TWO BUCK CHUCK WINS CALIFORNIA TASTING

Fred Franzia’s got to love this. Bronco Wine Company’s infamous “Two-Buck Chuck,” or Charles Shaw Wine, was the highest scoring chardonnay in a blind tasting at the California state fair. Charles Shaw’s 2005 chardonnay beat out 350 other chardonnays in the competition.

DISCUS INVITES CAMY TO LEND A HAND

In response to CAMY’s report that unduly attacked the alcohol industry’s responsibility marketing, DISCUS invited the group to use the “millions of dollars” it receives in funding to “join these partnerships efforts to fight underage drinking.”

What a great idea. Lend some support and help out CAMY.

DISCUS pointed out that CAMY’s report didn’t “include television responsibility messages paid for by industry-funded organizations or expenditures on alcohol education in venues outside television advertising.”

As we mentioned yesterday, CAMY has been criticized for its methodology in the past.

COULD CHIVAS ONLINE CHANNEL SPELL TROUBLE?

As we reported yesterday, Chivas Regal has joined with MSN.com as the first spirits brand to launch an online channel, following in the footsteps of Anheuser-Busch’s bud.tv. As more marketers are going direct on the web, we have to ask ourselves, is it wise for beverage alcohol?

After A-B came out with bud.tv in February, twenty-three state attorneys general wrote a letter asking the brewer to step up it’s policing of underage consumers gaining access to the site which already had the toughest standards in place. The state AGs proposed several additional safeguards, like sending a postcard to the home or making a phone call to verify age. Will Chivas get the same reaction from state AGs that bud did? Mind you, neither websites are selling alcohol.

TRANSITIONAL CHANGES TAKE A TOLL ON CONSTELLATION

Several initiatives characterized Constellation during its first quarter in fiscal 2008, including a reduction in distributor inventories, U.K. market pains, the completion of the Svedka acquisition, Matthew Clark and the $500 million share repurchase program.

Constellation saw a 65% drop in net income during its first quarter, while sales fell 25%. The plunging numbers were due to several “bumps in the road,” the term that Rob and Richard Sands used in referring to the recent initiative to reduce U.S. distributor wine inventory and problems with U.K. retailers.

The company also announced that Robert Sands, 49, was named ceo effective July 26, succeeding Richard Sands, 56, who will remain chairman.

“This is not a big dramatic change,” said Richard. “I want to make clear that I’m staying actively involved...this is just a partnership and Rob is just taking the lead partner role, is how I look at it.”

US WINE BUSINESS TRUCKING ALONG

DISTRIBUTOR INVENTORY. Constellation says that the reduction in distributor wine inventory is going as planned, although they were a little behind in the first quarter. The company achieved 55% of the targeted reduction instead of its initial forecast of 65%, but claims the reduction will be completed by the end of the second quarter.

So what kind of impact will the distributor reduction plan have in the remaining fiscal 2008? Rob says it “will slow the cadence of growth in the coming quarters...after the peak Christmas selling season we won’t be building up the traditional buffer stock in the distributor inventories.”

The completion of the reduction in Q2 will have negative impact on the second quarter’s sales. Expect to see a high net sales growth rate in Q3 that will be offset by a lower growth rate in Q4, says Rob.

And just for emphasis, chairman Richard Sands highlighted the fact that “it was our decision to reduce inventories...we thought it was better for our business and their business.”

WINE. Organic branded wine net sales in North American decreased -13% due to the cutback in distributor inventory, but other than that, things are looking up. Rob called the U.S. wine market “healthy” with continued benefits from the trading up phenomenon. Mix is improving as Constellation’s premium wine portfolio continues to perform very well, lead by brands like Three Blind Moose, Blackstone and Estancia and its New Zealand portfolio. Brands currently outperforming the total premium category include Vincor’s Toasted Head and Hogue and Constellation’s mainstay Woodbridge.

The company enjoyed “continued resurgence” of Woodbridge during the first quarter thanks to increased distribution and promotion, and positive consumer response to the new label and new varietals (namely Pinot Noir and Riesling). Rob said that Woodbridge also benefited from its convenient packaging, including the widely popular 4-pack and the new 12-pack, an industry first. IRI data shows that in the 52 weeks ending May 20, Woodbridge dollar sales grew 7%.

SPIRITS. Speaking of premium brands, the Svedka transition was completed in the early part of the first quarter, but it doesn’t look like Constellation is in any particular rush to premiumize its spirits category just yet.

Rob said “it’s not urgent but we want our portfolio to become more premium.” They plan on achieving their goal through new product development with brands like 1792 and 99 Schnapps, and through acquisitions that fit the company and “are valued appropriately."

“We’re not going to put our financial discipline aside in building our premium spirits portfolio just like we wouldn’t in any other case,” he continued.

Total spirits net sales increased 16% for the quarter, primarily due to Svedka, while organic net sales were up 2%.

FUTURE ACQUISITION STRATEGY

During the question and answer section, Richard said that any future acquisitions will serve three priorities:

1. European expansion to strengthen routes to market
2. Premium spirits growth – “We continue to look for acquisitions albeit we won’t chase something as costly as Absolut.”
3. Filling out our wine portfolio around the world – “We don’t see us continuing with these $1 and $2 billion dollar acquisitions. It’s more likely it will be smaller acquisitions that fill in niches in our portfolio around the world.”

UK SITUATION AT A STALMATE

Rob told listeners that not much has changed in the U.K. marketplace despite a lower 2007 and 2008 Australian grape crush. While the Australian bulk wine market is starting to firm from a pricing perspective, there hasn’t been a significant change in pricing in the UK. In other words, British retailers are continuing to sell private label Australian wines very cheaply, which is killing competition.

