Constellation Brands, a global drinks giant renowned for its beer, wine, and spirits portfolio, has been making headlines with its strategic acquisitions aimed at Premiumization of its wine offerings. These moves reflect broader trends in consumer preferences and market dynamics. Understanding the backstory of Constellation Brands' shift towards high-end wines reveals much about the company's strategy but also much about the evolving landscape of the wine industry. 

Notably, the Silicon Valley Bank wine division just reported that, at least in direct-to-consumer sales, wine volumes sold are lower across average price ranges, but wineries selling between $30 and $80 report increasing sales dollars. Overall, wineries with lower average selling prices are shrinking and are getting lower returns. Wineries with SRPs between $20 - $80 show lower volume, but positive value growth. 

The Strategic Acquisitions

Constellation Brands has been on a purchasing spree, acquiring several premium wine brands. The recent acquisitions of Sea Smoke, a Santa Barbara County winery, and Domaine Curry, a Napa Valley luxury brand, underscore the company’s focus on high-end wines. As reported by Sommeliers Choice Awards, Constellation earlier bought Larry Stone MS’s Lingua Franca in Oregon in spring 2022.  

This Fortune 500 company has “brands including Robert Mondavi (acquired in 2004) and its subsets (alongside Coors and Modelo beer). . . . The New York State-based company sold most of its ‘value-oriented’ brands to California’s E & J Gallo in 2021 while reorienting towards premium and luxury markets, holding, for example, To Kalon Vineyard Company, The Prisoner Wine Company, Mount Veeder, and Schrader Cellars in its new Aspira Fine Wine & Craft Spirits portfolio. Lingua Franca joined the Aspira roster, which is a standalone, vertically integrated fine wine and craft spirits division formed the same year.” 

Constellation’s business strategy mirrors what’s happening in the global wine industry, and as a publicly traded company, Constellation appears to value not only the acquisition of wine brands selling in premium price tiers, but also concerns about social responsibility, environmental responsibility, and diversity, equity, and inclusion (DEI), which many stock analysts now pay attention to. It is more of a mirror for the wine industry overall than, say, the privately-held GALLO, although both are acquiring smaller wineries.  

For example, Lingua Franca's focus on terroir, quality, and sustainability aligns with Constellation's current broader objectives as viewed by analysts. The vineyard's commitment to sustainable practices, highlighted by the collaboration with regenerative viticulture crusader Mimi Casteel, matched Constellation's efforts to enhance its sustainability credentials. The strategic inclusion of Lingua Franca also strengthens Constellation's position in the competitive premium wine market, diversifying its offerings and enhancing its reputation among wine enthusiasts and collectors.  

With the guidance of Aspira's former President Robert Hanson, who was praised for his commitment to sustainable production, Constellation was well-positioned to thrive in the high-end wine segment, offering consumers wines that emphasize quality, authenticity, and responsible production. Has that impetus continued? 

Sea Smoke Acquisition

In May 2024, Constellation Brands announced the acquisition of Sea Smoke, a renowned producer in the Sta. Rita Hills AVA of Santa Barbara. This deal included 445 hectares of land, with 104 hectares currently under vine, as well as a winery, inventory, and the Sea Smoke brand. Sea Smoke, established by video gaming entrepreneur Bob Davids in 1998, quickly gained acclaim for its Pinot Noir and Chardonnay. The winery expanded in 2016 by purchasing the neighboring Rita’s Crown Vineyard and adopting biodynamic farming practices. Sea Smoke's wines have consistently received high praise, solidifying its position as a top-tier producer. 

Domaine Curry Acquisition

In June 2023, Constellation Brands acquired Domaine Curry, co-owned by Ayesha Curry and Sydel Curry-Lee, from Coup De Foudre in Napa Valley. Talks for this acquisition began in December 2022, reflecting Constellation's interest in bolstering its premium wine portfolio under The Prisoner Wine Company. Domaine Curry’s wines, which have scored upwards of 94 points in critic tastings, will now be produced by The Prisoner's winemaker Chrissy Wittman. The brand, celebrated for its entrepreneurial spirit and cultural relevance, aligns with Constellation's goals of expanding the luxury wine landscape.

