Constellation Brands has announced the sale of 80 percent of its Australian, South African and U.K. wine businesses to a Sydney-based private equity group in a transaction valued at A$290 million. Constellation CEO and president Rob Sands said in a press release that “faced with challenging market conditions…the business is no longer consistent with Constellation’s strategy.” The approximately $230 million realized from the sale will be used to reduce borrowings.
From a wine standpoint, the biggest names involved in the deal are Banrock Station and Hardys, from Australia, and Kumala, from South Africa. All three are low-margin, volume-driven brands that have come under strong competitive pressures in the U.K. market, where large grocery chains have introduced their own house brands. Constellation retains the more lucrative New Zealand wine business it acquired as part of its $1.4-billion acquisition of Hardys in 2003.
For wine consumers, it remains to be seen how this will affect what is on store shelves. Can CHAMP develop effective marketing strategies and distribution for these moribund brands? Will historically important, but boutique Australian brands such as Houghton’s and Leasingham, acquired as part of the deal, be resuscitated under new ownership? So far, CHAMP’s managing director, John Haddock, is saying the right things: “CHAMP is committed to supporting management in building a competitive and profitable business in the Australian and U.K. markets and will invest to grow the business.”