Swedish Govt. May Keep Stake in V&S

The Swedish government is considering keeping a stake in Vin & Sprit, according to business daily Dagens Industri. Sources told the Swedish publication that local consortiums Investor and EQT suggested the government keep a stake in V&S, or get the option to buy back a stake later, to help sweeten their bid. Apparently, the government is listening.

Swedish newspapers reported earlier this week that the government prefers Investor and EQT to foreign companies, such as Fortune, Bacardi and Pernod. Keeping V&S in Sweden would save thousands of jobs and keep locals happy, since Absolut is something of a national symbol. But is that enough for the government? Any group other then Fortune would have to pay hefty exit sums to get V&S out of the Maxxium joint-venture and Future j-v with Fortune in the U.S., not to mention the estimated $7 billion for V&S.

FORTUNE. Fortune chairman Norm Wesley said in August that private equity companies with a three- to five-year horizon for investments and aggressive return expectations would be more tempted to "flip" the company rather than secure its longer-term interests. In the current credit environment, he said, private equities would have a harder time financing a deal.

Furthermore, he assured the Swedes that Fortune has “a strong balance sheet” and that “there is no risk of some type of embarrassment because we can't complete.”

PERNOD. Pernod has also said it is “very interested” in acquiring V&S and is prepared to purchase either the global distribution rights to Stolichnaya or V&S. The French company said it would be happy to have either one.

During a conference call in September, Patrick Ricard said “the one I prefer is the one I buy” in regards to Stoli and Absolut. Good answer.

“There are pros and cons from both brands in terms of size, penetration you name it,” he pointed out. “When we acquired Stoli, Absolut was not up for grabs at the time and we’re very happy to distribute Stoli. Tomorrow we might want to stop the negotiations for Stoli but as of yet Absolut is not up for sale, it’s almost of for sale, but not quite. We will know in October...we will know when we know, what can I say?”

THE ONE WITH DEEPER POCKETS. Reports last week suggested the Swedish government might delay the sale of Vin & Sprit due to market turmoil. Swedish Financial Markets Minister Mats Odell confirmed on Swedish radio that the indicative bids were due last week, and that the government may delay the auction if the bids are too low.

"Once we have seen the end of that process we have the ability to put on the brake if necessary, if we feel the price is too low. If that is the case, we wait for a better time," Odell told the radio station.

Odell said in a press briefing last month that price is not the only factor in determining which company wins the golden egg. It’s important to the Swedish government that V&S is sold as one entity and that production remains in Sweden.

"It will be the one who pays the highest price and the one who after a full assessment shows that it offers the best (deal) for the Swedish households," Odell told reporters, according to Reuters. "I hope it can happen fast and in an effective way but it's not the specific time that is the most important but that we get the best possible price," he continued.

Both Fortune and Pernod have said they intend to acquire V&S as a whole.

WSD BRIEFS:

IDAHO LAWMAKERS voted to end a ban on Election Day sales of distilled spirits in liquor stores, bars and restaurants this week. Presently, liquor by the drink is available on Election Day only after the polls are closed.

CALLING ALL TRUTH SQUADERS. We want to know what you’re thinking. It only takes a few minutes to fill out our Truth Squad survey, and allows us to understand the issues you’re facing in the industry. Help us help you. All answers are kept anonymous. Click here to take the survey: http://tiny.cc/nnda6. Thanks again to everyone who has participated.

Until tomorrow, Megan

“Confusion is always the most honest response.”
-Marty Indik

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YTD sell days Over/Under: 0

Costco Decision a Three-Tier Victory

Costco’s victory in 2006 has turned into a victory for wholesalers, small retailers, alcohol regulators and a number of three-tier advocates yesterday after the Ninth Circuit Court of Appeals reversed almost all of the state regulations that had been overturned by lower District Court Judge Marsha Pechman in April 2006. Back then, the Costco case was considered a defeat by wholesalers after Judge Pechman ruled the state of Washington's argument of temperance and orderly markets under the 21st Amendment did not save its laws from federal antitrust scrutiny from the Sherman Act.

Most of the provisions in Washington state alcohol law, including many that are shared with other states, were overturned, which had the whole country watching the case unfold. At least 30 other states and jurisdictions filed briefs in support of Washington. An adverse decision could not only have had a rippling effect on state alcohol laws in that Circuit, but it also could have dismantled three-tier laws throughout the country.

To put things simply, the Ninth Circuit Court determined it’s not really a federal court’s business to legislate from the bench. It acknowledged there may be other ways to conduct an orderly market and promote temperance, such as Judge Pemchman’s suggestion of raising excise taxes, but it’s not for the judicial branch to decide.

The Ninth Circuit court looked at each of the nine alcohol laws that Costco claims are anti-competitive. They include: uniform pricing for all distributors, required price posting, required price holding for 30 days, minimum 10% markup, ban on quantity discounts, ban on credit, required same delivered pricing for all accounts regardless of who provides freight, ban on retailer central warehousing, and finally, the only restraint held up by Judge Pechman's District court, is the prohibition on retailers from reselling alcohol to each other.

Ninth Circuit upheld the District Court's ruling allowing prohibition of retailer-to-retailer sales, and upheld the lower court's ruling banning price posting and holding, but struck down all the rest. That means that Washington's alcohol code is now considered constitutional under the 21st Amendment with the exception of post-and-hold, and does not fall under Sherman act scrutiny.

About 16 other states have post-and-hold provisions, where distributors must post their pricing in advance and not change them for a set period of time.

Judge Diarmuid O'Scannlain, writing for the three-judge panel, concluded the ruling with this:

“We affirm the district court's rejection of Costco's challenge to the retailer-to-retailer sales ban. We also affirm its conclusion that under our precedents, the post-and-hold scheme is a hybrid restraint of trade that is not saved by the state immunity doctrine of the Twenty-first Amendment.”

In all, the 9th Circuit Court of Appeals upheld eight out of nine provisions in Washington's regulatory scheme, making it a huge win for states rights advocates.

The state of Washington is still deciding whether it will appeal the striking down of their price post-and-hold law. Costco attorneys are also mulling over whether to appeal. They have two weeks to appeal back to the 9th Circuit, or they have 90 days to appeal to the Supreme Court.

During a Costco shareholder meeting, Costco ceo Jim Sinegal said: "We are not particularly happy with the result. We don't think the 9th Circuit was as thoughtful at protecting the consumer," the Seattle Post-Intelligencer reports.

The decision in this case creates an important precedent for future courts to consider. As you’ll recall, this is the second federal circuit court to rule favorably for wholesalers and regulators. In October, the First Circuit handed down a decision backing up Maine's alcohol laws which require face-to-face transactions and bans on direct shipping based on volume caps.

The WSWA called the Ninth Circuit Court decisions a “stunning victory”

"But the fact is that the deregulation of alcohol sought by Costco, which the court noted offered 'limited selection' in a 'no frills' environment, would have resulted in fewer choices for consumers, fewer independent retailers in the marketplace and fewer options for small- to mid-size suppliers who would be unable to penetrate a big box-dominated marketplace," said ceo Craig Wolf in a statement.

"The fact that a third appellate court has now prominently acknowledged Granholm's affirmation of the three-tier system is quite significant," he continued.

SWEDISH GOVT. TRYING TO KEEP V&S ACQUISITION LOCAL?

Rumors have swirled this week that Vin & Sprit would prefer that Investor acquire the company over other bidders such as Fortune and Bacardi. Investor, which submitted a bid through its joint offer with private equity firm EQT, is run by the Wallenbergs, a well-to-do family in Sweden. The Swedish government is adamant about keeping V&S in tact, and fears companies such as Fortune would dismantle the Swedish drinks group, costing thousands of Swedish jobs.

DIAGEO REMAINS CONFIDENT AMIDST CREDIT CRUNCH

Paul Walsh said in a UK television interview that Diageo’s wide global presence puts it in a strong position, despite a slowing economy. Similar to Pernod’s managing director Pierre Pringuet’s comments, Paul said emerging markets such as India and China will help pull the company through tougher times. He also remarked that rewarding yourself with a premium and super-premium wine or spirit products is much cheaper then going on an expensive trip or buying an expensive car. Fortune’s chief, Bruce Carbonari, echoed the same sentiments during last week’s earnings report.

CALLING ALL TRUTH SQUADERS. We want to know what you’re thinking. It only takes a few minutes to fill out our Truth Squad survey, and allows us to understand the issues you’re facing in the industry. Help us help you. All answers are kept anonymous. Click here to take the survey: http://tiny.cc/nnda6. Thanks again to everyone who has participated.

WSD BRIEFS:

FOSTER’S GROUP appointed Angust McKay as its new CFO, effective immediately. Previously Finance Director, Australia, Asia and Pacific, Angus succeeds Pete Scott, who announced his intention to retire in August last year.

BROWN-FORMAN hired the C2Group to lobby the government, the AP reports, on issues such as tax reform.


Until tomorrow, Megan

“When ideas fail, words come in very handy.”
Johann Wolfgang von Goethe

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YTD sell days Over/Under: 0

The Costco Decision Is In

Distributors were victorious today in the long awaited Costco case decision in Washington. Basically, distributors got what they wanted with the exception of price post and hold, which was viewed as a long shot anyway, according to our sister publication Beer Business Daily. An appeal is expected. Here’s an excerpt of the decision:

“Given that the State has failed to demonstrate that the post-and-hold requirement is effective in promoting temperance, we agree with the district court that ‘the state’s interests do not outweigh the federal interest in promoting competition under the Sherman Act.’”

“Because the State failed to carry its burden on the Twenty-first Amendment defense, the post-and-hold scheme is not saved from preemption under the Sherman Act.”

“In conclusion, we reverse the judgment of the district court insofar as it held that most of Washington’s restraints on the sale of beer and wine were hybrid restraints subject to preemption under the Sherman Act. We affirm the district court’s rejection of Costco’s challenge to the retailer-to-retailer sales ban. We also affirm its conclusion that under our precedents, the post-and-hold scheme is a hybrid restraint of trade that is not saved by the state immunity doctrine of the Twenty-first Amendment. Each party shall bear its own costs on appeal.”

The NBWA said the following:

"The National Beer Wholesalers Association (NBWA) is pleased that the Ninth Circuit Court of Appeals has reversed much of a lower court's decision in Costco v. Hoen (Washington State Liquor Control Board), thereby affirming the right of the states to regulate alcohol under the 21st Amendment - a system that works to protect the citizens of each state. While NBWA is still reviewing the totality of the Court's opinion, it appears that state regulation has been validated."

