Wine company prunes while business is good

VICTOR -- Richard and Rob Sands took their father's little wine company on a two-decade buying binge, turning a regional purveyor of low-pedigree plonk into an alcoholic-drinks powerhouse with moderately priced wines, spirits and imported beers like Robert Mondavi, Svedka and Corona Extra.

Along the way, the brothers acquired one other seemingly enviable label in 2003: world's biggest vintner.

Even in a highly fragmented industry in which Constellation Brands Inc. claimed just 4 percent of global wine production, it was a high point for a family business in the Finger Lakes grape-and-wine country in western New York.

But size doesn't trump success. Constellation has been pruning methodically for five years as it strives to invigorate profits in a soft economy and solidify its supremacy in the sweet spot "premium category" -- higher-margin wines priced from $5 to $20 a bottle.

In January, it dropped to No. 2 in the vintner-by-volume rankings behind longtime leader E.&J. Gallo of Modesto, Calif., when it offloaded a once-promising Australian wine business that had gone badly awry.

Disposing of Australia's top-volume winemaker, BRL Hardy Ltd., after eight turbulent years was critical, even if the $1.1-billion buyout had given sparkle to a company many people had never heard of.

"Sure, it was thrilling, a feather in the cap," said chairman Richard Sands, 60, who was chief executive for 14 years before his younger brother took the helm in 2007. "But what happened in Australia was the perfect storm. And instead of the ship sinking, we sold it! We are focused entirely now on organic, profitable growth."

Though it'll take years, the brothers think Constellation will eventually move ahead of Gallo.

Wine consumption in America has grown for 17 straight years to 330 million cases, up 70 million in a decade, and the quality of wine has kept pace, according to the San Francisco-based Wine Institute. The United States now sells more wine than any other nation and spends more, $6.50 a bottle on average.

Two-thirds of Constellation's wine is premium, mostly in the $5-to-$15 range. It has an estimated 17 percent share of that segment in the United States, ahead of rivals that include Gallo, Treasury Wine Estates, Kendall-Jackson and Diageo.

It jumped into California's coveted market by netting Franciscan in 1999, Turner Road and Ravenswood wineries in 2001 and Robert Mondavi Corp. in 2004. Its 21 acquisitions over 21 years ran through 2007 when it bought Fortune Brands' U.S. wine business, maker of Wild Horse and Clos Du Bois.

Then came the cost-cutting.

Constellation pared its 300 brands to 100, slashed its debt from $5.3 billion to $3 billion, and shrunk its payroll from 9,400 to 4,300.

Selling 80 percent of its Australian and British business cut volume from 94 million cases to 64 million, leaving it second to Gallo's 76 million cases a year.