constellation brands inc in alcoholic drinks (world)

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    CONSTELLATION BRANDS INC IN ALCOHOLICDRINKS (WORLD)

    September 2013

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    Euromonitor International PASSPORT 2ALCOHOLIC DRINKS: CONSTELLATION BRANDS INC

    Disclaimer

    Much of the information in thisbriefing is of a statistical nature and,while every attempt has been madeto ensure accuracy and reliability,Euromonitor International cannot beheld responsible for omissions orerrors.

    Figures in tables and analyses arecalculated from unrounded data andmay not sum. Analyses found in thebriefings may not totally reflect thecompanies opinions, reader

    discretion is advised.

    The worlds second largest

    wine produc er, Constel lat ion

    Brands transformed its alcoholic

    dr inks operat ions with the

    acquis it ion of ModelosUS beer

    business in 2013. This prof i le

    considers strategies for the

    development of Constellations

    wine operat ions and its new

    beer business, as well aslook ing at how the acquis i tion

    can be integrated to enhance the

    companys strength in both

    markets.

    ScopeSCOPE OF THE REPORT

    Alcoholic Drinks 2012251 billion litres

    Wine29 billion litres

    Beer195 billion litres

    Spirits21 billion litres

    RTDs/High-

    Strength Premixes4 billion litres

    Cider/Perry2 billion litres

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    STRATEGIC EVALUATION

    COMPETITIVE POSITIONING

    MARKET ASSESSMENT

    CATEGORY AND GEOGRAPHICOPPORTUNITIESBRAND STRATEGY

    OPERATIONS

    RECOMMENDATIONS

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    Euromonitor International PASSPORT 4ALCOHOLIC DRINKS: CONSTELLATION BRANDS INC

    Major move into beer

    US company Constellation Brands is the worldssecond largest wine producer, behind E&J GalloWinery, and a globally significant player incider/perry, spirits and RTDs/high-strengthpremixes.

    In addition, in 2013, the company acquiredMexican brewer ModelosUS beer business from

    Anheuser-Busch InBev, in a deal that brought

    Constellation the exclusive perpetual licence toimport, market and sell Modelo brands, includingCorona, in the US, and the freedom to developbrand extensions and innovations for the USmarket.

    North American focus

    Following the acquisition, Constellation operates a

    beer division and a wine and spirits division.However, the deal maintained the companysstrong focus on North America. The regionaccounted for 94% of Constellations wine volumesin 2012, as well as more than 98% of both itsspirits and RTD/high-strength premixes volumes.0

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    2008 2009 2010 2011 2012

    Million

    litres

    Constellation Brands: Global AlcoholicDrinks Volume 2008-2012

    Constellation Brands Inc

    Headquarters: Victor, New York, USA

    Regional involvementAll regions except theMiddle East and Africa

    Category involvementWine, spirits, cider/perry,RTD/high-strengthpremixes

    Global wine volumeshare 2012 2.0%

    Global wine volumegrowth 2012

    6.4%

    Key company factsSTRATEGIC EVALUATION

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    Euromonitor International PASSPORT 5ALCOHOLIC DRINKS: CONSTELLATION BRANDS INC

    Constellation Brands saw net sales grow by 5% to US$2,796 million in the year ended 28 February 2013.

    Growth was driven by rising branded wine and spirits volumes in the US, sales of branded wine gainedthrough the acquisitions of Mark West and Ruffino, and a favourable shift in the companys wine and spiritsproduct mix, mainly in the US.

    Operating income rose by 7%, to US$523 million, driven by the same factors, as well as lower restructuringcharges and unusual items, partially offset by increased promotional expenditure, as the company workedto support and develop its branded portfolio.

    Meanwhile, net income fell by 13% from US$445 million to US$388 million, as positive growth factors wereoffset by increases in interest expenses and provision for income taxes.

