Constellation Brands focuses on core wine brands

Constellation Brands focuses on core wine brands

Constellation Brands will continue to focus on organic growth as it seeks to develop its premium wine business in a competitive US market.

Constellation's CEO, Rob Sands, has said that the Robert Mondavi winemaker intends to retain its inward focus for the forseeable future, despite its progress on cutting debt and its receipt of a cash windfall from tax rebates.

When questioned on acquisitions by analysts today (6 October), following the company's half-year results statement, Sands said: "We're not categorically ruling it out. If something that we think is strategic and material comes along, we'll consider the opportunity. But it's not really our core strategy at the moment, which is really focused on brand building, organic growth [and] innovation."

Constellation today reported net profits up by 69% for the six months to the end of August, to US$237.2m. The group benefited from a series of tax audits across North America, which led to a significantly lower tax rate. Several audits at state and federal level are still underway, said the firm.

Net sales fell by 20% on the same period of last year, reflecting the loss of the firm's Australia and Europe business. But, sales from continuing operations increased by 2% to $1.33bn.

That said, volume sales and operating profits declined at Constellation Wines North America for the six-month period. Despite this, Sands countered that Constellation's depletions are growing quarter-by-quarter and that the "depletion trend will accelerate for the [19] focus brands. In terms of profits, the focus brands are what's really important."

He said that consumers are still trading up to wines above the $5-a-bottle barrier, generally seen as the border between premium and sub-premium in US wine sales. However, he added that much of the industry is still focused on promotions

"If we look at pre-recession versus post-recession, I'd say the biggest change is that the consumer is looking for more bargains," Sands said. "Consumers have become very accustomed to looking for deals and buying on promotion. That's a trend we expect to continue for some time until the economy becomes a bit more stabilised."

Outside of wine, Sands praised the performance of Svedka vodka, which he said continues to have "a pretty good runway" for growth. In a thinly-veiled dig at some of the brands rivals, he said: "It's not a flavour proliferation or trendy kind of thing with flavours coming into fashion and going out of fashion. The vast majority of the business is non-flavoured 80 proof [and] that means that it's a very, very stable business."

Constellation's US beer joint-venture with Grupo Modelo, Crown Imports, reported net sales up by 8% for the six-month period.    

Separately, Constellation said today that it has agreed to take full ownership of the Ruffino wine business for EUR50m (US$69m), but the vineyards will remain with the Folonari family.