Constellation bets $315 million that vineyards don't matter in wine

Sweet-tasting Meiomi has rapidly become one of America's favorite beverages with "Pinot Noir" on the label. More than 7 million bottles were sold in 2014. As the grapes are bought relatively cheaply  all over coastal California, and the wine sells for $20 a bottle, it's clearly a nicely profitable item.

That's why Constellation bought Meiomi this week. But is a wine brand, by itself, with no other assets -- no vineyards, no winery -- really worth $315 million?

Are American wine drinkers really that stupid?

For a little perspective, last month The Wine Group bought Benziger for $90 million. Benziger makes only about 20% as much wine as Meiomi, but the purchase came with two wineries and an 85-acre estate vineyard. The Wine Group thinks Sonoma County vineyards are valuable.

In May, Gallo spent an undisclosed amount to buy 642 acres of vineyards in Napa Valley, and two months earlier Gallo bought J Vineyards & Winery, which came with 300 acres of vineyards in Sonoma County. Gallo thinks Napa and Sonoma vineyards are valuable. Jackson Family Wines is buying vineyards all over Oregon because it thinks Oregon Pinot Noir is valuable.

Meanwhile, Constellation thinks Americans don't care where their wines come from. And in fact, Constellation plans to make Meiomi at different wine factories all over California.

Constellation's directors are not stupid, or bad businessmen. Its stock is up about 40% over the last 7 months, and that has not been achieved by farming.



Gallo, The Wine Group and Jackson Family Wines are privately held. Gallo, for all its enormity, is a family business. The Gallos can take the long view. Constellation is publicly held. It exists to do what American businesses do: find a brand that's popular, scale up its production until it's omnipresent, milk it for all it's worth, and concurrently develop the Next Big Thing for when Americans figure out that the previous hot brand is just generic crap in a cool bottle.

When you look at that model, Meiomi is a perfect match, because it's already generic crap in a cool bottle. Wine lovers think Pinot Noir reflects terroir. Haha, wine lovers, you're so 20th century.

From the Meiomi website.

Meiomi is, according to its website, "Made with love to be shared with love." Sure, the grapes come from vineyards, and "all have been chosen for their unique aromas, flavors and textures." None of them are named.

But Meiomi drinkers don't care. The label says "Pinot Noir," the wine is noticeably sweet, and they're not fussy old enophile types.

No sarcasm here: you have to hand it to the Wagner family for figuring out American tastes. Caymus Conundrum is sweet and it's hugely popular. People go broke making wine they love that consumers don't. I haven't met a wine professional who likes Meiomi, but I've had a number of ordinary people tell me that they love it, and ordinary people buy a lot of wine.

Moreover, to give credit to the Wagners, if Meiomi tasted bad, it wouldn't work. It's not to my taste, but if you like sweet reds, it's fine. Can Constellation maintain its adequacy while increasing the production? That's more challenging than it seems. Gallo can easily make two million cases of its similar Apothic Red because it can use any grape. But Meiomi will lose a lot of its luster if it can't be called Pinot Noir.

Constellation will be scouring the market to mop up as much Pinot as it can. The residual sugar in the wine can cover up a lot of faults, and Constellation can use 25% Syrah or Zinfandel to fill out the wine, but 75% of, say, 25 million bottles is still a lot of Pinot Noir. And remember, it's not as if Constellation acquired any vineyards in the deal to provide supplies. I find it hard to believe Constellation will be able to satisfy its shareholders' thirst for growth of the brand without a noticeable decline in quality.

It's hard for me to see this purchase as anything other than a $315 million bet, by a smart, publicly traded American wine company. And it's not just a bet that vineyards don't matter: it's a bet that American wine drinkers are stupid.

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