VIN & SPRIT STRUGGLE IN Q3

Swedish company Vin & Sprit, makers of Absolut vodka, posted a net profit loss of 6% in its 3rd-quarter earnings today. The recent acquisition of rum producer Cruzan and the purchase of a 10% stake in Beam Global Spirits & Wine (owned by Fortune Brands) negatively impacted the company – especially after Beam acquired several of the Allied brands.

Growing U.S. sales of the company’s flagship Absolut vodka helped sustain the company’s spirits business, although things aren’t going to well in its native Scandinavia.

SUPPLIERS TO PAY $1.6M IN FINES

New York Attorney General Eliot Spitzer and State Liquor Authority Chairman Daniel Boyle have reached an agreement with 15 wine and spirits suppliers to reform marketing practices and pay $2.3 million in fines. The agreement follows a similar one reached in September with the eight largest wine and spirits wholesalers in New York who paid $1.6 million in costs.

Said Attorney General Spitzer:

"The result is that thousands of smaller stores, bars and restaurants will now be able to compete on a level playing field."

The investigation began in 2005 on the accusation that wholesalers and suppliers were offering incentives to liquor stores, bars and restaurants to reward favored customers and influence purchasing decisions, which is in violation of the New York’s Alcohol Beverage and Control Law. The inducements included deeply discounted or free products, gifts and cash payments to favored retailers and bar owners, which added up to approximately $9 million from 2003 to 2005.

Under the agreement, the suppliers must cease from making any illegal incentives, and are prohibited from financing illegal conduct by wholesalers. The wine and spirits companies entering the agreement include: Bacardi U.S.A, Banfi Products Corporation; Brown-Forman; Constellation; Diageo North America; E & J Gallo; Future Brands; Absolut Spirits Company; Jim Beam Brands Co.; Kobrand Corporation; Moet Hennessey USA.; Pernod Ricard USA; Remy Cointreau USA.; Sidney Frank Importing Co.; Skyy Spirits.

An investigation of the retail sector of the industry is continuing.

WINE SALES GIVE A BOOST TO RETAILERS

Table wine continues to be the fastest growing segment among alcoholic beverages, including beer and spirits. In 2005, table wine dollar sales in the food channel ran laps around beer, which posted 1.4% gains as compared to 8.7% in the wine category. Table wine only slightly outpaced spirits, however, which experienced a growth of 8.3%. Liquor and drug channel showed similar trends, according to an ACNielsen study.

U.S. consumers are also spending more money on wine, increasing sales by 8.6% as compared to spirits and beer, which posted gains of 5.5% and only 0.7%. The data does not necessarily suggest that beer is losing out because it is still the most widely consumed alcoholic beverage. It does, however, hold testament to the table wine category’s surging popularity. Consumers are exhibiting an increasingly positive attitude toward the category as a whole, mainly due to influencers, like friends and family, and the almighty media/television/movie industries. As a result, wine is becoming much more of an everyday drinking occasion, especially premium table wine.

Table wine sales priced at $15 or higher shot up 18.2%, while wine priced at $12-$14.99 increased 16% and wine costing $9-$11.99 jumped 12.8%. Wines ranging less than $6 declined significantly, growing only 2.7%. A majority of people that drink wine want to come across as educated, experienced wine drinkers whether they are or not, which tends to prompt more expensive purchases.

Along with the desire to fit a certain image, most Americans feel they are getting a better quality wine if it costs more, which also factors into the slight increase in import consumption. Imports were up 0.5% this year, while domestic wines were down 1.1%. Australian imports continue to lead the way with a 39% volume share, up 9% from last year, with Italian and French imports ranking second and third.

Packaging also serves as a major determinant in wine sales, specifically “critter labels,” which refers to a wine label that features a depiction of an animal. Critter wines account for nearly 15% of the table wine category and significantly outpace sales of regular table wine (29% to 10.7%) According to ACNielsen, wine producers introduced 77 new critter brands in 2005 alone.

Grocery stores and liquor stores continue to be the dominant channels for the wine category, but clubs, supercenters, and natural food stores are leading the way in growth. ACNielsen reported that in 2005, natural food stores led all other channels in sales growth, up 19.7%, by focusing on nontraditional, higher-end brands (niche wine labels are currently more popular than larger brands.) C-stores surprisingly grew 18.1%, while the drug store channel holds the lowest position at 4%.

Table wine shows no promise of slowing down. It continues to dominate beer and spirits in terms of growth, and ranked as the second fastest growing category among all of the top 25 food and beverage categories that ACNielsen covers. Even retailers are adapting their wine aisles to fit consumers’ preferences. Progressive Grocer reports that many retailers are replacing tiled floors with hardwood, and moving to warm incandescent fixtures in the wine section. Furthermore, Target and Wal-Mart both announced plans to expand their respective wine aisles to keep pace with growing demands.

FOLIO WINE PROVIDES IMPROVED ONLINE TRACKING

Folio Fine Wine Partners is offering an easier way for consumers and retailers to locate Folio wines through an online tool called The Wine Drivers. By simply entering the name of the Folio wine and the state in which the customer wishes to purchase, the consumer will be provided with a downloadable document with information regarding its availability.

“With The WineDriver(TM), consumers now have all the information the retailer needs -- including the distributor -- to track down the wine more easily," said Michael Mondavi.

WINE SUPPLIERS WORK TO RESTORE PRICES IN U.K.

Wine companies like Constellation, E&J Gallo and Diageo are taking extra lengths in the U.K. to help turnaround sagging wine prices. U.K. consumers have gotten used to abnormally inexpensive wines thanks to international grape gluts, particularly in Australia, but suppliers hope to reverse the harmful trends by educating consumers.

Richard Sands, chief of Constellation, told the Financial Times: “The U.K. consumer hasn’t evolved to the degree that the U.S. consumer has in terms of having an interest, a taste for, finer wines.”

Apparently, Americans are more readily receptive to expensive brands, be it wine or clothing, than their British counterparts. And while marketers have tried to develop more wine brands in the U.K., they’ve had much less success with critter brands – which do quite well in the U.S.

One way to increase promotions is to convince U.K. consumers that a particular brand is of high quality, and therefore worth the extra bucks (or pounds). Meanwhile, Diageo is making efforts to educate consumers about wine regions, while Constellation is investigating the development of low-alcohol wines and considering narrowing its range.

A lot of criticism has surrounded U.K. supermarket chains who are blamed with taking advantage of wine surpluses and driving down prices much to the dismay of the suppliers. Supermarkets, however, argue that wine producers have done little in terms of research and development, and that providing innovative products are much more important that price promotions.

