Pernod Pays $9 Billion for Absolut

Pernod Ricard won the long battle to acquire Absolut for a whopping $8.9 billion (5.63 euros), beating analyst favorite Fortune Brands (who we also predicted would win). Pernod is now a close second behind Diageo as the world’s largest spirits company. After the deal closes, Pernod’s annual volume sales will total 91 million 9-litre cases of spirits, while Diageo has 93 million. In the U.S., Pernod’s position increases from number 4 to number 2 with a market share of close to 14%.

In addition to Absolut, the acquisition gives Pernod Cruzan rum (popular in the U.S.), and Level, the number 4 brand in the super-premium vodka category in the U.S.

But was it worth it for the price? Pernod will have to incur some large debts to finance Absolut. Recall that V&S (Absolut’s parent company) was expected to go for between $6 billion and $7 billion, not almost $9 billion, which is causing the market to squirm. Pernod’s shares were down -4.3% at 65.16 euros at 11:37 ET.

On the positive side, Absolut will help fill Pernod’s gap in the vodka category, and also give Pernod a larger presence in the United States. Pernod was in negotiations to acquire Stolichnaya (which it distributes everywhere but Russia), but a deal never seemed to pan out. Stoli perhaps has more growth potential as a less developed brand, but Absolut gives Pernod a big ticket into the U.S. where historically the French company is not as strong. The company said a 12 billion euro syndicated loan would pay for V&S and refinance existing Pernod debt.

Pernod Chief Executive Patrick Ricard acknowledged Absolut was an expensive brand but said this was necessary to fill a portfolio gap and promised to get debt levels down quickly.

"The brand is for sale when it's for sale. You buy it when it's for sale or you miss it," Ricard told Reuters.

The deal reportedly brought debt levels to almost six times earnings before interest, tax, depreciation and amortisation (EBITDA), which Ricard said was exactly the same as for the Allied Domecq deal and the Seagrams acqusition. Pernod’s next prerogative, says Ricard, is to bring Pernod back to where it is today by delivering the synergies and ultimately reimburse the debt.

Contrary to the merger with Allied, the acquisition of V&S should be smooth since the Swedish company is "very much like one of our brand owners; they don't have their own commercial network that we would have to undo, such as with Allied Domecq," said a company spokesman.

Pernod Finance Director Emmanuel Babeau told analysts during a conference call that they expect Absolut to have a moderate growth rate in the U.S. and strong growth outside the U.S. amid economic slowdowns.

The deal will not close before the summer. Bengt Baron will remain ceo of V&S after the takeover and the company's headquarters will stay in Stockholm, Pernod managing director Pierre Pringuet said today.

He also said that it's too early to know where and how jobs will be cut. “I'll not commit that everything will remain the same. V&S has started some rationalizations and that will go on.”

WHAT THE SWEDES ARE SAYING. "We got a very good price, to the benefit of the public economy, as well as a very good industrial home for the company," Mats Odell, Sweden's Financial Markets Minister, told reporters in Stockholm. "The businesses will remain intact, and both production and marketing will continue in Sweden and the Nordic region," he continued.

The Board of V&S said the following in a statement: “Pernod Ricard is a well-reputed company in the industry, with international brands as well as strong local presence. They take a long-term industrial view and have stated their ambition to continue to develop V&S's operations. The Board sees considerable industrial logic in the deal.”

PARTING WITH STOLI. Pernod will eventually end its Stolichnaya distribution agreement after a short transitional period during which SPI, the owner of Stoli, will find a new distributor. Industry insiders are already speculating that SPI may decide to sell the brand after its partnership with Pernod ends.

Until now, Pernod owned the global distribution rights of Stolichnaya, excluding Russia, and had been in talks with SPI and the Russian government for nearly three years to acquire the brand.

Wouldn’t it be ironic if Fortune ends up purchasing Stoli?

EXITING MAXXIUM. Pernod will also exit the distribution network Maxxium "at the latest" two years after the closing of the V&S deal, at minimal contractual costs. But the group could also exit Maxxium earlier if any deal allows it, a company spokesman, Francisco de la Vega told Dow Jones Newswires.

WHAT ABOUT FORTUNE? Pernod will acquire all of V&S, excluding its 10% stake in Beam Global (Absolut's U.S. distributor owned by Fortune), which will be sold to Fortune by the Swedish state in the coming months. In addition, Fortune said it will begin repurchasing up to 15 million of its own shares after the auction defeat.

Fortune said it plans to continue distributing Absolut in the US for the next four years until 2012. Already, Absolut vodka should be distributed by Pernod's own networks where Maxxium and Fortune are not active, such as in Greece and in Israel, de la Vega said. Luckily, Absolut distributors are already largely aligned with Pernod’s distributors in the US.

