WILL CONSOLIDATION HURT THE WINE INDUSTRY?

Although the wine industry is still rather fragmented, it is moving closer and closer to a heavily consolidated environment. Wine Business Monthly reported that “the big three” – Constellation Brands, E & J Gallo, and the Wine Group – sold a combination of 171 million cases of wine last year, roughly 60% of U.S. wine sales. Jon Fredrickson of Woodside told W. Blake Gray at the San Francisco Chronicle, “There’s always been a big three, as long as I’ve been in the business. The difference now is the big players are creating big brands overseas.” Consolidation is bad news for small wineries because they have to haggle with the giants for distributors and retail and restaurant space. Wine lists at national food chains “are dominated by Beringer and Gallo. The very large guys have to maintain supply and volume to maintain their distribution channels,” said Barbara Insel, managing director of MKF Research LLC. Constellation’s marketing survey, Project Genome, found that 68% of wine-drinkers do not really care where their wine comes from and are categorized as either satisfied sippers, overwhelmed, or traditionalists. These people are more likely to stick with a wine they are comfortable with which will most likely fall under “the big three.”

BEER MAY TRUMP WINE AND SPIRITS IN 2006

According to ACNielsen, consumer tendency towards up-scaling will soon apply more to beer as it already does towards wine and spirits. Beer is predicted to make a comeback this year as the industry focuses on creating more occasions where consumers drink beer. “The ultimate goal: increasing beer’s usage occasions by taking it from the ball game to the nightclub and from the couch to the dinner party. By leveraging the lavish qualities of beer, the category will likely snag some image-conscious drinkers currently loyal to wine and spirits,” says the report.

Furthermore, brewers are likely to put forth “a slew of flavoring innovations” like pumpkin spice, blueberry and winter ale. “‘Product innovations will reestablish beer as America’s beverage,’” said Nick Lake, VP of business development at ACNielsen. “‘The success of mini-kegs and cooler packs are just two examples of innovations making it easy and desirable for people to add beer to their social occasions.’” Also, expect increased sales in imports and craft beers as consumers look towards higher-priced brews.

COLORADO MOVING TOWARDS DIRECT WINE DELIVERY

Currently, Colorado does not allow its wineries to ship directly to consumers but Rep. Bernie Buescher is working hard to change that. His House Bill 1120 would allow Colorado wineries to ship directly in and out-of-state while forcing out-of-state wineries to purchase a $50 permit to ship their wines to Colorado consumers. The bill made it through the House Finance Committee and now moves to the House floor. According to the The Daily Sentinel, Bernie does not expect any opposition.

COOL-CLIMATE GRAPES SUFFER MORE FROM AUSTRALIAN GLUT

Tasmania’s wine industry is feeling the negative effects of the grape glut due to an over-abundance of cool-climate grapes. Although Australian exports continue to rise, 80% are made up of cheaper warm-climate varieties. As quoted in The Mercury, Stuart Tasmanian Vineyards Association president Stuart Bryce said, "Therein lies the reason for the wine grape glut in the cooler growing regions. During the massive increase in exports, domestic market growth has been modest, so a build-up in wine stocks was inevitable."

Small, Tasmanian wineries cannot afford to lower prices in order to generate cash flow unlike large wine-producers. "If we drop our prices, we go broke. Additionally, that would also effectively be revaluing our brands. If you take a well-known $25 bottle of wine and start selling it for $20 just for cashflow, you can never realistically expect to sell it at $25 again," says Stuart. However, selling cleanskins – wines with labels that do not identify the vineyard – could help protect the wineries without hurting brands. "Selling cleanskins means you're not revaluing your own brand, but you have that cashflow," he said. The Tasmanian industry is already working on marketing strategies to help them make it through the glut and soften its effects.

CONSTELLATION WORKERS DEMAND A 15% PAY RAISE

Australian workers at Stanley Winery, a part of Hardy Wine group owned by Constellation, performed a 24-hour strike last week over pay and conditions that could possibly turn into an eight-week strike. A spokesman for Constellation said the company is standing strong: “The management in Australia is working to resolve this, but from what I have seen of the situation, it has to be reasonable.” The Independent reported that the Australian Workers’ Union wants a 15% pay raise over the next three years while Stanley Winery is offering only 10%. Although there are concerns that the strike may affect supplies, the spokesman insisted everything is fine. "There's an ample supply - it's not as if people will go to the store and the shelves will be empty.”

DIRECT SHIPMENT FALLS UNDER SCRUTINY IN INDIANA

If passed, Indiana’s House Bill 1190 will halt all direct wine shipping and limit sales to retailers. However, the law will allow wine-makers to sell bottled wine to consumers at three locations other than their winery, and increase the number of days a year that wineries may participate in a trade show from nine to thirty. As expected, most vintners believe the proposed law is bad for business. Dorothy Gahimer, owner of Terre Vin winery in Rockville, says, “Being able to ship wine inside and outside Indiana will increase our business growth.”

The bill was passed by the House Committee on Public Policy and Veterans Affairs and up for a subsequent review this Thursday afternoon, February 2. The Senate has a bill, SB 0110 allowing shipping and retail sales, pending in the Commerce and Transportation Committee which is where it will likely stay. According to the Herald Journal, “Monday morning is the last day for committee hearings and the bill isn’t on the list yet.”

FROM POLITICS TO SPIRITS

DISCUS announced today that Ben Jenkins will serve as the new communications director for the organization. Ben recently served as press secretary for the Republican Governors Association, an experience that “will be of great value to our organization as we work in the states to communicate messages about our industry,” said DISCUS President Peter Cressy.