STOLI PARTNERS WITH GAY AND LESBIAN NETWORK

Pernod’s Stolichnaya vodka is partnering with Logo, the television and broadband channel for the lesbian, gay, bisexual and transgender (LGBT) audience, to produce a year-long, commercial-free series titled “Be Real.” Stoli hopes to one day replace Absolut as the preeminent vodka for LGBT consumers, an attractive group known for trendsetting and possessing high disposable incomes

Stoli’s “Be Real” campaign includes a one-hour ad-free documentary that will appear at least 10 times on Logo, along with a six-episode reality show to air in April. Today (Monday), Stoli also launches stolibereal.com, where visitors can watch the documentary online and nominate couples for Be Real.

The shows contain no commercials but will feature an opening and closing “sponsored by Stoli” message and a 30-second ad for Stoli’s latest flavor, Blueberi.

"This unique partnership works because the content isn't commercial and because the series' values are consistent with Logo's and Stoli's brands," said Brian Graden, president of Logo.

According to Adams Handbook, Absolut posted the second highest volume in the U.S. in 2005 while Stoli ranked number five. Stoli, however, grew 2.3% in 2005 while Absolut increased 1.5%. Since acquiring Stoli from Allied Domecq last year, Pernod has already doubled its LGBT marketing to 10% of its annual marketing budget from 5% in 2004.

DIAGEO LOOKS TO EXPAND WINE PRESENCE

Diageo is set to spend $20 million on its boutique wine business in Argentina over the next three years as a way to grow sales across Latin American and the U.S. The money will be used to upgrade Diageo’s Navarro Correas business by adding a new winery and expanding vineyards.

The boutique brand currently makes 75% of sales domestically, but Diageo will look to grow sales of Navarro internationally once the brand has caught on in Latin American and the U.S. Diageo also owns Blossom Hill, a best selling wine in Europe, and the U.S. wine group Chalone, which the company acquired last year.

NORM WESLEY: CONFIDENT IN PREMIUM WINE AND SPIRITS

Fortune Brands reported a strong sales growth (23%) at today’s 3rd-quarter conference call that was helped in part by the company’s enhanced wine and spirits portfolio.

Chairman and CEO Norm Wesley named Jim Beam, Sauza, and Maker’s Mark for pushing “strong sales gains” that helped “fuel our third quarter performance.” He told listeners that it was a strong quarter for the company’s spirits and wines brands as they achieved a new record of quarterly incomes.

Net sales were up 88% in the nine months to September 30, while operating income was up 87.7% for Beam Global Wine and Spirits.

The wine and spirits division benefited from the Allied acquisitions, especially in the premium and super-premium wine and spirits category where Fortune experienced high growth.

“We’re confident in the premium end of our wine and spirits brands,” said Norm.

Spirits case volumes grew at a mid-single digit rate, but were up low single-digits in the U.S. specifically. Maker’s Mark, Jim Beam and Sauza tequila grew double digits fueled by growth in the U.S., while wine volume, helped by the Clos du Bois and Geyser Peak brands, also posted solid growth year-to-date.

"We drove strong profit growth and higher margins in spirits and wine, benefiting from a strong increase in worldwide case volumes and the synergy benefits of last year's acquisition,” said Norm.

When asked about the Allied brands, Norm replied: “Some of the brands from Allied were off this year, like Courvoisier, and will take some extra investments which we are prepared to do.”

Norm stated that some of the Allied brands were a little too expensive, with “a little price promotion going on, which is not how we think you should build brands for the long-term.”

So far, Fortune appears to be making very good process in integrating Allied but hopes to continue building margins. “We feel that we have narrowed the gap so our margins are going to be mid-to-high twenties this year,” Norm continued. “Do I think we can further improve margins? Yes, but I’m not a slave to trying to return to those Beam margins of 2004.”

The Allied brands have not only given Fortune more clout on a global scale, but will help the company build share internationally.

“We have lower shares globally than we do in the U.S. which is why in part we took on these new brands to help build shares internationally.”

Success in the premium and super-premium sectors might encourage Fortune to increase prices soon, but Norm was hesitant to get specific when questioned about pricing. “Spirits is one of those categories where we’ve been able to get price increases but carefully look at it brand by brand," said Norm. “It’s not something we forecast in advance. We budget it but don’t forecast it.”

It’s no secret that Fortune’s golf division isn’t doing so hot, which has led to rumors that Fortune will offload the golf unit to focus more on spirits. Crain’s Chicago Business reported this week that if Fortune is ever going to become a serious competitor to the likes of, say, Diageo, it’s going to have to focus more on building and adding brands.

One possible solution? Taking on Absolut. It would greatly benefit Fortune to acquire Absolut from Vin and Spirit with whom Fortune currently has a distribution deal. Passing over Absolut has more of a chance to hurt Fortune than it would other spirits companies, according to the article.

CONSTELLATION SELLS ZILLAH WINERY

Constellation announced today that it has finalized an agreement to sell its Zillah winery in the Yakima Valley, Washington, to Roza Hills Vineyards, LLC (established 1982). STZ acquired Zillah winery as part of an acquisition from Corus Brands in 2001, and has since leased the winery to Washington Wine & Beverage, an affiliate of Roza Hills. Other well known Washington wines in the STZ portfolio include Hogue Cellars, Covey Rum and Colombia Winery.

"The purchase of the Zillah winery is the natural next step for a business relationship that has been mutually beneficial to both Washington Wine & Beverage and Constellation Wines U.S.," said Sal Leone, president and CEO of Washington Wine & Beverage Company.

All the land, equipment and buildings are included in the transaction, which is expected to close in February 2007. Terms of the transaction were not disclosed.

KENDALL JACKSON LAUNCHES MILLENNIAL DIVISION

While it’s still somewhat of a new concept, wine companies are beginning to take the necessary actions to market to millennial drinkers, an age group that was once dominated by beer companies. Today’s millennials (21-30) are the fast growing wine consumption demographic. As a result, many in the industry have attributed the surge in U.S. wine consumption to millennials, leading wine companies to rethink the direction of their marketing dollars. The Wine Group, for example, recently launched its Underdog Wine Merchants division which solely markets to younger drinkers, and now Kendall Jackson has launched a similar endeavor.

Jess Jackson and Barbara Banke formally announced their latest addition, the White Rocket Wine Company, which will focus on creating new wine brands for the upcoming generations of wine consumers. White Rocket’s portfolio will include some existing brands – such as Camelot, Dog House and Tin Roof – and will also create new brands in the future.

“It has been my desire for quite some time to go back to our roots,” says Jackson. “We want to start from scratch to create brands that serve the new wine consumers of the millennial generation. White Rocket will be a small, fast moving wine company that fosters an entrepreneurial culture and a drive for innovation and new brand development.”

