Diageo Reaffirms Commitment to Beer

Any rumors of Diageo selling its beer unit were laid to rest today after the company announced plans to invest £520 million ($1 billion) in a new brewery near Dublin. Once it is completed in 2013, the new brewery will be the largest in the country, says Diageo.

The company also plans to renovate its famed Dublin brewery at St. James’s Gate (which produces Guinness for the Irish and British markets) and close two smaller breweries, Kilkenny and Dundalk, by 2013. When the program is completed St. James’s Gate will be the second largest brewery in the country.

The new brewery near Dublin will produce Guinness for export markets (such as Asia and Africa) and make ales and lagers for the Irish market.

“This will be the single biggest capital investment made by Diageo in its supply infrastructure since the company’s creation 10 years ago and will enhance the cost competitiveness of our global beer operations. It represents a major vote of confidence in our beer business and in Ireland as a global brewing centre of excellence for our company,” said ceo Paul Walsh

“It will marry 21st century solutions to our 300 years of brewing tradition, craft and heritage in what I believe will be a winning combination.”

Walsh said the new brewery site has yet to be determined and the group is looking at a number of options. The move will raise its Irish annual brewery capacity by 20% to 9 million hectoliters, with 6 million from the new brewery.

Surplus land on parts of the St. James’s Gate site as well as in Dundalk and Kilkenny will be available for redevelopment. It is estimated to have a current value of approximately €500 million (£400 million).

Upon closing Kilkenny and Dundalk, Diageo says its Irish brewing workforce will be cut from 450 to 250 by 2013.

“Both of these breweries have played a critical role in the historic success of Diageo’s beer brands in Ireland but currently do not have the scale necessary for sustained success in increasingly competitive market conditions,” said Diageo in a statement.

WILLIAM GRANT APPOINTS NEW CHAIRMAN

Peter Gordon, the great, great grandson of company founder William Grant, has been appointed non-executive chairman of William Grant & Sons. Gordon became a member of its board in 2003. He replaces another family member, Charles Gordon, who will transfer to the newly created position of Life President.

CHAMPAGNE ROEDERER BUYS CALIFORNIA VINES

Champagne house Louis Roederer has acquired 27 acres of vineyards in Anderson valley (near Sonoma) in northern California to expand its operations. Pinot Noir is reportedly produced on 17.5 of those acres. In total, the French company now owns 486 acres of vineyards in the valley. Transaction details were not disclosed.

WSD BRIEFS:

COCKTAIL MIXER STIRRINGS HAS APPOINTED Robert Swartz, former VP of sales at Terlato Wines International, as ceo.

THE CALIFORNIA ASSEMBLY has unanimously approved legislation to help nonprofit organizations hold fundraising events involving donated California wine.
Assembly Bill 1964 now moves to the state Senate for further review.


Until Monday, Megan

“Well-timed silence hath more eloquence than speech.”
Martin Fraquhar Tupper

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WINE & SPIRITS DAILY
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Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

U.S. Getting Tougher for Imports

Which imports are suffering due to economic weakness? Which varietals are posting growth and which ones are dropping off?

IMPORTS SCALE BACK. After years of speedy growth, imports showed signs of slowing in the four weeks to April 5 2008, according to Nielsen scan data. Dollar sales of domestic wine grew 5.5% in April 2008, while imports were up only 2.8%, which is considerably lower than its year performance. For the 52 weeks to April 2008, growth of domestics (+5.4%) and imports (+5.2%) were only a hair apart.

In terms of volume, domestics grew 2.2% in the four weeks to April 2008 and imports declined -0.6%. In the 52 week period, domestics rose 2.2% and imports grew 2.3% (another big disparity).

As we reported earlier this week, the period to April 7, 2007 was a different story. In the four weeks to April 2007, imported wines were starting to creep up on domestics and post slightly higher growth. Domestic growth trailed imports with dollar sales growing 10.7% for domestics and 11.9% for imports. In the 52 weeks to April 2007, however, domestics grew 7.2% and imports were up 6.1%.

In terms of volume, domestics grew 6.2% in the four weeks to April 2007 and imports jumped 9.4%. In the 52 week period, domestics rose 2.5% and imports grew 4.3%.

It looks as though the weak U.S. dollar and global supply problems have made conditions in the U.S. harder for imports. After swallowing price increases for several months, importers and retailers have starting passing it on to consumers, which may drive cost-conscious buyers to lower categories or cheaper, domestic brands.

SOFTNESS IN THE BIG THREE. The big three importers, Australia (which was once thought invincible), France and Italy, are all seeing smaller growth in 2008. In the four weeks to April 2008, dollar sales of Australian imports rose only 0.6%, while volume increased 1.2%. Quite differently, Australian dollar sales in the four weeks to April 2007 grew 4.9%, while volume rose 6.1%.

Value of French wine was flat in the month of April 2008, while volume was down -3.3%. In 2007, meanwhile, dollar sales of French imports showed promise, up 5.9%, while volume grew 2%.

Lastly, Italian wine sales delivered the most growth out of the big three, rising 1.2%, in April 2008. Volume, on the other hand, was down -3.8%. In the four weeks to April 2007, Italian dollar sales grew a whopping 15.7% and volume increased 12.6%. Clearly, pricing is up for French and Italian imports, most likely stemming from the weak USD and strong euro.

Imports that showed the most dollar sales growth in the four weeks to April 2008 hail from countries such as Argentina, Germany, New Zealand, Portugal and Spain. In the same period last year, the countries posting the most dollar sales growth were South Africa, New Zealand, Spain, Portugal, Italy, Germany and Argentina.

RED & WHITES, NECK AND NECK. Another noticeable trend in April 2008 was the difference in growth between red and white wine (not to mention the pace of growth). In 2007, red wine was growing at a faster pace then white wine. Today, red and white are practically neck and neck.

Dollar sales of red wine grew 5.1% in the four weeks to April 2008, while white wine grew 4.9%. However, in the four weeks to April 2007, red wine dollar sales increased 12.4% and white wine sales jumped 11.3%. Red and white wine growth in April 2007 more than doubled growth in April 2008.

Red and white wine both posted volume growth of 2.3% in the four weeks to April 2008. In April 2007, however, red wine volume grew 9.2% and white wine rose 7%. The rate of growth for red wine is four times less in 2008 than it was in 2007. Similarly, white wine grew three times faster in April 2007 than in April 2008.

SIDEWAYS AFFECT ALL OVER AGAIN. In April 2008, Pinot Noir and Riesling are still the two fastest growing varietals. In dollar sales, Pinot Noir grew 18% in 2008 and Riesling grew 18.4%. By volume, Pinot Noir increased 21.2% and Riesling rose 16%. The only difference between 2007 and 2008 is the rate of growth.

