Mondavi saves Constellation from mediocrity

By Chris Mercer

- Last updated on GMT

Related tags Constellation Pernod ricard Allied domecq

Newly acquired wine brands have continued to carry Constellation
Brands forward in its second quarter, raising suspicions about
weaknesses in the company's organic growth.

Constellation's sales rose 15 per cent to $1.2bn largely thanks to a 59 per cent increase in branded wine sales led by the group's newly bought Robert Mondavi and Ruffino labels.

But, the group's net sales only grew by three per cent if Mondavi and Ruffino are excluded, leading some analysts to question whether lucrative acquisitions are hiding core weaknesses at Constellation.

"While this growth was a little lower than expected, it reflects tougher trading conditions in the UK market, impacting both our UK wholesale and branded business,"​ said Constellation chairman Richard Sands.

"We are addressing this by focusing on margin improvements in other areas of our business,"​ he added.

Sands went on to launch a vehement defence of Constellation's strategy in front of US analysts, asserting that the firm did not need to buy other businesses to strengthen its own.

Even so, Constellation last week went public with its desire to buy out Canadian wine group Vincor.

Vincor's board immediately announced that it had rejected Constellation's advances, calling them "an opportunistic and inadequate approach"​ that "grossly undervalues"​ the company's growth prospects. Constellation valued Vincor at C$31 per share (US$26, €21.6), or $1.2bn in all.

Sands told analysts in the US last week that Vincor was not a must-have acquisition.

Yet, he said in a statement a few days before that "this initiative is a high priority for us, and we are committed to making this combination a reality"​. He added that "we would be willing to offer a higher price"​.

A report in the UK's Financial Times​ said Vincor had since got in touch with other major wine firms, including Pernod Ricard and Foster's, to see if they were interested in bidding.

Branded wine has shown good promise for the big drinks firms recently and Constellation may be extra keen to expand after losing out on Allied Domecq to Pernod Ricard.

Constellation announced earlier this year that it was planning to launch Robert Mondavi further outside of its US stronghold.

"With the integration of Robert Mondavi essentially complete, we are now focused on geographic expansion of brands in that portfolio to make them truly international,"​ said Sands, highlighting mainland Europe as a potential starting point.

The firm said in its results statement that "early marketplace feedback has been positive"​, after Mondavi was launched in UK supermarkets at the end of August.

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