Gary Glass will serve as president of White Rocket, coming from Centerra Wine Company (a division of Constellation wines) where he was vp of marketing. Mark Feinberg, formerly with Seagram Chateau & Estate Wines Company, was appointed vp of marketing.

“This company is a very exciting place to be,” said Glass.

PERNOD SEES UNSTABLE GROWTH IN Q1

Despite easy global comps, 5.6% organic sales growth was negatively affected by tough U.S. comps for ex-Allied brands and delayed promotions in the U.S., Spain, France and China.

Spirits operations recorded organic growth of 7.3%, while wine fell 4.7%, primarily in the U.K. and U.S.

Driven by premiumization and favorable brand mix, Pernod's top 15 brands, including those from Allied Domecq, grew 2% volume and 7% sales, putting it back in line with the “old Pernod’s” top 12 brand growth in the 2006 fiscal year. Ballantine’s and Martell reported great sales growth, up 27% and 22% respectively, but Chivas, down 6%, was held back by promotional timings in China and the U.S. Growth from Stolichnaya (25%), Jameson (14%), Beefeater (14%) and Malibu (+0%) helped offset Chivas’ decline, however. Analysts expect growth to accelerate in the U.S. during the second quarter.

UBS stated: “We expect to see a shift of shipments into Q207FY especially from the US (though not China).”

In the Americas, 1.7% organic sales growth was negatively impacted by the U.S. An abnormally high 2005/2006 1st quarter for Allied Domecq brands and the postponement to the 2nd quarter of shipments for end of year sales hurt growth in the area. Jameson, Stolichnaya, Malibu, The Glenlivet, Wild Turkey and Seagram's Gin remained profitable, while Chivas Regal and Kahlua continue to experience the most difficulties.

DIAGEO LOOKS TO BUY IN AUSTRALIA

Diageo has applied to Australia’s Competition and Consumer Commission for clearance to further explore Independent Liquor, a New Zealand producer of RTD brands including Vodka Cruiser, Mudshake and FX, according to Just Drinks.

Lion Nathan, Foster’s Group and Coca-Cola Amatil, along with two private equity groups, are also said to be in the race for Independent.

W.J. DEUTSCH AWARDS GLAZER’S OF LOUISIANA

The 2006 Best Overall Performance Award from W.J. Deutsch was awarded to Glazer’s of Louisiana as a part of the “W.J. Deutsch multi-brand “Fast Start Program.”

“We acknowledge this very deserved award to Glazer’s Distributors of Louisiana with heartfelt respect, and in particular, in recognition of the company’s ability to overcome all of the difficulties in their state attributed to the devastating affects of Hurricane Katrina,” stated W.J. Deutsch President Peter Deutsch.

Congratulations to Glazer’s Louisiana division for all its hard work.

EU FARM MINISTER PLEADS FOR REFORM

European wine-producers are still having a hard time agreeing on reform. The EU’s Farm Commissioner Mariann Fischer Boel stresses the need for European winemakers to simplify labels and produce more desirable wines if they ever want to recover world market share, but many in the industry are having trouble making changes.

The main problems for EU wineries seems to be their determination to stick with tradition, despite losing out to newer wine countries, like Australia and South Africa, who have implemented newer technology, labeling practices and more palatable blends for today’s consumers. Fischer Boel believes the complicated labels from France, Italy and Germany are confusing for consumers, leading them to purchase more attainable looking wine bottles from Australia and the U.S.

"The consumer decides what is taken down the shelves in the supermarkets. The consumer wants simple, clear labeling," Fischer Boel said after meeting with farm ministers from the 25 EU member nations to discuss reforming Europe's wine sector.

She pointed out that new world wines use varietals in the labeling, such as Chardonnay and Merlot. "We need to head in the same direction," she said.

However, there is a lot of opposition in Europe to that new way of thinking. Because of dwindling sales and recent gluts, EU nations agree there is a need to reform, but still can’t agree on what exactly should be done. Many winemakers believe they should stick to the traditional labeling requirements that have been around for centuries, even though those practices might be hurting them now.

The hardest hit sector for European wines is the mid-price range where EU vintners are being passed up for new world rivals and their straightforward labels, which is why Fischer Boel believes reform is the key to success.

“Those in the sector that want to use the same tools as our successful competitors from outside the EU should be allowed to do so,” she said to EU officials.

But while European countries try to increase exports, U.S. wine-producers worry about competition with imports. If old world wine producers start looking more like U.S. wines, it could pose even more of an issue for domestics. ACNielsen data shows that imports already account for 21% of case volume and 26% of dollar sales, and will likely continue growing if future trends follow current patterns.

The most popular category for imported wine sales is the $7-$11 per bottle range where imports have the largest stake at 33%. California wines, on the other hand, have the biggest hold on the premium market ($20 and up). But what’s to keep consumers from trading up to a more expensive version of their favorite $7-$11 import?

U.S. SPIRITS DWINDLE IN VOLUME

U.S. spirits volumes slowed a bit to 3.25% in September, but are up 4.7% ytd according to UBS research. NABCA, or Control States, volumes show a similar decreasing trend with a 3.25% rise in September, down from 4.92% in August and 4.74% ytd. Nevertheless, UBS gives a positive outlook for U.S. spirits, “particularly on the trend of premiumisation.”

Diageo continues to take volume share from the industry, up 4.68% in September and 7% ytd., with the help of Scotch, Canadian whiskey, gin, rum and cordials. Diageo’s latest Smirnoff price increase caused the drinks giant to lose some share in the vodka sector, gaining only 4.98% in volume as compared to category growth of 5.43%.

Pernod lost some volume share in September, reporting a 3% volume growth and 3.83% ytd, ranking behind the market. The company took some volume share in the gin, Scotch and vodka categories, but lost share in brandy/cognac, rum (2.27% vs. category 2.78%) and cordials.

Both Campari and Remy Cointreau gained volume share in September.

CONSTELLATION’S CFO SET TO RETIRE

Constellation announced today that executive vp and cfo Tom Summer plans to retire in May of 2007.

Summer, who has been CFO since 1997, said he was "looking forward to exploring a variety of new challenges and spending more time with my family." He agreed to continue his position until May to help the company complete its annual report and provide an orderly transition to his successor.

"We thank Tom for everything he has contributed to Constellation's growth, image and stature as a company,” said Richard Sands, Constellation Brands chairman and chief executive officer.