MERLOT SHOWS DECLINE IN POPULARITY

ACNielsen reported that wine sales increased 10.2% in the 13 weeks ending September 24, 2005. While the three most popular varietals remain in tact - Chardonnay as the most popular, Merlot coming in second, and Cabernet Sauvignon remaining last – there are some surprising developments.

Chardonnay and Cabernet sales both rose by 7.8% and 13.7%, while Chardonnay’s case volume grew 4.2% and Cabernet gained 6.7%. Merlot, however, has shown a decline since April 2005 with sales decreasing -1.7% and case volume falling by -2.4%. In the 52-week period ending September 2005, though, Merlot wasn’t looking so bad. Sales had increased 3.1% and case volume grew 2.4%.

Chardonnay commands 26.5 % of the U.S. wine market, while Merlot stands at 12.6% and Cabernet at 11.9%. As the fourth most popular selling wine, white Zinfandel is also at a decline, losing 2.1% in dollar sales and 9.9% in case volume for the 13-week period. Zinfandel holds a market share of 6.3%.

MOVE OVER FRANCE, U.S. WINE IS COMING THROUGH

Perhaps U.S. wines have little to fear from imports despite the abnormally large 2005 grape harvest. Experts say that the American wine market will jump ahead of France and become the largest wine-maker by the end of the decade. Jon Fredrikson, Woodside wine analyst, reported that 2005 was a great year for U.S. wine where record volumes and sales were reached. "From the perspective of 3½ decades in the wine industry, I can assure you right now that things have never been better in this market and the future looks outstanding." Close to 300 million cases of wine were purchased by American consumers, generating $25 billion and leading the country one step closer to outstripping France and Italy. And although the old world countries still consume far higher amounts of wine, they are slowly slipping downwards. Jon assured listeners at the Unified Wine & Grape Symposium that, “If we continue to grow at just 3 percent through the end of the decade, we will be the largest wine consumer nation in the world.” Furthermore, all indications show that 2006 will likely produce a much smaller grape harvest and help out with supply.

A NEW ALIAS FOR JIM BEAM

Jim Beam Brands has officially changed its name to “Beam Global Spirits & Wine” and will make a formal announcement on Monday. The change was due partly to their $5 billion acquisition of premium liquor brands including Sauza tequila, Courvoisier Cognac, Canadian Club whiskey, and a range of new wines that came from the Allied Domecq breakup. Jim Beam is now ranked number 4 among global spirits companies and contributes 45% of the operating income to Fortune Brands. Chief Tom Flocco believes the new name will better resonate with consumers in other parts of the world. "We want to get them all aligned with a common purpose…it's a name that works because it does have a lot of flexibility inherent in it," he said.

WISH THEY ALL COULD BE CALIFORNIA WINES

The Wine Institute is urging California vintners to connect their wine to the “California message.” This means focusing on California’s scenery, lifestyle and food, and projecting the already “positive impressions that Americans have of California.” Surfing anyone? “We are asking wineries to always begin their wine conversations with a few words about what makes California a special place to grow and make wine,” said Tom Klein, chairman of the Wine Institute Market Development Task Force. The Institute believes that putting forth the “California message” will better position Cali wines in the increasingly competitive U.S. market. "Calling attention to the favorable image of California and California wine further develops the U.S. market for our members and supports Wine Institute’s public policy mission," said Bobby Koch, President and CEO of Wine Institute. In doing so, a panel of experts suggested that California wine-makers be open to customer feedback and focus on highlighting the unique attributes of their winery. "We need to leverage the unique regions, creativity, ingenuity and break-the-rules approach to life that epitomizes our industry and link it to our wines," said Barbara Insel, Managing Director for MKF Research.

NEW ZEALAND WINE CO. POSTS HIGH VOLUME SALES

The New Zealand Wine Company has made a profit of A$413,000 for the half year to December, a 4.1% increase from last year. Chairman Mark Peters said the growth is mostly due to a 9.8% rise in gross revenue to A$4.62 million. Mark says, “Such volume of sales, even despite the high dollar levels, have enabled the company to continue to invest in brand building.”

TOTO, NO DIRECT DELIVERY IN KANSAS ANYMORE

Today’s direct delivery query comes from Kansas where fledgling wineries fight to skip the use of wholesalers and ship directly to customers or retail shops. In the past three years, the number of wineries have grown from 7 to 16 and “has the potential to be a major contributor to the state agritourism and value-added industries,” said Norman Jennings, legislative chairman of the Kansas Grape Growers and Winemakers Association. However, many Kansas wine-makers believe that if new legislation is passed, the wine industry will go down. Senate Bill 370 allows individuals to order wine over the Internet or telephone, but the wine must go through a distributor first before being shipped to a liquor store where customers can pick up their order. Greg Snipe, owner of Davenport Vineyard and Winery, said, “The current bill would make it so cumbersome, unwieldy and expensive for an individual consumer to ship wine into the state that we would be surprised if a single transaction took place.”

Tuck Duncan, lobbyist for the Kansas Wine and Spirits Wholesalers Association, takes a different stand. “This system makes it absolutely as simple as possible,” said Tuck. The bill is meant to act as a safeguard against underage drinking and lost tax dollars. Also, claims Tuck, the new law would ensure that in-state and out-of-state wineries were treated the same since in-state wineries are currently allowed to ship directly. As of now, Kansas “allows for discriminator treatment to the preference of in-state wineries. We’re just saying everyone should be treated the same,” he said. The bill was ready to be sent to the full Senate on Tuesday, January 24, but Senator Karin Brownlee convinced them to wait awhile until the problem is further discussed, according to Kansas City.com.

