Canandaigua Wine Company, Inc.

views updated

Canandaigua Wine Company, Inc.

116 Buffalo Street
Canandaigua, New York 14424
(716) 394-7900

Public Company
Founded: 1945
Sales: $861 million
Employees: 900
Stock Exchanges: NASDAQ
SICs: 2084 Wines, Brandy & Brandy Spirits; 0172 Grapes

Canandaigua Wine Company is one of the largest and most successful producers of wines, beers, and distilled spirits in the United States. The company produces and markets more than 125 brands of alcohol through 1000 wholesale distributors. Canandaigua is the second largest domestic producer of wines, the fourth largest importer of foreign beers, and the eighth largest distributor of distilled spirits within the United States. The companys brands of table wine, sparkling wines, dessert wines, foreign and domestic beers, and hard liquor are famous, including such well-known names as Almaden Golden Chardonnay, Inglenook Napa Valley, Cooks Champagne, J. Roget Champagne, Corona Extra, St. Pauli Girl, Point Special, Peroni, Cribari Vermouth, Richards Wild Irish Rose Dessert Wine, Italian Swiss Colony Dessert Wine, Widmer Port, and Manischewitz Concord Grape Table Wine.

In 1935, some years after the repeal of the Volstead Act and the end of prohibition, Mack Sands opened the Car-Cal Winery. Located in North Carolina, Car-Cal Winery produced varietal table wines for limited distribution. Macks son, Marvin, learned about the wine industry from his father, and was soon determined to open a winery of his own. In 1945, Marvins dream materialized, and he established Canandaigua Industries. Sands hired eight workers to produce and sell bulk wine in wooden barrels to companies which would bottle them on the East Coast.

In just two years, business was so good that Sands decided to significantly change the direction of his company. With a steady flow of cash to deal with unforeseen emergencies, the head of Canandaigua Industries was determined to produce and sell wine using his own name brands. In 1948, the Car-Cal operation run by Mack Sands was closed, and all wine production was transferred to the facility in Canandaigua. In the same year, Marvin Sands purchased the Mother Vineyard Wine Company, located in Manteo, North Carolina, the first in a long line of strategic acquisitions designed to expand Canandaiguas market position.

Primarily concentrating on regional markets, Canandaiguas new brand of wines were moderately successful. In 1951, the younger Sands opened Richards Wine Cellars in Petersburg, Virginia, and asked his father to assume control of the operation. Not long afterwards, the Onslow Wine Company was added to the growing list of regional wine producers owned and operated by Canandaigua. Both Richards Wine Cellars and Onslow Wine Company produced a wine called Scuppernong, made from varietal grapes grown primarily in the southern United States which serve as a popular source of wines throughout the region. In spite of this expansion, sales remained relatively slow and the companys business did not grow rapidly.

In 1954, however, Sands was lucky enough to come across something most entrepreneurs only dream abouta widely successful product that catapults a company into a future of rapid growth and high profits. This product became known as the Wild Irish Rose brand of dessert wines, and spearheaded Canandaiguas development for years and years. Quickly realizing the potential of his new product, Sands implemented an extremely innovative franchising system, the very first in the wine industry. The franchising network included an agreement between Canandaigua and five independent bottling companies located in various parts of the United States. These bottlers were given the franchise rights to bottle and distribute Wild Irish Rose brands in their areas. With a minimum capital investment, Sands reaped the rewards of seeing his hot-selling Wild Irish Rose gain a larger and larger part of the dessert wine market.

During the late 1950s, revenues generated from the widespread sale of Wild Irish Rose allowed Canandaigua to concentrate on increasing its own production facilities. As sales of the dessert wine brand continued to grow, the company expanded to meet the explosive demands of the marketplace. People were hired to help extend the companys sales network, and a wholesale distributor operation was also established. During the early and mid-1960s, both the sales staff and the wholesale distributor network was strengthened to meet the ever-growing demand for Wild Irish Rose brands. As sales increased, Sands continued his policy of strategic acquisition by purchasing the Tenner Brothers Winery, located in South Carolina, in 1965, and adding Hammondsport Wine Company in 1969. The acquisition of Hammondsport gave Canandaigua an entry into the sparkling wine market, a direction that Sands had wanted his company to take for years.