READERS SPILL THE BEANS

Many readers have sent us emails in response to reports that trading up may slow in 2008. The idea seems to be that trends are cyclical and consumers are always looking for the next big thing. Here’s an excerpt from three anonymous emails:

“Megan, to me it all means consumers are getting more discriminating and boutique brand friendly. The big spends and marketing pushes of the over-priced, hollow legacy brands like Grey Goose may be wearing thin. It’s more than economics, its brand ownership and association. People passing stories on brands onto their friends. New brands are in the stories told as much as what’s in the bottles sold. Even in the beer category, I see Bud struggling to be so hip. And they flop at it. It’s about craft across beer, wine and spirits--into the future. That is the real trend to watch we feel. Ultra-premium has been so overplayed it is played out. Folks crave a handsell and to be the first ones onto the next great brands on the rise.”

“Megan,I have been in the wine and spirits industry for 18 years as a delivery driver and I have seen changes like this before. When times are good people tend to drink better quality products and when times appear to be less than stellar they gravitate towards less costly products. It's all cyclical.”

“The wine and spirits companies aren’t hurting too much from the slowdown, yet, and I stress yet. It’s bound to happen sooner or later. American’s aren’t just going to buy a $40 bottle of vodka when they’re having trouble paying their bills. To say anything else is spin doctoring in its purest form. Who’s not to say that consumers won’t go back to that bottle of Grey Goose once the economy turns around?”

Thanks for your responses and don’t forget to fill out our annual survey on the industry (details below).

CONSUMERS WANT SERVING FACTS

A newly released survey indicates that American consumers support the proposal by the TTB to require serving fact panels on alcohol beverage labels, according to an article in Wines and Vines. The survey results were submitted to the TTB on Jan. 22, five days before the agency closed its public comment period on the issue.

The survey was taken by 503 Americans and found that consumers want complete labeling information, including the percentage of alcohol by volume, the serving size, the amount of alcohol per serving, the definition of a "standard drink" and the number of standard drinks per container, said the article.

A strong majority (92%) of those surveyed ranked the amount of alcohol in each drink as the top priority for required labeling information, followed by the amount of calories (84%), carbohydrates (75%), fat (71%) and protein (66%).

To view the article, click here.

To read more information on the survey, click here.

A PEAK AT FOSTER’S IN THE FIRST HALF

Environmental conditions were more challenging for Foster’s Group in its first half (ending December 31), reports analyst Andrew Kovacs with Macquarie Research, after growth appears to have slowed in the US wine market. The strong Australian dollar also posed problems for its exports.

Dollar sales of Foster’s American wine are believed to have declined by 4% due to higher costs from the 2006 Californian vintage and an unfavorable product mix shift. Andrew says the Nielsen data won’t likely show up in Foster’s results until the second half of 2008 and fiscal 2009.

“This is due to the fact that FGL is benefiting from strong wholesaler shipments in the US thanks to a planned 1 January price increase on its blush wines (encouraging November and December buy up) as well as a change in some of its appointed wholesalers, with a resulting dual stocking for a short period of time,” reports Andrew.

Industry expectations for the Australian 2008 grape vintage remain wide open. As such, Foster’s sourcing situation (and therefore likely share of the crush) as well as expected grape inflation will be an area of keen interest in its first half earnings report in February. Stemming from this, understanding Foster’s recent success in implementing price increases, (widespread in Australia, but selective thus far in the US and UK) and the capacity for more will be important. The economic sensitivity of US wine consumption will be another key focus, says Andrew.

WSD BRIEFS:

AUSTRALIAN WINE PRICES are set to rise this year after a drop in production, mainly due to drought, and rising sales. Wine production reportedly fell by almost one third from the previous year to 978 million liters, reports the Australian Wine and Brandy Corp. The Australian surplus has been drained by 15% to 1.8 billion liters and is expected to dry up even more with an even lower grape harvest forecast in 2008.

BOX WINE GOOD FOR THE ENVIRONMENT. The wine industry has been on top of environmental issues for some time, as you know. In its latest initiative, The Wine Group is launching a website to show consumers how they can help the environment by drinking wine from a bag-in-box container. BIBs help save money and are more environmentally friendly then glass bottles, for example.

CALLING ALL TRUTH SQUADERS. We want to hear your thoughts on the industry: what’s bugging you, making you smile and just plain making you mad. Please take the time to fill out a quick WSD Truth Squad survey, and we’ll report the general results in the next couple of weeks. All answers are kept anonymous. Just click here to take the survey: http://tiny.cc/nnda6

Until tomorrow, Megan

“The world is my lobster.”
Henry J. Tillman

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Fortune Sees No Signs of Trading Down

DISCUS said last week it expects trading up activity to slow somewhat in 2008. The sentiment has been echoed by Brown-Forman, Diageo (to an extent), analysts and other insiders. Fortune Brands, however, says its spirits business had yet to experience any problems as a result of the slowing economy.

The company’s spirits division “typically experiences volume growth of 2-4% in the U.S. This year is a little slower than what we saw in 2006, maybe at 2.5% to maybe a little higher then that rate. If you look back over the last 10 years you see a bouncing in that range...when you peel back the onion you see a continuation of people trading up to higher premium spirits whether it be premium or ultra premium. We have not seen any trading down here at all in the past several months,” said Bruce Carbonari, president and ceo of Fortune Brands.

In its fourth quarter and full year earnings report, Fortune said Jim Beam, Sauza Tequila and Maker’s Mark saw double digit revenue increases for the year on a constant currency basis. The company attributed the brands’ success on the following factors: higher pricing in a growing market, focus on building premium brand equity and a new kind of marketing.

Fortune launched a new vision in 2007 to “build brands people want to talk about.” Examples of the word of mouth marketing include the re-launch of Sauza’s Hornitos line, Courvoisier’s global campaign and the first multi-layer marketing campaign for Canadian Club in 20 years.

“We believe stronger brand equity builds growth,” said Bruce, “which is why marketing is now more focused on creating consumer pull in generating buzz then traditional push marketing.”

NO MORE WINE. Its motto of building strong brands also prompted Fortune to sell its wine business. As you’ll recall, Fortune sold its wine sector to Constellation in December for $885 million. Bruce remarked that the “wine industry has lower return business growth then spirits. The sale will allow us to focus resources on higher return opportunities across the company.”

Similarly, Fortune sold the U.S. distribution rights to Dalmore Scotch to India’s UB Group for $58 million. The brand brought in only $6 million a year in sales, said Bruce. The company is now focusing on growing its own global Scotch brands: Teacher’s, Ardmore and Laphroaig.

ABSOLUT. As we expected, Fortune declined to comment much on the sale of V&S. As a part of its prepared comments, Bruce said the following:

“We already share a very successful commercial partnership with V&S...we’re confident that bringing the companies together would bring long-term value to the Swedish state, the people of V&S and importantly our shareholders.”

Most people consider Fortune the frontrunner in the race for V&S, followed by Pernod and Bacardi.

“We’ve been asked by the Swedish government not to comment at all...this process is a little different. It’s not a business to business sale... it’s a privatization process...so they’re really calling on the shots and running the process and we respect what they’re doing and we’re following by the rules,” said Bruce during the Q&A.

IN THE FOURTH QUARTER spirits sales rose 10% to $859 million, helped by strong shipments of premium brands in the U.S. On a constant currency basis, sales grew in the low mid-single digit range in the quarter.

IN THE FISCAL YEAR, revenues were up in the mid-single digit range on a constant currency basis with slightly higher volumes. The spirits business experienced a favorable mix shift as global premium brands grew at a faster rate then regional and national brands, said the company.

Jim Beam grew low single digits in volume internationally. Sauza saw volume growth in the low-single digit range and performed strongly in the U.S. with help from the Hornitos re-launch. Maker’s Mark, meanwhile, was up a high-single digit rate in volume for the year. Courvoisier grew low-single digits in revenue and volume with a favorable mix shift.

“We feel better then ever about our strong position in the spirits market,” said cfo Craig Omtvedt.

Craig said the spirits industry benefits from great trends, such as trading up, a thriving cocktail culture and an industry that performs well in almost all economic conditions.

JIM VS JACK. In fiscal 2007, worldwide sales of Jim Beam exceeded 6million cases. It looks like Jim Beam is experiencing growth where Jack Daniel’s has suffered lately. Bruce says it all has to do with the marketing.

“We are putting that [bourbon] portfolio to work differently then maybe we have in the past. We aren’t relying on the traditional push methodologies that have been part of this industry for a long time. We’re introducing some new concepts and some of them are catching on. Some are working for us. And we’re testing those continuously and challenging ourselves to think differently about the business and I think we’ve been awarded for that.”

DIAGEO ACQUIRES ROSENBLUM CELLARS FOR $105 MILLION

Diageo Chateau & Estate Wines (DC&E) said today it has entered an agreement to acquire Rosenblum Cellars for $105 million. The proposed transaction, which is subject to regulatory approval in the United States, is expected to complete in the first quarter of calendar year 2008.

Rosenblum Cellars, founded in 1978 by Kent and Kathy Rosenblum and based in Alameda, CA, is one of the leading producers of Zinfandel and Rhone varietals in the United States.

The acquisition will give Diageo “one of the most recognizable names” in the “booming” Zinfandel category. Kent Rosenblum will play a key advisory role in the strategic direction of the brand.

REMY COINTREAU USA APPOINTS CFO

Remy said it has appointed Dennis Floam as senior vp and CFO. Dennis joins Remy from Carl Marks & Co. where he has been a Managing Director for the past three years. Prior to that, he had a 26 year career with the Altria Group (formerly Philip Morris Companies).

WSD BRIEF:

WINE.COM is putting its support behind proposed legislation that would enable out-of-state wine retailers to ship into Washington. At a hearing yesterday, representatives from Wine.com did a little damage control by speaking in favor of SB 6384 that would allow online wine retailers to ship wine to Washington customers from other states. “We’re for free trade,” said Rich Bergsund, Wine.com ceo.

