A spicy rumor riled up the wine industry earlier this year: Constellation Brands wanted out. And not just a few labels here and there: the whole kit and caboodle.
Over the past century, countless companies have invested into — then divested out of — the famously fickle wine business. But this felt different. The multinational corporation was founded on bulk wine brands in upstate New York in 1945, and the idea of Constellation ditching all things wine after 80 consecutive years had industry analysts staring wide-eyed at the panic button.
Instead of opting out of its founding heritage entirely, though, Constellation quelled worst-case-scenario fears by offloading all its value-tier labels (Woodbridge, Meiomi, Robert Mondavi Private Selection, Cook’s, SIMI, and J. Rogét) to mass-market repository The Wine Group — keeping focus on a core cadre of premium-plus to prestige brands.
Constellation has been Modelo–fueled via an antitrust windfall for some time now, so a strategic partial divestment of some sort didn’t come as too jarring a maneuver. It’s a scenario unfolding repeatedly as of late among industry heavyweights, with the likes of the Duckhorn Portfolio, Chateau Ste. Michelle, and Treasury Wine Estates all purging peripheral brands (or attempting to) in an effort to protect essential assets.
“It’s not unexpected that we’re undergoing a period of change, and that different companies are responding in different ways,” says Robert Hanson, CEO of the Duckhorn Portfolio. “As a wine company that has focused exclusively on the $20-plus category for almost half a century, focusing on the luxury segment is not new.”
It’s one thing for Duckhorn — a perennial premium-and-up specialist — to shed some weight and focus on its prestige icons in leaner times. But the specifically targeted unloading of value brands from formerly diversified companies confirms a pattern playing out across the global winescape: A grand realignment of value-segment priorities is in the works.
It’s entirely possible this is just a somewhat similar consequence to bust cycles past. But if a more starkly foundational value-wine realignment is underway, it could hint at future systemic deterioration of industry health.
Wine’s Love/Hate Relationship
The wine industry has always had two distinct personalities — an odd couple intermeshed in a complicated and occasionally combative marriage. As Hanson pointed out, it’s unsurprising that there should be some reevaluation of the relationship from time to time.
“Fine wine is a more artisanal pursuit centered on expressing terroir, honoring heritage, and crafting something truly authentic,” says Fernando da Cunha Guedes, president of Portugal’s Sogrape, the country’s largest wine company. “Fine wine is born in the vineyard and brought to the market as a creation of the winemaker.” He contrasts that with value-driven wines designed for consistency and scale, with cost control and supply chain efficiency essential to success. “[They] have many similarities to FMCG and are built from the consumer back,” he adds. “These are fundamentally different ecosystems.”
“This is the third cycle I’ve seen of this. We’ve had these contractions in 2001 and 2008, where you’ve had these big selloffs of brands.”
As disparate personalities with divergent consumer targets, the two love to bicker. Yet in the grand scheme of things, they need each other for survival.
But these are no ordinary times for the relationship. Forecasts from global drinks industry analytics firm the IWSR has wine growth volumes across 31 top markets in the red over the next decade, with a predicted 2024 to 2034 CAGR of negative 1 percent — compared with positive growth for all other beverage alcohol categories.
Given that scenario, the current global wine lake threatens to loom large for years to come, further complicating the situation.
Grape Glut Groundhog Day
It’s relatively easy to be responsive with beer. The quick production cycle of the category allows producers to adapt to the rapidly shifting sands of consumer demand. But with a grape to glass minimum of essentially a year for wine, it’s a far more lumbering ship to turn.
Damien Wilson, faculty director for the Wine Business Institute at Sonoma State University, describes a historical production-oriented modus operandi in the industry: matching volumes to consumer demand based on current supply. “Less of a focus on anticipating or driving demand,” he says, “More about following the trends and patterns of the market.”
In his view, the resulting lag in response time due to wine’s annual agricultural cycle — and even longer delays bringing new plantings online or enacting vine-pull policies — inevitably leads to miscalculations and mismatchings of projected demand.
“This isn’t just a marketing pivot. It represents a deep structural transformation across the entire value chain, from grape to glass.”
The wine industry has seen grape glut scenarios before. For those hustling in it long enough, the boom and bust of the business is a fact of life. “This is the third cycle I’ve seen of this,” says Liz Thach, president of the Wine Market Council and Master of Wine. “We’ve had these contractions in 2001 and 2008, where you’ve had these big selloffs of brands.”
She describes the gold-rush buildup to 2008, with money flying everywhere, only to have the wheels fall off during the global financial crisis. But in the rubble lay opportunities, and the two biggest players in the wine business by far — privately owned E&J Gallo and The Wine Group — managed to make the most of it.
“[But] what’s interesting about Constellation and Treasury is that they’re publicly traded, so they’re under a huge amount of pressure,” Thach says. “With quarterly reports and such, I’ve never thought Wall Street understood wine and how it works.” That impatient Wall Street fickleness is certainly a contributing factor in the maneuvering by those two.
