Constellation has seen little growth in its wine business for the past several years.
By Jeff Siegel
The news that Constellation Brands – once the second biggest wine producer in the United States – is looking to exit the wine business sent multiple shock waves throughout the industry. But, say analysts, if the report in Wine Business News is true, it shouldn’t necessarily come as a surprise.
“The first thing to know is that it hasn’t been confirmed yet,” says Rob McMillan, EVP & Wine Division Founder, Silicon Valley Bank, a division of First Citizens Bank. “Having said that, if it’s true, it is consistent with how Constellation has operated, focusing on growth.”
Dropping revenue
According to analysts, Constellation has seen little growth in its wine business for the past several years. In the three months ended last November 30, Constellation’s wine sales fell 16.4% to 5.1 million cases, with revenue dropping 14% (compared to the same period 12 months earlier). In this, the turnaround that Constellation CEO Bill Newlands had predicted by the end of 2024 never materialized.
“If [the report] is true, it’s an opportunity for Constellation to focus on what’s working, like the Mexican beers and the handful of top tier spirits it owns,” says Tim McDonald, a longtime wine marketer and winery executive. “But what this means for the overall wine business, with one of the big guys talking about exiting, is that there is still a long way to go before we see an upturn in the business — and that’s something that no one wants to hear.”
Sending shockwaves
The magazine reported Tuesday that Constellation was in negotiations to sell its remaining wine holdings in two parts: its lower-end brands to Delicato Family Wines and its premium labels to the Duckhorn Portfolio. Constellation’s wine assets are some of the best known in the country, and include supermarket powerhouse Woodbridge, as well as Robert Mondavi Winery, Schrader Cellars, Booker Vineyard, Sea Smoke, Lingua Franca and Simi Winery.
The Wine Business News story said Constellation did not respond to a request for comment and Delicato opted to not comment. A representative for Duckhorn told the magazine that the company does not comment on “market rumors or speculation.”
That said, several wine country merger and acquisition executives said privately last fall that they expected Constellation to shed its lower-priced properties sooner rather than later, confirming what the company had hinted at in an earnings call last summer.
But to divest itself entirely? That was hardly expected. Constellation was one of the biggest players in the wine business for decades, and its purchase of Robert Mondavi in 2002 helped start 20 years of acquisitions that remade the wine business.
Impact unclear
It’s also unclear how, if true, this will affect the thousands of California growers who have already been buffeted by low prices, canceled contracts and a flooded bulk wine market. In this, says McDonald, it’s like the oversupply in the 1980s.
Still, says Sonoma-based marketer Paul Tincknell, Constellation — like other big brands — has traditionally bought large amounts of bulk wine for their portfolio and to experiment with new products. If Constellation is not around to buy wine, that can’t be a good sign for the bulk market.
“I know Constellation has been running from the wine industry for many years, making most of its money in beer, but I don’t think most people expected the company to cut the cord completely,” says Tincknell. “Does this mean they see no rebound in the future?”
Banking on beer
If true, it likely means Constellation has tired of waiting for growth to resume, at least in the near term. McMillan says that the company has consistently shed assets when it doesn’t see expected growth, pointing to its 2021 sale of many of its lower-end labels to Gallo, as well as its distancing itself through a series of corporate maneuvers from its multi-billion dollar investment in Canada’s Canopy Growth legal marijuana business.
On the other hand, Constellation’s beer business, headed by Mexican brands that include Corona, has seen growth — sales increasing 1.6% and dollar sales up 3% to $2.03 billion. In that same conference call, Newlands predicted beer growth of 6 to 8% in dollar terms, and the company said it would focus on its beer portfolio in the 2025 fiscal year.
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Jeff Siegel
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”
