Constellation Brands reported strong performance for its beer division in Q3, with beer net sales up 4% and leading Thanksgiving beer sales in US-tracked channels. It expects to see net sales growth in beer of 8-9% in Fiscal 2024.
It’s a different story, however, for its smaller wine and spirits division: which saw an 8% decline in net sales over the quarter. While the company attributes some of this decline to a change in how it aligns shipments and depletions, there’s no doubt that category headwinds have also affected its portfolio.
So much so, the company has updated its fiscal 2024 outlook for the Wine and Spirits Business to organic net sales decline of 7 - 9% and operating income decline of 6 - 8%.
“Over the past few months, our Wine & Spirits business, much like others across the industry, has seen a broader marketplace deceleration,” said Bill Newlands, president and CEO, in the company’s Q3 earnings call.
“Of course, we are not pleased with these revisions: and both our leadership team and our Wine & Spirits teams remain fully committed to improving the performance of this business and to achieving its medium-term targets.”
Globally, the wine category is seeing volume declines: with consumers skewing towards older generations and the category failing to engage younger consumers against a variety of newer, trendier drinks.
From mainstream wine to premium and DTC
Beer makes up the lion’s share of Constellation Brands’ portfolio: accounting for nearly 80% of 2023 sales. The Wine & Spirit portfolio is heavily weighted towards wine: making up 18% of net sales.
In 2019 it set out to transform its portfolio: shifting from a US wholesale business mainly serving the mainstream segment, to a ‘global, omni-channel competitor with a high-end focused portfolio, in line with consumer trends’.
In 2021, it divested most of its mainstream wine portfolio (principally those priced at $11 retail and below), selling the brands to E. & J. Gallo Winery for around $810m. More wine brands (classed as mainstream and premium) were sold to The Wine Group in 2022.
Over the years, that’s been accompanied by the acquisition of luxury and craft brands: in wine, take, for example, the acquisitions of La Fête du Rosé (2021), luxury wine Lingua Franca (2022) and Napa Valley luxury wine brand Domaine Curry (2023).
Constellation Brands’ wine portfolio is now centered on Meiomi, Kim Crawford, The Prisoner Wine Company, and The Robert Mondavi family of brands in wine, alongside others. (In spirits, its focusing on premium products such as High West Whiskey and Casa Noble Tequila among others).
In fact, the company has doubled the number of fine wine and craft spirits brands in its portfolio.
It has also invested and expanded in high-growth DTC channels in targeted international markets (take, for example, the 2020 acquisition of ‘digitally native’ Empathy Wines) – reporting 24% net sales growth for the DTC channel over the three months ending Nov 30, 2023.
Improving wholesale performance
The company’s Wine & Spirits president, Robert Hanson, will step down from his role at the end of the current fiscal year.
Newlands – whose background includes time in the wine and spirits industry – will take charge of the unit while the company looks for a successor.
Newlands believes the changes over the last few years will soon reap rewards.
“Our transformation of the [wine and spirits] business is largely complete. It’s a very different business than what it was several years ago, even though we still have a fair amount of business in the lower end of the business.”
And he believes that the company can buck the disappointing wine category trends by being proactive in the right areas.
“We think it’s critically important that we improve our wholesale performance in the US, and we think there’s going to be continuing opportunities for us to perform very well in DTC and international channels as we have developed that business over the last couple of years.
“A lot of work is being done on the mainstream portion of the business, particularly on SVEDKA [vodka] and Woodbridge [California wine] to enhance the performance of those businesses. I think that you will start to see that play out in the new fiscal year.
“And we believe some of the softening that’s occurred in the overall business is transitory and will come back our way, given the real strength that we’ve seen in our higher-end business like Meiomi and Kim Crawford and The Prisoner and Mi Campo and things of that nature.
“So I’m always of the belief that a significant portion of your results are really within your control, and we’re going to focus on those critical factors that improve our business performance as we head into the new fiscal year.”