THE EU “REJECTS ATTEMPTS TO HIJACK” ITS ALCOHOL STRATEGY

The European Commission issued its strategy in dealing with alcohol abuse today, which has managed to keep a majority of trade bodies happy. The Commission recognized that member states have the right to regulate alcohol within their country, and did not include EU-wide legislation.

The Commission reportedly plans to set up an Alcohol and Health Forum that will allow member states to work closely with the EU in monitoring its strategy.

“The Commission is to be applauded for rejecting attempts to hijack the strategy by those who advocated a biased view of the evidence base and for recognising the positive role that industry can play in being part of the solution to alcohol-related harm,” said Alan Butler, chairman of the European Forum for Responsible Drinking.

Many in the alcohol beverage industry were concerned that the Commission would submit proposals for warning labels on beer, wine and spirits containers similar to those found on cigarette packs.

CHARLES KRUG GOES ORGANIC

Charles Krug (owned by the Peter Mondavi family) is converting five of its seven Napa vineyards to meet organic requirements including eschewing pesticides, irradiation, bioengineering and man-made fertilizers, according to MSNBC. Three of its vineyards in the Yountville and St. Helena areas, totaling 250 acres, were certified by the California Certified Organic Farmers trade association after a 3-year process, while two others in the Yountville appellation are expected to be certified by mid-2007.

FRENCH AUTHORITIES TO BAN OAK CHIPS

France's National Appellations Institute (INAO) said it had proposed a law to allow the country's Appellation d'Origine Contrôlée (AOC) regions to ban or limit the use of oak wood chips in wine. Although the practice was approved by the European Commission, the INAO remains concerned that using oak chips may damage the quality of wine in higher quality appellations.

The decision from INAO has left some in the French wine industry a bit apprehensive as the country continues to struggle with exports. Allowing the use of oak chips in wine was adopted by the European Commission earlier this year to help modernize and relaunch EU wines on the world market after meeting with staunch competition from New World winemakers.

RUSSIAN STANDARD SUES PERNOD FOR “FALSE ADVERTISING”

WSD reported on Friday, Russian Standard Vodka filed a lawsuit last week against Pernod Ricard and Allied Domecq in a New York district court. Russian Standard accuses both companies of falsely advertising that Stoli comes from Russia (Pernod gained Stoli with the Allied Domecq acquisition.) While Pernod claims Stolichnaya is distilled and produced in Russia, Russian Standard alleges it is distilled in Latvia instead. Let’s take a look at the court documents.

Russian Standard claims: “Defendants have falsely and misleadingly marketed, sold and advertised their Stolichnaya products as ‘genuine Russian,’ and have deliberately and intentionally caused public associations of their Stolichnaya products with Russia, with the quality of Russian vodka, and with the Stolichnaya vodka sold in Russia.”

As a result, defendants’ actions “have caused a likelihood of confusion and actual confusion, have caused damage and injury to Russian Standard and the consuming public, and have caused and continue to threaten irreparable harm for which there is no adequate remedy at law.”

“Defendants’ conduct as described hereinabove has been done knowingly, deliberately, intentionally, maliciously, fraudulently, willfully or recklessly.”

When Russian Standard began its accusations in April, Pernod reiterated “that Stolichnaya is truly Russian, being distilled and produced in Russia using Russian grain and water. It is then shipped in bulk and bottled in Latvia.”

Although share of Russian vodkas have dwindled in recent years, focusing on its Russian origin in ad campaigns is a big part of Russian Standard’s brand image. The company recently kicked off its “Vodka is Russian” ad campaign in the U.S. for the company’s flagship brand, Imperia vodka, which conveys a message that Imperia is the only truly authentic Russian vodka sold in the U.S. Therefore, pushing Pernod’s Stoli out of the picture certainly would help the brand, especially in backing up its claims of being the only “true Russian vodka.”

Now’s it’s up to the courts to decide. WSD will keep you posted.

NAPA LABEL PRINTER CLOSES SHOP

North Bay’s largest commercial and wine-label printer, Renaissance Mark, closed its 76,000-sq-ft Napa plant, making room for competitors. Reports the North Bay Business Journal, Renaissance Mark closed the plant on September 29, causing 69 employees to lose their jobs as a result. The company is reportedly planning to shift its print work to Nevada and Montreal, while keeping a small sales staff in Napa.

Other printers, such as Collotype Label USA and Ben Franklin Press & Label, are using this as an opportunity to acquire additional customers and expand their businesses as a result.

FOLIO WINE ADDS LATEST BRAND

Folio Fine Wine Partners (founded by Michael Mondavi) announced they have added Celler Vall Llach from the Priorat region of Spain to their portfolio.

"We're very excited to be representing Celler Vall Llach here in the U.S.,” said Rob Mondavi, co-founder and president of winegrowing, Folio Fine Wine Partners. "I've been obsessed with the wines from Priorat since my first visit.”

TENNESSE FACES ONGOING LITIGATION

Tennessee continues to face ongoing direct to consumer litigation after Rick Jelovsek filed a lawsuit in a federal District Court last week. Joined by the S.L. Thomas Family Winery, Rick is challenging Tennessee’s current law that prohibits the direct shipment of wine to consumers.

According to local reports, the state tried to have the case thrown out, claiming Jelovsek has no standing because the disputed laws do not apply to consumers. Judge Ronnie Greer, however, denied that motion.

OREGON STATE TO GRANT MAIL-IN REBATES

The Oregon Liquor Control Commission has overturned a prohibition on cents-off rebate coupons for malt beverages, wine and cider that takes effect November 1. The beer and wine industry petitioned the state after a February 2006 amendment that allows spirits companies to offer money-back-by-mail coupons for discounts that increase as more alcohol is purchased.

Beer, wine and cider producers have been able to offer cross-promotional coupons for years, but haven’t been able to offer mail-in, money off coupons.

THE EU SET NOT TO IMPOSE WARNING LABELS

Tomorrow’s release of the European Commission’s alcohol strategy is not expected to include any legislative proposals on labeling and advertising, according to Reuters. The European Commission has apparently agreed to ease up on restrictions after rumors of an EU-wide system of compulsory health warnings on beer, wine and spirits.

Regulators were reportedly pushing to impose warning labels similar to those found on cigarette packs, but now deny any harsh restrictions were ever in the works after meeting with reps from the alcohol beverage industry.

Reuters reports that the EU Health Commissioner, Markos Kyprianou, will “put emphasis on self-regulation and pulled away from delivering legislation from Brussels” in the future when dealing with alcohol-related issues.

FRANK SWAN: FOSTER’S FOCUSED ON GROWING BRANDS

Foster’s Group chairman Frank Swan said Monday that the Southcorp integration is a thing of the past, and Foster’s has since shifted its focus to improving brand growth.

