PROJECTIONS FOR THE 2006 AUSTRALIAN GRAPE HARVEST

The Australian Wine and Brandy Corporation reported last week that the 2006 wine harvest will likely fall below last year’s record performance. Although it is expected to be good to excellent in quality, the crop will probably return to the average volume coming in close to 1.8m tonnes, 7% lower than the 2005 harvest. AWBC analyst Lawrie Stanford told local news sources, “The tonnage figure does not take into account grapes that may be left on the vine. It is estimated that 2% to 3% of last season’s crop was left on the vine and there is every possibility of a repeat this season.” He added, “This will allow wine reserves to be reduced to more reasonable levels while the good quality grapes from the 2006 harvest will enhance Australia’s competitiveness in vital overseas markets.”

UNREST IN THE HOSSIER STATE

Indiana may not turn into a direct shipping state after all. Last Thursday, February 23, a Senate committee approved HB 1190 which went on to be halted by the full Senate. Sen. President Pro Tempore Robert D. Garton does not want the bill to advance because he fears an ensuing lawsuit from in-state wineries. Reportedly, Gov. Mitch Daniels’ aides are frowning on the block. Indystar.com reports that, "The governor is interested in achieving a system that gives consumers greater flexibility to purchase wine and allows Indiana-based farm wineries to grow," said Jason Barclay, special counsel to Daniels, who helped push the compromise and previously approved by the Senate committee. Gov. Garton is sending the issue back to courts; however, with only two weeks left in the Senate session, the wineries are likely out of time.

UNLEASHING OF THE BEAST: MANLY WINE

Ray’s Station Vineyards Sonoma County Merlot and Cabernet Sauvignon “Hearty Red Wines for Men” is marketed specifically towards, well, men, namely those who steer clear of wine in the traditional sense. While most wines are targeted towards women, who purchased 55% of wine in the United States last year, Ray’s Station is going the other route and aiming for men who normally prefer “manly” drinks. Beer or whiskey anyone? “The Heart Red Wine for Men” is featured on promotional materials though not directly on the bottle. One tagline attached to bottles of Ray’s Station Cabernet Sauvignon reads, “John G. Ray thought a 12 point buck paired nicely with his Cabernet,” complete with a picture of a buck. The San Francisco Chronicle quotes Brian Hilliard, VP of marketing Jackson’s Estate Brands, says, “Our marketing is a bit irreverent, but very relevant. It resonates with men who have historically been excluded, or minimized, from wineries' traditional approach to consumers. It takes away some of the barriers to buying wine, that you need to be knowledgeable to drink it. Ray's Station is to have fun. No worries." That seems to be the overall trend in wines nowadays with the industry making it as easy as possible for consumers.

MAKE ZINFANDEL OFFICIAL?

The wine industry is still divided over making zinfandel the official state wine of California. Some think it’s “a huge mistake to bestow such prestige on just one type,” according to the Contra Costa Times, while others want to honor zinfandel’s history and association with California. Although the grape likely originated in Croatia, California turned it into what it is today. Zinfandel made up 11.9% of California’s wine grape harvest, third to cabernet sauvignon at 14.4% and chardonnay at 19.8%. At present time the California Wine Institute has stated no position on Sen. Carole Migden’s proposal.

INBEV POSTS 2ND-QUARTER RESULTS

InBev’s full year pre-tax earnings rose 15.5% and revenues increased 7.2% despite staggering sales in western Europe, their second biggest market. Second half profit went up 1.6% while sales gained 27% thanks to the 2004 acquisition of Brazil’s Cia De Bebidas das Americas. "Volume decrease in western Europe was expected. And although volumes fell, they improved a bit in the second half. Compared with its competitors, Inbev is actually not doing that badly," said Alexandra Oldroyd, analyst at Morgan Stanley. InBev is set to cut 360 in Belgium, Germany and Luxembourg but will create 295 jobs in the Czech Republic and Hungary, leaving 65 job losses in all.

VICTORY FOR WINERIES IN INDIANA

The Senate Commerce and Transportation Committee altered HB 1190 to allow wine shipments in and out of Indiana. After wineries check identification in person, out-of-state and in-state wineries are allowed to ship up to 1,000 cases directly to Indiana residents. However, there is no limit to how many cases Indiana wineries can send to other states. HB 1190 will now be sent to the full Senate where it can be changed, and if the new version of the bill is passed by the Senate, than it will be sent to a conference committee made up of House and Senate members.

CONSTELLAION CONSOLIDATES BOTTLING OPERATIONS

Constellation’s is planning to consolidate bottling operations at the Woodbridge Winery and Turner Road Vintners outside Lodi next year as a part of their restructuring program. Lisa Farrell, VP of communications, told Recordnet.com, “We will move the bottling operation at Turner Road Vintners to Woodbridge, primarily, and to other sites.” The company said they will “try to transfer as many workers as possible” but their future is still uncertain. Both wineries, however, will remain in operation.

