Schrader sold to Constellation

[Scott_Brunson]

@AlexO

I’m going to assume 2 items that I’m certain Constellation had locked up for rest of eternity:

1. Schrader grape contracts with Beckstoffer
2. Thomas Rivers Brown is winemaker from now until the end of time

I mean let’s be honest, those above 2 items are what make Schrader what it is.

Not likely on #1

[DAlmeida]

@PeterH

A quick look at the financials of Constellation is an eye opener as to the value of name brands in the drinks business.
Three things pop out immediately.

1. They have a huge amount of debt as a result of buying those brands.
2. Fully 60% of their net assets and Goodwill and Intangibles i.e. the cost of the brand names.
   As a corollary of the first two items, they actually have negative tangible net worth.
3. The kicker comes in the profitability, up steadily over the last three years increasing from an enviable 14% to an astounding 20% of sales.

P Hickner

Their Corona/Modelo market here in the states must be huge !

[Ed_Gonzales]

my f-i-l is with constellation. i know what we will be drinking this thanksgiving and xmas

[Humberto_Dorta]

Hmmm. Well we shall see. Might free up some cash

[Scott_Brunson]

^

[AlexO]

I’m updating my thinking, constellation can use chunks of their To Kalon to make Schrader and get better bang for the buck than selling them as Mondavi Reseve.

Also, Mondavi had those great vineyards in Stags Leap, so maybe a Schrader SLD?

The more I think about it, this is a big win for parties.

Also makes me wonder how this might affect Beckstoffer and others that buy his grapes.

[Ken_Strauss]

@Scott Brunson

@AlexO

I’m going to assume 2 items that I’m certain Constellation had locked up for rest of eternity:

1. Schrader grape contracts with Beckstoffer
2. Thomas Rivers Brown is winemaker from now until the end of time

I mean let’s be honest, those above 2 items are what make Schrader what it is.

Not likely on #1

At the end of the article it states Constellation owns most of the to kalon vineyard through ownership of Mondavi. Further the winemakers will determine how much Mondavi and Schrader will share. Most likely production of Schrader will increase.

[GregT]

Once they locked up Meiomi and Alice White, you knew this was coming.

[PeterH]

Their Corona/Modelo market here in the states must be huge ![/quote]

And a cash cow if there ever was one. Anyone can make better beer, and many companies can distribute efficiently, but the brand name is what drives the mark-up.

P Hickner

[NED_VALOIS]

How much ?

[John_Morris]

@Roy Piper

They would save enormous sums by going in house. Why pay $100,000 per acre for fruit when you can pay the cost of managing the vineyard at $15,000? Besides, they don’t sell fruit to others. It’s all in house already so there is no “subsidising.” It’s just being shifted from Mondavi Reserve going 3-tier at $150 to all direct sales of a lot of cases at $225. Not only will it save many dollars per bottle in cost but will also add many dollars of revenue per bottle. Not to mention there is no way to expand the brand while Beckstoffer ToKalon lowers production due to a decade of replants.

Constellation does not outsource.

If they can shift fruit from Mondavi to Schrader and get a much higher price for the finished wine from the same fruit, that makes perfect corporate sense. But I’m sure Constellation is not looking at this a way to lower Schrader’s cost of fruit by selling to it at an inside, i.e., below-market, price.

The problem with that is that it would mean that Constellation would not be maximizing the return on the capital invested in its vineyard asset. Public company CFOs pay a lot of attention to returns on capital and they scrutinize subsidies between businesses because it can distort the real profitability of business units and lead to bad investments.

You’re viewing this entirely from the winemaker’s perspective. Constellation may just be looking at Schrader as a way to maximize its prior investment in ToKalon.

[John_Morris]

I’m curious, is anyone aware of a case where a top-flight small winery was acquired by a big company where it was good for the wine? I’m not asking to be pissy. I’m really curious is anyone has examples where it’s worked out well for wine lovers.

[Merrill_Lindquist]

@John Morris

I’m curious, is anyone aware of a case where a top-flight small winery was acquired by a big company where it was good for the wine? I’m not asking to be pissy. I’m really curious is anyone has examples where it’s worked out well for wine lovers.