Rob maintains that instead of waiting for the competitive situation to change, the company is working to increase its operating efficiencies and improve product and channel mix. Partnering with Punch Taverns in the Matthew Clark joint-venture is one way Constellation is working to help better competition and boost distribution in the UK.

At the same time, Constellation seems to be keeping its fingers crossed with regards to the Australian situation in the U.K. With signs that the Australian grape glut is coming to a close, things seem to be looking up for Constellation, but they’re still reluctant to give any pricing forecasts.

Rob says that he assumes U.K. retailers have contracts in place with Australian bulk wine producers that will carry them through for a period of time, but the bulk wine supply is not likely to be so abundant in the near future.

FORMER ALLIED EXEC PLEADS GUILTY TO FRAUD

Michael Domecq, the former president and co-owner of Domecq Importers Inc. of Larchmont, N.Y., and Old Greenwich,Conn., today pleaded guilty and has agreed to serve 10 years in prison for conspiring to commit tax fraud and to defraud Allied Domecq.

Michael was originally indicted in 2000 in U.S. District Court in Manhattan for participating in a scheme to divert more than $14.6 million from Domecq Importers into personal offshore bank accounts. The conspiracy took place from at least as early as 1989 until October 1995, according to a press release.

Domecq was the president of Domecq Importers until 1995 and then he became the president of Allied Domecq Spirits & Wine, Latin America.

Three former top executives of Domecq Importers – cfo Alfredo Valdes, vp of marketing Gabriel Sagaz, and vp of sales Thomas Kaminsky -- previously pleaded guilty to charges related to the same conspiracy.

Sentencing for Domecq is set tentatively for August 15, 2007.

THE SWEDISH GOVERNMENT HAS CHOSEN

Morgan Stanley to advise it on its $6 billion sale of V&S.

OREGON PASSES DIRECT SHIPPING BILL

The Oregon legislature passed HB 2171 this week, which removes reciprocal language from Oregon’s wine shipping laws. If signed by the government, HB 2171 will allow all wineries and retailers to ship up to two nine-liter cases per month directly to legal Oregon consumers. For more information, visit Ship Compliant blog.

CHIVAS REGAL LAUNCHES ONLINE CHANNEL

Chivas Regal has joined with MSN.com as the first spirits brand to launch an online channel. The channel will feature exclusive Chivas Studio concerts and webisodes from “The Search for The Chivas Life Ambassadors,” contest.

TRUMP VODKA PRODUCER JOINS WITH TOP RECORDING LABEL

Drinks Americas (producers of Trump vodka) announced it has joined in a marketing agreement with Interscope Geffen A&M, part of Universal Music Group. Certain artists signed by Interscope Geffen will be selected to promote new and current beverages in the Drinks Americas portfolio. The label’s artists include Eminem, Dr. Dre, Snoop Dogg and Gwen Stefani. Terms of agreement were not disclosed.

AGAVE PRICE SINKS TO A NEW LOW

Similar to what Australian vintners have faced in recent years, an agave glut in Mexico is causing a crisis among local farmers. Seven years ago the plant responsible for making tequila was viewed as such a lucrative enterprise due to under-planting that most farmers and even non-farmers wanted a piece of the action. Now, prices are as low as $4 per agave plant after a prior peak of $70.

The National Chamber of the Tequila Industry estimates that agave farmers planted a total of about 300 million plants from 2000 to 2003, nearly four times what the industry typically requires. With a harvest cycle of about seven years, the first crops are now ready.

Members of the agave farmers union claims that some tequila makers are paying less than 2 cents a pound, half of the official rate. As a result, farmers are going bankrupt and burning their agave fields in favor of planting another crop, such as corn. Disease is also running rampant in the agave fields, a sign that farmers are paying less attention.

Tequila producers warn that a major cutback in production could lead to an agave shortage in a few years and take an eventual toll on the industry. To help prevent that from happening, the Mexican tequila industry last year began requiring farmers to register their crops. The government has also approved a number of initiatives to help struggling agave farmers.

ILLINOIS LITIGATION COULD LOCK OUT HUNDREDS OF WINERIES

The Specialty Wine Retailers Association (SWRA) led by director Tom Wark issued a press release earlier this week alerting the industry that up to 500 California wineries could be prohibited from shipping wine to Illinois consumers if pending legislation is passed.

Virtual wineries that hold Type 17 and Type 20 licenses issued by the California Alcohol Beverage Control board are not considered “traditional” wineries and would therefore not be able to ship to Illinois residents. These winemakers’ official status in California as retailers and distributors not only keep them from pouring wine at California charity functions, but put them at odds with Illinois House Bill 429 that prevents out-of-state retailers from shipping directly into the state.

California winemakers that hold type 17 and type 20 licenses usually don’t own a winemaking facility, but rather use other winemaking or custom crush facilities. In many cases, says Tom, these virtual wineries rely heavily on direct shipments to consumers, but their retailer/wholesaler license will keep them out of Illinois.

This stands as the latest update in the ongoing series of Granholm fueled court cases throughout the country.

CAMY ATTACKS LACK OF ALCOHOL RESPONSIBILITY MESSAGES

According to the latest study by CAMY, Alcohol companies aren’t spending enough of their advertising dollars on responsibility messages. Here are some quick stats:

The report claims that alcohol responsibility commercials made up less than 3% of the nearly 1.5 million industry TV ads that aired from 2001 to 2005, says CAMY. Furthermore, only 2% of the $4.9 billion spent on alcohol beverage ads were spent to air responsibility messages, says CAMY.

Compared to the eight companies that ran responsibility ads, Diageo invested the most over the period in terms of dollars spent ($66 million) and percentage of advertising dollars (18% over the five-year period).

CAMY’s methodology has been called into question before, so the veracity of these claims may be debatable.

The read more about the study, click here.

CONTROL STATE VOLUMES CLIMB 9% IN MAY.

