Andrew Peller Ltd

TSX:ADW.A

Earnings Call Transcript 2020-Q4

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the year-end fiscal 2020 results conference call.I would now like to turn the meeting over to Mr. David Mills. Please go ahead.

[David George Mills]

Well, it's actually, good morning, everyone. And before we begin, let me remind you that during this conference call, we may make statements containing forward-looking information. This forward-looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. We direct you to our earnings release, MD&A and other securities filings for additional information about these assumptions, risks and uncertainties.I'll now turn things over to Mr. John Peller, Chief Executive Officer.

[John E. Peller, Executive Chairman & CEO]

Thanks, David, and good morning, everyone. Joining you from my home here in Burlington. And also on the call is Steve Attridge, our CFO; and Randy Powell, our President. And Steve is going to speak to some of our financial results, and Randy will outline some of our major business initiatives for the years.Let me start by saying that for our year ending March 31, our fiscal 2020 was another very positive year for our company. Our sales for the year were flat, but our earnings were up very nicely as we continued to strengthen our product mix into areas where we're getting higher margins. And those increased earnings have allowed us to both improve our results but also to allow us to invest more in new areas as we look to grow our product portfolio in cider and craft beer and the whiskey and distilled spirits. So all in all, it's been a very, very busy year, and we're pleased with all the work that we've got done.So our earnings rose -- our net earnings rose to $23.5 million or $0.55 a share, up from $22 million in fiscal 2019. Obviously, the last part of our fourth quarter, and particularly the month of March, was impacted with the onset of COVID-19. We were most fortunate that right out of the gate, our beverage alcohol category was deemed essential by the federal government. And as a result, the main liquor stores were -- across the country were kept open. And we adjusted to ensure our production facilities remained open and as well as the retail stores that we have here in Ontario at our wine shop. And we had our estate winery stores open for curbside pickup. But from a tourism standpoint, visitation and normal events and activities are -- were not open for that period. They've just opened out West now. As you may have heard, the Western markets are opening restaurants, and the estate wineries are just opening now under a very strict regimen of protocol. And in Ontario, as you're aware, both restaurants and our estate wineries can do curbside pickup, but they've yet to open them up more broadly to consumer traffic.I must tell you, I'm incredibly proud of the work that our management team did. They met twice a day remotely and -- through the weekends for 3 or 4 weeks to ensure that we kept our employees safe and all our operations ran strong. Our demand was particularly strong in March, and particularly the 4-liter products were in high, high demand. And our team did a great job. And as well, not surprisingly, our e-commerce direct-to-consumer business became very, very popular and a great deal of effort and -- went into ensuring that we met all the demand that came through that channel as well.If there is a silver lining with COVID for us, one of the very positive things that I think is going to come out of this going forward is that governments, both provincially and federally, are going to realize that a lot of the globalization that they promoted wasn't necessarily in their long-term economic interest. And it was made clear to me through my discussions with provincial and federal politicians that they were lamenting the fact that so much of our manufacturing has left the country and that our supply chains in food, in agriculture, obviously, in PPE and health were badly compromised and that a lot of the value that they expected by promoting globalization had not accrued to us nor protected us in ways that we should have been protected. These are things that I've been promoting for 20 years, but I have been beaten back by kind of liberal trade messages. And I think going forward, for us, even trying to get the interprovincial trade shipments approved, we haven't been able -- simple policies that they could have done to help promote manufacturing and sustainable business models here in our country, they've not been supportive. And I really do believe that, that will change positively for us going forward.The beverage alcohol industry remains strong. You've no doubt heard us say over the years that it -- in the last 20 years, whether it was 9/11 or the financial collapse in 2008 and '09 or past recessions, we tend to power right through them and perform well. And we expect to do the same this time around. Having -- and as I told you, the sales through our liquor board and grocery channels and our e-commerce were particularly strong in April and May, and they offset a lot of the business that we lost because restaurants are closed. Our own restaurants are not open. Our estate wine and tourism and special event business is down. Our sales to duty-free are nonexistent. The airport business has dried up. And while we've been able to offset some of that and most of that in the first 2 months, we don't expect to be able to offset that for the entire year so that -- it's likely we'll have some revenue impairment in the 5% to 10% for the year. And having said that, we -- we're really looking at investing in our business as if everything was full bore. And our eyes are definitely on our future, and we're going to continue to make the investments we know that are critical for the next 5 to 10 years. So we're pleased and happy with the investments that we're making, and we're definitely excited with our -- the prospects for our future.So at this point, I'll just turn it over to Steve and then to Randy. And if there are questions at the end, we'll be happy to address them. Over to you, Steve.

