Wine Shows Signs of Slowing
Wine industry numbers are beginning to slow, warned Morgan Stanley in a research note, while domestic beer drove gains at the expense of wine, spirits and imported beer in the latest four weeks.
During the four weeks, wines priced above $7 dollars lost 40bps of dollar share to those priced below $7. Since mid-May wines priced above $7 have lost 30bps from the same period last year. According to wine industry trends in the period before mid-May, wines priced above $7 gained 320bps on an annual basis. Morgan Stanley says “the slowing of the trade-up phenomenon has occurred in the other alcohol segments so makes sense to be occurring in wine as well.”
With that said, there is certainly a shift in the wine industry, but as one local paper put it: it’s “not all gloom and doom” for wineries. Most price segments are still seeing growth, and the off-premise is making up for softness in the on-premise (for the most part). As my fellow editor Harry Schuhmacher put it last week, you want to be in the high end or low end of the pricing segment in the wine industry. And although the on-premise, particularly restaurants, is taking a notable hit, retail stores are picking up sales in all areas of the alcohol beverage industry.
"I think that consumers are going to get their confidence up of enjoying wines that don't cost as much, finding the values are there," Fred Franzia of Bronco Wine Co. was quoted as saying in an Associated Press article.
THREE DECADE OLD CANADIAN CLUB HITS SHELVES
Meanwhile, Beam Global has introduced a 30-year aged version of Canadian Club for $175 a bottle, which earned it a mention in AdAge.com.
As writer Jeremy Mullman observed: “The stock market is tanking, home prices are falling and the economy is on the verge of painful recession. So naturally the time is right to introduce a $175 bottle of Canadian whiskey.”
However, the high end side of the spirits industry continues to perform at a double digit pace, albeit at a slower rate than in the recent past. Industry execs bank that expensive spirits is still an affordable luxury and a pleasure to which certain consumers do not mind treating themselves. Also, many consumers are more likely to drink expensive beverages when out but drink more cheaply at home.
"We're seeing the downturn but also the continued premiumization of every desire you can think of, and that desire for luxury doesn't just go away when the economy worsens," Julian Cohen, Beam's VP-consumer and marketplace insights, was quoted as saying in the article.
The company will not support the new launch with advertising, but instead will continue to run its “Damn right your dad drank it” ads.
KROGER PROVES SOLID, WHILE SUPERVALU DISAPPOINTS
One of the largest grocery chains said that same-store sales for their latest quarter, not counting fuel sales, were up 5%. The company said it’s also seen an acceleration in sales in the last four weeks of the quarter. Kroger projects its same-store supermarket sales will grow 4.5 to 5.5% for the year.
"Kroger has the right strategy in place to continue to serve our customers, associates and shareholders during this challenging economy," said chief Dave Dillon.
He added that Kroger has sufficient liquidity to take care of short-term borrowing needs, which some corporations are having trouble meeting because of the nation's credit crisis.
Supervalu, meanwhile, posted a drop in quarterly profit last week as consumers hurt by the economy trade down to cheaper store brands. The retailer also cut its earnings forecast for the year. Supervalu said it expected to earn $2.86 to $2.96 per share this year, down from a prior forecast of $3 to $3.16. Analysts were expecting $2.96.
WALGREENS LOSES LONGS BID AND CEO
Two days after dropping out of the race to acquire Longs Drug Stores Corp., Walgreen’s chairman and ceo Jeffrey Rein reportedly left the company.
The retail chain blamed the downturn in the economy for its reason in backing off. In a letter to Longs ceo Warren Bryant, Jeffrey said it also dropped the bid after a “repeated refusal to accept our invitation to engage in a constructive dialogue that could lead to a mutually beneficial transaction, and the substantial deterioration in the national economic outlook over the past few weeks.”
Interestingly, Jeffrey threatened to take the bid for Longs hostile last month if its board continued to refuse to negotiate. So why the change of heart?
Recall that CVS agreed to buy Longs for about $2.6 billion, or $71.50 a share, in August in order to expand its presence in California and Hawaii. However, Walgreens surprised investors in September when it offered about $2.7 billion, or $75 a share, for Longs. Somewhere along the way talks stalled between Longs and Walgreens, namely that the big did not clearly address antitrust concerns, which prompted Longs directors to join with CVS. Note that two major Longs shareholders, investment firms Advisory Research and Pershing Square Capital Management, have said they will not tender their shares to CVS.
