Tough UK wine sector spoils the Constellation party
another wine sales increase for Constellation Brands in its second
quarter.
US giant Constellation said "intense competition" on the UK wine sector meant earnings this year would be at the lower end of its expectations.
The announcement will add to concerns that wine discounting by big retailers in the UK threatens to lower the value of the market there.
Constellation still increased branded wine sales across Europe by 21 per cent in its second quarter, mimicking a 20 per cent increase for the group's branded business as a whole.
The firm was largely helped by its recent takeover of Canadian wine group, Vincor. The deal was responsible for a 15 per cent branded wine sales rise for Constellation in Australia and New Zealand, and a 34 per cent boost in North America.
Vincor was not big enough to outshine the tough climate in the UK, however.
"Synergies and mix from the Vincor acquisition added to operating margin improvements but were mostly offset by competitive market conditions inthe UK that did not allow us to pass on the increase in UK duty costs, and theimpact of stock compensation expense recognition."
Concerns about a possible decline in value on the UK wine market were voiced at the recent International Wine Conference 2006, held in London.
The UK is one of the fastest growing wine markets in the world, according to figures released this year by the International Organisation of Wine and Vine.
Consumption rose five per cent during 2005, compared to 0.5 per cent globally, and this has led to fierce competition in the UK as both New and Old World wineries jostle for position.
One fear among conference guests was that this, combined with a general oversupply of wine in Europe and Australia, would send down wine prices on the key mid-price category.
Retail pressure has already hit prices in Germany. Around 60 per cent of wine there is sold under €2 per bottle due to the rise of discount retail stores, such as Aldi and Lidl.
Most wine in the UK is still sold at between €3 and €5, but prices have been under pressure due to the growing power of supermarkets like Tesco and Sainsbury's in the wine sector. These two plus Asda (WalMart) account for half of UK wine sales.