WINE.COM FILES SUIT AGAINST BAKER CAPITAL

Former Wine.com chairman Chris Kitze and former CEO Peter Ekman and George Garrick are suing New York VC firm Baker Capital for offering an enticing buyout in order to cheaply profit off the troubled internet publication. According to a Dow Jones Newswire, Wine.com claims Baker Capital “forced the company to decline a purchase offer from Liberty Media Corp worth $67.5 million in mid-2005.” Baker Capital, however, says they thought the Liberty offer was “not real” and calls the lawsuit “utterly baseless.”

MILLENNIALS ARE DRINKING MORE WINE THAN ANY OTHER DEMOGRAPHIC

The Wine Market Council released a consumer study that shows younger wine drinkers are more comfortable with wine and drink it more frequently than older Baby Boomers. The study divided American wine drinkers into three segments: Boomers (41-59), Generation X (29-40), and Millennials (18-28). All three group are drinking more wine than ever but the Millennial group is increasing consumption faster than the other two sectors. Millennial consumption rose 39%, while Generation X increased 30% and Boomers went up 8%. Wine Enthusiast quoted John Gillespie stating, “We see Millennials behaving with wine in a manner similar to how leading edge Boomers did in the 1970s, and because of the sheer number of Millennials (70 million in 2006), and only the first segment of them has reached drinking age, the effect on the market will be tremendous.” However, Gillespie warns California wine-makers that Millennials are more likely to purchase imported wine.

MCGUIGAN SIMEON WINES HURTING FROM GRAPE GLUT

Australia’s grape glut led to a 51% decrease in the 1st-half profit of McGuigan Simeon Wines’ whose brands include Black Label and the Black Swan. "It is still too early in the season for accurate forecasts on the 2006 Australian vintage, but indications are that there will be another significant vintage, if not a record," McGuigan Simeon Wines Chairman David Clarke said. Sales to the U.S. decreased 27% and domestic sales fell 18%. “While export volume has continued to grow, the average price of wine sold overseas has fallen,” said retiring Chief Brian McGuigan. According to Brian, the wine glut in Australia is expected to last another two years.

AN UNUSUALLY GOOD BORDEAUX VINTAGE UPS PRICES

Industry experts expect the 2005 Bordeaux vintage to bring in high revenue due to an extreme price increase - a 300% boost in some instances. Some insiders are skeptical of the early vintage scoring and believe it might give owners too much pricing power. According to decanter.com, one proprietor, Antony Barton of Chateau Leoville-Barton, who prices “for consumers' rather than investors,” said, “The market will go crazy, there's no doubt of that, and prices will zoom up because in the US in particular they will pay any price. I just hope people will be sensible.”

ARIZONA REACHES FOR A COMPROMISE

House Bill 2500 allows Arizona residents to receive direct deliveries of wine from any small winery producing up to 50,000 gallons annually. The bill was approved by the committee on an 8-2 vote, and requires the person receiving the wine to sign and show identification. The wholesalers are backing HB 2697 that calls for the use of distributors in all instances and is scheduled for a hearing today before the House Commerce Committee.

CAPITOL HILL PROPOSES NEW WINE TAXES

The Bush administration is proposing new wine fees to raise an estimated $29 million to help fund regulations under the nation’s Alcohol, Tax and Trade Bureau. Although a similar proposal was killed last year, lawmakers have resurrected it without releasing any details. Industry leaders, however, believe it will be a lot like the last proposal including up to $100 for any label changes, $200 to register wine recipes and $500 for special permits. According to the seattlepi.com, a group of Northwest lawmakers sent a letter to Treasury Secretary John Snow urging the administration to drop the proposed law. “The wine industry in Washington and Oregon is growing rapidly, providing new economic development opportunities for agriculture producers and rural communities," the letter said. "However, most of our states' wineries are family-owned operations that can ill-afford a heavier tax burden on top of what they already pay now through federal and state excise taxes.” The letter was signed by 11 Congress members.

GOVERNOR RENDELL NOT OPPOSED TO DIRECT SHIPMENT AFTER ALL

Gov. Rendell of Pennsylvania is now contradicting statements made by his spokeswoman, Kate Phillips, last week who claimed the administration wanted wine shipments to go through State Stores. Rendell said yesterday he would support direct wine shipments as long as there is a minimal loss of state revenue. “I don’t believe it will produce more underage drinking,” he said. “Very frankly, it’s a revenue issue.” Much of the state’s revenue comes from their 6% sales and 18% liquor tax as well as a 30% charge towards distributors. The administration will not issue an official stance until further research has been conducted.

S&N COMES OUT LOOKING WELL IN STRANGLED UK MARKET

Scottish & Newcastle, the largest brewer in the UK, announced today a 9.5% jump in pre-tax profit to $638.1 million. Revenues rose 4.1% and share increased 1% in the declining British beer market. Baltic Beverages Holding, S&N’s Easter European brewing arm along with Carlsberg, increased profits by almost 24%. The brewer expects the Russian market to grow 3-5% in 2006.

