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Blood Is Thicker Than Wine

“standfirst”>Robert Sands runs the world’s biggest wine company with his brother Richard, and it’s family values that he believes give Constellation the edge, says Robyn Lewis

Constellation is a formidable beast; just look at some of the facts. It is the largest wine company in the world, its European arm, Constellation Europe, is one of the biggest drinks companies in the UK. It is the largest wine producer in Australia and the second largest in New Zealand. It is the largest wine company in the US by value today. It has a global beer brand, spirits brands, countless global wine brands and still it continues to expand.

So I was expecting a somewhat formidable president and COO to turn up for this interview, as you’d imagine, but on his arrival it was clear that Robert Sands was not going to be what I expected; rather the opposite in fact. He arrives on time for our meeting, jolly and affable and, cracking jokes, far more amiable than his profile and history of broking mergers and acquisitions might suggest.

Technically, Sands became involved in the company in the mid ‘80s, when he joined as general counsel overseeing legal affairs. However, it is a family business and more to the point, his family’s business, and in reality Sands has always been involved in the company, from helping put in the vineyards while at college to where he is now. “Constellation is a company that has a lot of family roots,” explains Sands. “It’s a business that was started just after World War II by my father and grandfather in a small place in upstate New York called Canandaigua and the company was then called Canandaigua Wines. So it started off as a relatively small family affair, then through the 1980s and 1990s there was a period of vast expansion for us, expansion both through acquisitions and organic growth. To give you an idea, when I joined the company full time in 1986 we were looking at about US$200m in total sales and today it is nearly US$5bn.”

Sands runs the company today with his brother Richard, who is chairman and chief executive officer, and both are believers that it is this family foundation that helps the company succeed in today’s global economy.

“We are definitely of the opinion that being a family business is a positive thing,” he tells me. “People who’ve been in the drinks industry a long time recognise that the big companies around the world, to a large degree, are family companies that are, or were, controlled and run by strong families and strong family leaders. Companies like Heineken, for example, or Anheuser-Busch or Seagram. When you deal with customers in the market place you really see a sort of longing for the days when you had families who created and built these companies and really cared about the business they did, and I think that’s a unique advantage that we have at Constellation. We are one of the few that have the family still involved. Most are now run by professional managers and there is a turnover in management. Every couple of years there’s new CEOs and COOs and a whole new set of people and, you know, that lack of continuity, that lack of family connection and the lack of people there who have a vested interest in the business is quite apparent to the trade. I think that’s a big advantage for us, the trade knows we are a family, they know we are involved in the company and they know we care.”

The Constellation portfolio takes in beers, wines and spirits, though wine is, by Sands’ own admission, the biggest segment of the global business. Still, beers and spirits remains a focus. “Beer is very, very important to us. The brand we have in the US is Corona and it is a very important brand. It’s been one of the hottest beers in the US for the last 10 years or so and we’ve been the beneficiary of that growth along with our supplier, Modelo.

“Beer is a little different in that it’s an agency business for us. We are the US importer and marketer of the brands but Modelo is the brand owner and, therefore, our primary focus is serving that supplier as opposed to wine where we are the brand owner. There’s no real thought to getting our own beer brand because that would be somewhat inconsistent with our position with the Modelo brands. We have other ways that we would like that business to expand and we are sure it will but it is not about buying our own beer brands or beer companies.

On the subject of growing brands organically, Sands says, ”Organic growth has been so strong for Corona that our principal focus is just growing that brand organically in our market.

“Our spirits portfolio, on the other hand, is a different story. We are the third largest spirit company in the US and it’s a pretty big business for us and a business that we’d like to see grow. We think it’s very complementary to our structure and we think it is a good business in terms of its profile from a return on investment point of view.”

The differences between the three categories, especially in the different ways spirits, beer and wine are consumed is, Sands says, interesting to look at, particularly in terms of the effect this has on branding, specifically in terms of the wine category.

“Brands are important in all three of those categories but in each one it is slightly different. Clearly Scotch is a branded business in that, you know, Scotch drinkers have their Scotch brand, they drink Johnny Walker or Dewars or Cutty Sark and that is it, and beer is very similar, you might drink Heineken or Stella Artois or Budweiser and that is what you drink.

 “Wine is very different from that, however. The perception and consumption of the product is very different. It isn’t fashion orientated and it doesn’t display a lot of knowledge to say, ‘I only drink Hardys Shiraz’. Wine people, people who like to regularly consume wine, generally like to consume it with food, they drink some wines with some kinds of food and other wines with other types of food and they might drink red wine, white wine, rosé wine or sparkling wine at different times, depending on the occasion.

“So wine is consumed fundamentally differently, I think. I mean some people do have their brand of wine and that is all they drink but they are consuming it more like a cocktail or a spirit or a beer and we are all in favour of that, but it can be done either way. Brands are undoubtedly important to the wine category, it’s all about developing trust and having the consumer believe that a certain brand generates a quality of product, but – and not to go on about this – wine is consumed in a far more diverse fashion, which contributes to its fragmentation.

