Constellation Brands continues to streamline wine and spirits unit
Alcoholic beverage giant Constellation Brands is continuing to streamline its wine and spirits unit, hoping to focus on the quality, rather than quantity, of brands on offer. That started with a major sale of the company’s lower-end wines to E. & J. Gallo. Now, the company has signed an agreement with Heaven Hill Brands to divest Black Velvet Canadian Whisky for around $266 million.
Constellation Brands share price has appreciated by 22% so far this year
Source: Yahoo Finance
In off-loading its lower-ed brands, Constellation is not only taking in almost $2 billion, but also pivoting to change its business focus. The company believes that, in the long run, emphasising its premium quality brands will help to transform its spirit and wine segment, delivering “mid-single-digit net sales growth” with a 30% operating margin. This transformation, though, won’t occur as soon as next quarter, but rather, by 2020 – Constellation’s shaving off of cheaper brands must first reverse a softness in wine and spirits that has begun to drag down performance.
The company’s president and CEO, Bill Newlands, spoke to some of these points in a press release where he discussed the Black Velvet divestment. He said: “We are relentlessly focused on the consumer and building a portfolio of brands consumers love today, while pushing beyond to meet their evolving needs well into the future. This decision aligns with our consumer-led premiumization strategy to deliver accelerated growth and shareholder value as we continue to focus our wine and spirits portfolio on higher-end, fast-growing brands. For Heaven Hill, Black Velvet is a historic, well-known, and high-volume brand that complements their broad distilled spirits portfolio and aligns with their business strategy.”
Dominion holds Constellation Brands in its Global Trends Luxury Fund.
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