As far as the big varietals are concerned, only Merlot showed a slight decline in growth in the four weeks to April 2008. Dollar sales of Merlot declined -0.7% and volume declined -0.8%. Dollar sales of Chardonnay grew 3% and volume rose 2.5%, while Cabernet Sauvignon rose 7.1% and 6.4%, respectively.

In April 2007, Merlot posted solid dollar sales growth (6.6%) and volume growth (7.9%). Chardonnay and Cabernet also posted solid growth, just at a faster pace.

Dollar sales of Pinot Gris/Grigio (8.5%), Fume/Sauvignon Blanc (8.1%) and Zinfandel (5.4%) all posted growth. In terms of volume, Pinot Gris/Grigio rose 6.5%, Fume/Sauvignon Blanc grew 5% and Zinfandel increased 4.4%.

DIAGEO’S ORGANIC NET SALES RISE 7%

Diageo’s statement for the nine months ended March 31, 2008 was rather brief. Organic net sales grew 7% and were “in line with the performance seen in the first half of the year ending June 30, 2008.”

Said Paul Walsh, Diageo ceo:

“Trading in the third quarter continued in line with the first half and we are therefore maintaining our guidance for 9% organic operating profit growth for the current fiscal year.

We continue to believe that the diversity and strength of our brands, the success of our marketing campaigns, our superior routes to market and our global reach will be key in delivering our performance.”

No acknowledgement of the economic slowdown here boys and girls. CFO Nick Rose has said in the past that Diageo is “very optimistic” about sales in the U.S. Paul Walsh has also stated that consumers view spirits as an “affordable luxury” and that premiumization will continue in the U.S. amidst a slowdown.

“Everyone is focused on subprime, monoline, $400bn write-offs ... to a lot of people it's a total irrelevance. They don't understand it, and they don't want to understand it," said Paul Walsh during Diageo’s first half earnings report in February.

WSD BRIEFS:

LITTLE BLACK DRESS WINES, owned by Brown-Forman, is adding a 2006 Pinot Noir sourced from France, and will introduce Chardonnay in a traditional Burgundy package with the 2007 vintage release. LBD also plans to test an Italian-sourced Pinot Grigio version, one of the most popular varietals in the line. With the addition of Pinot Noir, Little Black Dress Wines current varietals will now include Chardonnay, Pinot Grigio, Syrah Rose, and Merlot. The wines are line priced nationally at $9.99 suggested retail, with Syrah Rose available in limited markets.

ILLINOIS OPENS DIRECT SHIPPING. Beginning June 1, wineries holding an Illinois Winery Shipper's License may ship up to 12 cases of wine annually to adult residents. The act, signed this week by Governor Rod Blagojevich, permits wineries producing under 25,000 gallons per year to self-distribute up to 5,000 gallons annually directly to Illinois retailers. This includes both in-state and out-of-state wineries that have a Wine Shipper's License, according to Wines & Vines.


Until tomorrow, Megan

“I believe in looking reality straight in the eye and denying it.”
Garrison Keillor

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WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

SVB Remains Optimistic in ‘08

So far, 2008 is looking like an unpredictable year. Some people in the industry think the recession will have little impact on wine, while others contend it will leave a huge stamp on the U.S. wine biz. What about fine wines versus high-volume wines? Will imports manage to power through the recession? And how will the industry bounce back?

Silicon Valley Bank’s (SVB) annual State of the Wine Industry Report addresses all these questions. Researchers use data, experience, knowledge of the wine industry and an extensive survey to help give insight on current conditions and trends as well as a forecast for the coming year.

In the beginning, the report notes that the wine industry is “experiencing both short term cyclical and economic shocks.” Not only are we headed into a recession, but the wine biz has morphed from a small, part-time industry into a $30 billion business with loads of M&A activity. So what does that mean for the future of the industry?

Some of the key takeaways:

1. SVB feels the next 12 months will be generally positive for the wine industry despite downward economic trends.

“Financial performance of the fine wine segment will be marked with moderate growth rates falling from last year’s cyclical highs.”

“Outside of recession fears, the industry is optimistic. While we generally support their optimistic view, we suggest many may be overly optimistic and we offer a note of caution. A recession is upon us and sales growth rates will likely moderate.”

“Yet overall, wine is still an affordable luxury even in a bad economy. So while wine is not recession-proof — like electricity and visits to the doctor — people still continue to consume wine even during difficult times, and our experience is that wine continues to demonstrate volume growth.”

2. Nonetheless, SVB expects to see a small deterioration in the fine wine segments as supply runs low and consumers become more cost conscious.

“For fine wine, we expect 2008 growth rates in the low-teens and slightly lower profits.”

“Concerns in this segment include everything from high costs of sought after vineyard properties, foreign competition, brand proliferation, a weak USD, grape shortages, distribution over-consolidation, regulatory processes impacting free trade, and evolving — yet still inefficient — Internet and consumer sales models. However, in the long term, we expect sales growth to be in the 4-6 percent range for the wine industry as a whole.”

3. High volume wine producers will experience improving trends as the weakening economy forces value-conscious buyers into lower-priced and moderately-positioned price segments. However, low-end producers will likely have a harder time selling their wines in the long term.

“Improved conditions for growers selling into the higher volume segments are expected this year. This is due to a weaker U.S. dollar (USD) slowing bulk imports, lower volumes in the tank from prior harvests, and a strong demand for wines in the $9 - $14 range. However, growers producing grapes destined for wines with price points under $8 will likely find business conditions more difficult in the long term.”

4. Overall consumption of both foreign and domestic wines in the U.S. has reached $30 billion. This is a result of consumer acceptance of imported wines, an increasing number of millennials drinking wine and trading up.

5. As restaurant sales take a hit during the economic downturn, wines will not perform as well on-premise. The NPD Group, a consumer marketing research firm, found that less than 40% of meals purchased in restaurants are currently eaten on-premise. SVB predicts that if this trend continues, the on-premise sales of wine will shift more into direct or off-premise purchases for home consumption.

“Analysts support specific regional weakness in Nevada, Florida, Michigan and California — all four were also among the highest mortgage default rates per household in the country.”

6. The U.S. wine industry has seen an onslaught of imports in recent years. However, domestic producers might get a (albeit short) break as the weakening USD is becoming increasingly troublesome for importers, especially given more cost-cautious buyers.

“Over the long term, if the USD remains weak and nominal pricing of foreign wine continues to climb, the increased cost of shipping may become so great that it will begin to deter imports. That may slow the onslaught of imports temporarily; however, foreign producers continue to make progress in this market at a time when all the signs indicate they should not...It is an opportunity that should not be taken lightly.”

7. Distributor consolidation continues to pose problems for small wineries. SVB found that many wineries producing fewer than 10,000 cases annually are entirely shut out of distributor markets and are going the direct to consumer route as a result.