In a statement today, Fortune ceo Bruce Carbonari said that while he had hoped to purchase Absolut, the company didn't see the appropriate return for shareholders at the announced price.

"While we had hoped to purchase Absolut at the right price, we didn't hesitate to put our shareholders' interests first," said Carbonari. "We took a disciplined approach that carefully evaluated numerous factors...we didn't see the appropriate return for our shareholders at the announced price, so we preserved our financial flexibility to create significant value in other ways."

Fortune’s stock was up 8.75% at 3:17 ET.

QUICK FACTS. Absolut is the number 1 premium vodka brand worldwide with around 11 million 9 litre cases sold in 2007. In the U.S., Absolut is the top premium spirits brand, selling more than 5 million 9 litre cases.

GLAZER’S AND WIRTZ MERGE IN ILLINOIS...SIGNAL FOR MORE TO COME?

As we reported Friday, the Wirtz Beverage Group and Glazer’s Union Beverage are combining in Illinois to form Judge and Dolph, effectively replacing Southern Wine & Spirits as the largest wine and spirits distributor in the state. Union Beverage (which distributes B-F, E&J Gallo, Kendall Jackson and other small brands) will cease operations in Illinois effective June 30, 2008. Judge & Dolph’s brands include Diageo and Barton.

Wirtz Beverage Chairman and Chief Executive W. Rockwell "Rocky" Wirtz will become president of the new Judge and Dolph when the deal is completed. The exact ownership structure of the venture was not released.

Are future mergers in the works between Wirtz and Glazer’s in other states? In a letter to employees last week, Rocky Wirtz said the new j-v is “we hope, the first of many strategic initiatives to bolster the Wirtz Beverage Group position as an industry leader."

According to the Chicago Tribune, Rocky said in an interview that "we certainly would love to talk with Glazer about other opportunities that might exist."

TESCO HALTS FRESH & EASY EXPANSION

Tesco has reportedly halted the rollout of Fresh & Easy, its chain of c-stores in the U.S., for 3-months as the company reviews its performance. So far, 60 stores have been opened since last fall.

"We've given ourselves a little bit of time to kick the tyres, smooth out any wrinkles, and make some improvements that customers have asked for," wrote Simon Uwins, marketing director of Fresh & Easy, on his company blog last week.

Tesco execs deny that Fresh & Easy is faltering in the U.S.

WSD BRIEFS:

SONOMA’S VINTAGE POINT has signed Brothers in Arms, a wine brand from South Australia that produces estate reds from Metala Vineyard in Langhorne Creek.

RNDC TEXAS announced today that Scott Hughes has been promoted to Texas state marketing director of spirits.


Until tomorrow, Megan

“Life is an unbroken succession of false situations.”
Thornton Wilder

--------- Sell Day Calendar ----------
Today's Sell Day: 21
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

ALERT: Pernod Wins Bid for Absolut

The Wall Street Journal is reporting that France’s Pernod Ricard has won the auction to acquire Vin & Sprit, according to people familiar with the matter. The details of the winning bid are not immediately clear, says WSJ, but V&S is expected to sell for as much as $7 billion.

An announcement is expected on Monday.

This comes as a surprise since most analysts predicted that Fortune Brands would gain Absolut, particularly since Fortune already distributes Absolut in the U.S. Bacardi and Swedish investment firms EQT Partners AB and Investor AB fell out of the running earlier.

Pernod said in the past it would acquire either Stoli or Absolut, so this could mean that Pernod will drop of negations for the global rights to Stoli. Stay tuned...

Until tomorrow, Megan


--------- Sell Day Calendar ----------
Today's Sell Day: 20
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Burgundy Producers Take Price Increase

Burgundy producers have increased prices for the U.S. market by 10-20% over the past few weeks due to the declining dollar, said Pierre-Henri Gagey, president of the Burgundy wine association and chairman of the Maison Louis Jadot wine company.

"We have been absorbing the dollar decline for the past few years. The producers have given up their margin, the trade has sacrificed its margin and the importers have slashed their margins," Gagey told a news conference, as reported by Reuters.

"But we have now arrived at a situation where we cannot take it any longer and from now on we will feel the full brunt of any further dollar weakness," he continued.

The U.S. is reportedly Burgundy's biggest export market in terms of value at 180 million euros ($284 million) per year and the second biggest in volume, at 18 million bottles, after Britain. Burgundy has benefited from strong demand for white wines and red wines from pinot noir grapes, says Reuters.

The industry has twittered for months that imports, particularly from Europe and even Australia, will have to take a price increase in the U.S. due to the slowing economy. While this bodes well for domestic producers, importers are likely to suffer. Who’s next?

