Wine Building Larger Presence in C-Stores

Dear Client:

New data from Information Resources (IRI) reveals that wines are picking up momentum in convenience stores versus the more traditional grocery and drugstore channel.

DOMESTICS TAKE THE LEAD. Domestic wines in particular showed impressive growth, up 6.5% in dollar sales and 6.4% in volume, in the four weeks to June 14. In fact, domestic wines gained almost a share point in dollar sales and gained 1.4 market share points in volume. Varietals in the 1.5 liter bottles were the most popular package size for domestic wine in c-stores.

Meanwhile, imports grew 1.7% in dollar sales in the four week period but lost almost a full share point. In terms of volume, imports declined -2.3% and lost 1.4 market share points. Unlike domestic wines, imports saw the most growth among non-varietal bottles sized .75 liters.

WHITE WINE MOST POPULAR. Note that much more domestic wines are sold in c-stores than imports. In the period, domestics incurred about $23.4 million in dollar sales and about 310,000 cases. Imports sold about $7.6 million worth of wine and 78,000 cases.

Overall, white wine grew at the fastest rate, particularly fume/sauvignon blanc and pinot grigio/gris, with chardonnay trailing behind. Pinot noir took the lead among reds followed by cabernet sauvignon and trusty merlot. Surprisingly, white zinfandel lost share in both dollar sales (0.7) and even more so in volume (1.2).

California by far has the largest presence in c-stores, particularly in terms of cases sold. California wines grew 7% in dollar sales and gained 1.1 market share points in the period, and grew 6.8% in volume gaining 1.6 market share points. Oregon wines, which have a much smaller presence, showed impressive growth in sales (38.3%) and volume (50%) and gained about half a share point in both categories.

Although far behind California, Australian wines have the second largest presence in c-stores (not surprisingly). Australian wines lost some market share in both dollar sales and volume, but grew 0.4% and 2.1%, respectively. Imported wines growing at the fastest rates included France, New Zealand, Argentina and Spain.

WINES $8 AND BELOW WIN. In c-stores cheaper was better in June – a motto that seems to apply to all channels in this environment. With imports and domestic combined, wines priced $8 and below showed the most growth. The $11-$15 category posted some growth in dollar sales but declined in volume, while all other table wine price categories were in declines. The $2 and above boxed wine segment came in particularly strong, gaining 0.7 market share points in dollar value and 1 share point in volume.

The two wine brands that far outshone all the others in terms of market share growth in both dollar sales and volume were Barefoot and Sutter Home. The five wines with the biggest presence in c-stores are Sutter Home, Yellow Tail, Barefoot, Gallo Family Vineyard and Woodbridge.

DIAGEO REFUTES CLAIMS IT IS RECEIVING TARP FUNDS FROM THE BAILOUT

Remember the Bloomberg story on Diageo’s new Captain Morgan distillery in St. Croix? Well, Diageo has issued a press release refuting certain details of the article, namely that “Diageo has never sought, and will not receive TARP funds,” which are funds from the Troubled Assets Recovery Program from the U.S. government.

Diageo took especial offense with this line in the Bloomberg story: "Bailout of U.S. Banks Gives British Rum a $2.7 Billion Benefit... The $2.7 billion Diageo tax break in the October bailout bill gives the most financial aid to a non-U.S. company."

This suggestion “is false,” says the company. “The public-private initiative that is bringing Captain Morgan to St. Croix is based on cover over, not TARP.” Congress has reenacted the rum cover over extender (which increases cover over from $10.50/gallon to $13.50/gallon) for over 50 years “as part of an independent package of tax extenders” because Congress believes the US Virgin Islands “has a continuing need for cover over revenues to promote its economic stability and fiscal autonomy.”

Diageo said it is “purely a matter of circumstance” that Congress attached the extenders package to the TARP bill last fall, and that the cover over is completely unrelated in any way to either the bailout or TARP money.

Says Diageo: “The suggestion in the Bloomberg article that Diageo somehow benefits from TARP funds is misleading and gives the reader an inaccurate and false impression. Diageo's agreement with the USVI was announced in June 2008 -- well before any TARP legislation was ever discussed on Capitol Hill. Even if this extender had never been introduced or passed, Diageo's agreement with the USVI would still be in tact.”

And there you have it.

WSD BRIEFS:

WE’VE RECEIVED WORD THAT Southern Wine and Spirits is working on a deal to distribute all of Constellation’s brands in California, including those currently distributed by Young’s Market. We have no further details about the rumored change. Expect a lot of news concerning Constellation and its consolidation of wholesalers in the coming months.

CORRECTION. We attributed Geyser Peak Winery to Constellation in yesterday’s report, but the company of course sold the brand to Ascentia Wine Estates last year. Sorry for the mistake.


Until tomorrow, Megan

“You don’t have to specialize - do everything that you love and then, at some time, the future will come together for you in some form.”
Francis Ford Coppola
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WINE & SPIRITS DAILY
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© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

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Distributor Consolidation Underway for Constellation

Dear Client:

Constellation continued to focus on streamlining its business in Q1 of fiscal 2010, or the three months ended May 31, while the company also experienced adverse effects from the economy and reduced inventory.

In the spirit of simplification, Constellation undertook three main initiatives in recent months. One, the company “took steps over the past 18 months to shift the focus of our strategy to building must-have brands that return the greatest profits and that represent good value for consumers,” said ceo Rob Sands. This led to Constellation selling many of the Pacific Northwest brands it acquired from Beam Global Spirits and Wine, and selling most of its value spirits brands to Sazerac.

“We are already seeing the benefits from this strategy as brands such as Woodbridge by Robert Mondavi, Nobilo, Clos du Bois, Kim Crawford and Svedka continue to perform well,” Rob continued.

During the first quarter Constellation also “integrated the remaining spirits business into our North American wine organization and began refining the structure of our U.S. wine business into a single integrated group.” This mainly effected sales and marketing and unfortunately resulted in major lay-offs in the U.S.

Lastly, Constellation is in the midst of consolidating its distributor network. In all, said Rob, the changes with distributors will encompass 17 states and transitions will begin by the end of the summer.

THE WINE AND SPIRITS BIZ. Growth of the US wine market “remained healthy” with dollar sales rising 5% in the first quarter, according to IRI scan data. Again, consumers are turning to trusted brands in the economic downturn, which benefited premium wine brands such as Rex Goliath, Woodbridge, Kim Crawford, Wild Horse, Geyser Peak and Clos du Bois.

Svedka’s momentum continued in the quarter, while Black Velvet also posted solid sales results.

Sales of branded wine worldwide grew 1% on an organic constant currency basis, while North American wines decreased -1%. Numbers were impacted by ongoing SKU reductions and the economic downturn, said Rob. Constellation estimates that the SKU reduction negatively impacted North American sales by 2%.

ROB ON CONSUMERS TRADING DOWN. Overall, Constellation’s wine segment is growing but various price points are performing better than others.

“In terms of our mid tier brands we are seeing some positive results. We see brands like Woodbridge continuing to grow in the high single digit range. We see brands like Clos du Bois growing about 8% in volume. There are ups and downs...we do see a trend towards better known and trusted brands that represent good value for money. Some of our brands are benefiting from that in general. We did see on a volume basis some trading up continuing in the industry with total wine in a low-single digit range, and in the premium and super-premium range growing in the mid- and higher-single digit range,” said Rob.

Bob Ryder, cfo, noted that Svedka is one of those brands that have benefited from trading down. “The economy is certainly helping Svedka...getting sales from Ketel One and Grey Goose,” because Svedka offers prime positioning, good marketing and tastes great for less money.

Rob noted that “major players” in the value wine segment are taking the opportunity to increase prices and gain in dollar sales. Meanwhile, premium and super-premium wine brands are outpacing value brands on a volume basis. “In a dollar basis, we see in the value business a lot of pricing being taken in the marketplace. While we see value lines growing at lower percentage in volume than premium and super-premium, on a dollar basis they’re actually growing faster because major players in that segment, which we aren’t one, are taking the opportunity to take pricing in the value segment.”

In all, a negative mix shift had a big impact on Constellation in the first quarter. Rob explained that although general mix trends indicate that consumers are trading up, activity in respective price categories shows “there is in fact some degree of trading down.”

The highest end of the super premium category ($8-$12) is being more negatively affected versus the lower end, said Rob. “People are looking for bargains even within the respective categories.”

“When we talk about trading up in general it continue to be a phenomenon measured by the difference of total business in dollar and volume sales, versus looking at super-premium category versus value.”

Furthermore, “on-premise oriented brands are definitely being hurt in the economy...the highest margin brands in our portfolio which are more on-premise oriented are being more negatively impacted by the economy, especially in the restaurant business,” said Rob.

CONSTELLATION LOSES SOME SHARE IN Q1. Constellation lost some share in Q1 mainly due to recent price increases and SKU rationalization. Bob also pointed out that Constellation chosen “not to take part heavily in the value category” which is growing.

THE MOVE TOWARD CONSOLIDATING DISTRIBUTORS. When asked if Constellation anticipated a disruption with the distributor transition, Rob responded: “We don’t expect any disruption at this time...we’ve put a lot of things in place to ensure that things remain intact in the transition period so right now we feel pretty good about that.”

Why, you ask, does Rob not anticipate disruptions? He said the company has “obviously put some mitigation plans” in place and there are also “some natural things that occur when you make these movements that offset each other, such as when you’re moving the brands you’ve got inventory moving around, shipments to new distributors, etc.”

“When you balance everything out we really don’t think it will have a huge impact on retail sales. We think depletions should be somewhat stable. There might be some loss from distributors who are losing brands and some pick up from distributors who are gaining brands and the same things from the shipment side.”

He noted that “timing issues which would be the worst case scenario,” but the company isn’t currently expecting any timing issues between the second and third quarters. “By Q3 it should be largely complete and stabilized...the idea is to get this done before October, November and December which is one of the key selling seasons.”

