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Constellation Brands (US)

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Constellation Brands is the world's leading premium wine company, and now also a major force in US beer as well as spirits. Long-established as a wine producer, the company expanded dramatically during the 1990s as a result of a string of acquisitions. Initially these were concentrated in the US, and included what was then Crown Imports, the beer distributor which turned Mexico's Corona Extra into the best-selling US import. Following its buyout from AB InBev in 2013, Constellation's beer division has become America's #3 brewer behind AB InBev and MillerCoors (see separate profile), and beer is now the group's biggest revenue stream. Other important past purchases have included America's Robert Mondavi wines in 2004, Vincor of Canada in 2006, and Clos du Bois and other US wines from Fortune Brands in 2007. A sortie into international markets wasn't quite so successful. The group acquired UK drinks distributor Matthew Clark in 1998, followed by Australia's foremost producer BRL Hardy in 2003. The subsequent slump in UK and Australian sales prompted the group to sell off a controlling stake in those units in 2010, to form what is now Accolade Wines. Constellation sold its remaining 20% stake in 2018, and has since sold off several lower priced or lower volume US wine brands. Constellation also controls a small but significant collection of premium spirits led by Svedka vodka. In 2017, it was among the first drinks producers in the US to bet big on cannabis-infused beverages with a minority investment in Canopy Growth. See also:

Advertising

Who handles advertising? Click here for Agency Account Assignments for Constellation from Adbrands. The group declared advertising expenses of $701m for year ending Feb 2019.

Competitors

See Alcoholic Beverages Sector index for other companies. Constellation's rivals include E&J Gallo, The Wine Group/Franzia and Kendall-Jackson in the US, Treasury Wines Estates and Jacob's Creek (Pernod-Ricard) in Australia. Competitors in beer and spirits include Diageo, Heineken, Molson Coors and AB InBev.

Brands & Activities

Constellation Brands serves as the holding company for a several separate operating units, which produce and distribute a wide variety of alcoholic beverages. As a result of a string of acquisitions the company became the world's overall largest producer and marketer of wine in the 2000s, as well as the leading producer and marketer in both the US and Australia, and the leading marketer in the UK. The pressures of the economic downturn at the end of that decade, however, prompted it to reduce its exposure outside North America.

Wine

Traditionally, the core of Constellation's business has always been wine, but it is steadily moving away from that market towards beer. A large number of wineries and vineyards have been sold over the past few years. In its home market Constellation Wines US is the local #2 in the US after E&J Gallo. At the top end of the scale is a collection of more expensive fine wines, led by Robert Mondavi Winery. The Mondavi brand, also marketed in the mass-market sector as Robert Mondavi Private Selection, is the group's top-selling wine by volumes. Its acquisition in 2004 was instrumental in transforming Constellation from a marketer of mainly low-end wines into a major player in the market.

Other high-end acquisitions have included Franciscan, Estancia and Simi from California, and Ruffino of Italy, in which Constellation acquired an initial stake in 2004 before taking full control in 2012.

In 2007, Constellation agreed to acquire the small but significant high-end wine portfolio owned by Fortune Brands, for around $885m. This is centred around top-selling super-premium Californian wine label Clos du Bois, with sales of around $150m a year, supported by Wild Horse and Canyon Road premium wines. Mark West was acquired in 2012. A new addition to the portfolio in 2015 was the Meiomi wine brand, acquired for $315m. This was followed in 2016 by The Prisoner Wine Company, comprising five high-end California blends: The Prisoner, Saldo, Cuttings, Thorn and Blindfold. Combined price for the purchase was $285m. Another group, added later the same year for $120m from Washington-based Charles Smith Wines, included Kung Fu Girl, Boom Boom!, Velvet Devil and Chateau Smith. Other key "focus brands" include Woodbridge, Black Box and Rex-Goliath.

Constellation has also in the past made substantial acquisitions in Canada, Europe and Australasia. In 2005, the group launched an unsolicited takeover bid for leading Canadian winemaker and distributor Vincor International, owner of brands including Jackson-Triggs and Inniskillin. Both the initial offer and a revised bid of $944m were rejected by Vincor, but a final offer of $1.1bn clinched the deal in April 2006. However, profit margins on the Canadian brands remained low. In 2016, the group said it would issue an IPO of the Canadian business. Market turbulence prompted the cancellation of that plan and instead the assets were put up for sale. A deal was agreed with Ontario Teachers' Pension Plan, which acquired the business for C$1.0bn (US$775m). The deal closed at the end of 2016.