According to the Dow Jones Newswires, Swan told shareholders at the annual meeting in Melbourne, “Our focus in fiscal 2007 is on accelerating wine volumes and revenue growth, refining our sales and route-to-market capability and bringing new product and innovation initiatives to market."

While wine volumes continue to suffer in Foster’s native Australia, the company is seeing growth in the Americas, Europe, Middle East and Africa. Chief Trevor O’Hoy told shareholders that Foster’s expects debt gearing to be between 65% and 75% by fiscal 2008 and its net debt to be less than A$3 billion in 2008.

THE WASHINGTON WINE COMMISSION WELCOMES TWO APPOINTEES

The Washington Wine Commission has appointed Deborah Daoust, who will join the WWC staff as Director of Communications, and Shayn Bjornholm, Master Sommelier, to serve as the new Director of Wine Education.

Deborah previously gained tenure with the Canadian Consulate General in Seattle, and most recently served as the executive director of the Northwest Chamber Orchestra and Bachanalia Wine Auction. Shayn joins the Washington Wine Commission team after a six-year residency at Canlis restaurant in Seattle where she held the position of Wine Director. Congrats to both.

U.S. WINES RISE IN THE U.K.

So while U.S. wineries worry about the effects of globalization at home, things are looking good elsewhere. The U.S. category grew 6.1% in the U.K. over the summer trading period, driven primarily by brands like Gallo Family Vineyards. E&J Gallo recorded its most successful summer in Britain, achieving sales of more than 1.8 million nine-liter cases across its portfolio. For the first time, the U.S. has overtaken sales of French wines in the U.K., and is the second largest wine category in Britain behind Australia, according to ACNielsen.

The increased popularity of rosé helped drive U.S. wine altogether. The category rose 27.9% during the summer with Gallo Family Vineyards Sierra Valley White Grenache accounting for 14% of total British rosé sales.

RUSSIAN STANDARD FILES SUIT AGAINST STOLICHNAYA

Russian Standard Vodka USA filed a lawsuit this week in the Federal District Court of New York against Allied Domecq and Pernod Ricard. Russian Standard is challenging the validity of “the allegedly ‘Russian’ character” of Pernod’s Stolichnaya vodka products, which Russian Standard claims is distilled in Latvia, not Russia, and is in violation of the Lanham Act. Russian Standard “further asserts claims against Defendants for false advertising, false designation of origin, deceptive trade practices, unfair competition and unjust enrichment,” according to court documents.

Russian Standard claims that while Stolichnaya is marketed as a Russian vodka, it has “no affiliation with the Stolichnaya brand products sold within Russia.”
It’s an issue that has been questioned by many in the industry. Pernod and Allied, however, defend Stolichnaya and “have demanded that Russian Standard cease public comment or advertising that raises issues as to the allegedly Russian character of defendants’ Stolichnaya.” More on Monday.

IMPORTED WINE PRICES HURTING DOMESTICS

It’s going to take some years of recovery to get the Australian wine business back on track according to the Australian Wine and Brandy Corporation’s annual report. The current surplus – caused by overplanting in the late 1990s – has forced growers to leave up to 5% of this year’s harvest on the vines, which is double that of previous seasons. As a result, growers and winemakers can’t get rid of the juice fast enough, and are sending it in bulk to the U.S. and Britain faster than you can say “grapejuce.” So yes, export volume is higher than ever before (up 7%), but Australia exports are down 7% in the average price per liter – and it could take up to five years to reverse the trend.

How, exactly, does this phenomenon affect the U.S.? Well, cheaper imported wine makes it more difficult for domestics to compete with inexpensive, good quality imports. In Australia’s case there’s so much excess wine, they’re practically giving it away. And it doesn’t look like Australian imports are going anywhere anytime soon. Don’t believe me? For the first time an Australian import, Yellowtail (of course), became the top overall wine in dollar sales. Altogether, imports were up 5.7% in 2005 while domestics grew only 1.5% that same year.

Australian wineries are offering quality, premium brands for $15-25, a cheaper price than most domestic premium wines which usually go for $30 and up. Are domestic grape prices prepared for that kind of competition? Especially if other New World countries, like Chile, Argentina and South Africa, follow suit and offer less-expensive, good quality wines. Last year, the top five imported brands were up 11.3%, led by Australia's Yellow Tail, which gained 15.4%, or a million cases. Imports from Italy, Chile, Spain, Argentina and elsewhere all grew substantially but French imports dragged behind with a small 2.4% increase.

So, moral of the story? Globalization will continue to shape the industry, so U.S. winemakers should prepare for further competition from imports, and mold their businesses, and prices, to help ward off the opposition.

COMBATING THE NEW WORLD

The European Commission has agreed to spend $567 million to improve EU vineyard production in the coming year (2006-2007), hoping to ease competition with New World wines. The money will be spent on things like varietal conversion, relocating vineyards and improving vineyard management.

Spain will receive the largest chunk of money followed by France, Italy, Portugal and Germany.

FUTURE BRANDS CREATES NEW EXECUTIVE POSITION

Future Brands has appointed Matt Metz to serve in the newly created position, vp, distributor strategy and planning. Matt previously worked at the former Jim Beam Brands Worldwide and brings 14 years of experience to the new role.

PERNOD APPOINTS NEW FINANCIAL DIRECTOR

Pernod Ricard has appointed Denis Fievet to serve as Director, Financial Communications and Investor Relations starting September 1, 2006. Denis succeeds Patrick de Borredon who now serves as Advisor, Investor Relations.

RÉMY SALES BOOSTED BY CHAMPAGNE

Rémy Cointreau saw sales rise 1.3% in the six months to September 30, with Rémy’s champagne stable, especially Piper-Heidsieck (up 13.8%), rising 10.9% with help from the U.S. Cognac sales rose 4.2% while Cointreau also enjoyed rising sales in the U.S.

The performance of Rémy’s partner brands, however, from the Maxxium venture hurt the first-half figures. Rémy said that sales of Scotch whisky and Californian wine were up but that the decline in overall sales was due to the end of distribution deals in the past 6 months.

CAN BEER DISTRIBUTORS HANDLE WINE & SPIRITS?

A Reprint from our sister publication Beer Business Daily:


Dear Client:

With A-B and perhaps other brewers considering a move into spirits (presumably), and many beer distributors looking longingly at the margins in the wine and spirits business, we decided to go straight to the man who perhaps has among the most beverage alcohol experience in more segments, more tiers, and more geography than any man alive today.

