The Growth of a Giant: Constellation Brands

Winery Insight Featured Article - April 2006 by Timothy O. Rice

It had to begin somewhere.

On April 3^rd, 2006 Constellation Brands, the world’s largest wine company, announced an agreement to acquire Canada’s Vincor International, the largest in that country.  This widened the gap between Constellation and Gallo, which Constellation passed in 2004.  Constellation has generally grown through acquisitions throughout its history, while Gallo spent decades “growing from within” before entering an acquisition phase in recent years.

But all big companies were once small, a gleam in the eye of some entrepreneur, and the path to vast size is long, often filled with dead-ends and unexpected twists.  How I wondered, had Constellation come to this day?

I began my search in Thomas Pinney’s “A History of Wine in America”.  I already knew the company was based up in the Finger Lakes of New York, and the discoveries I made in Pinney’s book started me down a trail with plenty of surprises.

In the 1930s, a man named Mordecai Sands had made wine. Just after Prohibition, this had been with a company called Geffen Industries in Long Island City, and later seems to have been down in the Carolinas.  Most American wine of that period was considered truly awful, and the wine Mordecai made was probably no different.

In 1945, Marvin Sands, son of Mordecai, bought the old Canandaigua Winery on Lake Canandaigua.  Some accounts say Mordecai paid the way for that and set his son up to run the business.  A new company arose: Canandaigua Industries, Inc.  Down in Virginia, Mordecai had opened up a new winery in 1951 named after his new grandson: Richard’s Wine Cellars.  Here he made sweet muscadine-based wine from Carolina grapes.

America was not a good market for wine in those days.  Canandaigua struggled along with the rest, as did Richard’s Wine Cellars.  Then one day in 1954 the company introduced the wine that changed everything: Richard’s Wild Irish Rose, a fortified, sweet wine named after Marvin’s son. 

Made from Concord grapes that grew so abundantly in New York and along the shores of Lake Erie, it was aimed squarely at the one segment of the market where wine sold well, the inner city.  An immediate success, Richard’s Wild Irish Rose still sells in the new century.  The tide of money it brought to little Canandaigua was the basis on which that business was started, and the fulcrum on which it changed.

Little Canandaigua saw possibilities in the South, where few others did.  In 1956 they bought Mother Vineyard Winery in North Carolina. And in 1965 Tenner Brothers of South Carolina.  By 1973, the Sands had secured the rights to the Virginia Dare label from the heirs of Paul Garrett, perhaps the biggest selling wine in America before Prohibition.  Soon after, in 1969, they bought Onslow Wine Cellars in North Carolina

Back in the Finger Lakes, they began to nibble.  The year 1969 saw them buy Hammondsport Wine Company, one of the old guard along the lakes.  If anyone checked, they would have noticed that privately-held Canandaigua Industries was now the biggest American wine producer outside of California.

In 1973, Canandaigua went public.  Flush with funds, it slipped into California and bought the Bisceglia Winery, a large wine-maker.  Years of growth followed.

How had that happened?  The Finger Lakes had long been a part of the American wine scene, and the big names had been Taylor, Widmer, Pleasant Valley and Gold Seal.  What happened to them while Canandaigua expanded.  Taylor knocked off Pleasant Valley, buying them in 1961.  Coca-Cola gobbled Taylor in 1977. Seagram’s swooped in and bought Gold Seal in 1979.  Neither seemed quite sure of what to do with wineries.  Widmer was sold through a series of owners and still exists, but never grew as the others did.  .

Canandaigua kept on growing. In 1986, Widmer’s was sold to Canandaigua.  They followed up with a purchase of the Monarch Wine Company down in Brooklyn – maker of Manischewitz – and moved production up to the Widmer plant.  In 1991 they bought up the pieces of the Guild Wineries co-op in California: Cribari, Roma, Cresta Blanca, and Cook’s Imperial Champagne.

Coca-Cola had a dream that required huge volume, and upstate New York couldn’t produce it.  So they bought a big California vineyard and created Taylor California Cellars.  Purchases of grapes in the Finger Lakes dropped.  Six years later Coca-Cola decided to get back out of the wine business and sold everything to Seagram’s. Seagram’s sold all of their wine business off to Vintner’s International, a new firm, in 1987 and that company struggled along until 1993 and then sold itself off to – who else? – Canandaigua Industries.

At this point, Canandaigua Industries owned all four of the big wineries that had dominated the Finger Lakes when they began.  Not much was left of them; in truth they were merely labels to be used as Canandaigua saw fit.  Canandaigua was now the second-biggest wine producer in the world, second only to Gallo.

The Sands did not halt.  In 1994 they gobbled up Almaden-Inglenook, then Mission Bell.  In 1999 they added the small but prestigious Simi and Franciscan wineries.  The year 2001 brought Ravenswood in Sonoma.  Next they swerved to Washington (Columbia, Covey Run, Paul Thomas) and Idaho (St. Chapelle).  Finally in 2003 they moved overseas to buy BRL Hardy of Australia, a very large producer.  This finally put them over the top.  They had edged past Gallo.

It was at this point that a realignment of the company changed the name.  Along the way Canandaigua had acquired a substantial spirits business as well, and interests in distributing beer.  Constellation Brands, they thought, fit this new behemoth better.

The new company did not rest there.  In 2004 they launched yet another major acquisition: Robert Mondavi Winery, one of the most pre-eminent names in the California wine industry.  A noticeable gap appeared between Constellation and Gallo.

Now we have this latest move.  Vincor International is Canada’s largest, and the addition opens that gap in size yet a bit more. 

Is it too much?  Should we worry about this ever-expanding Constellation?

I think not, and certainly not yet.  Vincor itself began life as the Niagara Falls Wine Company in 1874 and grew to be the biggest fish in its’ pond before being gobbled up by Constellation.  We may yet find that some competitors are beginning to gnaw on the knees of the giant to bring him down.

More to the point, the world wine market is incredibly fragmented.  Gallo and Constellation between them control less than 10% of it.  Competitors arise every day, thousands of them already exist, and many of those are tough-minded individuals looking to build their own enterprises.  While there are advantages to being big, there are also advantages to being small, agility and innovation and excellence often among them.

Constellation’s empire will be hard to manage and hard to keep expanding.  To do so, they would need to keep promoting diversity throughout their organization, which makes it still harder.

I think they are reaching their limit.  I wonder which small business out there has them in their sights right now.