HUNT FOR ABSOLUT HEATS UP

A lot of updates have surfaced this week as the four bidders for V&S end their second round of bidding – or at least we think so. Nothing is of course confirmed, but sources tell members of the foreign press that final bids were due yesterday. New reports claim Bacardi and Fortune Brands have partnered with two separate private equity groups in order to split V&S if their bid is successful. Bacardi has joined forces with private equity firm Ratos, and Fortune Brands has joined with Nordic Capital. In both scenarios Bacardi and Fortune would get Absolut, and Ratos and Nordic would get Vin & Sprit’s Distiller and Wines.

In addition, Sweden's Fourth AP Fund, part of the country's pension system, said it was backing EQT's and Investor AB's bid for Vin & Sprit. EQT is keeping its group local, with all three investors hailing from Sweden. Some newspapers speculate that EQT and Investor will play the Swedish card to persuade the government in their quest for V&S. Reports have also surfaced that EQT has offered to let the government share any profit resulting from a subsequent sale or bourse listing of the spirits group. Still, we think the government will likely sell to the company that offers the highest bid.

Swedish officials say V&S will likely be sold by the end of June. The winning bidder is expected to be named within the next few weeks.

OLD WORD PRODUCTION FALLS, NEW WORLD GROWS

The old word vs. new world wine battle has raged for years, particularly as new world producers increasingly take share. Nonetheless, worldwide wine production is reportedly falling, according to the International Organization of Vine and Wine (OIV), at the hands of rising health concerns among consumers, drought and wine producers deliberately cutting vines.

Europe has seen the biggest decline, as the European Commission offers cash incentives for producers to dig up their vines to help combat over-supply. Europe’s top exporters (German, France, Italy, Portugal and Spain) have seen their share of world trade decline to 61.8% in 2007 from an average 78.8% in the late 1980s.

Meanwhile, new world producers (Australia, New Zealand, Argentina, Chile and South Africa) have had their world wine trade share rise 28% in 2007 from 3.1% in 1986-1990. Consumers in new world countries are drinking more wine, as consumption in old world countries has slowed. As wine popularity grows in the U.S., however, imports and domestics are both benefiting.

"There has been a big marketing effort by the local industry [in the U.S.] and that is benefiting the wine imports as well," said the group.

DIRECT WINE SALES REACH $2.8 BILLION IN ‘07

U.S. direct-to-consumer wine sales (including tasting room, wine club, internet, mail order and phone sales) reached a record $2.8 billion in 2007, according to research by VinterActive LLC. Established wineries, however, had mixed results as gains in tasting room sales were offset by reported reductions in wine club spending and competition from other wineries. As a result, year over year direct sales at established wineries dropped -2% in 2007. Tasting room sales grew 29%, while wine club sales declined -4% and phone order sales were up 33%. Direct mail sales were down -11%.

Almost 57% of U.S. wineries project that direct-to-consumer wine sales will be their fastest growing channel in 2008. Despite a sluggish economy and rising fuel prices, winery sales managers remain upbeat about prospects for growth, with most wine regions forecasting direct sales gains of 10% to 20% in 2008.

NYC’S LABELING LAW DELAYED

A federal judge ordered a two-week reprieve for chain restaurants before complying with the city’s pending menu-labeling law, according to NRN. The requirement will not take effect until April 14. The judge’s order also barred NYC from imposing fines for violations of the law until May 27. Recall that the measure requires local branches of chains with at least 15 locations nationwide to post calorie counts on their menus and menu boards. It was originally scheduled to take effect March 31.

DIAGEO LAUNCHES 500M EURO BOND

Diageo today launched a 500 million-euro ($784 million) fixed rate 5-year bond. The bond is due on July 1, 2013 and pays a coupon of 5.5%. The company said the proceeds from the issuance will be used for general corporate purposes that may include funding for recent merger and acquisition activity.

UNITED FARM WORKERS UNVEIL BLACK EAGLE WINES

Vineyard workers and leaders of the United Farm Workers (UFW) this week launched Black Eagle Wines “that celebrates justice” and “signifies the progress made by the UFW,” said the union in a statement. The new wines are made from grapes that were harvested by union workers.

“There are tens of thousands of farm workers today who are denied any measure of human dignity...It was Cesar [Chavez’s] dream to build a self-sustaining Farm Workers Movement. Black Eagle Wines will support that Movement,” said Arturo Rodriguez, president of the United Farm Workers.