Based on a report by Melissa Earlam of UBS, NABCA volumes grew 9.1% in May. Growth is up 4.6% year-to-date, as compared to 3.3% ytd in April and a 3.9% increase in 2006. Comps in May 2007 remain challenging, said Melissa.

Diageo’s volumes jumped above the market at 9.8% in May (5.1% ytd), while Pernod remained inline with the rest of the industry at 9%. Both Campari and Remy gained share in May with 14.2% and 15.6% volume growth respectively.

KROGER STRIKE AVOIDED IN TEXAS

Union workers at Kroger Co. stores in Dallas and Houston averted a strike by ratifying a three-year agreement with the grocery chain on a new contract that had been hung up on health care benefits, according to the AP.

The contract, ratified Sunday, provides wage increases, increased vacation and affordable health care, said Chad Young, a vice president with United Food and Commercial Workers International.

Before the two sides reached a tentative agreement late last week, Kroger had taken out newspaper advertisements looking to hire new employees. On Thursday, union members had rallied at a Kroger in Houston and asked customers to boycott if there was a strike.

It will be interesting to see if grocery workers in Southern California will be as successful in hammering out an agreement with chains or if a strike is imminent.

A SURVEY CONDUCTED BY THE CALIFORNIA WINE CLUB

shows that most consumers view wines with screw caps to be the same quality as wines with corks.

More than 50% of responders viewed screw caps as having the same quality, while 35% believed they were less quality. Only 2% of respondents believed screw caps were of higher quality, while 10% said they did not drink wines with screw caps.

At the same time, 65% of respondents said they would not be disappointed if the wine they ordered at a restaurant arrived in a screw cap. The responders were split on whether or not restaurant wine lists should specify which bottles have a screw cap, with 50.5% saying yes, and 49.5% saying no.

The California Wine Club was started in 1990 by Bruce and Pam Boring, and is one of the largest wine clubs in the country.

ARKANSAS: DIRECT TO RETAILER SHIPPING A WEEK AWAY

Beginning July, in-state and out-of-state farm wineries producing less that 250,000 gallons of wine a year can start shipping wine to Arkansas grocery and c-stores. So far no out-of-state wineries have applied for the necessary license to ship directly, however, according to the Arkansas Alcoholic Beverage Commission and local papers.

DISNEY IS LAUNCHING A NEW PRIVATE LABEL WINE

sold exclusively in Costco based on its upcoming animated film, “Ratatouille.” Hailing from the Burgundy region in France, the chardonnay varietal will feature the Ratatouille name and likeness and will sell for $12.99 a bottle.

IMMIGRATION AMENDMENT MEETS WITH CRITICISM

The Bush administration strongly opposed a bipartisan amendment by Senators Charles Grassley and Barack Obama to make the immigration bill easier on employers, reports the AP.

The amendment would make a new program to stop businesses from hiring illegal workers less burdensome, which Homeland Security Secretary Michael Chertoff called “a serious step backwards” in a letter to senators.

Chertoff went on to write that the amendment “eliminates needed tools and allows unscrupulous businesses to continue to freely hire illegal workers.”

Obama’s amendment would certainly help protect wineries and restaurants when hiring new employees, but it remains to be seen what Washington will decide. The Senate is currently sifting through two dozen other amendments to the Immigration Reform bill in order to revive the stalled bill before the July 4 recess.

CHILE’S WINE EXPORT SALES ROSE 33%

to $373.7 million in the five months to May 2007 compared to the same period a year ago, according to the Chilean Agriculture Ministry's Office. Export volume grew 27% to 120.6 million liters from the 95.2 million liters in May 2006.

The UK and US are the top importers of Chilean wine, constituting 20% and 15% of the total.

ONLINE WINE RETAILER WINE.COM

reports that screw cap wines accounted for 17.5% of its wine sales in the 12 months ending May 31. Most of the sales came from white wines (53%), while reds made up 41% and rose and dessert wines compromised the remaining 6.4%. Australia leads the screw cap trend, followed by California, New Zealand and France.

CONSTELLATION’S CHIEF RICHARD SANDS

received compensation valued by the company at about $4.1 million in its 2007 fiscal year, according to its proxy statement last week.

For the year ended Feb. 28, Sands received a salary of about $1 million and a bonus of $436,348. STZ also gave him "other compensation" valued at $339,984 for the year, including a designated car and personal use of the corporate airplane.

In addition, Sands was awarded stock and options that had an estimated value of $2.3 million on the day they were granted.

IN THE UNFOLDING DRAMA BETWEEN SOUTHERN CALIFORNIA

grocery workers and Vons, Albertsons and Ralphs, grocery workers voted yesterday to give their union the right to strike if negotiations for a new contract fail. The grocery chains filed to meet a June 21 negotiation deadline which they claimed was premature.

REMY COINTREAU’S FULL YEAR FISCAL RESULTS

were marked by several factors, said the company, with these in particular:

- “remarkable” cognac sales,
- all the Group’s brands moving upmarket,
- an ongoing price increase policy,
- focused and sustained marketing investment,
- a significant reduction in debt, and
- the decision to leave Maxxium in 2009.

Rémy Martin had an excellent year, says Remy, with the majority of growth coming from Asia, the US and Russia. The Cointreau brand also achieved another year of good growth while continuing to establish its new contemporary image in the US.

“The performances of other partner brands distributed by Rémy Cointreau USA, in particular Scotch whiskies and new Californian wines, were good. Initial results for Imperia vodka are very encouraging,” said the company in a press release.

In November, Remy announced its decision to cancel its global j-v agreement with Maxxium, which will go into effect March 30, 2009. As a result, the company swung to a net loss of 23 million euros from profit of 77.8 million the previous year as compensation for its Maxxium withdrawal. Since the announcement was made, many people have speculated that Remy could eventually be acquired by Bacardi or Brown-Forman.

