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News Alert: Constellation Acquires Empathy Wines, Aiming To Transform Its E-Commerce Business

July 1, 2020

It’s been a busy year for Constellation Brands, which is in the process of premiumizing its wine and spirits portfolio. The drinks giant has a pending deal to offload a host of lower-end brands to E.&J. Gallo for $1 billion, and recently agreed to sell Paul Masson brandy to Sazerac for $255 million. But according to Robert Hanson, president of the company’s wine and spirits unit, its latest play may have the most far-reaching consequences. Today, Constellation is announcing that it will acquire e-commerce platform Empathy Wines for an undisclosed sum. Empathy, launched in early 2019 by Gary Vaynerchuk, Jon Troutman, and Nate Scherotter, sold more than 15,000 cases of its namesake California-sourced red blend, white blend, and rosé wines ($20 a 750-ml.) in its first year, all direct-to-consumer through its e-commerce site. Hanson says the purchase marks a leap forward for Constellation’s direct-to-consumer and e-commerce capabilities at a time when those channels are seeing rapid growth. SND executive editor Daniel Marsteller spoke with Hanson and Vaynerchuk to find out how Constellation plans to leverage Empathy’s platform to reshape its wine and spirits business.

SND: What sets Empathy apart from other DTC and e-commerce models?

Vaynerchuk: We wanted to build the best direct-to-consumer wine brand, zeroing in on the $20 price point, where we thought we could really deliver. The name comes from the idea that we have empathy both for the farmers growing the grapes and the consumer, and that we can be the glue between them and bring enormous value to both. It got off to a blistering start, on the back of our digital marketing, influencer marketing, Instagram ads, and features like our service where consumers can text feedback to us, our yearly subscription where you receive wines monthly or bimonthly, and finally, our ambition. Most DTC-only wine brands are cult wines with a mailing list. This was built more like a direct-to-consumer brand for the general market, like a Warby Parker or Casper mattress. We want to build it to a truly meaningful scale.

SND: Why is Empathy the best fit for Constellation as it looks to ramp up its e-commerce and DTC business?

Hanson: This is a consumer-first brand. I became a customer, and I was sold when the box arrived and it was sustainable, beautifully packaged, customized to me as an individual consumer, and the wines were fantastic. Our ability to scale what is a rapidly growing brand that Gary, Jon, and Nate founded is one opportunity. But to be able to apply the business model to our high-end wine portfolio—Robert Mondavi Winery, The Prisoner Wine Company, Simi, Schrader, Double Diamond, To Kalon Vineyard Company—you start to see the potential for us to quickly accelerate our performance in DTC. Pre-Covid, only about a third of consumers knew you could buy beverage alcohol through e-commerce channels. Now it’s 80% or 90%. We’re seeing a significant transformation in how consumers are engaging with wine, and Gary and I are likeminded about how to bring agility, speed, and innovation into the category.

SND: How will the increased focus on DTC interact with Constellation’s three-tier business?

Hanson: What is unique about the model that Gary and the team built is it’s digitally native. They don’t make a differentiation between brand building and channel marketing. It’s all building awareness and generating and retaining clients, making sure there’s low churn in the subscription and club model so that we get people who love the brand and promote it, because those customers are worth an incredible lifetime value. Our high-end wine portfolio was built predominantly through a wholesale route-to-market, where there’s a different approach to building brands. What will happen here is we’ll turbocharge our ability to have a direct relationship with consumers. But we’re also going to be a better partner for our distributors, because we’ll be able to test ideas in our DTC channel before we roll them out at a major capital or SG&A expense. As a result, we’ll bring much more salient innovation into the wine category more quickly. We’ll be able to leverage Empathy’s consumer insights and analytics and kill the things that aren’t relevant to the consumer and pour fuel on the fire of the things that are really taking off.

Vaynerchuk: The way that manifests in the day-to-day is that if we’re doing a marketing play, where you see all the data on how it’s performing, it may then impact our shopper marketing campaigns for the three-tier system. The wine industry hasn’t done a good enough macro job in incorporating the consumer tone and tenor into its marketing behavior, and I think this is going to give Constellation a real leg up in doing that.

SND: Where do you see the Empathy platform—and its influence across the Constellation portfolio—a few years down the road?

Hanson: We’re shifting from having been an extremely broad player—as we divest our popular and some of our mainstream brands to Gallo and Sazerac—to having a portfolio that’s mostly high-end. 90% of wine sales in direct-to-consumer are $20 a bottle and higher. Digital commerce in total right now is probably making up for three to 10 years of growth, depending on which numbers you believe, because of the changes in consumer behavior driven by the Covid-19 crisis. We intend to build a direct-to-consumer business that is, at least on a percent sales penetration, above the total market penetration and then grow it at a more rapid rate to gain share.

Vaynerchuk: My hope is that Empathy will be a monster brand, and that every single brand in the portfolio that Constellation wants us to touch has felt the impact of it. This is a real legacy for me. It has to work. A lot of people have sold companies from Silicon Valley to big companies and then checked out, or couldn’t wait to earn out. I want to be the poster child of the reverse.

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