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On that Prisoner deal: Brands without land? I don’t think so



On the Sales road today in the midst of a busy week, but first I want to comment on the headline this morning that Constellation has purchased The Prisoner for $285 million.

I “get it” that some of these big wine companies are going after these mass brands, like Meiomi, which was scooped up by Constellation. [ED note: In a previous edition of this post I mistakenly said Meiomi was bought by Gallo. Mea culpa!] But here’s my question about this Prisoner thing: As the San Francisco Chronicle points out in their coverage of the deal, The Prisoner owns no vineyards; the way the Chron put it is that the sale “suggest[s] a significant departure from the model that has long dominated the wine industry, in which land carries the greatest capital. Now, it would seem, brand trumps land.”

I disagree. That’s an easy and fatuous conclusion for a reporter who doesn’t understand the wine industry to make. But guess what? Grapes don’t come from the sky. You don’t drive your pickup over to Grapes R Us and load up on Zinfandel fruit. You have to have vineyards, and, in the case of The Prisoner, if they don’t have the vineyard holdings to ensure quality fruit year after year, then the quality of The Prisoner has got to suffer, with the inevitable consequence that consumers sooner or later will figure out that the wine isn’t what it used to be.

I don’t mean to slam Constellation, but let’s face it, that company doesn’t have the greatest reputation for wine quality. All too often they seem content to let quality drift to a midpoint level, which they hope they can get away with for a long time. And perhaps they can. When it comes to these mass brands, consumers might not notice an ever-so-slight racheting down of quality. It’s the frog (or is it lobster?) in a saucepan of water on the stovetop: Gradually increase the heat and the poor thing doesn’t even known it’s being boiled until it’s too late.

Look: brands come and go. Mostly they go, because they lose their rationale and consumers then lose their reason for buying it. So, I wish Constellation good luck with this, but really, the conclusion that “land doesn’t matter anymore, brands do,” is dumb.

Anyhow, time to hit the road! Going down to Silicon Valley today for a wine lunch and talk about Jackson Family Wines Pinot Noir. Ciao until tomorrow.

  1. Private says:

    One correction, Gallo did not purchase Meiomi. It was Constellation that purchased that brand too.

  2. Flywine says:

    Maybe not Steve, but $285 Million talks. So for the moment, the rush is on for Brands because when one MBA makes a move…others will follow. After all, what else are they going to do?

  3. Just because you wouldn’t have phrased it the same way doesn’t mean the reporter “doesn’t understand the wine industry.”

  4. Jim Caudill says:

    Actually, Gallo did not purchase Meiomi, Constellation did, for $315 million, in a similar deal. And it was just reported that they have had phenomenal success in growing the brand. There’s an argument for owning and farming your own vineyards, but an equally valid approach — widely followed — of partnering with great growers who can deliver the kind of quality fruit that results in wonderful wines. On this one, even though it’s just observations, you’re a bit didactic.

  5. I believe Meiomi was bought by constellation not gallo..

  6. Hi Steve,
    Your second paragraph contains an error. Meiomi was purchased by Constellation, not Gallo. “Meiomi, which was scooped up by Gallo.”

  7. Steve – timely commentary, but I’d hate to see you missing the real mark here…it is Constellation’s bet that they can market/sell the heck out of successful smaller brands, land be damned. It is more akin to their profit generator, beer, where marketing rules the roost and pays all the bills and then some. The Wine Industry has continually rejected the concepts of modern brand management, which is why brands come and go…solid, land-based brands continue to thrive (aka KJ and LaCrema) but watch the Sands bro take these mediocre brands to new levels of sales and profits.


  8. Have you seen Franzia’s new sparkling wine yet, Steve? Blanc de Bleu. Smells like Count Chocula Booberry cereal. Neon in color. They sponsored the Women of the Vine and poured this wine for hundreds of female wine professionals. Now that’s scarier than Count Chocula.

  9. Dear CC and others, thanks. I got it wrong: Meiomi was bought by Constellation, not Gallo.

  10. Bob Henry says:

    (Preface: Methinks these first time, single name commentors are MBA students you presented to at UC Berkeley’s Haas School of Business?)

    If brand trumps vineyards, then the fruit is implicitly treated like an undifferentiated commodity. You can exchange one vineyard for another with impunity.

    Winemaking treated like an industrial product on a similar scale. [*]

    Hope Meomi and The Prisoner wineries have locked up long-term fruit contracts.

