The US Constellation Brands to open representative office in Russia

Updated September 12, 2008

   World’s largest producer and marketer of wine, the US Constellation Brands (such brands as Hardy’s, Robert Mondavi and Paul Masson), establishes its subsidiary in Russia. The company intends to spend more than $2,4 million annually, or nearly 10% from annual sales for the promotion of its brands at the Russian market. The experts say that the specific feature of the wine market is the absence of any brands, and Constellation has to promote the wine for the Russians as a category.

   The president of Constellation Europe (the European division of Constellation Brands, Inc.) Troy Christensen told about the opening of the Russian representative office. "The corresponding legal body is being incorporated now, and, obviously, it will be named Constellation Russia JSC with the 100%-participation of Constellation Europe", the future head of JSC Andrey Grumondz added.

   At the moment, Whitehall is the unique importer and distributor of Constellation’s wines. Whitehall’s chief executive Evgeny Polischuk is aware of Constellation’s plans to operate in Russia, but he doesn’t see any triggers for the concern, since his company will continue to execute unique import and sales contracts of such brands as Hardy’s (Australia), Robert Mondavi (California, the USA), and as well as Nobilo (New Zeland). Other alternative distributors will be attracted for other brands, Mr. Christensen promises.

   Earlier this year, the chief executive of AST-International distribution company Leonid Rafailov was negotiating with Constellation’s representatives within Pro-Wine exhibition, but they didn’t come to any agreement then. "Only niche brands were left for Russia in their portfolio then".

   Along with wines, Constellation Brands, Inc. is engaged in the production and marketing of spirits (the 3rd place at the US market) - Black Velvet whisky and Svedka vodka. In 2008 fiscal year (ended on February, 29), the company’s gross sales reached $4,9 billion, the net loss - $613 million. Its capitalization is $4,04 billion.

   According to the calculations of Business Analytica Company, in 2007, the New World’s wines took approximately 5% of the Russian wine market with the total capacity of 313 million liters. Constellation Europe estimates the segment of wines of the New World in Russia at 9-18 million liters.

   "We pay much attention to our key and already developed markets - the USA, Great Britain, Canada, Australia, and it is the right time to think about those countries that can provide us with the interesting opportunities for growth", Mr. Christensen explains. He named Constellation’s activity in Great Britain, where it managed to "stabilize the market" within two years after the company’s office had been opened there. Now, the American company owns five from ten of the top wine brands in England and sells 25 million of nine-liter cases per year. The company announced that in 2008 it would spend ₤12 million for the promotion of Hardy’s.

   The core task of the Russian office is the marketing support of the company’s brands, trade marketing, activity with distributors and retail etc. Constellation is ready to spend "two-digit sums in percentage of sales" to promote its wines in Russia. The average price of one bottle (0,75 liter) of Constellation’s wine in Russia attaints RUR 250, the sales forecasts in 2008 - 200 000 of nine-liter cases (2,4 million bottles), or RUR 600 million. Thus, the minimum budget directed to promote wines (10% from sales) will reach $2,4 million. According to the forecast of Mr. Polischuk, Constellation Whitehall can double the sales of its brands within the first three or four years with the marketing assistance. Leonid Rafailov considers that $2-3 million is a sufficient budget for the wine company, since the market lacks brands. The wine producers spend mainly on the trade marketing, unlike, for instance, Martini, Hennessy, Martel that make "quite another" investments in the image, he adds.