“Unfortunately, fine wine producers are faced with a mountain of compliance issues to ship direct, and a cold shoulder from the national distribution system.”

To end things on a good note, we leave you with this positive message from the report: wine prices are expected to hold stronger than in past recessions.

“As we review the impact of the changing economy, there is one major difference between the last two recessions and the current one. Supply is currently in balance or short in most major varietals. As a consequence, while we do expect the normal disruption as the venues of wine sales shift, we expect prices to hold better than during the past recessions, and imports will have a more difficult time filling demand gaps because of the weak USD.”

ROBERT PARKER ANGERS BORDEAUX WITH LOW SCORES

U.S. wine critic Robert Parker has angered many Bordeaux producers with B+ or lower ratings of the 2007 vintage.

"There is unquestionably little need to buy these wines as futures, unless dramatic price reductions occur. I don't expect that to happen," said Parker in his annual vintage review, titled "2007 Bordeaux: Who Will Buy Them and at What Price?"

Winemakers in the area claim it’s very hard to sell wine scored below a 90. One Bordeaux wine broker told the AFP that Parker “has assassinated some of the wines."

In total Parker only gave three wines (Chateau Pape Clement white, Haut-Brion and Chateau Climens) 100 point scores, and all three were for whites, in a town best known for its reds. Bordeaux's top five, first growth wines, received the following ratings: Chateau Margaux earning a 92-94, Chateau Haut-Brion a 91-94, and Mouton-Rothschild a 90-94. Chateau Lafite and Chateau Latour both got a 90-93.

ROSEMOUNT DROPS DOUBLE-DIGITS IN U.S.

Foster's Group Ltd.'s wine sales in the U.S. dropped in the four weeks through April 19, signaling that a recovery for the company's American wine division is still some way off, Bloomberg reports, based on the Australian Financial Review.

Wine sales at supermarkets and retailers, which make up about 27% of U.S. sales, dropped -4%, the Review said, citing figures from Nielsen. The Rosemount brand suffered the biggest slide in sales, falling -20.7%.

WSD BRIEFS:

FUTURE BRANDS announced the appointment of Tony Truzzolino to vice president, sales – east region. Truzzolino, a 25-year veteran of the beverage alcohol industry, joins Future Brands from Beam Global Spirits & Wine, where he was vice president, commercial development.

GEMINI SPIRITS & WINE announced that effective May 1st, 2008 it will be handling the U.S. brand building activities for Tortuga rums from the Cayman Islands.

NEWTON VINEYARDS appointed Chris Millard as winemaker yesterday. Newton’s wines include Unfiltered Chardonnay and Bordeaux-style red wines from the estate on Spring Mountain in St. Helena. Millard joins Newton Vineyard from Sterling Vineyards, where he was senior winemaker.

WASHINGTON D.C. COUNCIL IS CONSIDERING A BILL that would let restaurant-goers in the District put a cork in a bottle of wine and take it home. Forty-eight states including Maryland and Virginia already have such laws in place.

TO READ A NOSTALGIC PIECE ON ROBERT MONDAVI by Alan Goldfarb, the last man to interview him, click here.


Until tomorrow, Megan

“Punctuality is the virtue of the bored.”
Evelyn Waugh

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Sell days this month: 22
Sell days this month last year: 23
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This month last year ended on a: Thurs.
YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Wine Growth Slowing

How is wine performing during the weak economic climate? Are consumers still trading up? According to Nielsen’s food, drug and liquor scan data, wine and even high-end wine is still growing but at a much slower rate. To get an idea of the difference, we took a look at Nielsen data in the period to April 5, 2008 and April 7, 2007.

OVERALL TABLE WINE. Table wine continued to post growth in the four weeks to April 5 but at a slower rate than the 52 week period to April 5. Table wine dollar sales grew 4.7% in the four weeks, but were up 5.4% for the year.

In terms of volume, the four week period saw growth of 1.5% while volume jumped 2.2% in the 52 weeks. It takes longer for trends to show up in 52-week data, while four-week numbers tend to reflect current trends. Case in point? Growth of wine in the U.S. is stalling and isn’t showing signs of turning around (yet).

Let’s take a look at the same period last year. In the four weeks to April 7, 2007, dollar sales jumped 11.1%. In the 52 weeks to April 7, 2007, dollar sales grew 6.9%. Volume increased a whopping 7% for the month and 2.9% for the year to April 2007. Volume growth of table wine in 2007 was almost five times more than in 2008.

TRADING UP. High-end wines reached a new record of growth in 2007. Since then, the rate of growth has slowed. It turns out that consumers are still trading up, just not as much as they were last year.

Higher-priced wines continued to post growth in April 2008, but at a much slower rate than in April 2007. In the four weeks to April 2008, dollar sales and volume of wines priced $15 and above rose 8.1%. Wines priced $12-14.99 saw sales climb 7.8% and volume rise 5.5%. Meanwhile, wines in the $9-11.99 range increased 7.5% in dollar sales and 5.3% in volume.

Dollar sales of wines prices $6-8.99 grew 1.9%, followed by $3-5.99 (3.7%) and $0-2.99 (1.2%). Volume of wines prices $6-8.99 grew 0.6%, followed by $3-5.99 (1.5%) and $0-2.99 (-0.6%).

The difference between 2008 and 2007 is vast. In the four weeks to April 2007, the $15 and up category grew 26.9% in value and 26.3% in volume. Dollar sales of wines prices $12-14.99 grew 20.3%, while volume jumped 20.1%. Wines in the $9-11.99 range rose 15.1% in value and 14.4% in volume.

All of the lower priced wines grew faster in 2007 as well, aside from the $0-2.99 price segment. Dollar sales of the $6-8.99 category rose 8%, followed by $3-5.99 (7.8%) and $0-2.99 (0.3%). Volume of wines priced $6-8.99 grew 9.2%, followed by $3-5.99 (7.3%) and $0-2.99 (0.2%).

Stay tuned for more Nielsen wine data tomorrow...

ARIZONA CHANGES DIRECT SHIPPING LAW

Arizona made a small change to its direct-to-consumer wine shipping regulation, effective immediately, according to ShipCompliant. Under the original law, Arizona residents could not receive direct-to-consumer wine shipments unless they purchased the wine on-site, and shipments did not exceed 2 cases per consumer per year.

The new law allows wineries to ship to Arizona consumers, as long as the consumer has physically visited the winery at anytime during the calendar year prior to placing the order. Arizona consumers who have visited the winery may place off-site orders and have shipments sent to them as long as they do not exceed the 2 case limit. If Arizona consumers wish to have additional wine shipped to themselves in subsequent years, they will need to physically visit the winery each year.

