The maker of Corona and Modello seems to be focusing on top selling products such as cannabis and beer rather than there wine portfolio. This might be why the company is looking to sell some of their wine brands in a deal that could be worth up to $3 billion.
In an interview with Reuters, the company said that they hired investment bank Goldman Sachs Group Inc to explore the company’s sales opportunities. The wine brands that Constellation plans to sell off include Clos du Bois, Mark West, Arbor Mist and Cooks, according to Reuters’ sources. All five of these brands collectively generate average annual earnings of $260 million before interest, tax, depreciation and amortization.
“We continue to focus on driving growth organically and through acquisition and innovation at the higher end of our wine & spirits portfolio, which has consistently grown three to four times the US market rate,” a Constellation spokesman said in an emailed statement to Reuters.
“We are also considering a variety of potential actions to optimize value at the low end of our portfolio, so we can direct our growth efforts and investment dollars more fully towards our focus brands,” the Constellation spokesman added in the statement.
This move comes as the wine market slowly declines in popularity. In the 12 months ended on February, Constellation’s wine sales accounted for 38.6 percent of the company’s net sales of $7.6 billion, which is down from 44.7 percent of total sales two years ago. This downward slope might be why Constellation wants to focus on other products.
The company’s beer business has continued to grow over the years. The company told Reuters that their international and craft beer brands were top market share gainers in the US during the second quarter of the year. Their Modelo beer brand delivered a CAGR of almost 20 percent in the last five years.
Another industry that the company is confident about is the budding cannabis industry in North America. In August, the company invested CAD $5 billion in Canadian cannabis producer Canopy Growth to acquire a total of 104.5 million shares of the company. This investment came after the company already invested $191 million in the company in October 2018. Now that Constellation owns 38 percent of the cannabis company, the alcohol manufacturer is looking to produce cannabis-infused beverages.
Considering the fact that Canada made over one million dollars in cannabis sales on the first day of legalization, this industry holds a lot of potential for Constellation Brands. However, the company will also face a lot of competition in the cannabis industry as well. Other alcohol companies such as Molson Coors, Heineken and Diageo have either already invested in cannabis or are considering in investing. This means that there will be a lot of variety in the cannabis-infused beverages space.
Nevertheless, Constellation’s decision to focus on beer and cannabis products rather than wine sales is indicative of a changing consumer demand. Unique products such as craft beer and cannabis-infused beverages are likely to become the drinks of choice among modern consumers.