WSD BRIEFS:

RUSSIAN STANDARD VODKA is taking steps to grow the brand globally with a new distribution warehouse and a 30% enhancement of its vodka production line. “It is well known that we have significant global aspirations for the brand. Right now we are putting in place all the mechanisms needed to meet the demands of our distributors and consumers around the world,” said Ilya Blinov, Russian Standard Vodka’s COO.

PATRON HAS EXPANDED ITS DISTRIBUTION IN AUSTRALIA by signing an agreement with Southtrade International to sell its portfolio to more bars, restaurants, hotels, and retail stores throughout the country.

WARREN WINIARSKI. SF Gate’s Jon Bonné wrote a great article on Warren Winiarski, who recently sold iconic Stag’s Leap to Italian winemaker Piero Antinori and Ste. Michelle Wine Estates for $185 million. To check it out, click here.

AUSTRALIAN WINE INDUSTRY. An interesting article on the state of the Australian wine industry in The Economist can be found here. The article discusses Australia’s rise to fame, problems with over-supply and now drought, and how the industry is trying to change.

Until Monday, Megan

“Good breeding consists of concealing how much we think of ourselves and how little we think of the other person.”
-Mark Twain

--------- Sell Day Calendar ----------
Today's Sell Day: 20
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Update on Absolut

Binding offers for V&S were due today, so it could be just a matter of time before the winning bidder is revealed. The four bidders include Fortune Brands, Pernod Ricard, Bacardi and Swedish private equity group EQT which is working with investment firm Investor.

"All four have submitted bids and we would expect a winner to be picked in around three weeks time," said a source told Reuters.

Since yesterday we’ve learned that private equity firm Ratos has joined forces with Bacardi in its bid for V&S, according to the Swedish media. Ratos is reportedly interested in V&S’ Distillers and Wines divisions, while Bacardi wants Absolut.

Reports also surfaced earlier this week that Fortune joined with private equity group Nordic Capital in its bid for Absolut. Nordic would get Vin & Sprit’s Distiller and Wines, and Fortune gets Absolut.

Sweden's Fourth AP Fund, part of the country's pension system, said separately it was backing EQT's and Investor AB's bid for Vin & Sprit.

"The only thing I can say is that if it goes through, it will be one of the Fourth AP Fund's biggest single investments," Mats Andersson, the top executive of the Fourth Swedish National Pension Fund, told Reuters.

Again, analysts expect roughly $6 to $7 billion for V&S.

Sources have said that Swedish private equity group EQT hopes to play the “Swedish card” to win V&S, claiming the company would benefit more from a domestic company than a foreign one. Not only is Absolut a Swedish icon, but the government has expressed that it would like to keep production in Sweden to help preserve jobs. Sources tell Reuters that that EQT, in partnership with Investor AB, has offered to let the government share any profit resulting from a subsequent sale or bourse listing of the spirits group.

While the idea of keeping V&S in Swedish hands may have its advantages, most analysts seem to think the government will choose the company or group with the highest bid. Fortune already has a relationship with V&S through its Maxxium j-v and Future Brands j-v in the U.S., and may perhaps be the strongest contender along with help from Nordic.

RED BULL LAUNCHES NEW COLA EXTENSION

Red Bull is launching new Red Bull Cola in Las Vegas in June, reports Brandweek, after it has fallen second behind Monster as the top energy drink in terms of sales volume. Red Bull Cola will be 100% natural, unlike Coke and Pepsi, and sale at a premium price.

It will be available in 8.4-oz cans at bars, clubs and restaurants, as well as 12-oz. cans at grocery and convenience stores. Pricing was not revealed.

FROMMER’S RECOMMENDS AMERICAN WHISKEY TRAIL

Frommer’s has named the American Whiskey Trail as one of the "Top Destinations for 2008.” The trail begins with Mount Vernon and shows the role spirits have played in American history, from the colonial era, to the Whiskey Rebellion, through Prohibition and into contemporary society. It includes many of America’s most famous operating distilleries as well as important historic sites.

There are a total of eight distilleries that offer tours of their whiskey-making process, and two more that show the rum-making process. For more information visit: www.americanwhiskeytrail.com.

WSD BRIEFS:

360 VODKA is launching its new “Blend In. Stand Out” campaign, which primarily focuses on its environmental message. The campaign will have multiple phases, starting with the outdoor and print advertising that was launched in conjunction with the 2008 Sundance Film Festival. In addition, print and online placements will be appearing in 10 major metropolitan areas, including New York, Los Angeles, San Francisco, Seattle and Austin.

NAPA VALLEY VINTNERS has launched Napa Green Certified Winery (NGCW), a program to help reduce carbon footprint by developing “green” business practices for winery production facilities in Napa County. NGCW is now open to all wineries in Napa County after running a pilot program last year. To learn more about it, click here.