TESCO ANNOUNCES NEW STORES IN SAN DIEGO

Tesco unveiled seven locations for San Diego-area Fresh & Easy Neighborhood Market stores Wednesday. Other cities where the UK retailer is building locations include Las Vegas and Phoenix.

ABSOLUT TO SPONSOR “LIVE EARTH” FILMS

Absolut says it is sponsoring the “Live Earth SOS” short films series aimed at creating awareness for the global climate crisis. The partnership begins 7-7-07 at the Live Earth concert at Giants Stadium in New Jersey.

Fifty of the SOS films will debut at the Los Angeles Film Festival on Live Earth Day, on 24 June, while the rest will roll out during the next 18 months.

CALIFORNIA GROCERY WORKERS INCH TOWARDS A STRIKE

Southern California grocery workers have scheduled a strike authorization vote for Sunday (June 24) after the region’s three biggest supermarket chains, Albertsons, Ralphs and Vons, failed to meet demands by the United Food and Commercial Workers. Only Vons and Ralphs will vote on Sunday, however, because Albertsons workers authorized a strike in March.

In a statement Thursday, the supermarkets accused the union of walking away from the negotiations and stalling progress toward a deal.

"After the arbitrary deadline was set, the unions unexpectedly wasted much of our negotiations schedule by backpedaling -- holding up negotiations and making agreements on new labor contracts virtually impossible," the markets said according to the AP.

The companies also called on their employees to reject the union's request for permission to call a strike.

The original labor contract expired March 5 and employees have been working under temporary extensions since then.

WINE TRENDS SOFT IN MAY

In the four weeks ending May 20, IRI data shows that domestic table wine sales were up 7.4% while volume grew 4.2%. Domestics were above the category total, with sales up 6.6% and volume up 3.8%. Imported wine sales were significantly behind at 4.1%, but volume was only slightly lower at 2.4% due to cheap bulk prices.

The place of origin that showed the most growth in May was South Africa whose sales were up 44.5%. New Zealand sales grew 34% followed by Washington State, Argentina and Spain.

Evidence of trading up continued in May, with sales of the lowest price segment ($2.99 and below) decreasing -3%. The fastest growing price sector remains the high-end ($15.00 and above) category, up 20.3%, followed by the trusty premiums ($9.00-$11.99) that grew 13.6%.

Domestic price category trends basically mirrored that of the industry total, but imported wines showed considerable differences. Sales of imports in the $2.99 and below price range gained 20.6% in May, which is due largely in part to Australia. Table wines sales from Australia that fit in the $2.99 and below category shot up a whopping 683%. Domestics were down -3.1%.

However, both imports and domestics showed growth in the premium and high-end categories. Domestic premium sales were in line with the category total and grew 13%, while premium imports increased 15.7%. High-end domestic wines jumped 18.7%, compared to imports which grew 35.7%.

Total sparkling wine and champagne sales grew 6.4% in May, in line with both imports and domestics.

FOSTER’S CMO SAYS GOODBYE

Foster’s chief marketing officer, Rick Scully, plans to retire from the company at the end of the month (June 30). Rick has been with Foster’s and its businesses for 39 years.

JOE CIATTI LEAVES NAMESAKE COMPANY

Joe Ciatti, founder of Joseph W. Ciatti Co., has left his company to focus on a wine-related real estate endeavor, according to the North Bay Journal. Greg Livengood will take over as president, and along with John Ciatti has purchased Joe’s shares of the company.

Recently, Chris Welch, Glenn Proctor and John White, already grape or bulk-wine brokers with the company, were brought in as partners to help replace Joe.

Joe Ciatti is a staple in the wine industry. He gained full ownership of Ciatti Company in the 1970s, and along with Wine Business Monthly publisher Richard Schell, started Vintage Wine Trust in 2004.

WTO TAKES UP U.S. CASE AGAINST INDIA

The WTO has agreed to investigate U.S. grievances against Indian import duties after India blocked an initial request earlier this month.

India's basic import taxes on wine are 100%, while the tariff on spirits is 150%, both within WTO limits. However, various government surcharges take the tariffs up to levels reaching as high as 550%, depending on the Indian state. The state of Tamil Nadu shuts out foreign alcohol altogether.

India is one of the largest markets for alcohol in the world, but high import duties on American alcohol (like Napa wines and Jack Daniels) keeps exports relatively low.

The WTO is also reviewing an EU legal challenge.

JACK’S TIES TO SEX ANGERS WATCHDOG GROUP

A TV watchdog group, Commercial Alert, filed a formal complain yesterday (Wednesday) with DISCUS against Jack Daniel’s sponsorship of a new AMC series, Mad Men. The group accuses Brown-Forman’s Jack of violating spirits industry standards by alluding to sex and irresponsible alcohol consumption in the show’s trailers featured on its website.

The period drama is set in a 1960s New York advertising agency and executive producer Robert Weissman says any drinking is merely a reflection of the times.

Commercial Alert finds fault with a clip that shows an ad exec climbing into bed with a woman, along with reports that Jack will be incorporated into the show.

Weissman says that while Jack will be shown in scenes, it is not a brand promotion. Similarly, Phil Lunch (vp of corporate communications for B-F) said AMC offered to play three references to Jack as a gift for its advertising commitment.

"We're confident we're not violating the code at all," he is quoted saying in the LA Times.

LET THE ABSOLUT GAME BEGIN

Its official...Absolut is up for the taking. Now, let the games begin.

The Swedish parliament (called Riksdag) approved plans to sell stakes in Vin & Sprit yesterday. The money the government makes from selling V&S, along with five other companies, is estimated at $35.52 billion and will be used to pay off the national debt.

“It's not part of the government's key tasks to make liquor," said Financial Markets Minister Mats Odell when defending the parliament’s decision against naysayers.