During the early 1970s, Canandaigua became a public corporation and issued an initial sale of company stock on the NASDAQ stock exchange. Several important brands of wine were produced at Richards Wine Cellars, but it was the acquisitions strategy that continued to shape the company. The most significant acquisition was made in 1974 when Canandaigua purchased the Bisceglia Brothers Winery in Madera, California. This gave the company access to a large varietal wine market in the western United States. Another milestone in the firms history was the production of its own brand of champagne, J. Roget, in 1979. This champagne was an immediate triumph, and contributed to Canandaiguas seemingly endless string of successful product introductions.

The 1980s were boom years for the company. In 1984, Canandaigua introduced Sun Country Wine Cooler, a concoction of wine, spritzer, and fruit flavorings. The cooler caught like wildfire across the United States and revenues for the product skyrocketed. During the early 1980s, the firm purchased Robin et Cie, a French producer of high-quality table wine, and renamed it the Batavia Wine Company. Batavia soon began to create different brands of sparkling wines, including champagne. In 1987, Canandaigua purchased a plant in McFarland, California, in order to produce grape juice concentrate and grape spirits.

The two most important acquisitions in 1987, however, included Widmers Wine Cellars, and the Manischewitz brands from Monarch Wine Company. Widmers Wine Cellars, located in Naples, New York, was one of the most successful and popular producers of table wine on the East Coast. Producing a wide range of table wines, from Dry Riesling to California varietals, Widmer had won a host of awards in wine competitions. In the late 1980s, Manischewitz was the best-selling brand name in Kosher wines. When Canandaigua purchased the Manischewitz assets, all the production facilities were relocated to the Widmer plant in Naples, New York. Canandaiguas commitment to the production of the Manischewitz brands involves a separate facility which maintains strict supervision for the making of Kosher wine under the auspices of the Union of Orthodox Jewish Congregations of America.

In 1988, the company added Cal-Products in order to produce grape spirits. During the same year, the company purchased the Cisco brand name products from Guild Wineries, a maker of table wines, dessert wines, and champagnes. Canandaigua was so pleased with the revenue generated by these products that it acquired Guild Wineries in 1991. This purchase brought with it the popular brands of Dunnewood wines, Cribari vermouth, and Cooks champagne. Italian Swiss Colony brand dessert wines were also bought at this time. During the late 1980s and early 1990s, in addition to the acquisition of domestic firms which produced wines, champagnes and juices, the company began to import the Marcus James brand of table wines from Brazil, the popular Mateus brand from Portugal, the Keller Geister brand of table wines from Germany, and Mondoro Asti Spumante from Italy.

During the decade of the 1990s, with Sands heading the company as chairman of the board of directors, Canandaigua continued to expand. One of the most significant acquisitions included Barton Incorporated. Barton, Inc., located in Chicago, Illinois, was one of the largest producers of distiller spirits and also one of the largest importers of foreign beers. A firm with additional facilities in Carson, California, and Atlanta, Georgia, Barton was in the midst of its own expansion program when acquired by Canandaigua. This purchase provided Canandaigua with an entry into the lucrative distilled spirits market. Bartons brands were already selling well, including Scotch whiskeys like House of Stuart and Speyburn single malt, Canadian whiskeys such as Canadian Host and Northern Light, and American whiskeys named Corbys Reserve and Kentucky Gentleman. At the time of the acquisition, Barton Vodka was one of the largest selling domestically made vodkas in the United States. The Barton Beer division was just beginning to reap the rewards of importing such popular items as Corona Light from Mexico and Tsingtao from the Peoples Republic of China.