“It’s the bigger producers that are better able to attract younger and newer consumers to the category, and there just seems to be this almost defeatist attitude.”
However, Guedes at family-owned Sogrape — an umbrella company with wineries spanning the entire price spectrum, from supermarket Mateus rosé to cult cuvée Barca Velha — feels that something overall is different this time around.
“Recent developments — such as shifting consumer preferences and distributor consolidation — have significantly accelerated this divergence,” he says. “In essence, we’re witnessing a realignment of business models, where the operational DNA of each category is being redefined to meet distinct market expectations.”
In response to the new paradigm, he’s recently found it necessary to permanently bifurcate Sogrape operations. What used to function as one company is now essentially two starkly contrasting businesses under one banner. “This isn’t just a marketing pivot. It represents a deep structural transformation across the entire value chain, from grape to glass,” he says.
During a bust cycle — especially for those under public market pressure like Constellation and Treasury — it’s expected that companies will restructure to shed, quarantine, or mothball portfolio underperformers and keep the standouts stoking. But if Guedes is right, and the days of many large wine companies prioritizing across the entire value spectrum are indeed dwindling for good, might that hint toward another more damaging miscalculation unfolding?
The Doom Loop Scenario for Wine
“Part of me can’t help but wonder, what happens if we do have another one of these economic crises right now?” Thach says. Getting kicked while it’s down isn’t exactly what the business is hoping for. But with wine’s negative volume growth forecast — not to mention the current cauldron of geopolitical shitstorms boiling over — all bets are off.
Rationally, and perhaps logically, some large players are refocusing on the brands that continue to be solvent. Where there’s profitability in the market, they’re chasing it. And that profitability is currently in the super-premium-and-up segments. Hence, value brands are getting less attention.
“The difference this time is that back in the ‘80s [the previous decline in demand], wine was still ridiculously cheap. Today we’ve got that decline in demand at the moment, and wine is ridiculously expensive in comparison. … That’s not where new consumers come into the category.”
“The industry is pretty much just going ‘OK, we’ve got problems in these other categories, so let’s just ignore them,’” Wilson says. “I understand the rationale behind that, [but] the value end of the market is now basically just not being serviced.”
And in a modern global drinks marketplace replete with wine alternatives — from hard seltzers to sodas, teas, and now every manner of cocktail RTD — it could be a toxic blunder for large, powerfully influential companies to underserve the value segment.
“It’s the bigger producers that are better able to attract younger and newer consumers to the category, and there just seems to be this almost defeatist attitude,” Wilson says. “So instead of investing in R&D in this category, that R&D has been taken up by other value products.”
Unless a member of some “Succession”-like family, younger generations begin their wine interests with clever offerings like Gen X’s Boone’s Farm, not Barolo. Yet the current combination of exponentially increased competition from wine alternatives, and a broad retreat toward premiumization, has led to a largely stagnant value wine segment waiting for the next generation to age in. And with so many attractive and well-funded alternatives at play in the same value space, might this new generation, well, just not?
“One of the concerns for me is if what we’re actually seeing isn’t a surplus in supply, but a deficit in demand,” Wilson says. “Demand comes from bringing new consumers into the category.”
The race to premiumization — and lack of innovation and marketing budgets currently earmarked for the value end — could be deleterious. “The difference this time is that back in the ‘80s [the previous decline in demand], wine was still ridiculously cheap,” Wilson says. “Today we’ve got that decline in demand at the moment, and wine is ridiculously expensive in comparison. … That’s not where new consumers come into the category.”
To his point, in the past 25 years alone, average wine prices have handily surpassed that of inflation. Since 2000, wine’s consumer cost per liter has risen about 155 percent, from $5.50 to $14. Compared with inflation’s approximately 87 percent over that same period, it’s readily apparent that entry into the category has become a substantially more expensive proposition.
This portends a potential worst-case doom loop: more and more producers fighting over generationally diminishing scraps in the currently profitable, premiumized segments.
One would hope that raw market forces would kick in with value-end, actual wine innovation before something like that takes over. Even though Duckhorn doesn’t historically swim in the value end of the pond, CEO Hanson nonetheless recognizes its critical role in the health of the company he helms. “It’s incumbent on our industry to reach out and connect with new generations of consumers so that wine gains a larger share of the beverage pie,” he says.
The grand irony is that the largest opportunity currently for the wine business may not be in premiumization after all, but in value wine creativity.
If properly supported by a large player, it’d only be a matter of time before someone cracks the code on the next value wine superstar. Maybe it’s happened already. But sans the next big Carlo Rossi, Boone’s Farm, Sutter Home White Zinfandel, or Barefoot, the entire industry could find itself generationally withering.
“There’s a real opportunity in that segment for the producers that can come up with a category which can get people interested in wine,” Wilson says. “[But] without that onboarding product, we’re in trouble.”
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