In the past, some of the spirits products (ahem, Brown-Forman) wouldn’t fully own up to their interest in V&S because the Swedish government hadn’t officially approved the sale. Now, spirits companies won’t have that excuse.

Pernod and Beam Global have been the most vocal about their intentions with V&S, and we think the race is really between those two. Not only would Pernod benefit from Absolut’s international spread, but the French company may also see it as a way to get a better deal from SPI (owners of Stoli).

Pernod’s chief Patrick Ricard said during a briefing in China last month that acquiring Stolichnaya and Absolut are the company’s top priorities for the time being.

Beam Global also has a lot to gain from an Absolut buyout. The company already has several ties to V&S, including the European Maxxium joint-venture, a U.S. j-v to create Future Brands, and V&S’s 10% stake in Beam Global.

“In light of that we are very close to them [V&S], we have a great relationship with them...if in fact there is a process we will be very close to it and would be very interested in it,” said Fortune president Bruce Carbonari.

Diageo and Bacardi have also expressed interest, but we feel they may have more obstacles to hurdle.

Diageo in particular would have the greatest difficulty acquiring V&S because of its global Smirnoff brand, the world’s number one vodka. Certainly Diageo would face huge competition issues if it purchased the second largest vodka, Absolut. We’re sure that Diageo would be happy to have a premium vodka brand, but alas, it would probably draw too much attention from the anti-trust guys.

Bacardi would surely benefit from Absolut’s global presence, but it may decide to put its focus elsewhere. A couple of months ago Andreas Gembler wrote a letter to the Swedish government expressing his interest in Absolut and told the Financial Times it would be a “terrific fit.”

At the same time, Andreas has said he in interested in acquiring an American whiskey and cognac, and will perhaps choose to expand the company’s presence in brown spirits instead. Several industry insiders have whispered of the possibility of Bacardi acquiring Remy Cointreau once Remy leaves Maxxium in 2009.

Historically, B-F sticks to buying and developing smaller wine and spirits brands, like Herradura. It’s unlikely that B-F will make a move although it probably could acquire Absolut if it really wanted to.

In Brown-Forman’s fourth quarter conference call earlier this month, Paul Varga refused to comment on whether B-F had planned any trips to Sweden in its immediate future. This development came after Fortune’s chief Norm Wesley openly visited Sweden to meet with “key persons in the sale process.”

The next couple of months should get very interesting as the world’s largest spirits companies strut their feathers and compete for the ownership of Absolut.

WHOLE FOODS CHIEF SOUNDS OFF

Whole Foods chief John Mackey basically says his reason for buying Wild Oats is because it will eliminate competition and prevent “nasty price wars.” Seems obvious, right? But John’s honesty (posted in his blog on the Whole Foods website) could cause a bit of a problem for his lawyers. Whole Foods is currently fighting a FTC decision to block the roughly $600 million acquisition of rival Wild Oats on the grounds that it would violate anti-trust laws.

Here are some interesting quotes we pulled off the site.

“Part of the reason to do almost any merger is to eliminate a competitor. This is so self-evident to me that I really can't understand why the FTC wants to make a big deal out of it. If the FTC is opposed to the elimination of all competition then I don't understand why they approve any mergers?”

“The FTC needs to get out of Washington D.C. once in a while and look around at what is happening out in the real marketplace.”

“From the first day the FTC began their investigation they were very hostile and adversarial towards Whole Foods.”

“While the FTC can look at absolutely anything and everything it wants to about our company does Whole Foods have the same reciprocal rights with the FTC? Of course not! We can't go look at all the FTC e-mails concerning Whole Foods and Wild Oats (which no doubt say some pretty interesting things about how the FTC really operates!).”

“Because after the merger is complete, the acquired Wild Oats stores will be brought into Whole Foods system and their overall prices will be lowered. Consumers will be receiving lower prices, not higher prices after this merger is completed.” [His underlining].

WILL A NEW FISCAL YEAR SPELL TROUBLE OR RECOVERY FOR CONSTELLATION?

Constellation is scheduled to announce its first-quarter 2008 earnings next Thursday, June 28, so we wanted to take a look at some of the things that are helping and hurting the world’s largest wine company. Let’s start with the good news.

Two words: United States. As consumption levels grow and trading up continues, the U.S. is sitting pretty in the eyes of the wine industry. Trading up is driven by both the boomers and the millennial generation, with the latter being perhaps the most important of the two. For one thing, there are about 35 million youngsters that are considered millennials but have yet to turn 21. That’s a lot of new wine glasses to fill in the next couple of years and we feel confident that Constellation will be up to the task.

These 20-to-30-something aren’t drinking the cheap stuff. They are more willing to pay over $10 for a bottle of wine than ever before, which has encouraged U.S. retailers to stock more high priced wines.

With that said, trading up trends do have a downside. Everyone wants to discover the next “big thing,” and demand is driving an influx of premium brand competition in the U.S., which consumers are more than willing to partake. In other words, there is little if no brand loyalty among premium and super-premium wines. Small wineries dominate the high-end sector, while established brands, like those belonging to Constellation, are feeling the pain.

Snatching up some of the more lucrative small wineries is always an option, but new ones are popping up before you can say “profit loss.”

THE AGE OLD BULK PROBLEM. Talk of retailers reminds us that Constellation isn’t faring so well across the pond. While Americans are trading up to more expensive wine brands, the Brits are trading down no thanks to big retail chains that are only making matters worse.

UK retailers took advantage of Australia’s grape glut to sell private label wine brands for next to nothing. Constellation says it expects UK wine prices to start creeping upwards with news of an Australian drought, although many in the industry remain skeptical. British supermarkets say they will simply start using bulk imports from other regions, such as Chile, in order to keep prices low.

British consumers are used to paying roughly $5 or less a bottle and wouldn’t take kindly to sudden price increases. Also, wine gets people in the supermarkets, so retailers are more than willing to sell it really cheaply with promises of a larger shopping basket.