AUSTRALIAN GRAPE GLUT CAUSING CRISIS

Despite Australia’s enormous wine success, vintners claim that supply is much higher than demand and more than one billion liters of wine are sitting untouched in storage. Consequently, prices are shifting downwards, and wine-makers demand that the government hold an urgent meeting to help solve the problem. As reported by ABC News Online, the growers’ representative Chris Byrne says, “Unquestionably the industry is in crisis at the moment.”

HEALTHY FULL-YEAR TURNOUT FOR VRANKEN-POMMERY

French champagne producer Vranken-Pommery Monopole has done well for themselves in 2005. Sales increased 10.1% from 2004, leading the company to a full-year consolidated turnover rise of EUR250.5 million. Last year’s turnover was EUR227.5 million.

BACARDI INCREASES AWARENESS ONLINE

According to Paula Pou of “Wine Spectator,” Bacardi Imports has launched its own 24-hour radio music station. The station can be viewed at www.bacardilive.com where web surfers can see Bacardi TV spots, event footage, photo galleries, recipes, and new downloads. Also, listeners will be able to play music from their computers at any time and customize the players to fit their needs.

BOTTLE CAP VS. CORK IN ILLINOIS

Distributors and winemakers are hashing it out in Illinois. A bill backed by the Associated Beer Distributors of Illinois would keep Illinois wineries from selling their products online, through the mail or over the phone, and winemakers don’t like it. Bill Olson, VP of ABDI, believes Illinois wineries are using a loophole to avoid regulation. He said, “The key word here is ‘a face-to-face sale,’ which is the primary mechanism against underage sales.” The proposed law requires individuals to first purchase wine in person before they are allowed to receive two cases per buyer annually from in-state and out-of-state wineries. That way, according to Bill, the state of Illinois would help prevent underage drinking and comply with the Supreme Court ruling that calls for all states to allow out-of-state wine shipments if in-state wineries can ship directly. Illinois law does not currently allow out-of-state vineyards to ship directly unless that state accepts Illinois wine shipments.

Winemakers, however, accuse beer distributors of trying to cutback on competition. “It would be a disaster for the Illinois wineries,” said Fred Koehler, president of Lynfred Winery. “It’s like Goliath against these little farm wineries that are trying to survive.” Richard Faltz, president of the Fox Valley Winery, agrees: “It would drastically limit our ability to stay in business.” If turned into a law, Richard claims Fox Winery would lose 20-25% of its sales. Therefore, the Illinois wine industry “has helped draft an alternative House bill that would comply with the Supreme Court ruling and prevent sales to minors without disrupting sales,” according to Eric Herman of The Courier News.

US WINE EXECUTIVE CALLS FOR MORE RESEARCH AND DEVELOPMENT

Nick Dokoozlian, VP for viticulture at E&J Gallo Winery, stressed the importance of mandatory research and development procedures for United States wine-growers Tuesday at the Unified Wine and Grape Symposium. "We have numerous funding organizations, but the contribution is voluntary," said Nick. "We need to make that funding process more vigorous." He believes that by making research and development assessments an obligation, the American wine industry can shorten the gap between Australian R&D which is becoming increasingly more sophisticated and threatening to California wineries. “I don't see how we get to the level of R&D that's necessary in this country without a mandatory levy on wine-grape production." Overall, the Australian wine industry spends three times more than the U.S. on research and development despite the countries’ disproportionate sizes.

Robin Day, owner of Australia's Domain Day wines, said "The biggest impact of an active research program is surely the delivery of a new and improved culture of quality." Australian vintners pay a mandatory fee of roughly $8 per ton that is collected and matched by the government and then spread equally to various research needs in the industry. Furthermore, Australia’s ever increasing wine growth has consistently cut into California’s market share which has gone down from 75% to 66%. "We are really behind the eight ball," said Nick. "Most of the wine industry and gatekeepers have little idea of what attributes in wine consumers like and dislike."

CHILI'S VINEYARDS MUST STRETCH TO MEET DEMANDS

As the interest in Chilean wines continues to grow worldwide, wine-growers from that country must scramble to meet demands by increasing harvests 50%. According to a study published by the Chilean government, Chile will be exporting 10 million hectoliters by 2014 at a value of over $1.8 billion. In order to meet this goal, farmers must plant at least 67,000ha. This phenomenon sharply contradicts trends in the mid-90s where Chile was producing only 3.1 million hectoliters and exporting close to a quarter. Now exports account for the majority of their production. The Chilean Agriculture 2014 study put forth a ‘high hypothesis,’ based on an annual growth of 8% in volume in price, and a ‘low hypothesis,’ that projects an annual growth rate of 5%. But despite Chili’s wine export success, the country is susceptible to worldwide currency fluctuations, “a situation that has become severe in recent months with a weak dollar and strong peso,” writes Peter Richards of decanter.com.

RECORD OUTPUT FOR AUSSIE WINERIES

The 2004-2005 Australian grape crush reached a new height, trumping the previous year’s record levels. The Australian Bureau of Statistics showed that 1,925,490 tonnes of grapes were crushed in 2004-05 which is 8,252 tonnes higher that 2003-04. This means that 1,422.8 million litres of wine will be produced on the island, an increase of 1.3%, with 669.7 million litres of exports throughout the year. Export shipments have gone up 14.6% with an 8.9% rise in value to over A$2.7 billion.

