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The Domestic Wine World in a Nutshell

Constellation Brands, the 2nd largest wine company in the U.S. behind E&J Gallo, has turned a nice trick.  Since May, their PR activities and the ensuing media coverage (across a diversity of topics) largely encapsulate the trends in the domestic wine world if not the larger American business environment. 

I pay attention to Constellation Brands.  I read the annual report, dry though it may be, and while I find that Constellation tends to get painted with the, “Corporate wine” brush that suggests a blend of big business and wine is necessarily bad, I haven’t found that to be the case with Constellation, at least anecdotally.  In fact, most former employees of Constellation that I’ve talked with offer respect for the organization while citing a host of more individual reasons for why they moved on.

No business is perfect, but Constellation hardly seems to be the bogeyman that the Agrarian Utopianists would have you believe.  Though, one quote from their 10-K seems to summarize the largely unspoken tension that exists between wine big business, the land and the globalization that tugs at both of them.

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“We are primarily a branding consumer products company and we rely on consumers’ demand for our products.  Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies, and changes in leisure, dining and beverage consumption patterns.  Our continued success will require us to anticipate and respond effectively to shifts in consumer behavior and drinking tastes.”

Opinion with the most strident wine conservatives holds that a winery should be a rock in the stream, rooted in terroir, not yielding to the fashion of the day and certainly not functioning as a branded, “consumer products company” answering to the vagaries of fickle, “consumer preferences.”

Yet, pursuant to the essential truth or not, that’s where the domestic wine world is today.  Let’s take a look at Constellation headlines dating to May of this year to see the domestic wine world trends in a nutshell:

Targeting Millenial Wine Drinkers Online / May 12, 2011      
Key reference(s) in the article:  Sensory analytics to understand consumer preferences.  Brand building akin to Procter & Gamble and Coca-Cola.  Expansion of its Project Genome research that studies wine drinkers’ buying habits.

Under the Microscope:  Constellation Brands’ push into digital marketing / May 13, 2011      
Key reference(s) in the article:  “Social media has caught executives’ interest, given that most wine is discovered by consumer(s) via personal recommendation.”  “Since implementing the psychographic targeting, the company has seen an increase of click through rates of 150%, increased fans of 75%.”

Constellation Takes Long-View Approach / May 15, 2011                    
Key reference point(s) in article: “Much of the work Constellation did in reshaping the company came during the recession. For a time, sales took a hit and losses were evident.  But the company continued to pay down debt and build cash flow. ‘We could have pulled back and stopped investing in the business.  That would have been dangerous.  But we didn’t overreact,’ said CEO Rob Sands.’”

Europe:  Constellation plots greater push into Eastern Europe / May 18, 2011      
Key reference(s) in article:  While Constellation divested itself of the majority of this business earlier this year, they did maintain a minority stake in the organization renamed Accolade Wines on July 1st.  “Speaking on Eastern Europe more generally, (Constellation’s General Manager for Europe, James Lousada) said that Constellation is prepared to play a long game in the likes of Poland, Ukraine, Czech and Russia.  ‘If we start now then in five years we will have a significant business in those countries.’”

Constellation Plans Major Innovation Push In 2011, With Launch of 20 New Wines / May 18, 2011            
Key reference(s) in article: “Constellation Wines U.S. President Jay Wright said today that the company is planning a blitz of 20 new wine products this fiscal year (ending next February), targeting fast-growing segments like sweet red blends, Prosecco, Moscato and Malbec. Among the new rollouts will be a sweet red blend in the $8 to $11 range, Primal Roots, and a new offering in the rising unoaked wine segment, Simply Naked (around $10 a bottle). Both will launch June 1st. A new premium Spanish brand, Rioja Vega, is also poised for rollout.”

What Does China Need?  More Table Wine / May 20, 2011
Key reference(s) in article: “Chief Executive Rob Sands of the New York-based beverage company said he will formally announce a top executive for its Asian business.  Sands says he sees a sweet spot in the Chinese market in imported table wines … that market has grown 20% a year in the five-year period leading to 2010, according to a report by Rabobank.”              

Constellation Unveils Winery Expansion / June 8, 2011      
Key reference(s) in article: “’This expansion is a cornerstone for the future of our business,’ (COO Jay) Wright said.”

Constellation Brands to Cut Jobs to Save Money / June 30, 2011      
Key reference(s) in article: Despite higher than expected earnings in its first quarter of fiscal year 2012, Constellation plans, “…to cut about 100 jobs, or 2.3 percent of its workforce, as part of a business realignment meant to save money … the company expects the moves to save it more than $10 million …”

Constellation Sales Slide in First Quarter / June 30, 2011      
Key reference(s) in article: “Constellation has rolled out around 50% of the 20 new wine products it has slated for this year, with Rex Goliath Moscato, Ruffino Prosecco, Arbor Mist Pomegranate Berry Pinot Noir and the Simply Naked unoaked line already making their debuts.”

Summary

By looking at the wine business through the prism of Constellation’s news, I see a number of trends that are palpably present for the entirety of the domestic wine business:  Globalization, digital, Millenials, investing in growth, layoffs, new “hot” segments or varetials like Prosecco, Moscato, unoaked chardonnay, sweet wines.