[Steven J. Attridge, Executive VP of IT & CFO]

Thanks, John, and good morning, everyone.So sales were $82.1 million and $382.3 million for the 3 months for the year ending March 31, 2020. It was up from $79.8 million and $381.8 million in the prior year. So once again, we experienced solid sales growth through the majority of our well-established bottled wine trade channels, resulting from the introduction of new products and product categories through the year. We did see a softness in our personal winemaking market and in our export sales through the year as a result -- as well as increased competition from subsidized lower-priced imported wines in certain markets, particularly in Western Canada.As a result of our sales performance through fiscal '20, we believe our share of accessible markets remain stable, a reflection of our strong product portfolio, our reputation for delivering value and the loyalty of our customer base. While our estate properties' export and personal winemaking sales were affected by the pandemic, we are seeing an increase in sales through the provincial liquor store channels as well as our retail locations. We've also increased our emphasis on direct-to-consumer sales, leveraging the strong brand recognition at our estate wineries, and we're seeing positive momentum in this channel.Our gross margin improved in fiscal '20 to 43.5% of sales, up from 41.6% last year. The margin for the fourth quarter also improved, rising from 43.3% -- rising to 43.3% from 39.2% in the prior year. Our gross margin continues to benefit from our increased focus on higher-margin products and our programs over the last few years to enhance efficiency and reduce cost. As we discussed in the past, our acquisition of 3 wineries in October of 2017, we recorded an increase of $10.4 million in inventory to represent the fair value of the goods acquired. This increase is being expensed to earnings as these goods are sold, thus reducing our gross margin.Through fiscal '20, we recorded a charge of $1.7 million to the cost of goods sold compared to $5.5 million in fiscal '19. Our sales and admin expenses were lower in fiscal '20 due primarily to a $3.2 million reduction from the change in accounting for lease obligations adopted in April of 2019. Partially offsetting this decrease were onetime costs for consulting and professional fees related to our implementation of a new Enterprise Resource Planning system and an increase in the allowance for doubtful accounts due to a potential impact from the COVID-19 pandemic on certain customers.Selling and administrative expenses as a percent of revenue in fiscal '20 improved to 27.4% from 27.8% in the prior year. With increased sales and stronger margins, our EBITA rose to $61.5 million for the year, up to $52.9 million in fiscal '19 . Adjusted EBITA, which includes the onetime acquisition-related charges, also increased to $63.2 million in fiscal '20, up from $58.3 million in the prior year.Interest and amortization expenses increased in fiscal '20 due primarily to the recently adopted accounting treatment for lease obligations in accordance with IFRS 16. Other expenses in fiscal '20 include a 1.7 -- include $1.7 million in restructuring costs.We posted a net unrealized noncash loss in fiscal '20, the result of mark-to-market adjustments in our interest rate swaps and foreign exchange contracts, mainly due to declining interest rates. Net earnings for fiscal '20 were $23.5 million or $0.55 per Class A share, up from $22 million or $0.51 per Class A share in fiscal '19.Now turning to the balance sheet. Overall debt increased to $165.2 million at March 31 from $154.8 million at the end of the prior year. The increase is due to lower cash from operations and our regular debt repayments. Cash from operating activities in fiscal '20 was $31.5 million compared to $49 million in the prior year. Shareholders' equity rose to $245 million from -- or $5.63 per common share, up from $5.31 per common share at March 31, '19.At the end -- at year-end, we had capacity on our operating credit facility of approximately $24 million, with another $112 million on our investment facility. We believe we have the management experience and the financial resources and flexibility to meet the liquidity needs presented by the pandemic. Having said that, we're carefully reviewing all capital allocations to ensure we remain financially stable and well-capitalized going forward.In summary, as John mentioned, we're very pleased with our results in fiscal '20, and we remain confident that our track record of solid performance will continue over the long term. Thanks very much for your time and attention, and I'll now turn things over to Randy.

