FTC Imposes Conditions on E. & J. Gallo Winery’s Acquisition of Assets from Constellation Brands, Inc.

FTC Imposes Conditions on E. & J. Gallo Winery’s Acquisition of Assets from Constellation Brands, Inc.

WASHINGTON, D.C. — Wine and spirits maker E. & J. Gallo Winery has agreed to divest several product lines and remove certain others from its asset purchase agreement with competitor Constellation Brands, Inc. to settle Federal Trade Commission charges that their proposed $1.7 billion transaction would violate federal antitrust law.

The FTC alleges that, absent a remedy, the proposed acquisition would eliminate head-to-head competition between Gallo and Constellation and is likely to substantially lessen competition in the United States for six types of wine and spirits products: entry-level on-premise sparkling wine, low-priced sparkling wine, low-priced brandy, low-priced port, low-priced sherry, and high color concentrates (“HCCs”).

Entry-Level On-Premise Sparkling Wine. Gallo and Constellation are the two largest suppliers to U.S. retailers of these sparkling wines, which are often sold to on-premise retailers—such as restaurants, casinos, and hotels—for uses such as brunch mimosas, complimentary drinks, banquets, and catering. Constellation will retain its entry-level on-premise sparkling wine brand, J Roget, and is required, for four years after the consent agreement is entered, to take all actions necessary to maintain the full economic viability, marketability, and competitiveness of J Roget.

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Low-Priced Sparkling Wine. Gallo’s André and Constellation’s Cook’s brands are the two largest low-priced sparkling wine brands in the United States; other competitors are significantly smaller. These sparkling wines are predominately sold to off-premise retailers such as grocery stores, liquor stores, and convenience stores. Constellation will retain its low-priced sparkling wine brand, Cook’s, and is required, for four years after the consent agreement is entered, to take all actions necessary to maintain the full economic viability, marketability, and competitiveness of Cook’s.

Low-Priced Brandy. Brandy is a distilled spirit typically made from wine grapes and must be aged for at least two years to be labeled and sold as brandy in the United States. There is a large price differential between low-priced U.S.-made brandies and high-end brandies, which are typically imported. Gallo’s E & J Brandy and Constellation’s Paul Masson brandy are the two largest low-priced brandies in the United States. Under the terms of the proposed consent agreement, Constellation is required to divest its Paul Masson brandy business to Sazerac Company, Inc.

Low-Priced Port and Low-Priced Sherry Fortified Wines. Used for both cooking and consumption, ports and sherries are fortified wines that have an added distilled spirit that increases the alcohol content. A significant price gap separates the low-priced domestic brands of port and sherry and high-end imports. As proposed, the acquisition would result in Gallo owning three of the top four low-priced port and sherry brands. Under the terms of the proposed consent agreement, Gallo is required to divest Sheffield Cellars and Fairbanks low-priced port and sherry brands to Precept Brands LLC.

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High Color Concentrates. HCCs are grape-based concentrates that have been processed to form a thick, shelf-stable syrup used by winemakers to deepen the color and enhance the taste and texture of red wines, and by food and beverage manufacturers in jellies, juices, and other products. Gallo and Constellation are the two largest HCC producers in the United States, and there is only one other domestic producer. Under the terms of the proposed consent agreement, Constellation is required to divest its concentrates business, including HCCs, to Vie-Del Company.

The proposed consent agreement follows a 20-month investigation in which Commission staff explored a wide range of theories of competitive harm, including with respect to other wine products and category captain services. Further details about the consent agreement—which appoints a monitor and requires the divestitures to Precept, Sazerac, and Vie-Del to take place no later than 10 days from the closing of the acquisition—are set forth in the analysis to aid public comment for this matter.

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The Commission vote to issue the complaint and accept the proposed consent order for public comment was 5-0. The FTC will publish the consent agreement package in the Federal Register shortly. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.

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