
WINE ACQUISITIONS ALREADY HEATING UP
HUNEEUS INVESTS IN FLOWERS VINEYARDS. It was announced today that Huneeus Vintners (owned by the Huneeus family and based in Rutherford) is making an investment in Flowers Vineyards and Winery of the Sonoma Coast. The Huneeus portfolio includes Quintessa, Faust, Illumination, Primus and Veramonte. Most of the Huneeus portfolio consists of wineries specializing in Cabernet Sauvignon and Bordeaux varietals, while Flowers is known for Pinot Noir and Chardonnay. The Flowers team, headed by president Tom Hinde, will reportedly work with Huneeus in servicing their customers across the country.
WILSON TO BUY JEPSON. Meanwhile, the owners of Wilson wineries (Ken and Diane Wilson) are purchasing Jepson Winery (based in Mendocino County) from investment group Dbon Mendocino LLC, which originally planned to develop high end estates on the property. The deal is expected to close by the end of the week. Financial details were not disclosed. According to the Press Democrat, the property was listed for $10.5 million last summer. The Wilsons’ properties include Wilson, Mazzocco, and Matrix wineries in the Dry Creek Valley, and the Mosaic/deLorimier winery in the Alexander Valley. The Wilsons will reportedly focus on the winery and possibly distilling brandy rather than building a subdivision.
FRITZ WINERY ACQUIRES LOST CANYON WINERY. Fritz Winery has acquired the Lost Canyon Winery brand from owners Bob Riskin, Jack States and Randy Keyworth for an undisclosed price, announced Clayton Fritz, president of Fritz Winery, based in Dry Creek Valley. The acquisition includes the Lost Canyon brand, current inventory, label, bond and website but does not include the Lost Canyon production facility. Fritz will also assume the grape contracts from a number of Lost Canyon’s growers. Fritz specializes in Chardonnay and Pinot Noir from Russian River Valley and Sauvignon Blanc, Zinfandel and Cabernet Sauvignon from Dry Creek Valley.
FORTUNE BRANDS TO CUT JOBS
Fortune Brands said it expects pretax charges of $100 million tied to workforce reductions and other cost cuts, according to a regulatory filing, but did not detail how many jobs would be cut or which plants would be closed or consolidated. However, the charges are predominantly related to its home and hardware segment. Fortune is expected to release more information when announcing its fourth quarter results later this month. Could this mean Fortune may offload some more brands? Recall it sold its wine business to Constellation in the beginning of 2008.
DON’T FORGET TO SUBMIT your predictions for our industry in 2009 to megan@winespiritsdaily.com. All names and companies will remain anonymous.
Until tomorrow, Megan
“Never tell anyone that you're writing a book, going on a diet, exercising, taking a course, or quitting smoking. They'll encourage you to death.”
Lynn Johnston
--------- Sell Day Calendar ----------
Today's Sell Day: 4
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Fri
This month last year ended on a: Thurs
YTD sell days Over/Under: 0
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
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Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
The company’s price mix benefited from the acquisition of higher profit premium brands and the divestiture of lower margin value brands. However, sales were a bit below expectations for several reasons. The US wine category continued to experience a slight slowdown in growth, while consumers were trading up less frequently. As a result, recent price increases taken by the company across the majority of its wine portfolio in the U.S. unfavorably impacted volume in the short-term more than they originally anticipated. While Rob admitted pricing took more of a toll on volume than expected, he said volume is not as big of a concern for Constellation.
“We’re 100% positive the pricing actions we’re taking is the right thing…worrying about 1% of volume growth is not where our focus should be…paying down debt, lifting margins…is where our focus is,” said Rob.
On the bright side, Rob said Constellation’s wine portfolio is in a good spot because consumers tend to buy well known, trusted brands that represent good value during tough economic times.
Recent 12-week IRI data shows that the overall US wine market remained healthy at mid-single digit growth rates in the quarter. Many premium brands (including Woodbridge, Wild Horse and others) posted strong dollar growth as well. Once the company completes its ongoing value brand and SKU rationalizing in 2010, it will be in a much better spot.
“We expect sales growth to return to normal levels as we lap price increase, which is expected to occur in next few months,” said Rob.
SVEDKA POSTS DOUBLE-DIGIT GROWTH. Once again, Svedka experienced strong double digit market growth, helped by increased distribution, national account penetration and flavor extensions. Ridgemont Reserve 1792 Bourbon, Black Velvet and di Amore Cordials also delivered strong sales growth.
“Black Velvet is outperforming the marketplace and really up about 6%, which for a mature brand is huge,” said Rob.
As a mid-priced brand, it’s in the right position for the current economy. Meanwhile, Svedka is the only spirits brand growing at such high levels. Rob said the Grey Gooses and Patrons of the world are slowing some although they are still healthy.
CONSUMER BEHAVIOR. U.S. market conditions remain pretty healthy as measured by consumer take away, said Rob, particularly marked by mid-single digit value growth for wine. The spirits category, however, is being hit the hardest.
“Spirits probably has been impacted by the greatest extent with growth getting near flattish but that hasn’t affected us because particularly we have very hot brands that are on fire.”
