Constellation Brands acquires Gary Vaynerchuk’s Empathy Wines

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Constellation Brands announced an acquisition of direct-to-consumer wine brand Empathy Wines. Gary Vaynerchuck, co-founder of Empathy Wines and founder and CEO of VaynerMedia, and Robert Hanson, president of wine and spirits at Constellation Brands, join “Squawk Box” to discuss the deal. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

Constellation Brands announced plans on Wednesday to acquire Empathy Wines, a direct-to-consumer vintner co-founded by entrepreneur Gary Vaynerchuk.

Terms were not disclosed.

Empathy, founded in 2019, has sold about 15,000 cases of its signature California-sourced wine and has amassed more than 2,000 subscribed customers, who purchase the product exclusively online.

The acquisition comes at a time when many states are slowing or reversing their reopening plans as coronavirus cases climb. Restrictions on bars and indoor dining may be extended, providing a boon for alcohol e-commerce.

“The DTC (direct-to-consumer) market was growing at more than two times the rate of the general market in wine consumption pre-Covid,” said Robert Hanson, president of wine and spirits for Constellations Brands, which has a wide array of wines in its portfolio, including Robert Mondavi, Ruffino, Simi and The Dreaming Tree. “Everything that’s occurred since has just been an acceleration of that.”

Vaynerchuk has long been an innovator in the e-commerce space. He started working at his family’s retail wine business, bagging ice, at age 14. He used the business as a springboard to building the Wine Library into an e-commerce platform in the late-’90s. During his tenure, the company grew from doing $3 million in annual sales to $60 million. Since then, Vaynerchuk has gone on to start several other businesses, including restaurant reservation booking platform Resy, which was acquired by American Express in 2019.

Consumers have been slow to shop for alcohol online. But the coronavirus pandemic is shifting more sales online, and wine and spirits have seen some of the greatest gains. The category saw a 74% increase in online sales from March 11 through April 21, according to a June report from Adobe.

“I would argue, out of every category on the consumer level, bev alc has the most to gain, because most people were not educated on the options,” Vaynerchuk said. “Most people understood they could buy cereal, soap, a plant and spoons on the internet, [but] because of the way liquor laws have been through the years … there was a lot of misinformation or lack of education on the options.”

While online giant Amazon has benefited from the spike in e-commerce, an array of smaller sites and niche brands like Empathy has seen surges in their businesses that were previously unimaginable.

Delivery services like Minibar, which operates in 18 states, saw a jump in orders as high as 131% in mid-March, while competitor Drizly, which operates in 26 states plus the District of Columbia and Alberta, Canada, saw sales up about 300% from earlier in the year. In mid-April, roughly one month after shelter-in-place orders began taking effect, Nielsen reported that online alcoholic beverage sales rose 387% for the week ended April 11.

However, while more Americans are buying alcohol to drink at home, researchers say that it’s not enough to offset lost sales at bars, restaurants and sporting venues. Brand analysis company IWSR expects to see double-digit declines for fiscal year 2020, and estimates that it will take five years for sales to return to pre-Covid levels like those seen in 2019, when worldwide beverage alcohol volume saw a slight increase.

“Like many other industries, it’s incredible how a few months of lockdown will result in several years of recovery,” said Mark Meek, CEO of IWSR. “But … alcohol has proven to be remarkably resilient in previous downturns, and this should be no different.”

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