Until tomorrow, Megan

“Humor is everywhere, in that there's irony in just about anything a human does.”
Bill Nye

--------- Sell Day Calendar ----------
Today's Sell Day: 19
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

FTC Delays Ketel One Approval

Diageo said today that its $900 million purchase of a 50% stake in Ketel One will be delayed after the FTC requested more information on the deal, reports the Financial Times. The deal was expected to be closed on March 31 if approved, but now is unlikely to close before the end of June.

A second request is time-consuming and expensive, said the FT, and usually requires the company to provide detailed information on regional sales, customers, market share, production processes and pricing.

Diageo’s Smirnoff has a US market share of almost 20%, according to Impact. Globally, Diageo has 26% share of the vodka market with Smirnoff, Ciroc, Gordon's and Popov. However, Ketel One is pricier then Smirnoff and a much smaller brand. The bulk of its sales are in the US where it ranked 21st among spirits brands in terms of sales volumes last year, reports the FT. Its 1.9 million case sales rose 6% in 2007 compared to the prior year.

DIAGEO’S STOCK on Wednesday (March 26) shot up 1.57% at 3:57pm ET based on analyst suspicion that Diageo might be hooking up with someone in the U.S. No word yet out of Diageo.

FORTUNE AND NORDIC PRIVATE EQUITY SUBMIT JOINT BID

Fortune is teaming up with Nordic Capital, a private equity firm, to bid for Vin & Sprit, says the AP based on reports in Swedish daily newspaper Svenska Dagbladet. Fortune and Nordic reportedly plan to split V&S into two parts, citing unnamed sources. Nordic would get V&S’ smaller Nordic distribution and production operations, V&S Distillers and V&S Wines, while Fortune Brands gets Absolut. No word from Fortune or Nordic Equity.

V&S BINDING OFFERS DUE TOMORROW

Recall that bidders for V&S must submit binding offers by tomorrow (March 27). The four bidders still left in the running are Pernod Ricard, Bacardi, Fortune Brands, and Swedish private equity group EQT with investment firm Investor. Analysts expect V&S to get $6 billion to $7 billion.

JOHN DAVIES CONTESTS MOTHER’S WILL

The Davie’s family rivalry of Schramsberg Vineyards was not laid to rest when Jamie Davies died in February. John Davies, one of Jamie’s three sons, plans to contest her will, which leaves him with no share of the winery and family fortune, according to Decanter. He was disinherited last year.

John Davies claims his mother, who suffered from Parkinson’s disease, was mentally incompetent and improperly influenced by his brother, Hugh Davies, the current president and ceo. As a result, he also intents to file suit against Hugh.

ROSE’S POPULARITY SURGES ONWARDS

Rose sales priced $8 and above grew 53.2% by value and 49% by volume in the 52 weeks to Feb. 9, reports the Nielsen Company. Rose dollar sales grew almost 8 times faster then the overall table wine market, while volume surged 17 times faster. Miami saw the most growth (89.4%) during the period, followed by Seattle (86.6%), New York (75.2%) and San Francisco (39.4%). Rose, it seems, is here to stay.

BACARDI LAUNCHES MOJITO COCKTAIL

Bacardi announced this week it has launched Bacardi Classic Cocktail Mojito, a ready-to-serve cocktail made with Bacardi Superior Rum, natural lime and mint flavors. The 15% abv (30 proof) ready-to-drink cocktail has a suggested retail price ranging from $19.99 and up for a 1.75-liter, soon to be followed by a 750-ml size.

TTB ESTABLISHES AND EXPANDS AVAs

The TTB has expanded the Alexander Valley AVA area in California by 1,300 acres along its northwestern boundary line. In addition, it has expanded the San Francisco Bay viticultural area by adding 88 square miles in northern Solano County, CA. These final rules become effective April 10, 2008.

The TTB has also agreed to establish the Lehigh Valley viticultural area. It will span 1,888 square miles in southeastern Pennsylvania in portions of Lehigh, Northampton, Berks, Schuylkill, Carbon, and Monroe Counties.

7-ELEVEN GOES UPSCALE

7-Eleven is reportedly going to test a new gourmet product line of fresh foods and beverages in its stores. Some of the items include freshly made sandwiches, chicken wings and a Slurpuccino, which will become available beginning late spring and early fall. If 7-Eleven’s new image pans out, perhaps we’ll start seeing more upper scale wines and spirits at the c-store chain.

BELVEDERE OFFERS FIRST ON-PREMISE GIFT CARD

Debuting this week, Belvedere is the first spirits brand to offer a branded gift card for the on-premise. In its "Buy Your Friend A Belvedere" (BYFAB), consumers can purchase a gift card at the BuyYourFriendABelvedere.com website. Recipients can redeem the gift card for any Belvedere drink at a bar or restaurant that is part of the BYFAB network.

