Mergers & Inquisitions
The world is spiraling into a state of deglobalization. In response, BevAlc companies seem to be acting in unison. But why?
Welcome back. I have a fun little Sunday edition for you this week. Speculation is still running rampant regarding the raid on Southern Glazer’s HQ. Ya boy Lewis Perdue at Wine Industry Insights wrote a great piece on the impact that a class-action lawsuit may have had on regulators’ decision to start kicking down doors. If you have any details, (looking at you Southern Glazer’s folks 👀) hit me up on Twitter.
Also, speaking of Twitter… what the actual f*ck is going on over there? To all the wine critics with 4K followers and an OG checkmark who insist you’re going to defect — No you’re not. No one wants to join the 12 of you over on Mastadon. You’re going to sit there and suffer with the rest of us.
If Twitter dies, I’m going down with it. So here’s to cheating death.
Pernod Is On A Booze Run
- 💸 Pernod Ricard made a second large investment in Sovereign Brands.
- 🤑 Sovereign's portfolio performance has been outstanding this past year due to their luxury branding, the price point, and a series of celebrity partnerships.
- 📉 There has been a dramatic shift in sentiment as the world slides into a recession.
- 📊 BevAlc macro trends such as consumer trade-ups into the premium category, the growth of demand in the luxury category, and global inflation have changed the outlook for the industry.
- 🚧 All of these BevAlc trends have the same outcome — Deglobalization.
Mergers & Inquisitions
- 💻 The strategies of the largest wine companies have changed in response.
- 🍾 Companies like Pernod, Constellation, and Treasury Wine Estates are acquiring into premium+ and fine wine segments to adjust to new reality.
- 📞 In response, value wine brands may have to consolidate to survive.
🔥 Also, someone should check in on Shopify and tell me what they're up to
PERNOD IS ON A BOOZE RUN
In October, it was announced that Pernod Ricard re-entered the M&A arena by increasing its stake in Sovereign Brands Wine & Spirits Company.
If Pernod Ricard doesn’t sound familiar to you, it should. They’re an international company that owns dozens of major alcohol brands sitting on the backbars of some of the most obnoxious “mixologists” from around the world. This includes brands like:
- Altos Tequila
- Lillet Aperitif
- Absolut Vodka
- Glenlevit Scotch
- Monkey47 Gin
The acquiree, Sovereign Brands, is a much smaller BevAlc company with 4 different brands in its own portfolio. So what’s so important about this acquisition?
Well, last year, Pernod Ricard took a small stake in Sovereign after seeing potential in its portfolio of several rums and one Crémant (French for “too poor to afford Champagne”). Since then, Sovereign’s Luc Belaire Crémant has become one of the fastest growing sparkling wine brands in the United States. This growth has been driven primarily by three factors:
- The luxury branding — You can tell they’re going for a whole “looks-more-expensive-than-it-actually-costs” thing. But really, I think the label looks like an intern at Malibu tried to rip off the Cristal Champagne logo.
- The price point — A bottle retails for somewhere around $30-$40. See above comment.
- Celebrity endorsements — Luc Belaire has established partnerships with a handful of high-profile rappers. And when I say a handful, I mean a shitload.
So why did Pernod take a bigger stake in the company? Sovereign’s largest brands have been killing it recently. In the past year, Luc Belaire has become one of the best-selling French sparkling wines in the United States. If I were to guess, I’d say that the crémant brand’s popularity was kick-started by a series of partnerships and endorsements by Rick Ross, Lil Wayne, Wiz Khalifa, DJ Khaled, and Post Malone. As a huge Weezy fan, I’m embarrassed to admit that this has been happening right under my nose. But, upon further research, I can confirm. It’s almost as if Luc Belaire built their brand as the everyday sparkling wine for made for celebrities, knowing that the masses would follow. I mean, my god, they even have a “Steve Aoki Edition” bottle.
In response, Pernod doubled down and substantially increased its holdings of Sovereign. Once the deal is complete, Pernod plans will “fully consolidate” Sovereign Brands into its own portfolio. Soon after, the two companies plan to launch a new brand together sometime in the next couple months.