However, the acquisition of Vincor also added ownership of a strong collection of New Zealand wines including Kim Crawford, Nobilo, Ravenswood and Barossa Valley of New Zealand. The group also distributes in North America a sizeable number of Australian and other wines under contract. The company also owns a network of Wine Rack retail stores and a collection of cooler brands including Vex, Growers Cider and Canada Cooler.

Total global volumes under the Mondavi banner were around 10m cases in 2016, putting it among the world's 10 best-selling wine brands. Kim Crawford sits just outside the Top 10 with around 9.1m cases. In the US, the company's biggest seller by value in the US is Woodbridge, under the Robert Mondavi umbrella. It was the #4 best-seller in the US by value in 2017 with sales of around $339m. Black Box was the #8 brand, with sales of $181m. The latter is currently the US market's fastest-growing brand, with volumes jumping by almost a quarter in 2017 to 6.6m cases.

In 2019, Constellation announced the sale of another group of around 30 wines to E&J Gallo, including several lower-priced leaders - including Black Box, Wild Horse, Mark West and Ravenswood - as well as high end Clos du Bois. Brands being sold accounted for around 40% of ye 2019 sales.

Total revenues from wine fell 1% in ye 2019 to $2.53bn. Volumes were around 50m cases.

Spirits

Until recently, a separate unit, Barton Brands, specialised in spirits, mainly but by no means exclusively in the value segment. In January 2009, the group took the decision to reduce its exposure in the value sector, selling off the majority of these to Sazerac Company of New Orleans for $334m. Brands sold included the Fleischmann's family of spirits, Montezuma Tequila and Beachcomber rum.

Constellation kept hold of a small collection of premium brands. The biggest of these is imported Swedish vodka brand Svedka, acquired in 2007 for $384m. It is is best-known for its exotic flavoured variants, such as Blue Raspberry, launched in 2017. It has been one of the fastest-growing international vodkas since it was acquired, overtaking better known rivals such as Stolichnaya, Skyy, Finlandia and even Grey Goose by volumes. Impact estimated global sales of 4.4m cases in 2017, worth around $600m at retail. It overtook Absolut in 2015 to become the top-selling imported vodka in the US, and is now the #4 overall behind Smirnoff, Tito's and New Amsterdam. Other spirits in the Constellation portfolio include Black Velvet Canadian Whisky (2.2m cases in 2014), and Paul Masson Grande Amber Brandy (1.4m cases in 2014). It acquired Casa Noble tequila in 2014.

In 2016 Constellation was victorious in an auction for craft spirits distiller High West Distillery, beating off rival bids from Moet Hennessy and Pernod-Ricard. Brands include Rendezvous rye, American Prairie bourbon and Campfire blended whiskey. The following year, it made an approach to acquire larger spirits rival Brown-Forman, owner of Jack Daniel's. That offer was firmly rebuffed by the Brown family who control Brown-Forman.

Total revenues from spirits rose 5% in ye 2019 to $381m, on volumes of around 9m cases.

Beer

The buyout of Corona Extra has transformed the group, and established beer as Constellation's single biggest business. The group is now exclusive owner of the Corona beer brand in the US, becoming the #3 beer marketer by volumes after AB InBev and MillerCoors. Corona is the #1 imported beer in the US, and #7 overall, and the company also now owns US rights to several sister brands, including Modelo and Pacifico. This small portfolio of Mexican imports is rounded out with Germany's St Pauli Girl. (Chinese beer Tsingtao, previously handled by Constellation, moved to Pabst's Jacob Best Imports in 2015). Beer Insights estimated total shipments of 14.4m barrels in 2014, equivalent to 6.7% market share, up sharply on the year before. During 2016 the group acquired high-end craft brewer Ballast Point for a lavish $1bn. Its lead brand is Sculpin IPA. Another craft brand, Funky Buddha, was added in 2017.

Crown was until recently merely an importer of foreign beers, having handled local distribution of Corona since 1978, initially sharing those duties with another company, Gambrinus of Texas. In 2006, Constellation secured sole US rights to Corona through a newly created joint venture with Corona's owner Grupo Modelo. Seven years later it swapped its role as a mere distributor for that of a producer in its own right. In 2013, AB InBev announced a deal to acquire Corona's owner Modelo. As a result, Crown Imports faced the loss of all rights to distribute Corona by 2016. However, luckily for Constellation, the InBev/Modelo deal was challenged by the US Department of Justice on grounds that it would boost the merged group's share of the US market to over 50%. Instead, Constellation and InBev thrashed out a new deal whereby Crown would assume permanent ownership of the Corona brand in the US as well as full ownership of the main Mexican brewery which produces all export supply. A higher price of $4.75bn was agreed. That deal was accepted by regulators in April 2013 and closed in June 2013.

