Constellation takes minority stake in mezcal label El Silencio

(source)

Dive Brief:

  • Constellation Brands took a minority stake in Los Angeles-based craft mezcal label El Silencio. The terms of the transaction were not disclosed.
  • The investment was made by Constellation’s venture capital group, which prioritizes staying ahead of evolving consumer trends and building its higher-end spirits portfolio. This collaboration also allows El Silencio to expand its infrastructure and reach, according to the release.
  • Constellation President and CEO Bill Newlands said in the release that “mezcal is one of the hottest trends in spirits right now” and this is the company’s first venture investment in that category. 

Dive Insight:

Mezcal could be the next big trend in the alcohol industry. The agave-based beverage represents the largest percentage gain across all spirits categories in recent years. From 2017 to 2018 the mezcal category grew by 32.4%, according to data and insights firm IWSR cited by Constellation. 

It makes sense that Constellation, the nation’s third-largest beer company, would move quickly on this opportunity. The company is becoming known for its investments in trendy high-growth categories. Last year, Constellation invested $5.4 billion in Canopy Growth, the world’s largest publicly traded cannabis company. The rewards for this gamble were apparent almost immediately when Constellation reported a $1.3 billion unrealized gain in its stake of marijuana company Canopy Growth, according to the company’s second-quarter 2019 earnings report. Cannabis-infused beverages are seen as an avenue for future growth as adults turn to nonalcoholic drink choices. It is expected to generate $75 billion in international sales by 2030, according to a report by New York investment firm Cowen and Company. 

Other recent investments include minority stakes in Austin Cocktails and Vivify Beverages. Austin Cocktails focuses on convenient, bottled cocktails and Vivify sells better-for-you options, including a gluten-free alcohol spritzer. Those were the first two of a $100 million commitment to invest in female-founded alcoholic beverage companies by 2028.

An investment in mezcal is yet another opportunity for Constellation Brands to get away from the beer industry, where sales and volume in general are fizzling out. The alcohol giant has been divesting some of its lackluster brands in an effort to generate the cash to invest in new, experimental categories.

The manufacturer is also looking to reduce the amount of its portfolio made up by wine brands. Three years ago, wine made up 44.7% of Constellation’s net sales. By the beginning of 2018, wine accounted for only 38.6% of Constellation’s net sales, since it had sold its Canadian wine business. Just this month, Constellation Brands completed an agreement to sell about 30 more brands from its wine and spirits portfolio to E. & J. Gallo Winery for $1.7 billion.

By shedding some of its slower growing portions of its portfolio, Constellation is giving itself a financial cushion to take risks and continue to focus on high-growth areas. As the alcohol space continues to shift and consumers show a growing interest in craft spirits, cannabis-infused items and alcohol-free drinks, this premium beer producer may be walking on the right path as it works to align itself with future generations who are more interested in innovation than brands. 

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