REPUBLIC BEVERAGE REORGANIZES MANAGEMENT

One of the largest premium wine and spirits wholesalers, Republic Beverage Company-USA, announced yesterday a new management structure for the company. With the addition of five new states within the past year, “the new structure is designed to serve as a platform for future growth and acquisitions,” said Chairman Eddie Block. Bob Hendrickson was promoted to President of the Open States which includes Texas, Oklahoma, Arizona, Nebraska and Louisiana, and will also oversee Hispanic marketing. Sim Byrd will serve as President of Control States in Virginia, North Carolina, Mississippi, Alabama, and West Virginia. Executive VP of Operation will be filled by David Ritch, Bill Blackwell will work as Executive VP of Finance and Administration, and Josh Zeller has been named Executive VP of Technology and Communications.

SMALL WINERY CONTROVERSY IN MASSACHUSETTS

A Massachusetts bill that allows out-of-state wineries that produce less than 30,000 gallons of wine a year to ship directly to consumers is facing controversy. A veto issued by Governor Mitt Romney was overridden by the House and Senate, and is already receiving protests from industry groups that believe the bill treats small and large wineries differently. Gov. Romney filed an unsuccessful bill permitting all wineries to ship directly to Massachusetts wine-drinkers. The law also allows restaurant patrons to bring home leftover wine bottles without disobeying the open container law.

ARIZONA SENATE COMMITTEE APPROVES DIRECT WINE SHIPMENT BILL

An Arizona Senate committee approved a bill that will allow small, out-of-state wineries to ship directly to Arizona customers. If passed, the bill will allow wineries producing less than 50,000 gallons a year to send direct wine shipments to residents. Under current Arizona law, wineries in other states must pass through wholesalers and retailers before delivering to consumers. The proposed law will now go to the full Senate.

CHAMPAGNE SALES SPARKLES IN THE U.S.

Champagne is becoming a bigger commodity in the United States with a shipment increase of 2% to 20,685,683 in 2005 from the previous year. Imports are nearly 10% and 14% higher than in 2003 and 2002, and the U.S. is the second largest champagne importer behind the United Kingdom. “The influx of ros, Champagne and the increased popularity of mini bottles contributed to the increase in shipments in 2005," said Sharon Castillo, USA Director of the Office of Champagne. "But the most important trend we identified last year is how every day more and more Americans are reaching for Champagne beyond holidays and special occasions."

PENNSYLVANIA LEGISLATURE WANTS TO CONTINUE USING STATES STORES

Pennsylvania’s Governor Rendell opposes direct wine shipments to state residents. According to philly.com, Rendell’s spokeswoman, Kate Phillips, said, “We all want to maintain the state system. Direct sales should go through the states stores.” Pennsylvania natives have the right to special order wines from other states that Pennsylvania does not carry, but they must pay an 18% state tax, 6% sales tax, and a $4.50 handling fee to have the shipment delivered to a liquor store. Law-makers that support the use of state stores claim they are necessary to avoid underage drinking. Myron Waxman of the Pennsylvania Wine and Spirits Wholesaler Association said, “I don’t want the Pennsylvania wineries to be hurt. Nobody does. But there’s got to be a degree of fairness for everybody as far as mark-ups, taxes and fees.”

CENTRALIZATION AT CONSTELLATION RESULTS IN JOB LOSSES

Over the next six months thirty Napa Valley employees working for Icon Estates will be laid off due to reorganization at Constellation. The company will provide former workers with severance packages and assistance in finding new employment. Icon’s St. Helena office will take most of the blow while Icon’s central warehouse at the Napa Country Airport will also suffer some losses.

CALIFORNIACATION OF THE WINE INDUSTRY

The huge grape crush of 2005 hit at a time when wine consumption continues to grow in the United States. Overall wine sales were up 5% last year and California sales were up 4%. Imports, however, continue to take the cake with 11% growth but only 81.5 shipments in the U.S. California shipped almost 187 million cases overseas. But despite California’s struggles with imports, wine-drinking has become an American way of life. The United States is slated to become the largest wine-drinking nation by 2010 with wine-consumption waning in France and Italy and soaring in the U.S. In order to compete with imports, U.S. wineries must focus on price and quality. According to Glenn Proctor of Joseph W. Ciatti Co., “Commodity-based (wine) supply in California is at risk of being outsourced. This mean SJV wine grapes,” as quoted in Western Farm Press.

FLORIDA OFFICIALLY PERMITS DIRECT WINE SHIPMENTS

Out-of-state wineries are now allowed to ship directly to adult consumers in Florida, the second largest wine market in the country, state officials announced Thursday. Florida’s Department of Business and Professional Regulation requires adult signatures for all FedEx and UPS shipments as well as rules ensuring all taxes are paid.

SW&S MOVES INTO MISSISSIPPI

The United State’s largest wine and spirits distributor, Southern Wine & Spirits, announced today the formation of a new unit in Mississippi. The newly created branch is a result of Southern’s acquisition of D.J. Keonig & Associates formerly owned by David Koenig. The wholesaler now operates in eight Control States including: Maine, Mississippi, New Hampshire, North Carolina, Pennsylvania, Vermont, Virginia and West Virginia.