[Randy A. Powell, President]

Super. Thanks, Steve, and good morning, everyone. As we've discussed over the last number of years, our goal at Andrew Peller Limited is to increase our shareholder value through a handful of key strategies. The first one, of course, is strengthening our product portfolio. John commented on it earlier. We -- you know that we rationalized in the last few years some underperforming brands, but then we brought in some -- and added some powerful new brands like the 3 acquisitions of Black Hills, Tinhorn Creek and Gray Monk. So a wonderful trade that really increased the profitability of each and every one of our sales.Another key strategy is investing in our consumer brand building, innovating at a much higher level than we had done in the past and, of course, entering into other beverage alcohol segments other than wine. We have seen over the year that consumers are buying across these categories, and we want to make sure that we participate in that. And of course, we modernized our systems and processes, the largest of note is the work that we've been doing in replacing our ERP system.At the same time that we've been driving new strategies, we've been very vigilant to make sure that we drive efficiencies throughout the organization and ensure that we capture sustainable cost reductions. We believe that, that not only contributes to our success here in 2020 but really puts us on a strong platform as we face the COVID-19 pandemic.So I thought I'd take a moment and talk about some of the key drivers in 2020 to give you a sense of what drove some of the strong performance elements of our business. From a brand perspective, the relaunch of the Peller Family Vineyards brand has continued to be very well driven by new product optimization, the differentiating marketing programs, innovative packaging, strong merchandising and I think a really strong presence in the digital campaigns that we've put in the market. So we've seen some strong growth there. Our partnership from day 1 continues to grow with Wayne Gretzky, and we've seen some real benefits associated with that of late. The sales of our brands and our spirits continue to grow. And then, of course, we're very proud of the introduction of Wayne Gretzky 99 Premium Lager last year. That was primarily focused in fiscal 2020 to Ontario. But we have 2 wonderful new products we'll be adding to that portfolio: 99 Session Ale and our 99 Pale Ale. We'll be building that national distribution of all 3 of those products across the country this fiscal year. It's a very exciting -- another dimension to that strong Wayne Gretzky beverage alcohol brand.Our entry into craft -- the craft cider business has been fabulous with No Boats on Sunday. Very, very strong and successful from the very beginning. Sales were up again significantly in 2020. And with a strong roster of new product innovation, we think it will grow at that same strong level, if not even stronger in fiscal '21. Dry Rose Cider in cans and most recently, even under the No Boats on Sunday, we've launched some ready-to-drink products or RTD seltzers as we call them.Our own retail stores, The Wine Shop, continues to do very well across all formats, including the colocated stores, which are in grocery stores. They're doing particularly well these days. It's also always been and continues to prove out to be a great place to test a new product. So as we're getting more and more innovation and driving new products out, what a gem to have our -- The Wine Shop, or TWS, we call them internally, available to us to get live feedback from consumers on a very instantaneous basis.Importantly, in this COVID-19 environment, we're seeing growth, as I think both John and Steve have mentioned, on our direct-to-consumer business. Our wineries have always been a very important brand builder and source of profitable volume in this direct-to-consumer business. But obviously, in this environment, we're implementing a number of new programs that allow consumers to buy their favorite brands across our full product offering: wine, beer, spirits, cider, RTDs, online delivered directly to your home.From a sales perspective, Patrick O'Brien, our EVP of Sales, joined us in September. We're -- he has settled in beautifully, and we're seeing a more hand-in-hand with our marketing team and our major customers in driving execution of our programs into the marketplace and, importantly, our innovation in store.We're also strengthening our customer solutions team and really leveraging that revenue management and category management effort with our customers. I can tell you that our customers are -- the trading customers are thrilled with the value that we not only bring with outstanding world-class products but also with the insights that we can bring to customer solutions. So a real strengthening there and a benefit to all.Finally, looking at our operations overall, we continue to drive cost savings -- strong cost savings and operational improvements across that entire platform. Steve had mentioned that our margins had gone up from 41.6% to 43.5% in 2020. Obviously, our ops team and the great work they're doing is one of the drivers behind that.I'd also like to just take a moment and note that we will be -- that we have actually consolidated our wine kit operation from Port Coquitlam. That has now been consolidated into 1 facility nationally, which is in St. Catharines, Ontario. That was -- got completed the last day of the fiscal year. So much of the work has been done, but the benefit will actually start to be that realized in fiscal '21, and we will see that the business continue to strengthen its financial margins as a result of that.So clearly, you can see 2020 was a busy year. We laid a lot of foundation that allowed us to get the strong results that we did in fiscal 2020 and certainly encouraged by the strengthening even more so in Q4 of 2020. But we also believe that this foundation puts us in very good stead. I think John said it well. I think it puts us in very good stead as we look at the pandemic. And although, yes, we are doing all we can to ensure we face that pandemic, we are very, very excited within fiscal '21 and beyond.We have a number of new products. We typically would average a dozen or so new products, that would be a fair amount to bring in the marketplace. Any one particular year this year, we're seeing kind of a fourfold increase in that with all the new products we're bringing to market. Part of that is the great innovation we're bringing to wine, and part of that is the new participation in some of these other bev alcohol segments where we hadn't participated before. But we really believe we're bringing a powerful bundle of innovation forward to our trade customers.We have seen a significant surge in our online business as my other key colleagues had mentioned. For those of you online, go check out thewineshops.com website. It is a -- it's a fabulous website that allows you to buy any of our products across our portfolio in the Toronto area, and this is meaningful in the Toronto area. It's a 1-day, same-day or 1-day delivery and kind of 2 days elsewhere. And I will tell you that delivery is free, so take advantage of that.The Wine Club is -- our wine clubs continue to also do very well in our consumer direct-to-home business. So we're seeing those, which have always been strong, see further growth in this current environment.Lastly, our production facilities are performing at record levels of efficiency. We're very proud of the work that these people have -- that our team has done, and we're confident they will continue to drive margin improvements as they have for the last number of years.So in closing, I just want to echo John's comments, which was to thank all of our people for their hard work and dedication and contribution during these really challenging times. We can see the power of our culture and our innovation and performance in times like this, and I'm very proud of the way that they've shown up every day and allowed us to perform at this high level. I do believe when this pandemic is all said and done, and it will be all said at some point, that we will emerge from this even stronger than we went in. We were pretty strong going in.So with that, I'd like to thank all of you for joining us this morning, and maybe I'll hand it back over to the operator to answer any of the questions that you might have for John, Steve or myself. Operator?