But within Australia’s record harvest, Hardy Wines, a division of Constellation, has made history with the largest grape crush for any Australian wine group at 363,550 tonnes. According to Peter Dawson, the chief winemaker, “Favorable seasonal conditions contributed to higher than expected yields in the warmer inland regions of the Riverland and Sunraysia. This was a stark contrast to the cool regions, which generally had lower yields.” Peter claims that Hardy Wines’ output increased by 10% from 2004 and makes up 20% of the total Australian wine vintage.

INFESTATIONS RAMPANT IN CENTRAL OTAGO

Ok, maybe “rampant” is not the right word. But Wine Spectator’s Daniel Sogg reported that New Zealand’s Central Otago region farmers have a reason to scratch their heads following a recent infestation of the destructive root louse phylloxera. This is the second outbreak in Central Otago and serves as “as bit of a wake-up call for everybody,” said Martin Anderson, president of Central Otago Winegrowers Association. The outbreak is confined to a 580 square foot section of a vineyard in Lowburn known mainly for producing Pinot Noir, about 25 miles from Alexandra. Once the infestation takes hold, the only solution is to uproot infected plants and replace them with vines grafted onto rootstock that is resistant to the pest. At this point, replanting looks inevitable. “We have to accept that over time it will come our way, and someday we’ll have to do some replanting,” said Jeff Sinnott, wine-producer at Amisfield which has a vineyard located 2 miles from the infected site. However, vintners have established preventive measures such as restricting vehicle movement between vineyards and cleaning shoes and equipment in hopes to stave off further infestation. “The protocols will certainly be practiced with great regularity from now on,” Martin said. “But I’m not sure they have been in the past.”

SLEEMAN RETRACTS EARLIER PRICING PROJECTIONS

Sleeman Breweries, the third largest in Canada, warned that 2005 profits may not be up to what they originally projected, blaming the difference on competitive pricing. They initially thought earnings per share would fall somewhere in the $0.81 to $0.85 range but now expect it to be between $0.60 and $0.64. "The industry experienced compressed margins during the quarter, most notably in the province of Quebec. On a positive note, Sleeman market share and volumes remained consistent with prior year levels in the face of this pricing environment," said John Sleeman, Chairman and chief of the brewery. He maintained that Sleeman would continue to “look for additional cost reductions” and “focus on the premium beer category.”

JOHNNIE’S WALKING HIGH.

Johnnie Walker was voted 2005 Distiller of the Year by Wine Enthusiast Magazine yesterday. "This award comes at a notable time in Johnnie Walker's history as we are currently celebrating the 200th birthday of the original blender and founder John Walker," said Chris Parsons, vice president of marketing, Scotch, Diageo North America.

SPIRITS INDUSTRY GREATS UNITE ON WHISKEY

The SWA (Scottish Whiskey Association) has recently appointed Richard Burrows and Diageo’s chief Paul Walsh to join their board. Richard, who formerly served as joint director-general at Pernod, will succeed Ian Good as chairman. He believes that, “With companies of all sizes investing in the category and growing exports of both malts and blends worldwide, the SWA’s priority must be to support its members in this work and to take a lead in securing fair access to our export markets, protecting Scotch from unfair competition, and promoting responsible attitudes to alcohol.” Paul was named as SWA’s vice-chairman.

OUT WITH THE OLD AND IN WITH THE NEW

Karl Lippert will take over Ricardo Obregon’s former position as CEO of Bavaria, a Colombian brewery recently acquired by SABMiller. Karl lately served as managing director of Kompania, SABMiller’s Polish subsidiary, and will transfer to Colombia this week.

MUST HAVE NAPA GRAPES FOR NAPA LABEL

The U.S. Supreme Court is staying out of it. By refusing to hear Bronco Wine Co.’s appeal, they are validating a California law that requires wineries using the Napa name to include at least 75% of Napa grapes in their varietals. The case involves three Bronco brands - Napa Ridge, Napa Creek Winery and Rutherford Vintners – which use grapes from areas other than Napa. Bronco’s spokesman, Harvey Posert, says the company has already switched to using Napa grapes for Napa Creek Winery and Rutherford Vintners. According to the L.A. Times, “‘Bronco Wine Co. is disappointed with the Supreme Court's denial of its request to review the state court's erroneous ruling on our claims,’” Posert said in a telephone interview. “‘Bronco wine, however, intends to maintain all of its brands and will do so in full compliance with the law.’” The U.S. Supreme court rejected Bronco’s arguments, along with 62 other wineries that supported the case, and discarded their claims “that the labeling was protected by the company's right to free speech.”

STRAYING FROM THE ISLAND

Lawrence Duprey, chairman of Angostura and CL World Brands based in Trinidad and Tobago, seems determined to push his companies to the global forefront. With a recent formal bid to purchase Marie Brizard through an investment in Belvedere, a €300 million deal that will be finalized in April, Lawrence admitted, “We have a brave new company going out there and putting Trinidad and Tobago on the map.” Under the leadership of Lawrence, Angostura/CL World Brands hopes to continue growing and someday “build a company that may be five, six or seven among the world spirits organizations.” His strategy involves “buying companies or associating with companies in the larger developed markets…there are some opportunities being created as some smaller brands are opening up for investment.”