CALIFORNIA GRAPE GROWERS EXPECT LOWER HARVEST

April was a tough month for California winemakers, who were faced with a series of unusually late frosts. The damage is still being assessed but most growers expect a smaller-than-average harvest this year. It could be June before growers know the full extent.

SACRAMENTO VALLEY FARM CREDIT has merged with Farm Credit West, an agricultural lending cooperative almost five times its size, creating a company that spans 15 California counties and has assets of more than $4.6 billion. The new operation carries Farm Credit West's name and plans to move its headquarters to Roseville.


Until tomorrow, Megan

“Punctuality is the virtue of the bored.”
Evelyn Waugh

--------- Sell Day Calendar ----------
Today's Sell Day: 4
Sell days this month: 22
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This month ends on a: Fri.
This month last year ended on a: Thurs.
YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

French Millennials Stray from Wine

As U.S. wine consumption continues to grow, France – typically thought of as a country synonymous with wine – is drinking less wine then ever before as young adults turn to beer and spirits. Unlike in the U.S., French millennials (young adults aged 21 to 31) aren’t so hot on wine. Since 1980 French wine consumption has decreased by more than 50% from 120 liters per capita to today's rate of 55 liters per capita, according to Winebusiness.com’s Daily News Links. As a result, French wine producers are having a harder time finding a market in their own country.

A qualitative research project was jointly organized by Sonoma State University and Montpellier in an attempt to find out why French millennials aren’t drinking wine. Here are the top reasons why young French adults are choosing not to drink wine.

1) Many French millennials consider wine to be a drink for older people. As a result, they prefer to drink other beverages (beer or spirits) but will still have a glass of wine with their family several times per month.

2) According to winebusiness.com, several interviewees referenced the strong anti-alcohol movement that has been in effect in France since 1991. The impact on wine consumption has been particularly strong and led some young consumers to steer clear of wine altogether.

3) Some French millennials simply do not like the taste of wine. In fact, when they did drink it, most said they preferred sweet white wines such as muscat, moelleux, or Sauternes.

4) Also, good wine tends to be too expensive while beer is cheaper.

5) Surprisingly many of the young French adults said wine is confusing.

On the positive side, most respondents said they never drink wine without food. They also described wine as a drink for relaxation with friends and family.

A few recommendations to help boost France’s domestic wine industry included: starting a Buy Local Wine Campaign; launching a national French wine brand at a premium price point; enhancing wine education and culture in schools and universities; offering smaller bottles on-premise; and making labels more colorful.

GEORGIA SHIPPING BILL AWAITS GOV. SIGNATURE

A Georgia bill that would allow direct to consumer wine shipments has passed the legislature and awaits a signature from Gov. Sonny Perdue. If passed, Georgians could order as many as 12 cases of wine a year directly from wineries over the internet or telephone. Gov. Perdue is notoriously conservative but has not stated an opinion on the wine bill. The Christian Coalition did not oppose the internet bill and will reportedly not ask Perdue to veto it (unlike the Sunday sales bill).

Under current law, Georgia residents are required to make face to face purchases at wineries in order to have wine shipped home. Georgians who visit a winery can ship as much as five cases of wine home. Similarly, Georgia wineries can't ship wine to customers unless they show up at the winery to buy it.

The Senate also gave final approval Monday to legislation allowing wineries with tasting rooms to serve beer and liquor.

SPIRITS STILL TAKING SHARE FROM BEER AND WINE, BUT AT A PRICE

Even with this lousy economy, spirits is taking share from beer and wine. If you look at YTD IRI scans of spirits, wine, and beer in supermarkets, spirits has 3.6% growth as compared to 0.8% for both wine and beer and a 1.2% growth for total alcohol, says Morgan Stanley's Bill Pecoriello. In the latest 8 weeks, spirits drove 40bps of volume share while wine share declined 10bps and beer share declined 20bps. Ah, but at what price? It ain't easy being cheap. The average price per volume increased a paltry 1.5% for spirits, 2.5% for beer, 4.4% for wine and 3% for total alcohol.

HISPANIC POPULATION GROWING ORGANICALLY

Hispanics now account for more than 15% of the U.S. population, and the increase is largely the result of births from Hispanics already in the country, according to new Census Bureau data.

In an annual report, the Census said there are 45.5 million Hispanics in the U.S., up from 35.7 million in 2000, when they made up 12.6% of the population. It said growth among Hispanics was responsible for half of the U.S. population gains between 2000 and 2007.

BOTTLED WINES FROM AUSTRLIA SLOW

The Australian wine industry is facing a host of problems as the rising Aussie dollar, drought and foreign competition result in mounting pressure. Bottled wine exports are still growing but at a declining rate and some experts believe the growth may stop within two months, according to news.com.au. Cheaper brands are taking the biggest hit while premium wines are less impacted by the exchange rate.

Importers and retailers in the U.S. have tried to swallow extra costs from the exchange rate but eventually higher prices had to be passed to the consumer.

LAWRENCEBURG DISTILLERY TO BOTTLE SEAGRAM’S VODKA

Lawrenceburg Distillery, owned by Caribbean rum producer Angostura, has signed a contract with Infinium Spirits to begin bottling Seagram’s Vodka. Recall that Pernod sold the brand to Infinium Spirits in 2005.

Bottling operations began in April 2008. LDI expects to produce 1 million cases of Seagram’s Vodka in the next year, increasing total plant production from 1.7 million cases to 2.6 million cases.

FLORIDA REMAINS THE SAME

The Florida legislature adjourned Friday (May 2) without passing a direct wine shipping permit bill, which means wineries can continue shipping as they have been since 2006.
Several bills were considered for direct wine shipping, but most included a capacity cap on annual production for wineries – something winery advocates strongly oppose.

THERE’S A GREAT ARTICLE ON THE PETER MONDAVI Jr. family in the LA Times by Jerry Hirsch. To check it out, click here.


Until tomorrow, Megan

“In politics, absurdity is not a handicap.”
Napoleon Bonaparte

--------- Sell Day Calendar ----------
Today's Sell Day: 3
Sell days this month: 22
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YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Growth of Ultra-Premium Spirits Slow

Higher priced spirits showed signs of slowing in the four weeks to March 8, 2008, according to Nielsen U.S. food, drug and liquor scan data. The total spirits category grew 2.6% in value to almost $500 million and 1.6% in volume to 3.6 million cases. Excluding prepared cocktails, the industry gained 2.7% in sales and 1.7% in volume.

Value priced spirits gained 1.2% in dollar sales in the four weeks to March and lost -0.3 share points. Volume was up 0.8% and also lost -0.3 share points.

Mid priced spirits increased 2% in value and 2% in volume. It lost -0.2 share points in dollar sales and gained 0.1 volume share.