TRUTH SQUADERS, PIPING ALL HANDS. Please take the time to fill out a quick WSD Truth Squad survey. It’s very helpful to us to understand where you stand on certain issues, and we’ll report the general results in the next couple of weeks. All answers are kept anonymous. Just click here to take the survey: http://tiny.cc/nnda6

Until tomorrow, Megan

“It is hard to believe that a man is telling the truth when you know that you would lie if you were in his place.”
-H. L. Mencken

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YTD sell days Over/Under: 0

Discus Optimistic about 2008

Industry insiders have warned for months now that the rate of spirits growth is on the decline. Amidst an economic slowdown and rumors of a recession, consumers are more likely to stay home. But the question remains: will a recession encourage consumers to drink (much) less and trade down from the high end brands they have enjoyed so much in recent years? Discus says no.

In the trade group’s annual review and forecast, Discus president and CEO Peter Cressy opened the conference by saying, “market share continues to grow, however small, but continues to move in the right direction.”

In 2007, the industry gained market share from 33% in 2006 to 33.1% in 2007. Spirits has gained 4.4 points since 2001, worth $2.4 billion. Peter noted that market share growth slowed a little in 2007 in comparison to wine but not to beer which lost share for the sixth year in a row. In 2006, wine’s market share stood at 16.5%, according to Discus, and beer’s market share was at 50.5%. In 2007, wine held 16.8% of market share and beer held 50.1%. In all, wine had biggest share gain in 2007. Beer lost a little bit and spirits were somewhere in the middle.

Supplier revenues were up 5.6% in 2007. The industry has experienced an average annual growth rate of 6.5% since 2000. Spirits volumes grew 2.4% in 2007, with a 2.9% average annual growth since 2000.

The cocktail culture gained strength in 2007, said Discus, and lives on with help from the media and consumer fascination with “romancing” the role of spirits in history. Trading up trends continued to build momentum, with growing interest in Scotch, Bourbon, Cognac and Tequila. Several morning shows featured stories on the cocktail culture in 2007, along with the NYC spirits auction, participation in NASCAR and increased spirits marketing on TV. Peter noted that marketing continues with more TV expansion, including ESPN jumping aboard, and more regional broadcast contracts around the U.S.

Discus says it will continue to hold the line on new hospitality taxes and fight for new ways to gain market access. “Nothing’s been clearer than our effort on Sunday sales,” said Peter.

He also noted that Discus is “working very hard on nutritional labeling.” The trade group believes it is “very important” to have a clear serving facts panel that reveals the serving size of wine, beer and spirits.

“Obviously the reality of a softening economy will create new challenges in 2008. With the 75th anniversary of Prohibition repeal coming, it is important that we continue to eliminate archaic and inefficient blue laws and regulations. Improvements in market access have contributed to the industry’s growth,” said Peter.

INDUSTRY FIGURES FOR 2007. David Ozgo, chief economist for Discus, said volumes of value brands were relatively flat in 2007, up 0.3%. Vodka, rum and tequila prompted the majority of growth for value brands. High-end brands grew 4.5% and super-premium brands grew 11.3%. Premium brands were up only 2.2% in volume.

“This is a really good development,” said David. “If we go into a recession, then yes, I do have a concern about trading down.”

In 2006, spirits gained 4.1% in volume and only 2.4% in 2007. David said the loss of volume growth in 2007 is due to 2006 being such a strong year. In scenarios like that, it’s usually guaranteed that the growth trend will ease up the following year, he said.

He noted that the off premise was clearly the growth driver in 2007. On premise saw a weakening “simply because people were not going out.”

SPIRITS CATEGORIES. David also noted the following category figures: vodka, representing 24% of industry sales, saw a 7.65% revenue growth to $4.3 billion; rum, representing 18% of industry sales, saw 8.9% revenue growth to $2.1 billion; tequila, representing 15% of industry sales, saw 10.5% growth to $1.6 billion; and whiskey (Bourbon, Blends, Canadian, Scotch and Irish) representing 29% of industry sales, saw 3.8% growth to $5.2 billion.

In terms of vodka, all price segments gave strong performances: value ($31 million), premium ($60 million), high end ($57 million) and super premium ($155 million).

Super premium rum saw a birth in 2007, growing a whopping 43% in volume to 220,000 cases and generating $29 million in revenue. After seeing what super premium vodka has done for the industry, David asked the audience to imagine what super premium rum could do.

High end tequila volume grew 8.1% and generated $19 million in revenue. Super premium tequila jumped 14.8% in volume and generated $78 million revenue.

Overall whiskey volumes rose 0.8% due to uneven growth. High end and super premium whiskey segments grew 4.4% and 8.1% in volume, respectively, while value and premium brands were down -1.7% and -1.3%. Could this spell trouble for Jack Daniel’s in the U.S.? Whiskey sub-category volume growth is as follows: Irish (19%), Single Malt Scotch (6.7%), Super Premium Bourbon (14.6%) and Super Premium Blended Scotch (24.3%).

FORECAST FOR 2008. David expects to a certain extent there will be less trading up in 2008 due to the slowdown in the economy. He also says pricing is likely to be softer in 2008 as he expects price increases to be reduced by 50%. However, he said the strength of the spirits industry will allow volumes to grow and that trading up will still be a strong trend.

He projects revenue to grow 4.6% to $19 billion and volume will increase 1.9% to 185 million cases in 2008. “Despite the apparent economic downturn, I am confident spirits revenue will grow in 2008,” he said.

“We are anticipating a slowdown and not a recession,” said David during the question and answer portion of the conference. “We’re actually pretty confident. We really do think the cocktail phenomenon is driving tremendous interest.”

He says people will continue trading occasions from beer to spirits, but there will be a “bit of a cap on the premiumization number.”

David pointed out that spirits volumes were still up higher then beer in 2007 despite a decline in on-premise consumption. “Clearly, when you lose a big on premium driver and still beat your competition, it’s still a very good year.”

“People still traded up in 2007...the trading up phenomenon is an underlying trend...even if people can’t go on vacation or sit in a villa overlooking the beach sipping a high end spirits brand you can still sit at home at your desk overlooking the swing set and drink your $40 or $50 bottle of vodka of $50 or $60 bottle of Scotch.”

ABSOLUT CLOSES FIRST ROUND OF BIDDING

The games have finally begun. The Swedish government closed the first round of bids yesterday, said the Wall Street Journal according “to people familiar with the situation.” Pernod said it submitted a nonbinding offer. Two Swedish companies – a joint-venture between private equity firm EQT Partners AB and Investor AB – also made a joint offer. Analysts estimate that Absolut could be valued at $5 billion to $6 billion.

The current turmoil in global financial markets won't affect the sale because Absolut "has such a strong brand," government spokeswoman Mia Widell said according to the WSJ.

The government plans to hold a second round of bidding in about six weeks, which is expected to be completed in the first half of the year.

Spokeswomen for Bacardi and Diageo declined to comment, said the WSJ. A spokesman for Fortune couldn't be reached.

TRUTH SQUADERS, PIPING ALL HANDS. It’s that time of the year, time to take a quick WSD Truth Squad survey. It’s very helpful to us to understand where you stand on a few important issues, and we’ll report the general results in the next couple of weeks. All answers are kept anonymous. Just click here to take the survey: http://tiny.cc/nnda6

STAY TUNED on Monday for coverage of Fortune’s full year result.

Until Monday, Megan

“As a well-spent day brings happy sleep, so life well used brings happy death.”
Leonardo da Vinci

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Pernod Unfazed by Souring Economy

Pierre Pringuet, Managing Director of Pernod Ricard, began the conference call by saying he’d like to offer his listeners “a ray of sunshine” for the next thirty minutes amidst crumbling economy and financial talk.

“When you look at the news and pile of losses announced by banks and some other institutions, so I would like to offer you a sort of ray of sunshine, sort of a thirty minute holiday on a nice sunny beach, maybe even Malibu beach or Barbados, presenting the outstanding results by Pernod Ricard,” said Pierre.

The French have a way of putting it, don’t they?

Pernod saw consolidated net sales increase 5.9% in the first half, impacted by organic growth of 10.1%. The weak U.S. dollar took a negative toll on sales and was primarily responsible for foreign exchange impact declining -2.5%.

With that said, the 15 strategic brands (including Beefeater, Malibu, Jameson, Jacob’s Creek and Kahlua), were the main drivers of overall growth. They grew 7% in volume and 13% in value, which demonstrates the very positive impact of price increases and mix effects, said Pernod.

Premium spirits contributed strongly to sales growth, particularly the strategic brands. Spirit sales grew 11% and premiums increased 17%. Most strategic brands recorded double-digit growth in value: Martell (+27%), Jameson (+23%), The Glenlivet (+18%), Chivas Regal (+16%), Havana Club (+16%), Malibu (+13%), Ballantine’s (+12%), Stolichnaya (+11%).

The wine business, meanwhile, recorded organic growth of 6% in value. Sales of Pernod’s three priority brands, Jacob’s Creek, Montana and Campo Viejo together increased +9%, thanks to premiumization, price increases and innovation, said the company. For champagnes, the price increase policy was also successful as reflected in the growth in value of Mumm (+17%) and Perrier Jouët (+7%).

UNITED STATES PERFORMANCE. In North America, organic growth was up 5%. The company reiterated several times that US growth was similar between the 1st quarter and 2nd quarter. Strategic brands such as Jameson, The Glenlivet, Malibu, Stolichnaya and Wild Turkey for spirits and Montana, Campo Viejo, Perrier Jouët and Mumm Napa for wines continued their “vigorous growth.” However, the Kahlúa, Chivas Regal and Beefeater brands had a more difficult 1st half-year.

Let’s get the bad news out of the way and touch on some of the weaker brands. U.S. depletions of Chivas Regal declined -7% in the first half. Volumes of Martell VS were particularly weak in the U.S. and U.K., which Pierre said was expected. He said the company’s strategy is to raise the price of VS “dramatically” and save on inventory for the future. As a result, the company expects the decline in volume in the U.S. and U.K. Pernod said it is currently working with its U.S. arm to find ways to rejuvenate the brand in the U.S.

Depletions of Kahluah were down -6%, which Pierre says has a lot to do with how Pernod has positioned the brand in the U.S.

“Positioning for desperate middle aged housewives was not probably the most promising market one can target or is not aspirational and yes we suffered in the U.S. The situation is simple in the U.S. Strong brands continue to give very good performance but weaker brands suffer.”

To combat less than favorable marketing, Pernod is launching a new “Dare to be Curious” platform for Kahluah.

Beefeater remains difficult in the U.S. with depletions down -5%. Pierre said the company is very pleased with the result of the new marketing platform for Beefeater, but noted gin is still suffering in the U.S.

