Affected market: Wholesale supply of wine
The OFT’s decision on reference under section 22 of the Enterprise Act
2002 given on 14 June 2006. Full text of decision published 28 June
Please note that the square brackets indicate figures or text which
have been deleted or replaced with a range at the request of the parties
for reasons of commercial confidentiality.
Constellation Brands Inc (Constellation) is a US company listed on the
New York stock exchange, is a global producer and marketer of branded
beers, wines and spirits.
Vincor International Inc (Vincor) is an international producer and
marketer of wines based in Canada. Through its wholly-owned subsidiary,
Western Wines, Vincor imports into the UK and markets a portfolio of
branded wine produced in a number of different countries.
Constellation acquired the entire share capital of Vincor on 5 June
2006. Prior to completion of the acquisition, it submitted an informal
notification to the OFT on 13 April 2006. The administrative target date
for a decision is 14 June 2006.
As a result of this transaction, Constellation and Vincor have ceased to
be distinct. Vincor’s UK turnover exceeds £70 million and the turnover
test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is
consequently satisfied. The OFT therefore believes that it is or may be
the case that a relevant merger situation has been created.
The parties overlap in the wholesale supply of wine in the UK.
In the UK, Constellation supplies a wide range of branded (see [note 1]
wines produced in the United States, Australia, New Zealand and Chile.
Vincor, through its wholly-owned subsidiary Western Wines,
distributed a somewhat smaller portfolio of branded (see [Note 2])
wines produced in South Africa, Australia, Chile, Canada,
Spain and Italy.
Constellation submits that the relevant product scope is no narrower
than the wholesale supply of wine. It further proposes that consumer
purchasing patterns indicate that all wines (and therefore all wine
wholesales) pose mutual competitive constraint. Consumers’ choices of
and attitudes towards wine can differ in a number of ways including
knowledge of wines, sense of occasion, age and preferences for
accompaniment with food.
Wine is a drink made from fruit juice - typically that from grapes -
which is fermented to produce an alcohol content of around 10 to 15
percent by volume. They can be classified according to one or more
different criteria such as:
- vinification method (eg. still, sparkling, fortified)
- palate (eg. dry, fruity, off-dry, sweet)
- colour (eg. red, white, rosé, blush)
- grape varietal (eg. merlot, chardonnay, tempranillo)
- country of origin
- region (eg. Burgundy, Côtes du Rhône, Chianti)
- vineyard (eg. Château Lafite-Rothschild, Château Latour)
- own-label brands (eg. Tesco Australian Merlot))
However, independent research undertaken by Mintel (see [Note 3]
indicates that, from the end user’s point of view, price (the majority
of wine sold in the UK retails at below £4 per bottle) and colour are
the most influential factors taken into account by close to a
third of UK consumers when choosing wine.
The same research also indicates that:
a. a quarter of UK consumers tend to buy wine according to country of
b. the same proportion make 'spur of the moment' decisions in the
shop as to which wine they will choose, and
c. a significant number of UK consumers make distinctions between ‘New
World’ and ‘Old World’ wines and that the impetus in the UK wine
market is being driven by the New World.
Branded wines - particularly those of the New World type - feature
prominently in the UK market and account for just over 40 per cent of
the volumes sold.
By and large, comments from third parties add weight to Constellation's
proposal for a product scope consisting of the distribution of all
wines. However, several competitors submitted that, whilst all wines can
in principle be regarded as being within a larger competitive framework
to some extent, wines within a given price band (and in some cases,
wines in adjacent price bands) compete more directly with each other.
Having regard to the fact that the parties overlap predominantly in the
distribution of New World wine brands, the OFT’s assessment is made in
this particular case on the impact of the merger on the distribution of
all wines and, separately and cautiously, on New World wines. In light
of the fact that no competition concerns arise even on a narrow,
cautious basis, the OFT does not draw any conclusions as to the exact
appropriate product scope in this case.
Constellation submits that the relevant geographic scope is global,
given that over 90 per cent of the volume of wine sold in the UK is
imported and that considerable proportions of that volume are imported
from countries as far afield as Australia (20 per cent), the US (12 per
cent) and South Africa (9 per cent).
However, given that the sale of wine is regulated within the UK, the
analysis in this decision is based on the cautious approach of
considering the UK separately.
Post merger, Constellation’s share of the supply by volume of all wine
sold in the UK is around [10-20] per cent, increment [1-10] per
cent. A considerable number of competitors remain. The second largest is
Diageo with a share of around [1-10] per cent. E&J Gallo,
Foster's Group and Pernod Ricard are on fairly equal footing as the
third largest competitors with shares of supply at around [1-10] per
cent. A long tail of smaller competitors account for the considerable
majority of all wine supplied in the UK - with combined shares of supply
amounting to a little over [65-75] per cent.
With regard to branded New World wines, Constellation's post merger
share of supply in the UK by volume is around [20-30] per cent, an
increment of [1-10] per cent, largely as a result of its taking
ownership of Vincor's (South African) Kumala brand. The principal
competitors in this segment are the same as those that supply all wines,
namely Diageo ([1-10] per cent), E&J Gallo ([1-10] per cent),
and the Foster's Group and Pernod Ricard with around [1-10] per cent
each. A long tail of smaller competitors still account for half of the
branded New World wine sold in the UK.
Constellation’s brand Stowells (which comprises a range of wine labels
of individual varietals and blends from a number of different countries)
is, with a share of just over [1-10] per cent of the total supply
volume of all the wine sold in the UK, the best selling brand. But there
are other prominent brands present, including E&J Gallo (US),
Blossom Hill (US) and Jacob's Creek (Australia) - each with a share of
supply of around [1-10] per cent.
Given the size of the parties and the presence of significant
competitors, the OFT does not consider that the merger gives rise to any
horizontal competition concerns in the supply of wine generally or of
New World wines in the UK.
THIRD PARTY VIEWS
The majority of third parties did not raise any concerns. One customer
proposed that prices would increase but also submitted that it could
easily switch between suppliers.
The parties overlap in the wholesale supply of wine in the UK - in
particular the supply of branded New World wines.
Wines can be classified according to a number of different criteria (see
product market paragraph above) although the parties submit (and third
parties broadly agree) that all wines can be regarded as being within
one large competitive framework.
The OFT’s assessment has taken regard of the impact of the merger on
the supply of all wines and of branded New World wines in the UK. On
either basis the parties supply no more than [20-30] per cent of wine
and will continue to face substantial competitive constraint from a
large number of suppliers.
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted, or may be expected to result, in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- Constellation’s major wine brands in the UK include: Hardy's, Banrock Station, 4 Emus,
Houghton, Leasingham, Stonehaven, Yarra Burn, Reynella, Barossa Valley
Estates, Nobilo, DryLands, Echo Falls, Turner Road, Robert Mondavi,
Estancia, Ravenswood, Paul Masson, Blackstone, Simi, Vendange, Rex
Goliath, Shamwari, Vermonte, Stowells, Miavina and Ruffino.
- Vincor’s major wine brands in the UK include: Amberley, Bellingham, Carancho, Charles
Black, Cono Sur, Da Luca, Douglas Green, Goundrey, Inniskillin, Isla
Negra, Kumala, Palacio de la Vega, Villiera, Vina Alta Mar and Zonte's
- Wine, Market Intelligence, January 2005.