Premium spirits grew 3.3% in dollar sales and 2.9% in volume. As far as share goes, premiums gained 0.2 points in value and volume.

Ultra-premium spirits continued to be the fastest growing category in terms of value although growth is slowing. Ultra-premiums gained 5.7% in dollar sales and 1.7% in volume. The category also gained 0.4 dollar share points but volume was flat in the four weeks to March 8.

One of the hottest topics in the spirits industry right now is whether trading up will slow or evaporate in the ensuing recession. Will consumers start trading down to lower-priced brands and save the extra money for gas? Data seems to support this theory although ultra-premium and premium brands are still growing. In the four weeks to March 8, spirits growth showed signs of slowing for all price categories excluding value brands.

In the 52 weeks to March 8, value brands gained only 0.8% in dollar sales, but rose 2.3% in the 13 week period and 1.2% in the four week period. This suggests that value brands are starting to growth at a faster rate.

Every other category, however, is showing signs of a slowdown. Mid-priced brands increased 4% in the year to March, but gained only 3.5% in the 13 weeks and 2% in the four weeks. Premium brands went from gaining 5.3% in the 52 weeks, to 5.1% in the 13 weeks and 3.3% for the month.

Ultra-premiums saw the biggest dip in dollar sales. In the 52 week period, they grew 10.9%. In the 13 week period, ultra-premiums grew 8.6% and in the four weeks to March they grew 5.7%.

In terms of volume, ultra-premiums saw the biggest dip. In the 52 weeks, ultra-premium grew 7.8%, but grew only 1.7% in the four weeks to March. Premiums went from 4.5% for the year to 2.9% for the month. Mid-priced spirits increased 3.3% in volume for the year, but grew only 2% in the four week period. Lastly, value brands went from gaining only 0.2% in the 52 weeks to March 8, to growing 0.8% in the four week period.

So, with all that said, let’s take a look at the actual spirits themselves. The tequila category continues to be on fire. In the four week period, tequila grew 11.6% in dollar sales and gained 0.5 share points. In terms of volume, tequila was up 7.2% and gained 0.2 points.

Vodka, meanwhile, was the second fastest growing spirits category in March. Dollar sales of vodka grew 5.2% in the four weeks to March 8, while volume climbed 5%. Dollar share grew 0.7 points and volume share was up 1.1 share points. Could it be that premium and ultra-premium vodkas are losing their momentum?

Dollar sales of whiskey grew 2.6% in value but share was flat. Irish whiskey continues to show the most growth in the whiskey category, up 23.1%, while Scotch was down -0.6%. Whiskey grew 0.3% in volume and lost 0.3 share points. In volume, Irish whiskey grew 23.2%, while Scotch declined -4.4%.

Gin grew 1.7% in dollar value, while share was flat. Volume of gin declined -1.1% and lost -0.2 volume share points.

Lastly, rum value grew 3.1% and gained 0.1 share points. Volume of rum increased 2.4% and also gained 0.1 points.


Until Monday, Megan

“Be sincere; be brief; be seated.”
-Franklin D. Roosevelt

--------- Sell Day Calendar ----------
Today's Sell Day: 1
Sell days this month: 22
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Thurs.
YTD sell days Over/Under: 0

Pernod Does Well Despite Economy

Pernod’s overall third quarter earnings looked good despite softness in the U.S. Premium brand growth, strong pricing and strength in emerging markets helped Pernod rebound.

Pernod’s premiumization strategy gained momentum in the third quarter as the 15 strategic brands grew twice as fast in value (12%) as in volume (6%), which was helped by price increases and improved mix.

The French company acknowledged that the U.S. market has become “more difficult” as consumers continue to cutback spending and the U.S. dollar weakens. Beefeater, Chival Regal and Kahlua were hit the hardest in the third quarter, but those brands have struggled for awhile now. In all, North America organic growth reached 4.5%.

Depletions of Kahlua in the U.S. fell -6%. Nielsen data showed Kahlua volumes down -1%, while NABCA reported a decline of -10%. Beefeater’s depletions fell -4% in the U.S., with Nielsen down -1%. Stolichnaya’s depletions were down -1% due to price increases, the company said. Nielsen reported volume down -1%.

Spirits brands like Jameson, The Glenlivet, Malibu and Wild Turkey, which have performed well in recent years, experienced “vigorous growth” in the third quarter.

Nine month depletions for Jameson grew 23% in the U.S. Nielsen data shows Jameson growing 30%, while NABCA reported a 16% jump in volume. The Glenlivet, meanwhile, showed “continuing dynamism in the US” with depletions gaining 4%. Nielsen was up 4% and NABCA grew 2%. Malibu’s depletions increased 3%, with Nielsen up 9% and NABCA growing 15%.

Wine brands Montana, Perrier-Jouët, Mumm Napa and Campo Viejo all performed well in the U.S. Depletions of New Zealand’s Montana wine grew 19% in the third quarter. According to Nielsen, volume growth was up 28%.

Despite a softening economy, Pernod saw “continuing growth in the US, against the background of an increasingly difficult environment, due to the dynamism of premium brands.”

Pernod said very little about the Absolut acquisition in its earnings statement.

WAL-MART GAINS MORE AFFLUENT CUSTOMERS

In an analyst briefing, Eduardo Castro-Wright, CEO of Wal-Mart's U.S. division, told listeners that more affluent shoppers are going to Wal-Mart during the economic slump.

Shoppers with a household income of more than $55,000 to $70,000 are categorized by Wal-Mart as more affluent than its core customers, according to Dow Jones Newswires. Castro-Wright cited company research that showed that the number of more affluent shoppers increased 0.7% in February and was up 2.2% in March.

The company’s emphasis on low prices is keeping its core consumers loyal, while at the same time attracting more affluent shoppers looking to save. Wal-Mart also said it is in the position to keep those shoppers when the economy improves.

Wal-Mart said it will continue to focus on name brand labels despite having its own private label brands.

CRILLON IMPORTERS LAUNCHES GRANDE ABSENTE

Now that the U.S. is once again selling Absinthe, the famed “green fairy” is making a comeback. Starting this May, Crillon Importers is launching Grande Absente, Absinthe Originale in the U.S. Grande Absente is made in Province from an authentic, 148-year-old French recipe that features a full measure of the legendary botanical wormwood and other regional botanicals. The new absinthe is 138 proof and will be available nationwide for approximately $70 for a 750 ml bottle packaged with a complimentary gold-plated absinthe spoon.

“It’s a myth and a crutch that absinthe is supposed to taste bad,” said Jim Nikola, senior vice president of marketing, Crillon Importers.

I WILL BE OUT OF TOWN and out of pocket the rest of the week. See you Monday!