WINE AND SPIRITS KEEP ON TRUCKIN’

Wine and spirits continue to jump leaps and bounds ahead of beer. As reported by Mark Swartzberg of Stifel Nicolaus, distillery and winery shares were up 24% in 2005 while brewer shares were down 14%. And while “small but meaningful annual increases in total per capita consumption are likely to sustain over the balance of this decade,” beer will likely continue to suffer. Mark attributed the rise in consumption to multiple components but thought the increase in marketing spending for the alcohol industry, especially wine and spirits, who have faster spending growth than beer, was “especially notable.” Wine’s volume increased 4.8%, while spirits grew 2.9% and beer decreased -0.1% in 2005. Price went up 1.6% for wine, 1.2% for spirits and 1% for beer.

Wine and spirits companies are obviously expected to profit from increased consumption and “will be challenged NOT to produce solid volumetric growth.” Consolidation might be the key. “We expect substantially stronger profit growth for selected majors, including Constellation and Diageo, due to share-taking, rate and mix-driven price realization, and cost leverage.”

CHAMPAGNE UNITES: LANSON ACQUIRED BY BOIZEL

Boizel Chanoine Champagne finished its acquisition of Groupe Lanson International on Friday, January 20 for $150.3 million. Last month Boizel admitted they had made arrangements to purchase Lanson from their shareholders, French bank Caisse d’Epargne and the Mora family, and will also take on the €440 million of debt. The French champagne company will reportedly announce its plans for Lanson International in February.

IT’S OFFICIAL

InBev finally announced their takeover of Chinese brewer Fujian Sedrin after months of speculation. For $730 million, the global brewer beat Heineken and Anheuser-Busch to the punch. They will immediately acquire a 39.48% stake in the Chinese brewery while the remaining 60.52% will be taken up by various shareholders through 2007.

Why Fujian Sedrin, you might ask. Well, it's the leading brewer in Fujian Province with a market share of 45%, and the growing Chinese market is becoming more and more attractive to global brewers like InBev. “This transaction is a very significant step in our strategy and strongly reinforces both our leadership position and footprint in southeast China,” said Carlos Brito, InBev CEO. “Fujian Sedrin is one of the most profitable Chinese brewers and in recent years has achieved an EBITDA margin in excess of 30%. The Sedrin brand will be one of InBev’s top five selling brands globally by volume with significant potential for growth and expansion.”

SAINT EMILION WINE APPOINTS US DISTRIBUTOR

Union de Producteurs de Saint Emilion (UDPSE) today announced it has appointed Chateau St. Martin LLC (CSM) of Bellevue, WA, as its official nationwide wholesaler in the United States. CSM will distribute and promote Saint-Emilion wines, something they are “extremely pleased and honored” to do, according to Managing Partner of CSM, Hans C. Giner. Jean-Pierre Testard, Commercial Head for Saint Emilion business development, said, “The assignment of CSM is an important move on our part and signals our serious ambition to aggressively pursue the rapidly growing demand for wines in the United States. Our primarily Merlot-based wines are well suited to appeal to an American palate, and we envision a significant growth of our business in the US over the years to come.”

PRICING FIXING IN CANADA

Sylvain Toutant, head of Quebec’s liquor board Société des alcools du Québec (SAQ), has asked Crown corporation to lead an internal investigation over possible price-fixing between SAQ and European wine suppliers. Sylvain’s request comes as a response to allegations that several of the liquor board’s suppliers are a part of a price fixing scheme. Apparently, some board members recommended that certain suppliers inflate their prices as a way to prevent the strong Canadian dollar from translating into a drop in retail prices and consequently a profit drop for the liquor board. Two SAQ VPs, Laurent Meriaux and Alain Proteau, were reportedly asked to stay home until the inquiry was complete. The investigation is expected to come to a close by the end of January, and the results will be made public.

ABSOLUT MOVES TO TELEVISION

Absolut Spirits Co. is kicking off a multi-million dollar television ad campaign in February for Absolut Vodka. Designed by their longtime agency TBWA/Chiat Day, these commercials mark the spirits company’s first venture into television marketing. Although Absolut’s trademark bottle will not be featured, they will exhibit “absolute” moments such as ‘The Absolute Morale Booster’ (Marilyn Monroe signing U.S. troops) and ‘The Absolute Roadtrip’ (the first man on the moon.) Comedy Central, Fox Sports Net, and E! will run the 30-second spots.

TWO NEW ZONE PRESDIENTS FOR INBEV

Beligum’s InBev announced today that Alain Beyens will serve as zone president for Central and Eastern Europe, while North America will be headed by Miguel Patricio. As of late, Alain was the president of InBev’s business unit that covers Germany, Italy, The Netherlands, France, Spain and Cuba and has been with InBev/Interbrew since 1987. Miguel comes to North America after leading the Western Europe division as business unit president for Belgium and Luxembourg, and was also vice-president of AmBev’s beer brands for five years. “Alain and Miguel both bring the combination of experience, skills and values to build on InBev’s strong foundation as we continue our journey from biggest to best,” said InBev chief Carlos Brito.

A NEW PRESIDENT FOR ICON ESTATES

Chris Fehrnstrom will now serve as President of Icon Estates in St. Helena, California under Constellation wines U.S. Chris was previously the senior vice president of marketing for Icon Estates, and will now report to Jose Fernandez, president and chief of Constellation Wines U.S. Jose said, “Chris brings considerable talent and experience in the fine wine business to his role… Chris and his management team will continue to build upon Icon Estates' fine wine legacy, and we know that the quality, consistency, and positioning of each wine in the portfolio will remain a top priority.”

