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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Notices
remove your comment from the FTC
website, unless you submit a confidentiality request that meets the requirements for such treatment under FTC Rule 4.9c, and the General Counsel grants that request.
Visit the FTC website at http
www.ftc.gov to read this Notice and the news release describing this matter. The FTC Act and other laws that the Commission administers permit the collection of public comments to consider and use in this proceeding, as appropriate. The Commission will consider all timely and responsive public comments that it receives on or before February 5, 2021. For information on the Commissions privacy policy, including routine uses permitted by the Privacy Act, see https www.ftc.gov/
site-information/privacy-policy.
Analysis of Agreement Containing Consent Orders To Aid Public Comment
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I. Introduction and Background The Federal Trade Commission Commission has accepted for public comment, subject to final approval, an Agreement Containing Consent Orders Consent Agreement from Respondent E. & J. Gallo Winery Gallo, a wholly owned subsidiary of Respondent Dry Creek Corporation Dry Creek, and Respondent Constellation Brands, Inc.
Constellation collectively, Respondents. The purpose of the Consent Agreement is to remedy the anticompetitive effects that would likely result from Gallos acquisition of certain Constellation assets the Acquisition.
To resolve the Commissions concerns, Gallo and Constellation elected to remove J Roget, Cooks, Paul Masson brandy, high color concentrates HCCs, and the Mission Bell winery from the asset purchase agreement.
Under the terms of the proposed Decision and Order Order contained in the Consent Agreement, Constellation is required to maintain the viability of the J Roget and Cooks assets. The Order also requires that 1 Constellation divest its Paul Masson brandy to the Sazerac Company, Inc. Sazerac; 2
Gallo divest its Sheffield Cellars and Fairbanks low-priced port and sherry brands to Precept Brands LLC
Precept; and 3 Constellation divest its HCCs business to the Vie-Del Company Vie-Del.
The Commission and the Respondents have also agreed to an Order to Maintain Assets. This order requires Gallo and Constellation to retain and maintain the assets that the Consent Agreement requires them to divest, pending their divestiture. The Commissions
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Complaint alleges that the proposed Acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, by substantially lessening competition in the United States in the product markets for: 1
Entry-level on-premise sparkling wine, 2 low-priced sparkling wine, 3 lowpriced brandy, 4 low-priced port, 5
low-priced sherry, and 6 HCCs.
The proposed Consent Agreement has been placed on the public record for 30
days for receipt of comments from interested persons. Comments received during this period will become part of the public record. After 30 days, the Commission will review the comments received and decide whether it should withdraw, modify, or finalize the Consent Agreement.
II. The Parties Gallo is a privately owned company headquartered in Modesto, California.
Founded in 1933, Gallo is the largest family-owned winery in the world, with over 100 wine and spirit brands, and a portfolio that includes white wines, red wines, sparkling wines, dessert or fortified wines, brandy, and vodka.
Gallo owns 15 wineries situated throughout California and Washington, over 23,000 acres of vineyards across California, glass and bottling facilities, storage facilities, and distribution channels in states where legally permitted.
Headquartered in Victor, New York, Constellation is a publically traded alcoholic beverage company. Founded in 1945, Constellation is the thirdlargest producer of beer and one of the worlds leading premium wine companies. Constellation is one of the three largest wine suppliers in the United States; in fiscal year 2018, it generated approximately $8.3 billion in gross revenue.
On April 3, 2019, Gallo entered into an Asset Purchase Agreement with Constellation. Pursuant to the agreement, Gallo would acquire more than 30 mostly low-priced wine, brandy, concentrate and additive brands along with several wine-making facilities from Constellation in a transaction originally valued at approximately $1.7 billion.
III. The Relevant Markets Gallos proposed acquisition of certain Constellation assets would likely result in substantial competitive harm in the following product markets: Entrylevel on-premise sparkling wine, lowpriced sparkling wine, low-priced brandy, low-priced port and low-priced
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sherry fortified wines, and HCCs. The United States is the relevant geographic market in which to assess the competitive effects of the proposed Acquisition.
A. Entry-Level On-Premise Sparkling Wine Entry-level sparkling wine is often sold to on-premise retailers, such as restaurants, casinos, and hotels, for specific uses e.g., brunch mimosas, complimentary or floor pours, banquets, and catering. Sparkling wine outside of the entry-level tier is generally priced significantly higher than entry-level on-premise sparkling wine.
Gallo and Constellation are the two largest suppliers, by volume, of entrylevel on-premise sparkling wine in the United States. Absent relief, Gallo would have acquired Constellations J
Roget brand, resulting in significant increases in concentration in a highly concentrated market, and giving rise to a presumption of increased market power under the Horizontal Merger Guidelines. Further, Gallos Wycliff brand and Constellations J Roget brand are close and vigorous competitors in the United States. Absent relief, the Acquisition would have substantially lessened the significant head-to-head competition between Gallo and Constellation, and would likely have increased Gallos ability and incentive to raise prices post-Acquisition. Entry into this market is difficult due to the specialized equipment and massive scale needed to produce sparkling wine at a low cost. In addition, the need for a nationwide distribution network and sales team to work with retailers present further obstacles to entry and expansion.
B. Low-Priced Sparkling Wine Low-priced sparkling wine generally described in the industry as popular sparkling wine is predominately sold to off-premise retailers such as grocery stores, liquor stores, and convenience stores. Low-priced sparkling wine does not significantly compete with more expensive premium brands.
Gallos Andre and Constellations Cooks brands are the two largest lowpriced sparkling wine brands in the United States, with other competitors being significantly smaller. Absent relief, Gallo would have acquired Constellations Cooks brand, resulting in significant increases in concentration and a highly concentrated market, and giving rise to a presumption of increased market power under the Horizontal Merger Guidelines. Andre and Cooks directly compete for shelf
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