[Operator]

[Operator Instructions] And the first question is from Amr Ezzat from Echelon Partners.

[Amr Ezzat, Analyst]

Congrats on a strong quarter, guys. Randy, appreciate your comments in your prepared remarks on the trends that drove, I guess, sales for 2020. But if I'm thinking specifically for -- at fiscal Q4, you had a 3% jump year-on-year. After a few quarters of flattish year-on-year sales, and I know you guys commented the past few quarters you were sort of impacted with the low-priced imports that have been an issue, I'm just wondering what's changed for the March quarter to cause the healthy jump in sales. Is there anything specific there? Then if you could also comment on what's driving it in terms of volume, price increases or product mix, that would be helpful.

[Randy A. Powell, President]

Sure. I'd be happy to. I think there's -- John commented -- I will kind of let the COVID part of it out of the upfront [ handle ], but it's much more than that. As John commented, we saw some very healthy gains in parts of our business, the retail part of our business in particular, as -- the last couple of weeks as it resulted to COVID. But of course, we saw some down elevators that were fairly significant as well associated with our hospitality and our export business. So those 2 kind of -- there was a fair bit of canceling out of each one of those.I would say that we have seen some strengthening in Western Canada, in particular. We saw growth across the board. We want to be clear. I don't want to make it any 1 region. We saw growth across the board in the fourth quarter. But I'd say that the way that we're approaching Western Canada and our partnerships there as well as some of the new products that we have brought into the market, I think, were the 2 larger contributing factors to an increase in Q4. And I think really -- I would say slightly differently in that maybe a return to a growth rate that we're more used to.

[Amr Ezzat, Analyst]

Okay. That's fantastic. So that's mostly volume, I guess, that drove that?

[Randy A. Powell, President]

Yes. [indiscernible]

[Amr Ezzat, Analyst]

Okay. Okay. So if I'm looking ahead to the current quarter, the June quarter, and I understand the situation was still fluid, depending on the geography and the channel, but you guys like spoke to the retail channel, e-comm, liquor boards being up meaningfully, then obviously, export business is soft. Hospitality is obviously soft as well. I know John mentioned 5% to 10% impact for the year. So is that relative to fiscal '20? And then are you guys assuming the bulk of that impact will be in the June quarter?

[Randy A. Powell, President]

Yes. I would -- I'll comment on the quarter and maybe let John comment -- kind of back up some of the thoughts you would have behind -- your comment. But it's always -- I'll tell you, April versus May versus June all look wildly different right now. I think the best kind of direction I can give you is that the up elevators continue to go up. Those are the ones that John had mentioned, which are our retail, our own retail stores. Those tend to be our online business, our wine clubs. Those tend to continue to go up.But the question for us and that really makes it challenging is trying to figure out how big the down elevators are and how long they'll stay down. Will hospitality, which is a big part of our business -- and how long will that be suppressed. We saw some regions open up in Ontario. I think they open up this Friday, tomorrow. They're allowed to open up, just Niagara happens to not be one of them. However, we're seeing our Western -- in BC, we're seeing those open up. It isn't only them opening up, though. It's also consumers' interest and comfort in visiting in. So it's -- it is a bit of an unknown.What we do know is that where we're strong, we believe we'll remain strong. And not only because of the way the people, the channels that people are buying that alcohol through, but also the innovation that we bring to and strategies that we bring to that market. So we're quite confident there. What we don't know is the -- how low will the down elevators -- how low will they be and how long will they stay? So it's -- that's the challenging part of it. I can't give you any more direction. We just had a Board meeting yesterday. I couldn't give them any further direction when I was asked back questions to how I thought the first quarter would go. But the elements that John commented on are absolutely the right ones. It's just a matter of the quantity. So maybe I'll -- I will bounce it over to John, just if you have any further comments on the year.

