The move will let the company focus on its premium brands, which perform better for the company, Bill Newlands, CEO and president of Constellation Brands, said in a statement announcing the deal on Wednesday. The company also makes Modelo beers, Svedka vodka, Kim Crawford wines and more.
"One of the hallmarks of our success over the years has been our ability to evolve and stay on the forefront of emerging consumer trends," he added.
E. & J. Gallo will acquire wines priced at $11 or less in a retail store. The deal is expected to close later this year.
Rumors of the sale swirled last month, and Constellation said in February that it may sell up to 40% of its wine brands because they are underperforming. The alcohol company had previously reported weakness in its low-end wine business.
E. & J. Gallo, which makes inexpensive products like André sparkling wines and Barefoot Wine, makes sense as a buyer for the lower-end brands. "Gallo is acquiring a collection of great brands that complement their operational model and business strategy," Newlands said Wednesday.
Constellation's premium business is doing well.
Corona Premier, Corona Familiar and Modelo Especial gained the most market share among high-end beers over Labor Day and Thanksgiving, according to the company. Newlands called Corona Premier "a phenomenal success."
In general, US consumers have been preferring luxury and premium alcohol. Super premium liquors — products that cost $35 or more per bottle on average — have seen phenomenal growth in the United States, according to the Distilled Spirits Council.
Last year, super premium rum grew 26.8% by volume compared to 2017. In that period, super premium brandy and cognac grew 26.2%, American whiskey grew 16.9%, gin grew 14.7%, and tequila and mezcal grew 9.7%, according to the council.
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