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That Constellation-Meiomi deal? Land is more valuable than brand

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I sometimes wonder if the general public knows how much land acquisition is a strategic consideration in many of the winery deals that have gone down in California. Sometimes, these acquisitions don’t make any sense, on the face of it; you wonder why in the hell winery X bought winery Y. But if real estate is part of the deal, it can make a great deal of sense.

Such seems to have been the case with Constellation’s purchase of Meiomi, announced yesterday. Not on Contellation’s part, but on the Wagner family’s.

Meiomi’s proprietor, Joe Wagner, of the family that famously owns Caymus, Belle Glos, Mer Soleil and other wineries, told Shanken News Daily that he was selling Meiomi for an unbelievable $315 million because the deal will give him the liquidity necessary to become a much larger landowner. Wagner says he hopes to amass 2,000-3,000 acres of California vineyards over the next five years.”

“A much larger landowner.” That’s the game the major players are playing these days. Everyone assumes several things: (a) the U.S. appetite for wine will only grow, (b) exports of U.S. wines overseas also will grow, especially as trade deals like the TTP go into effect, and (c) supplies of grapes are only going to tighten as the best appellations and regions get planted out. Under such circumstances, buying vineyards now—or selling a superhot brand like Meiomi for a fortune, in order to buy land later—is smart.

Did the Wagners start Meiomi, back in 2006, in order to sell it after it became hot? Who knows? But I doubt that they, or anyone, could have guessed how wildly successful Meiomi would become. I suspect they started it because, nine years ago, the country was still in the throes of its “Sideways” fascination, and the Wagners surmised, correctly, that you couldn’t have too much good Pinot Noir. Probably, they figured Meiomi would be a nice, profitable little brand, like Mer Soleil or Belle Glos: an affordable Pinot Noir, from coastal vineyards. Myself, I don’t particularly care for it—too sweet, like candy; in a tasting of other Pinots, the sweetness sticks out like a sore thumb. But Americans, at least the ones who buy Meiomi, are gobbling it up: Wagner told Shanken that Meiomi is on par to sell 700,000 cases this year. Perhaps the Wagners looked into their crystal ball and figured out that Meiomi has had its fifteen minutes and is on the way down. This would not be the first winery that Constellation bought that had already reached its zenith.

So we know what the Wagners get from the deal: a boatload of cash that will finance future vineyard and/or land purchases. And what of Constellation? They get a super-famous brand that flies off supermarket shelves, which is really the Constellation business model. I can’t see Meiomi getting better in the future—that would be asking too much of Constellation. But with all their access to grapes, they can grow Meiomi forever, keeping it affordable even as production approaches a million cases.

There’s another thing about buying vineyard land: it’s always there for other purposes besides vineyards. Zoning regulations mean you can’t just do anything you want, but investing in land has been the most secure place to put your money since the beginning of time. And in the case of coastal California, if you happen to have a few extra hundreds of millions of dollars, you can buy some pretty fabulous property that will only increase in value. Whether or not it’s in vineyards in ten or twenty years, you don’t really care; that land is going to be extraordinarily valuable no matter what happens (unless coastal California disappears into the sea in the Big One).

  1. Bob Henry says:

    Bill Haydon:

    You will get a chuckle out of the news below that Meomi is bulk wine.

    (But then again, Joe Heitz also bought wine from others and worked it to his satisfaction before putting his brand name on it. See Bob Benson’s interview book.)


    From The Wall Street Journal “Business & Tech.” Section
    (July 2, 2015, Page B6):

    “Constellation’s Beer Brands Help Drive Spirit Maker’s Profit”


    By Tripp Mickle
    Staff Reporter

    Constellation Brands Inc. on Wednesday said sales of leading Mexican beer brands Corona Extra and Modelo Especial exceeded expectations in the first quarter, allowing it to raise its profit outlook for the year.

    Bad weather this May in two of Constellation’s biggest beer markets, California and Texas, raised concerns beer sales might slow, but Constellation’s beer division delivered an 11% sales increase, to $965.8 million, behind rising volume. The alcoholic-beverages company said its brands accounted for two-thirds of the volume growth in the U.S. beer industry during the quarter ending May 31.

    Constellation’s growth came as competitors Anheuser-Busch InBev NV and MillerCoors LLC continue to struggle with declining volumes for top brands such as Budweiser and Coors Light. The number of drinking-age Hispanics in the U.S. is expected to grow by more than one million annually in the coming years, outpacing other demographic groups, and many of those drinkers have been choosing to buy Mexican beers such as Corona and Modelo Especial, according to the National Beer Wholesalers Association.

    “Our beer business has been unstoppable,” Constellation Chief Executive Rob Sands said.

    The beer division’s performance led the company to lift its outlook for the year by 10 cents, to $4.80 to $5 per share from $4.70 to $4.90 per share. It also raised net sales expectations for the beer division to 10% from the high-single digits.

    The alcoholic-beverage company also announced a $315 million deal to buy the California wine brand MEIOMI. The brand generated net sales of $65 million last year on about 600,000 cases of wine, up from 60,000 cases in 2010. Constellation said it expects the brand to add three cents to four cents per share to earnings this year.

    Mr. Sands described the brand’s signature Pinot Noir, which sells for about $25, as a “HEAVIER AND FULLER BODIED WINE THAN THE TYPICAL CALIFORNIA PINOT NOIR.” MEIOMI WINES ARE MADE FROM BULK WINE IT PURCHASES FROM CALIFORNIA VINEYARDS, which the company said creates operational synergies in areas such as bottling with Constellation’s portfolio of wines, which includes Robert Mondavi and Clos du Bois. The company said the deal was financed with credit.

    The wine and spirits division, which accounts for less than half of total sales, delivered a 1% increase in net sales, to $665.5 million. Constellation said the division is expected to deliver growth in the low- to mid-single digit percent range before any benefit from the Meiomi acquisition.

    Constellation said it would spend about $20 million to “streamline and simplify processes,” invest in brand building and develop a new innovations division. It said the roughly $2 billion expansion of its brewery in Mexico is proceeding as planned. It expects a new brew house with a capacity of about 4.2 million barrels to begin brewing by the end of the year.

    For the first quarter ended May 31, sales increased 6.9%, to $1.63 billion. Net income increased 15%, to $238.6 million, or $1.18 per share.

    The results were in line with analysts’ expectations of $1.62 billion in sales.

    The earnings call was the first for new Constellation Chief Financial Officer David Klein. He was named to the position June 15 after former chief financial officer Bob Ryder decided to leave the company.

    — Lisa Beilfuss contributed to this article.

    Write to Tripp Mickle at

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