WSD BRIEFS:

THE RIVALRY BETWEEN NAPA AND SONOMA was highlighted in an article in Reuters yesterday (March 25). As Michaela Rodeno, head of Napa Valley's St. Supery put it: “This rivalry has been going on for ages. It's just so Hertz and Avis... We make better Cabernets and they make fine Pinot Noirs.” It’s certainly an interesting read.

WISCONSIN GOV. SIGNED SB 485 last week, which replaces the state’s current reciprocal law on October 1, 2008. The new law will allow wineries to purchase a permit for $100 and ship up to 12 cases of wine per individual per year, among other provisions. All US wineries will be eligible for the new Wisconsin permit.

MAINE PASSED LEGISLATION yesterday that requires repeat drunk drivers to install ignition interlock devices on their vehicles. The bill now moves to the Governor's desk for final signature. Discus supports the measure.

THE TENNESSEE GROCERY BILL that would allow grocery stores to sell wine is unlikely to pass, according to local reports.

Until tomorrow, Megan

“The greatest mistake you can make in life is to be continually fearing you will make one.”
Elbert Hubbard

--------- Sell Day Calendar ----------
Today's Sell Day: 18
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Wine & Spirits Headline Roundup

USA TODAY DEBATES LOWERING THE DRINKING AGE

Several states are considering lowering the drinking age, according to a report in USA Today. Kentucky, Wisconsin and South Carolina have introduced legislation that would lower the drinking age for military personnel only. A planned ballot initiative in Missouri would apply to everyone 18 and older. An initiative in the works in South Dakota would allow all 19- and 20-year-olds to buy low-alcohol beer, and Vermont is considering a task force to study the issue. In addition, a Minnesota bill would allow anyone 18 and older to buy alcohol in bars or restaurants, but not in liquor stores until they're 21.

MADD is obviously against the measures and will fight proponents tooth and nail. Supporters will also face opposition from congress which voted in 1984 to penalize states that set the drinking age below 21 by forfeiting 10% of their federal highway funds.

FRENCH COURT FINES ROBERT PARKER

Robert Parker was fined by a French court Friday for making allegedly false accusations against a former colleague who basically trashed him in a recent book, according to the AFP. His former assistant Hanna Agostini accused Parker of making catalogue errors and favoring friends in the 2007 book Anatomy of a Myth.

Parker responded by writing on his website that Agostini committed wine-related fraud in the past and faced five years in jail and a fine of $1.54 million. Agostini’s lawyer, however, says his client was placed under investigation in 2005 for falsifying documents, not fraud. As a result, a French court found Parker guilty of violating the presumption of innocence against Agostini and must pay a 2,000 euro fine.

MIKE GRGICH JOINS HALL OF FAME

Napa Valley winemaker Miljenko “Mike” Grgich was inducted into the Vintner Hall of Fame on March 7, reports the Napa Valley Register. Mike is also celebrating making his 50th Napa Valley vintage.

After Mike arrived in Napa Valley in 1958, he worked for some of Napa’s best-known wineries: Souverain, Christian Brothers, Beaulieu Vineyards and Robert Mondavi Winery. Afterwards, Mike became winemaker at Chateau Montelena where he developed the Chardonnay that beat renowned French white wines in the 1976 Paris Tasting.

VILLAGES NEAR THE CHAMPAGNE REGION of France will soon find out if they made the cut in the region’s new expansion plan. France's national appellation body, INAO, will reportedly release the official list within two weeks, according to Drinks International. French officials, meanwhile, are preparing for an onslaught of protests from the villages left behind. Last week, INAO approved 40 new villages in order to expand the Champagne growing area as authorities strive to increase Champagne production and better meet global demand.

THE CHICAGO TRIBUNE FEATURED A STORY ON ROCKY WIRTZ, Bill Wirtz’s son, who is now chairman of the Chicago Blackhawks and president of Wirtz Corp. (which owns Judge & Dolph). As you’ll recall, Bill passed away last year, leaving a long legacy behind in the alcohol beverage industry. To view the interesting article, click here.

COLORADO LEGISLATURE REPEALED ITS BAN on Sunday alcohol sales after passing SB 82 last week. The bill now awaits Governor Ritter’s signature. If passed, it will become effective July 1, 2008 and Colorado will become the 35th state to pass Sunday spirits sales.