    (*Quoting a Wall Street Journal article dated July 1, 2015:

    “The alcoholic-beverage company [Constellation Brands] 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. …

    “… Meiomi wines are made from bulk wine it purchases from Californian 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. …”


    Let’s do the “back of the envelope” math when it comes to the Meomi bottling line.

    Assume the bottling line runs 8 hours a work day.
    Assume 5 work days a calendar week.
    Assume 52 weeks a calendar year.
    That equals 2,080 bottling line hours a calendar year.

    There are 60 seconds per minute, and 60 minutes per hour, equaling 3,600 seconds per hour.

    Multiply 3,600 second per hour by 2,080 bottling line hours a calendar year, and that equals 7,488,000 seconds.

    Those 7,488,000 seconds almost equals the 7,200,000 bottles [600,000 cases] of Meomi produced last year.

    Restated: the equivalent of 1 bottle of Meomi comes off the bottling line every second of every hour of every work day for 52 weeks a year.

    Yup, that’s production on an industrial scale.

    Impossible to support while honoring the concept of “terrior.”)

  11. Bill Stephenson says:

    Mr. Henry’s math states that (theoretically) a “bottle of Meoimi comes off the bottling line every second of every hour of every work day”.

    This reduces the bottle of wine to the equivalent of a can of beer.

    The difference is, you can brew beer any time of year. Hops can be kept in refrigeration for extended periods of time with no damaging effects. Grain can be procured at any time and water, well, you get the idea.
    Grapes, on the other hand, are seasonal.
    Even if grapes are imported from the southern hemisphere a winemaker only has only two times a year when grapes are available.
    I guess the press juice could be held back and fermented on-demand but would there be a loss of flavor/vitality during storage?

    It seems to me that control of the vineyards is a very important part of the winemaking process, and if you own the land, you have complete control over the source material. I agree with Steve on this.

    In the case of Meiomi and The Prisoner, I suspect there will be a significant drop-off in quality as the contracts expire for fruit from specific vineyards that made those wines what they are (were).
    The Wagner clan seems to be developing a replacement for Meoimi in their TULI brand Sonoma County Pinot Noir. It’s far better than Meiomi but still has that candied house flavor common to the Belle Glos line.

  12. Mike Officer says:

    Qualifying with “it would seem” hardly makes the brand trumps land a definitive statement but no problem if you disagree. I’m sure there are plenty of folks who would agree with the reporter’s statement. But to say the reporter doesn’t understand the wine industry? That seems uncalled for. I don’t agree with everything you write but that doesn’t lead me to believe you don’t understand the wine industry. Just means that you have a different perspective than I.

  13. “That’s an easy and fatuous conclusion for a reporter who doesn’t understand the wine industry to make.”

    Would’ve been a great post if you’d stopped right there…..

  14. Meiomi grew from 60,000 cases to 600,000 cases in 5 years. Where has land value gone up 10x in the last 5 years? Brand value is something you can actually control and drive. Land value is market driven with more of a wait-snd-see approach. Brand trumps land in Constellation’s eyes because they put sweat equity into it. Granted, this is a short-term vision as someday the brand may lose traction, but Constellation will buy another. This is more like house flipping for cash rather than holding on for wealth. They are two different strategies. It doesn’t mean that they are both wrong.

  15. COGS

    The industry went through this after the Great Recession, grape prices were down, vineyard prices were down… forward thinking wineries with capital purchased land as grapes prices began a steady recovery… control COGS (wine grapes), better control of your margins. Brand only strategy is subject to more uncertainty as markets change… some risk and reward down this path as well.

    Nonetheless, the wine business is a long term business proposal (many don’t realize until it’s too late), as such owning the land / vineyards that source your wine grapes is a good long term strategy.


  16. Grape quality is where it all falls down for a large brand. The bigger the brand gets, the harder it is to get good grapes. Also, the harder it is for the brand to be produced from your own grapes.

    The upside of “The Prisoner” is that they didn’t have to make the capital investment for all those vineyards as they developed the brand. Brand growth would be a lot slower if you had to search out to finance and purchase new vineyard sources.

    Besides that, grape contracts can offer a lot of control over the grape source.

    Didn’t Mondavi have to sell out because they stretched themselves too thin buying vineyards?

  17. Matt Wood says:

    Constellation has lots of vineyard. They also have lots of brands not doing as well as either Meiomi or the Prisoner, therefore when they buy these brands they are able to generate significant synergies utilizing their own fruit (at much lower cost than purchased fruit) at a higher price point than with their existing less successful brands.
    These are great deals for Constellation.