“Gin, let’s be honest, is not the most buoyant category,” he noted.

Now for the good stuff. As we said before, Jameson, Glenlivet, Malibu and Stoli continue to do well in the U.S. despite price increases across the board. Jameson saw depletions rise 23% in the first half, which Pierre chalked up to price increase. Glenlivet depletions rose 5% and Malibu was up 4% at the result of price increases. Stoli, meanwhile, rose 1%.

As for wine and champagne, Jacobs Creek rose 5% in depletions with improved mix, while Montana’s depletions grew 19% despite price increases. Perrier Jouet experienced “good growth” in the U.S. as well.

WEAKENING ECONOMY. Here’s what Pierre had to say about the U.S. economy and its effect on Pernod Ricard:

“In some of our shipments so far we haven’t seen any slowdown in this market. Of course if we look at the depletions we could see probably Nov. and Dec. were a bit weaker. What does that mean? Today, first of all, I don’t have any sort of a crystal ball on what the future could be. There could be a slowdown but nonetheless it’s quite clear that the strong brands – Jameson, Glenlivet, Malibu, Stolichnaya and Wild Turkey – could continue to deliver growth. Of course, that could impact some weaker brands like Kahlua or Chivas or Beefeater. That’s the situation. Nonetheless, for our branded premium products we believe there is potential for growth in the next couple of months in the U.S.”

In Pierre’s opinion, it comes down to the idea that strong brands will be able to survive, but weaker brands will likely suffer at least a little bit.

“The strongest brand will prove to be the most resilient. Brands that have performed year after year will prevail and will be rewarding to Pernod.”

He also noted that the emerging markets (China, Russia, India) will help make up for the lack of growth in the U.S., which Pierre called a “shift in power.” He pointed out that the emerging markets have “domestic consumption” for Pernod’s products.

“We can be pessimistic about the situation in the U.S. But in the new World one shouldn’t look westward but eastward... How long do you think the slowdown will be? I don’t know. Maybe just a few months. I think there is some good evidence that the world could recover,” he said later during the question and answer section of the conference call.

“It’s just that looking at Pernod business it’s spread across many economies...we think we can resist a slowdown in some countries based on how spread out we are.”

VIN & SPRIT. Pierre would comment very little on Pernod’s involvement with V&S and Stoli. When asked if Pernod had placed an indicative bid with the Swedish government this week for Absolut, Pierre only answered this: “We also confirm that we are part of the privatization of Vin & Sprit and if by chance the government requested an indicative offer, then yes we made in an indicative offer.”

“The Swedish government is absolutely free to talk about the process and I am not. Having said that, we are there as we said earlier,” he continued.

He also confirmed that there is ongoing discussion with Stoli and that Pernod cannot buy both Stoli and Absolut.

“We cannot own both,” he said. “Both brands are a serious competitor and we’ll see.”

WSD BRIEFS:

SAZERAC TO PURCHASE CORAZON DE AGAVE. The Sazerac Co. has entered into a letter of intent to purchase Corazon de Agave from Sidney Frank Importing for an undisclosed sum, the company said today. Corazon de Agave is available in Blanco, Reposado & Anejo.

267 INFUSIONS WAS PURCHASED BY THE FALIC GROUP from Boz Spirits and will operate in the future under the name Innovative Liquors. The new company says it will pursue aggressive plans to dramatically increase distribution in domestic and international markets in the upcoming months.

E&J GALLO HAS SIGNED A CONTRACT WITH TEJON RANCH CO., one of the largest wineries in the U.S., to grow additional acres of wine grapes for E & J Gallo Winery. The contract, which extends for at least ten years, calls for the Ranch to produce 300 acres of rubired wine grapes for Gallo. In addition to the approximately 300 acres already being grown for Gallo, the new agreement brings the total acreage under contract with the winery to over 600. Tejon Ranch, located at the southern end of the San Joaquin Valley, has been growing grapes for Gallo, off and on, for more than 30 years.

TERRAVANT WINE CO., a custom crush facility, has appointed Alan Phillips as Direct of Winemaking for all production services.

SKYY SPIRITS is now the official marketer and distributor of Cabo Wabo tequila in the U.S.

TRUTH SQUADERS, PIPING ALL HANDS. It’s that time of the year, time to take a quick WSD Truth Squad survey. It’s very helpful to us to understand where you stand on a few important issues, and we’ll report the general results in the next couple of weeks. All answers are kept anonymous. Just click here to take the survey: http://tiny.cc/nnda6


Until tomorrow, Megan

“Insist on yourself; never imitate... Every great man is unique.”
-Ralph Waldo Emerson

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Today's Sell Day: 17
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Wed.
YTD sell days Over/Under: 0

Constellation Strikes a Deal with The Wine Group

Constellation has entered an agreement to sell the Almaden and Inglenook wine brands, and the Paul Masson winery located in Madera, California, to The Wine Group for $134 million in cash. The sale is a part of the company’s “ongoing effort to focus on its premium wine offerings in the U.S.” The transaction is expected to be closed by the end of Constellation's fiscal year on Feb. 29. The company says it will use the cash to reduce borrowings.

The transaction in addition to Constellation’s recent purchase of Clos du Bois from Beam Wine Estates has the company better positioned for premium growth than ever before, said chief Rob Sands. We should probably expect Constellation to sell off more of its low-priced wines in the future as it continues to trade up to premium and super-premium positioned brands.

Constellation says it will retain the Mission Bell Winery, also in Madera, Calif., which allows the company to increase premium wine production in the San Joaquin Valley. With that said, Mission Bell will provide wine production services to The Wine Group for a period of time on a contract basis.

This move by Constellation came as something of a surprise to many in the industry, but perhaps the writing was on the wall all along. During the company’s third quarter conference call earlier this month, Rob said the following in relation to the Beam Wine Estates acquisition:

"We are also rationalizing our U.S. wine product portfolio, primarily related to our value products, which we believe will generate efficiencies and enhance our focus on higher growth, higher margin brands.”

Bill Pecoriello with Morgan Stanley views the sell “as a modest, incremental positive.” He points out that while the sale is slightly dilutive, it should improve North American wine sales growth by somewhat less than 100bps. Morgan Stanley continues to rate shares of Constellation equal-weight.

QUICK BACKGROUND. Almaden and Inglenook are some of California’s best known cheap table wines, retailing for less than $3.00 per 750 ml bottle. Growth of dollar sales in the 52 weeks to December 15 was down -0.7% for wines priced below $3.00, according to Nielsen scan data. Volume was down -1.2% for the same period.

WHAT THIS MEANS FOR THE WINE GROUP. The Wine Group has now taken Constellation’s place as the second largest U.S. winery in terms of annual case shipments. (Constellation is now third). The purchase of Almaden and Inglenook gives TWG about 10 million extra cases a year, pushing it to approximately 53 million cases total on an annual basis. Constellation now has somewhere around 50 million cases. E&J Gallo is the leading U.S. winery by volume, holding something like 65 million cases.

NY FAST FOOD CHAINS MUST DISPLAY CALORIE COUNTS

Restauranteers might be able to sympathize with the alcohol beverage industry, which is battling and/or welcoming proposals from the TTB to display serving size facts on the back of bottle labels. The New York City Board of Health voted Tuesday to approve a new version of a law requiring fast-food outlets to display calorie counts on their menus or menu boards, the AP reports. The new regulation applies to any chain that operates at least 15 separate outlets.

Meanwhile, the TTB proposed that all alcohol beverages display serving size facts on the back of their labels. Smaller producers, particularly wineries and craft brewers, worry about the added expense. Some wineries also worry the serving facts would take up space where they usually display a story about the winery. Large distillers, particularly Diageo, welcome the move and see it as a chance to promote “equivalency” among beer, wine and spirits. Brewers as a rule are against equivalency.

The Center for Science in the Public Interest (CSPI) is unhappy with the proposal. It basically says that while its nice for alcohol beverages to reveal calories, ingredients, serving size, ect., they should also list alcohol contents with the other serving facts. The CSPI doesn’t like the fact that the TTB’s proposal allows companies to display the alcohol content elsewhere on the bottle and in a smaller font.

“In 2003, CSPI, the National Consumer League, and others called on TTB to develop an easy-to-read, standardized Alcohol Facts label, similar to the popular Nutrition Facts labels on packaged foods. In 2007, TTB responded by proposing a "Serving Facts" label which would include calories, fat, carbs, and protein, but which would let manufacturers disclose alcohol content elsewhere, and presumably in much smaller print, on the label,” the group said in a statement.

The CSPI believes it makes “zero sense” for the TTB to try and find a compromise between what distillers and brewers want at the expensive of the “public's health or the convenience of consumers.” As you can imagine, the group disagrees with distillers’ arguments of equilavency and brewers’ dislike for the entire serving facts proposal. It seems to us that the CSPI won’t be happy unless the TTB’s proposal makes everyone in the alcohol industry angry.

U.S. WINE REACHES “TIPPING POINT” IN ‘07
There’s no doubt that 2007 was a strong year for the U.S. wine industry. Wine Market Council
president John Gillespie said the industry reached a “tipping point” with consumers in 2007, particularly Millennial consumers. His conclusion was based on the following factors:

1. Consumption is on the rise. He estimated that wine consumption in the U.S. exceeded 300 million cases for the first time -- and annual adult per capita consumption was more than three gallons

2. The U.S. topped Italy in 2007 as the second largest wine market in the world and is heading towards beating France as the world’s largest market

3. Men now equal women in wine consumption for the first time. In addition, wine consumers are getting younger.

However, there is a bit of bad news. The troubled economy has played a role in slowing the rate of sales growth for high end wines, according to Danny Brager of Nielsen.

NY GOV. PROPOSES PERMANENT SUNDAY SALES

On a lighter note, New York Gov. Spitzer included a provision in his budget proposal to permanently extend Sunday spirits sales. According to a recent economic analysis by DISCUS, New York gained $92.3 million in new retailer revenue from Sunday sales in 2006 alone. That translated into an additional $14.2 million in new tax revenue for the state and New York City that would not have otherwise existed.

Governor Spitzer’s budget updates current New York law allowing seven day sales, which is set to sunset on May 15, 2008, and includes a revenue clause permanently extending the seven day alcohol license sales law. The budget must now be approved by the State Legislature by April 1. It would take effect immediately upon passage.