On its own, this news is pretty inconsequential. However, Pernod’s strategy reflects a much greater shift that’s occurring in the industry.
I’ve been keeping an eye on M&A activity in the wine space for the last year or so and it’s been really interesting to see the dramatic shift in sentiment as we transitioned from post-COVID exuberance to absolute recession hysteria.
In this environment, it’s important to reflect on some of the most influential macro trends occurring in the wine sector at the moment:
- The bottom has completely fallen out of the wine market at the lowest price points
- Sales growth within the premium category and up ($15+) continues to remain consistent
- Luxury and investment-grade wine continues to thrive in this environment On that note, luxury products (and the labor market, apparently) have remained shockingly resilient to one economic shock after another
- Rampant global inflation driven by energy costs, labor shortages, and the good ole money printer
There are about a dozen causes for each of these macro trends. But, they all have the same outcome — Deglobalization.
What does deglobalization mean, in this context? Across all sectors, it means increased investment in domestic production capacity. In many cases, it means that a greater share of products are being consumed domestically, rather than being exported. It means fewer trade flows between nations as everyone gets weirder about sharing resources. Globalization comes from a place of abundance, while deglobalization comes from a place of competition and scarcity.
Mergers & Inquisitions
Amidst these conditions, it’s interesting to see how some of the major BevAlc companies and holding groups are responding. So, I thought it would be interesting to take a look at where the money has been moving in response to deglobalization.
March 2022 — Pernod Ricard acquires majority stake in Château Sainte Marguerite
Pernod Ricard seems to bee one of the few BevAlc companies to see these macro shifts coming. As a result, they shifted their strategy to prioritize premium wine categories sooner than most. In March, they acquired a majority stake in Château Sainte Marguerite, a cru classé Provençal rosé. The winery is just one of 18 cru classés in Côtes de Provence, with ~91 hectares (225 acres) of vineyards.
July 2022 — LVMH acquired Joseph Phelps Vineyards
LVMH hasn’t changed a thing. Their focus has always been on luxury products created by generational companies. The only thing that has changed is the fact that the current macro conditions are perfect for LVMH’s business model and brand. As a result, their appetite has gotten a bit more… exotic. In July, LVMH acquired its third American winery with the purchase of Joseph Phelps Vineyards. At the moment, the only two other American wine brands in the LVMH portfolio are Colgin Cellars and Newton Vineyard, both of which are located in St. Helena.
October 2022 — The Rothschildren acquired Akarua Vineyard
It’s always interesting to see where in the world the tentacles of the Rothschild industrial complex continue to spread. The Edmond de Rothschild Heritage Group is a conglomerate combining luxury hotels, restaurants, and vineyard estates under a single portfolio. If you don’t have your genealogy chart handy, Edmond James de Rothschild was one of three sons that inherited the Chateau Lafite Rothschild from his father, James Mayer Rothschild.
Last month, the Bordeaux-based cephalopod received the green light from New Zealand regulators to purchase the 52-hectare (130 acres) Akarua vineyard and winery. The purpose of this acquisition was twofold:
- To add another international winery to their diversified portfolio of premium/fine/luxury wines
- To enter the fast-growing organic wine category
EdR already owns an impressive collection of wineries that check two important boxes: premium and globally-diversified. By acquiring Akarua and converting the entire vineyard, they’re moving beyond premium and entering the shady world of “certified” organics.
October 2022 — Constellation Brands sold multiple brands
In October, Constellation Brands unloaded a portion of its portfolio that included “mainstream and premium wine brands.” Brands like Cooper & Thief, 7 Moons, and The Dreaming Tree. It’s worth noting that 2/3 of these brands are barely premium, with prices sitting right on the lower limit of the category.
So who’s the lucky buyer? It’s BevAlc’s favorite bottom feeder: The Wine Group.
For Constellation, this gives them the opportunity to shed the cheapest portfolio brands in favor of the premium and fine wine categories. For TWG, one company’s trash becomes another’s slightly-more-valuable trash — They’re able to trade up into the big leagues ($10+).
What Do These Responses Mean?
Based on much of the investment activity over the last year, it seems like the largest wine companies are responding to deglobalization in two, not-so-mutually-exclusive ways:
- Firms are pushing into higher price points to capture the few segments that continues to see sales growth (mainly premium and up).