    -500

    0

    500

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    2,000

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    2009 2010 2011 2012 2013

    US$m

    illion

    Constellation Brands: Financial Performance 2009-2013 (Year End February)

    Net sales Operating income Net income

    Emphasis on premium brands spurs growthSTRATEGIC EVALUATION

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    Euromonitor International PASSPORT 6ALCOHOLIC DRINKS: CONSTELLATION BRANDS INC

    In the first quarter of financial 2014 (three months to the end of May 2013), Constellation Brands saw wine

    and spirits net sales increase by 4% on an organic constant currency basis compared with the same periodof the previous year, driven by rising volumes. The acquisition of Mark West also contributed to total netsales growth, which stood at 6%.

    The companys wine and spirits growth was driven by its Focus Brands, with Rex Goliath, Kim Crawford,Nobilo, SIMI and Black Box performing particularly well, as Constellation worked to develop a morecoherent, premium-orientated strategy. New brands, including Simply Naked, Thorny Rose and DreamingTree, also made progress.

    On a comparable basis, Constellation saw operating income fall by 5% in the first quarter of financial 2014,

    reflecting the impact of higher grape, selling, general and administrative costs, partially offset by net salesgrowth.

    Crown Imports, which was still a 50/50 joint venture with Modelo during the quarter, saw net sales grow by5%, to US$762 million, while operating income rose by 9%, to US$134 million. Crowns positive resultswere driven by volume growth and increased product pricing in selected US markets in autumn 2012.Constellations equity earnings from the venture were US$66 million, compared with US$61 million for thesame period in the previous year.

    Profits hit by higher costs in Q1 2014STRATEGIC EVALUATION

    Constellation Brands: Financial Performance Q1 2014Comparable (US$ million) % growth Reported (US$ million) % growth

    Net sales 673 6 673 6

    Operating income 104 -5 71 -34

    Net income 74 -3 53 -27

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    Euromonitor International PASSPORT 7ALCOHOLIC DRINKS: CONSTELLATION BRANDS INC

    STRENGTHS

    OPPORTUNITIES

    WEAKNESSES

    THREATS

    The company hasdeveloped a strongdistribution network inthe US and Canada,and its domesticdistribution should be

    further enhanced bygaining Modelos USbeer business.

    Strong distribution

    Constellation Brands isthe second largest wineproducer in North

    America and, with theacquisition of ModelosUS business in 2013,

    the second largestplayer in US premiumlager.

    North American strength

    Constellation is heavilyreliant on North

    America, making itsensitive to changingconditions in the regionand preventing it from

    benefiting from theexpansion of key growthmarkets.

    Narrow geographic focus

    Constellations alreadyhigh debt load wasincreased by theacquisition of ModelosUS beer business in2013. As a result, its

    profitability and financialflexibility are likely tosuffer.

    High debt level

    Younger US consumersare proving to be more

    receptive to wine thanprevious generations,creating potential for thedevelopment of newbrands and products.

    Younger wine consumers

    Constellationsacquisition of Modelos

    US beer businessplaces it in a strongposition to benefit fromthe growing demand forpremium imported lagerin its domestic market.

    Premiumisation of USbeer

    Constellations relianceon its domestic market,

    which generated 65% ofits wine volumes in2012, makes it verysensitive to downturnsin the economic fortunesof the US.

    Domestic economicdifficulties

    While the Modelo dealoffers considerable

    potential benefits, it alsorisks the undermining ofthe companys focusand reducing itscapacity to compete inwine and spirits.

    Persistent sluggishnessin developed markets

    SWOT: Constellation Brands IncSTRATEGIC EVALUATION

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    Euromonitor International PASSPORT 8ALCOHOLIC DRINKS: CONSTELLATION BRANDS INC

    Constellations geographic coverage wassignificantly reduced by the divestment of its UKand Australian operations in 2011, making it evenmore reliant on North America. The company hasnot shown major ambitions to extend its

    international reach, but is making moves todevelop a presence in certain markets withsignificant growth potential through agreementswith local companies. The 2013 agreement withInterfood Importao to develop sales in Brazil wasparticularly notable.

    The deal to acquire Modelos US beer businessstands to transform the companys operations. Itprovides a significant new source of revenue,opportunities for value-generating inn

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