Until tomorrow, Megan

“It is absurd to divide people into good and bad. People are either charming or tedious.”
-Oscar Wilde

--------- Sell Day Calendar ----------
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Sell days this month: 22
Sell days this month last year: 21
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This month last year ended on a: Mon.
YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

EU Adopts Wine Sector Reform

The European Commission formally adopted new EU wine sector reforms today as a way to take back share from new world wine producers. It follows the agreement reached by ministers in December 2007 after a long, drawn-out set of negotiations and compromises took place. The reform will take effect August 1.

One of the most controversial elements of the package is that the government will pay less-successful wineries to dig up vineyards and voluntarily leave the business. The scheme will last for three years and apply to a maximum of 175,000 hectares of vineyard in the EU.

The reform will also put an end to crisis distillation spending beginning 2012. In the past, the EU paid for thousands of liters of unwanted wine to be turned into industrial ethanol. The system cost about €1.269 billion annually and soaked up two-fifths of the EU’s wine budget.

Under the new plan, the EU will give national governments an allocated sum of money to spend on their wine sectors. The money can only be spent on promoting EU wines abroad, modernizing the production chain and other measures including harvest insurance plans.

Northern producers have also agreed to reduce the amount of sugar they use to fortify their wines.

A council statement said: “The reform provides for a fast restructuring of the wine sector in that it includes a voluntary, three-year grubbing-up scheme to provide an alternative for uncompetitive producers and to remove surplus and uncompetitive wine from the market.”

“The reform will allow us to concentrate on taking on our competitors and winning back market share,” said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development and mastermind behind the reform plan.

In the past decade, EU wines have lost share of the world wine trade and are hoping to make a comeback. In 2007, the EU held 62% of the global market share, down from an average of 79% between 1986 and 1990, according to the Organisation International de la Vigne et du Vin.

“Now we can get on with the final preparations for the entry into force of the new system in August. Instead of wasting money getting rid of unwanted surpluses, the reform will allow us to concentrate on taking on our competitors and winning back market share. I hope the Member States will make good use of the new tools available," Fischer Boel continued.

VINUM CAPITAL PARTNERS LOOKS FOR ACQUISITIONS

Equity fund manger Vinum Capital Management has formed Vinum Capital Partners, a $250 million private equity fund looking to acquire mid-size premium and super-premium wine properties producing between 20,000 and 150,000 cases a year. The company is interested in California’s North Coast and Central Coast regions, in addition to properties in Oregon and Washington.

"The focus of this fund is to acquire wine properties efficiently, grow them effectively with expertise and necessary growth capital, and ultimately sell them to strategic and financial acquirers,” said Thomas Thornhill, Managing Partner of VCM, who is also chairman of the Mendocino Wine Company and a former partner at Montgomery Securities.

The company is interested in wineries with solid brands but inadequate capital or eagerness to exit the business.

"Our objective is to help provide liquidity for family-owned businesses. Many of them have been in business 20 to 40 years and there may not be a second generation able or willing to take on the business," Thornhill continued.

The VCP team has strong experience in winery operations, vineyard management, financial management, and M&A transactions. It consists of winery professionals – whose experience includes Mondavi, Gallo, Beringer, Ravenswood, and Schramsberg – and investment professionals who collectively have bought, sold, managed, or brokered over $1 billion in winery transactions.

VCM's investment partners include Justin Faggioli, formerly coo of Ravenswood; Scott Setrakian, formerly director of Golden State Vineyards; and G. Craig Vachon, a financing and M&A expert. The fund's portfolio management team includes Bill Foster, formerly from Beringer; Jonathan Pey, formerly from Robert Mondavi and Fosters Wine Estates; Doug Rogers, formerly from Gallo, Southcorp, and Brown-Forman Wines; and Bob Steinhauer, formerly from Beringer and one of the leading viticultural experts in the world. Strategic Advisors include Don Brain with VinREIT and Global Wine Partners; and Tom Hakel, formerly with Stag's Leap Wine Cellars.

WSD BRIEFS:

EVANS & TATE SHAREHOLDERS will be asked next month to vote on a restructuring deal that will leave them holding just over 5% of the collapsed winemaker. They will also be asked to approve a name change to ETW Corporation intended to re-brand the company, which has been struggling to rebuild since falling into financial trouble in 2005 and closing its doors last year. According to local reports, if shareholder reject the plan and fail to pass any of the 12 resolutions, E&T will likely go into liquidation.

MARYLAND GOV. MARTIN O’MALLEY decided last week to temporarily postpone signing a law that would continue to classify RTDs as beer. If the bill is vetoed, the drinks will be taxed at $1.50 a gallon, the same rate as spirits, instead of the 9 cents a gallon of beer.


Until tomorrow, Megan

I had a monumental idea this morning, but I didn't like it.
Samuel Goldwyn

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Sell days this month: 22
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WINE & SPIRITS DAILY
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Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Australia Taxes RTDs Like Spirits

The Australian government has raised taxes on RTDs (ready-to-drinks) by 70% as a way to curb binge drinking among teenagers. The tax hike is effective immediately. Under the increase, RTDs will be taxed at the same rate as spirits, from $39.36 per liter of alcohol content to $66.67.

The new initiative is a part of Australian Prime Minister Kevin Rudd’s $53 million strategy to curb alcohol abuse. The government claims teenagers prefer RTDs, although the industry maintains 80% of the RTD market is young men over 25 who drink spirits mixed with cola.

Lion Nathan, Coca Cola Amatil and Foster’s Group distribute several RTD brands, and will likely be hard hit by the new tax.

The increase is expected to raise more than $2 billion in extra revenue over the next four years, which will reportedly be used to fund Australia's largest ever investment in preventive health, focusing on alcohol, smoking, diet and exercise.

RUTH’S CHRIS CEO FIRED

Craig Miller was ousted last week as chairman, ceo and president of Ruth’s Christ Steak House Inc. Ruth’s Chris confirmed in a statement that Miller had left the company but did not give a reason. Miller told the Orlando Sentinel that he was fired.

"I'm shocked," Miller told the Sentinel in a telephone interview late Thursday. "It's not every day you get terminated without cause."

"I'm not sure why the board decided to do this, but they did," he said.

According to the Sentinel, the board was displeased with Miller’s financial stewardship.

Miller said he was told last Wednesday (April 23) by the board.

The company, meanwhile, said it had hired a firm to begin an immediate search for Miller's successor. In the interim, Ruth's Chris has formed an executive committee that will provide leadership through the transition. The steakhouse chain also said Robin Selati, a managing director with Madison Dearborn Partners, the company's largest shareholder, will return to the role of chairman of the board. Selati held the position from April 2005 until September 2006.

To read more background, click here.

