Canandaigua Brands, Inc.

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Canandaigua Brands, Inc.

300 Willowbrook Office Park
Fairport, New York 14450
U.S.A.
Telephone: (716) 218-2169
Fax: (716) 218-2155
Web site: http://www.cbrands.com

Public Company
Incorporated: 1972 as Canandaigua Wine Company, Inc.
Employees: 4,230
Sales: $1.98 billion (1999)
Stock Exchanges: New York
Ticker Symbol: CDB
NAIC: 312120 Breweries; 312130 Wineries; 312140 Distilleries; 422810 Beer and Ale Wholesaling; 422820 Wine and Distilled Alcoholic Beverage Wholesalers; 312112 Bottled Water Manufacturing

Canandaigua Brands, Inc.—which changed its name from Canandaigua Wine Company, Inc. in 1997—is one of the largest and most successful producers and marketers of wines, beers, and distilled spirits in the United States and the United Kingdom. The company produces and markets more than 180 brands of alcohol through 1,000 wholesale distributors in the United States, and distributes products to more than 16,000 U.K. customers. Canandaigua is the second largest domestic producer of wines, the second largest importer of foreign beers, and the fourth largest distributor of distilled spirits within the United States. The company’s manufacturing operations include 20 production facilities in the United States, Canada, and the United Kingdom. Canandaigua’s brands of table wine, sparkling wines, dessert wines, foreign and domestic beers, hard liquor, and hard cider are famous, including such well-known names as Almaden, Arbor Mist, Cook’s, Dunnewood, Inglenook, J. Roget, Manischewitz, Paul Masson, Marcus James, and Richard’s Wild Irish Rose in the wine sector; Corona, Double Diamond, Modelo Especial, Negra Modelo, Pacifico, Peroni, Point, St. Pauli Girl, Tetley’s English Ale, and Tsingtao in the beer sector; Barton, Black Velvet, Canadian LTD, ChiChi’s, Fleischmann’s, Inver House, Montezuma, Mr. Boston, Paul Masson Grande Amber, and Ten High in the hard liquor category; and Blackthorn, Diamond White, and Olde English in the U.K. cider sector.

Early History: From North Carolina to Wild Irish Rose

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. Mack’s son, Marvin, learned about the wine industry from his father, and was soon determined to open a winery of his own. In 1945, Marvin’s dream materialized when his family purchased a sauerkraut factory-turned-winery located in Canandaigua, New York (in the Finger Lakes region), and he established Canandaigua Industries.

Sands hired eight workers to produce and sell bulk wine in wooden barrels to companies that 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 Canandaigua’s market position.

Primarily concentrating on regional markets, Canandaigua’s 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 through out the region. In spite of this expansion, sales remained relatively slow and the company’s business did not grow rapidly.

In 1954, however, Sands was lucky enough to come across something most entrepreneurs only dream about—a widely successful product that catapults a company into a future of rapid growth and high profits. This product became known as the Richard’s Wild Irish Rose brand of dessert wines (named after his son Richard), and spearheaded Canandaigua’s 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 company’s 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.

1970s and 1980s: Going Public, Adding New Brands, and Riding the Wine Cooler Boom

In 1972 the company was incorporated as Canandaigua Wine Company, Inc. One year later, it became a public corporation and issued an initial sale of company stock on the NASDAQ. 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 firm’s history was the production of its own brand of champagne, J. Roget, in 1979. This champagne was an immediate triumph, and contributed to Canandaigua’s 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 1986 Richard Sands, son of founder Marvin, took over as president of the company. The following year, 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 Widmer’s Wine Cellars, and the Manischewitz brands from Monarch Wine Company. Widmer’s 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. Canandaigua’s commitment to the production of the Manischewitz brands involved a separate facility which maintained strict supervision for the making of kosher wine under the auspices of the Union of Orthodox Jewish Congregations of America.

1990s: Diversification Through Acquisition

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 for $60 million. This purchase brought with it the popular brands of Dunnewood wines, Cribari vermouth, and Cook’s 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 that 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.

Company Perspectives:

Canandaigua Brands has one of the broadest, most trusted portfolios in the business. It’s little wonder that our thousands of distributors and retailers look to us as a major single source of supply for products —and profits —in our categories. Discriminating consumers turn to us for some of the best values in the market today. Every year brings new initiatives to satisfy all three partner groups —and successfully propel us into the new millennium.

