It’s official. Powerhouse producer (think Corona and Modelo) Constellation Brands Inc (STZ.N) confirmed plans to unload a big chunk of their wine portfolio ASAP. Specifically, Constellation announced that they will be selling their lower end brands (defined as those that retail for $11 or less per bottle.)
At this week’s Consumer Analyst Group of New York (CAGNY), Constellation execs elaborated on the plans in hopes of building investor confidence. The move centers around focusing the portfolio the so-called “power brands” (wines that retail over $11 a bottle) that comprise 60% of the portfolio’s profit.
“So everything that is not a ‘power brand,’ you can assume that we’re either going to sell it, discontinue it, or milk it very quickly over the next year or so,” stated David Klein, Constellation’s Chief Financial Officer.
The brass theorized that consolidation will allow the corporation to return $4.5bn to investors via dividends and shareholder buybacks over the next three years.“We are in the process of optimizing the wine and spirits business with mid-single-digit growth rates and 30%-plus operating margins,” said COO and President Bill Newlands.
Clos du Bois, Mark West, Arbor Mist and Cooks are all likely in the crosshairs as Constellation turns their eye to more lucrative ventures.
Conspicuous among these new flames is Canopy Growth, a large, Canadian medical marijuana provider. In August, Constellation spent $4 billion (US) to increase their existing stake in Canopy from 9.9% to 38%. Constellation purchased 104.5 million shares directly from Canopy Growth at a price of C$48.60 per share. In addition, Constellation exercised previously held warrants and received new warrants that would allow the company to purchase a 50% share moving forward.
Such sweeping changes are not out of character for Constellation. In October, the company announced that its chief executive of 11 years, Rob Sands, will conclude his tenure in March, with Newlands taking the helm.
Likewise, the summer re-up on cannabis was accompanied by layoffs of entire craft beer sales team. There is even precedent for the wine sales; in 2016, the conglomerate’s Canadian wine portfolio was sold to the Ontario Teachers’ Pension Plan for about C$1.03 billion ($775 million).