I have not followed up on my neighbor, Eisele Vineyard.
They were purchased by Chateau Latour a few years back - not sure, is that a big winery? Extra twist is the foreign connection. It was Araujo when it was purchased, but now, sanely, the name has returned to Eisele, but I have no idea about the wines.

I look on with a lot of interest in these things. Interesting that Schrader had no vineyard holdings.

[ToddFrench]

@Merrill Lindquist

@John Morris

I’m curious, is anyone aware of a case where a top-flight small winery was acquired by a big company where it was good for the wine? I’m not asking to be pissy. I’m really curious is anyone has examples where it’s worked out well for wine lovers.

I have not followed up on my neighbor, Eisele Vineyard.
They were purchased by Chateau Latour a few years back - not sure, is that a big winery? Extra twist is the foreign connection. It was Araujo when it was purchased, but now, sanely, the name has returned to Eisele, but I have no idea about the wines.

I look on with a lot of interest in these things. Interesting that Schrader had no vineyard holdings.

Agreed - one wonders where the value is if the 2 points mentioned above are NOT set in stone for eternity.

[Roy_Piper]

Constellation may also be ready to start a ToKalon Winery brand, complete with possibly a new winery being built. So many changes are afoot. I think they worry less about the vineyards and see them purely as a means to an end… maximum revenue in at minimal long term cost. I don’t see them paying 175x the bottle price to Beckstoffer. Just don’t. But obviously that is just my sense. I have not heard details.

[John_Morris]

I’m old enough to remember Sterling going into decline when it was bought by Nestle, and Heublein didn’t do any favors for BV and Inglenook when it owned them.

What’s the take on Mondavi under Constellation? That’s quite a different case because the family had taken the company public and then faced enormous pressure from shareholders, so it’s not like that went from being a small, family-held operation into the hands of a big public company. But I’m curious what people think the wines have been like under Constellation. I rarely have them.

[Steve_Crawford]

@John Morris

I’m curious, is anyone aware of a case where a top-flight small winery was acquired by a big company where it was good for the wine? I’m not asking to be pissy. I’m really curious is anyone has examples where it’s worked out well for wine lovers.

the comps aren’t exact. but the best example i can think of is livingston moffet into dana. realm may honestly fit this definition as well. they essentially were bought out, and have been doing quite well since.

[Markus_S]

Wonder if there is any tie-in with the Amazon-Whole Foods buy?

On the same day, no less!

[Merrill_Lindquist]

@Todd F r e n c h

@Merrill Lindquist

@John Morris

I’m curious, is anyone aware of a case where a top-flight small winery was acquired by a big company where it was good for the wine? I’m not asking to be pissy. I’m really curious is anyone has examples where it’s worked out well for wine lovers.

I have not followed up on my neighbor, Eisele Vineyard.
They were purchased by Chateau Latour a few years back - not sure, is that a big winery? Extra twist is the foreign connection. It was Araujo when it was purchased, but now, sanely, the name has returned to Eisele, but I have no idea about the wines.

I look on with a lot of interest in these things. Interesting that Schrader had no vineyard holdings.

Agreed - one wonders where the value is if the 2 points mentioned above are NOT set in stone for eternity.

My head spins at the analysis from a financial point of view. I am not that smart, so cannot participate at that level. But there are all kinds of variations on wine producing. Some who have openly expressed no interest in owning vineyards, now do. Wine ventures founded because of “love for what we do,” have now disappeared. If I ever read again about a “wine made with love,” I will barf.

Every venture is different. I am asked frequently about EMH’s situation, and I am candid (as with all things). My home, my vineyard, my occupation, and my avocation are all one. Even the person I am. So I read with interest, but I don’t think many of these situations apply to me or to EMH.

Not getting rich here very quickly.

[Merrill_Lindquist]

@Steve Crawford

@John Morris

I’m curious, is anyone aware of a case where a top-flight small winery was acquired by a big company where it was good for the wine? I’m not asking to be pissy. I’m really curious is anyone has examples where it’s worked out well for wine lovers.

the comps aren’t exact. but the best example i can think of is livingston moffet into dana. realm may honestly fit this definition as well. they essentially were bought out, and have been doing quite well since.

This is an excellent perspective. About LM and Dana. TONS of money thrown into that Dana venture. Haven’t looked in for awhile. The land is the land - the experience is the experience. I thought some of the LM wines were excellent.