PENN. CONSIDERS WINE VENDING MACHINES

The Pennsylvania Liquor Control Board is considering proposals for a contractor to operate up to 100 wine kiosks throughout the state. Comparable to a refrigerated vending machine, the kiosk would hold up to 500 wine bottles and would be placed in grocery stores and similar locations. The kiosk has security identification measures such as fingerprints and biometric readings, according to the AP. Users would have to register and purchases would have to be made with credit card, debit card or PLCB gift card.

The five-year contract proposal calls for the kiosks to be operated at no cost to the state or Liquor Control Board. Vending machines selling alcoholic beverages have been in use in Japan, Singapore and some European countries, but security issues and restrictive liquor laws have made their development and use elsewhere limited.

RECESSION BEHAVIOR CREEPS INTO ALCOHOL

An article in the New York Times says Americans are finding “creative ways” to cut costs on routine items like clothing and grocery, including alcohol.

Sales of inexpensive domestic beers, like Keystone Light, are up. Sales of higher-price imports, like Corona Extra, are down, according to IRI data. Some consumers, meanwhile, are skipping alcoholic beverages altogether.

“The number of people ordering an alcoholic drink fell to 31% last month from 42% last summer, according to a survey of 2,500 people conducted by Technomic, a restaurant industry consulting firm,” according to the article.

WSD BRIEFS:

VINOSHIPPER.COM now offers 350 wines from over 100 wineries located in 13 states. VinoShipper.com is responsible for all of the compliance reporting and taxes for its clients when shipping directly to consumers.

CEO OF NY STATE LIQUOR AUTHORITY resigned last week. Joshua Toas, known as a tough reformer, will depart May 22.


Until tomorrow, Megan

“To sit in the shade on a fine day, and look upon verdure is the most perfect refreshment.”
Jane Austen

--------- Sell Day Calendar ----------
Today's Sell Day: 20
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Control Spirits Weaken in March

Spirits volumes in control states fell -5.2% in March, reports UBS analyst Melissa Earlam based on NABCA data. Comps year over year were not challenging, with 3% growth in March 07. March 2008 was depressed by several reasons, including one less Saturday in the month and the fact that Michigan (15% of Control State volumes) and Utah (2%) had one less week of selling days in March year over year. Market volume growth in the year to March 2008 increased 2.1%

Both Diageo and Pernod lost share in vodka and rum, but gained share with whiskey.

Diageo’s March performance fell below the market at -5.9%. The company lost some volume share, notably in vodka (-3.5% decline y/y vs category decline -1.7% y/y), rum (-8.7% vs category -5.5%), and tequila (-11.3% vs category -5.4%). Melissa noted the decline is likely related to price increases introduced over the last several months.

Diageo gained some share in Canadian whisky (-3.9% vs category -6.8%), cocktails (-7.7% vs category -8.9%) and cordials (- 6.8% vs category -8.3). It broadly held share in Scotch and gin.

Pernod, Brown-Forman, Campari and Remy all lost share in March. Pernod’s volumes declined -8.3% in 2008, but grew 1.3% year over year in 2007. The company gained share in Scotch and Irish whiskey; but lost share in vodka (-9.3%), gin (-8.4%), rum (-5.9%), cordials (-9.5%) and brandy/Cognac (-52.8% vs category -10.6%) where it is de-emphasizing VS growth.

B-F volumes declined -7.6% (vs -0.9% in 2007). Campari declined -6.2% and Remy -9.3%.

UBS has buy ratings on Diageo, Pernod, Brown-Forman and Campari

“While we expect a slowdown in US spirits growth in a recession, we forecast market volume growth of 1.7% and 4.5% sales for 2008,” said Melissa.

ARIZONA JUDGE STRIKES VOLUME CAP CHALLENGE

Larger out-of-state wineries lost a court case in Arizona this week when a judge ruled that the current law does not give in-state wineries an unfair advantage. Judge Mary Murguia struck down a lawsuit seeking to overturn the current 20,000 gallon cap on wineries that can ship directly to consumers and retailers. The 20,000 gallon cap allows most Arizona wineries to ship direct, so out-of-state wineries argue the law is discriminatory and impedes interstate commerce.

According to AZ Central.com, Judge Murguia acknowledged that a 2006 law might be of more benefit to wineries in Arizona than elsewhere, but she ruled that the statute, by itself, does not discriminate.

"The simple fact that there are more out-of-state wineries than in-state wineries that produce more than 20,000 gallons of wine per year and are thus required to adhere to the three-tiered distribution system in order to gain access to Arizona's wine market does not by itself establish patent discrimination in effect against interstate commerce," the judge wrote.

"In fact, the number of out-of-state wineries that produce less than 20,000 gallons of wine per year and are thus able to take advantage of this direct-shipment exception dwarf the number of instate wineries that are able to take advantage of the exception," she said.

A decision has not yet been made whether to appeal. The suit was filed on behalf of Black Star Farms as well as several locals.

GOVERNMENT RELEASES DRUNK DRIVING REPORT

The Midwest reportedly has the highest number of drunk drivers according to a government study released earlier this week. In all, about 15% of U.S. adults have driven under the influence of alcohol in the past year. Another 4.7% of the drivers were discovered to be under the influence of illegal drugs, according to the survey by the Substance Abuse and Mental Health Services Administration. The study was based on information from the National Survey on Drug Use and Health.

Wisconsin is the state with the worst drunken driving rates in the country, with 26.4% of adult drivers reported driving under the influence of alcohol in the previous year. Wisconsin is closely followed by North Dakota (24.9%), Minnesota (23.5%), Nebraska and South Dakota.

The survey found that Utah had the lowest incidence of drunken driving. Only 10% of adult motorists were reported to be driving under the influence. Arkansas, West Virginia, North Carolina and Kentucky all had drunken driving rates of less than 11%.

Research professor Eric Goplerud told the AP that religion may be the reason there is more drunk driving in northern states. Religions and denominations in the south typically discourage drinking, which isn’t as common in the upper Midwest.

WILL KETEL ONE MAINTAIN ITS MYSTIQUE?

Business Week featured an interesting story on Ketel One yesterday and the effectiveness of its “white space” ads. The article also explores how the Nolet family and Diageo will come together and make Ketel One an even bigger vodka in the U.S. than it already is.

“The campaign's origin speaks to how much the brand runs in the veins of the Nolet family. In 2003, M&C Saatchi pitched the campaign on a single poster, lots of white space, no bottle, and a headline written in the Gothic-looking Bradley typeface: ‘Dear Ketel One Drinker. Thank you.’”

“The challenge confronting the Nolets is finding a way to retain the mystique that comes from not being understood by everyone while striving to double sales in the next five years with Diageo's help,” says Business Week journalist David Kiley.

To read the entire article, click here.