Constellation executives decided they should be announcing the changes to the trade “fairly shortly in the next 30 to 60 days, something in that effect and it might not be all at once.”

“The trade is well aware of our intentions...we are in the process of filing negotiations as we sit here right now. Everybody knows what’s going on, basically,” Rob continued.

NON-COMPETING BRANDS MAKE THE MOVE POSSIBLE. The company is opting to change its distributor model because it has sold a significant amount of its value wine and spirits brands, which generally competed against one another. The old model “that worked for selling was putting brands that competed against each other with different distributors,” said Rob. Now, Constellation has a much more streamlined portfolio and can put all its brands with one distributor. “With the elimination of the value business and the narrowing down of the portfolio to a relatively small number brands that are fairly well differentiated, only 10-12 brands that are the key brands...one dist can prioritize those brands and we don’t have the issue of selling largely generic inter-competitive products.”

Rob also pointed out that Constellation will have more influence over a distributor if all their brands are under one roof.

2ND CIRCUIT COURT OF APPEALS UPHOLDS OUT-OF-STATE RETAILER BAN

The 2nd Circuit Court of Appeals today upheld the decision of the Southern District of New York by rejecting an attempt by out-of-state retailers to secure direct-to-consumer shipping licenses in the state of New York.

Circuit Judges Wesley concluded that “because New York’s three-tier system treats in-state and out-of-state liquor the same, and does not discriminate against out-of-state products or producers, we need not analyze the regulation further under Commerce Clause principles.” In all, NY ABC laws “instituting a three-tier system for the regulation of alcoholic beverages, do not discriminate against out-of-state producers in violation of the Commerce Clause.” You can’t get much plainer than that.

In Judge Calabresi’s concurrence, he stated that “to be sure, the Constitution as a whole does and must evolve. Moreover, as the Court may have done in its recent readings of the Twenty-First Amendment, history can be made into a tool for bringing the Charter into line with current needs. But judges are not historians with fancy robes and life tenure. And historical reinterpretation always poses the risk that courts will too readily “‘imagine the past [to] remember the future.’”

He went on to say that “any sort of updating can be dangerous. It may permit courts, especially well-meaning ones, to substitute their own notions of modern needs for those of the majority. Moreover, when a rereading results in the erection of a constitutional barrier, it may remove serious issues from the democratic process and from legislative deliberation.”

This opinion could have ramifications on the appeal pending before the Fifth Circuit. Stay tuned...

DIAGEO CUTS 900 JOBS IN SCOTLAND

Diageo announced early this morning a new cost restructuring plan that will result in the loss of 900 jobs over the next two years. It is closing Kilmarnock Packaging Plant resulting in the loss of 700 jobs due to “infrastructure limitations.” Instead, Diageo will invest £86 million to expand the Leven Packaging Plant in Fife, which will create approximately 400 jobs. “The company hopes that a number of these jobs would be taken by employees transferring from Kilmarnock.” In addition, Diageo will invest another £3 in the Shieldhall Packaging Plant in Glasgow, which will result in the loss of 30 jobs at the site.

Diageo is also closing the 200 year-old Scottish distillery Port Dundas and adjacent Dundashill Cooperage that will result in 150 lay-offs. Diageo said it hopes “that some employees would relocate to a new cooperage in Central Scotland,” which is the Cameronbridge Distillery in Fife. The company plans to build a new £9 million cooperage at Cambus near Alloa by summer 2011.

In all, the company says the restructuring will cut costs about £40 million ($65.8 million) in 2012. Recall that Diageo announced in February a £200 million restructuring plan. The company expects to cut costs by £100 million in the financial year ending June 2010 and reduce the global work force by 1,000 from 23,000.

“We believe the plans announced today will help secure the sustainability of our business in Scotland...Our plans and the associated £100 million investment reflect the strength of Diageo’s continued commitment to Scotland. With these changes, Diageo would still employ nearly 4,000 people across the country,” said the company in a statement.

TTB FIRES BACK AT NCL

In response to the National Consumers’ League criticizing “misleading” labels by U.S. wine producers, the TTB issued the following statement:

“The United States and the European Union (EU) signed an agreement on trade in wine on March 10, 2006. In the agreement the U.S. committed to seeking to change the legal status of the semi-generic names to restrict their use solely to wines originating in the applicable EU member state with certain exceptions, in particular, a ‘grandfather’ provision. Under the ‘grandfather’ provision, any person or their successor of interest may continue to use a semi-generic name on a label of wine not originating in the EU provided the semi-generic name appeared on a Certificate of Label Approval (COLA) that was issued prior to March 10, 2006.”

In all, certain wines are “grandfathered” into the provision that does not allow U.S. wine producers to incorrectly label their wines as Champagne or other place names if it does not hail from the specific region.

WSD BRIEFS:

VINEXPO CHIEF SAYS INTERNET “NOT THE RIGHT MEDIUM” FOR WINE SALES. In a new report from Decanter, Vinexpo ceo Robert Beynat said the internet will “never be anything other than a marginal circuit for sales.” He went on to say that “the internet is not the right medium for the sale of wines and spirits, it is not a real alternative to traditional sales circuits and will never reach more than around 8% of the market.”

AMAZON.COM THE NEW WAL-MART? An interesting research note from Cowen and Company claimed that Amazon is the “next generation Wal-Mart” because “we believe the company's focus on lower prices and a superior shopping experience versus online and offline competitors will result in substantial share gains over time,” said analyst Jim Friedland. This is notable given Amazon’s anticipated entrance into the wine industry in which the online retailer will surely jumpstart a new era of competition.


Until tomorrow, Megan

“You do ill if you praise, but worse if you censure, what you do not understand.”
Leonardo da Vinci

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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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Women Continue to Prefer Wine and Spirits to Beer

Dear Client:

Like last year’s Gallup Poll, beer beat out wine and spirits as Americans’ preferred beverage. Four in 10 drinkers say they prefer beer, compared with 34% naming wine and 21% spirits. Recall that beer has been the top-ranking alcoholic beverage every year since 1992 (the poll’s inception) except in 2005, when wine edged slightly ahead of it. Spirits have consistently ranked third, named by between 18% and 24% of drinkers.

The majority of men say they most often drink beer, while half of women choose wine. There is also a significant generational difference in preferences, with younger men and women favoring beer and older adults favoring wine. As a result, there is a particularly wide gulf between younger men and older women, in terms of drink preferences.

Geographically, beer is most popular in the Midwest. On the basis of education, wine is far more popular among people with at least some college background than it is among those who have not attended college.

AMERICANS’ DRINKING HABITS STAY THE SAME. Overall, this year’s Gallup Poll found “little change in Americans’ drinking habits” despite some “anecdotal reports of a surge in drinking” due to the economy. The percentage of U.S. adults who consume alcohol is “essentially unchanged” from last year at 64%.

“The theory, at least, is that the recession may give people more reasons to drink, but less money to do it with,” said the poll.

About two-thirds of drinkers in the new survey (65%) say they have had at least one drink within the past week, which is identical to the 2008 findings. Heavy drinkers, or those who consume 8 or more drinks in a week, is currently 14%, which Gallup says is “also quite typical for the decade.” The biggest disparity was in the average number of drinks consumed per drinker in the past week, which was up slightly from 2008 to 4.8 drinks.

A ROUND-UP IN STATE TAX INCREASES

Despite protests from Discus and the hospitality industry, New Jersey Gov. Jon Corzine yesterday signed legislation that will increase taxes on wine and spirits among other things, effective Wednesday (July 1). Taxes on wine and spirits will rise 25%, while beer will see no change. This will raise the cost of an average bottle of wine by around 3.5 cents.

Meanwhile, the Massachusetts governor also signed a new state budget on Monday to increase the state sales tax 6.25% and extend it to beer, wine and spirits, effective August 1.

WSJ reports that a total of “ten states were scrambling Monday to pass budgets before a Tuesday deadline.” Several of those states (including Arizona, Indiana and Mississippi) face a “partial shutdown” if their legislatures don't act in time. States without budgets in hand include California, Pennsylvania, North Carolina, Delaware, Illinois, Ohio and Connecticut.

NCL SEEKS REFORM IN “TRUTH IN LABELING” LAWS

The National Consumers League (NCL) is asking Congress to join them in urging the U.S. Treasury Department to reform U.S. wine labeling laws. Their main beef is with a law that allows some domestic winemakers to use the place names of up to 16 internationally recognized regions despite the fact the wines are not actually produced there. The group wants wine labeling laws to be “more consistent with U.S. trademarks and phasing out labels that improperly use the names of other wine producing regions like Champagne.”

"These labeling problems mean both that wines can be sold abroad with labels that falsely suggest that they are from well known and highly-regarded winemaking regions in the U.S., and that American consumers may be victims of deceptive wine labeling," said NCL executive director Sally Greenberg.

DISCUS CHIEF SUBMITS PRO-SUNDAY SALES EDITORIAL TO LOCAL PAPER

Peter Cressy, ceo of the Distilled Spirits Council (Discus), wrote an editorial in today’s issue of the Hartford Courant in favor of Sunday sales at package stores.

As a Connecticut native, Peter said he finds “it astonishing to note that our state remains the only one in the entire Northeast that clings to a Colonial-era blue law ban on Sunday liquor sales at package stores.” Connecticut is also one of three states that does not permit sales of beer, wine or distilled spirits from package stores on Sunday.

He claims that the ban on Sunday sales is not “to protect our citizens” but rather “it is the stubborn resistance of a small, politically connected group of package store owners who disrespect and inconvenience Connecticut consumers, and allow their lobbyist to spread disinformation to protect a state-mandated day off.” This law, says Peter, encourages residents to drive to New York, Massachusetts and Rhode Island on Sunday to purchase alcohol from retailers. “New Connecticut tax revenues from increased sales of distilled spirits alone would reach between $2 million and $3.3 million.”