Until tomorrow, Megan

“One of the symptoms of an approaching nervous breakdown is the belief that one's work is terribly important.”
Bertrand Russell

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Today's Sell Day: 16
Sell days this month: 22
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This month last year ended on a: Wed.
YTD sell days Over/Under: 0

Low Bids May Delay V&S Auction

Swedish Financial Markets Minister Mats Odell said the government may delay the sale of Vin & Sprit due to market turmoil, reports Reuters. During an interview with Swedish radio today (January 22), Odell said indicative bids for V&S are due to arrive this week. If the bids are too low, however, the government may delay the auction.

"Once we have seen the end of that process we have the ability to put on the brake if necessary, if we feel the price is too low. If that is the case, we wait for a better time," Odell told the radio station.

His comments sound a little bit like a scare tactic, but perhaps not. We reported yesterday that Odell predicted Absolut would be sold in the first half of 2008. Fortune Brands is considered the front-runner, followed by Pernod, Bacardi and Diageo. Fortune simply has the most to lose if it doesn’t acquire V&S, mainly because it distributes Absolut in the U.S. through its Future Brands J-V with V&S. Fortune is also a partner with the Swedish company in the Maxxium joint-venture, so it wouldn’t have to pay exit fees if it succeeds in acquiring V&S. As you’ll recall, Fortune recently sold its Beam Wine Estates portfolio to Constellation, likely to help fund the acquisition.

Odell was recently quoted in local newspaper Svenska Dagbaldet saying, “I believe, on good grounds, that interest in Vin & Sprit is strong, and that the potential buyers have good possibilities to finance a bid at a very good price.”

We suppose only time will tell and until then he’ll probably keep us guessing.

ANOTHER LOOK AT SERVING FACTS CONTROVERSY

The TTB’s proposal to require alcohol beverages to label serving facts has gotten the attention of The Washington Post. To read the article, click here.

As reporter Cindy Skrzycki puts it: “Beermakers oppose this comparison because, unlike a 12-ounce beer, there is no standard measure for how much liquor, and thus how much alcohol, goes into a drink...Distillers have been working aggressively to get the serving-size alcohol content on the bottle because they think it would dispel the impression that spirits are more intoxicating than beer or wine...Vintners are concerned about the cost of the proposal, which would require lab testing of different wines. Besides, they complain, the nutrition-facts array would rob them of space for the artistic displays that are common on wine labels.”

Also, don’t forget this is your last week to make your comments known to the TTB regarding their proposed "serving facts" rule on labels.

WSJ PROFILES WINE ANTI-SNOB

Former alcoholic and Master of Wine Tim Hanni is responsible for far-reaching changes in the way restaurants feature wines. A wine advisor to hotels and restaurants including Ruth’s Chris and P.F. Chang’s, his anti-snob approach has opened millions of Americans to drinking wine without feeling intimidation, according to an article in the WSJ. He is against everything “elitist” that is associated with wine drinkers, but ironically is one of the first two Americans to hold the highest credential in the field, Master of Wine.

His innovative “progressive wine list” organizes wine from lightest to heaviest rather then grouping them by regions. He argues that no one has a superior palate to anyone else’s and that there’s nothing wrong with White Zinfandel (gasp).

Hanni recently launched Napa Seasoning Co. in 2006 and introduced Vignon, a condiment designed to balance flavor in food so that it pairs well with all wines.

OUT-OF-STATE RETAILERS LOOK TO IDAHO

The Specialty Wine Retailers (SWRA) may turn their attention to Idaho soon. According to a report in the Idaho Statesman, the SWRA has taken notice of an Idaho law that allows only retailers in reciprocal states to ship wine to Idaho residents. Fourteen states currently have reciprocal agreements with Idaho.

"Our argument would be that the practice is out of compliance with the Constitution and the Supreme Court. If Idaho lets Idaho retailers ship to Idahoans, they need to let out-of-state retailers ship to Idahoans," said Tom Wark, as quoted in the Idaho Statesman.

The SWRA doesn’t plan to file a lawsuit in Idaho yet, but lawsuits pending in New York and Michigan could force Idaho to change its laws.

WHOLE FOODS BAGS PLASTIC

Whole Foods says it plans to stop offering disposable, plastic grocery bags in all 270 stores in the U.S., Canada and the UK by Earth Day (April 22). That means roughly 100 million plastic bags will be kept out of the environment between that date and the end of 2008, the company says.

To take the place of the plastic bags, Whole Foods will offer several options: free paper bags in four sizes made from 100% recycled paper, reusable bags 80% made from recycled plastic bottles for 99 cents and canvas bags selling for $6.99 to $35, according to a report in USA Today.

The announcement comes at a time when cities, states and countries are considering eliminating plastic bags. San Francisco has banned them, while New York and New Jersey requires retailers to recycle them. Oakland is considering a ban and China announced a ban this month.

DON SEBASTIANI & SONS RELEASES MOOBUZZ

As a part of Sebastiani’s strategy of trading up its business to “higher priced appellation-specific wines”, the company is releasing MooBuzz. The brand will focus on super-premium Burgundy grape varieties grown in the Sonoma Coast appellation. Chardonnay and Pinot Noir will be featured as the exclusive varietals in the line.

The MooBuzz label features a stylized topographical map of the Sonoma coastline, further emphasizing the importance of wine’s origin, said the company. The suggested retail price for the 2006 MooBuzz Pinot Noir is $25. The 2006 MooBuzz Chardonnay will retail for $20. The wine will be marketed as a part of The Other Guys portfolio.

TERLATO WINES LAUNCHES SPIRITS DIVISION, FIRST SWISS VODKA

Terlato Wines International (TWI) announced today they have created a new luxury spirits division in conjunction with a new partnership with super premium vodka producer, Xellent Swiss Vodka. It is the first and only Swiss vodka, says the company.

The new spirits division will be named Paterno Imports and will include several spirits currently within the TWI portfolio (including Nonino Grappa and Tiramisu, a new Italian liqueur). Xellent Swiss Vodka will launch nationwide in the U.S. in February. It was originally imported by The Spirit of Hartford.

FREE THE GRAPES SUPPORTS REGULATED DIRECT SHIPPING

Amidst recent sting operations by Wine.com, accusations and unlawful shipping practices, Free The Grapes says the first provision of its Wine Industry Direct Shipping Code is for licensees to abide by state shipping laws. The grassroots coalition implemented the voluntary guidelines in 1999.

“With recent news of sting operations, it’s important to keep in mind the longer term strategies that have helped to expand consumer choice,” said Jeremy Benson, executive director of Free the Grapes. “Following the code’s guidelines is not only the right thing to do, but also a proven, practical approach to helping wine lovers.”

“The code and related model direct shipping bill have played a key role in demonstrating that limited, regulated direct shipping works,” said Steve Gross, Free the Grapes! board member and director of state relations, Wine Institute.

The code can be viewed online at http://www.freethegrapes.org/wineries.html#code.

WASHINGTON AND OREGON WINERIES RECEIVE FEDERAL FUNDING

The United States Department of Agriculture (USDA) has given $650,000 to 40 wineries in Oregon and Washington to promote their wines oversees, according to the Washington Wine Commission. The wineries are targeting key markets in Canada, Japan and the UK.

WSD BRIEFS:

KENTUCKY DISTILLERS’ ASSOCIATION has named Eric Gregory as its new president.

WASHINGTON WINE INSTITUTE is launching a Direct Shipping Compliance Affinity Program with Six88 Solutions, creators of ShipCompliant.

SONOMA VALLEY VINTNERS & GROWERS ALLIANCE (SVVGA) announced the addition of the following four board members: Michael Muscardini, Muscardini Cellars; J. Bruce England, EnglandCrest Vineyards; Tom Menzies, Pasatiempo Vineyard; and Carlo Cavallo, Sonoma-Meritâge Restaurant

RIMON WINES. The Seattle Times gave a great review to Rimon Winery’s Black Label Pomegranate Dessert Wine, which carries a suggested retail price of $38 for a 500 ml bottle. The winery is based in Israel’s Upper Galilee and is kosher-certified.


Until tomorrow, Megan

“What is written without effort is in general read without pleasure.”
Samuel Johnson

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Sell days this month: 22
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This month last year ended on a: Wed.
YTD sell days Over/Under: 0

Acquisition News for Pernod, RNDC and Heaven Hill

HEAVEN HILL FORMS J-V WITH TIERRA DE AGAVES

Heaven Hill announced today a joint-venture with Tierra de Agaves, the Mexican spirits company founded by Francisco Beckmann and sons, former co-owner of Jose Cuervo. The partnership involves joint ownership of the Lunazul and La Certeza Tequila brands, combining Heaven Hill’s global distribution network and marketing knowledge with Tierra de Agaves’ focus on cultivating estate-grown blue agave plants.

“In today’s environment of mergers, acquisitions and “right-sizing”, the coming together of two recognizable and highly successful family-owned spirits concerns is quite noteworthy,” said Heaven Hill in a press release.

Lunazul is a super-premium 100% agave Tequila offered in both Blanco and Reposado at $19.99 and $21.99, respectively, for a 750ml bottle. La Certeza, meanwhile, is available in Blanco ($40), Reposado ($45) and Anejo ($60) 750ml and 50ml bottlings.

RNDC ENTERS NEBRASKA WITH TWO ACQUISITIONS

RNDC has entered Nebraska for the first time by acquiring Nebraska Wine & Spirits and striking a deal to purchase Republic Beverage Co. RNDC has become the majority investor of Nebraska Wine & Spirits, now RNDC - Nebraska. Paul Epstein, former president of Nebraska Wine & Sprits, will serve as ceo of the new company, while Gary Epstein will serve as coo.

In addition, RNDC has struck a deal to acquire Republic Beverage Company of Omaha, Nebraska. A letter of intent has been signed by RNDC to acquire an interest in Republic Beverage Company, formerly known as United Distillers Products Company. Completion of the transaction is currently underway. RBC chairman David Friedland, president Ted Friedland and their entire management and sales team will remain in place with the RNDC organization.

PERNOD TO BUY LILLET APERITIF

Pernod plans on acquiring aperitif manufacturer Lillet for an undisclosed sum. The French drinks company will take over the maker of the Lillet aperitif, which is based on wine and fruit liqueur, and featured in the latest James Bond Casino Royale, from April, reports Thomson Financial. Philippe Savinel, CEO of Pernod Ricard's Ricard unit said Lillet is 'a growing brand' that will boost the company's aperitif product range and reinforce its strategy of increasing premium products. Lillet has 7 employees and is based near Bordeaux.