RICHARD SANDS: “INFRASTRUCTURE WILL BE SIMPLIFIED TO BE FLATTER AND MORE FLEXIBLE.”

Stephen Millar, former CEO of Constellation Wines, announced his retirement today, propagating a $55 million (pretax) reorganization of the Company’s wine business. Stephen was credited for making Hardy the top wine company in Australia and helping Constellation become the wine giant it is today. However, Constellation is taking advantage of this transition time to grow even stronger as the world’s largest wine producer. Richard Sands say the company plans to “further refine our decentralized operating approach to enable our wine business leaders to be even more flexible and responsive.” Constellation reportedly plans to integrate certain wine production processes in U.S. wine companies and cut back on staff in the UK.


In regards to the company as a whole, Richard stated, “In fiscal year 2007 we expect net sales growth in the six to eight percent range, approximately double that of the industry, and we expect our margins to continue to grow.” Christine Farkas of Merrill Lynch believed the company’s outlook spells positive things for the wine industry’s future. “Constellation’s FY07 top line growth outlook of 6%-8% was robust and should alleviate fears of a wine price collapse on the back of increased grape/wine supplies out of California.”

FIRST STEP IN WINE DELIVERY COMPLIANCE FOR WYOMING

A Wyoming House Committee passed a bill that will allow in-state and out-of-state wineries to ship 18-liters, or two cases, to Wyoming residents. The Committee has agreed to change the bill to make it effective once the governor has signed it or otherwise the law would not be activated until July 1. The bill must pass on the House floor two more times, however, before it is sent to the Senate for approval.

FOCUS ON PREMIUM BRANDS HELPS DIAGEO IN THE US.

Diageo’s first-half profit rose 21% with help from the United States and further cost reductions despite weaknesses in Europe. Net income increased $2 billion with revenue up 8.3%. The company’s spirits market share grew 0.2 points to 28% in the U.S. along with strong growth in Guinness, Red Stripe and Smithwicks. U.S. volume rose 4% and total beer sales jumped 18%. Chief Paul Walsh said, “We continue to capitalize on our opportunities in the US where our market leadership and superior route to market have led to further volume share gains of 0.4 percentage points in spirits.” Net sales were up 7% in the U.S. due to “growth in priority brands and pricing actions,” according to Nick Rose CFO.

CRUZAN: THE ABSOLUT RUM?

Cruzan International’s board of directors is holding a shareholders meeting March 17 to discuss the possible merger deal with Absolut Spirits. Absolut, a subsidiary of Swedish company Vin & Spirit, acquired a controlling 63.6% of Cruzan’s stock this past September. Cruzan chief and president Jay Maltby approves the merger, saying, “The board of directors and the special committee both unanimously approved the merger agreement and the merger and both recommend that you vote for approval.” As of late, five members of Cruzan’s board of directors resigned after the merger recommendation was announced, and four new directors were appointed in October by Absolut.

KENTUCKY LEGISLATURE FACED WITH OPPOSING WINE-SHIPMENT BILLS

A Kentucky state committee approved a bill Wednesday that will allow small out-of-state wineries to ship directly to Kentucky residents who ordered the wine at the winery. Kentucky already allows in-state wineries to ship directly once the order is made in person. The Senate recently passed a competing bill that would require out-of-state and in-state wineries to use wholesalers, and is now seeking the approval of the House licensing committee.

ALCOHOL TRENDS IN THE UK ARE LOOKING UP

Although alcohol beverage trends have suffered somewhat in the United Kingdom, especially for beer, January saw improvement. Total Consumer Price Index rose by 1.9%, while Beer CPI, Wine CPI, and Spirits CPI increased by 1.8%, 0.8%, and 0%. According to Christine Farkas at Merrill Lynch, “The UK market is an important one for US alcoholic beverage companies, notably Molson Coors and Constellation Brands.” It appears that Brits are moving from higher-priced, on-premise channels (pubs and restaurants) to cheaper, off-premise spots and the trend will only continue. Wine CPI growth was the largest increase since September 2005 and likely stems from declines in selected brand pricing and negative channel mix. For the third consecutive month spirits were flat.

JEKEL VINEYARDS INTRODUCES NEW “CALIFORNIA” PACKAGING

Jekel Vineyards is going along with The Wine Institute’s “California message” campaign by introducing a new package design that “focuses on the heritage of Monterey.” Earlier this year The Wine Institute encouraged California wineries to portray the state’s heritage and natural beauty alongside their products as a way to battle imports. Jekel’s label features a weathervane sitting atop a cupola, a symbol often seen on barns and agricultural buildings throughout the area.

ARIZONA LEANING TOWARDS WHOLESALERS

Arizona is faced with three bills set to determine the outcome of wine shipments in the state. Local wineries back HB2500 which would give a farm winery license to all U.S. small wineries and allow direct delivery. This proposed law, however, is stalled and will probably be killed in the Natural Resources Agriculture Committee. The Senate Commerce Committee will hear SB1276 today (Wednesday), a bill that will allow wineries to ship directly to customers but not to stores or restaurants. However, the proposed law holding the most promise is HB2697 which upholds the 3-tir system and will also be heard today by the House Commerce Committee.