He points out that Connecticut allows bars and restaurants to sell beer, wine and spirits on Sundays. “Whether or not our Puritan ancestors like it, Sunday has become the second busiest shopping day of the week for our hard-working, culturally modern Connecticut consumers.”

WSD BRIEFS:

INTERESTED IN MARKETING TO MILLENNIALS? Then check out this article on Winebusiness.com. The article’s author, Liz Thach, Ph.D., notes that millennials have continued to drive sales of cheaper wine brands in the recession, but they “can be challenging to reach from a marketing perspective.” Authenticity and convenience over price is extremely important to this age group. Says Liz: “...there appear to be new opportunities for wineries to expand their online marketing, as well as to continue to reach out to Millennials in face to face settings at events and other tasting venues.”

LAST WEEK CONSTELLATION BRANDS laid-off about 100 employees in sales and marketing, WSD has learned.


Until tomorrow, Megan

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

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YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Diageo Aiming to Make Cocktails “Cool Again”

Dear Client:

Diageo is going to great lengths to tap into the new off-premise trend where consumers are increasingly drinking at home instead of bars and nightclubs. As you know, consumers tend to opt for beer or wine when drinking at home, and not spirits or cocktails. An article in BusinessWeek magazine states: “Diageo says it will continue to plug its Smirnoff, Jose Cuervo, and other spirits, but plans to spend millions in an attempt to make the cocktail cool again.”

“Cocktails wax and wane. They were hot in the '80s, partly thanks to the Tom Cruise movie, Cocktail. After Sex and the City helped make the cosmo and other concoctions hot in the '90s, cocktails are again fading as consumers pull back, says Tom Pirko, president of food and beverage consultant Bevmark.”

Some of the steps Diageo is taking include a revamped website, www.thebar.com, and more ready-to-drink offerings such as Smirnoff Tuscan Lemonade and Captain Morgan Long Island Ice Tea. Diageo also recently acquired the remaining shares of Stirrings, which sells ready-made martinis, mixers and cocktail garnishes.

This summer Diageo is implementing a strategy call Simply Cocktails, which it already tested in Ireland. It allows stores to carry Diageo’s RTDs in the “ready pour” section, and spirits and mixers in the “easy shake” and “simple mix” sections.

WILLIAM GRANT HIRES FORMER DIAGEO EXEC

William Grant has appointed Ronald Wall its chief financial officer for North America to replace Jim Heaton. The reason for Jim’s departure wasn’t given. Ron most recently worked as senior vp - U.S. spirits and national accounts for Diageo. He will join William Grant & Sons officially in early July 2009 and will be based at the company’s U.S. headquarters in New York City.

Ron will report operationally to Simon Hunt, president and general manager, and functionally to Lesley Jackson, group finance director.

“We are absolutely thrilled to welcome Ronald Wall to the William Grant & Sons team. Ron is an accomplished finance executive with a proven track record and hands-on experience that make him the ideal choice for this important role in our organization,” stated Simon Hunt, president, William Grant & Sons USA and managing director, North America. “We have ambitious objectives for our portfolio and over the past couple of years have recruited some of the top talent in the industry. As part of our team, Ron will help take us closer to achieving our goals.”

BEAM GLOBAL’S RORY FINLAY ON WORK-OF-MOUTH MARKETING

Since Rory Finlay joined Beam Global Spirits & Wine as its chief marketing officer in 2007, the company has refocused its advertising model on word-of-mouth marketing. According to TNS Media Intelligence, Beam spent about $28.4 million on U.S. measured media last year, reports Jeremy Mullman of Advertising Age. In an interview with Jeremy, Rory says word of mouth marketing is “about brand behavior, which is really what the brand says and what the brand does. And then we look at how you articulate that through a creative message, whether it's in a bar, or on TV, or in digital.”

His ultimate goal is for “peple to be proud to drink Jim Beamo” but the company has to develop a creative way to do so. As Rory pointed out, “we’re not the biggest spirits player in the world, so if we just go replicate what a Diageo or Pernod Ricard does, we're not going to break through.”

Rory claimed that “there’s an opportunity” for spirits to gain share from beer. “...if you look at the long-term trends, beer has been on the decline and spirits have increased. A large proportion of consumers coming into legal drinking age are actually going straight to spirits, because of cocktail culture or what have you. Now the economy has slowed that down a little bit. But I do feel the beer occasion is an opportunity for us....”

CASTLE BRANDS SHIPMENTS GROW 1% IN THE U.S.

In the twelve months ended March 31, Castle Brands U.S. case sales increased 1% to 206,532 nine liter cases despite a volatile U.S. retail environment. Shipments for Gosling's rums increased 16%, the company’s bourbon brands increased 27%, Pallini liqueurs increased 11% and Brady's Irish Cream increased 17%. While sales decreased slightly on Knappogue Castle Whiskey, revenue per case increased significantly, as the brand was “repositioned to better compete with premium single malts.” Finally, while Boru vodka shipments were down -17%, price related spending decreased by -21% as the company “focused more on profitable markets.” Castle Brands also noted that the U.S. now accounts for 71% of total case sales “as the company focused on more profitable brands and markets.”

John Glover, coo said: "Our results show the immediate benefit of focusing sales and marketing on our more profitable brands. We continue to concentrate on controlling costs throughout the organization and promoting efficiency in our efforts to achieve profitability. Additionally, our reinforced partner relationships should have a positive impact on operations in the coming quarters."

WSD BRIEFS:

LEGISLATION TO REPEAL THE FLOOR TAX IN NEW YORK STATE has reportedly passed the Assembly. Recall that the floor tax requires business owners to pay the state an additional 11 cents per gallon of wine and 3 cents per gallon of beer in their inventories. This is on top of taxes they already pay.

WINEBOW AND YOUNG’S MARKET have signed an exclusive distributor agreement in California.

VAN GOGH IMPORTS AND VIRIDIAN SPIRITS have entered into an exclusive arrangement for Van Gogh to serve as the U.S. sales and marketing force for Viridian’s portfolio of absinthes, including category leader and flagship product, Lucid Absinthe Supérieure.

THE ORGANIC SPIRITS COMPANY has named Preferred Brands as their new broker/agents in the following states: Alabama, Arkansas, Georgia, Louisiana, Mississippi, North and South Carolina and Tennessee. With this addition the Organic Spirits Company will now have representation in 37 states.


Until tomorrow, Megan

“Knowledge comes, but wisdom lingers.”
Alfred Lord Tennyson

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YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Islands Feud over Captain Morgan Rum Deal

Dear Client:

Diageo, along with other companies such as Burger King Holdings, the builders of Nascar racing tacks and movie and television producers, are some of the unlikely beneficiaries of the emergency Troubled Asset Relief Program approved by Congress in the fall. As we know now (and even then) there was a lot of confusion surrounding the legislation with impending elections, threats of economic collapse and pressure from the Whitehouse, which enabled several hidden tax breaks for non-bank companies like the ones we listed above, reports Bloomberg.

Recall that in June of 2008 the U.S. Virgin Islands Governor John deJongh Jr. agreed to give Diageo billions of dollars in tax incentives if it moved production of Captain Morgan from Puerto Rico to St. Croix. Diageo complied and is now in the beginning stages of erecting a new Captain Morgan distillery (one that USVI is essentially funding with US taxes). Meanwhile, Bacardi Corp is based in Puerto Rico, and Chairman Joaquin Bacardi says the company will benefit from Diageo’s move to St. Croix.

BACKGROUND CHECK. The chair of the Senate Finance Committee, Max Baucus, thought the added provisions that allowed such tax breaks “wouldn’t be controversial” because they mostly renewed current laws. He reportedly didn’t realize at the time that it would eventually grant Diageo an additional $2.7 billion over the next three decades. In March Puerto Rican officials brought to light the amount of money they were losing to USVI, claiming it will be a disaster for the American territory.

RUM COME OVER is the name of the federal tax policy concerning Diageo. A $13.50 federal excise is collected over every gallon of rum sold in the U.S. by the U.S. Treasury Department, which then rebates it to the governments of Puerto Rico and the U.S.V.I. to help them pay for social services.

The second part of the tax renders a permanent $10.50 federal tax dating to 1917 that Washington turns over in full to the territorial governments and a $3 additional tax added in two phases in 1984 and 1993, of which $2.75 is rebated. That is the portion that Congress renewed in the October bailout.

DIAGEO’S DEAL WITH ST. CROIX. The Finance Committee’s staff director Russ Sullivan says that under the terms of the bill, the U.S gives the money to the island, not Diageo, which means that USVI “can do what they want to with their source of revenue.” In order to attract Diageo, USVI agreed to build the Captain Morgan distillery with the $250 million in public bonds that will be repaid with federal excise taxes from the U.S. The Virgin Islands will then give as much as 44.5% of the revenue to Diageo to promote Captain Morgan and provide funding for molasses. In exchange, Diageo agreed to stay in St. Croix for at least 30 years and hire 40 or more local workers.

Diageo lobbyist Michael Bertman noted in the Bloomberg article that the inducements gained from St. Croix will help the company “get a lot bigger,” but he also claimed that USVI needs the money more than Puerto Rico because its economy is much smaller. Of course Puerto Rico doesn’t agree.

Although Puerto Rico resident commissioner Pedro Pierluisis has introduced legislation to deny tax benefits for Diageo, its unlikely the bill will pass, says Fitch.

DISCUS STATED IN OCTOBER through spokesman Frank Coleman that the rum provision is meant to benefit the islands, not rum producers, and is usually renewed with little controversy. Of course, "being part of the bailout took it to another level," he noted.

Click here to view our coverage of the rum provision in October.

UST CHIEF DEPARTS IN JUNE...WHAT’S NEXT FOR STE. MICHELLE?

UST’s president and ceo Murray Kessler will leave Altria at the end of June after overseeing the “completion of the key elements” of UST’s integration into Altria, which included Ste. Michelle Estates. Recall that after Altria acquired UST, Murray agreed to stay on to help with the transition.

