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. Last Updated: 07/27/2016

Constellation Rises High Over Wine World

FAIRPORT, New York -- It is the only alcoholic beverage company in the United States that encompasses all three categories: wine, beer and spirits. It peddles brands to suit all tastes: fruit-flavored jug wines and coveted California reds, beer imports such as Corona and St. Pauli Girl, and liquors like Fleischmann's vodka, Skol gin and Black Velvet Canadian Whiskey.

But many people have never heard of Constellation Brands Inc. -- although the firm once called Canandaigua Wine Co. has become the world's biggest wine company.

In its 14th buyout since 1990, Constellation Brands this week acquired Australia's top-volume vintner, BRL Hardy Ltd., for $1.1 billion in cash and stock. The deal will boost overall sales to $3.3 billion and wine revenues from $1.2 billion to $1.7 billion, surpassing those of longtime No. 1 wine producer E.& J. Gallo Winery of Modesto, California.

During a 15-year acquisition binge that steered it safely through the wine-cooler craze and gave it a firm foothold in California in the early 1990s, this operator has moved far from its regional roots as a purveyor of low-pedigree wine.

Founded by Marvin Sands in 1945 as a bulk wine seller, the company's first creation was Richard's Wild Irish Rose, a cheap dessert wine launched 50 years ago and named after his son.

Richard Sands, 52, the company's CEO, usually leads takeover talks and has an iron-willed reputation for what he is willing to pay. In a slow-growth industry, he has created a diversified portfolio of properties within his company.

"A lot of companies responding to jug-wine tastes in the past have retooled," said Gladys Horiuchi of the Wine Institute, the California wineries' trade association. "Around 1992, varietals started outselling generic wines. The growth areas are in the upper end."

Sands earned a doctorate in social psychology but cooled on a career in academia and moved back to the family business in 1979. He learned from the ground up, driving forklifts, making and marketing wine, watching how his father went about small acquisitions.

In the 1980s, his flair for mathematical modeling helped develop what has proved a winning formula: create entirely new brands and gussy up old ones while picking off ever bigger competitors on the cheap.

The company's own fruit-flavored concoction, Sun Country Coolers, rapidly swelled sales from $75 million to $175 million in 1984. But the father-and-son team foresaw a just-as-abrupt decline and embarked on a stream of wine acquisitions to fill the gap.

Buying Guild Wine, maker of Cook's champagne, and Barton Inc. of Chicago, with its broad base in imported beer, landed the company in the big leagues a decade ago. In 1998, Arbor Mist was its most successful launch -- 1 million cases were shipped in the first 100 days -- and it still retains a 60 percent share of the "wine with fruit" category.

Constellation Brands jumped into California's fast-growing fine-wine ranks in 1999, acquiring Franciscan for $240 million and gaining upscale labels such as Estancia and Simi. In 2001, it paid nearly $500 million for California's Turner Road and Ravenswood wineries and Corus Brands of Woodinville, Washington.

Sands is intent on growth. With the purchase of BRL Hardy, "it's the first time in the history of world wine that a company has really taken over the global leadership position," he said.

His father, who died in 1999, "would be very proud," he added.

As it grew larger, the company also relocated in 1998 from small-town Canandaigua in upstate New York's winegrowing Finger Lakes region to an office park in this Rochester suburb, and changed its name to Constellation Brands in 2000 to better reflect its diversity.

It also organized into five divisions: Canandaigua Wine, its lower-priced wine business; Franciscan Estates, its higher-priced wines; Barton Beers, importer of labels including Corona and St. Pauli Girl; Barton Brands, its hard liquor division; and Matthew Clark, which sells wine, hard cider and bottled water in Britain. Each division has its own sales, marketing and production teams.

"We don't think of them as fiefdoms -- we need to provide a high level of strategic direction, and we do -- but these management teams operate their day-to-day business and do a much better job than I could do if I was trying to control everything," Sands said.

Splitting its wine business into separate categories -- emphasizing popular (under $6), mid-range (under $10) and more expensive wines -- is vital when "there's so many brands out there," said analyst Bryan Spillane of Banc of America Securities in New York.

Expanding into the surging Australian wine market will expand its work force from 5,000 to 6,500 and its wine volume to 80 million cases per year. Land holdings will double to 4,800 hectares -- bigger than the Finger Lakes wine country.

The risks of unwieldiness might loom large as Constellation pushes into another hemisphere, but so do the potential benefits.

"Not only will Constellation be able to import Australian wines but they'll probably use some of those low-priced, high-quality grapes to produce some U.S. wines," Spillane said.