I'm talking about Bill Goldring. To give you some background, the Goldring family empire began with beer wholesaling in 1898 in Florida. Bill and his partners are currently the number three beer wholesaler in the country doing business as Crescent Crown in Louisiana and Arizona (in partnership with Bubba Moffett) and Goldring Gulf Distributing in Florida (in partnership with Elliot Maisel).

In addition, his son Jeffrey leads Republic Beverage, the nation’s second largest liquor and wine wholesaler doing business in 24 states. Bill also remains as chairman of the Sazerac Company and the Buffalo Trace Distillery in Kentucky, which was recently awarded by the Malt Advocate and Wine Enthusiast as the best distiller of 2006.

I spoke with Bill last week on a variety of topics, but in particular I wished to learn more about the possibility of beer distributors delivering spirits in the wake of the possibility of A-B taking over Absolut vodka or otherwise getting more into wine and spirits.

Bill said that while high-end crafts and imported beers lend themselves to being sold and delivered alongside wine and spirits, he contends that high-volume (and low-margin) mainstream domestic beers are difficult to make work. The reason?

Two reasons, actually: the sales process is different between the two, and the delivery economics can prove to be mutually exclusive. Let’s explore these in more detail.

THE SALES PROCESS. Selling techniques, skill sets, and most importantly the time to sell are different between mainstream beers and wine and spirits. Says Bill:


"In the on-premise, wine and liquor houses can go in and sell a bottle of vodka, a bottle of Cognac, a few bottles of wine, taking the time with the bartender or manager. Not just quickly creating an order, but taking the time to educate the account about creating a beverage list. They wear coat and ties. High-end beer, crafts and imports, fit in nicely with this sort of sale. They can sell it in……it's hand selling and taking time. With domestic premium beer margins, you can't afford to do that, so it's got to be in a separate team.

“In the off-premise, the wine and liquor salesman can sell a 50 case display of Fat Tire beer or Heineken just as he sells a 20 case display of a premium Australian wine. So sales and distribution aligns itself along margins and the image of the brands."


THE DELIVERY PROCESS. Bill also says the delivery economics also don't easily lend themselves to delivering wine, spirits, and high-volume beer off the same trucks. The reason, besides that in some states the accounts are different: high volume, low margin beer diminishes the ability of the truck to profitably travel long distances. Says Bill:


"The high volume beers fill up the trucks [pushing out the spirits and wine] and so it's hard to make a profit delivering more than 30 or 40 miles from the warehouse….. that's why, even in the same market, we usually sell our liquor and beer separately."

And what about A-B getting into wine and spirits, like buying Absolut? “Harry, I think they would have to create a parallel distribution system which could cost hundreds of millions of dollars since they could not have the critical mass with just one brand, and therefore doesn’t make economic sense. It is far easier for a premium wine and spirit distributor to be successful in the premium beer business than vice versa.”

A-B disagrees. I communicated briefly with an A-B exec who says that they have a model that would work. We’ll see what happens. As Bill said to me at the conclusion of our talk, “These are interesting times in this business, but I guess it’s always interesting in our business.” Yes, that’s why my sales are brisk.

DIAGEO BRANDS AMONG TOP TEN

Diageo announced today that four of its brands – Smirnoff, Captain Morgan, Jose Cuervo and Crown Royal – are among the top 10 leading spirits brands in the U.S. according to Adams Beverage Handbook.

Smirnoff and Crown Royal lead the Diageo brands with Smirnoff overtaking Absolut as the "No. 1 Spirit by Supplier Dollars," according to Adams. Adams also acknowledged Crown Royal Canadian Whisky as the leader of its respective category, and the number one selling whisky in the US by value.

SOUTHERN OPENS NEW POSITION

It’s a day for promotions. Southern Wine & Spirits announced the appointment of Andrew Harman to the new position of vp, organizational development. Harman will report directly to executive vp and general manager Brad Vassar and work closely with Michael Head, senior vp of human resources.

GLAZER’S ANNOUNCES NEW COO

Mike Maxwell of Glazer’s has been appointed to serve as the new executive vp/coo effective November 1. He currently stands as Glazer’s Texas president and previously served as Glazer's vp for malt beverage and business development.

"We are highly pleased to bring a leader of Mike's caliber back to Glazer's corporate office," said Cargill. "Mike has done an outstanding job of running the state of Texas over the last 18 months and we firmly believe that he will have an immediate and positive impact as our Chief Operating Officer," said Glazer’s president Jerry Cargill in a statement.

In addition, Don Pratt will serve as senior vp of strategic accounts, reporting to Mike Maxwell, while Cary Rossel has been appointed executive vp/cfo. Cary will report to President Jerry Cargill and will be responsible for all Glazer’s finance and administrative functions.

WOODBRIDGE MAKES A COMEBACK

Trends in recent months have shown positive volume growth for Constellation’s largest bottled brand, Woodbridge by Mondavi. Priced at $5.75 per bottle, premium Woodbridge ranks as the eighth largest brand in the U.S. behind several lower-end brands, including Australia’s Yellow Tail. Although Woodbridge’s volumes suffered in the 2003-2005 period, the brand was up 9.2% in the 4-week period to September 10 and up 1.4% YTD, according to Merrill Lynch’s Christine Farkas.

Christine lists several factors for Woodbridge’s renewal, including new packaging and labels, an improved sales force under STZ, new varietals and increased marketing spend (up 35.3% in 2005 according to Adams Handbook.)

ROOM FOR UNOAKED CHARDONNAY

Chardonnay is already the top selling varietal by volume, but the latest research suggests there is a virtually untapped opportunity to expand sales. While 31% of respondents listed chardonnay as their favorite wine, it seems that U.S. consumers might prefer a less oaky chardonnay according to a survey conducted in Wine Opinions quarterly Core Track Report. Over half (59%) of the 2,250 wine drinkers in the U.S. claim that have either seen or are familiar with chardonnays containing less or no oak flavors. Out of the respondents, 78% have tasted or purchased the Australian-style wine.

Historically, chardonnay has always been aged in oak barrels, but Christian Miller, the Research Director of Wine Opinions claims the “wine consumer market is fracturing when it comes to a taste for oak in chardonnay." The survey found that most consumers accept both styles, but members of the industry tend to have a higher acceptance for the non-oaked range.

And for those 41% of regular wine drinkers who said they have not seen or heard of the wine style, only 11% said they were either “not very” or “not at all” interested in samplying it. In fact, 60% claimed they were either “somewhat” or “very” interested in the unoaked style.

LVMH POSTS THIRD QUARTER GROWTH

LVMH Moet Hennessy Louis Vuitton achieved revenues of EUR 10.6 billion in the first nine months of 2006, posting organic growth of 11% compared to the same period the year before.