Michael Szymanczyk, chairman and chief of Altria, said, "Thanks to Murray's leadership, the integration of UST and its subsidiaries into the Altria family of companies has gone smoothly."

Murray then said he is “confident that USSTC and Ste. Michelle Wine Estates are in great hands and have a bright future."

So what does this mean for Ste. Michelle? There has been speculation since the deal between UST and Altria was announced that the winery would eventually be put up for sale. We’re confident that many parties would be interested in the Washington winery, but difficulties securing loans in this environment may postpone any possible acquisitions. Of course, there’s always the chance that Altria wants to keep the winery. Possible acquirers named in the past were Kendall-Jackson and Constellation Brands. What are your thoughts? Let us know at megan@beernet.com, where all names and indentifying information are kept secret.

WSD BRIEFS:

CONSTELLATION IS CUTTING PRICES for next year’s vintage by at least 30% in Australia’s Murray Valley due to falling demand. Constellation’s John Grant told growers at an industry forum in Mildura that “we been signaling consistently to them that they need to downsize. Those growers who are considering exiting the market should do so,” according to ABC News.

KROGER NAMES NEW PRESIDENT, COO. Long time employee Rodney McMullen will replace Don McGeorge who is retiring as president and coo, effective August 1. Don will reportedly stay with the company until December as a “special advisor” to ceo David Dillon, says WSJ.

SOURCES SAY THE GLAZER’S AND SOUTHERN DEAL is expected to close any day now. We’ll let you know as soon as we hear...


Until Monday, Megan

“It's all right letting yourself go as long as you can let yourself back.”
Mick Jagger

--------- 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: Tues
This month last year ended on a: Mon.
YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Washington Wholesalers Ordered to Pay Costco’s Legal Fees

Dear Client:

U.S. District Judge Marsha Pechman in Seattle says the State of Washington and beer and wine wholesalers must pay a majority of Costco’s legal costs in the infamous, long-running battle despite the fact that Costco lost most aspects of the case. The Seattle Times is reporting that the state and the Washington Beer and Wine Wholesalers Association will have to pay about $1.9 million, although the exact amount is still being worked out. Note that the state already paid Costco over $416k last year for another part of the case.

Judge Pechman ruled mostly in favor of Costco in the original lawsuit, where the retail giant claimed the state’s three-tier system was anti-competitive. Later an appeals court overturned most of her decisions. The one component that the appeals court upheld was eliminating the state’s post and hold rules, which Judge Pechman said was enough to force the state and wholesalers to pay for Costco’s legal bills. Her ruling seems odd, almost like a personal vendetta against wholesalers.

Costco attorney John Sullivan said yesterday: "We're pleased that the judge determined that we substantially prevailed in the lawsuit, and that the public interest was served."

According to the article, the state and wholesalers association haven’t yet decided if they’re going to appeal the decision. Assistant Attorney General Martha Lantz called the decision “disappointing,” while the attorney for the WBWWA, John Guadnola, said, “We don't have that much money" and indicated they would have to work with the state to divide the cost. It seems this case is never going to end. Recall that it started in 2004 and five years later we’re still dealing with the aftermath.

FISH EYE BOXED WINE RECOMMENDED BY CONSUMER REPORTS

The reviewers at Consumer Reports tested a number of different boxed wines in their July 2009 issue and uncovered three boxed chardonnays that “are very good.” Fish Eye 2007 ($16) was rated the highest, followed by Banrock Station 2007 ($19) and Black Box Monterey County 2008 ($25). The article encourages consumers to try other vintages as well since “manufacturers often achieve consistency from one vintage to another.”

They also tasted two boxed merlots, 2008 Banrock Station ($19) and 2007 Black Box California ($25). The article notes that “they are lower in quality, not very complex, and taste of overripe fruit. But if you're having a big party and not a wine tasting, they could fill the bill.”

Boxed wines prices are certainly a draw for consumer, especially nowadays. “Bottles might be prettier, but boxes are looking increasingly attractive to wine drinkers for one reason: They cost as little as $4 for the equivalent of a standard 750-milliliter bottle.” They quality has also dramatically improved from the old days.

NEW HAMPSHIRE IMPROVES LIQUOR COMMISSION

The New Hampshire legislature has approved an overhaul to the state’s liquor commission, which now awaits Gov. John Lynch’s signature (which he is expected to give). The new law establishes the commission as an enterprise fund agency, which makes it self-supporting. It will also realign the commission’s major departments, provide greater administrative freedom, and allow “broader discretion” to close unprofitable stores. Lastly, the new laws allow the commission to open up to 8 new agency stores in markets they feel would benefit. Chairman of the commission Mark Bodi said in a statement that adding new agency stores doesn’t signal a “shift into the private sale system.”

WSD BRIEFS:

WE HEAR THAT FOSTER’S AMERICAS laid off approximately another 100 employees – including long time employees – this week as the result of its Wine Review restructuring and slumping sales.

BILL PECORIELLO of ConsumerEdge Research is forecasting that Constellation’s wine sales will be “fairly flat...from a consumer takeaway standpoint for the upcoming quarter,” absent the destocking.

FOLIO FINE WINE PARTNERS will be the exclusive U.S. importer for all Masi Agricola wines effective July 1, 2009. Masi dates back to the 18th century when the Boscaini family first planted vineyards in Italy's Veneto region.

ONLINE ALCOHOL ADS LEGALIZED IN FRANCE. The French Senate has granted alcohol producers the right to advertise online under certain guidelines. The internet is now considered “established media” along with television and radio, which means alcohol producers can advertise on websites not aimed at children or that are not sports oriented.

KIRIN HOLDINGS has completed the sale of its 3.7% stake in Pernod Ricard to Le Delos Invest III, a unit of Societe Paul Ricard for $528.2 million.


Until tomorrow, Megan

“There's no present. There's only the immediate future and the recent past.”
George Carlin


--------- 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: Tues
This month last year ended on a: Mon.
YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Walgreens Launches New Plan to Sell Wine and Beer

Dear Client:

Walgreens has formally announced plans to once again sell beer and wine in its newly redesigned format titled Consumer Centric Retail stores. In addition to selling alcohol, the new format also includes lower and less cluttered shelves and higher-end brands in its private label program. How soon until Walgreens starts offering its own wine?

The program will be rolled out to about 400 stores this fall, and then will expand nationwide through calendar 2010. Its 35-store pilot programs “are performing ahead of plan on all metrics,” said chief Gregory Wasson. Recall that Walgreen stopped selling alcohol in most of its stores in the 1990s except in the South.

The chain is currently in the midst of applying for local liquor licenses. Walgreens estimates it will sell a limited selection of beer and wine at 70% of its almost 7,000 drugstores when the rollout is complete. Meanwhile, the company will slow its new store openings to about 2.5% to 3% annual growth.

Rumors began surfacing in the spring that Walgreens was looking to re-enter the alcohol business, as we reported in April.

PREMIUM CONSUMER BRANDS GAINING TRACTION, SAYS IRI

Consumers are still cutting back but not as much as they were in the fall of 2008, according to a new survey by IRI. In fact, many shoppers are increasing their purchases on premium consumer brands overall. The latest IRI Times & Trends Report, "The Value/Premium Dichotomy," reveals that value brands are growing rapidly in terms of dollars, while mid-tier brands lag. Premium brands are also picking up steam.

“Shoppers have moved away from their traditional brands to value brands, including both retailers' private brands as well as economy brands from national brand manufacturers," said Thom Blischok, president of IRI Consulting and Innovation.

They are also buying premium brands, which IRI calls "sophisticated splurging." For example, shoppers are still buying the premium brands they like but are purchasing them at value stores including dollar stores and supercenters. Meanwhile, grocery, drug, mass merchandise and club stores are seeing shrinking sales.

Sophisticated splurging is also being helped by the fact that retailers have improved their private label offerings with more high-end brands, and consumers are more concerned about health and wellness, says IRI.

The shoppers driving the premium trend are classified as “living comfortably,” instead of consumers in the “doing well” range who earning $55k in a two or more member household.

SWS AND DIAGEO RUMORED TO BE LOSING INTEREST IN BORDEAUX

Apparently there are some rumors at Vinexpo (we’re not there so we haven’t heard it directly) that Southern Wine & Spirits is “dramatically reducing its interest in Bordeaux,” reports Decanter.com. However, SWS president Melvin Dick said the accusations are “ridiculous” and that “Bordeaux is a major part of our fine wine business.” He did admit the company is currently not buying Bordeaux unless it’s absolutely necessary because the wholesaler is trying to cut back on inventories. “We have heavy inventory of 2006, 2007 and a bit of 2005,” he said. “These are tough times and we are being very careful.” Decanter also reports that Diageo’s Chateau & Estate Wines has halted orders of Bordeaux.

NEW LABELING RULES ON ORGANIC WINES

Based on a memorandum between the Agricultural Marketing Service (AMS) of the United States Department of Agriculture (USDA), the Alcohol and Tobacco Tax and Trade Bureau (TTB) has alerted the industry that AMS has changed the labeling policies for wines which contain both organic and non-organic grapes. If a wine label claims it is "Made with Organic Ingredients" and contains organic and non-organic grapes, the statement on the label must say one of the following:

"Made with Organic and Non-Organic Grapes";
"Made with Organic [variety] Grapes and Non-Organic [variety] Grapes";
"Made with _% Organic Grapes and _% Grapes";
"Made with _% Organic [variety] Grapes and _% Non-Organic [variety] Grapes"

Wines restricted to an "Organic Ingredients" statement must indicate the presence of any non-organic grapes in the "Organic Ingredients" statement. Here’s an example: Organic Merlot grapes, Cabernet Sauvignon grapes, tartaric acid. The wine must also bear a percentage statement, such as “55% Organic Ingredients.”