In 2017, Constellation acquired a 10% shareholding in Canopy Growth Corporation, an authorised cannabis grower. The two companies are working on development of a line of cannabis-infused beverages for sales in US states where canabis has been legalised for recreational use.

Total revenues from beer jumped by almost 17% in ye 2017, by another 10% in ye 2018, and by 12% in ye 2019 to $5.20bn, with operating income of $2.0bn. Combined beer shipments for ye 2019, according to the group's own figures, rose 10% to 294m cases. In ye 2018, Constellation claimed shipments of around 145m cases for the Corona family, 110m for Modelo and 9m for Pacifico.

Divested Operations

The group's international operations underwent major changes in 2010 with the sale of virtually all its business in Australia and Europe. In 1998, Constellation had acquired the UK drinks wholesaler and producer Matthew Clark and expanded its international profile five years later with the purchase of Australia's leading wine producer Hardy. However both businesses suffered from a sharp slowdown in performance over the course of the 2000s, prompted in part by exchange rate fluctuations as well as a global surplus of Australian wine. An initial 50% stake in Matthew Clark was divested to UK pubs group Punch Taverns in 2007. In 2010, the remaining stake, as well as the Hardy wine business in Australia (but not New Zealand), was sold to Australian private equity group Champ at a valuation of around $290m. Constellation retained a 20% stake in the business until 2018 when CHAMP sold on the whole business to Carlyle Group.

Financials

Despite Constellation's acquisition-led growth, performance for the years ending 2008 and 2009 was disappointing, dented by a number of accounting adjustments. A change of policy on the reporting of joint ventures such as Crown Imports and Matthew Clark wholesale led to a 28% drop in reported revenues in 2008 to $3.8bn, while large impairment charges against UK and Australian assets generated a $613m net loss. For the following year, net revenues slipped a further 3% to under $3.7bn ($4.7bn including tax), and net losses reduced to $301m.

For the year ending February 2010, revenues continued to slide, falling to $3.4bn ($4.2bn inc tax). However the group returned to profit, with net income of $99m. In the year to Feb 2011, net revenues slipped a little further to $3.33bn, but net income soared to $560m, including a large gain from the sale of assets. However the spin-off of the Australian and European wine business prompted a steep fall in the top line for the year to 2012, with net revenues settling at $2.65bn ($2.80bn including excise). Net income slipped to $445m. Revenues for the year to Feb 2013 rose 5% to $2.80bn.

Sales for the year to Feb 2014, including a nine-month contribution from Corona, came in at $4.87bn, while reported net income soared to $1.94bn, including a large non-cash gain caused by revaluation of its original beer interest. On a comparable basis, net income was up by around 44% to $642m. The group's debt increased sharply to almost $7bn, which cost it $323m in interest expense in 2013.

The first full-year contribution from Corona pushed revenues over $6bn for the first time in ye 2015, at $6.03bn. Net income of $839m plunged 57% on a reported basis because of the previous year's one-off gain, but on a comparable basis excluding one-off items the increase was a very healthy 39%. Net revenues for the year to Feb 2016 rose a further 9% to $6.55bn (or $7.22bn gross), while attributable net income jumped 26% to $1.06bn. For the year to Feb 2017, net revenues soared to a new record of $7.33bn. Attributable net income jumped 45% to $1.54bn, helped by a $263m gain from the sale of a collection of low margin Canadian wines.

Performance reached new highs for the year to 2018, with revenues rising by a further 3% to $7.59bn. Comparable EBIT rose 13% year-on-year, but one-off tax benefits caused reported net income to soar to $2.32bn. Virtually all sales are generated in North America, including almost $7bn in the US.

For the year to 2019, revenues hit a new high of $8.1bn, while net income soared by 50% to $3.4bn as a result of a huge gain on the value of the group's minority investment in Canopy cannabis. Constellation's own operating income rose by a more modest 5% as strong growth in beer was offset by flat or declining performance in the wine and spirits portfolio.