During the decade of the 1990s, with Sands heading the company as chairman of the board of directors, and with son Richard serving first as president then as CEO as well starting in 1993, Canandaigua continued to expand. One of the most significant acquisitions included Barton Incorporated, which was purchased in June 1993 for approximately $123 million in cash, one million shares of Canandaigua stock, and the assumption of $47.9 million in debt. Barton, located in Chicago, Illinois, was one of the largest producers of distilled 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. Barton’s brands were already selling well, including Scotch whiskeys such as House of Stuart and Speyburn single malt, Canadian whiskeys such as Canadian Host and Northern Light, and American whiskeys named Corby’s 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 People’s Republic of China.

In October 1993, Canandaigua purchased Vintners International Company, Inc., including Paul Masson and Taylor California Cellars, for $148.9 million in cash. 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 the country, 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 Cordorniu sparkling wines. Established in 1972 by the Cordorniu 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 Cordorniu Napa Valley Brut Cuvee.

A very significant acquisition for Canandaigua occurred in August 1994 when the company purchased both Almadén Vineyards and Inglenook Vineyards from Heublein, Inc. for $130.6 million. Inglenook Vineyards, founded in 1879 by a sea captain from Finland—Gustave Niebaum—and 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 Almadén ranked fifth while Inglenook ranked sixth in table wine sales within the United States. Almadén 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.

Key Dates:

1945:: The Sands family purchases a winery located in Canandaigua, New York; Marvin Sands establishes Canandaigua Industries to run the winery.
1948:: Sands purchases the Mother Vineyard Wine Company, located in Manteo, North Carolina.
1951:: Sands opens Richards Wine Cellars in Petersburg, Virginia.
1954:: Company introduces the Richard’s Wild Irish Rose brand of dessert wines, which becomes the firm’s top brand.
1969:: Canandaigua acquires Hammondsport Wine Company, gaining entry into the sparkling wine sector.
1972:: Company is incorporated as Canandaigua Wine Company, Inc.
1973:: Company goes public and is listed on the NASDAQ.
1974:: Bisceglia Brothers Winery, a West Coast varietal wine maker, is acquired.
1979:: Company begins production of its own champagne brand, J. Roget.
1984:: Canandaigua enters the wine cooler market with the Sun Country brand, leading to skyrocketing revenues.
1986:: Richard Sands, son of Marvin, is named president of the company.
1987:: Widmer’s Wine Cellars, an East Coast table wine producer, and Manischewitz, the bestselling kosher wine brand, are acquired.
1991:: Company acquires Guild Wineries, including the Dunnewood and Cook’s brands.
1993:: Company acquires Barton Incorporated, a leading producer of distilled spirits and a leading importer of foreign beers; and Vintners International, owner of the Paul Masson and Taylor California Cellars brands.
1994:: Canandaigua acquires Almaden Vineyards and In-glenook Vineyards from Heublein, Inc.
1995:: Company purchases from United Distillers Glen-more, Inc. 12 distilled spirits brands, including Canadian LTD, Chi-Chi’ s, Fleischmann’s, Inver House, and Mr. Boston.
1997:: Company changes its name to Canandaigua Brands, Inc.
1998:: Company moves its headquarters to Fairport, New York; acquires Matthew Clark pic, a leading U.K. producer and distributor of hard cider, wine, and bottled water.
1999:: Canandaigua acquires eight Canadian whiskey brands from Diageo pic, including Black Velvet; company enters premium wine category through purchases of Franciscan Vineyards, Inc. and Simi Winery, Inc.; Richard Sands takes over as chairman following his father’s death.

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 the United States. Under new marketing techniques implemented by management at Canandaigua, Almadén wines such as Mountain Burgundy and Golden Chardonnay grew in popularity, 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 company’s 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 Almadén and Inglenook acquisition added an impressive $17 million to the 1994 year in sales.

That same year, 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 consolidated all its facilities already located in California, enabling the company to group three separate bottling operations in one location. The new facility, the Mission Bell plant in Madera, California, began bottling more than 22 million cases annually.

Under the continued leadership of Marvin Sands, Canandaigua in the mid-1990s 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 company’s Barton Beer Division held ten percent of the total market share for imported beers in the United States. In 1994, the division’s domestic brand, Point Special, increased sales by an astounding 25 percent. The company’s Dunne wood 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 company’s stock price increased by a record 37 percent for fiscal 1994.

Acquisitions continued in the second half of the 1990s, highlighted early on by the September 1995 purchase of 12 distilled liquor brands from United Distillers Glenmore, Inc. for $141.8 million. Among the key brands added to the Canandaigua portfolio were Canadian LTD whiskey; Chi-Chi’s cocktails; Fleischmann’s gin, vodka, and whiskey; Inver House scotch; and Mr. Boston liqueurs, brandies, and schnapps. This acquisition propelled Canandaigua from the eighth largest distributor of distilled spirits in the United States to the fourth largest.