PERNOD’S PLAN TO CUT CONTRACTS IN NZ HAS LOCAL GROWERS PANICKED

There’s a lot of backlash in response to Pernod Ricard’s plan to cut contracts with Gisborne grape growers in New Zealand due to oversupply and falling demand. Pernod instead wants to shift its focus to New Zealand sauvignon blanc (which is huge) and away from sparkling pinot noir and chardonnay. Pernod managing director Famian Partifliani told local reporters that the company has “gone to considerable effort to stimulate consumer demand for Chardonnay,” but to no avail.

From what we understand, Gisborne contract grape growers have two choices: immediate termination with compensation or a two-year notice period. Only a small number of growers will be kept on.

“...We value our strong relationships with growers and any decisions regarding grape supply contracts will not be taken lightly. However, we must plan to get the balance right between supply and demand predictions and forecasts and our future grape supply must reflect changing consumer trends,” he continued.

President of Gisborne Winegrowers Society John Clarke believes the damage could be as much as 25% of the local tonnage, which is around 23,200 tons.

SPIRITS SAMPLES LEGAL IN MAINE, EFFECTIVE AUGUST 17

Maine Governor John Baldacci signed legislation that makes it legal for consumers to sample distilled spirits at tasting events held at liquor stores. The new law takes effect August 17. Under LD 498, liquor stores can conduct up to 12 tastings per year with a limit of 1.5 ounces per sample.

A total of 43 states allow some form of spirits tasting, including every other state in New England, says Discus.

“Spirits tastings are terrific opportunities to allow consumers a more informed purchasing decision,” said council vp David Wojnar. “Consumer tastings events are a widely-accepted means to let customers ‘try before they buy.’”

WSD BRIEFS:

DIAGEO HAS APPOINTED A NEW PRESIDENT of its Asia-Pacific region, Gilbert Ghostine, who is currently the managing director of Diageo Continental Europe, effective July 1. Gilbert replaces John Pollaers, who has held the role since the formation of Diageo Asia-Pacific as a separate region within Diageo in February 2007. The reason for John’s departure was not given. Gilbert will report directly to Ivan Menezes, chairman of Diageo Asia-Pacific.

ADMIRAL IMPORTS is releasing The Wild Geese Irish Soldiers & Heroes collection of super premium Irish Whiskeys, which celebrates descendents of Irish men and women who fled Ireland. The brand is new in the U.S. The line includes Classic Blend, Rare, Limited Edition and Single Malt.

THE AUSTRALIAN WINE AND BRAND CORP has appointed James Dominguez as the new chairman of the board. His three-year term kicks off on July 1. He replaces retiring chairman, John Moore.

WE ARE HEARING THAT wine and spirits distributors are being forced to take on more inventory from suppliers, likely due to “de-stocking issues” that distillers have recently blamed for softer sales results.


Until tomorrow, Megan

“The problem with the world is that everyone is a few drinks behind.”
Humphrey Bogart


--------- Sell Day Calendar ----------
Today's Sell Day: 18
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Tues
This month last year ended on a: Mon.
YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Alert: Beam Global Acquires Effen Vodka

Dear Client:

We’ve heard some rumors over the past week and now the deal has come to pass. Beam Global Spirits and Wine has acquired Effen Vodka from the Sazerac Company. In exchange, Beam Global sold the Old Taylor whiskey brand and inventory to Sazerac. Other terms of the transaction were not disclosed.

Since losing Absolut to Pernod Ricard last year, Beam has had a vodka gap in its portfolio now filled by Effen. Clearly the company will help expand its distribution and perhaps build Effen into an even stronger national brand.

“Effen Vodka is an excellent fit with our brand portfolio, and we’re excited to put our sales and distribution muscle behind it to accelerate the brand’s growth,” said Matt Shattock, the new president and ceo of Beam Global Spirits & Wine who recently replaced Tom Flocco. “Effen has built a strong following in select markets, and we believe our sales and marketing organizations can help expand distribution and build excitement for Effen in many more markets in the U.S. and around the world.”

Beam reports that Effen has annual net sales of approximately $10 million, and its distribution is currently concentrated in Chicago, Southern California and major Florida markets. Effen’s product line includes the flagship vodka, Black Cherry and limited edition Raspberry.


Until tomorrow, Megan

“You have to know how to accept rejection and reject acceptance.”
Ray Bradbury

--------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Tues
This month last year ended on a: Mon.
YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Preiss Imports Benefits from Cocktail Craze

Dear Client:

Every once in awhile we get emails from subscribers complaining that we focus too much on the “big guys.” Clearly there is much more to the wine and spirits industry than Diageo, Gallo, Constellation, Pernod-Ricard and other large suppliers, so we caught up with Steve Fox, National Sales Manager of Preiss Imports, for a quick chat on how the specialty spirits company is holding up during these tough times.

Steve has been with Preiss Imports for 17 years and says he is “very passionate” about boutique brands. “I’ve been preaching this and watching the momentum get better over the years.” We asked if he thinks the trend towards boutiques will last, to which he answered: “the family artisan type stuff is doing really, really well...that’s what our company has been living on.”

Preiss is a boutique spirits company that specializes in “high-end esoteric” brands that it imports from small companies around the world, said Steve. It specifically specializes in single malt Scotch and also imports such brands as the first super-premium tequila, Chinaco, in the 1980s. It was launched “long before Patron,” said Steve, “but Patron took it to the next level because they have the money and I give them a lot of credit.”

COCKTAIL CRAZE KEEPING PREISS “AFLOAT.” We asked how the economy has affected Preiss, and Steve said it’s done surprisingly well. “Products selling over $200 are slowing down,” he noted, “but they are starting to pick up a little bit.” It’s the “real expensive stuff” that is taking the biggest hit.

As other spirits companies have reported, he said that the six months from November to the first four months of this year were sluggish... “but eventually my stuff sales.” Cocktails also softened earlier this year but “are picking back up again...the cocktail craze is absolutely keeping us afloat.”

Brazilian Cachaca is “doing great” in the United States. The Cachaca producers have been “fighting for years” to gain their own classification in the U.S. (like vodka or tequila) but Steve said he’s not sure if it will ever get resolved.

In terms of whiskey, Steve said “I’m probably going to have my best June ever...we can feel the momentum is back.” July is also looking strong. He noted that Preiss thought things were coming back in April but it eventually petered out in May.

AU NATURALE. As a part of the cocktail craze, mixologists are increasingly seeking out quality mixers, garnishes and spirits to use for their drinks. About 3 or 4 years ago Preiss started selling Luxardo Maraschino Cherries, which has become very lucrative for the company. “They cost cocktail people 8 cents a piece and no one complains about the price...they’re all natural, don’t have artificial coloring or flavoring...they’re absolutely on fire.”

Meanwhile, he said it’s hard to go totally natural with liqueurs because they have to have food coloring but Preiss does the best it can. “We try to go as natural as we can but a lot of the natural products in Europe aren’t approved in this country so it’s not always as pure as we’d like...we’re being held back by the FDA in terms of how pure our products are.”

NEW YORK AND TEXAS “ON FIRE.” “New York is doing extremely well and Texas is absolutely on fire... probably my strongest growing market is Texas...Massachusetts is doing good, Florida has slowed down, California is coming back around and Vegas is doing just fine despite what everyone says...but New York keeps plugging away... its mainly on premise for us [in New York]...people eat out there, they don’t stay home because they can’t cook in their tiny 500 square foot apartments.”

While many spirits companies are hurting from consumers buying brands off-premise instead of on-premise, Steve said the on-premise is actually saving Preiss. “More of our categories are catching up on the on-premise which is our savior today,” whereas it used to be retail. “The on premise is setting the new trends.”

EXCISE TAXES TARGETING DISTILLERS. What about increases in state excise taxes? Steve said the company “had some great years” in Oregon, for example, but a new tax hike on spirits “makes it difficult for special orders” and “pops the bubble for us.” The government always targets “cigarettes and hard liquor,” he pointed out.

UK RETAILERS SHIPPING TO THE U.S. As a company that specializes in single malt Scotch, we asked Steve if he’s had any problems with UK retailers shipping directly to consumers in the United States. Certain websites make it easy for consumers to place an order, and this is of course problematic if federal, state and local taxes are not paid. It is also a problem if the direct shipment is conducted in a state where it is illegal or if it surpasses any quantity limits. Some collectors in particular are eager to bypass the three-tier system in order to get Scotch cheaper than they would from a retailer in the U.S. Steve agreed that it’s a problem and hopes the government will start checking packages more closely.

Recall that last October Anthony Foglio and Keith Greggor (formerly of Skyy Spirits) took a majority stake in Preiss Imports for an undisclosed sum. Steve said that they’ve “brought new insights into the company” and that it has been a positive step for Preiss.

BEAR STERNS VS. DEMETER FINANCIAL/PAHLMEYER VINEYARDS MOVES TO NORTHERN CALIFORNIA

WSD has learned that the lawsuit of Bear Sterns Merchant Manager vs. Demeter Financial Group and Pahlmeyer Vineyards has closed in New York and will move to Northern California. Earlier this month, Judge John Koeltl for the Southern District of New York granted a motion filed by defendant Demeter Financial to transfer the venue to the Northern District of California based on the “convenience of the witnesses.” According to the motion, “the Court reasoned that the key witnesses regarding liability (as opposed to the plaintiff’s damages) would be defendants’ employees, who were located in Northern California,” and “could be beyond the Court’s subpoena power.”

The original complaint was filed by Bear Sterns in October of 2008. It accuses Demeter Financial (which is based in Napa) of “duplicity” after allegedly going behind Bear Sterns’ back and secretly acting as a broker for Pahlmeyer Vineyards, which then allegedly broke its exclusivity agreement with Bear Sterns to strike a deal with GI Partners.

According to the lawsuit: “After promising to identify acquisition opportunities for Merchant Manager on an exclusive basis, Demeter separately agreed to act as broker for Pahlmeyer, one of the companies it identified to [Bear Sterns] Merchant Manager.” This took place after Demeter allegedly agreed not to reveal any “prospective Targets” to anyone else until Bear Sterns “released Demeter in writing,” which the company claims never happened.

