The world's largest wine company is selling two California jug wine brands to reduce debt and focus on higher-end wines like those in the Beam Wine Estates group it purchased in December.
Constellation Brands Inc. is selling its Almaden and Inglenook wine brands and the Paul Masson winery in Madera to The Wine Group for $134 million.
Though relegated to the lower shelves in supermarket wine aisles today, the brands have deep roots in the California wine industry and played key roles in increasing wine's popularity among Americans.
"These are brands from yesterday that enabled the company to gain a foothold in the wine market, but they don't fit their strategy anymore," said Jon Fredrikson, of wine industry consulting firm Gomberg Fredrikson & Associates.
Both brands have histories that reach back to the earliest years of California's wine industry. Almaden was founded in 1852 when Frenchman Etienne The?planted grapes near Los Gatos, while Inglenook rose to prominence after fur-trading sea captain Gustave Niebaum purchased the Inglenook vineyard in Napa Valley in 1879.
When Constellation acquired the brands in 1994 from the Heublein Corp., the mass market growth both enjoyed in the 1960s and 1970s had slowed as more Americans traded their Chablis wines for increasingly popular varietal wines.
As that trend has accelerated, Constellation has shifted its focus to higher-end wines with purchases such as Ravenswood, Estancia, Robert Mondavi Corp., and in December, the Healdsburg-based wine division of Fortune Brands.
"This transaction, when coupled with the recent acquisition of Clos du Bois, the Number 1 super-premium U.S. wine brand, will allow our wine sales forces to focus on selling higher-growth, higher-margin premium wines," said Rob Sands, chief executive officer of the Fairport, N.Y. company.
While no longer as profitable as they once were, Almaden and Inglenook have remained a force in the industry by virtue of their sheer volume. Combined they account for 10 million cases of production, much of it in boxes and selling for the equivalent of less than $3 per 750 ml bottle.
Almaden's last new wine, launched in 2004, was something called "mango flavor blush sangria."
This high-volume, low-margin side of the business is not where Constellation sees a future, but it is something The Wine Group does very well, Fredrikson said.
The privately held San Francisco company already owns the best-selling box wine brands in the nation, such as Franzia and Corbett Canyon.
When completed, the sale will cause the two companies to switch places on the list of largest wine producers in the United States, with The Wine Group surpassing Constellation to become the second-largest producer in the nation behind E&J Gallo, Constellation spokesman Mike Martin said. Constellation, which has wineries around the globe, will remain the largest wine producer in the world.
Almaden and Inglenook are expected to generate about $130 million in sales for fiscal 2008, Constellation said.
That's a bargain basement price that reflects the declining popularity of the brands, a trend exacerbated by recent price increases Constellation made to keep the brands profitable, Fredrikson said.
The price is also relatively low because there were probably few other suitors, Fredrikson said.
"Who else would want these except The Wine Group?" he said.
The Wine Group will use its expertise in the value wines market to "pinch its pennies" and make the brands as profitable as possible, Fredrikson said.