  18. Obviously there are a lot of additives involved here. Not very mysterious. Why does no one ever mention them? It’s just another beverage factory. The question is (like Coke) what is that formula worth?

  19. Bob Henry says:


    On the subject of additives, “mega purple” has been addressed tangentially on this blog and others.

    By weekly newspaper wine columnist Dan Berger and others.

    By a publication you have contributed to: Wines & Vines.


    Consumers who buy single digit and low two digit priced “everyday” wines don’t know or care.

    ~~ Bob

  20. Joe Jensen says:

    Secret Constellation Wine Recipe!
    Get grape must, add water, sugar, alcohol, food coloring agents,
    vanilla juice, cherry juice, stir and bottle!

  21. Vaughn Jeffery says:

    Recent articles I have read about this sale state that Huneeus bought Prisoner and jumped production from 70,000 cases to 170,000 cases to recover their $40 million investment. Exactly how man cases per year of Prisoner does Constellation need to recover their investment!…500,000 cases? 1 million? 1.5 million? Where will all these grapes come from? I expect to see Prisoner wine in every 7-11 and gas station across the country in about two years.

  22. Bob Henry says:

    More “back of the envelope” math on Meomi . . .

    But first, this preface.

    Excerpt from The Sacramento Bee “Business” Section
    (February 14, 2008, Page D1ff):

    “Full Bouquet on Wine Costs;
    From grapes to glass, prices vary by region and quantity”

    Alternate link:

    By Jim Downing
    Staff Reporter

    [This accompanying sidebar exhibit titled “Breaking Down a Bottle” is not archived online. Transcribed from the print edition of the article. — Bob]

    The value of wine grapes depends on where they’re grown. While grapes are the primary ingredient in wine, they make up only a splash of a bottle’s retail price.

    Here’s a breakdown of the estimated costs in a typical $20 bottle of wine:

    Grapes = $ 1.95 Petite Sirah (Mendocino)
    Winemaking ops = $ 3.25 medium-volume
    Oaking = $ 0.75 American oak barrel
    Bottle glass = $ 0.90 Midrange glass
    Label = $ 0.25 Midsize order
    Closure (cork) = $ 0.30 Midquality cork
    Capsule = $ 0.10 Aluminum
    Bottling = $ 0.45
    Subtotal . . . $ 7.95

    Winery mark-up on cost-of-goods-sold = +75%
    Winery mark-up = +$ 5.96
    [Equal to mark-up on wholesale selling price = +43%]
    Subtotal . . . $13.91

    Wholesaler mark-up = +20%
    Wholesaler mark-up = +$ 2.78
    Subtotal . . . $16.70

    Retailer mark-up = +20% supermarket
    Retailer mark-up = +$3.30
    Total . . . $19.99

    Okay, back to Meomi.

    By nice coincidence, Meomi Pinot Noir sells for around $20 in retail stores.

    The Wall Street Journal reported that Constellation Brands paid $315 million for Meomi.

    That Meomi generated net sales of $65 million on about 600,000 cases of wine.

    (Accountants define “net sales” as total revenue, less the cost of sales returns, allowances, and discounts.)

    For ease of calculation (citing the Petite Sirah cost-of-goods-sold example above), assume Meomi earns $5.96 in wholesale mark-up revenue on each bottle sold at retail for $20.

    $5.96 wholesale mark-up revenue times 7,200,000 bottles (600,000 cases) produced projects to $43 million in revenue.

    $315 million winery purchase price divided by $43 million wholesale mark-up revenue projects that it will take Constellation 7.3 years to fund the acquisition.

  23. Bob Rossi says:

    Best comment of all: “Secret Constellation Wine Recipe! Get grape must, add water, sugar, alcohol, food coloring agents, vanilla juice, cherry juice, stir and bottle!” Does quality figure into any of this? I believe I tasted a Prisoner wine once at a tasting, and didn’t think much of it. But I guess I’m in a minority.

  24. I agree with Bob. The prisoner is a formula wine already. There is no distinct varietal character and certainly no recognizable attributes that could be tied to any one vineyard or set of vineyards. They will have no trouble duplicating the profile because it is generic (mixed varietals (zin, syrah, petite sirah etc), 15%+ alcohol, 4-5 gams / liter sugar some from Mega purple, 100% new barrel oak equivalent. Easy-peasy.

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