[John E. Peller, Executive Chairman & CEO]

No. I think that's well said. I -- we did better in the first 2, 3 months than what we expected, but those were low contribution months from those other channels. And as we get into the summer/fall months with the other -- those trade channels like estates contribute significantly more and knowing that most of them won't be open and operating in full speed, it will be hard for us. We'll make up some of it in other areas, but not all of it. So I think it's -- we're thrilled that we're as little affected by the pandemic as we are. And we're doing well. It doesn't change the way we're going to operate or invest, but it's hard for me to foresee. Even though we did better in the first quarter, it's hard for us to foresee that we'll do escape the whole year without a small hit to our revenue as a result of those channels that are closed. But we'll update you in 6 months and tell you how -- in 3 months, we'll be at our AGM and we'll keep an honest and open perspective on how we're doing. And we just think it's better to be straightforward upfront.

[Amr Ezzat, Analyst]

Fantastic. Fantastic. Okay. So let's switch gears, I guess, to longer term and margins. Another fantastic performance there. When I'm thinking about your overall portfolio and look at it a few years ago, you are probably underdeveloped in premium and probably a bit overdeveloped in value. Can you give us a sense of where the portfolio makes stance now? And what can we sort of expect in the next, call it, 3 to 5 years?

[Randy A. Powell, President]

Right. Well, I can tell you, we are thrilled with our portfolio as it sits today. I think that this portfolio has been built over the last number of years, 20 years, where we can -- where we -- as you know, we participate in a -- in the largest wine kit business in -- on the planet. So we are the largest in the world, and all the way through to kind of the premium -- wonderful premium lines that we have in our portfolio.I think the way that John and the team has built it over the years really puts you in a good position because in good times, we have a much -- we have -- as you know, we felt that we needed to premiumize and add to that part of the portfolio and did so very successfully with Black Hills and Tinhorn and Gray Monk. So that really strengthened that part of the portfolio. But we are very proud and excited to have the full range. So when you get into, in this case, it's a pandemic that was -- that has led us into recession, but our portfolio will stand up in a recession, as we've seen in the past, very, very well because of that.So today, I would say we have the most balanced portfolio that we've had probably ever, not only because of the way that we built the portfolio, but feel very confident that we have a full portfolio. And we will fare well as a result of that as you look forward, not only through what could be a more challenging -- what we predicted to be a challenging and deep recession. We've got the portfolio for that. And as we -- on the other hand, we still have a wonderful premium offering for those who want it now and definitely as we come out of that more challenging economic downturn.

[Amr Ezzat, Analyst]

Great. Then going forward, like maybe like 3-, 5-year perspective, would we see like a larger premium mix? Or are you guys like happy with that current balance?

[Randy A. Powell, President]

Yes. I think that we have a -- I think we've got a strong premium portfolio today. I think that -- maybe I'll ask John to maybe comment because I just want him to -- I just want to make sure that we're looking at our whole portfolio. We've got wine, but remember, we have other segments that we're participating in now. So maybe I'll just ask John, if you'd like to make any comments on that.

[John E. Peller, Executive Chairman & CEO]