The Australian grape glut combined with markdown-happy UK retailers made for an often volatile year for Constellation. In fiscal 2007, Constellation was forced to lower its outlook twice and in May projected fiscal 2008 earnings below Wall Street.

We’ll be listening next Thursday and keep you updated with the results.

EU: FLAVORED WHISKEY NOT TRUE WHISKEY

In addition to drafting a definition of vodka, the European Union released tighter rules on the production and labeling of whiskey this week. The rules state that whiskey cannot be flavored or sweetened, and reiterates a WTO ruling that protects Scotch whiskey as a place name.

Whiskey and other spirits, including vodka, were defined by the EU in 1989 but the rules were often hard to interpret.

OHIO SENATE PASSES DIRECT SHIPPING BILL

The Ohio senate unanimously passed HB 199 this week which, as you would expect, has wineries split. Created as an amendment to the 2008-09 budget bill, the proposal currently allows in-state and out-of-state wineries that produce less than 150,000 gallons of wine a year to ship directly to Ohio residents and retailers.

Wineries are only allowed to ship up to 24 cases of wine per year to customers, however, which could create some controversy along with the 150,000 gallon cap.

According to commentary made in regards to a Dayton Daily News story, some Ohio vintners feel they were left out of the legislative process altogether while others feel good about the bill. As with just about every other direct shipping legislation, the industry is split. We’ll keep you posted on any updates.

ALBERTSONS LEAVES THE OK STATE

Albertsons is reportedly leaving Oklahoma where it plans to sell 23 stores and close 3 others. A number of locations are being purchased by Homeland Inc. and Williams Discount Foods. In addition, Albertsons is also selling its Forth Worth distribution center to Associated Wholesale Grocers.

Officials say they expect new owners to keep most of the current employees, but will offer a severance package to eligible workers who are laid off.

MORE CONSOLIDATION AMONG RESTAURANTS

The consolidation trend is hitting all three tiers pretty hard and the restaurant industry is no exception. Restaurants Unlimited (a holding of Sun Capital Partners) plans to acquire Pacific Coast Restaurants after the latter agreed to a buyout. No details of the transaction were disclosed but the deal is expected to close in the next month or two.

Pacific Coast Restaurants include Newport Bay, Henry's 12th Street Tavern, and
Manzana Rotisserie Grill. Restaurants Unlimited consists of three primary brands, Kincaid's, Palomino, and Pizzaria Fondi.

B.R. Guest, a New York-based group, was also recently acquired by Starwood Capital Group, owner and operator of the Le Meridien chain.

SMIRNOFF INTRODUCES NEW COCKTAIL LINE

Smirnoff is introducing a new super-premium Smirnoff Cocktails line that will include Grand Cosmopolitan and Vodka Mojito as its first brands. Cosmopolitan is available in liquor stores across the country, while Vodka Mojito is currently only available in the Northeast and will expand nationally later this fall. Both products will be available in 750mL and 1.75L bottles, retailing for approximately $12.99 and $19.99 respectively.

In the press release, Diageo points out that both cocktails are popular but difficult to make. So basically what they’ve done by making the concoctions more accessible is help consumers save what’s most important – time. At the same time (no pun intended), adults are able to maintain a “cool” image with trendy cocktails.

AS OLD WORLD CONSUMPTION DECLINES, WINE AND SPIRITS MOVE EAST

Eastern countries such as India, China and Russia stand as a whole new doorway for the industry, forcing suppliers and many western retailers to adopt a new set of marketing practices. Nowhere is this phenomenon better displayed than at a little gathering – you may have heard of it – called Vinexpo.

Wine and spirits suppliers are now competing at the Vinexpo fair in Bordeaux for the attention of retailers, restaurateurs, beverage media and hoteliers alike. Buyers and media will have the opportunity to sample from among the 2,400 wines and spirits sellers during the event, and will represent countries from all over the world including the U.S., Australia, India and China.

An earlier study conducted by Vinexpo shows that wine sales will grow at an annual rate of 2.1% while spirits will increase 1.4% annually. And who is set to benefit the most? None other than the U.S., which is slated to remain the largest wine market in the world followed by Italy and France.

But while America’s love of wine grows, many traditional wine-drinking countries are opting for beer or spirits, or worse, non-alcoholic beverages instead. Consumption in countries such as France, Switzerland, Portugal, Argentina and Spain is slowing, while Russia and Asian markets such as China are drinking more wine than ever. These “make-up sales” are set to push worldwide volume consumption nearly 5% annually over the next five years.

As a result, suppliers – and not just while they’re attending Vinexpo – must adapt their marketing to meet various cultural demands.

EU SETTLES ON NON-TRADITIONAL VODKA PROPOSAL

Much to the delight of Diageo and other non-traditional vodka producers, the EU parliament has voted in favor of a more relaxed definition of what constitutes vodka.

In a final proposal, Parliament decided that “traditional vodka” can only be made from grain or potatoes, but vodkas made from other substances (such as grapes or beets) can still be labeled as vodka as long as non-traditional ingredients are listed.

An earlier proposal that called for ingredients other than grain, potatoes or sugar beet molasses to be included on a label in large fonts two-thirds the size of the word “vodka” were scratched.

To put it simply, there were two opposing factions. One was a group made up of traditional vodka-producing countries such as Finland and Poland, against a group led by Diageo, Britain, the Netherlands, France and Austria.

The new compromise, approved by a show of hands, was backed by all EU governments except Poland and is likely to be endorsed by EU ministers later this month. Approval by a qualified majority of the EU's 27 member states is needed for the new rules to take effect.

Alan Butler, Diageo's corporate relations director for EU institutions, said we “remain confident that the vodka definition will remain unchanged.”