CROWN ROYAL LAUNCHES NEW NASCAR PACKAGING

Crown Royal is launching a Speedway Collector’s Series which will display customized motorsports packaging on the purple bag, bottle label and carton. "The Speedway Collector’s Series demonstrates Crown Royal’s continuing efforts to bring adult NASCAR fans closer to the sport they love," said Jim Lorenz, Senior Brand Manager, Crown Royal. “Along with its distinctive taste, Crown Royal is renowned for its iconic packaging, which we are excited to now offer adult race fans as a special collector’s item.” Crown Royal will also continue to promote their “Be a Champion. Drink Responsibly” campaign with NASCAR.

WEEKLY VIDEO UPDATE

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Come view the very first weekly video update where I sum up the week's industry news. In order to view the video you must have the Macromedia Flash free plug-in.

ANOTHER MOLSON JOINS THE CLAN

Geoff Molson, 7th generation of the Molson family, will join the Montreal office as VP, Customer Marketing and Events for Quebec, after working with Molson USA as VP of Sales.

INDIANA IN FAVOR OF THE 3-TIER SYSTEM

All bills that support direct delivery in Indiana died in the General Assembly before a vote was placed. The only surviving bill, HB1190, outlaws direct wine shipment and requires the use of a wholesaler. The proposed law is currently on its way to the Senate after passing through the House. Rep. Marline Stutzman, author of the bill, said, “We can’t treat wine any differently than we do beer and liquor,” as quoted in the IndyStar. However, new provisions were added to the bill that would allow wineries to sell at farmers markets, increase festival days, and allow three wine-tasting rooms at their wineries.

MAINE POLICE FIGHT AGAINST DIRECT DELIVERY BILL

Vintners in Maine are supporting a bill to do away with the state’s current restrictions on direct delivery. The bill held over from last session would allow licensed wineries to ship a maximum of 24 cases to in-state wine drinkers. However, Maine State Police and the Maine Association of Substance Abuse believe the proposed law is a bad idea because of the availability to under-age drinkers. Currently, consumers in Maine can get specialty wines through retailers or request special permission from the Department of Public Safety’s Liquor Licensing Unit to have wine shipped directly to them.

FOSTER’S PULLING THROUGH THE GLUT

Foster’s Group reported today that sales for the 2nd quarter fell 62% to A$291.1 million. They reassured investors, however, that it’s not as bad as it looks because on a like-to-like basis with 2003, sales have risen 10.5%. The Southcorp acquisition and Lensworth property sale in 2004 caused discrepancies with 2005’s 2nd quarter results. “In six short months, we’ve taken on the Southcorp integration, continued to develop our unique multi beverage business in Australia and established the world’s leading premium wine portfolio,” said Chief Trevor O’Hoy.

Sales volume grew 2% for Foster’s six global wine brands while revenue declined 0.2%. Wine volume and revenue growth was dragged down by Rosemount brand which experienced a volume decline of 20%. Beringer brand volume increased 8%, Wolf Blass grew 6.1%, and Penfolds and Lindemans went up 4.2%. Without Rosemount, global wine volume and revenue increased 5.3% and 1.9%. There are concerns that the California wine surplus will hurt Foster’s market share as well as the Australian glut. Trevor said, “It’s definitely not a life-threatening event but it is going to make the market more challenging.”

REKNOWED WINERY TURNS TO CORKSCREWS

One of the best wine estates in the Loire, Domaine des Baumard, surprised the industry when they became the first establishment to move all production to screwcaps. According to decanter.com, Baumard is using the new high quality Stelvin that is made to look like a more traditional corkscrew. While some consider this an innovative move, others are “aghast at the idea.”

GOLIATH GRAPE CRUSH

This year’s grape crush took the California wine world by surprise. What industry insiders originally thought would be a small harvest turned into the largest U.S. wine crush in history. Up 35% to 3.775 million tons from 2004’s 2.775 million, the enormous grape tonnage will likely continue the trend of lower wine prices and delay grape and bulk wine purchases. However, Mark Swartzberg of Stifel Nicolaus reports, “We believe that historically Constellation Brands has been a net beneficiary of grape excess, in terms of net profit impact, and believe that the company generally manages for a multi-year cycle while many others project historical trends well into the future.”

Overall, red wine fared the best with 3.75 million tons as compared to white wine that came in at 2.22 million. Chardonnay takes the number one spot with 740,000 tons, Cabernet Sauvignon came in second with 541,000, and Zinfandel was not far behind making up 447,000 tons.

Zinfandel may soon become the official grape of California if legislation proposed by State Senator Carole Migden is passed. The bill was introduced at the end of last week and now on its way to committee. It could be heard as early as next month. As quoted in Recordnet, Mark Chandler of the Winegrape Commission said, “Cabernet, chardonnay, Riesling, those are all European varieties. Zinfandel is uniquely Californian.”