Well, I think you've covered it well, Randy. I mean we're -- the one reality of the beverage alcohol industry, everyone used to stay in their lane, and now everyone is trying to kick the crap out of everybody across the board. So that -- the spirit companies and the beer companies are coming out with seltzers and ciders, and spirit brands are in the refreshments and wine cocktails. So we thought it was critical that we developed brands that were strong in all categories across the board. And we're in the early phases of doing that, but we're doing them with great brands that can command premium pricing and solid margins.I think our premium estate wine business and VQA premium business has a great future. It's taken us 30 years to get where we are, and we're very confident about the positions that we have.I think in the value wine business, when I made my comments about the government's oversight of our industry, it certainly doesn't help us these days that the LCBO was selling Spanish wine for under its cost. And what I go to the government and said, "Hey, guys, give me a break here." Spain doesn't let anybody, anybody, not even France, Italy, anybody sell value wine into their country. And you're letting them discount and subsidize the wine and the LCBO. And actually, the product did well. And similarly, out West, the BC Liquor Board is now bringing in their own private labels and undercutting the market. And we're going to go to the government there, and it will not be a pleasant conversation. It's completely ridiculous that a local monopoly undercuts the local industry. So I think that, that's where some of the softness in our value products has come from.And I think the governments will smarten up. Those other countries don't allow that in their country for a valid purpose. They want that manufacturing and the contribution to their economy to stay with them. I don't know how well you follow the food industry, but there've been over 65 food companies in Ontario in the last 6 years, closed their facilities and now only ship their products up from the U.S. That was a mistake for us to let that happen. The Americans would never let that happen. And I think this change in view and valuing what these companies contribute to our economy requires some policy support in the same way they're being supported in other countries. We've been totally naive and taken advantage of.So I think that value business will strengthen going forward, and I don't think we either want to overly rely on it or underinvest in it. We need to have a balanced portfolio. And that's why we spread out our product offerings. We offer products in wine at value, wine kit and premium and ultra-premium. And now we're into the other categories as well. So I think balancing our portfolio the way we have will hold us in good stead going forward.

[Amr Ezzat, Analyst]

Okay. That's helpful. Maybe one last one for -- well, for all of you guys. Can you perhaps give us an update, I guess, on the M&A and the landscape, how it's evolving in light of COVID and what sort of opportunities you're seeing? Then maybe as well an update on the discussions you've been having with your corporate bankers. Just wondering how accommodating your balance sheet is to execute on acquisitions if you're going to see a period of -- even if it's temporary, of lighter sales and earnings.

[John E. Peller, Executive Chairman & CEO]

I'm happy to address that. I mean I think, first and foremost, our balance sheet is in great shape. And our debt is up slightly this year more because we've built some inventory more than anything to support our ERP transition and the closing of our kit business. But our debt, I'd call it, 100 -- it was $150 million. It's up to $165 million. It normalizes at $150 million. That's kind of not even inventory value. And on top of that, we're holding properties for sale to the market right now, 2 properties in Western Canada that are just surplus real estate, and they have considerable value. So that unlike 2008, 2009 where we had a fairly -- a much more significant level of leverage, we've gone into this in a very good -- in very good shape, and we know we have credit available to us.I think from the opportunity side, I've explained in the past that the beverage alcohol segment has been on an incredible run for the last 10 years. There was a considerable amount of M&A activity, and especially from larger players, large brewers, large distilleries and constellation in the U.S. And they set precedents for unbelievable EBITDA multiples. And it's why, for the last 4, 5 years, it's been very difficult to buy at reasonable values.So I think to a large extent, from my perspective, the craft brewery boom, the roses off the bloom of it -- and I'm sure you've heard the story that the craft brewery that Constellation bought, Ballast Point, they gave $1 billion for. The company had $80 million in revenue and $20 million in earnings. They bid $1 billion for it 5, 6 years ago. They sold it 3 months ago for $32 million. And yet, I'm sure every craft brewer thinks they're worth what Ballast Point was paid. And it's not dissimilar with a lot of the small wineries. There are lots of small wineries for sale. And we're very picky about brand quality and how their wineries fit within our portfolio. And the overall competitiveness of not just the wine space, but the spirit business, it makes -- it's imperative that if you do buy, you buy at good pricing. You can pay fair prices, which are still healthy multiples, but the expectations people had were unreal. And I suspect they'll moderate going forward, and we'll see how it goes. If we feel we're in a good position and if there are good opportunities for us there, we're prepared to invest. And it's always been part of our strategy, and it will be part of our strategy going forward. So we'll see how people fare through the next year. And I'm sure there'll be opportunities. And if they're a decent value, we will be interested.

[Operator]

Next question is from Nick Corcoran from Acumen Capital.

[Nick Corcoran, Equity Research Analyst]

Congrats on a strong quarter. Just a couple of questions from me. The first is in your press release, you indicated that alcohol consumption has been relatively stable. I'm just wondering if that's in terms of dollars or volume.