While these trends are on a more granular level than the seismic macro shifts that Mike Veseth describes in his new book, Wine Wars, the point continues to be reinforced for me that we’re at the tail end of a Golden Age of wine, the agrarian ideal is quickly becoming a slippery slope necessitating changing with the times and 20 years from now the first decade of the millennium will be viewed as the halcyon days of old. 



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Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (13) |


Comments

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

While Constellation is a consumer driven company, it should be noted that in its portfolio it has representatives of the “rock in the stream, rooted in terrior” wineries.  These would include Robert Mondavi Winery, Franciscan, Simi, and many of the wines of Ravenswood.  There, of course, are avid consumers for these wines also.

On 07/11, Jeff wrote:

Joel,

Thanks very much for the comment.  Yes, of course, the part I didn’t include (because it was a huge aside not completely germane to the post) is the fact that Constellation has a great reputation for buying premiere wineries and then letting them do what they do well.

I understand that and that could well be another post unto itself as a validation point that being a part of a larger organization doesn’t always spell bad things for the wine.

Thanks again for commenting.

Jeff

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

joel..one small note,not on wine if you are going to write, watch your grammar.. It’s a shame you do not recognize the difference between it’s as a contraction of it is,  and its in   possessive usage. i.e.. there is no such thing as it’s portfolio. mort

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

Thanks Mort, I will be moreful care in the future.  You must be a very busy man if your mission is to correct all the grammar errors on the net.

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

I was interested to read the post. It’s a good subject. But was disappointed to see such a snarky reply to the grammarian’s legitimate gripe about contractions. Hardly a humble or polite response.

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

yes joel.. you should be moreful care.
mort

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

attention Levan Louk…you’re right, that was hardly a polite or humble response from Joel Peterson. Those of us who write have a responsibility to set a good example, rather than contribute to the dumbing down of the English language.

On 07/11, Jeff wrote:

Guys,

I can’t tell if there is irony here or not. 

Assuredly, however, I can confirm that virtually everything I write doesn’t pass through an editor and has some level of grammatical incorrectness.

As host of this site, I ask that we not beat up on Joel because he used, “its” incorrectly.

Thanks,

Jeff

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

There was no attempt to be snarky, just humorous.  Lighten up!  I appreciate good grammar as much as you.  If we had to hang our heads in shame for all our grammar mistakes, especially given the thumb technology we use, we would all see a great deal of earth.

On 07/11, .(JavaScript must be enabled to view this email address) wrote:

trying to distinguish irony from sarcasm can be a difficult task on the internet.

on a non-grammatical note, i would just like to mention that there is a dark side to constellation.  while they are very economically successful, much of that comes from using their leverage to buy shelf and display space at large chains like safeway.  while this is indeed a successful business strategy, it allows the big boys to bully the small wineries. 

think of it as wallmart vs. a mom & pop store.  and to drive home the point, check out the wines selection at your local wallmart - because it is probably mostly constellation brands.  if we are praising constellation brands, we must also acknowledge their role in turning winemaking from an art into an industry.

On 07/12, .(JavaScript must be enabled to view this email address) wrote:

p.s.  i, unlike joel, will make no effort to improve my grammer.

On 07/17, .(JavaScript must be enabled to view this email address) wrote:

gab, I suppose that you could consider this a dark side, though Constellation can hardly be accused of original sin in this area.  The interaction and association of bigger wine companies with larger retailers and Chain restaurants has been going on for some time now.  Gallo is probably king in this area, but KJ, Diageo, Bronco, Trincharo and others play very hard in this sandbox.  Wines like Apothic Red, Barefoot in its many forms, Foli a deux, chocolate flavored wine and many others have made their presence felt in this market space.  There is a ever increasing number of new products that appear from these companies every year.  But, in truth, if there was not a customer for these wines they would not exist.  So, it seems that the upside of this is that more people are drinking wine than ever before.  At the risk of sounding like a Republican economic pundit, there is definitely a trickle down effect to smaller wineries.  I am sure that the Constellation sales team would be delighted if your assertion about Constellation wines dominating the shelves were true.  Not to mention that the stock of all those good people who invest in the market with their IRAs, etc. would be soaring.wink 

It should be pointed out that many (perhaps not all) small wineries do not care to have their wines sold in outlets like Walmart, Safeway, Costco and others.  They rarely are equipt with the volume, the sales force, or the desire, to work effectively with national accounts in a way that these accounts demand.  Many small wineries see this channel as the gateway to hell.  The pricing, the margins, the discounting, the loss of a sense of exclusivity are all problematic to small fine wineries.

Small wineries, rightfully, have areas of the market where they do dominate.  In the area of wine reviewers scores they have an edge in perception and import, in the direct to consumer market they have an edge,(another good reason to be sure that the WSWA does not get its way with direct shipping), in independant retail thay have an edge and in fine dining establishments they have the advantage.  The “big boys” are definitely handicaped in these arenas.

The fact is that the wine business has been pretty good for nearly everyone in the last ten years or so.  Growth and change have been rampant.  This period has certianly highlighted the division between consumer driven wines and artisanal wines, but both have found their place and their routes to their respective customer.  This change and jockying for postion will undoubtably continue, but that is the American way.

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