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Interview, Part 1: Constellation’s Ambitions In Fine Wine And Upscale Spirits

April 13, 2021

Last week, Constellation Brands posted full-year net sales up 3% on a comparable basis to $8.6 billion, with operating income increasing 6% to $2.9 billion.

The company’s wine and spirits division, accounting for about 30% of sales, has focused on premiumization lately, exemplified by the divestiture of a host of lower-end labels to E.&J. Gallo. Most recently, the effort has seen Constellation form a new dedicated fine wine and craft spirits unit aimed at galvanizing its high-end range. SND executive editor Daniel Marsteller spoke with Robert Hanson, president of Constellation’s wine and spirits business, for an update.

SND: What are Constellation’s goals for its fine wine and craft spirits portfolio, and how will you go about achieving them?

Hanson: Our ambition is to be No.-1 in fine wine, which we define as sold under $75 domestically, and to be among the top five players in luxury and cult wine, while thoughtfully growing our craft spirits portfolio. Even with the transaction to Gallo behind us, the majority of our case volume and revenue are in the popular premium, super-premium, and ultra-premium price segments. Kim Crawford, Meiomi, Ruffino, Robert Mondavi Private Selection, Woodbridge and Svedka all compete in that mainstream and premium segment. The reality is that fine, luxury and cult wines behave very differently in the market than those do. The management of the brand tends to be a mashup between the general manager and the winemaker, and that’s just not how we’ve run our business in the past. We made the decision to stand up a separate business unit led by an SVP-general manager with strong fine, luxury and cult wine credentials and a passion for craft spirits, and we’re putting GMs over each part of the portfolio.

SND: How large is the fine wine and craft spirits division now, and where can it go from here?

Hanson: Currently it’s about 12% of our business; we think it can be 25%. We want to take a business that’s just under $300 million and have it be well over $600 million, and we’d like to do that in a relatively short period of time. We can get about halfway there with organic growth, but we’re also going to be engaging in M&A activity to add great brands into the mix that are not redundant to our existing portfolio.

SND: What types of acquisition opportunities are attractive?

Hanson: We actually are in conversations now. On the West Coast, we’ve looked at all the AVAs, price segments, varietals and then the Nos.-1, -2, and -3 potential partners that we’d love to be in business with or acquire if there’s an openness to selling. We’re a bit Sonoma and Napa Cabernet and red blend heavy in our portfolio. We’ll continue to add to those for sure, but we’re quite interested in looking at other appellations as well as brands that lean into varietals as the lead product offering in a space where we don’t have a lead player. Pinot Noir and Chardonnay both come to mind obviously. We’re also looking at brands that have strong enough shoulders to be extended, as we’ve done successfully with The Prisoner. Our minority investment in Booker is also a good example. Booker Estates is a luxury competitor between $85 and $125, but we’ve been working with Eric Jensen and his team to support them as they have introduced My Favorite Neighbor ($50) and Harvey & Harriet ($30).

SND: From a broader perspective, what are you seeing in the market overall?

Hanson: Market growth is, in total, eerily consistent year over year, in that low single-digit growth rate. We’re growing above the target at 5%, and that’s our intent moving forward. We’ve obviously seen a significant shift to digital commerce and off-premise. We’re seeing that rebalance, but at a slow rate, because on-premise reopenings vary by state. We believe there’s a good third or more of the independent on-premise that’s probably not going to make it back, and we need to be agile and respond to what the on-premise is going to actually be post-Covid. We think it will be a more innovative version where the on-premise players are doing in-house dining, but also a really significant home delivery of both food and drinks, if the regulatory environment continues to allow it.

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