Interview: Jon Moramarco / Good Vibrations

For Jon Moramarco, the new CEO at Constellation Europe, it’s not so much “surf’s up” as “trade up” as he sets about persuading UK consumers to spend more money on each bottle of wine. Patrick Schmitt reports

I am a very impatient man,” admits Jon Moramarco, new CEO for Constellation Europe, “and nothing moves fast enough for me.” He is talking about his hopes “to develop more business across a broader range of price points”, but he could be commenting on anything, since this urgency, one senses, extends to everything.

Unsurprisingly, Constellation has ambitious aims, in Europe especially, which is probably why fast-mover Moramarco has been shipped in from the US, where he was president of Icon Estates, an arm of Constellation he successfully integrated into the overall business. “The reality today is to figure out the best way you can work yourself out of a job,” he explains, smiling, meaning that he completed one task on time and according to plan, and he is now ready for the next.

When it comes to his current job, a UK-based role replacing Christopher Carson, you can be sure that Moramarco will put his strategy in place quickly.

One element of this is his ambition to sell more wine at higher prices. “There is still a large amount of wine sold at £3.99
and below in the UK, and the challenge for all of us is to identify the opportunities to introduce consumers to wines at higher price points.” In other words, Moramarco is embarking on measures to increase sales of Constellation’s more premium wines. “We have the portfolio,” he says. “We just have more work to do to make it happen.”

Certainly, if anyone has the power to develop sales of more expensive wines, it must be Constellation. But for Moramarco, “It’s not a question of power, but of passion – and we have the passion to do this,” he says.

There is no doubting that Moramarco – a man who grew up in the wine business in California (his father was a viticulturist) and with a degree in oenology, viticulture and agricultural business from the University of California, Davis – has a passion for wine.

So what does he think of the UK market? “I have always assumed the UK is significantly different from the US,” he begins. “The majority of wine in the US is sold through a wholesale tier, while in the UK the majority is sold direct to major multiples. However, in the US, although the wines go to wholesalers, a lot of the activity is done direct with the retailers – for instance, pricing, how you structure promotions and relationship building.” Moramarco compares this situation with multiple pub groups in the UK on-trade, where wines are supplied by wholesalers, but there is still a direct relationship between producer and retailer. “There are, in fact, a lot of similarities between the two markets,” he says.

Pushing higher price points
Moramarco also makes the point that the three-tier system in the US is changing and that “most major markets are down to two or three wholesalers. However, the UK retail market is much more consolidated, and in the States there aren’t really national retail groups in grocery. While Wal-Mart is probably the most significant, it is not actually that big in the wine business at this point. Here the multiples have some 70% of the wine market, but the US grocery sector only controls about 30%.” Furthermore, as he reminds us, “Consolidation will be slower than in the UK – the US population is about five times that of the UK and the geographic area is 20 times. The UK is half the size of California in square miles.”

What the US market does have is “a greater range of volumes at varying price points” compared to the UK. Moramarco sees the British market changing, however. He records the fact that, “The UK consumer is shifting more to brands – a few years ago, about a third of business in the multiple grocers was private label; now it’s 25%. We can take those consumer desires and move upwards with price points. There is an opportunity for some extension upwards. For example, we are relaunching Tintara – which is Hardy’s Tintara – but it really is Tintara from McLaren Vale, and it is focusing on the attributes you get from that region. You will also see us bring brands into this country where there is more opportunity for them. Out of the US we could take Ravenswood, for example – there is a wide range of Ravenswood products and narrow penetration here.”

Expect the acquisitions to continue, too. “If you look at the history of Constellation, it has been built on both organic growth and acquisitions,” says Moramarco. “And I see no reason why that is going to change in the near future.

“Most see Constellation starting acquisitions in the mid to late 90s, but if you look at the history of the company, it started making little acquisitions in the 1950s, and this has really been a method by which Constellation has grown. The other key factor is that there is also a learned skill set the company has as to how to make acquisitions – both in what to buy and, more importantly, in how to integrate them.”

As for Vincor, it has “a number of strategic fits” according to Moramarco. “There is the position it gives us in Canada and the portfolio it has in the US, and there are some nice fits with what it has and what we have in the US. Obviously, in the UK, the brands Western Wines has and especially Kumala, because we have not really had a presence of any consequence in South Africa. Then there is a nice piece of business in New Zealand, as well as Australia.”