Afterwards, Bear Sterns says it negotiated an exclusivity agreement with Demeter and Pahlmeyer from March 14, 2008 through June 6, 2008 “during which the parties ‘agreed to negotiate exclusively with each other...’” Pahlmeyer also agreed to “‘immediately cease and cause to be terminated any existing activities, discussions or negotiations with any third party with respect to an Alternative Proposal...”

Meanwhile, Bear Stearns claims that Demeter secretly “proceeded to shop Pahlmeyer to another potential purchaser during Pahlmeyer’s exclusivity period.” The winery then terminated its Exclusivity Agreement on June 6 with Bear Stearns and agreed “shortly thereafter to pursue a deal with the new potential purchaser that Demeter improperly obtained for Pahlmeyer.”

The “new potential purchaser” was GI Partners, according to the suit, which “Demeter identified and/or presented” to Pahlmeyer.”

Bear Sterns also says that Demeter “stands to reap a financial reward from its duplicity through a tail payment arrangement with Pahlmeyer which will pay Demeter when Pahlmeyer consummates the sale.”

As a result, the plaintiff “respectfully requests judgment in its favor and against Defendant, in an amount to be determined at trial, but believed to exceed Three Million, Seven Hundred Fifty Thousand Dollars ($3,750,000).”

The lawsuit has yet to open in Northern California but we’ll keep you posted as new developments surface.

WILLIAM GRANT & SONS HIRES NEW CHIEF

William Grant & Sons has hired Bacardi’s chief marketing officer Stella David as its new ceo, effective August 10. She will replace Roland van Bommel who decided to leave his post after five years with the company, although it’s not clear where he is going. Stella has held the position of cmo at Bacardi for four years, and also served as vp of global operations, MD of Asia Pacific and ceo of the UK and Dutch divisions.

PERNOD USA EXEC CHUCK SMITH ANNOUNCES RETIREMENT

Chuck Smith, senior vp, trade relations, Pernod Ricard USA, is retiring, effective July 15, 2009. He began his career in the alcohol industry with E&J Gallo in 1971. He joined Remy Cointreau New York in 1991 as executive vp of sales, and in 1999 joined Pernod Ricard as senior vp of sales for the former Austin Nichols, Inc.

“Whether working on strategic development initiatives with distributors, trade organizations, or as a member of our Responsibility Committee, Chuck leads by example, and has earned respect throughout the industry. While I am happy for Chuck as he heads into retirement, I know that his leadership and dedication will be missed,” said Jim Evans, senior vp, sales at PRUSA.

WSD BRIEFS:

WE RECEIVED A STATEMENT FROM SILICON VALLEY BANK regarding its supposed deal with Inertia Beverage Group. Here’s what they had to say: “Nothing has been made public yet but I’ll share with you that it is moving along according to plan. Nothing has happened yet and nothing has happened to suggest that it won’t happen. Sometimes it takes longer than a week to dot all the i’s and cross all the t’s.”

CORRECTION. In Friday's issue of WSD, we reported that WSWA now welcomes "legitimate shippers that follow state laws." However, WSWA chief Craig Wolf writes that the organization has "never altered our fundamental belief that direct to consumer sales are bad public policy.... My opening merely spoke to the fact that there are a slew of new models that create enormous challenges to regulators and I hoped the panel would help educate those regulators on the issues involved with these models." We apologize for the mistake.


Until tomorrow, Megan

“Men are not against you; they are merely for themselves.”
Gene Fowler

--------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Tues
This month last year ended on a: Mon.
YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

Panel Debate on Cyberwine Merchants

Dear Client:

Craig Wolf, ceo of the Wine and Spirits Wholesalers of America, led a panel at the NCSLA (National Conference of State Liquor Administrators) titled: “The New Cyberwine Merchants: Creating New Boundaries of Wine Distribution.” There are many different types of cyberwine merchants, and the panelists represented some of those various models. John Hinman, Partner, Hinman & Carmichael, and the general counsel for the Specialty Wine Retailers Association sat on the panel. He also served as the general counsel for 7-Eleven in California concerning the central warehousing proposal. Other panelists included Matthew Botting, general counsel for the California Department of Alcoholic Beverage Control; Ted Jansen of Inertia Beverage Group; and Bill Tomaszewski, general counsel of Wine.com.

JOHN HINMAN DEFINES CYBERWINE MERCHANTS. Who are the cyberwine merchants? “They’re wineries from our perspective that can’t get distribution through traditional means,” said John. This also includes cyberwine merchants that use “all available ad and marketing channels that currently exist and are in the process of being developed to reach consumers” such as mass media and targeted media.

“We are moving towards 7000 US wineries alone...there are possibly 70,000 wineries worldwide,” said John. Clearly there is a lot of product out there “attempting to get in the US market one way or another.” Cyberwine merchants give these producers an alternative to the three-tier in entering the marketplace.

TRUSTED WINE MERCHANTS. John feels that the most effective method in getting consumers to buy your products is to “get a third party voucher to endorse you,” which he described as “merchants who produce products other than wine” and have a “trusted” relationship with consumers. Some of these “trusted merchants,” as he put it, include Wall Street Journal, Williams Sonoma, Home Shopping Network, San Fran Chronicle, Sears, etc. Trusted merchants either taste wine, host groups that evaluate wines and/or make recommendations. They are not cyberwine merchants because they don’t sell wine, rather they sell information. He says they look for quality and value because their consumers trust their endorsement. “They are motivated to make good recommendations because they know consumers expect it.”

The basic model of the trusted merchant goes like this: a consumer places an order with the third party endorser; the trusted merchant collects information from the customer for transmission to the selling licensee, who is the only entity qualified to accept the order; acceptance of order by the licensee. The licensee is in charge of receiving the customer information, verifying funds, age, product availability, location of the consumer, and then either accepts or rejects the order.

If the selling licensee has appropriate permits they can ship direct, and go through all requirements including delivery and compliance (something that ShipCompliant oversees).

John claims this model doesn’t replace the three-tier system but rather works as a supplement. Of course, many in the industry disagree (such as regulators and wholesalers), so we will outline some of their issues below.

REGULTATORS ARE MEANT TO “IDENTIFY ISSUES,” SAYS MATT. Matt Botting provided the point of view of a regulator. Many of these cyberwine merchants have butted heads with him in the past so it was certainly an interesting panel. He claims that the California ABC has not approved or disapproved Amazon.com or other programs in the past. Rather, “our role is to identify regulatory issues and it’s up to various participants to deal with those issues.”

“I don’t meant to leave the impression that everything on the internet is a problem...or that everything these merchants are doing we have a problem with...it’s hard to tell which ones are doing it right and which ones are doing it wrong.”

He noted that “regulators have to deal with the pressure to fix the system...laws tend to be static and it takes a lot to change them,” which is the opposite of the business world that is “always moving forward... and those two concepts don’t always mesh well.” As a result, he said, there is “always pressure to bend the rules...to allow some new business venture to move forward...unfortunately us regulators can’t make up the rules to make it convenient.”

He said the three most common models are: agent of consumer, agent of winery and agent of retailer. There’s not a big difference between the various models, but the agent of consumer tends to be more ambiguous and involve multiple licensees.

One of the biggest problems for state regulators is they can’t regulate “rogue” shippers because they generally are not licensed. Clearly this is a source of frustration for licensed wineries and shippers who are doing things legally because they tend to get the brunt of everything.

Matt said the main regulatory issues are entities exercising privileges of other licensees; tied-house; offering free goods; and consignment sales. In case you were wondering, consignment sales involve the fact that retailers must actively own the wine being sold. It’s illegal for a retailer not to pay the winery until the sale is made.

In order to protect yourself, Matt advises against simply accepting “what you’re being told. Ask for documentation and read them. Compare them.”

He also noted that “transparency is good but does not define whether the whole system is appropriate.”

IBG “A LEGITIMATE BUSINESS,” SAYS TED. Next, Ted Jansen, the chief of Inertia Beverage Group (IBG) which has been the subject of much speculation over recent weeks regarding New Vine Logistics, spoke on his company’s model. “We see ourselves as a legitimate business trying to solve legitimate problems...we know there are some rogue companies out there...but there is a lot of room for legitimate business,” he said.

“There’s been enormous consolidation in three tier system...like John mentioned, we don’t see this as a substitute to three tier but a compliment to it...I don’t ever expect in this industry you’ll see the three tier dissipated.”

IBG’s model tries to provide serves to licensees “to allow for better and more efficient distribution” by “making sure we’re staying within the line of all states where we operate.”

“We think our model over time you’ll learn to support...we do a good job to make sure our clients are compliant...by filing the right reports and paying taxes.” They also ensure that consumers purchasing the wine are of legal age, in the right geological location and able to purchase wine all around. Ted says his company has about 300 winery customers.

IBG also gives “wholesalers the ability to use our system so they can move inventory responsibility to wineries...it allows them to represent in the marketplace but not take the title.”

They also ensure that “the licensee is the transactor of the sale and responsible for the product...all the things you’d expect them to be responsible for.”

“WHOLESALERS ARE OUR BEST FRIENDS,” SAYS WINE.COM GENERAL COUNSEL. Bill Tomaszewski of Wine.com opened his talk with a bold statement: “We do internet sales right and I’m not going to take a no as an answer from you.” Their operating model differs greatly from IBG because they have licenses in MA, NJ, NY, NC, WA, CT, and CA (which has the best selection and prices of all the warehouses) where they operate actual brick and mortar stores. “We are no different than your corner liquor store. We are exactly the same thing...the only difference between corner retail store and Wine.com is you don’t walk into our store...we ship it to you.” Our brick and mortar stores “ensure the adherence to all laws affecting pricing, packaging, advertising and more.”

He also said that “wholesalers are our best friends. We couldn’t exist without them. We buy our wines from a wholesaler.”