Management

See Adbrands Account Assignments for marketers

Background

Canandaigua Industries was founded by Marvin Sands in 1945 as a bulk wholesaler of wines to bottlers in the eastern US. (It was named after the town in which it was incorporated). Three years later he strengthened the business through the acquisition of two small vineyards in North Carolina, but the real change came with the introduction in 1954 of the company's first own brand, Richard's Wild Irish Rose, a blended sweet wine named after his young son which Sands franchised out to other regional bottlers. On the success of this product, the company began to expand, gradually acquiring a number of other wineries around the country. In 1972, Canandaigua acquired the Eastern Wine Company of New York, whose leading brand was Chateau Martin. A year later the company went public, and the following two decades were marked by a number of further regional US winery and vineyard purchases.

The company's most important period of expansion, however, began in the 1990s, as Canandaigua began to expand beyond its traditional markets. In 1991 the business took its first steps into the important Californian wine market, acquiring Guild Industries, a cooperative of Californian growers. In 1993, this was followed by the acquisition of Barton Inc. This company had been formed in 1976 as ADP Liquor Imports, the local subsidiary of British company Amalgamated Distilled Products. ADP was granted a license to handle Corona in the US two years later, and purchased spirits distributor Barton Brands shortly afterwards, adopting the new subsidiary's name after a management buyout in 1987.

Also in 1993, Constellation acquired Vintners International, whose brands included Paul Masson wines. Further acquisitions included Mission Bell Winery in 1994, whose brands included Almaden and Inglenook, and United Distillers Glenmore in 1995. In 1997, Canandaigua Brands Inc was established as a holding company for the US wine, beer and spirits operations. The following year the group snapped up the UK's Matthew Clark. Originally an importer of wines and spirits, Matthew Clark expanded aggressively during the 1990s, acquiring brands of its own and adding on a substantial wholesaling division. Its purchases included Strathmore Mineral Water Company (1992), the wine business of Grants of St James's (1993), the Gaymer Group (1994) and Taunton Cider (1995). However profits slumped in 1996, and the company was forced to go looking for a buyer, a search resolved two years later by Constellation.

The same year it acquired Matthew Clark, Constellation also enhanced its spirits portfolio in 1999 with the purchase of Black Velvet and other Canadian whiskies, as well as the Simi and Franciscan Oakville vineyards, which became the foundation for a new fine wines division. In order to reflect the extent of its portfolio, the group name was changed that year from Canandaigua Brands to Constellation Brands. Also in 1999, founder Marvin Sands died, and he was replaced as chairman by his son Richard, after whom Wild Irish Rose had been named 45 years earlier.

In 2001 Constellation formed Pacific Wine Partners, a joint venture with BRL Hardy, to handle US distribution of a number of New World wines. Hardy was already Australia's foremost exporter, formed around the core of Thomas Hardy & Sons, one of the country's oldest producers. Thomas Hardy had arrived in South Australia in 1850 and began producing wine soon afterwards. Often referred to as the "father" of the local industry, he was the first Australian winemaker to export his produce back to England. His family maintained the tradition, gradually expanding the business, as well as its international distribution. In 1992, BRL Hardy was formed by the merger of the family company with Berri Renmano, a large cooperative of other South Australian wine producers. In 2002, a year after the creation of Pacific Wine Partners the joint venture was turned into full ownership, when Constellation agreed to acquire its Australian partner for around $1.1bn.

Meanwhile, the group's Matthew Clark division in the UK had developed a leading position as a producer and distributor of flavoured alcoholic beverages (FABs), including FCUK Spirit, which it manufactured under license from the French Connection fashion label. In 2003 FCUK Spirit became the first ever alcoholic beverage to be banned by the industry watchdog, the Portman Group. Responding to numerous complaints since its launch, Portman ruled that the drink appealed primarily to a market of underage drinkers, and should therefore be withdrawn.

At the end of 2004, Constellation announced a new US deal which consolidated its position as the world's foremost wine producer when it agreed to acquire Napa Valley's Robert Mondavi for around $1bn. An acknowledged pioneer of wine production in the US, in 1966 Mondavi established the first winery in California's Napa Valley since the repeal of Prohibition more than 30 years earlier, and played a major part in establishing a wine culture in the country.

In 2005, Constellation joined forces with Brown-Forman and two private equity investors to launch a bid for British drinks group Allied Domecq, then under offer from Pernod-Ricard. The offer later collapsed over disagreement with Allied over price and terms.

Last full revision 21st March 2018

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