[John E. Peller, Executive Chairman & CEO]

Yes. [ I don't mind ] just given my perspective is the news channels kind of exaggerated the sale of beverage alcohol because they were just quoting that grocery was up 20%, 30%. So naturally, when all the restaurant channels were closed, you'd expect that volume to migrate to those other trade channels. And I think having read many sources, not just in Canada, but in the U.S., the general feeling is that overall beverage alcohol trends are up slightly and consistent with their past trends and maybe a little bit more. In other words, there is a sense that in-home consumption, people are entertaining their families and themselves more at home, that they think it may have been a small pickup. But I think if you're referring to the fact that they were reporting these huge increases in alcohol consumption, that's not true. They're at least equal to what they were, maybe up slightly from the previous year.

[Nick Corcoran, Equity Research Analyst]

And that sounds like it's in terms of volume. In terms of dollar amount, have you seen any indication, whether it's being flat or slightly up?

[John E. Peller, Executive Chairman & CEO]

No. That's a fair question because I think that's driven by volume. If anything, pricing is -- consumers are migrating to more value pricing. And I think that's just a reaction to recession. And so that total dollars, now that you mentioned it, are likely to be closer to flat. But I haven't seen anything reliable. Randy, I don't know if you've seen anything more current.

[Randy A. Powell, President]

No. What we see right now is exactly what John is saying. I'd say the dollars are up slightly. Volume is up more. So you're leaning a bit more towards the value proposition. Total dollars are up, but just -- but slightly where volume is up at a more regular run rate.

[Nick Corcoran, Equity Research Analyst]

Okay. That's great. And then maybe just shifting to your portfolio. What have you seen early on in the crisis compared to maybe going through Q1 in terms of consumer preference? Like, it sounds like early on in the crisis, they have migrated towards more value based. Have they moved back towards more premium? Or is it being fairly constant?

[Randy A. Powell, President]

No. I think that what you'll see in the portfolio -- we'll see across everyone's portfolio, and John had mentioned it earlier, is there's COVID, but let's remember that it's also leading us -- that we're now into a recession. So I think we're seeing a -- consistently from when it started, a more gleaning towards the value part of the portfolio. I don't want to, in any way, say that premium is empty, but you're definitely seeing it on the value part of the portfolio. And I don't think this is a secret that you're seeing it definitely in the, say, the bag and box side of the portfolio. So you're seeing some really strong -- that's great value line in bag and box. We've always been very proud of the quality that we put out there. And so you're seeing across all bag and box a significant lift in volume in particular. That one has taken -- that one takes the lead. But I would say that, that's been true from the beginning. With that jump with both COVID going into the recession, I suspect that you will -- I know that you will see that as we work our way through the recession.

[Nick Corcoran, Equity Research Analyst]

And then how should we think about that in terms of the impact that could have on overall margins going forward?

[Randy A. Powell, President]

The wonderful thing about our portfolio is, as we said earlier, is it's a balanced portfolio. So you will -- we have worked hard. The efficiencies that we've driven through operations will allow us to have a strong performance on margin. Without misleading you, though, we all know that the premium associated with the smaller volume but higher premium, the margins are higher. However, from a dollar perspective, bag and box has got a much stronger dollar ring.

[Nick Corcoran, Equity Research Analyst]

Okay. Great. And then I'm just wondering what conversation you maybe had with the provincial government. I know they've been talking about opening up access to alcohol across the province. Do you think online could potentially fill the gap that they've been trying to get from increased access points through convenience stores?

[John E. Peller, Executive Chairman & CEO]

I mean that is a $64 question still. And I'm trying to figure a way to answer it, honestly. I don't really think the government understands the complexity and the challenge of making significant changes to their current beverage alcohol system. I mean the whole thing started with this notion of $1 a beer and somehow migrated to [indiscernible] met with Korean convenience store owners and made this commitment. And then on top of that, there's the reality of beer agreement that the liberal government made with the large brewers that the government struggles with. But I think the best thing that's happened is Rod Phillips coming into the Ministry of Finance role. He's very thoughtful. And all of a sudden, they're listening and they're realizing that they have quite a few interest to balance, the most important one being their own revenue base. Because one of the greatest ironies in all of this is this originally started 8 years ago with their efforts to privatize the LCBO. Now they decided they're not going to do that, and they're going to make big changes everywhere else. So I think the priority of this has fallen considerably. I don't think there's any agreement inside of the government on what the best way for them to go forward. And I think that they have way bigger fish to fry right now, and their policies are naturally focused on the pandemic and the economic fallout from it. So that I think temporarily, it's been pushed aside.It will come back. And we are there working as hard as we can on this file, and I expect our position in the process to improve going forward. So it's not clear to me at what point they're going to want to start making changes. But I think to the extent that they do make changes going forward, they'll be far more sensitive to the impact on local industry than they were going to be a year or 2 ago.

