Financial terms of the transaction were not disclosed.
The New York-based company is already one of the largest alcohol producers in the United States. the country.
Now, Constellation – who five years ago today said it would spend $ 315 million to acquire California-based Meiomi, then a brand on its way to 700,000 cases – is hoping that Vaynerchuk’s idea direct to the consumer will help it hit digital shelves.
“We believe that the competitive environment is going to heat up quite dramatically and we are taking a really critical, bold and innovative step forward which I believe will give us a competitive advantage in the future,” said Robert hanson, the president of the wine and spirits division of Constellation.
Buying a relatively small and relatively unknown The Empathy Wines brand, which launched in early 2019 and has sold just 15,000 cases to date (roughly $ 3.6 million in revenue), highlights the alcohol giant’s growing interest in selling wine outside the traditional three-tier system.
I talked to Vaynertchuk and Hanson on the emerging direct-to-consumer wine business and the factors that ultimately brought Constellation and Empathy to the negotiating table.
“Our current direct-to-consumer business is a smaller part of the portfolio than we would like,” said Hanson, noting that sales through brick and mortar wholesalers and retailers account for over 90% of the wine business. current business. .
According to the Alcoholic Beverage Compliance Company Conforms to Sovos ships, $ 3.2 billion of wine (6.6 million cases) was sold directly to consumers in 2019.
Although direct-to-consumer shipments – which are licensed in 46 states – currently represent less than 11% of the global wine market of $ 29.8 billion, the chain has more than doubled in size since 2011.
This growing opportunity is the reason why Vaynerchuk – whose first entrepreneurial success included taking over his father’s New Jersey wine store and increasing annual sales from $ 3 million to $ 60 million in the early 2000s – launched a ‘digital-native’ brand in first place.
“Direct-to-consumer brands were starting to achieve real critical mass in other categories and there hadn’t been a consumer-only brand of wine that I thought really belonged to it,” told me. he said, naming brands like Warby Parker and Casper as examples of successful ecommerce games in other industries.
“Someone was going to create the best direct-to-consumer wine business, and if it wasn’t for me, that would have been a real dud,” he added.
As a self-described “wine nerd”, Vaynerchuk said his love of wine and his understanding of the intricacies of the business eventually came to be. led him to establish a price tag of $ 20 – a sweet spot that would allow Empathy Wines to trade in its first customers for inferior offerings.
The thesis? Most people buy wines for $ 12 to $ 14, but get $ 8 value. Vaynerchuk, along with his business partners Jon Troutman and Nate Scherotter, wanted to work directly with farmers, eliminate wholesalers and retailers, and sell consumers a $ 40 bottle of wine for $ 20.
“If I can get a big chunk of $ 12 to $ 15 wine drinkers to try me out and realize they get wine 3 times better, then I can probably get them down from $ 14 to $ 20 consistently. “said Vaynerchuk.
Indeed, according to ShipCompliant, the average price of a bottle sold direct to consumers in 2019 was $ 40.70. Meanwhile, small wineries – those producing between 5,000 and 50,000 cases a year – controlled nearly 45% of total direct dollar sales to consumers in 2019.
So Vaynerchuk’s instinct was correct, but 2019 was in some ways just a beta test. In order to truly evolve the Empathy Wines business from a proof of concept to a leading proposition, Vaynerchuk needed Constellation’s extensive expertise in viticulture, winemaking and logistics.
“It’s really the driving force that made me want to do it,” he said of Constellation’s infrastructure. “It would have taken my whole career to have the leverage to be able to achieve what we are now going to be able to achieve. It was worth potentially selling too soon.
Hanson said Empathy Wines’ $ 20 price tag was a perfect fit with Constellation’s strategy of focusing on the high-end segment of the business – the company is currently in progress to sell its low-end wine business to Gallo for $ 1 billion.
Meanwhile, Empathy’s e-commerce prowess will benefit Constellation’s entire wine portfolio and allow the company to deliver on-demand information to its partners at three levels.
“Big direct-to-consumer brands are becoming big omnichannel competitors,” said Hanson. “The smarter we create our brands for consumers, and the faster we are, the more agile we are, the faster we can bring relevant consumer information to market, the faster we can test new ideas in our direct. channel to the consumer – the most valuable of a partner we will be for wholesalers.
For big players like Constellation, a strong direct-to-consumer strategy will be essential in the COVID-19 era and beyond, as more drinkers open their phones or computers to shop instead of go to the liquor store.
According to market research firm Nielsen, online alcohol sales were six times higher in April 2020 compared to the same period last year.
Kevin O’Brien, director of Zepponi & Company, a mergers and acquisitions consultancy specializing in wine transactions, said the growth direct-to-consumer sales activity is something that many strategic buyers pay special attention to.
“The wine industry has been slow to adapt to online sales, and big brands need to be able to meet customers and fans where they are,” he said. “There is a lot of interest from major strategic players to incorporate a direct consumer partner. “
O’Brien said large wineries like Constellation will still need to focus most of their attention on working with distribution partners, but the COVID-19 pandemic could accelerate the timeline for additional direct-to-consumer deals.
“The trends that were going to happen in five years, happened in three months,” he said.
For his part, Vaynerchuk believes more brands should focus on the direct-to-consumer channel if they are to remain relevant both online and in retail stores.
“I think building a consumer base with a real direct-to-consumer game and then using that as a leverage point to be able to get distribution to retail or other places is a very logical step,” he said. .
According to a Press release, “Empathy Wines employees, including co-founders Jon and Nate, will join the Constellation Brands family and work with its wine and spirits organization. “
Hanson said Vaynerchuk will continue to stay involved with the brand as a consultant, and noted that he has an incentive to contribute to the brand’s long-term success.