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Constellation Brands’ Wine and Spirits Sales: Premium Strength

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Premiumization strategy

The premiumization of its portfolio of beer, wine, and spirits portfolio is one of the key growth strategies of Constellations Brands (STZ). In the Investor Day conference held on November 9, Constellation Brands’ president and CEO Rob Sands said that ~95% of the growth in the Total Beverage Alcohol category in the IRI[1. IRI is a market research company] channel can be attributed to high-end beer, premium wine, and high-end spirits.

Wine and spirits sales in the previous quarter

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In fiscal 2Q17, which ended on August 31, 2016, Constellation Brands’ wine and spirits net sales rose 11.9% on a year-over-year basis. Higher volumes, a favorable mix, and the Meiomi and Prisoner wine brands acquisitions helped the company’s top line in the second quarter. The wine and spirits segment’s operating income rose 16.9% in fiscal 2Q17.

Sales of wine and spirits producer Brown-Forman (BF.B) fell 2.8% in fiscal 2Q17, which ended on October 31, 2016. Constellation Brands and Brown-Forman together constitute 1.6% of the iShares U.S. Consumer Goods ETF (IYK).

Strategic acquisitions

As part of its premiumization strategy, Constellation Brands announced the acquisition of Charles Smith Wines in October 2016. The $120 million Charles Smith Wines acquisition includes the purchase of five super and ultra-premium wines, including Kung Fu Girl Riesling, Velvet Devil Merlot, Boom Boom! Syrah, Eve Chardonnay, and Chateau Smith Cabernet Sauvignon.

The company had previously enhanced its premium wine portfolio with the acquisition of Meiomi wine brands in December 2015 and The Prisoner Wine Company in April 2016.

Constellation Brands also enhanced its spirits business with the High West Distillery acquisition, which was completed in October 2016. The acquisition should help Constellation Brands enter the high-end craft whiskey category through High West’s American straight whiskeys. Constellation Brands has also acquired a minority stake in Bardstown Bourbon Company.

For fiscal 2017, the company expects the net sales of its wine and spirits business to grow in the mid-single-digit range. The wine and spirits segment’s operating income is expected to grow in the mid to high single-digit range in fiscal 2017. The company’s growth rate estimates include the favorable impact of the Meiomi and The Prisoner wine brands acquisitions.

The next part of this series focuses on the company’s margins.

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