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144 WINES&VINES January 2018 BUSINESS Constellation Brands has been a prime example of this strategy. It has strung together numerous premium brand acquisitions in recent years, including Meiomi, The Prisoner, Charles Smith and, most recently, Schrader Cellars in June 2017. The latter is a bou- tique Napa Valley luxury brand best known for its Cabernet Sau- vignon wines that are priced above $200 per bottle and pro- duced from the famed To Kalon Vineyard in Oakville, Calif. Con- stellation already owned a signifi- cant portion of To Kalon Vineyard, which it had acquired as part of its prior purchase of Robert Mon- davi Winery in 2004. The New York-based conglomerate also has utilized a similar strategy in beer and spirits, notably acquiring craft whiskey maker High West Distill- ery and craft brewer Ballast Point, as well as additional brands in both beverage categories. All of the company's acquisitions over the past several years share a com- mon theme: Each has been posi- tioned squarely in the "premium" price segment of their respective beverage categories. E. & J. Gallo Winery also but- tressed its premium asset portfolio in 2017 with the blockbuster ac- quisition of Stagecoach Vineyard in the Atlas Peak appellation. This acquisition sent reverberations throughout the wine industry, par- ticularly among the more than 90 high-end wineries that sourced grapes from the prestigious vine- yard. Gallo itself was already a major customer of Stagecoach as a result of its prior acquisition of the Orin Swift wine portfolio, which it had acquired a year ear- lier. With the Stagecoach acquisi- tion, Gallo now controls a sizeable portion of the very high-end Napa grape market, giving it the singu- lar ability to scale its most luxury priced brands. In a lesser publicized but simi- larly telling transaction, Gallo in August acquired Mendocino- based luxury brandy producer Germain-Robin. Established in 1982, Germain-Robin was one of the pioneers of the niche luxury- priced U.S. brandy market and today produces brandy products aged up to 30 years that retail for up to $120 per bottle. Gallo is no stranger to the brandy category, with its market-leading E. & J. brand accounting for more than 40% of total U.S. brandy dollar volume in retail channels. Its pur- chase of Germain Robin will allow Gallo to quickly migrate into the higher priced and more profitable brandy segment. Using acquisitions as a means to premiumize portfolios is not a phenomenon limited to the larg- est wine companies. Silver Oak Cellars, one of Napa's most iconic brands, along with a consortium of outside investors, purchased Napa cult wine producer Ovid in early 2017. Silver Oak produces approximately 100,000 cases per year of wine priced between $75 and $125 per bottle. Its purchase of Ovid further upgrades its high- end wine portfolio with an ap- proximately $285-per-bottle lux- ury wine brand that sources grapes for its 2,000 cases from 15 acres of accompanying Pritchard Hill estate vineyards. The effect of wholesaler consolidation Looking downstream in the U.S. wine supply chain, machinations within the three-tier distribution system continue to result in an ever-narrowing route to market Source: National Bureau of Economic Research. U.S. BUSINESS CYCLE EXPANSIONS Years of Business Cycle 10 9 8 7 6 5 4 3 2 1 0 1945-1948 1949-1953 1954-1957 1958-1960 1961-1969 1970-1973 1975-1980 1980-1981 1982-1990 1991-2001 2001-2007 2009-current Source: AC Nielsen Food/Liquor, 52 weeks ended Oct. 7, 2017. U.S. WINE YEAR-OVER-YEAR GROWTH BY PRICE SEGMENT Retail Dollar Volume 10% 8% 6% 4% 2% 0% -2% -4% -6% $0-$2.99 $3-$5.99 $6-$8.99 $9-$11.99 $12-$14.99 $15-$19.99 $20+ Below $10 Above $10 Southern Glazer's Proposed RNDC - Breakthru merger Young's Market RNDC TOP U.S. SPIRITS AND WINE WHOLESALERS (PERCENTAGE OF MARKET SHARE BY SALES DOLLARS) Source: Shanken Impact Spirits Report 2017. Remaining Distributors Breakthru FOUR-WEEK ROLLING YEAR-OVER-YEAR DOLLAR GROWTH Source: Nielsen Food/Liquor, Rolling 52-week periods from Sept. 10, 2016, through Nov. 4, 2017. Sales Growth 14% 12% 10% 8% 6% 4% 2% 0 Sept. 10, 2016 Oct. 8, 2016 Nov. 5, 2016 Dec. 3, 2016 Dec. 31, 2016 Jan. 28, 2017 Feb. 25, 2017 March 25, 2017 April 22, 2017 May 20, 2017 June 17, 2017 Aug. 12, 2017 Sept. 9, 2017 n Wine Priced $15 and Above n Spirits Premium and Above n Craft Beer Price Per Bottle