Image: Domaine Curry’s previous owners; source Instagram 

The Shift Towards Premiumization

Constellation Brands' focus on premiumization is driven by changing consumer trends and market conditions. Americans are drinking less wine overall, leading to an oversupply crisis in California. However, demand for high-end wines remains robust. Consumers increasingly seek quality over quantity, preferring premium brands that offer unique experiences and superior craftsmanship.

Sam Glaetzer, president of wine and spirits at Constellation, highlighted this trend in a statement to Wine Spectator: "As we continue to pursue growth aligned with consumer-led premiumization trends through our higher-end brands of the wine and spirits business, we are excited to add Sea Smoke to our fine wine portfolio." 

Historical Context and Market Dynamics

Historically, Constellation Brands has been a major player in the alcoholic beverage market, with a strong presence in beer through brands like Modelo Especial. The company’s beer segment, which accounts for 85% of its revenue, has seen significant growth, especially as Modelo became the top-selling beer in the U.S. However, Constellation's ventures into wine and spirits have not always been smooth. Past investments, such as the $4 billion stake in Canopy Growth and the $1.4 billion brewery project in Mexicali, resulted in significant write-downs and losses. 

The shift away from family control in November 2022 marked a turning point for Constellation. The reclassification paid the Sands family $1.5 billion for their Class B stock, enabling the company to operate more like a public entity focused on shareholder value. This restructuring, coupled with new leadership under CEO Bill Newlands, positioned Constellation to capitalize on premium market opportunities. 

The Future of Constellation Brands

Constellation Brands' premiumization strategy aims to leverage its strengths and address past missteps. The acquisitions of Lingua Franca, Sea Smoke, and Domaine Curry bring high-quality brands into its portfolio, aligning with consumer preferences for luxury wines. By focusing on premium brands, Constellation can enhance its market position and drive growth in a competitive landscape.

Victor Gallegos, general manager of Sea Smoke, expressed optimism about the partnership: "We are extremely excited to collaborate with Constellation Brands as we begin writing a new chapter in the Sea Smoke story. They have the right team with the right resources and the expertise to help us grow and thrive in a highly competitive market." 

Similarly, Bukky Ekundayo, vice president and general manager of The Prisoner Wine Company, noted the significance of acquiring Domaine Curry: "The acquisition of Domaine Curry, a female- and Black-founded wine brand with a successful track record for entrepreneurship, storytelling, and community, provides an opportunity for us to partner with Ayesha and Sydel to build a uniquely positioned luxury wine and culturally relevant lifestyle brand."

Notably, however, just last month revealed its fiscal 2024 first quarter results. As the North Bay Business Journal reports, Constellation says it has "initiated a potential sales process of a few wine and spirits non-core assets, including certain vineyards and facilities to better align our network and partially offset the acquisition cost" of Sea Smoke. There’s a lot of fine-tuning going on in terms of what equity is held. 

"We continue to face challenging dynamics in these categories, particularly across most of the wine price segments," said CEO Bill Newlands on a call. “But he said the slump in wine and spirits sales that took hold last year is expected to turn around this year,” reports the Journal.

Constellation Brands' focus on premiumization reflects broader industry trends and the company's strategic response to changing market conditions. By acquiring high-end brands like Sea Smoke and Domaine Curry, Constellation is well-positioned to cater to consumers' evolving tastes and drive growth in the luxury wine segment. This shift marks a new chapter for Constellation, emphasizing quality, innovation, and cultural relevance in its pursuit of excellence in the wine industry. 

As Constellation Brands navigates the future, its focus on premiumization demonstrates a keen understanding of evolving consumer preferences and market dynamics. By studying Constellation’s business maneuvers, we are holding a mirror up to the industry as a whole, particularly in the U.S.  

By acquiring esteemed brands such as Lingua Franca, Sea Smoke, and Domaine Curry, Constellation not only enhances its portfolio but also reaffirms its commitment to quality, sustainability, and cultural relevance. This strategic shift allows the company to cater to more discerning wine consumers who prioritize exceptional craftsmanship and unique experiences. The strategy is to sell at a higher price point to receive great value from each bottle sale. As Constellation continues to align with consumer trends and expand its high-end offerings, it sets a benchmark for the industry, showcasing a vision that balances profitability with responsible production and innovation. This approach positions Constellation as a formidable leader in the luxury wine market, poised to thrive in an increasingly competitive landscape.

Header Image: Sea Smoke vineyard; source: Constellation Brands