Last week, Walgreen’s chairman retired from the company two days after it pulled out of the battle for Longs. Jeffrey has only held the position for two years and is a 26-year veteran of Walgreens. Alan McNally will serve as the company permanent chairman and interim ceo after retiring from Harris Bankcorp in 2002. A search committee has been formed to find a permanent ceo.
A spokesman told WSJ that Jeffrey’s retirement “does not have anything to do with the Longs proposal” or with any health, family or ethics issues.
Said WSJ: “Even if Mr. Rein had succeeded, the Longs deal could have posed risks. Longs, of Walnut Creek, Calif., is heavily exposed to the recession in the California economy.”
LANDRY’S FOUNDER OFFERS $13.50 A SHARE
Landry’s Restaurants has formed a settlement with its founder and ceo Tilman Fertitta to purchase the remaining 61% of the company he does not already own. The purchase price was reduced for the second time by almost 36% to $13.50 a share. Landry’s and Tilman agreed on a $23.50 per share in April and then a $21 per share price in June. It is still generally considered a win, however, since the company’s Friday closing stock price was $9.08 a share.
Tilman reportedly told the company earlier this month that “the financing to complete the merger at the previously agreed upon price was in jeopardy,” due to Hurricane Ike, the credit market collapse, and the slowdown in the casual-dining industry.
As a result of the newly lowered bid, Jefferies & Co. Inc., which had agreed to finance the deal at $21 a share, has amended its agreement with Fertitta’s holding company to provide $500 million in debt financing, down from $900 million under the prior deal.
As part of the compromise agreement, Jefferies has agreed to provide alternative refinancing to the company for $400 million worth of senior notes set for redemption in February 2009, in case the buyout is not approved.
A special committee of the board will solicit other bids for 30 days. Stockholders are expected to vote on the proposal in December. Closing is expected in the first quarter of 2009. The new expiration date of the lender's financing is Feb. 15, 2009.
DEAR READERS: I’m back after a week in not-so-sunny Mexico but had a great time nonetheless. I want to thank my colleague and the editor of Beer Business Daily, Harry Schuhmacher, for taking the reins while I was away.
Until tomorrow, Megan
“Education is when you read the fine print. Experience is what you get if you don't.”
Pete Seeger
--------- Sell Day Calendar ----------
Today's Sell Day: 14
Sell days this month: 23
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Wed.
YTD sell days Over/Under: +1
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
During the four weeks, wines priced above $7 dollars lost 40bps of dollar share to those priced below $7. Since mid-May wines priced above $7 have lost 30bps from the same period last year. According to wine industry trends in the period before mid-May, wines priced above $7 gained 320bps on an annual basis. Morgan Stanley says “the slowing of the trade-up phenomenon has occurred in the other alcohol segments so makes sense to be occurring in wine as well.”
With that said, there is certainly a shift in the wine industry, but as one local paper put it: it’s “not all gloom and doom” for wineries. Most price segments are still seeing growth, and the off-premise is making up for softness in the on-premise (for the most part). As my fellow editor Harry Schuhmacher put it last week, you want to be in the high end or low end of the pricing segment in the wine industry. And although the on-premise, particularly restaurants, is taking a notable hit, retail stores are picking up sales in all areas of the alcohol beverage industry.
"I think that consumers are going to get their confidence up of enjoying wines that don't cost as much, finding the values are there," Fred Franzia of Bronco Wine Co. was quoted as saying in an Associated Press article.
THREE DECADE OLD CANADIAN CLUB HITS SHELVES
Meanwhile, Beam Global has introduced a 30-year aged version of Canadian Club for $175 a bottle, which earned it a mention in AdAge.com.
As writer Jeremy Mullman observed: “The stock market is tanking, home prices are falling and the economy is on the verge of painful recession. So naturally the time is right to introduce a $175 bottle of Canadian whiskey.”
However, the high end side of the spirits industry continues to perform at a double digit pace, albeit at a slower rate than in the recent past. Industry execs bank that expensive spirits is still an affordable luxury and a pleasure to which certain consumers do not mind treating themselves. Also, many consumers are more likely to drink expensive beverages when out but drink more cheaply at home.
"We're seeing the downturn but also the continued premiumization of every desire you can think of, and that desire for luxury doesn't just go away when the economy worsens," Julian Cohen, Beam's VP-consumer and marketplace insights, was quoted as saying in the article.
The company will not support the new launch with advertising, but instead will continue to run its “Damn right your dad drank it” ads.