In October 1993, Canandaigua purchased the Vintners brands, including Paul Masson and Taylor California Cellars. The Paul Masson brand, one of the most popular and respected in the wine industry, was given a new label with a heavy television advertising campaign that included the familiar phrase, We will sell no wine before its time. Taylor California Cellars brand of table wines, one of the best-selling brands in America, was given a new price structure. Less than one year after the purchase of the Vintners brands, wholesale orders began to exceed company estimates, and sales steadily increased. In July 1994, Canandaigua became the sole American importer and distributor of Codorniu sparkling wines. Established in 1972 by the Codorniu family in Barcelona, Spain, the winery was the first to produce Methode Champernoise sparking wines on the Iberian peninsula. In 1992, Cordorniu built a facility in Napa Valley where it began to produce the popular Codorniu Napa Valley Brut Cuvee.

A very significant acquisition for Canandaigua occurred in 1994 when the company purchased both Almaden Vineyards and Inglenook Vineyards. Inglenook Vineyards, founded in 1879 by a sea captain from FinlandGustave Niebaumand Almaden Vineyards, established by Etienne Thee and Charles LeFranc in 1852, were two of the oldest and most well-respected wineries in the United States. Together the two companies sold approximately 15 million cases of wines in 1993, and Almaden ranked fifth while Inglenook ranked sixth in table wine sales within the United States. Almaden alone, before its acquisition by Canandaigua, had captured over six percent of the American table wine market. Inglenook had cornered over five percent of the domestic table wine market.

With these acquisitions, Canandaigua owned and operated four of the five GAMIT brands (GAMIT is the acronym for the five major wine brands in the United States: Gallo, Almaden, Paul Masson, Inglenook, and Taylor California Cellars). These wineries produced significant amounts of varietal wines, and Canandaigua positioned itself to take advantage of the growing varietal wine market through its acquisition strategy. At the same time, the company also improved upon its ranking as the second leading wine producer in America. Under new marketing techniques implemented by management at Canandaigua, Almaden wines such as Mountain Burgundy and Golden Chardonnay grew in popularity and increasing company revenues. A new pricing structure for Inglenook varietal wines, such as Premium Select, Estate Cellars, and Napa Valley, also led to increasing sales.

Double-digit sales growth during the early 1990s catapulted Canandaigua into one of the largest and most popular of the alcoholic beverage producers and importers in the United States. From 1990 to 1994, the companys gross sales shot up from $201 million to $861 million, nearly a fourfold increase. In 1994, net income was recorded at $26 million, a 71 percent increase over the previous year. The acquisition of Barton resulted in a sales increase of $211 million for 1994, while the purchase of Vintners generated $119 million for the same fiscal year. In just one month of sales, the Almaden and Inglenook acquisition added an impressive $17 million to the 1994 year in sales.

In 1994, the company announced a comprehensive restructuring program that was estimated to save approximately $1.7 million in 1995 and over $13.3 million by 1996. The acquisition of Barton and Vintners gave rise to an integration of sales staff, improvement of customer services, a more focused marketing campaign, more efficient production techniques, an implementation of up-to-date information systems, and more effective finance and administrative operations. During the mid-1990s, Canandaigua planned to consolidate all its facilities already located in California, which would enable the company to group three separate bottling operations in one location. The new facility, the Mission Bell plant in Madera, California, was expected to bottle more than 22 million cases annually.

Under the leadership of Marvin Sands, Canandaigua appeared to be headed for even greater profitability in the future. The company had captured 32 percent of the domestic champagne market, the largest in the industry. By the mid-1990s, the companys Barton Beer Division held 10 percent of the total market share for imported beers in the United States. In 1994, the divisions domestic brand, Point Special, increased sales by an astounding 25 percent. And the companys Dunnewood brand, a California varietal wine, also increased its sales by 25 percent in 1994. With such popular brands, and astute management that foresaw opportunities and took advantage of trends in the marketplace, it was no surprise that the companys stock price increased by a record 37 percent for fiscal 1994.

Further Reading

A 47-Year History of Canandaigua Wine Company, The Cellar Echo (Canandaigua Wine Co., Inc. Employee Newsletter), November 1992.

Kimelman, John, Canandaigua Wine: Grape Expectations, Financial World, February 2, 1993, p. 16.

Lane, Randall, Whos Afraid of Big, Bad Gallo? Forbes, February 13, 1995, p. 180.

Reflecting On Success, Canandaigua, N.Y.: Canandaigua Wine Co. Inc., 1995.

Thomas Derdak