The Australian grape glut is hurting sales of Constellation wines to the UK, the company said this week.
Shares slumped 11% on the New York Stock Exchange, the worst performance since 2002 for the world’s biggest wine company, and sales in Europe of wines such as Nottage Hill and Hardys Stamp fell 16%.
CEO Richard Sands said grape oversupply was one of the causes.
‘The UK is presenting some challenges, Sands told Bloomberg, citing the low cost of Australian grapes which encouraged more UK retailers to make own-brand wines. ‘The impact has intensified over the last quarter.’
He added the drought and heavy frosts this year should affect the 2007 harvest, meaning lower yields and a subsequent easing of pressure on Constellation’s brands.
New York-based Constellation owns such brands as Stowells, Hardys, Nottage Hill, Banrock Station, Robert Mondavi and Ravenswood, as well as controlling a raft of beers and spirits such as Corona, Tsingtao, St Pauli, 99 Schnapps and Effen vodka.
In Europe its Cellar Door division runs 14 premium brands including Mondavi, Estancia, Chile’s Veramonte and Australia’s Barossa Valley Estate, Leasingham and Stonehaven.
In April last year in a deal worth US$1.3b (£750m), Constellation acquired Canadian company Vincor, which runs Jackson-Triggs, Inniskillin, South Africa’s Kumala and New Zealand’s Kim Crawford, as well as the US$220m (£127m) debt it has accrued.
Analyst David Yucius of Aurora Investment Counsel said, ‘This is a short-term wind in their face, and at some point it will go away.’
Written by Adam Lechmere, and agencies