KROGER PROVES SOLID, WHILE SUPERVALU DISAPPOINTS
One of the largest grocery chains said that same-store sales for their latest quarter, not counting fuel sales, were up 5%. The company said it’s also seen an acceleration in sales in the last four weeks of the quarter. Kroger projects its same-store supermarket sales will grow 4.5 to 5.5% for the year.
"Kroger has the right strategy in place to continue to serve our customers, associates and shareholders during this challenging economy," said chief Dave Dillon.
He added that Kroger has sufficient liquidity to take care of short-term borrowing needs, which some corporations are having trouble meeting because of the nation's credit crisis.
Supervalu, meanwhile, posted a drop in quarterly profit last week as consumers hurt by the economy trade down to cheaper store brands. The retailer also cut its earnings forecast for the year. Supervalu said it expected to earn $2.86 to $2.96 per share this year, down from a prior forecast of $3 to $3.16. Analysts were expecting $2.96.
WALGREENS LOSES LONGS BID AND CEO
Two days after dropping out of the race to acquire Longs Drug Stores Corp., Walgreen’s chairman and ceo Jeffrey Rein reportedly left the company.
The retail chain blamed the downturn in the economy for its reason in backing off. In a letter to Longs ceo Warren Bryant, Jeffrey said it also dropped the bid after a “repeated refusal to accept our invitation to engage in a constructive dialogue that could lead to a mutually beneficial transaction, and the substantial deterioration in the national economic outlook over the past few weeks.”
Interestingly, Jeffrey threatened to take the bid for Longs hostile last month if its board continued to refuse to negotiate. So why the change of heart?
Recall that CVS agreed to buy Longs for about $2.6 billion, or $71.50 a share, in August in order to expand its presence in California and Hawaii. However, Walgreens surprised investors in September when it offered about $2.7 billion, or $75 a share, for Longs. Somewhere along the way talks stalled between Longs and Walgreens, namely that the big did not clearly address antitrust concerns, which prompted Longs directors to join with CVS. Note that two major Longs shareholders, investment firms Advisory Research and Pershing Square Capital Management, have said they will not tender their shares to CVS.
Last week, Walgreen’s chairman retired from the company two days after it pulled out of the battle for Longs. Jeffrey has only held the position for two years and is a 26-year veteran of Walgreens. Alan McNally will serve as the company permanent chairman and interim ceo after retiring from Harris Bankcorp in 2002. A search committee has been formed to find a permanent ceo.
A spokesman told WSJ that Jeffrey’s retirement “does not have anything to do with the Longs proposal” or with any health, family or ethics issues.
Said WSJ: “Even if Mr. Rein had succeeded, the Longs deal could have posed risks. Longs, of Walnut Creek, Calif., is heavily exposed to the recession in the California economy.”
LANDRY’S FOUNDER OFFERS $13.50 A SHARE
Landry’s Restaurants has formed a settlement with its founder and ceo Tilman Fertitta to purchase the remaining 61% of the company he does not already own. The purchase price was reduced for the second time by almost 36% to $13.50 a share. Landry’s and Tilman agreed on a $23.50 per share in April and then a $21 per share price in June. It is still generally considered a win, however, since the company’s Friday closing stock price was $9.08 a share.
Tilman reportedly told the company earlier this month that “the financing to complete the merger at the previously agreed upon price was in jeopardy,” due to Hurricane Ike, the credit market collapse, and the slowdown in the casual-dining industry.
As a result of the newly lowered bid, Jefferies & Co. Inc., which had agreed to finance the deal at $21 a share, has amended its agreement with Fertitta’s holding company to provide $500 million in debt financing, down from $900 million under the prior deal.
As part of the compromise agreement, Jefferies has agreed to provide alternative refinancing to the company for $400 million worth of senior notes set for redemption in February 2009, in case the buyout is not approved.
A special committee of the board will solicit other bids for 30 days. Stockholders are expected to vote on the proposal in December. Closing is expected in the first quarter of 2009. The new expiration date of the lender's financing is Feb. 15, 2009.
DEAR READERS: I’m back after a week in not-so-sunny Mexico but had a great time nonetheless. I want to thank my colleague and the editor of Beer Business Daily, Harry Schuhmacher, for taking the reins while I was away.
Until tomorrow, Megan
“Education is when you read the fine print. Experience is what you get if you don't.”
Pete Seeger
--------- Sell Day Calendar ----------
Today's Sell Day: 14
Sell days this month: 23
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Wed.
YTD sell days Over/Under: +1
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 12:48 PM
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