Many in the industry had warned that if the EU restricted vodka ingredients, a trade war could ensue once countries like the U.S. were prevented from selling non-traditional vodka in Europe.

ADLER FELS WINERY 2006 RELEASES

Adler Fels Winery – based in Sonoma and owned by Adams Wine Group – is releasing a 2006 Russian River Valley Gewürztraminer and Sauvignon Blanc. Suggested retail is $14.99 a bottle.

DEWAR’S BRAND DIRECTOR LEAVES BACARDI

Neil Boyd, global brand director of Bacardi’s Scotch brand Dewar’s, abruptly left the company after helping the brand recover in the U.S. A reason for his departure has not been given, but many sources are suggesting he will move within the Scotch industry.

Boyd has worked specifically with Dewar’s for four years and previously held marketing positions at Whyte & Mackay and Glenmorangie.

He faced much criticism from traditionalists after calling on the industry to widen its definition of Scotch and introduce flavors alongside single and blended malts.

SENATE TO REINTRODUCE IMMIGRATION BILL

Senate Democratic and Republican leaders agreed to revive the controversial immigration bill Thursday, June 14 after pulling it earlier this month. The bill will likely reappear before the Fourth of July recess, says several sources, during which the Senate will take a look at approximately 22 amendments divided between the two parties.

The NRA (National Restaurant Association) says it’s pleased the bill will be revived, but hopes the Senate will change certain provisions, including large fines for hiring illegal aliens.

FORMER SEAGRAMS DISTILLERY HIT WITH LAYOFFS

After a false report surfaced in April that Pernod would lay off 405 employees at the former Seagram Distillery in Lawrenceberg, the outcome has been largely up in the air. A story last week in the Cincinnati Business Courier reports that the distillery’s new owner, CL Financial, will release 270 employees and offer reduced wages and benefit packages, according to union and company officials.

BACKGROUND CHECK. Pernod is scheduled to complete its sell of the Lawrenceberg facility to CL Financial Group (parent company to CL World Brands) at the end of June after originally planning for a complete shutdown. Newspapers in April were saying that CL Financial would lay off up to 405 employees once they gained ownership, but Pernod denied those claims.

The rumor was apparently sparked once Pernod filed a WARN notice with the State of Indiana, which the company said “was done to comply with the legal requirements regarding workforce notification for shutdown or sale of a single facility, and is not indicative of CL's hiring plans.”

Now, the number of layoffs has shrunk from 405 employees to 270.

The tentative list of assets to be sold to CL Financial includes the Lawrenceburg distillery, bulk warehouse, bottling plant and finished goods warehouse, as well as the Rushville Grain Elevator.

The agreement provides for the continuation of Seagram’s Gin distilling and mellowing at the Lawrenceburg facility under the supervision of Angostura. As previously planned, all bottling for Seagram’s Gin and Wild Turkey would move to Pernod Ricard USA’s facility in Fort Smith, Arkansas.

IN OTHER CL FINANCIAL NEWS, the company announced last week it has agreed to give historic shareholders in Belvedere the option to buyback its stake for 345 million euros. Belvedere has until July 31 to provide payment guarantees that the buyback will be made by Sept 30.

CHARLES KRUG LABOR DISPUTE COMES TO A HEAD

The California state Agricultural Labor Relations Board announced yesterday plans to file formal charges alleging that the Charles Krug Winery violated labor laws during a contract standoff with members of the United Farm Workers. The disagreement began last summer when Krug dismissed 27 vineyard workers after the contract between the winery and the UFW expired.

Charles Krug reportedly has 10 days to answer to the complaint. At this point, the case can either be settled or go before an administrative judge.

OSI RESTAURANT COMPLETES BUYOUT

OSI Restaurant Partners has officially completed its $3.5 billion acquisition by an investor consortium. The group consists of private equity firms Bain Capital and Catterton Management Co., as well as company founders Chris Sullivan, Bob Basham and Tim Gannon and certain members of OSI management. Bain Capital holds the majority stake. Plans to sell any of OSI’s restaurants (which include Outback Steakhouse and Flemmings) have been denied by the company.

WAL-MART TO SLOW SUPERCENTER CONSTRUCTION

Good news for American grocery chains, Wal-Mart's expansion of the Supercenter format is slowing substantially, as the retailer has watched same-stores sales drop. WM execs say they will cut their plans for new supercenters this year by about 30%, in order to focus on the stores they already have. They will still open 190 to 200 supercenters this fiscal year, down from its previous plan of 265 to 270.

MORE CONSOLIDATION AMONGTS SUPERMARKETS

Everyone’s getting bigger, including supplier, wholesalers and retailers. Albertson's, LLC said yesterday that it intends to acquire Raley's 10 stores in New Mexico, a transaction that would double Albertsons’ store base in the Albuquerque region.

Meanwhile, the merger between Whole Foods and Wild Oats is being held up by the Justice Department for antitrust reasons because both are traditionally organic/natural food grocers. Whole Foods claims its competition is not limited to just that sector and includes traditional supermarkets as well. Both Whole Foods and Wild Oats plan to fight the FTC decision.

JC COGNAC EXPANDS IN FLAVORS

Sidney Frank Importing is adding two new flavors to its JC Cognac VSOP in the U.S., JC Apple and JC Jasmin. The launch will take place alongside a new advertising campaign for JC (entitled JC & Me), beginning June.

RODNEY STRONG CREATES ULTRA PREMIUM POSITION

Rodney Strong Vineyards has created a new position headed by Doug Hengehold that will focus on ultra premium on-premise and off-premise accounts. Doug will assume the role of vp of national channel management after serving as director of on-premise strategic accounts at Constellation. Prior to Constellation, Hengehold worked for Southern Wine & Spirits and Beringer Blass Wine Estates.

