The next rosé?

The cases of Inniskillin and Domaines Barons de Rothschild illustrated brands that captured and maintained market share as a result of their emphasis on quality and focus on the high-end of the wine market. When discussing DBR specifically, many of us concluded that instead of expanding their Collection offering in the lower-cost segment, the company should instead continue expanding by doing what it does best: growing and producing the highest quality wines at French chateaux. In fact, moving down the quality/cost frontier might erode their competitive advantage of being a leader in the high quality, luxury wine space.

This begs the question: how can companies successfully establish a competitive advantage in the affordable wines category? Establishing a competitive advantage is especially important in this segment given extreme fragmentation. Constellation Brands seems to be attempting to find the answer to this question. The company recently reported Q4 earnings and revealed that beer revenues increased quarter over quarter. In contrast, the company expects wine and spirit sales to decrease 4-6% over the 2018 fiscal year. How might the company try to increase wine sales? One idea is a cannabis-infused wine offering. In October, the company announced that it obtained a minority stake in the Canadian medical marijuana company, Canopy Growth. While cannabis-infused wine might be a few years down the road, at least in the US, it would certainly have greater impact than bringing a new canned wine or rosé to market. I think this class provides a good opportunity to look at other ways companies are attempting to differentiate and grow in the affordable wine segment.