WINE SHIPMENTS FACING THREATS IN ILLINOIS

Illinois wine-drinkers may have to face up to new restrictive bills in the future. Although consumers have always been able to directly purchase wine from other states, House Bill 4350 and Senate Bill 2180 seek to halt those rights by disallowing people to purchase wine directly from out-of-state wineries. However, I’m not so sure how Illinois cork-sniffers will take it. "If these bills move forward, there will be a firestorm of protest by Illinois wine lovers, who have enjoyed access to wines not often available in their local market," said Jeremy Benson, executive director of Free the Grapes! "Wine and beer wholesalers want to cut-off Illinois wine lovers and wineries at the knees to control 100% of wine sales. We urge Illinois wine lovers to reject the wholesaler cartel's tactics by visiting our website and personalizing a message to their state legislators today. The solution is House Bill 4444, which provides for limited, regulated direct shipments using the model direct shipping bill currently working successfully in many states."

LVMH 4TH QUARTER RESULTS

The champagne powerhouse announced today a 13% revenue increase for the 4th quarter, a record for LVMH, with an overall 11% growth from 2004 to €14 billion. According to their press release, “the product mix has been further improved thanks to the quality and high-end positioning of the division's portfolio of champagne brands and to strong momentum in innovation. Furthermore, the business group benefited from close adherence to its pricing policies. Moet & Chandon consolidated its European leadership and saw strong development in Japan, most notably with the success of the Moet Rose. Veuve Clicquot, Krug and Dom Perignon performed particularly well in the US and Japan.” It looks like more and more European and American companies are turning to the east to help reel in profits, especially Japan, China and India.

MIXED EXPERIENCES FOR PETER LEHMANN WINES

Ever since delisting from the stock exchange in 2004 after Peter Lehmann Wines was taken over by the Swiss-based Hess Group, the Australian company has experienced ups and downs. Sales in the United States and Canada are looking good with 30% volume growth over the last half year but sales in Australia and Britain aren’t going anywhere. After a 10-12 year trend of solid growth, sales in Australia have plateaued. "The sector here is extremely well serviced and there's a lot of competition," Mr Lehmann said. "In Australia, there is so much wine around the big boys are cutting deals we can't match and I don't know how long they can keep doing it." Their relationship with Hess, however, is working well. The 85% owner of Lehmann Wines came to the rescue in 2003 when they were fighting a hostile takeover bid by Britain’s Allied Domecq. According to Mr. Lehmann, “Hess are constructive, they don’t interfere and they work very well with us…we don’t have quite the pressure we did when we were a listed company.”

IF IT WASN’T FOR THOSE PESKY PROTESTERS

The Thai Securities and Exchange Commission gave Thai Beverage the go-ahead to list on the Singapore Exchange yesterday. However, a nation-wide social issue stands in their way. A new alcohol control law is currently being debated in Thailand and has prompted 10,000 religious and anti-alcohol individuals to protest a Thai listing of the company in the predominantly Buddhist country. The law is expected to be passed within the next two years. According to the Bangkok Post, Thai Beverage’s deputy VP for communications, Kasemsant Weerakun, said, “We are willing to delay (consideration of the SET listing) until the new law is passed to ensure clear understanding by the public. We would also like to confirm that we remain intent on entering the Thai market.”

GROWTH RATES FOR DECEMBER

Christine Farkas of Merrill Lynch reported that U.S. wine rose by 1.6% in December and spirits increased 1.1%. The overall average in 2005 for wine and spirits was 1.6% and 1.2% while beer’s CPI growth averaged 1%. All in all, “wine enjoyed its strongest pricing since 2000, reflecting improving mix (and favorable in our view for Constellation Brands).”

SONOMA COUNTY VINTERS GAIN NEW APPOINTMENT

Honore Comfort will serve as The Sonoma County Vinters’ Executive Director following a nationwide search conducted by the executive recruitment firm, Benchmark Consulting. Honore accumulated experience with Penfolds and Rosemount Estate wine brands in the past and was Director of Print Media for Macy’s West in San Francisco before entering the wine business. "Sonoma County is a world-class wine region," said Chris Hanna, SCV President, "and Honore Comfort's appointment better positions SCV to significantly increase our visibility in the media, drive more traffic to member wineries, and help augment the perceived value of the wines produced here in Sonoma County."

DIAGEO’S RACE CAR SET TO LOOK LIKE CROWN ROYAL

Diageo’s Crown Royal introduced a new paint scheme and car number for the No. 26 Roush Racing Ford Fusion driven by Jamie McMurray. The car will be painted purple and white with gold striping that looks a lot like Crown Royal’s purple bag. Crown Royal will own the paint scheme for 18 races this season, with Smirnoff Ice owning three and Newell-Rubbermain taking over the remaining 15 races. Crown Royal was the first spirits brand to take up sponsorship in 2004 when NASCAR decided to give spirit companies the ability to do so. "I can't wait to start the new racing season with Crown Royal and Roush Racing," said McMurray. "The car looks incredible, and I'm looking forward to joining Crown Royal in their efforts to promote responsible drinking."

PETER CRESSY: “SPIRITS ARE VERY MUCH BACK IN VOGUE.”

DISCUS released a report that suggested spirits’ success is in part due to consumers purchasing more expensive brands, fewer government regulations, and less beer discounting. “Among the factors contributing to the gains are a gradual leveling of the playing field in the marketing and regulation arenas versus its beer and wine competitors; a consumer trend of ‘trading up’ to more expensive brands; and the likelihood of less beer discounting.” According to the report, the spirits industry should make $17.4 billion this year with a volume increase of 3.3% and revenue gain of 7.5% in 2005. Furthermore, spirit suppliers own 32% of the alcohol industry’s share, up from 31.2% in 2004, and close to four points higher than in 1999. “Virtually all of that has come at the expense of beer as winemakers have also marked strong share gains in the last few years.” Vodka is the leading contender in the spirits market with 27% of sales and a 7% revenue growth rate. Whiskey is ranked #2 by volume followed by rum and then tequila.