TOP SPIRITS BRANDS DECLINE IN MAY

In a new report from IRI, it looks like the top spirits brands by sales all lost out in the 52 weeks ending May 20 as compared to the 52 weeks ending April. Brands like Smirnoff, Bacardi, Captain Morgan, Jack Daniels and Absolut lost somewhere around one percentage point, but a few others did a little worse.

In April, Jose Cuervo sales were up 8.3% for the 52 week period, but were down slightly in May to 6.4%. Similarly, Skyy vodka went from 8.1% in April to 6.4% in May, while Jager slid from 20.5% to 18%. The biggest loser was Beam Global’s Sauza Tequila, which was down -1.4% in April and -4% in May. It could have something to do with continued slow downs in the casual chain sector or the fact that Memorial Day is a traditional beer-drinking holiday, but let’s hope for the best in June.

SCREW CAPS MORE ACCEPTABLE, THOUGH STILL STRUGGLING

Wine Business Monthly’s 2007 Closure Survey provides a bit of insight into what consumers and winemakers think about the industry’s four main closures: natural cork, screw caps, technical and synthetic.

Natural corks remain the most widely used closer. A majority (80%) of the 237 foreign and domestic wineries surveyed say they use natural corks for at least some of their 750 ml bottles. Alternative corks are making inroads, however, particularly on more expensive bottles including the $25 and above price segment.

The theme of the survey, or at least part of it, suggests that American consumers just don’t get screw caps. While other countries have embraced the closure, many Americans still view it as cheap which makes domestic winemakers more cautious in using the non-traditional closure. A lack of education on the consumer side seems to be the consensus among wine insiders, according to Wine Business. Australian, New Zealand and other New World winemakers, meanwhile, have wholeheartedly embraced screw caps.

However, most respondents believe that U.S. consumer opinion on screw caps is improving as screw cap usage continues to grow in 2007.

When it comes to preserving the wine, respondents rated screw caps as the clear leader with natural corks slightly behind. Technical and synthetic corks were rated lower, but Wine Business points out that these closures are typically used on wines that are made to drink within a 12-18 month period.

In terms of consumer acceptance, readers rated natural corks as the highest followed by technical corks, screw caps and synthetic.

In overall ratings, Wine Business finds that natural corks have increased significantly since the 2006 survey, while screw caps have improved slightly. Technical corks remained the same and synthetic corks decreased.

Mid-sized and large wineries are more likely to use alternatives than small wineries which usually stick to corks. When it comes to color, mid-size and large wineries will generally use screw caps on white wines, while mid-size and small wineries are more likely to use natural corks for red wines. Large wineries are less discriminatory and are increasingly likely to use all closures on red and white wines equally.

In general, though, natural corks are used at higher price points. Wines sold under $7 are most likely to be closed with synthetic corks. Technical and synthetics are most likely to be used in the $7-$10 range, while the $10-$14 segment is the point at which natural corks begin to dominate as the preferred closure. In the $14-$25 category, screw cap preference increased from the previous year.

What remains to be seen is whether U.S. consumers will grow more accepting of the screw cap and if it will remain a staple in the industry. The wine business is filled with differing opinions on the subject, but one thing is clear. Screw caps remain a niche market that depends on a number of factors such as varietal, price, color and country of origin.

WE REGRET TO REPORT THAT LESLIE LITWAK,

senior vp of marketing for Constellation’s Icon Estates unit, died suddenly June 7 while traveling on business in Florence Italy. She was 51. She is survived by her husband, Pete Schneider of Santa Rosa, California. A service will be held tomorrow (Friday) in Santa Rosa.

MICHAEL MONDAVI PARTNERS WITH HYATT HOTELS

Michael Mondavi’s Folio Fine Wine has partnered with Hyatt Hotels to launch Canvas, an exclusive new wine for the hotel. Beginning today, Canvas varietals (including Cabernet, Chardonnay and Merlot) will be available at restaurants, bars and in-room dining at all Hyatt, Grand Hyatt, Hyatt Regency and Hyatt Resorts in the U.S.

MCCORMICK GOES ENVIRONMENTAL

McCormick Distillery is launching a new eco-friendly 360 Vodka, which the company claims is the first super-premium spirit to be bottled using 85% recycled glass and biodegradable packaging. As a part of its “green” efforts, McCormick is also setting aside $1 for every 360 Vodka bottle closure returned via mail.

DAN AYKROYD DEBUTS SELF-NAMED WINERY

Funnyman Dan Aykroyd is debuting a self-named winery under Canadian company Diamond Estates Wine & Spirits. The $12 million project is scheduled to begin fall 2007 and will be operational the following year.

The Dan Aykroyd Winery will be located in Lincoln, Ontario, the heart of the Ontario's wine region. The winery will also showcase personal items and souvenirs from Aykroyd's acting career, according to the AP.

"I am very proud to lend my name to this winery. It is a true expression of my passion for the world-class wines of the Niagara region," stated Dan in a press release.

WINE INSTITUTE NAMES 2007-08 CHAIRMAN

Jasper Indelicato, coo of Delicato Family Vineyards, will serve as the Wine Institute’s new chairman for the 2007-2008 fiscal year.

In his new position, Jasper says he will focus on free and fair trade, tax matters, and reauthorization of the Farm Bill. In addition, he will continue the momentum on the California Sustainable Winegrowing Program and the 'California First' program.

Other positions include Margaret Duckhorn of Duckhorn Vineyards as first vice chairman, with Raymond Chadwick of Diageo Chateau & Estate Wines becoming second vice chairman. Tom Klein of Rodney Strong Vineyards will be the Institute's treasurer, and David Kent of the Wine Group was elected secretary.

ROSÉ SALES CLIMB 45% FROM 2006

Rosés were hot last summer and it looks like the trend is only growing. Sales of premium-priced rosé wines shot up 45% in the past year, according to new data from Nielsen, making