Constellation Seeks to Dominate Wine Universe
A vintner from Down Under may be close to putting Constellation Brands Inc. on top, unseating E. & J. Gallo Winery of Modesto as the world’s largest wine company.
Constellation, based in Fairport, N.Y., said Monday that it is in talks to acquire top Australian wine producer BRL Hardy Ltd. but didn’t disclose terms. If the deal is completed, Constellation would become No. 1, with about $1.7 billion in annual wine sales, eclipsing Gallo’s $1.4 billion.
“We have strong faith in the continued growth of Australian wine,” said Emilio Ruocco, a Constellation spokesman. “We believe that combining the businesses could accelerate the growth of each other’s portfolio.”
Once primarily a maker of jug-wine brands such as Almaden and Paul Masson, Constellation has diversified its portfolio substantially over the last two years, adding a number of premium California wine brands, including Ravenswood and Talus as well as several foreign labels. The deals made Constellation the world’s No. 2 wine producer, with about 45 million cases sold in 2001, according to some estimates.
Constellation already had an Australian connection through a joint venture to market BRL’s Banrock Station and Stonehaven wines, adding about $14 million in profit to its bottom line.
By buying BRL outright, Constellation would be able to distribute its products in more foreign markets and exploit Americans’ developing taste for Australian wines.
Australia’s swift rise as a top wine-producing region in recent years and the growing popularity of its wines in the United States have put U.S. winemakers and their profits under pressure. Many California wine companies have been acquired or sought international venture partners to survive in the increasingly glutted global market.
Many of Constellation’s U.S. competitors have tried to capitalize on the Australian invasion. Napa Valley-based Beringer Wine Estates, for example, was acquired in October 2000 by Melbourne beer giant Foster’s Brewing Group Ltd., which also owns wine brands such as Black Opal, Greg Norman Estates and Wolf Blass.
Robert Mondavi Corp. of Oakville, Calif., formed a partnership in July 2001 with Australia’s largest wine company, Southcorp Ltd., and its popular Rosemount Estate label to produce wines for the Australian and U.S. markets. And some, such as Santa Rosa-based Kendall-Jackson Wine Estates, have chosen to buy vineyards in Australia.
For Constellation, an acquisition of BRL would up its percentage of wine sales to more than 50% of total revenue of $2.6 billion, from about 35%. The rest of its business comes from the sale of beer, liquor and other beverages.By expanding its wine portfolio, Constellation would “have a greater dependency on a market going through some challenges,” said Skip Carpenter, an analyst with Thomas Weisel Partners.
But, Carpenter added, the acquisition could leave Constellation well-positioned to compete in the years ahead, as the industry continues to consolidate and as Australian wines gain a bigger share of retail shelf space.
Australian wines still are a small part of total U.S. sales -- about 6.9% of supermarket receipts last year through Dec. 21, according to AC Nielsen.
But sales are rising rapidly, jumping 64% last year to $741 million, according to the Australian Wine and Brandy Corp., a quasi-governmental group. Wine accounts for more than a third of the country’s exports.
Constellation, formerly Canandaigua Brands, also has grown rapidly in recent years, boosting both its sales and its reputation.
In 2001 it acquired Ravenswood Winery as well as Turner Road Vintners, which owned the Vendange and Talus brands. It also scooped up Washington state wines Covey Run and Columbia, bought Aussie import Alice White and purchased Blackstone through its joint venture with BRL.
In its quarter ended Nov. 30, Constellation’s net income jumped 18%, or $10 million, on sales of $738 million, a 5% increase from the same period a year earlier.
Analysts say an acquisition of BRL would be a good fit. Constellation markets only 2% of its wine overseas, and BRL is an aggressive exporter and is popular in Britain, where Constellation is seeking to expand.
And it could mean that BRL’s Australian wines would get wider distribution in the U.S.
“It’s so much more competitive out there,” said Vic Motto of Motto Kryla Fisher, a wine industry consultant. As the worldwide supply of wine grows, he said, “the largest companies have to be global.”
Privately held Gallo did not return calls seeking comment.
Constellation shares gained 20 cents to $25.15 on the New York Stock Exchange.
*
(BEGIN TEXT OF INFOBOX)
Constellation Brands wine cellar
Fairport, N.Y.-based Constellation Brands is in talks to acquire Australia’s BRL Hardy, a move that would increase its global wine presence. A look at Constellation’s wines by type:
* Dessert: Cisco, Cribari, Paul Masson, Taylor
* Imported: Alice White, Marcus James, Vi--a Santa Carolina
* Popular: Coastal Vintners, Estate Cellars, Heritage, La Terre, Nathanson Creek, Vendange
* Premium: Columbia, Covey Run, Dunnewood, Estancia Estates, Franciscan Oakville Estate, Mount Veeder, Mystic Cliffs, Paul Thomas, Quintessa, Ravenswood, Simi, Ste. Chapelle, Talus, Veramonte
* Sparkling: Cook’s, Great Western, J. Roget, Mondoro, Motif
* Specialty: Arbor Mist (wine with fruit), Manischewitz (Kosher), Paul Masson Grande Amber (brandy), St. Regis (non-alcohol)
* Value: Almaden, Inglenook, Paul Masson, Taylor California Cellars
*
Source: Constellation Brands