NWS POSTS MIXED RESULTS

National Wine & Spirits has experienced a drop in net income for the nine months ending December 30 from $8.4 million in 2004 to $4.6 million. However, sales for the nine month period looked good, rising to $551 million from last year’s $434.4 million.

The quarter ending December 30 also took a hit in net income and decreased to $1.4 million from 2004’s $4.4 million. Sales for the quarter increased to $218.1 million as compared to last year’s $159.1 million. The Company’s long term debt increased $52.8 million from March 31, 2005.

NWS stated, “The Company’s expanded brand representation in certain markets resulted in greater total product sales revenue and case volume during the quarter ended December 30, 2005. Countering the increased revenue, however, were flat revenue and gross profit in certain of the Company's product sales markets, higher operating costs and increased interest expense, when compared to the prior year's comparable quarter.”

PERNOD RICARD 2Q NUMBERS

For the six months ending December 31, Pernod Ricard reported that net sales in North America more than doubled with 2.7% increase and continued success for the Jameson and Glenlivet brands. Overall, Spirits sales did well growing 6.4% while wine sales declined by -4.4%. Pernod’s pre-acquisition key brands went up 2% in volume and 9% in value. The integration of Allied Domecq brands will be completed by March 31 of this year.

DIRECT DELIVERY BILL KILLED IN SOUTH DAKOTA

On Tuesday, February 7, a South Dakota House committee sidelined HB 1187 that would have allowed wineries that made less than 50,000 gallons a year to ship directly to locals. The bill required wineries to verify customers’ ages in person, over the phone or Internet but that delivery drivers would have to check the customer’s ID upon delivery. Wholesalers, retailers and South Dakota’s Department of Revenue and Regulation opposed the bill.

INDIANA'S HB1190 IS THE LAST TO SURVIVE

House Bill 1190 is the last remaining piece of legislation in Indiana after HB 1036 was tabled this week. HB 1036 would have allowed wineries to participate in more festivals and sell their product at three off-site locations such as farmers’ markets or stores that offer wine-tastings. However, HB 1190 requires the use of wholesalers in all transactions and calls for a strict interpretation of Indiana alcohol law in the event of a court ruling.

JACK DANIEL: “KNOW YOUR LIMITS”

Jack Daniel Distillery is launching a new ad campaign entitled “Pace Yourself” to promote responsible drinking. The spot features master distiller Jimmy Bedford slowly driving a tractor, reminding drinkers to do the same and “know your limits, no matter what everyone else is doing around you. Pace Yourself. Drink Responsibly.” The 30-second commercial will debut at the beginning of the 2006 NASCAR Nextel Cup season.

LIFE AFTER COOPERS: LION NATHAN PREPARES FOR A NEW ACQUISITION

If New Zealand spirits group Independent Distillers goes up for sale, Lion Nathan could be the leading contender against Foster’s and DB Breweries. After Independent Distillers's founder, Michael Erceg, died tragically in early November, Goldman Sachs JBWere estimated the company could make $1.1 billion given their impressive sales revenue in Australia.

WHOLESALERS AND WINERIES MOVE TOWARDS COMPROMISE IN MARYLAND

Last week the Maryland state Comptroller’s Office announced the likelihood that direct delivery will soon be halted, effective March 31. However, Sen. Thomas McLain Middleton and Virginia Clagett are sponsoring legislation that would allow in-state and out-of-state wineries to sell directly to retailers and restaurants. According to sources, state officials “didn’t have the option” of allowing wineries in other states to ship directly into Maryland, and were advised to have wineries sell only to distributors.

PERNOD RICARD’S ACQUISITION PROVES SUCCESSFUL

Pernod reported today that first-half sales jumped 66.7% with the help of newly acquired Allied Domecq brands. Sales more than doubled in the United States while European sales grew 52.7%. The company expects fiscal-year earnings-per-share to grow in the range of 10%-15%

ANNOUNCEMENT

John Thomas will takeover as Vice President, National Sales Director for Wal-Mart Stores for Southern Wine & Spirits, the largest wine and spirits distributor in the U.S. Brad Vassar, executive VP, said "John is key member of both our Florida and national teams and all of us look forward to working closely with him to further deepen our overall sales and marketing efforts on behalf of our supplier partners with Wal-Mart and SAM'S CLUB."

A MORE SPECIFIC LOOK AT FORTUNE BRANDS

Chairman and CEO Norm Wesley stated that Fortune’s new wine and spirits brands “will benefit EPS by $0.35 per share.” Wine and spirits revenue was up 78% for the 4th quarter and 40% for the year, while underlying sales increased 4%, “achieving their long-term goal,” said Craig Omtvedt, COO. Jim Beam’s volume rose 3% with solid growth in the United States but the super-premium brand Jim Beam Black was the most popular. Although the growth rate seems low, Craig later stated that “brown spirits grow slower than the white spirits.”

