Constellation Brands to focus on premium brands, not premium consumers

Constellation Brands Inc. press release about the saleConstellation Brands Inc., an alcohol beverage producer and marketer, does not intend to dispense with its price-conscious consumers after the sale of more than 40 of its low-priced spirits brands to Sazerac Company Inc. for $334 million.

The value spirits, or those priced at $6 or less per bottle, that Constellation Brands sold off were responsible for two-thirds of the company’s sales volume, but only about 30 percent of its profits. The company believes its remaining premium products, those priced above $6 per bottle, are still affordable.

“Even in tough economic times like these that have developed in the past year and accelerated in the past three months, these are still pretty affordable luxuries compared to a new car or a new HD TV,” said Mike Martin, vice president of corporate communications, of the company’s stable of retained brands.

“People aren’t going to bankrupt themselves” buying a bottle of wine, he added.

Though Martin would not discuss the impact on the company’s marketing budget, he noted that there was “not much marketing associated with the brands that were sold.”

The company spent $180.4 million on advertising in the fiscal year ended Feb. 29, 2008, which reflected a slight decrease from the $182.7 million spent in fiscal year 2007.

Given the high costs associated with launching and acquiring new premium brands, Constellation Brands opted to sell its value business in order to focus more on its premium brand portfolio.

“This transaction is consistent with our strategic focus on premium, higher-growth and higher-margin brands in our portfolio,” said Robert Sands, Constellation Brands’ president and CEO in a statement.

Lauren Torres, an analyst with HSBC, referred to a note about Constellation Brands released on Jan. 8. The note foresaw an expansion into premium categories as a factor that could make the company “more formidable.”

Though significant marketing changes are not expected, there will be an effort to do some rebranding and more online marketing, especially for its Svedka Vodka and Black Velvet Canadian Whisky brands.

Svedka in particular will have a new ad campaign in 2010 to follow up on its new packaging meant to help the brand stand out more in bars, according to Martin.

“Because of the pricing of these products, we feel like we’re in a good position,” he said.

The brands sold off by Constellation Brands, which is based in Fairport, N.Y., fell under the company’s Constellation Spirits Inc. business unit, which is based in Chicago.

Constellation Brands will use the funds from this deal to help pay off debt that has accumulated mostly due to large financed acquisitions in recent years.

The company finalized its purchase of Beam Wine Estates Inc. from Fortune Brands Inc. in December 2007 for $885 million, and acquired Svedka Vodka as a part of its $384 million acquisition of Spirits Marque One LLC in March 2007.