Until Monday, Megan

“To sit in the shade on a fine day, and look upon verdure is the most perfect refreshment.”
Jane Austen

--------- Sell Day Calendar ----------
Today's Sell Day: 19
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Beam: Absolut Not a Must Have Brand

How is the economy affecting Fortune Brands’ spirits portfolio? That’s the million dollar question. Most of the spirits companies (other than Brown-Forman) have been reluctant to admit that the U.S. economy has taken much of a toll. The general consensus is that consumers view spirits as an “affordable luxury.” Sure, there might be a slowdown in value spirits brands, but premium and super-premiums continue to grow. In an age of premiumization and trading up, spirits companies are generally more concerned with their premium and up brands anyways. Most spirits companies also seem to think they will have no problem bouncing back from a slowdown and that the dawning recession is merely temporary. Declines in the on-premise are perhaps the biggest thorn for distillers, but most claim it’s not a significant change.

“What we have seen a little bit is a little less consumption at bars and restaurants and more people buying at their local liquor store, but it's not that significant,” Fortune ceo Bruce Carbonari told WSJ earlier this month.

In the first quarter, spirits sales were flat in the U.S., but Fortune says some of that was a result of larger-than-usual seasonal reductions in distributor inventories.

"While our reported spirits sales were relatively flat, shipments of spirits were adversely impacted in the U.S. by larger-than-usual seasonal reductions in distributor inventories that don't reflect the health of our brands in the marketplace," Carbonari said in a statment. "Had distributor inventory movements been consistent with the prior year, our worldwide spirits sales would have been solidly higher.”

Spirits sales increased at the premium end of the portfolio, reflecting favorable mix shift and Fortune’s continued focus on growing premiums. On a depletions basis, Fortune’s global premium brands grew in the U.S. and demonstrated strong growth in the U.K., Spain and Germany, as well as in Russia, India and China.

Fortune expects U.S. spirits shipments to bounce back in the months ahead. However, given the uncertain U.S. economic environment, Fortune is narrowing its full-year target range. It is now targeting diluted EPS before charges/gains to be in the range of flat to down at a high-single-digit rate. That's versus $5.06 for 2007.

THE NUMBERS GAME. In the smallest seasonal quarter for the company, net sales were up high single digits in the U.S., reflecting large seasonal reductions in distributor inventories. Depletions were higher in the U.S. for key premium brands, said the company.

First quarter depletions for Jim Beam were off in the first quarter, but Fortune is still expecting another strong year for Beam. The next generation of Jim Beam’s market campaign will rollout in the second quarter.

Sauza had lower shipments overall in the quarter due to inventory movements and tough comps. Depletions were strong in the U.S., however, and super-premium Sauza Hornitos continued to see strong growth.

Courvoisier increased double digit net sales on strong increases in the U.S. Maker’s Mark also experienced strong depletions overall.

WEAKENING ECONOMY. There was a lot of economy talk in today’s conference call. Overall, Fortune maintains that the economy has not had a large impact on spirits sales, although it has taken a toll (albeit it small) on value brands and the on-premise. Florida and California in particular have experienced a slowdown.

“We have seen no significant changes in the U.S. market...we’ve seen some change on-premise versus off-premise...geographic slowdowns correlates to the housing market, which we are seeing most heavily in Florida and California, especially on-premise,” said Carbonari.

“We have not seen the softening U.S. economy have a meaningful impact on total consumer demand...we benefit from our strong premium position,” cfo Craig Omtvedt.

“We had a good Christmas season...we have not seen trading down. The premium brands grow more than the value side and we’ve seen this trend for awhile now. The cocktail is still an affordable luxury and people aren’t willing to give that up. We’ve seen very little trade down at this point,” said Carbonari.

INVENTORY REDUCTION. “Seasonal inventory comes down after the holiday season, at the end of the year...it was further down then we normally would have expected but that’s all it is...the depletions are still strong,” said Carbonari with regards to the inventory reduction.

ABSOLUT. Carbonari mentioned the company is “very comfortable with the outcome” of the V&S deal. Although Fortune believes Absolut would have been a good fit for the company, the final price was too high and would not bring good returns for shareholders. Instead, Fortune said it would focus on building premium spirits brands and repurchasing shares.

Carbonari reiterated that Fortune’s U.S. distribution deal with Vin & Sprit has significant protection until 2012. Pernod has also assured Maxxium that V&S will remain in the J-V for two more years.

Without Absolut, all is not lost. Carbonari reminded listeners that Fortune is the fourth largest spirits company in the world; doing excellent in the U.S.; and has leading positions in bourbon, tequila, cognac, scotch, Canadian whiskey, cordials and liqueurs.

When asked if Pernod has contacted Fortune about exiting the Future Brands J-V, Carbonari said: “There has been no discussion on that.”

BRAND ACQUISITIONS. When it comes to brand acquisitions, Fortune said it prefers to grow organically. But that doesn’t mean the company won’t pounce on a brand that would enhance its portfolio (such as bourbon) or fill any weaknesses (vodka or rum).

“If we can add on certain categories, either enhancing our strength in bourbon, tequila, or cognacs, we’ll do that. If we have the opportunity to look at various vodkas or rum where we aren’t that strong, we’ll do that as well. We have the financial flexibility to do that...the Absolut deal wasn’t a must-have acquisition,” said Carbonari.

LVMH ACQUIRES WATCH, IS LIQUOR NEXT?

LVMH announced today it has signed an agreement to acquire Hublot group, a top of the range watchmaker. After its earnings last week, LVMH ceo Bernard Arnault said the company may take advantage of the worsening economy and pick up a liquor or watch brand. So does this mean LVMH will or will not acquire a liquor brand now?

“There might be opportunities in a difficult market for a group like ours to round out our portfolio," especially if smaller, family-owned companies decide to sell, he said to Bloomberg.

He declined to specify any companies LVMH may be interested in.

NORTH COAST VINEYARDS COULD LOSE 10%

Grape producers in California’s North Coast vineyard region fear they may lose as much as 10% of their crops after enduring the worst spring frost since the early 1970s. But the real impact won't be known until June, when the first grapes start to actually show and farmers can take a count of what they expect to harvest.

Among the hardest-hit areas were Sonoma County vineyards in valley locations such as Dry Creek and Alexander. Farmers usually turn on their frost-protection machines a couple of times a year, but so far this year some had to activate them as many as 30 times.

JEPSON WINERY FOR SALE

Investment group Dbon Mendocino LLC is selling Jepson Winery less than three years after acquiring it. The winery, which is also licensed as a vodka and brandy distillery, hit the market last week for $10.5 million. Dbon originally bought Jepson with plans to develop high-end estates, but the soft housing market and building restrictions in Mendocino County halted those plans.


Until tomorrow, Megan

“A little drama wins more friends than boring.”
Scott Westerfeld

--------- Sell Day Calendar ----------
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YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.