Analysis

Analysis - Stagnant wine growth a concern for Constellation Brands

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The main takeaway from Constellation Brands' full-year results yesterday was the continuing strength of its beer business.

Constellation has plans for its wine portfolio

Constellation has plans for its wine portfolio

However, with all the noise beer is making for Constellation it can be easy to overlook the company's wine portfolio. But then, that is perhaps the way Constellation would like it as its wine unit is not performing so well, at least when compared to beer.

In a note today, analysts at Cowen described Constellation's wine brands - which include Robert Mondavi and Clos du Bois - as "under pressure" with flat depletion growth.

"The super-premium price segment continues to drive the underperformance as it is highly competitive and generates a considerable amount of the overall growth in the wine category," Cowen says.

This point was underlined yesterday by Constellation CEO Rob Sands, who in a call with analysts noted that growth in the wine sector was moving further up the value chain.

"It started with the bottom of the premium segment, US$5 and above," Sands said. "It moved up into what we call the super-premium segment ($8 to $10). And now we are seeing very strong growth in segments above that."

So where does this leave Constellation? Well, considering wine accounts for 42% of its total sales (beer is 53% and spirits 5%), stagnant growth in the sector is not great, especially in the eyes of analysts.

There is good news, however. According to analysts at CLSA, tracking data shows that Constellation's wine sales have picked up over the past 12 weeks as domestic performance improved.

The company is also putting renewed focus on wine in an attempt to boost demand. Sands said yesterday that 2015 will see a number of marketing activations, and though he didn't give much detail, added: "I would say we are pretty optimistic that we will meet top-line goals."

If Constellation can find even half of the growth that its beer unit has seen in the past 18 months, it's wine woes will be history.


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