MYSTIQUE BRANDS HAS ACQUIRED the importing rights for Barsol Pisco,
“the other white spirit,” from South American company Bodega San Isidro. Pisco is the local drink of Peru and distilled from Muscat-style grapes. Barsol Pisco is available in Barsol Pisco – Quebranta (Red Label) and Barsol Pisco Acholado (Blue Label). Mystique says it will implement a “strong on-premise strategy in US key metropolitan cities.”

Until tomorrow, Megan

“Few things are harder to put up with than the annoyance of a good example.”
Mark Twain

--------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Gallo Trades Grapes for Grain

E&J Gallo has quietly entered the gin business with New Amsterdam Straight Gin, a premium gin aimed at consumers 25-49 years old, according to the Modesto Bee. Gallo’s new gin is its second spirits brand, but the first one not to be distilled from grapes. It also sells E&J Brandy, distilled from wine with 40% alcohol content. New Amsterdam is flavored with juniper berries and has a hint of citrus. The gin falls in the popular “premium” category, priced $13-$14 a bottle.

The article says Gallo would not comment on how much gin it is making, the source of the grain used to make New Amsterdam or the number of employees involved in the process. New Amsterdam is being produced in Modesto. It was test-marketed last year and began a yearlong national rollout in January.

You might be asking yourself, why gin? The rate of growth for gin has fallen far behind vodka in recent years, but is starting to pick up in pockets throughout the country. Super-premium and premium gin, in particular, is doing especially well. In fact, a lot of people in the industry predict gin is on its way towards making a comeback in the U.S. In the four weeks to January 27, dollar sales of gin grew 2.6% and volume was down -0.9%, according to IRI.

Dollar sales of gin grew 0.4% for the 52 week period ending January 27, while volume declined -3.2%. Premium gin ($15-$26) sales grew 4.1%, while volume increased 2.5%. Ultra-premium gin ($26 and above), meanwhile, grew 0.8% in value and declined -0.3% in volume. As you’ve probably guessed, value gin is declining the most. Dollar sales of value gin ($15 and below) were down -2.6% and volume declined -5.1%.

Dollar sales of Tanqueray Gin grew 8.6% in the 52 week period, with volume up 7%. Seagrams Gin, meanwhile, saw sales rise 0.5% and volumes decline -1.3%. Bombay’s sales rose 0.6% and volumes decline -0.5%. Lastly, Gordons’ sales were down -5.2% and volumes declined -8.9%.

DIAGEO EXPECTS WHISKY SALES TO SPIKE

Diageo predicts that its Scotch whisky business will grow at least 8% to 9% annually, reports the AP, thanks to growing demand from emerging markets like Asia and Latin America. Scotch growth has been in that range for the past few years after facing earlier slumps in the spirits’ popularity.

The company says its whisky sales will be protected from any consumer spending downturn because Scotch is seen as an “affordable luxury,” unlike cars and expensive vacations.

Managing director of Diageo Scotland, Bryan Donaghey, said the company is partly insulated against the recent sharp increases in cereal prices because it can absorb costs over several years.

WSD BRIEFS:

TERLATO WINES HAS RELEASED Seven Daughters Winemaker’s Blends, one white and one red, composed of seven varietals. They will be available at fine wine shops, retailers and restaurants across America beginning in April 2008. The suggested retail price for both wines is $14.99.

SAN FRANCISCO’S BOARD OF SUPERVISORS HAVE APPROVED a requirement that some chain restaurants post nutritional information on their menus and menu boards. The proposal now awaits the signature of Mayor Gavin Newsom’s, who is expected to sign it into law. It is expected to take effect in six months. New York City is currently facing a similar measure.

FOSTER’S AUSTRALIA says it will immediately cease the production and marketing of added energy and higher alcohol RTD products in Australia. In addition, the company has formally committed to a voluntary limit of two standard drinks (20 grams of alcohol) per single serve container and 7% alcohol by volume across its RTD product portfolio.

BOMBAY SAPPHIRE is launching five limited-edition bottles handcrafted with crystals and sapphire jewels with crystal manufacturer Baccarat and jeweler Garrard. Each of the five bottles retails for $200,000 with profits going to the Smile Train charity.

Until Monday, Megan

“The future is here. It's just not widely distributed yet.”
William Gibson

--------- Sell Day Calendar ----------
Today's Sell Day: 14
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Campari Ready to Strike

Campari Group reported solid group sales for the year, with overall organic spirits growing 4.4% in the fourth quarter. The Campari brand rose 8% in the fourth quarter along with Aperol and the Brazilian brands, while Skyy slowed to 5% sales growth. Campari’s fourth quarter US organic sales were mainly flat, but execs were confident that U.S. spirits volume will rise 2-3% in volume and 4-5% in sales in 2008.