CAMPARI HEADED FOR A BRIGHTER YEAR IN 2008

Campari’s weak share price performance in 2007 now offers a buying opportunity for the Italian drinks group, according to a research note by analyst Melissa Earlam of UBS. The firm expects investor confidence to build for the following reasons.

“We believe investor confidence should build with the new CEO as the year progresses. Furthermore, we believe the shipment volatility for the Campari and SKYY brands should be behind us as of Q4 07, removing an area of uncertainty,” writes Melissa.

Furthermore, Campari may benefit from Remy Cointreau leaving Maxxium in March 2009. When Remy exits, Campari could distribute its brands in Germany, Italy and Brazil.

UBS changed its rating for Campari from neutral to buy.

AUSTRALIA PREPARES FOR BIG CHANGES

The future of the Australian wine industry is expected to change dramatically, says Mike Stone, chief executive of Murray Valley Winegrowers. Speaking to The Australian, Mike said smaller commercial wineries will likely lose out to large companies.

"At the moment there are a lot of small to mid-sized players in that commercial sector, but the pressure they have been under the last few years is going to see them leave," he said.

A combination of factors, including oversupply and now undersupply of wine, increasing competition from beer and spirits, a higher Aussie dollar and higher cost of raw materials, have seemingly taken their toll on the Australian industry.

As companies race to consolidate and grow, insiders say Australia must build on its strengths – innovation and quality – instead of competing on price and volume alone.

"We now need to compete in quality terms and price terms in a way that we haven't in our recent history. To an extent we have been giving it away. That doesn't build a credible premium for your brand franchise in the medium to long term," said Paul Henry, GM of market development with the Australian Wine and Brandy Corporation, as quoted in The Australian

ABSOLUT SOLD BY SUMMER

The Swedish government says it expects a deal with Absolut to be signed in the first half of 2008, according to local newspaper Svenska Dagbaldet.

“I believe, on good grounds, that interest in Vin & Sprit is strong, and that the potential buyers have good possibilities to finance a bid at a very good price,” said Mats Odell, Financial Markets Minister.

MORGAN STANLEY UPGRADES DIAGEO

Morgan Stanley upgraded Diageo to overweight from equal-weight as part of a note in which it grew more positive on spirits makers, according to Steve Goldstein of Marketwatch.

"We are more confident the spirits players will meet market expectations for earnings, as they have limited exposure to rising raw material costs and continuing growth from emerging markets, which supports positive price and mix trends. Spirits is a lagging sector that will be slow to respond to weakening consumer trends," the broker said.

WSD BRIEFS:

THE MASSACHUSETTS LICENSED BEVERAGE ASSOCIATION (MassLBA) has a new name and an expanded mission, the group said Friday (January 18). Now called the New England Licensed Beverage Association (NELBA), it will focus initially on raising awareness of both its organization and the industry in New England through the launch of its new trade magazine, Straight Up, which is set to debut in late February.

WE REGRET TO REPORT that Pioneering West Coast wine importer Henry J. van der Voort passed away January 14 after a battle with lung cancer. In addition to his wife of 62 years, he is survived by his four children, Henry (Jan Gausmann), Mimi, Betsy (Judge Randall White) and Peter (Beatrice Callens), and six grandchildren.

TTB COMMENTS DUE. Remember that this is the last week to make your comments known to the TTB regarding their proposed "serving facts" rule on labels. As a general rule, most wineries, brewers and small producers are against the proposals, while larger spirits companies support them.

Until tomorrow, Megan

“Trust men and they will be true to you; treat them greatly, and they will show themselves great.”
Ralph Waldo Emerson

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Today's Sell Day: 14
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Wed.
YTD sell days Over/Under: 0

Champagne and Cognac Fair Well for Remy

The company reported that all group brands did well in the third quarter, with Asia and Europe as the growth drivers. Organic sales of cognac grew 8.6%, liqueur/spirits were up 2.8% and champagne jumped 15.6%. Partner brands grew 6% in all.

“Consumer demand [of cognac] in the US remained good in a business environment marked by caution,” said the company.

Melissa Earlam of UBS said in a research note that while cognac demand remains solid in the U.S., it fell short in the third quarter due in part to “some US wholesaler de-stocking due to overall market concern (€2-3m of sales) though depletions held up.” De-stocking of Cointreau in the U.S. also caused lighter sales for spirits and liqueurs.

Remy had more success with champagne and partner brands in the U.S. The performances of Piper-Heidsieck and Charles Heidsieck did particularly well, with Europe and the U.S. as “the main growth drivers.” Partner brands including Russian Standard vodka and Scotch whiskies resulted in “excellent” growth in the U.S.

WINE.COM LOSES ADVERTISERS

Although the year is still young, we’ve already seen a lot of activity from online retailers. As you know, Wine.com has met with a lot of criticism for “policing” its competition and effectively turning them in to state regulators for illegal shipping practices. As a result, ClassicWines.com and other advertisers have “removed all advertising for Wine.com from its popular online guide.” Apparently, uproar over the situation isn’t quieting down anytime soon.

"It is far easier to sell pornography DVD's or missile parts online than bottles of wine, due to a myriad of antiquated and at times conflicting laws and regulations that date back to Prohibition" said Mark Spangler, VP of ClassicWines.com, in a press release.

With that said, online retailers are working to make direct shipping easier. The Specialty Wine Retailers (SWRA) had something of a victory recently in Texas when a judge ruled that Granholm applies to retailers, as well as wineries, and dismissed wholesalers’ claims that their services protect minors. It was not a full victory, however, because the judge also ruled that the state of Texas has the right to force all retailers to buy wine through Texas wholesalers before shipping it directly to Texas residents. (To read our coverage, click here).

As you can see, online retailers think Wine.com is setting them back in their efforts to gain more shipping rights.

“We think Wine.com is choosing the wrong adversary and instead of picking on industry competitors, they should join the industry and seek to overturn the very laws that limit us all collectively," said Mark Shay, founder of ClassicWines.com.

To read our interview with Craig Wolf of the WSWA and Tom Wark of the SWRA, click here.

DIAGEO MAY HAVE THE LAST LAUGH

Diageo has received some rather downtrodden coverage lately as analysts warn that the company may not be able to meet its 2008 guidance. However, the Lehman Brothers has upgraded Diageo from equal weight to underweight and raised its price target.

“We see strong defensive characteristics in uncertain markets. We expect the company to meet its 2008 guidance of 9% earnings growth.”

The firm believes Diageo would do especially well if it were to merge with a brewer. We hear that Scottish and Newcastle is on the market...

On a serious note, we’ve heard from several Diageo wholesalers that everything seems dandy in certain profitable markets on the east coast. Apparently P. Diddy has done well for the Ciroc Vodka brand and volumes are majorly on the rise.

“A ROSE BY ANY OTHER NAME...”

Primo Amore, a new line of Italian wines by Casa Vinicola Zonin S.p.A., Italy’s largest privately held wine company, has hit American shelves. The wines are topped with screwcaps, feature “easy to read labels, colorful packaging and affordable pricing ($6.99-$7.99).” The company describes Primo Amore as “perfect for those who are just getting to know wine or who are discouraged by complicated or pretentious labels.” Sound familiar? It appears that Primo is going after the consumer-friendly, Yellow Tail strategy. Affordable, approachable and probably appeals to a wide range of palates. Instead of a cuddly animal on its label, Primo features a red rose and cleverly plays off Shakespeare’s Romeo and Juliet with Primo Amore Romeo (red) and Primo Amore Juliet (white). Perhaps the Old World isn’t so set in its ways after all.

A RECESSION IN THE WORKS

Goldman Sachs indicated yesterday that a “mild” recession may hit the U.S. in the middle of 2008. The recession will cause consumers to slow their spending and shop in low-price retail outlets like Wal-Mart and Costco. Great news for them, perhaps not such good news for organic retailers and other higher end outlets. What does this mean for us? Some trading down seems inevitable, but we have high hopes for the wine and spirits industry. The past few years have been good to us and a little recession won’t hold us back.

WSD BRIEFS:

WE REGRET TO INFORM YOU that an explosion at NSW Hunter Valley winery in Australia killed owner and chief winemaker Trevor Drayton and another man, understood to be a welding contractor, reports the AAP. Assistant winemaker William Rikard-Bell, 27, survived the blast, but suffered serious burns to up to 80% of his body. Our thoughts and prayers are with their friends and families.

SILICON VALLEY BANK named Harry Kellogg, the company's vice chairman, to oversee its Wine Division and support its growth plans. Kellogg joins Bill Stevens, Wine Division manager, and Rob McMillan, Wine Division founder as part of the group's management team.

ABSOLUT has joined with Live Earth to present the brand’s first national sales and marketing platform, titled Absolut Global Cooling. Playing off Absolut’s advertising campaign, “In an Absolut World” the program features other “absolutes” that center around the environment. Preaching the good word on environmental issues is becoming increasingly important.

CONTROVERSIAL BOTTLE SHOCK premiers tomorrow night at the Sundance Film Festival. As you’ll recall, the movie portrays the legendary 1976 Paris wine tasting, but individuals who the movie is based on say it’s inaccurate. Click here to read great coverage of the controversy.

LUXCO is adding a new De Agave Tequila Premium Margarita to its Salvador’s RTD portfolio. Created and bottled in Mexico, De Agave is available for $11.99 for the 750ml size and $17.99 for the 1.75 liter.

AVERNA is launching three new Sambucas – traditional, licorice and citrus – and Averna’s own Limoni, a lemon liqueur. Averna is imported by Domaine Select Wine Estates.

Until tomorrow, Megan

“I always keep a supply of stimulant handy in case I see a snake--which I also keep handy.”
W. C. Fields

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Imported Wines Face Big Headaches

Much like spirits, the wine industry looks like it’s headed for an interesting year. Strange industry trends tend to erupt when the economy is questionable, and wine is no exception. One trend that’s emerging is climbing import prices. This of course can be good news for domestic wines but not so great for importers, particularly importers of smaller brands. The rate of growth for imported wines slowed in the four weeks to December 2, according to IRI scan data. Value of overall wine grew 4% in the four week period, while domestic wines grew 4.8% and imports grew only 1.5%. Domestic dollar share of the category grew 0.6% and imported dollar share declined -0.6%.