Meanwhile, the beer business has accelerated in general during the economic downturn but driven mainly by domestic premiums and the next tier up.
Based on IRI data and wholesaler feedback, “it appears the wine consumer takeaway was pretty good over the holiday season [for wine]. Once everything is reconciled we’re hopeful everything will look pretty good.”
BENEFITING FROM CLUBS. Constellation has made a bigger push in clubs and other mass merchandizing stores which are growing as the result of the economy. Much like how consumers are shifting from the on-premise to the off-premise, consumers are also choosing to shop at non-traditional retail stores instead of typical grocery stores. Rob said “we’re definitely seeing those categories perform and grow for our business as well as the marketplace in general at a higher rate. For our business a significantly higher rate.”
“Those channels are outperforming other channels in general…it’s no surprise they’re growing in the U.S. because one of the aspects of the economic downturn is a shift from on- to off-premise, and room more traditional retail channel to chains and mass merchandisers” where Constellation is a leader.
MERGERS AND ACQUISITIONS. When asked about potential M&A activity, Rob said the company is more focused on cash flow generation and paying down debt, and not actively seeking out acquisitions. If the right deal came along though, Constellation would consider it.
“We don’t feel compelled to do anything,” said Rob. “We are going to keep looking at the portfolio and making adjustments to favor higher growth business and eliminate businesses” that are a drag on growth.
ROB’S CRYSTAL BALL. Rob looked into his crystal ball during today’s conference call, predicting that the 2009 California wine grape harvest will likely stay in a fairly balanced state to slight undersupply, although it’s hard to tell so early on. If his prediction is correct, it “might suggest there should be some price/cost inflation on grapes out of California…especially certain varieties that tend to be in shorter supply.”
BEATING THE COMPETITION. In terms of competition, Rob said they’re not worried. “The economy has benefited some of the lower end brands and lower end companies (like Gallo) but not anything that we’re particularly concerned about. We’re not interested in that value category.”
He said Constellation will continue taking pricing in the wine business but also consistently refine the portfolio with new products and innovative brands that take advantage of new consumer trends, such as the recently released Malbec and Tempranillo.
“Pricing coupled with innovation is what really works.”
WINE ACQUISITIONS ALREADY HEATING UP
HUNEEUS INVESTS IN FLOWERS VINEYARDS. It was announced today that Huneeus Vintners (owned by the Huneeus family and based in Rutherford) is making an investment in Flowers Vineyards and Winery of the Sonoma Coast. The Huneeus portfolio includes Quintessa, Faust, Illumination, Primus and Veramonte. Most of the Huneeus portfolio consists of wineries specializing in Cabernet Sauvignon and Bordeaux varietals, while Flowers is known for Pinot Noir and Chardonnay. The Flowers team, headed by president Tom Hinde, will reportedly work with Huneeus in servicing their customers across the country.
WILSON TO BUY JEPSON. Meanwhile, the owners of Wilson wineries (Ken and Diane Wilson) are purchasing Jepson Winery (based in Mendocino County) from investment group Dbon Mendocino LLC, which originally planned to develop high end estates on the property. The deal is expected to close by the end of the week. Financial details were not disclosed. According to the Press Democrat, the property was listed for $10.5 million last summer. The Wilsons’ properties include Wilson, Mazzocco, and Matrix wineries in the Dry Creek Valley, and the Mosaic/deLorimier winery in the Alexander Valley. The Wilsons will reportedly focus on the winery and possibly distilling brandy rather than building a subdivision.
FRITZ WINERY ACQUIRES LOST CANYON WINERY. Fritz Winery has acquired the Lost Canyon Winery brand from owners Bob Riskin, Jack States and Randy Keyworth for an undisclosed price, announced Clayton Fritz, president of Fritz Winery, based in Dry Creek Valley. The acquisition includes the Lost Canyon brand, current inventory, label, bond and website but does not include the Lost Canyon production facility. Fritz will also assume the grape contracts from a number of Lost Canyon’s growers. Fritz specializes in Chardonnay and Pinot Noir from Russian River Valley and Sauvignon Blanc, Zinfandel and Cabernet Sauvignon from Dry Creek Valley.
FORTUNE BRANDS TO CUT JOBS
Fortune Brands said it expects pretax charges of $100 million tied to workforce reductions and other cost cuts, according to a regulatory filing, but did not detail how many jobs would be cut or which plants would be closed or consolidated. However, the charges are predominantly related to its home and hardware segment. Fortune is expected to release more information when announcing its fourth quarter results later this month. Could this mean Fortune may offload some more brands? Recall it sold its wine business to Constellation in the beginning of 2008.
DON’T FORGET TO SUBMIT your predictions for our industry in 2009 to megan@winespiritsdaily.com. All names and companies will remain anonymous.
Until tomorrow, Megan
“Never tell anyone that you're writing a book, going on a diet, exercising, taking a course, or quitting smoking. They'll encourage you to death.”
Lynn Johnston
--------- Sell Day Calendar ----------
Today's Sell Day: 4
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Fri
This month last year ended on a: Thurs
YTD sell days Over/Under: 0
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 1:57 PM
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