“For example there just aren’t those mega brands in the wine category. We are the biggest wine company in the world and we have just 4% market share of the world wine business. There are in essence billions of brands because in many instances it is a local business, people drinking whatever their local wine is, certainly in continental Europe it is like that to a large degree, and that’s why there aren’t currently those mega brands like Heineken or Smirnoff in the wine business. There are getting to be some though and I think the Hardys brand is getting there. In the UK for instance it is a real brand that people drink and are loyal to not just because it is locally produced or the cheapest. Mondavi, that we purchased last year, that’s a recognisable worldwide brand but those kinds of wine brands are few and far between at the moment.”

With brands like Hardys, Mondavi, Stowells and Echo Falls in the portfolio, if anyone has more than a decent chance at creating the long awaited mega wine brand it’s Constellation but, as Sands admits, it’s not easy to create successful wine brands and even with the aforementioned successes it remains very much a punt in the dark.

“Creating successful wine brands is a combination of factors. Clearly you need to be close to your markets and here our de-centralised business structure is an advantage. We don’t centrally operate, we have a lot of smaller companies that are part of Constellation, which operate extremely independently, like Constellation Europe, like Matthew Clark.

“Since we operate that way our people are able to stay very close to their markets and very close to the consumer. We don’t have people sitting around in New York, trying to figure out what people are drinking in Birmingham. The people at Constellation Europe know what people are drinking in Bristol and Birmingham and Glasgow and so consequently they are the ones who drive what we sell in those markets. In terms of being highly competitive, being up-to-date, this is a key factor.”

But are there still failed launches? “Do we have some failures with brands? Of course we do. Do we have a high success rate though? Of course we do. Do you have to plan for some failures to have some successes? Yes, that’s a key part of it. If you are not prepared to invest and take a risk on failing then you will not have any success. That is business.

“Obviously you have to minimise the risks so that you can live with them and so we do some pretty good consumer research and we think we know what the consumer wants but in this way we are a little different from the Unilevers or P&Gs of the world. We are more sales than consumer research led, it’s more about what the customer wants and fulfilling that need on a quality and price competitive basis. It’s being close to Asda, Tesco, Morrisons and Sainsbury’s in the off-trade and the Luminars and Wetherspoons in the ontrade. We have to work closely with them and understand what they want because they know their consumers. So having those customers and satisfying their needs, that’s the key for us and we do expect further consolidation in both the on- and off-premises, we are geared around that.

“I mean in the UK there are five supermarkets that represent around 80% of the market, now that might seem very few retailers in control but if you go to other markets five is a lot. Australia for example is dominated by just two chains and Germany is another very concentrated market dominated by just two slash discounters. So in the UK on- and offtrade consolidation is what we expect and will respond to.”

Talking of consolidation, the past 10 years or so have seen Constellation very much in the middle of the consolidating drinks sector, from the purchase of Mission Bell winery in 1994, Blackstone winery in 2001 to BRL Hardy in 2003 and, of course, Mondavi last year. And there is also the interest in Allied Domecq, which at the time of writing has yet to develop into anything concrete.

Yet Sands huffily denies that Constellation is a company that grows merely by buying other businesses. “I think that idea is a fallacy. If you look at the company and the company’s growth especially over the last real period of expansion, so that’s from the mid-eighties to now, you’ll see that 50% of our growth came from organic growth, developing our own brands and growing our existing portfolio and the other half of it came from acquisitions.

That’s the profile we continue to have. We’ve developed a lot of new brands over that period but they just don’t get the notoriety that the acquisitions get. I mean go out and buy a Hardys and it gets a lot of press, go out and buy a Matthew Clark and it gets a lot of press, go out and buy a Mondavi and it gets a lot of press but you don’t get that when you launch a brand of your own. However, we have been very successful in that area. We’ve developed Paul Masson brandy in the US, which is well over a 1m-case brand now; we’ve developed a whole new concept in the beverage alcohol product category, which we call wine with fruit that’s a brand called Arbor Mist and we built that category and brand from nothing into what is now a 4m case product. Right now, in fact, the pace of our new product development is at an all time peak. We’ve got around 12 new products that are just being launched right now – Monkey Bay from New Zealand, also Fern Leaf, about five new brands from Australia, a number of onpremise brands from California, and Constellation Europe is working on some new concepts as we speak as well.”

Looking to the future, Sands says that this combination of acquisition and NPD is set to continue, along with organic growth. It is, as he says a, “three-pronged approach. We like to talk about our goals in terms of doubling the size of the company every five years and we are in the middle of a five-year period in that regard. So we’ll be looking to continue to drive our strong single digit organic growth, continue to innovate and we will continue making acquisitions.

“That part’s a little unpredictable, in that we can only make them as the opportunities we are interested in avail themselves, but we’d like to be there when it happens and I think that bits and pieces will be shaking loose in one form or another and, you know, we’d like to be there when that happens.”

Now, there’s a glimpse of the president and COO I was expecting.

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