Constellation Expects Wine And Spirits Premiumization Drive To Pay Off

In an update yesterday, Constellation Brands said it’s targeting 1% to 3% net sales growth and 25%-26% operating margins for its wine and spirits business over the medium term, underpinned by its move toward the higher end of the market, although it slightly downgraded sales expectations for the current fiscal year to down 1% to 2%.

Constellation noted that its wine and spirits stable “underwent significant transformation over the last several years,” doubling its number of fine wine and craft spirits brands since fiscal year 2019. In its fiscal 2019, Constellation derived 58% of sales from brands below $15 a bottle. In its most recent fiscal year that equation reversed, with above-$15 bottles taking a 63% share. And by fiscal 2028, the company is targeting a share in the mid-70s for above-$15 brands. Looking ahead, the company believes it’s now well-positioned with premium and above labels like Casa Noble, Meiomi, The Prisoner Wine Company, High West, and My Favorite Neighbor, with the potential for more higher-end “tuck-in” acquisitions in the future.

“We are confident that our net sales performance will accelerate from this year forward,” said Robert Hanson, president of Constellation’s wine and spirits division. “In line with consumer-led premiumization trends, we expect our higher end brands to continue to drive growth and become an even larger part of our mix.

“The reshaped higher end portion of our portfolio is now more similar to, for example, LVMH’s sparkling portfolio,” Hanson continued. “They compete with Chandon in the teens (per 750-ml.) and it goes all the way up to Don Perignon and Krug at $300 and above a bottle. In our case, it’s Meiomi and Kim Crawford in the teens and we compete up to $250 to $350 a bottle with Schrader, To Kalon Vineyard Company, and the Robert Mondavi Reserve tier lines.”

Those higher end labels are driving profitability in the business, Hanson noted. While Woodbridge is the company’s largest brand by volume at 8 million cases annually, according to Impact Databank, Meiomi is expected to have three times higher profitability by fiscal 2028 at one third of the volume. High West is expected to be approximately as profitable as Woodbridge at just 5% of the volume. In addition to premiumization, sharpened focus on the DTC channel and share gains in international markets are also part of Constellation’s growth plans moving forward.—Daniel Marsteller

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