Volumes of domestic table wines grew 1.5%, which suggests that consumers were buying more expensive wines. Imports, meanwhile, were down -1.1% in volume. During the four weeks, domestics gained 0.4% of volume share and imports lost -0.4%. November trends seem to bode well for domestic wines. Could this be a foreshadowing of bad tidings for imports? Many in the wine industry, particularly importers and retailers, say prices for European and Australian imports are on the rise due to a declining U.S. dollar and droughts in Australia. As a result, sales are expected to suffer and domestics are expected to look more attractive to U.S. consumers.

EUROPEAN IMPORTS. Many retailers and importers of European wines say they have swallowed supplier price increases during the holidays to drive consumer traffic and help prevent “fickle” wine consumers from switching to less expensive brands. As you’ll recall, the majority of wine and spirits sales are made during the holidays.

French imports were down -3.4% in dollar sales in the four weeks to December 2. Volume declined a whopping -8.4%. For awhile it looked like France was posed for a comeback, but perhaps the weakening dollar and continued “freedom fries” sentiment has changed things.

Not all European imports are fairing badly. Dollar sales of Italian wines grew 2.5% in November, while German wines grew 6%, Spanish wines grew 17% in value and Portuguese took the caking growing 19.2%. It’s important to note, though, that German volumes were down -3.1% and Italian volumes were down -0.6%. So perhaps consumers are buying the occasional expensive European import, but just not much of it.

AUSTRALIAN IMPORTS. When it comes to the Australians, however, severe droughts have produced a smaller harvest which may push prices too high – and all this after Australians braved grape gluts and cheap bulk exports for years. Consumers that have come to rely on cheap Australian imports – we’re talking price, not quality – may trade in their bottle of Shiraz for a cheap Chilean import or inexpensive domestic wine. Australian wineries face two options. One, they can cut profit margins and keep brands competitive, or two, companies can raise prices and risk losing market share of wine exports.

“Faced with volume shortage (and related grape price inflation) selling price increases will be necessary to protect profits,” says Andy Kovacs of Macquarie Research in a note last November

Dollar sales of Australian wines in November declined -3.8% and volumes were down -2.4%. Dollar sales of wines priced $5-$8 were down -6.5% and volumes were down -5.7%. Similarly, sales of wines priced $8-$11 were down -6.6% and volumes were down -9.1% The rate of growth for Australian wines has slowed for the past several months, so will the trend continue or will Australian imports manage to bounce back?

DOMESTICS AND EVERYONE ELSE. Dollar sales and case volume of California wine grew 3.7% and 0.9%, respectively, in the four weeks, but shares were down slightly (-0.2%). Oregon and Washington wine value grew 19.1% and 18.8%, respectively. Oregon volumes were up 7.1% and Washington volumes were up 15.8%. Not too shabby.

South African table wine continues to show the highest rate of growth for imports, up 57.4%, followed by New Zealand, Argentina (29.7%) and Portugal. Chilean wines, which are expected to be big, saw dollar sales rise 3.6% in November, but volumes were down -5.1%. Problems with the peso have reportedly hurt exports. (Sound familiar?)

Dollar sales of red wine grew 3.6%, while volumes were up only 0.6%. Surprisingly, white wines grew 6.1% in value and 3.6% in volume. The winter months usually encourage wine drinkers to reach for a red varietal, but it appears consumers were mainly in the mood for white wine in November.

Major wine varietals experienced the following dollar sales growth or decline in the four week period: Cabernet Sauvignon (5.7%), Chardonnay (3%), Sauvignon Blanc (12%), Merlot (-3.7%), Pinot Grigio (13.3%), Pinot Noir (15.7%), Syrah/Shiraz (-6.7%), White Zinfandel (-4.2%) and Zinfandel (17.3%). Not too bad considering that most the varietals, excluding Merlot and White Zin, showed growth. White Zinfandel has been in the red for some time now, and Merlot seems to still be recovering from the “Sideways” backlash in 2005. French Champagne’s value grew 2.9% and volume increased 1%.

When it comes to price segments, super-premium ($15-$20) reigns supreme, jumping 15.4% in dollar sales. Ultra-premium ($20 and up) grew 10.4% and premium ($11-$15) wines increased 9%. The rate of growth for wines priced below $3 to $8 was in decline. It appears that rumors of a recession and failing economy has yet to negatively effect trading up in the wine industry. It’s an interesting trend to note since spirits seem to be having more problems in that arena.

DON SEBASTIANI & SONS MAKE NEW CHANGES

As the Sonoma-based wine company reaches the two million case mark, it announces it will begin a strategic brand repositioning program in 2008, with a gradual and steady move up-market. As a part of the repositioning, the company will create several new sales positions in its The Other Guys division. It also will increase prices on several labels within its Three Loose Screws division. Finally, the company has announced plans to introduce a series of higher-priced, appellation-specific, limited release wines.

The Other Guys division, which markets smaller-production labels such as Hey Mambo and Plungerhead, will seek more placements on upscale urban restaurant wine lists and in higher-end boutique retail wine establishments. The average price points for the wines will be in the $15-$50 range.

Lastly, Sebastiani hopes to “lay to rest a rumor that the company might be selling one or more of its labels. “We’re enthusiastic about the future of our portfolios.”

SOUTH AUSTRALIA COMPLIES WITH NEW LABELING RULES

South Australia is the first Australian state to implement new labeling rules under the World Wine Trade Group Agreement, according to local publications. The new labeling system will allow producers to use the same label for both local and international markets, and eventually save the state wine industry almost $13 million a year.

Until tomorrow, Megan

“I generally avoid temptation unless I can't resist it.”
Mae West

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Somber Spirits Head for an Unpredictable Year

Since September, the rate of spirits growth has declined steadily each month. In the four weeks to Oct. 7, dollar value of spirits increased 4.4%. In the four weeks to Nov. 4 and Dec. 2, dollar sales were up 3.4% and 2.8%, respectively, according to IRI scan data.

In the long-term, however, the rate of spirits growth has held relatively steady. In the 52 weeks to Oct. 7, dollar sales of spirits grew 2.1%. The same is true for the 52 weeks to Nov. 4 and the 52 weeks to December 2. But it also takes longer for trends to show up in 52 week data.

The most obvious answer seems to be that consumers are less willing or able to buy expensive spirits. Until recently, vodka was at the helm of the trading up activity. But in the 4 weeks to Dec. 2, dollar sales of ultra-premium vodka (priced $26 and above) declined -4.6%. The category lost 1% of dollar share from the same four week period last year. Volume of ultra-premium vodka was down -4.1% in November, losing -0.3% of share from the same period in 2006.

Let’s compare these numbers to months prior. In September, dollar sales grew 12.6% for ultra-premium vodka and October sales slowed considerably, growing only 3.8%.

The rate of growth for super-premium ($21-$26) vodka has also slowed in the past several months, while premium ($16-$21) vodka sales stalled slightly in November. November sales for premium vodka were up 5.2%, while October sales grew slightly higher at 6.4%. Were people cutting back to make room for holiday gift buying?

The rate of growth for mid-value vodka ($11-$16) has declined slightly since September. As you might expect, value vodka ($10 and below) is slightly on the rise. In September, dollar sales of value vodka rose 4.3%. In Oct. and Nov., value sales were up 5.8% and 6.3%. We infer that more people are drinking at home, and therefore buying the cheaper stuff. What good does it do to buy expensive vodka if you can’t impress your friends at the bar? Also, let’s not forget to take other factors into account. Sure, we’re starting to see some weakness, but comps and pricing can come into play here as well.

Let’s take a look at some of the big vodka brands in the U.S. In November, value of Smirnoff rose 9.4%, Absolut was up 10.6%, Skyy grew 5% and Stoli was up 1.8%. Grey Goose declined -4.1% and Ketel One was down -1.3%. We have to chalk up some of the decline for Grey Goose and Ketel One to comps and pricing, though, because October dollar sales saw Grey Goose rise 9% and Ketel One climb 1.5%.

Of course, it’s not just the upper rim of the vodka category that’s taken a hit. Ultra-premium whiskey, rum and tequila have all seen better days but their numbers aren’t near as incongruent as with the vodka category. In other words, ultra-premium whiskey (up 4.9%), ultra-premium rum (up 109.4%) and ultra-premium tequila (up 27.9%) were still growing in November, albeit the rate of growth declined slightly, while ultra-premium vodka was down -4.6%.

The one ultra-premium price category that might be posed for a comeback is gin. Industry insiders have predicted a resurgence for sometime and now we’re starting to see evidence. In October, ultra-premium gin was down a whopping -7.8%. In November, however, it jumped 4.5% from the same period last year. Again, comps and pricing probably have something to do with it, but perhaps consumers are returning to gin. In the four weeks to December 2, dollar sales of Tanqueray rose 11.5%. Seagrams was down -3.1% and Bombay was down -2.7%.

Is this the end of trading up as we know it? We think the answer is no. People that will hurt less from a recession will continue to trade up, and don’t forget the aficionados that would rather live without heat than settle for a less-then-perfect brand.

We heard that the mood at the NABCA board meeting last week was more somber than in previous years, mainly due to soft holiday sales for spirits and whispers of heavier discounting. Even Diageo is expected to miss its quarterly numbers.

We’d like to know what our readers are thinking. In your opinion, how will the economy affect wine and spirits sales in 2008? Have you already seen an impact in your business? Will imports or domestics suffer more in the U.S. this year? Will wine or distilled spirits suffer more in 2008?

TEXAS COURT DECISION RESULTS IN HOLLOW VICTORY

In what was neither a complete victory nor defeat for out-of-state retailers and Texas wholesalers, Judge Sidney Fitzwater of the U.S. District Court for the Northern District of Texas ruled that Granholm offers protection from discrimination to both wineries and retailers. In other words, he ruled that Texas law barring out-of-state retailers from shipping directly to consumers is unconstitutional. The judge interprets that Granholm requires Texas to allow both in-state and out-of-state retailers to ship directly to Texans or none at all. This part of the ruling is a victory, but perhaps a hollow victory, for the Specialty Wine Retailers Association (SWRA) and here’s why. The judge wrote that the State of Texas has the option to force out-of-state retailers to purchase wine from Texas wholesalers, so he’s basically leaving the decision up to the state.

"The court concludes that Texas' ban on the sale and shipment of wine by out-of-state retailers to Texas residents is unconstitutional, but it also holds that the requirement that wine retailers--including out-of-state retailers--first purchase such wine from Texas-licensed wholesalers is constitutional."