[Nick Corcoran, Equity Research Analyst]

Great. And maybe I'll just ask that a different way. Are there any regulations that might be impacting the growth of your online business right now? Or do you think that the government policies in place are -- allow for growth of that business?

[John E. Peller, Executive Chairman & CEO]

I think they're okay with that. There aren't a lot of restrictions. There are interprovincial trade restrictions now that are completely absurd. But I think fair to say that most people in the industry don't even pay attention. They ship anyway. So that even though there's a lot of banter about them opening up the markets, I think most people are just getting on with business and -- as they should, right? They should be able to sell their products really in their own country. And I think anybody who steps in front of that will get shamed. So I think the biggest interesting one is that the government has allowed restaurants now to sell beverage alcohol with their takeout orders to help them, and I think restaurants are going to want to maintain that type of a privilege. They -- in U.S. markets, there are some jurisdictions that support that. And I'm sure there'll be a push around that, but I think it'll have to get dealt with in the context of all the other changes in terms of where they're headed. And I think that's going to take a lot more time and thoughtful effort on government so that they're careful about what they do. And I was terrified a year or 2 ago because they were talking about making decisions when they didn't even -- they weren't even mildly informed. Now they're quite a bit more informed, and I think they'll be more thoughtful going forward.

[Operator]

[Operator Instructions] Next question is from shareholder, [ Barry Roderick ]

[Unknown Shareholder]

I've watched with interest the developments that was going on in the last 2 or 3 months. And I think wine tourism, which sort of spells out one of our interests -- we'd like to go to the Niagara on the lake and -- do you see the wine tourism getting back in the near future?

[John E. Peller, Executive Chairman & CEO]

I know that it seems logical that if people can't leave the country that they're going to want to support local efforts more. And so I think that will be a positive factor for us. And having said that, the protocols they're putting in place for the next 6 months about -- when people come on the property, how many people can be together in the same room and how we manage all that, I mean, we're not going to have any of the large events like we've had in the past years, which were significant impacts on our business. So I do believe -- I'm a big believer in the value of that business for the long term full stop. And that -- I believe that millennials and younger consumers appreciate the value proposition of spending a great day and weekend down in the Niagara region more than ever and in the Okanagan. And I think we'll get some pickup from people's interest in the short term, but it'll be offset by those restrictions. I mean until we get a vaccine, those businesses will -- like sporting events and theaters and the like, they'll be open, but there'll be some restrictions on -- that'll hold them back a bit.

[Unknown Shareholder]

Out of all the acquisition for me here for -- or across the country and maybe opportunistic for you would be that Canadians as a whole would be members of your wine club.

[John E. Peller, Executive Chairman & CEO]

Well, in fact, that's happening. So where we -- we feel very encouraged with the support that we've had in our e-commerce and wine club business, Barry. It's been very positive.

[Unknown Shareholder]

Well, thank you, and I continue to be a -- you have a wonderful story from the time of your, I guess, your grandfather coming over. And I think that you're a great example for what can happen in Canada.

[John E. Peller, Executive Chairman & CEO]

Thanks so much for that. We've got 2 next-generation family members in the business, my son, [ Jordi ] and my brother, [ Augustus ] and [ Joey ] And I definitely tell our people we got where we are because we plan for next generation, and we're making investments to strengthen our business going forward to the next generation. And hopefully, we'll have the same good fortune.

[Operator]

Next question is from Amr Ezzat from Echelon Partners.

[Amr Ezzat, Analyst]

Just a quick follow-up. John, you mentioned a couple of properties for sale [indiscernible]. Do you have another property outside of Port Moody you guys are selling? Is it Port Coquitlam or is it something else?

[John E. Peller, Executive Chairman & CEO]

Yes. That's the location of where our wine kit facility was. So it's actually very close to our Port Moody facility. And it's a -- I think it's a couple of acres in an industrial park. It's a very attractive property, and there's a strong market for industrial property in the GVA, the Greater Vancouver Area. And it -- it's definitely surplus property that'll sell in due course.

[Operator]

[Operator Instructions] There are no further questions at this time. I would like to turn the meeting back to Mr. Peller.

[John E. Peller, Executive Chairman & CEO]

Yes. Okay. All right. Thank you again, everybody, for joining us this morning. Always great to be able to talk to you about the business where -- what we've done and where we're going. If you have any further questions, as always, please don't hesitate to call us at any time. Thanks again, and have a wonderful day. Goodbye.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.