The company suffered a brief setback during the 1996 fiscal year after running into operational difficulties stemming from the aggressive string of acquisitions of the previous half-decade. Canandaigua subsequently restructured its production, marketing, and distribution operations to cut costs, increase production, and improve profitability. Another key to the turnaround was the beefing up of the company’s upper management ranks, including the addition of Daniel Barnett as president of the wine division and Thomas Summer as CFO. Marvin Sands remained chairman of the company, while son Richard continued serving as president and CEO.

The company’s 1990s diversification led to the September 1997 company name change to Canandaigua Brands, Inc. The wine division thereupon adopted the Canandaigua Wine Company name, while the spirits and beer operations were organized within Barton Incorporated. In early 1998 the company moved its headquarters from Canandaigua to Fairport, New York (located east of Rochester). For the fiscal year ending in February 1998, Canandaigua Brands reported record net sales of $1.21 billion; the net income of $50.1 million was nearly double the $27.7 million figure for the preceding year.

In the spring of 1998 Canandaigua succeeded with the launch of a new wine brand, Arbor Mist. The new line consisted of fruit-flavored varietal wines, with a low alcohol content of six percent, aimed at first-time and younger wine consumers, particularly women. By the fall Arbor Mist had already captured 1.2 percent of the U.S. wine market. With acquisition prospects in the United States dwindling, Canandaigua began seeking international opportunities in 1998. In December of that year, the company acquired Matthew Clark plc for $475 million. Founded in 1810, the U.K.-based company was a leading producer and distributor of hard cider, wine, and bottled water in its home country. Among the company’s brands were Blackthorn and Diamond White cider, Stowells of Chelsea and QC wines, and Strathmore sparkling water. In April 1999 Canandaigua spent $185.5 million to acquire eight Canadian whiskey brands and production facilities in the provinces of Alberta and Quebec from Diageo pic. The top brand gained thereby was Black Velvet, the number three Canadian whiskey brand in the United States.

A rapidly growing sector of the wine industry in the late 1990s was the premium category, an area in which Canandaigua Brands lacked any presence. That changed in June 1999 when the company completed two separate acquisitions of Franciscan Vineyards, Inc. and Simi Winery, Inc., and began operating them as a separate division called Franciscan Estates. The purchases instantly vaulted Canandaigua into the ranks of the major makers of fine wines, with a portfolio that featured several well-respected brands: Quintessa, Veramonte, Mount Veeder, Franciscan Oakville Estate, Estancia, and Simi.

From the start of its acquisition spree in 1991 through the fiscal 1999 year, Canandaigua Brands achieved a remarkable level of growth, with both net sales and net income increasing at a rate of 33 percent per year. Net sales for 1999 were a shade under $1.5 billion. In August 1999, soon after the company’s entry into the premium wine category, Marvin Sands died at the age of 75, after more than 50 years of leading the company. Richard Sands took over as chairman, gaining full responsibility for taking the rapidly growing company through the initial years of the 21st century.

Principal Subsidiaries

Batavia Wine Cellars, Inc.; Canandaigua Wine Company, Inc.; Canandaigua Europe Limited; Canandaigua B.V. (Netherlands); Canandaigua Limited (U.K.); Poly phenolic s, Inc.; Roberts Trading Corp.; Barton Incorporated; Barton Brands, Ltd.; Barton Beers, Ltd.; Barton Brands of California, Inc.; Barton Brands of Georgia, Inc.; Barton Canada, Ltd.; Barton Distillers Import Corp.; Barton Financial Corporation; Schenley Distilleries Inc./Les Distilleries Schenley Inc. (Canada); Stevens Point Beverage Co.; Monarch Import Company; The Viking Distillery, Inc.; Matthew Clark plc (U.K.); Freetraders Group Limited (U.K.); Matthew Clark Wholesale Limited (U.K.); Matthew Clark Brands Limited (U.K.); Strathmore Mineral Water Company Limited (U.K.); Taunton Cider plc (U.K.); The Gaymer Group Europe Limited (U.K.); The Gaymer Group Limited (U.K.).

Principal Competitors

Brown-Forman Corporation; Diageo plc; E. & J. Gallo Winery; H.P. Bulmer Holdings PLC; Halewood Vintners; Heaven Hill Distilleries, Inc.; Heineken N.V.; Interbrew S.A.; Jim Beam Brands; Molson Inc.; Perrier; Tavern; Waverley Vintners; The Wine Group.