There are still some large gaps in Constellation’s portfolio. In the New World, it has been noted that the company doesn’t have a large Chilean brand. “We have a joint venture – Veramonte,” says Moramarco. “And it’s likely we’ll do more in Chile,” he adds after a long pause. “That’s partly because opportunities exist, but also because of the quality of wine that can be made.”

Portfolio expansion

Moramarco admits that Constellation “is in the midst of reviewing strategically where it is going in continental Europe.
We believe there is a big opportunity across Europe – old and new – for significant expansion of our business. It is possible that you will see us making other acquisitions within Europe. A year and a half ago, we acquired a 40% stake in Rufina in Italy, but that’s really our only position in Old World wines.

“As we look at Europe, that will probably change. We are an acquisitive company, so obviously the portfolio we have today will be different three years from now.”

So more balance between Old and New World for Constellation? “There will be a shift,” says Moramarco, adding, while gently chuckling, “Given the volume we do of New World wines, it would take a while to get to a balance.”
Back in the UK, Moramarco strongly believes there is potential for increasing sales of higher-priced wines. He mentions some historical US-based research.

“We found that the total grocery cart of people who bought wines at $10 a bottle was typically worth two times as much as people who bought wines at $5 a bottle. What that said and what transpired over time, was that the broader selection a grocer had and the broader the range of wines promoted, the more the grocer would attract a mix of consumers that would spend more. And ultimately, while it complicated the category for wine, the grocers would see a higher return on total store.

“I can see something similar existing over here – I just haven’t identified it. I think there are reasons to get a little more aggressive in promoting wines at different price points. Retailers do promote at higher price points, but there is a lot of work to be done from the profitability/return standpoint. Higher-priced wine promotions tend to be strictly shelf features, not on gondolas. We need to do more work as producer and supplier on what will help the market and what is the best profit solution for our retail partners.”

So should we soon expect to see discounted fine wine filling gondola ends? “It’s possible.” And what about bogoffs? “We have helped drive New World wines in this marketplace, but I think, and my sales people will shoot me for this one, the concept of bogoffs does help sell lots of product in the short term, but we could possibly be training the consumer that a £7.99 wine is worth only £3.99.

We could be inhibiting ourselves in how we move up. Also, whatever the price point, if the promotion is too deep, nobody will buy the product at an everyday price.

“But walking around here, generally the depth of promotion on most products in the UK is deeper than in the US – there is
a marketplace factor we have to look at as well.”

Developing sales strategies
For Moramarco, however, “With my own beliefs and passions about wine, I hate to think of it as a commodity.” He blames a mixture of environmental pressure, retail pressure and competitive pressure on the advent and proliferation of bogoffs. Should we wait for one of these to give? Does Constellation have the power or will to make a stand? Certainly, according to Moramarco, the company is already “evolving the higher end”, although he also admits, “The skill sets to sell a wine at high volumes at £3.99 in multiple grocers is different from selling wine at £20, and we have to do more to differentiate those skill sets.”

Lastly, as he points out, “I think our market share in wine is about 5% (and in the UK it’s 18%). We are the largest wine company, but there is a lot of room out there for everybody,” and, Moramarco concludes, “a lot of opportunities for us as well.”  db June 2006

Career compressed
Few start their career in the wine trade as early as Jon Moramarco. Apparently, he planted his first vine aged five, and worked for his father, a viticulturist, in the vineyards from the age of 12, “breaking all kinds of labour laws,” he jokes.

He gained a mixed major from the University of California in Oenology, Viticulture and Agricultural Business, and then began working for Callaway Winery full time in 1982, having worked there on and off throughout his college years.

Callaway was being sold to Hiram Walker at this time, which kept Moramarco on, giving him a series of roles in finance, sales and marketing. In the mid-80s, Allied Lyons acquired Hiram Walker, and the newly enlarged company took on a series of Californian wineries before becoming Allied Domecq. Moramarco worked his way up through the company ranks until he became president of Allied Domecq Wines US in 1991.

He left Allied in 1999 to become president of the Canandaigua Wine Company. “My impression was that Allied would not expand in the wine business subsequent to Seagram being split up between Diageo and Pernod Ricard, so I went from around a 2m-case business to a 45m-case one [by joining Canandaigua].”

Moramarco then ran Canandaigua for four and a half years, and he became president of Constellation’s Franciscan Estates
(later renamed Icon Estates) at the end of 1999.

In January 2006, it was decided to put Icon Estates under Constellation Wines US, and Moramarco was asked to run Constellation Europe.  db June 2006