- Firms are investing in production capacity outside of their home countries.
The increase in sales of premium wines is attributable to legitimate change in generational consumption habits. Americans are consuming less, but willing to pay a little more for higher quality. The increase in sales of fine wine is simply attributable to the fact that, if you have enough money, you’re likely to be insulated from 8% inflation and a prolonged recession. The spending habits of the top 10% of earners is not likely to change much.
As for the apparent increase in international acquisitions, I have a theory. As consumption becomes more inwardly (domestically) focused, it becomes better for a beverage company to own multiple brands from around the world than to own a few domestic brands intended to be sold to customers around the world. I think that many of the largest brands see deglobalization as a 10+ year trend and are adjusting their strategies accordingly.
The bottom line is that premium brands are consolidating out of opportunity. Moving forward, however, this puts value brands in a difficult position. We may see value brands begin to consolidate further out of necessity.
SOMEONE CHECK ON SHOPIFY
So… For the past several months, I’ve seen this series of ads by Shopify across a few different social channels.
For years, Shopify has been used as a sort of patchwork DTC solution for small wineries, but it was rare that the e-commerce company ever acknowledged their existence. Now, Shopify is advertising directly to those same winemakers across Instagram, Facebook, and Linkedin. By pairing their platform with the DRINKS app, Shopify now helps wineries sell via e-commerce while also maintain compliance — one of the key features they would need to compete with companies like Commerce7.
Their sudden advertising to wineries is interesting, and leads me to believe there’s something larger coming.
Have any info? Hit me up.
- 🦸🏻 Not Even China Can’t Save You — Chinese wine consumption has dropped off aggressively amongst COVID lockdowns, political uncertainty, and a big fat trade war. But, their loss becomes Singapore’s gain.
- 🚜 Far Niente Wine Estates Is On A Shopping Spree — Far Niente has been buying up vineyards around California to bolster the production capacity of its flagship brand and portfolio of fine wines. Their take on the current macro climate? “When you get into the higher price points, consumers aren’t quite as sensitive to inflation.”
- 🎁 29% of Holiday Shoppers Intend To Gift Alcohol & Food — This could mean for a successful holiday season for BevAlc (despite inflation), especially as consumers continue to trade up-market. The most offensive revelation from this article is the fact that 56% of people plan on just buying a gift card and calling it a day. Don’t be that person.
- ⏱ Tock Launches Its Own Online Wine Shop — Holy shit, I can’t believe we haven’t talked about this yet. This is what I get for posting weekly(ish). The Tock Wine Shop just launched and it’s the competitor that no one saw coming. With Tock launching and Shopify creeping in the background, Commerce7 is in for a brutal fight to maintain market share. More on this next week.
Still working on building out the full job board. In the meantime, I thought I'd throw up a few interesting positions here.
Senior Brand Manager — Revolution Brewing (Chicago, IL)
I know this is a wine newsletter, but there are so many cool roles across all BevAlc, so I thought I would share one of them. Revolution Brewing is hiring for a Senior Brand Manager. It's a really interesting opportunity to take a great emerging brewery and help them develop their brand through packaging, programming, graphic media, and merchandise. Check out the announcement for this post on Twitter from the infamous @beercruncher.
Direct to Consumer Sales Manager — Rose & Arrow Estate (McMinnville, OR)
This is not a drill. Rose & Arrow is building out their DTC! If you didn't know, Rose & Arrow is an emerging winery in the Willamette Valley producing single-AVA wines from the Chehalem Mountains, Eola-Amity, and the Dundee Hills. R&A is a great example of a winery that would thrive with a DTC sales channel. But here's the best part — As the DTC Sales Manager, you receive 1.5% of all sales from web, tasting room, and client outreach.
Manager Competitive Intelligence — Ste. Michelle Wine Estates (Woodinville, WA)
Ok, it sounds crazy, but Ste. Michelle is hiring for a straight up corporate spy. Of course, it's a little more complicated than that, but they're looking for someone who can monitor the activities of their competitors and then provide insights on how SMWE should respond. If you end up applying and getting this job, please tell me. We need to be friends.
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