A Word with Wilmore - Constellation Brands' CEO Rob Sands - Part I
The current CEO of Constellation Brands, Rob Sands, is only the group's third boss in its 67-year history - and he's been with the firm for 26 years. Clearly, then, he'll know a things or two about the drinks industry. Here, just-drinks catches up with Sands to talk premiumisation, Pinot and partnerships.
Flummoxing the CEO of a big company is not easy, particularly one with a no-nonsense reputation like Constellation's Rob Sands. I almost manage it, however, when asking him how he'd be earning his corn if it wasn't in drinks. “I have no idea,” he says down the phone, bluntly. Then, after a short pause, the response: “I'd probably be a lawyer, as I'm a lawyer by background.”
It is through this route that Sands came to join the family business. The 54 year-old, who took over from his brother Richard five-and-a-half years ago as the drinks firm's top man, joined the business in June 1986 oveseeing its legal affairs, after a short spell at a law firm. It is this lawyer-like steely resolve that appears to have served Sands well.
Constellation Brands' CEO, Rob Sands
The company now sells its brands in 125 countries, employing around 4,300 people, while calling itself the “leading premium wine producer in the world”. Historically known as a wine company, through brands such as Robert Mondavi, Ravenswood and Kim Crawford, in more recent years the group has developed its portfolio in spirits and beer.
However, its financial performance has been slightly bumpy of late, and we speak just after the group has announced a 17% drop in H1 net profits. Sands is undeterred though, saying this was expected and is “largely due to the timings of our promotional activities” compared to last year's first half, when marketplace promotions were less heavy. “Our stock is up as our results were above the city's expectations. Everything was better than everyone anticipated,” he says.
It is perhaps this bumpiness that has meant that, after a significant period of relative inactivity, it is only this year that Constellation has got back on the M&A trail. As well as acquiring the Mark West wine brand, the company is on track to get full control of Crown Imports, its beer distribution JV with Grupo Modelo, off the back of Anheuser-Busch InBev's buy-out of the Mexican brewer.
This is quite a contrast from recent years. But, Sands doesn't like to dwell on the negative. I query whether this slow-down on the acquisition trail was a temporary change of ethos? “You say it's slowed slightly, but in the last three or four months, we've made US$2bn of acquisitons, with the Crown deal and Mark West,” retorts Constellation's boss. But he concedes: “It slowed down prior to that, in that it'd been five years since our last acqusition.”
This slowing down also saw the group divesting a number of its assets. Most notable was the offloading of its Australian and UK wine operations to private equity group CHAMP for AUD290m (US$300.9m) in February last year.
So, why did a group, primarily known for wine, get rid of such a significant chunk of its wine business? ”Part of our strategy was premiumisation and focussing our intention only on premium plus products,” explains Sands.
“Most of what Accolade (the name given to the business by CHAMP) sells was not what I would call in the premium-plus category, it's in the low-end, highly-commoditised part of the business and the company was operating on razor-thin margins. We didn't see that as being part of the future of Constellation. It's a low-end nationalised business. It didn't fit our model of only focussing on premium products.”
And, is Constellation happy to be less exposed to tough wine markets, like the UK? “I wouldn't say we're glad we're out the market. It still has some potential, we still sell product in the UK, but we're not interested in businesses that aren't premium,” says Sands.
So, no regrets then about the deal? “No, none at all. That business is a much better fit in the hands of a private company as opposed to being part of a public company,” he says.
More evidence of Constellation's belief in premiumisation came earlier this year with the acqusition of Pinot Noir brand Mark West, from the Purple Wine Company in July for US$160m. The brand has had ten years of double-digit sales growth and retails for around $10-$12 in the US.
Its revolutionary-style website features the slogan “Pinot for the People”, telling visitors that its wine was created “in response to what Pinot drinkers have been asking for: a wine that is reliably delicious as it is affordable”. A premimum product, but for the masses, it would seem.
How is the brand settling in to the Constellation stable? “It's the biggest Pinot Noir in the US, so it's about continuing to expand distribution to outlets and continuing to organically grow the brand,” Sands says. Premiumisation is a favourite topic, as he adds: “Trading up in the US is a phenomenon in the wine business, meaning higher price wines are selling at a faster rate. The non-premium category is flat to down. People continue to trade up in wine in the US.”
Part two of this interview, where Sands discusses the group's spirits business and the Crown Imports deal, can be found here.
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