TEQUILA PROPOSAL THROWN TO THE WIND

A proposed tequila regulation by the Mexican government was thrown out today after almost two years of negotiations with the United States, according to DISCUS. The proposal was made in August 2003 and wanted to ban tequila shipments exported in bulk, a violation of NAFTA and WTO, and to require all tequila to be bottled in Mexico. The Council’s previous concerns were that the bans would seriously harm the tequila market in the U.S. where 74% of imported tequila is shipped in bulk. However, Mexican officials agreed to drop the proposal and signed an agreement today in Washington which allows U.S. importers to import bottled tequila or bottle it themselves.

“We are extremely pleased that the United States and Mexican governments have reached an agreement on tequila that will protect the interests of Mexican agave growers and tequila producers as well as U.S. bottlers and importers,” said Peter Cressy, President of the Distilled Spirits Council. “The agreement will ensure that the tequila sold in the United States market continues to meet rigorous Mexican standards -- a goal shared by the Distilled Spirits Council and its member companies.”

MORE SWEET FLAVORS FOR BAILEYS

Baileys, the number one selling cream liqueur worldwide, announced today the addition of two new flavors, Baileys Mint Chocolate and Baileys Caramel. The new products were introduced in Arizona last month and will be released nationwide for a limited time in March as a part of a St. Patrick’s Day special. “Our consumers enjoy the taste of our Baileys Original Irish Cream, but now it can be enjoyed with a hint of a little something extra,” said Baileys Brand Ambassador, Peter O’Connor.

LIME-FLAVORED SPIRITS LEADING THE PACK

U.S. Heaven Hill Distelleries is extending their flavor portfolio by adding Two Fingers Lime and Two Fingers Berry to the Two Fingers Gold and Silver brand. The drinks are a combination of Tequila and natural flavorings that align with national consumer trends. Brand manager Reid Hafer said, "With the existing popularity of Tequila in cocktails, it became increasingly clear that flavor variety using Tequila was a natural opportunity...We hope to further develop this product and desire to be among the first to market." Other spirits companies such as Diageo are also pushing lime-flavored liquors like their newest extension to Smirnoff vodka.

CRUZAN ON DOWN

U.S. rum producer Cruzan International experienced huge losses for 2005. Altogether the company saw net losses of $10.5 million, a major drop from 2004’s $908,397 loss. They blame the downward spiral on Cruzan’s former majority owner Angostura’s obligation to make a payment of $9 million to certain people in the company’s management. However, despite the net losses Cruzan saw net sales rise 10.4% and gross profit increase 17.3%. “Sales of Cruzan Rums increased 21% over the previous year. However, our premium brands segment continued to sustain losses as we continue to spend heavily on brand promotion,” said Jay Maltby, chief and president. Cruzan was recently acquired by Swedish V&S Group, the owners of Absolute Vodka. Also, the company announced that Ola Salmen will takeover as chairman of the board.

THE LUCK OF THE IRISH

Sidney Frank Importing Co. is adding a new product line to their portfolio; could it be the next Grey Goose or Jägermeister? Michael Collins Irish Whiskey and Michael Collins single Malt Irish Whiskey, named after a famed Irish hero, come from Cooley Distillery in Ireland and will be rolled-out nationally in March. Sidney Frank’s Chief Lee Einsidler says, “We are very pleased to bring Michael Collins Irish Whiskey to the United States. It’s a pleasure to work with Cooley Distillery, the only independent distillery left in Ireland.”

LION NATHAN HOLDING OUT FOR COOPERS

Lion Nathan’s attempt to takeover Cooper’s Brewery may not yet be done. They have extended their closing date from January 20 to March 20, exactly 2 months. Apparently, according to Chief Rob Murray, Lion Nathan is taking legal matters into their own hands and doing everything necessary to block Cooper shareholders’ decision last month to remove Lion Nathan’s pre-emptive rights.

ALLIED AND PERNOD UNITE FURTHER

In the aftermath of Pernod’s buyout, Allied Domecq Wines will team together with Perod Ricard New Zealand in the coming spring. Led by Chris Lynch, a 20-year industry veteran, the new company is responsible for their own winemaking, cultivating and marketing of their brands.

A LEGEND IS LOST

Sidney Frank, a great legend who was very well-respected in the industry, died yesterday at the age of 86. He was owner and chief of Sidney Frank Importing Co. and is best known for making Grey Goose and Jägermeister what they are today. The man was a genius. People at Bacardi are probably still scratching their heads over the $2.5 billion Grey Goose deal, a vodka that was once considered a major risk as “critics questioned both the wisdom of pricing a vodka brand so far above most of the competition and the appeal of a vodka brand from France.” According to Wine Spectator, the funeral services will be held in New York on Friday, January 13 at 11:45 a.m. at Riverside Memorial Chapel at 180 W. 76 St.

Q4 AND YEARLY EARNINGS FOR VINA CONCHA Y TORO

Vina Concha Y Toro, Chile’s largest wine-maker and exporter, announced their Q4 and 2005 sales volumes today. The company’s Q4 earnings reported a 5.9% decrease in domestic sales and 8.3% rise in exports, while 2005 saw 1.5% growth domestically and 11.1% increase for exports.