“We comply with all the states. Local taxes are collected and beverage excise taxes are collected at the wholesale tier.” Wine.com also ships to other states where it is legal to do so.

“We have a license. You know who is selling the wine, there is no subterfuge.”

THE ARGUMENT AGAINST TRUSTED MERCHANTS: WHO’S TO BLAME IF SOMETHING GOES WRONG? One of the problems surrounding the trusted merchant is they cannot be held liable if something illegal takes place because they are not licensed to make the wine sale. Craig addressed this in the question and answer section asking who is responsible if something goes wrong – the trusted merchant or the shipper – to which John responded: “The licensee making the sell is the one who should be held accountable...retail license in every state is conditioned on obeying laws, state and federal. So if a retailer doesn’t have a permit and violates a law they can be persecuted by local government.”

Matt noted that some parties are telling wineries they can do extra things that are otherwise illegal for licensed entities because they’re not licensed, to which Matt retorted: “that’s baloney.” Instead, the licensee, or winery, will get in trouble. “If they don’t hold a license they are outside our administrative jurisdiction...licensee is in trouble, not the non-licensee.”

“WILD WEST” OF RETAILER SHIPPERS. Bill seconded that by saying: “All retailers profit from being uncompliant...it’s a wild west for them...the people that get in trouble are those who are compliant...people without licenses like retailers in NY and NJ are making a lot of money because they’re not paying taxes and no one is regulating them or watching over them...while Wine.com has spent a lot of money to be compliant and if I happen to get caught up in a sting in Massachusetts I get banged pretty big with a lot of publicity...meanwhile people in another state that ship to a minor gets away scott-free” because they are unlicensed.

THE “MICE AROUND THE ELEPHANT.” This led the conversation back to Ted who maintained that companies such as IBG are “doing our best to stay within regulatory framework.” John agreed, claiming the conversation is focusing on “the mice around the elephant,” meaning the rogue shippers and the trusted merchant. “They [the rogue shippers] are small players that won’t last...you think the Wall Street Journal will associate themselves with them?”

IT’S A MATTER OF TIME AND MONEY, SAYS MATT. Matt, meanwhile, made the point that regulators don’t have the money or time to prosecute these rogue retailers, which is understandably frustrating for shippers like Wine.com. Matt said that if the illegal shippers are operating in California they can pin a misdemeanor transaction on them, but it is a timely process because they have to find someone willing to prosecute them. Attorneys are busy with bigger offenders such as murderers and rapists, he said. If the offender is out-of-state, “there are very, very limited options and very expensive options.”

A “CONFLICT” OF DOING BUSINESS. To that, John claimed that “a conflict exists in every business...today we have good compliance reporting.” He said the beef of the problem existed 5 to 10 years ago. He also encouraged wineries and regulators to utilize carriers and credit card companies. “The carriers have a big part in this. They are your best enforcement friends...American Express and UPS will tell you in a nanosecond if you don’t have a permit.”

AN UPDATE ON INERTIA AND NEW VINE LOGISTICS

New Vine and Inertia Beverage Group (IBG) dominated conversations at the NCSLA this past week. After talking to a lot of people in and out of the wine industry, we’ve pieced together a bit of news.

Right now it’s not clear how many clients New Vine has left, although they stated last week that shipping has resumed. For now it sounds like IBG is sitting back and waiting to see what happens. If possible, it would like to fully acquire New Vine but that all depends on Silicon Valley Bank. We’ve heard that IBG is close to finalizing its deal with Silicon Valley Bank (if it hasn’t already) but requests for comment were not returned by press time.

If the deal goes through and Amazon stays on board, this could be huge for IBG. From what we understand, Amazon is way too invested at this point not to go forward with its direct-to-consumer wine shipping plan, or Amazonwine.com. What’s not clear is if they’ll remain with New Vine or join another compliance company.

Meanwhile, Sears is also trying to enter the wine shipping business as a “trusted merchant” but has yet to gain access to California from what we understand.

SHIPCOMPLIANT LAUNCHES AUTOMATED WHOLESALE SOLUTION

The guys at ShipCompliant have released a new automated wholesale compliance solution designed to cut out a lot of the guesswork for wineries when dealing with wholesalers. As a result, it should make things simpler for wholesalers as well and create an overall smoother process.

It’s described as “a user-friendly in-house system that consolidates exhaustive amounts of details into a comprehensive database.” It analyzes every invoice against a set of more than 20 different rule types to ensure that every product is properly registered, renewals and revisions are up to date, licenses are valid, product prices are consistent with what has been posted in price posting states, and product limits have not been exceeded.

It’s a web-based solution and therefore available at any time, from any computer. Wineries and importers can create multiple user accounts so that senior management, the compliance team and the sales team in the field have access to the same up-to-date information.

The Wholesale solution is available on a first-come, first-served basis as a standalone product or as an add-on module for existing ShipCompliant Direct subscribers. For more information, visit www.shipcompliant.com/wholesale.

WINE.COM ENTERS “LOGISTICS” SIDE OF THE INDUSTRY

Speaking of Wine.com and its business model, the company is now launching a new direct-to-consumer fulfillment division for wineries called Wine.com Logistics. It will operate out of Wine.com's Berkeley, CA warehouse. The company is banking on its eleven year history and reputation after the all the uncertainty created by New Vine Logistics’ shutdown a couple of weeks ago.

"We've been looking at this for some time," said Rich Bergsund, Wine.com ceo. "We already have warehouses and call centers, we've shipped millions of orders direct-to-consumer and we understand the importance of a great customer experience. Wine.com Logistics is a natural extension of our core business."

Wine.com will provide warehousing, pick/pack/ship and call center support for winery wine clubs and daily orders placed by consumers with wineries. Inventory will be owned by the wineries and segregated from inventory owned by Wine.com for its retail business. Wine.com maintains a California ABC Type 14 public storage license in support of these services.

AUSTRALIA CRUSH DOWN -7% BUT STILL TOO HIGH

The crush report for Australia’s 2009 vintage shows that yields declined -7% or about 125,400 tons. The total intake was 1.71 million tons, compared with 1.83m tons in 2008. While it’s below the five-year average of 1.79m tons, it’s still higher than estimated and exceeds current demand. Red winegrapes recorded a slightly larger decline than white, but still accounted for 52% of total intake. Shiraz regained its position as Australia’s most popular variety for the first time since 2006. While dropping to second behind Shiraz overall, Chardonnay remained the clearly dominant white variety.

DISCUS BLASTS NJ PROPOSED TAX INCREASE ON WINE AND SPIRITS

Discus issued a statement blasting the New Jersey legislature for targeting the “already struggling hospitality industry during a recession.” Discus said the proposed tax increase “will destroy 1,000 hospitality jobs.” Recall that the proposal calls for raising spirits and wine excise taxes by 25% from $4.40 to $5.50/gallon on distilled spirits and from $0.70 to $0.875/gallon on wine. Over 60% of the cost of a typical bottle of spirits in NJ already goes toward taxes.

“Policymakers need to understand that because alcohol taxes are already extremely high, any additional increase will hurt business and cost jobs across the hospitality industry -- waiters and waitresses, store clerks, busboys and bartenders,” said Jay Hibbard, Discus vice president. He said that over 11,000 state hospitality jobs have already been lost over the past year due to the recession.

YOUNG’S MARKET TAPS FORMER PERNOD VP, DAN GRUNBECK

Young’s Market Company’s chief Christopher Underwood has appointed Dan Grunbeck as senior vp of wine for California. The appointment is effective July 1, 2009. Most recently Dan served as vp/national sales manager wine and champagnes for Pernod Ricard.

In a statement, Christopher said: “We are excited that Dan has agreed to join the Young’s Market team in this newly created position. Dan is a 20 year industry veteran with incomparable wine experience and expertise. We are confident that his contributions to Young’s will exceed our high expectations.” Young’s has operations in California, Arizona, Hawaii, Oregon, Washington, Alaska, Idaho, Utah, Montana and Wyoming.

DISCUS AND OTHERS RECEIVE “BEST PRACTICES AWARDS.”

The National Conference of State Liquor Administrators (NCSLA) issued their annual Best Practices Awards to five of their members this week. Discus won for “Best Practices Media Summit,” a free seminar where industry members and media experts exchanged ideas about placement methods and advertising content that highlight responsible spirits advertising.

The Oregon Liquor Control Commission won for its “Last Call” video project; Goodfellow Air Force Base developed by the Texas ABC, local retailers and law enforcement to combat alcohol violations; the Military Outreach initiative lead by the Virginia ABC against underage drinking; and “The Best Is Yet To Come” media campaign by the Virginia ABC and the Alcohol and Aging Awareness Group (AAAG).

WSD BRIEFS:

SAINT JAMES APPOINTS RICHARD HURST AS CEO. The Saint James Company says it has appointed Richard Hurst as its ceo. Prior to joining Saint James, Richard served as svp corporate strategy at Diageo and most served as svp beverage alcohol at The Nielsen Company.

CONGRESSIONAL BOURBON CAUCUS LAUNCHES THIS WEEK. The U.S. Congress launched the Congressional Bourbon Caucus this week – a bi-partisan group dedicated to maintaining and strengthening the Bourbon industry. Beam Global president Bill Newlands said the caucus “demonstrates the important and contributions of America’s distillers and vintners to the economy,” and noted that the Bourbon industry provides “more than 3,000 jobs in Kentucky and more than $3 billion in gross state revenue.” U.S. Reps. John Yarmuth and Brett Guthrie will serve as co-chairman of the caucus.

WINERELEASE.COM REVEALS RESULTS OF RESTAURANT SURVEY. WineRelease.com surveyed 570 of its subscribers on questions concerning wine in restaurants. To check out the results, click here. Some of the findings include: 37% believe a $15 corkage fee is fair; 739% believe wine bottles shouldn’t be returned unless there is a technical flaw; and the majority want wine lists to be organized by grape varietal, but country/region of origin is also popular.