Wine and spirits sales were up 12% during the first nine months, while the champagne brands saw sustained volume growth over the same period. Veuve Clicquot continued its rapid growth in the US, while Moet & Chandon and Dom Perignon had excellent performances in Europe and in Japan. Hennessy cognac saw volumes jump 9%, due to a “strong increase in its premium qualities.”

DIAGEO UP TO BUY CHINESE SPIRITS COMPANY?

It is rumored that Diageo may buy Chinese spirits company Sichuan Swellfun Co., although the company is currently denying reports. Shares of Sichuan were suspended on Monday, Oct. 16 following a media report that Diageo was in advanced talks to buy the company, according to Bloomberg.

"The company is seeking information regarding the media reports from the controlling shareholder, the board and senior managers, and is yet to receive a reply from them,'' Sichuan Swellfun said in a statement to the Shanghai Stock Exchange today. Its shares have surged 153% this year, outpacing a 45% gain in the benchmark Shanghai Composite Index.

Diageo has already said it will commit more capital to developing regions including India and Asia, where the company increased liquor sales by 15%. If Diageo ends up purchasing Sichuan, it will mark the first time a Chinese spirits company has been acquired, according to the Economic Observer.

DIAGEO MAINTAINS FULL YEAR GUIDANCE. Diageo said today it maintains its forecast for full-year earnings after the company gained market share in North America and increased growth in Latin America. The company confirmed its August forecast of a 6% sales growth and a jump in operating profit up 7%.

"Trading in the first quarter supports that guidance and therefore we reiterate that fiscal '07 guidance," Chief Executive Paul Walsh said in a statement.

NEW MALALTERNATIVE TESTS IN DALLAS. Diageo is test marketing a new malalternative, or “progressive adult beverage,” at Dallas nightclubs and c-stores through December, reports Brandweek. Smirnoff Source is a lightly carbonated drink with 3.5% ABV and sold at a premium $2.49 per bottle. Packaged in a clear, glass bottle, its flavors include Pure Berry, Pure Citrus and Pure Orange flavors.

Diageo also is testing in Florida ready-to-drink beverages-Captain Morgan and Cola, Smirnoff and Lemon Lime, Seagram 7 and Lemon Lime and George Dickel and Cola-in 12-ounce cans retailing in c-stores for $1.99.

FTC PUSHING FOR STRICTER ADS

A push by the state Attorneys General to get the Federal Trade Commission (FTC) to tighten up on alcohol advertising is leaving the advertising industry more than a little concerned. In March, the FTC reportedly asked for comment on what kind of info it should seek from the industry on self-compliance according to Broadcasting & Cable.

In a paper being published by the Washington Legal Foundation, Washington Legal Foundation, American Association of Advertising Agencies Counsel, Adonis Hoffman and attorney David Versfelt, warn that "opponents of alcohol
advertising are readying their troops to transform the commission's recent
request for data in to tighter ad restrictions by reducing that audience
figure.”

The attorneys general claim the advertising industry needs to increase their involvement in reducing underage drinking, and that most public interest groups want the industry to ban alcohol ads from shows with audiences of 15% of viewers 20 years old or under.

In addition to their claims that the alcohol industry is already taking steps to reduce underage drinking, Hoffman and Versfelt cautions the government to stay true to the First Amendment which protects truthful ads for legal products. They also argue that it is too soon to tighten the 30% prohibition to 15% since the ban has been in effect for less than two years, and it’s too early to tell its effectiveness.

FOSTER’S TO SELL SERVICES DIVISION

In an attempt to ward off any takeover bids, Foster’s Group is selling its two U.S. wine businesses, according to the Australian Financial Review and Reuters.

Information brochures are being sent to potential buyers in the U.S. regarding the California-based Windsor Vineyards direct mail operations and Texas-based International Wine Accessories. Initially, both businesses were purchased by Foster’s for about $64 million.

Foster’s CEO Trevor O’Hoy had announced in August that the company was planning to offload its $301 million wine clubs and services division to focus more on its wine portfolio – and perhaps as another way to dodge a takeover.

EC PUTTING PRESSURE ON WARNING LABELS

The British government is considering passing a law that would require wineries, distillers and brewers to put health warnings on their products, similar to the U.S. As expected, the industry is up in arms. Most are dismissing the possibility as ridiculous, such as sommelier Matt Skinner, who told The Independent “there are far worse offenders” than alcoholic beverages.

Jancis Robinson, the wine writer and editor of The Oxford Companion, called the U.S. health warnings unsuccessful and told The Independent:

"As with labels on cigarettes, people just get used to them after a month or so."

Although the measure is meant to cutback on binge drinking, many people in the industry seem to feel it’s a waste of breath. Government officials are currently in discussions with the drinks industry to agree on a new warning label, according to the Daily Telegraph. Labels are likely to include details of where to get help for alcoholism, and could even include messages such as “Please Drink Sensibly,” although the industry is hoping to dodge such strong messages.

The European Commission especially is pushing for changes. A recent European Commission report set out proposals for an EU-wide system of compulsory health warnings similar to those found on cigarette packs, and the report specifically looked at an increase in British “binge drinking.” Today the British government is to launch a £4 million "national awareness" campaign under the slogan "Know Your Limits" aimed at 18-to-24-year-olds.

The alcohol beverage industry is hoping to reach an agreement that would not require legislation, said the Daily Telegraph.

ABCC OPPOSES QUESTION 1

The Massachusetts Alcoholic Beverages Control Commission (ABCC) announced today that they oppose Ballot Question 1 regarding wine sales in Mass. grocery stores, c-stores and gas stations. Chairman Eddie J. Jenkins said:

"Question 1 will expand the sale of alcohol not only to grocery stores but to convenience stores, gas station mini-marts and other retailers who sell minimal food. There is the potential for over 2,800 new alcohol outlets flooding our communities, with no additional funding for regulatory oversight. And we know that liquor licenses in Massachusetts, once made available, are a sought-after commodity. They will be applied for and secured by all manner of convenience stores and grocery stores, not all of whom will be equipped or prepared to adhere to the rigorous standards that we have established.”

“This increase in liquor licenses would make alcohol more accessible to underage persons, which is why I stand in opposition to Question 1,” said Chief Investigator Ted Mahony.

A “yes” vote on the November ballot’s Question 1 – which applies only to wine, not beer – would create a new category of licenses called ‘‘wine in food stores’’ and grant every town up to five new licenses plus one additional license for every additional 5,000 people. If the proposed law passes, up to 2,800 licenses could be created, which includes c-stores and gas stations. A released study of the Massachusetts Wine at Food Stores Initiative concluded that updating the state law to allow more grocery stores to sell wine would save consumers an estimated $26 million to $36 million each year.