However, it’s worth noting that the judge dismissed arguments by wholesalers that barring direct shipments from out-of-state retailers would help prevent minors from accessing alcohol and ensure proper tax collection.

In the unlikely even that out-of-state retailers start purchasing wine from Texas wholesalers, we’re pretty sure things would get chaotic fast. Plus, is it even legal? We smell more court dates and legal wrangling to figure this thing out.

In all, the language of the decision does not bode well for wholesalers nationally, but Texas wholesalers managed to dodge a bullet. The decision will likely affect similar retailer lawsuits in New York and Michigan. A New York court recently ruled that Graholm doesn’t apply to retailers, while a Michigan court decided Granholm does apply to retailers.

CONSTELLATION TO CUT JOBS AT FORMER BEAM WINE ESTATES

Many employees at Beam Wine Estates will lose their jobs as Constellation attempts to swallow the newly acquired division. Constellation is reportedly cutting 93 jobs at Beam Wine Estates and will close its Healdsburg headquarters in the next 6 months to a year. In all, Beam Wine Estates employs 520 workers. Most of the reductions are coming from finance, human resources, sales and marketing, according to The Press Democrat. Official details of the integration plan should be available by the end of January.

DRINKING AND EXERCISE GOOD FOR YOUR HEART

If drinking and exercise is good for the heart, then it looks like we’re set for a hearth healthy future. Danish researchers found that moderate drinking (1-14 drinks per week) coupled with exercise can lower your risk for coronary heart disease. This doesn’t mean, however, that you can trade exercise for drinking or vice versa. The two have a compound effect. The study found that people who don’t drink and don’t exercise had double the risk for heart disease as those who exercise and drink moderately.

WSD BRIEFS:

DOLLAR GENERAL has promoted Richard W. Dreiling, former head of Duane Reade, as ceo of the discount chain starting January 21.

ANGOVE WINERY of Australia announces the U.S. debut of its award-winning Nine Vines Wines. Although available in limited amounts last year, Nine Vines will launch nationwide this month for $11.99 a bottle. The line includes Nine Vines Grenache-Shiraz Rosé, Nine Vines Viognier and Nine Vines Shiraz-Viognier.


Until tomorrow, Megan

“Young is the one that plunges in the future and never looks back.”
Milan Kundera

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What’s New in Wine & Spirits

EXPENSIVE WINE INCREASES CONSUMERS’ ENJOYMENT

Researchers at the California Institute of Technology found that pricier wine increases a person’s enjoyment of the wine. Antonio Rangel, associate professor of economics, led a research team to test how marketing shapes consumers’ perceptions, according to an AP article in Theage.com. The findings come to us during an interesting period when trading up is at an all time high.

The volunteers were told the price of the wine, or so they thought. The researchers served two of the wines twice, once with the true price and another time with a fake price. By monitoring the volunteers’ brain, the study found that inflating the price of a bottle of wine enhanced a person's experience of drinking it, as shown by the neural activity. Volunteers consistently gave higher ratings to more expensively labeled wines. We don’t find these results surprising, especially given the fact that consumers are drinking more expensive alcohol than in years past.

RETAILERS HEADED FOR MORE DISASTER

The retail environment might not get any better in 2008 says a report in Reuters. Consultants at the annual National Retail Federation convention posed negative outlooks for the U.S. retail industry, which has already suffered at the hands of higher gas and food prices, a credit crunch and a prolonged housing market decline.

Consumers are “watching what they spend on everything," said Wendy Liebmann, chief executive of WSL Strategic Retail.

Most shoppers are making fewer weekly shopping trips and spending “significantly” less on discretionary items such as home appliances and decor, fashion accessories, electronics, perfume, computers and software. Could that include alcoholic beverages?

The big retail losers include mass merchants like Wal-Mart and Target. However, they can make up for their losses by focusing on emerging markets like Eastern Europe and Asia. Other trends to watch out for in 2008? Retailers are expected to increase their focus on added services, such as Best Buy’s Geek Squad, social responsibility, improving customers' shopping experiences and retailers aggressively improving their marketing messages

PARIS CHEAPENS THE PROSECCO NAME

Paris Hilton has not managed to win over Italian winemakers who are scrambling to do damage control. Prosecco producers are unhappy with Hilton’s provocative ads for Rich Prosecco, a canned sparkling wine owned by an Austrian company.

"Hilton hotels are a sign of quality; Paris Hilton is not," said Fulvio Brunetta, president of the wine growers association of Treviso, the northern Italian city in the Veneto region where Prosecco is made.

The Italians have beef with the ex-con’s lifestyle and image, along with her recent DUI charge and jail time. They’re afraid Rich Prosecco’s advertising will cheapen the Prosecco name. As a result, the wine growers association of Treviso is meeting next week to decide on ways to protect the Prosecco name and to ensure that companies using the name are sourcing their wine from the Treviso area.

Rich Prosecco says it hasn’t done anything wrong because it sources its wine from the Treviso area. In fact, Rich Prosecco’s two fruit varieties are not labeled Prosecco, which is in accordance with European wine laws.

"It's as if someone from Champagne would oppose us selling champagne cans with Kate Moss for example. It's just marketing and Paris Hilton is the most famous girl in the world," Rich Prosecco Chief Executive and owner Gunther Aloys, as quoted in Reuters.

Hopefully for Paris Rich Prosecco won’t drop her ads. As you’ll recall, the former heiress’ grandfather, Barron Hilton, said he would donate 97% of his $2.3 billion fortune to charity.

WSD BRIEFS:

NEW VINE LOGISTICS is launching an eco-friendly packaging solution to keep wine at an optimal temperature during shipment. WineAssure reportedly guarantees that wine does not exceed 70 degrees Fahrenheit or fall below refrigeration level over a five day shipping period, regardless of exterior temperatures. The packaging and insulation are made from 100% recyclable and degradable materials. The two-bottle packages will be available March 1 for $15.

DIAGEO declined the most in over five years in London trading Friday thanks to speculation that the company might miss analysts’ profit estimates for its first half, according to a Bloomberg report. The distiller's shares fell as much as 2.9%. Earlier last week CFO Nick Rose stuck with his forecast for 9% profit growth despite the fact that consumer spending has slowed in the U.S. and Europe.

WAL-MART will directly compete with Tesco’s Fresh & Easy concept with a new small-format grocery store titled, “Marketside.” The new stores will roll out in Arizona this year. They are about 20,000 sq ft, a 10th of the size of the Supercenters, and will be housed in old drug stores. The company has applied for wine and beer licences for stores in the cities of Gilbert, Tempe and Mesa, and has additional leases in the city of Chandler, according to the Financial Times.

CALIFORNIA LAWMAKERS are reportedly still considering a “sin tax,” which would increase taxes on distilled spirits in California. As you’ll recall, the Marin Institute issued a press release last week recommending that Gov. Schwarzenegger and state legislators raise taxes on wine, beer and distilled spirits to help reduce the state's $14 billion budget shortfall.

CRUZ DEL SOL TEQUILA finalized a partnership with Republic National Distributing Co. (RNDC) to distribute Cruz Tequila, the company said today.

MCGUIGAN SIMEON might change its name to Australian Vintage Limited. A proposal to its shareholders will be voted on later this month. If the name is approved, McGuigan’s symbol will change on the Australian Securities Exchange from MGW to AVG.

STOLICHNAYA has announced the addition of two new size offerings for its ultra-luxury vodka, Stoli elit. As of November 2007, Stoli elit is available in a 1.75L ($129.99) and 50ml trial size ($8.99), in addition to the 750ml and 1.0L sizes currently available.

LOUIS LATOUR has bought Beaujolais producer Maison Henry Fessy for an undisclosed sum, reports Decanter.com.

Until tomorrow, Megan

“The greatest pleasure in life is doing what people say you cannot do.”
Walter Bagehot

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YTD sell days Over/Under: 0

FUTURE BRANDS CEO BIDS ADIEU

Future Brands president and CEO Steve Bellini will be leaving the company to pursue personal interests, the company said today. Steve has agreed with the Future Brands Board to accept a transition role working with Chairman Kevin Fennessey until February 29th. The company will be taking steps during this period to prepare for a CEO search. Meanwhile, Robert Hill was appointed to the position of cfo, replacing Barry O’Neil who left for a new opportunity.

Kevin Fennessey will reportedly take on a greater role in the management of the company working jointly with Bill Newlands, senior vp of U.S. Commercial Development for Beam to oversee day-to-day operations. As you’ll recall, Newlands was the former president of Beam Wine Estates until it was bought by Constellation. He recently rejoined Beam Global in a newly formed position after working with Constellation in the brand transition.

Three Tier Battles – A Talk with Tom Wark and Craig Wolf

There has been a lot of back and forth between online retailers and wine wholesalers in the past week, so we sat down with Tom Wark, executive director of the Specialty Wine Retailers Association (SWRA) and Craig Wolf, ceo of the Wine & Spirits Wholesalers of America (WSWA) separately to get to the bottom of the issue. Both trade groups say they are working for the greater good. But the SWRA claims wholesalers are only out for the money, while the wholesalers claim their concerns are for minors and for state-based regulation.

WINE & SPIRITS DAILY: Why have the SWRA gone through the effort of investigating distributor political contributions in every state?

TOM WARK: Wholesalers have every right to contribute obscene amounts of money to politicians across the country. But when those contributions are accompanied in nearly every state by anti-consumer and pro-wholesaler laws, it's time to take stock of exactly what's behind those laws. That's what the "Wholesale Protection" report does.

The enormous contributions tell me that the wholesalers understand that a great deal is at stake and they are willing to spend what it takes to protect a regulatory scheme that functions to keep them awash in cash. In nearly every state law there exists a mandate that wholesalers get a kickback on nearly every bottle of wine that consumers eventually consume. This is what wholesalers are protecting by spending $50 million on campaign donations.

CRAIG WOLF: Everybody in this business should be, if they are not, involved in the political process...We know the SWRA is involved in political donations and we know they’re funding lawsuits to the tune of millions of dollars. They’re spending money in the way they deem fit for their agenda and so are the wholesalers who are putting up money to support candidates and elected officials who understand the importance of an accountable licensed system and protecting it. That is the American way. To try and vilify wholesalers in that way I think is absurd.

If you look at the report, they mix in beer wholesalers’ money with ours and try to attribute all the $50 million to wine and spirits wholesalers.

Second of all, we lobby on any number of items that are important to our members beyond simple issues of direct shipping or threats to