DELAWARE GROCERY BILL TABLED. A bill (HB 193) to sell beer and wine in Delaware grocery stores was tabled by a House committee this week citing concerns over increased access to minors.

WE APLOGIZE FOR THE LENGTH of today’s newsletter. Your editor had a rather nasty case of vertigo and as you may have noticed didn’t publish yesterday.


Until Monday, Megan

“Love is an act of endless forgiveness, a tender look which becomes a habit.”
Peter Ustinov

--------- Sell Day Calendar ----------
Today's Sell Day: 15
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Tues
This month last year ended on a: Mon.
YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily

The Move Towards Automation

Dear Client:

Automating compliance systems seem like a common sense move but regulators still need a push in making the switch, according to a panel led by Alex Heckathorn, moderator, who is also the principal of Compliance Service of America. “Automation can be very helpful to you,” he said. The explosive growth in SKUs from wineries and other producers is increasing three-tier reporting, he said, not to mention direct to consumer wine shipments that typically require a whole new reporting system for states.

Some of the most “explosive” categories include flavored vodka, rum and tequila; flavored beers and malt beverages; and of course wine. The TTB approved 110,000 new wine brands just last year. On top of that state regulators have to deal with direct to consumer reporting.

When direct shipping was first introduced in 2005, reporting duties initially deterred small and medium wineries from shipping direct. Now, new technology and software solutions have given states more options in how they monitor their reporting duties, and it “does require expensive IT solutions.”

States that have already have done these things include Georgia, California and Florida. COLAs online have also “been a big success,” said Alex. Now, 62% of new COLAs are filed electronically. The TTB has helped “eliminate the fear of electronic reporting.”

THE SKINNY ON SHIPCOMPLIANT. ShipCompliant focuses on the administrative side of compliance. They don’t actually ship the product, but help wineries fill out reports, follow state laws and remain legal. One of the biggest inefficiencies with compliance is all the paperwork – both for the regulator and the wineries. As ShipCompliant’s ceo Jason Eckenroth said in his presentation, “Electronic filing saves a tree every 6 seconds.” His quote isn’t based on facts, but you get the picture.

“The single biggest impact on the wine industry has been direct to consumer sales,” said Jason. “With that there has been an explosion of regulation.”

Just to put things into perspective, the number of reports an average winery must file per year has grown 200% since 2004. As a result, wineries have become “more efficient” in filing reports. Now it’s up to the regulators to moderize.

“Producers have figured out how to scale reporting costs, have you?” he asked. States have to deal with about 5,000 wineries so you can only imagine the amount of paperwork they see. Only about 13% of wineries in the U.S. ship to Texas, for example, and that equals to about 35,000 sheets of paper per year, said Jason.

Jason divided state agencies into two group: those that represent markets that are new to direct shipping (such as Tennessee, Kansas and Maine); and incumbents that have an existing direct shipping market. Clearly the new guys can start with a clean slate. The incumbents will have to actually overhaul their current system to a more efficient way to ship. As you can imagine, the major challenge for ShipCompliant is there are a “lot of disparate systems.”

“The solution we chose was web services...we developed a series that allows wineries to run compliance checks and send data in a consistent format.” The software also “allows other companies to leverage this effort.” He said it “took awhile,” but they’re “starting to see a trend away from spreadsheets, which means humans don’t touch the reports in between,” said Jason. All in all the reports are more consistent and without human error.

DIGITAL TO ANALOG. In order for ShipCompliant’s customers to comply with state regulators, they fill out the reports online and then print them. Some wineries “literally mail boxes full of papers.” Clearly there is a need to move to e-file and automation.

Jason recommends that if regulators decide to comply with the e-file system, they need to start slow and simple. Try a PDF form submission, spreadsheet or XML submission, for example. Also, he encourages regulators to look internally at their staff to help with design and implementation. “You’ll be surprised by people on your staff that can do this.”

“The suppliers are ready for this from a technology perspective. They want to improve the filings they make to your states...the cost has never been lower for e-filing.”

STATES NOW HAVE TIME FOR COMPLIANCE. The next two panelists shared their experiences with automation. Anne Hutchison, Auditor, Office of State Tax Commissioner, North Dakota decided to go electronic once she realized the time she was wasting with paper.

“I was using most of my time reviewing perfectly good reports on paper for discrepancies or re-keying in info for spreadsheets...it was time consuming and yielded minimal results....most discrepancies were from shippers that weren’t licensed and I didn’t have their reports...papers I was reviewing, were not where the problem was.”

She pointed out that most people can use Excel and send emails. One idea is to build an Excel workbook based on monthly reports from UPS and FedEx. They use this “to identify unlicensed shippers and contact them.”

A few tips from Anne: keep it simple; keep all data and cell formatting consistent between various reports; keep all forms in a similar format and design; and convert all alcohol volumes to gallons or liters.

EMPLOYEES ARE NOW BETTER OFF. “We had several employees that just filed paper work...no time for compliance...now as a result of electronic filing we don’t shuffle paper,” said Anne.

Most importantly, they didn’t have to cut staff. Now those employees who were “shuffling paper” are focusing on compliance and they’re happier for it, said Anne. She noted there was some “panic” in the office at first from employees concerned about losing their job to the new automation system, but “they were reassured by the tax commissioner and supervisor that you will not lose your job.”

“Now those people sitting there doing all that mundane work before are opening emails, scanning letters and vouchers, things like that...I think we have them busier now more than ever...now they are doing compliance...when you start doing compliance you’re going to need that staff.”

AUTOMATION DRIVES WEBSITE TRAFFIC. Rick Garza basically seconded everything Anne said. As the Deputy Administrative Director of Washington State Liquor Control Board, he said their goal was “to drive everyone (wholesalers, suppliers, retailers) to our internet site...so creating web based programs or applications was something we always wanted to do...having this legislation adopted gave us funds to put this system in place.”

In all it was about a six month process to move to automation. Washington started with wineries and breweries in-state, and then moved to in-state and out-of-state wine shippers and consumers. He agreed that “customers have been very happy with the electronic system.” It has resulted in a “reduction in workload.”

DIAGEO ACQUIRES THE REST OF STIRRINGS

Diageo increased its 20% stake in the cocktail mixer group to 100%. Financial details were not disclosed. Larry Schwartz, president of Diageo USA, said the purchase “creates more synergies” and “fits squarely within our at-home strategy.” As people drink more at home, spirits companies like Diageo, Fortune and Brown-Forman are selling more pre-mixed cocktails.

Stirrings brands will join all Diageo brands in its distributor houses across the country. Steve Rust, senior vice president of Reserve Brands, will oversee sales for the brand and Bob Swartz will stay on as ceo of Stirrings.

DUCKDORN DEVELOPES CHEAPER WINES FOR THE RECESSION

A new article in MarketWatch outlines the steps Dan Duckhorn is taking to deal with the recession. He’s been in the biz for 30 years but has never seen anything “quite as challenging.” He reiterated that people are buying cheaper wine and interestingly “a lot of that is being made up by imports.” I’m assuming he means cheaper wines from Chile, New Zealand and Argentina.

Even more interestingly, he admitted that “we probably overstepped our bounds, all of us, and reached out too far in price.” Duckhorn usually sells for about $50-$100 a bottle, so now the company is exploring price points and “our ability” to go down in price by launching more affordable extensions to its Decoy and Migration labels, and even considering adding a Chardonnay to the portfolio. The question over whether these new wines will age as well, he doesn’t think people really care anymore. According to Dan, “wine cellars are being depleted” because consumers now want “instant gratification.”

SPENDING UNLIKELY TO BOUNCE BACK AFTER RECESSION

A new report by Rabobank supports what Dan said in his interview with MarketWatch. As we’ve heard from other outlets such as Nielsen, Rabobank doesn’t think consumers will magically bounce back to their old spending habits after the recession. Sure, things will improve, “but many of the pre-recession spending trends were somewhat unsustainable. I think consumers have changed,” said Rabobank's Food & Agribusiness Research and Advisory (FAR) Executive Director Stephen Rannekleiv.

Of course just two years ago all we heard about was trading up among consumers. Now it’s the opposite (not to say that trading up has completely diminished). "This increased price sensitivity of consumers comes on the heels of an unprecedented trend of trading up. Where you saw consumers willing to spend more for small luxuries and premium products," he continued.

Between 2003 and 2008 bottles priced more than $15 a bottle saw the most sales growth while value wines (priced below $3), were in decline. Now it’s just the opposite. Wines above $15 are growing a little less than 2%, while wines below $3 are up 8%.

FRED FRANZIA GOES AFTER YELLOW TAIL

As I’m sure you’ve probably heard (and we’ve reported in the past) the infamous Fred Franzia of Bronco Wine Company is launching Down Under by Crane Lake to compete directly with Yellow Tail. It’s an Australian Chardonnay that sells for half the price of Yellow Tail, which retails at about $6. If asked whether the low pricing was sustainable, Fred responded “I heard the same thing about Two Buck Chuck seven years ago. If you choose to be competitive you make yourself competitive.”

WSD BRIEFS:

FOSTER’S GROUP IS USING LANDMARK to run a national ad campaign for the 31 vineyards and 2 wineries the company is trying to sell. Lankmark has reportedly teamed up with agribusiness real estate specialists seeking potential buyers. Credit Suisse analyst Larry Gandler said that the properties will most likely sell for less than the book value of A$240 million.

STE. MICHELLE WINE ESTATES has named Constant as Vice President for Global Accounts Development. Lou joined Ste. Michelle Wine Estates in 1997 as State Manager for New York.


Until tomorrow, Megan

“A dog owns nothing, yet is seldom dissatisfied.”
Irish Proverb

--------- Sell Day Calendar ----------
Today's Sell Day: 13
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Tues
This month last year ended on a: Mon.
YTD sell days Over/Under: -2

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.

Follow me on Twitter http://twitter.com/WineSpiritDaily