Some people, however, think that convenience should not replace regulatory safety. Small retail shops and package stores have set up an opposing campaign – the Wine Merchants and Concerned Citizens for SAFETY – to defeat the measure. The WMCC believes an increase in supermarket alcohol beverage sales would result in destruction to small businesses and a jump in underage consumption. Supermarket employees would have a much harder time, they believe, in preventing minors from purchasing alcohol illegally.

CASTLE BRANDS TAKES NEW BOURBON LINE

Castle Brands has acquired McLain & Kyne, Ltd. of Louisville, Kentucky which owned premium bourbons Jefferson’s Reserve, Jefferson’s and Sam Houston.

Trey Zoeller (the former President of McLain & Kyne) will join the Castle Brands' management team and will serve as vp of Bourbon Operations of its US subsidiary, Castle Brands (USA) Corp.

Mark Andrews, Chairman and CEO of Castle Brands, said: "Premium bourbon has been a high priority target category for our company for some time, as it offers very promising growth prospects both in the US and internationally. As with other brands that we are building, we offer a very strong route to market for upscale spirits.”

Castle Brands' portfolio includes Boru Vodka, Gosling's Rum, Knappogue Castle Irish Single Malt Whiskey, and Brady's Irish Cream.

FRED FRANZIA KICKS OFF LATEST INSTALLMENT

Fred Franzia’s Bronco Wine Company has officially released varietals from its new Napa River Brand – created after Bronco lost its legal battle with Napa Valley Vintners over the use of “Napa” in brand names that do not in fact contain Napa Valley grapes. The wines are available exclusively at Trader Joe’s retail stores for $4.99 a bottle.

Some people in the wine industry perceive the new brand, titled Napa River Brand, as a jab to Napa vintners who had recently opposed Bronco. To the contrary apparently, as Franzia told Wine & Vines that Bronco was merely “reacting to the realities of the marketplace.”

Franzia – who is famous for saying “no wine should cost more than 10 bucks” – is able to offer such low-priced wines as Charles Shaw and Napa River Brand because of the continuing supply of surplus grapes. Napa River might actually help the California industry by clearing out some of the inventory. However, as UBS analyst Kaumil Gajrawala pointed out:

“While Franzia's new product launch is priced more rationally ($4.99 vs. $1.99), we believe Constellation's below $9 wines (80% of volumes) could be at risk in the near-term.”

POOR BEER MARKETING HELPING WINE?

Millennials play a very important role in defining what alcoholic beverage is cool or popular to drink, and single-handedly as a group can determine a large percentage of sales and volume. The latest success of the wine industry can be attributed in part to the growing interest of millennials, among other things, such as the overall improvement in quality and attainability. Also, modern consumers want variety, which is synonymous with the wine category’s ever growing blends and ranges

"The trend is here to stay," said Alain Barbet last month to a group of investors. "The evolution of the general population, particularly among the younger [generation] away from beer to more taste, to more diverse and more interesting beverages is going to continue as more and more consumers come into the market."

And what, exactly, has drawn millennials towards wine? Kaumil Gajrawala of UBS suggests that the beer industry's failure to effectively market its products in the past could be one reason. Millennials were hesitant to buy into the somewhat sophomoric image beer companies built for themselves through advertising in the 1990s, which resulted in lost share points. However, newer beer ad campaigns have refrained from using bikini-clad women and slapstick humor, and are more likely to appeal to millennials – which could eventually turn the tide on the wine industry’s staggering growth.

Many wine companies are realizing the importance of millennials, and have even set up separate divisions in their businesses to focus solely on marketing to that age group. Kendall-Jackson, for example, has a division called White Rocket, similar to The Wine Group’s Underdog Wine Merchants.

In 2005, Americans consumed a record 279 million cases of wine, continuing a 12-year trend of consecutive growth. Overall consumption is expected to increase another 3% this year and reach 316 million cases by 2010. Increases in the number of young people at the legal drinking will account for most of the market's expansion thru the next ten years as millennials remain top growth drivers. Just last year alone, millennials’ wine consumption rose 39% according to the Wine Market Council.

WHITE WINE LEADS CATEGORY SALES GROWTH

The white wine category posed higher sales growth than red and blush wine in the four weeks to August 26, 2006, according to ACNielsen data.

In the 4-weeks ending August 2006, white wine jumped 11.6% while red and blush increased 8.5% and 6%. Domestic wine grew 10.6% in that 4-week period, trumping imported wines which were up 7%. South African wine (up 63.7%) posted the most growth for imports, followed by New Zealand (up 46.6%) and Argentina (up 32.8%).

Pinot Noir (25.7%) is by far the fastest growing red wine while Pinot Grigio was up a whopping 22.2%.

YELLOW KANGAROO ANYONE?

Imported brands have outperformed domestic wines for the 10th consecutive year, up 8% in 2005. But one particular brand shines above the rest in terms of sales, and I think you know to which I refer.

Yellow Tail is huge and we all know that, but it has reached new heights as the top wine overall in terms of retail value last year, according to U.S. Wine Market: Impact Databank Review and Forecast. It’s the first time an imported wine brand has ever taken the top spot of total dollar sales, and was previously reserved for Beringer or Kendall Jackson the past four years. Remarkably, Yellow Tail produced sales of $621 million in 2005, up from its third place position in 2004, and accounts for 11% of the imported table wine market by volume.

LINDEMANS EXPORTING NON-AUSSIE WINE

Australian grape growers are apparently a little ticked that Foster’s Group has expanded its formerly exclusive Australian Lindemans label to include Chilean and South African wines for export to the U.S. and Europe. The Southern Australia Farmers Federation’s Barossa Grapegrowers Council (it’s a mouthful) told The Advertiser it was “appalled” by the new “Country of Origin” range, which they consider damaging to the already struggling wine industry in South Australia. For the first time in 15 years Australian wine exports have decreased 0.6% in value while at the same time growing 7% in volume.

"We see this move as a large company using a highly-rated and recognized Australian brand with a reputation for quality and integrity and basically raping that reputation," said spokeswoman Chris Canute.

"(They are) using it for short-term and small profit gain, having no regard for its effect on the heart and soul of our industry. "

Foster’s Group defends the new range, saying research shows that Europeans and Americans do not necessarily perceive Lindemans as a strictly Australia brand. The company believes the move will introduce more consumers to the Lindemans label, which will benefit the core Australian line, according to Lindemans global brand director Oliver Horn.

“In fact, for this current financial year we expect 80% of our growth will come from our core Australian range,” he said.