Sauza Tequila also did well in the U.S. experiencing double digit growth in case volumes. Wines rose at a mid-single digit rate. “We are very excited about the new wine and spirits category,” said Craig. “We saw high-end growth mainly as consumers’ trade-up,” but he reassured investors that Fortune Brands is stronger than ever in the premium and super-premium arena.

ANNOUNCEMENT: MORE AUSTRALIAN IMPORTS

Canandaigua Wine Company, a part of Constellation, is set to release a new Australian wine portfolio from Houghton in the United States.

COLORADO WHOLESALERS AND WINE MAKERS WORK TOGETHER

Colorado is just inches away from passing a law that will allow out-of-state wineries to ship wine directly to consumers after purchasing a $50 shipping license. Colorado natives are also allowed to receive a limited number of direct shipments from local wineries. The state’s wine producers, wholesalers and retailers helped draft House Bill 1120 that will be made official after passing through both chambers and is signed by the governor. The high level of cooperation between the wine guys and wholesalers has helped the bill’s smooth transition, but officials have yet to confront the issue of wineries selling directly to retailers and restaurants.

EVANS & TATE LET TWENTY WORKERS GO

The Australian wine-maker Evans & Tate eliminated 20 jobs as a part of a restructuring program that is expected to save the troubled company $2.5 million a year. "This restructure will involve getting improved efficiencies and productivity out of the finance function and the restructuring of other departments to improve business efficiency,” said the company in a statement. Chief Martin Johnson claimed that laying off 20 staff members was “the last thing I want to do, however I am determined to make the hard decisions necessary to ensure that the Evans & Tate turnaround strategy has every chance of success." With these changes Martin feels confident that Evans & Tate will grow into a much stronger company.

ANOTHER BREWING GIANT EXPANDS IN CHINA

SABMiller has expanded its presence in China. China Resources Breweries - in which the brewing giant owns a 49% stake - today purchased an 85% stake in the Fujian-based Qingyuan Brewery for $8.9 million. SABMiller reportedly plans to double the brewery’s size and boost the promotion of their Chinese brand Snow in the province.

CONSERVATIVE PREDICTIONS FOR DIAGEO’S QUARTERLY EARNINGS

UBS predicts a conservative full year guidance for Diageo’s Interim forecast for the 6 months ending December 31, 2005. Overall, UBS expects a 4.5% increase in organic net sales with a slowdown in European sales from -1% to -2%, and a 7% rise in North America. Diageo has lagged in “the market and European beverages sector, underperforming the market by -3.1%.” Premium spirits remains a strong trend among consumers in the United States which will help expand margins in the country. Also, the October price increase across 40% of Diageo’s spirits is continuing to do well, and the company has reported 16 consecutive months of volume share gains in the US Control States which bodes well for the Open States as well.

CYBER-WINE IN FLORIDA

Florida wine-drinkers will soon be able to order wine over the internet from out-of-state wineries according to sources. Wine-makers in other states will have to register and pay $100 fee in order to ship wine into Florida, but the legislation is backed by Gov. Jeb Bush and will likely be made a law this summer.

LOOKS LIKE THE 3-TIER WILL REMAIN IN VIRGINIA

A Virginian House committee tabled a bill yesterday backed by small farm wineries that would have allowed in-state and out-of-state wine to be sold in Alcoholic Beverage Control stores. Retailers complained about the possibility of competition against the state over wine sales.

IDAHO CLEARS THE WAY FOR DIRECT DELIVERY

Under a proposed law that cleared a House committee Tuesday, Idaho will allow out-of-state wineries to ship up to 24 cases a year directly to consumers once the wineries have purchased a $50 Idaho permit. The legislation is being backed by the California-based Wine Institute and has already been adopted or currently debated by 26 states. Legal wine-drinker will have to sign for the wine upon delivery but there is no limit on the amount of wine ordered directly from Idaho vineyards.

WILD WINE LABELS AND RETRO BOXED WINES: IS QUALITY SUFFERING FOR SALES?

Nowadays, wine-producers are going to great lengths to “demystify” wine and speak to the fickle, always changing millennial generation. The popularization of boxed wine and wacky bottle labels has resulted from the relaxed image the industry seeks to create. As Greg Morago from the Courant reported, silly, catchy names such as Screw Kappa Napa and Cheeky Chick’s Pecker’s Blend are the big craze in the wine industry right now, especially for Australian imports. “The names reflect the Australian character,” said Rick Anderson, director of sales and marketing for D’Arenberg. “We also like to enjoy life and not get bogged down in the rhetoric of wine snobbery.” And the crazy labels are catching on, especially within the millennial generation that encompasses young adults from 21-28. However, the quality of the wine may in some instances take backseat to the eye-catching label. "In Australia, you have to be wary of these new wines that spring up out of nowhere with funny names and crazy labels. There is a serious glut of wine in Australia right now, so you find the big wine corporations bottling up excess juice without a serious commitment to quality, throwing a wacky label on it, putting it out in the market and seeing if it stinks,” said wine expert Jim Kowalyshyn.