SW&S MOVING ON UP

SW&S is growing still. After acquiring distribution rights from Pernod Ricard, the wholesaler struck another major deal with Future Brands, the American arm for Fortune, whose brands include Jim Beam and Sauza Tequila. SW&S will distribute Future Brands’ products in eight U.S. states including California, New York and Florida. This is obviously huge for the wholesaler who has greatly increased their presence in the United States, especially the important New York market.

WINE TRENDS FOR 2005 (AND WHAT WE CAN LEARN)

As with beer and spirits, it looks like American wine consumers are still favoring imports and expensive brands as well. In 2005 table wines that were priced over $15 a bottle rose 30.8% in volume, while those falling in the $9-11.99 range increased 20.2% and $12-14.99 priced wines saw a 14.9% climb. This trend suggests that Americans are going after a certain image because even though many wine companies are marketing user-friendly products, the snob appeal still exists and is sought after. Volumes for $5.50-8.99 bottles grew only 8.1%, whereas wines priced less than $2.99 decreased by 6% and $3-5.49 went down 0.5%.


For the fourth consecutive year California wine lost share in 2005 to imports whose volume grew 7.5% versus the domestic volume increase of 1.9%. California’s share went down to 8.2% “likely fueled by stronger price/mix as well as a continued shift to imports,” wrote Merrill Lynch’s Christine Farkas. Washington went up to 16.6% due to more “moderate pricing” and wine drinkers’ “interest in Pinot Noir.” As far as the imports are concerned, Australia took the lead with 7.7% share. Italy came in second with 5.1% and Chile was third at 1.7%, both maintaining their previous shares. Once again, France lost share in 2005. Harry Schuhmacher at Beer Business Daily offers further information and insight on wine scanner data for the 4-week period ending December 25, 2005.

NEW CEO FOR CONSTELLATION EUROPE

Icon Estates, a wine company owned by Constellation, will now report to Constellation Wines U.S. and “enable us to enhance our wine business while retaining the independence and rich heritage of our fine wine company, Icon Estates…Icon Estates will also be able to take advantage of Constellation Wines U.S.'s extensive resources” said Robert Sands, Constellation’s president and chief. And although Icon Estates will remain independent, their CEO and president, Jon Moramarco, is moving across the Atlantic to Constellation Europe. Robert commented that “Jon brings a wealth of experience and knowledge to Constellation Europe as we continue to implement our international growth strategy.”

PEOPLE SET TO LOSE THEIR JOBS AT CONSTELLATION

The Publican announced today that Constellation Europe will instigate a restructuring program for their on-trade sales department by the beginning of March. Their premium wine division, Cellar Door, will be added into the rest of Constellation Europe's sales operations. Unfortunately, many people are likely to lose their jobs due to the reorganization which is the fourth one to occur in the past five years.

FOREIGN WINEMAKERS BEING SHUT OUT OF INDIA?

As reported by The Economic Times, the Indian state government of Maharashtra has raised the special excise duty on imported wine from the existing Rs 100 per bulk liter to Rs 200 per bulk liter. This will definitely take a negative toll on imported wine which stands at 30,000 cases now as compared to 200,000 domestic cases a year. “The hike in levy is to protect the wine producers of the state. We know that bulk wines are imported at a low price and hence we raised the special excise duty on import of wine at par with the import of spirits,” says CS Sangitrao, excise commissioner in Maharashtra. However, although local winemakers argue that the state has the right to promote its own brands and help local farmers, foreign vintners disagree. David, GM, Mohan Brothers, said, “It’s the death knell for the importers of foreign wines. Also it closes the options for connoisseurs.”

SELLING CIDER IN SOUTHERN FLORIDA

Thies Distributing of Florida is among three companies who agreed to distribute DC Brands International, Inc.’s Dickens Energy Cider starting later this month. The Company's VP of Sales, Buck Adams, said, "We expect good things to come of this relationship this spring. We expect to announce the other two groups we met with this month."

PERNOD FINALIZES DISTRIBUTION DEALS IN THE U.S.

Pernod Ricard USA sent out a press release listing the U.S. distributors who will help the company “capitalize on growth opportunities created by the acquisition of Allied Domecq.” Young's Market Company will act as wholesalers for Pernod brands in Alaska, Idaho, Montana, Oregon, Utah, Washington, Wyoming California and Hawaii, while SW&S will distribute in Maine, New Hampshire and Vermont as well as Florida, Illinois, Metropolitan New York, Upstate New York, Kentucky, Nevada, New Mexico, South Carolina, North Carolina, Virginia and West Virginia. United Liquors, Ltd will sell Allied Domecq’s acquired brands in Massachusetts.

Michel Bord, Chairman and CEO of Pernod Ricard USA, said the deals "reflect the proven track records of these distributors and brokers in local markets…Our distributor and broker network is the backbone of our success, and today's appointments - combined with our expanded premium portfolio, ACE, and our talented employees - will help us build a competitive advantage."

CEDC PROMOTES EXPANSION

The CEDC (Central European Distribution Corp.), the largest vodka producer, importer, and distributor in Poland, announced yesterday that they have finished acquiring various distributorships in the country for an overall sum of $1.2 million. This will raise their net sums from $906 - $931 million to $931 - $956 million. William Carey, President and CEO of CEDC, said, "There continues to be great interest from distributors in joining the CEDC group as the spirit market is continuing to go through rapid consolidation. CEDC is taking the lead in this consolidation as we continue to explore opportunities in acquiring both new brands and alcohol distributors as per our management objectives for 2006."