Boxed wine has also shed its previously negative image. Janet Fuller from the Chicago Sun-Times writes, “Wine in a box never went the way of big hair and bad jeans. It’s only gotten better, experts say.” Boxed wine makes up only 6% of total wine sales but is the fastest growing segment in the industry, and some of the most up-scaled restaurants and wine consumers are taking part. Many positives come with purchasing boxed wine: there’s no possibility of cork taint, you get more for your money, and the wine lasts up to a month longer than traditionally bottled wine. A survey taken this past autumn showed that 44% of frequent wine-drinkers had recently purchased wine in a box. But will it ever truly take hold in the wine drinking world? "The only problem I have with it is, how do you serve it?" said Alpana Singh of Lettuce Entertain You. "Do you let it hang from the table?"

ARGENTINEAN WINE INDUSTRY POSTS A NEW THREAT

Argentinean wine exports are skyrocketing, especially in the U.S., the UK, Canada and Brazil. Exports increased 33.3% from 2004 and nearly 1,000 new wine companies were initiated last year.

AUSSIE INFLUENCE IN THE U.S. SURMOUNTS THE OLD WORLD

According to ABC News Online, the U.S. could overtake the Brits and become the number one importer for down-under wine within the next year. For one thing, Americans are willing to spend more per bottle than consumers in the UK. "The dollar per litre value in the US is around the $4.50 mark compared to $3.60 in the UK so we're very happy to sell to US consumers," said Australian Wine and Brandy Corp.’s analyst Lawrie Stanford. "We've seen signs prices are turning up as we deal with our oversupply the same thing will happen."

FORTUNE BRANDS SETS OUT TO GLOBALIZE WINE AND SPIRITS

"Reflecting the consistency of Fortune Brands' performance, the company finished another excellent year with another strong quarter," said Norm Wesley, chairman and chief executive officer of Fortune Brands. The 4th-quarter profit fell 30% on costs to acquire spirits brands from Allied Domecq, a $5.2 billion purchase that included Sauza tequila and Canadian Club whiskey. However, Norm said that the premium spirits experienced “strong international demand.”

“The development of our spirits and wine business into a new global leader with the acquisition of more than 25 global and national premium brands” has greatly helped Fortune become a stronger company. Furthermore, Norm assured investors that “the integration of the spirits and wine acquisition is on track.” For the 4th quarter ending December 31, Fortune’s spirits and wine sales rose 77.9% from 2004 and increased 40.4% for the entire 2005 fiscal year.

THE WASHINGTON WINE INDUSTRY MOVES SOUTH

The Washington Wine Commission is kicking off a national ad campaign this week in Tampa, Florida. The campaign will feature print, radio and outdoor advertisements along with in-store promotions and wine tastings. The test-campaign will measure the effectiveness “of using broad consumer advertising” to increase knowledge of Washington state wines and will run from February through April. "The WWC selected Tampa as our test market because the area has higher than average wine consumption and features similar demographic characteristics to many other mid-sized cities across the country. However, Florida wine consumers have relatively low awareness of Washington wine. By launching our first national ad campaign in a 'clean' test market, we can see the degree by which our efforts can move the needle," said Robin Pollard, executive director for the Washington Wine Commission.

COSTCO UPDATE: ONE STEP CLOSER TO DIRECT SHIPPING

A Washington State Senate committee on Friday unanimously approved a bill that would legalize direct-to-retailer shipping for beer and wine, a move that Costco chief Jim Sinegal said would accomplish his objective. “Assuming that happens, I think the consumer ends up being the winner,” he told a paper.

The proposed state Senate bill must be brought to a full vote in the Senate, before it is passed into the House. Some form of the bill is expected to pass, as the Legislature has until April 14 to fix what Judge Pechman ruled was unconstitutional protections for in-state wineries. This version of the bill is set to expire in 2008 unless the Legislature acts to extend it.

IS FOSTER’S GETTING AHEAD OF ITSELF?

Merrill Lynch is wary of Foster’s Group’s projection that the company will earn A$0.31 per share for fiscal 2006. The Australian wine industry will not likely improve anytime soon and is slated to “get worse before they get better.” This year’s grape crush is looking even bigger than 2005 and will probably continue that pattern in 2007. Pricing will likely get worse and make it “extremely difficult” to assimilate Southcorp.

ANDRES WINES THIRD QUARTER RESULTS

Andres Wines of Canada announced today that sales for the 3rd-quarter have risen 24.6% and 24.9% for the nine months ending December 31. Their recent acquisitions of Thirty Bench Winery, Cascadia Brands, and Red Rooster Winery helped contribute to the growth as well as Andres’ continued focus on their premium brands. "Our integration efforts are proceeding extremely well and our new premium brands have great potential," commented John Peller, President and CEO. "The cost synergies and economies of scale along with the positive contributions from our increased sales, are expected to generate enhanced growth and profitability."

VINCOR’S 3RD-QUARTER RESULTS POST-HOSTILE TAKEOVER ATTEMPT