In fiscal 2007, the spirits segment recorded organic growth of 6.3%. Campari brand posted growth of 3.5% at constant exchange rates, thanks to a positive performance in particular in Brazil and Italy. Regarding the other main brands, the spirits segment benefited from strong performances from Aperol (21.8%), Cynar (11.9%), the Brazilian brands (9.4%), and Ouzo 12 (2.7%). Glen Grant and Old Smuggler posted growth of 22.2%, while 1800 and Gran Centenario tequilas posted a growth of 3.1% at constant exchange rates in the U.S.

The wines segment registered growth of 12.2%, driven by Cinzano vermouth (up 18.7%) and Cinzano sparkling wines (12.7%). The wines segment also benefited from positive performances from Sella & Mosca (6.8%), as well as Mondoro, Riccadonna and Cantina Serafino.

Looking at results by region, in 2007 the US market registered organic growth of 4.9%, a negative exchange rate effect of 8.7% and external growth of 1.7%.

SKYY HEADED FOR VOLATILE YEAR. SKYY sales rose by 11.1% in fiscal 2007, thanks to a positive performance on both the US and international markets. Kunze-Concewitz predicts “high single digit, low double digit” growth for Skyy in 2008.

The first quarter this year will be hit by destocking of Skyy products, in addition to the already hyped launch of Skyy Infusion and new packaging, he said.

“Q1 will see some US volatility due to the re-launch of SKYY’s packaging and a new Infusion flavour line. While we had hoped that quarterly shipment volatility was over, the flavour upside for Skyy in the US is significant (current flavour penetration is c9% of total brand volumes compared to vodka peers at 24-46%),” said Melissa Earlam of UBS.

CAMPARI LOOKING TO GROW. Campari wants to expand in emerging markets such as Latin America, east Europe and Asia either organically or through acquisitions. CEO Bob Kunze-Concewitz also reiterated his interest in acquiring brands that are sold off by V&S and the company that acquires it.

“External growth is important. We look continually at possible acquisitions. We have candidates in the pipeline,” he said during the conference call yesterday.

He noted that Fortune and Pernod will have to take on a lot of debt for a V&S acquisition, which means they would have to sell off brands. Apparently, Campari will be waiting.

He also cited reports yesterday that the Swedish government will choose the preferred buyer on March 27, leaving it to then deal with antitrust clearance.

BINDING OFFERS FOR V&S DUE MARCH 27

As WSD reported last week, the second round of bids for Vin & Sprit is due the last week of this month, specifically March 27. The bids in this round are to be binding, and reportedly Fortune Brands remains the favorite. The government has also said it would like to see the deal closed in the first half of the year.

RETAILERS AND WHOLESALERS APPEAL TEXAS RULING

The SWRA has appealed the recent ruling by Texas District Judge Stanley Fitzwater that was generally considered a mixed victory for out-of-state retailers. Fitzwater ruled that Granholm does apply to retailers as well as wineries, but said that Texas could require out-of-state retailers to purchase its wine from Texas wholesalers. The appeal will take place in the U.S. Court of Appeals for the 5th Circuit located in New Orleans, Lousiana. As yet, no schedule for briefs or oral arguments has been set, according to the SWRA.

In addition, Texas Wholesalers Glazers and Republic have also cross-appealed the decision. They disagree with the Judge’s ruling that Granholm applies to retailers and is therefore illegal to bar out-of-state retailers from shipping directly to consumers. The wholesalers appear also set to argue that even if the Judge is correct that Texas cannot prohibit out-of-state retailers from shipping to Texans, then the proper remedy by the Judge should have to be prohibit all shipping by Texas retailers, says the SWRA.

There are currently two other cases on the issue of retailer-to-consumer shipping working their way through courts. In Michigan the SWRA awaits a District Court's decision on whether a state may constitutionally bar out-of-state retailers from shipping to consumers while allowing in-state retailers this privilege. In New York a similar case is under appeal.

LEADING DUTCH TASTER INSURES NOSE FOR $8M

File this with the bizarre. Leading European winemaker and taster Ilja Gort has insured his nose for $8 million, Lloyd’s of London said yesterday. He reportedly took out the policy after hearing about a man who lost his sense of smell in a car accident.

The custom-made policy covers Gort for the loss of either his nose or his sense of smell and has some unusual conditions. The insurance contract includes a list of what Gort considers "old-fashioned rules" to protect his nose. The Dutchman is not allowed to ride a motorcycle or be a boxer, knife thrower's assistant or a fire-breather, says the AP.

SPITZER’S CALL GIRL GETS 16 MINUTES OF FAME

Ad Age reports that the owner of Georgi vodka, Martin Silver, said he is in talks to put the derriere of former New York Gov. Eliot Spitzer's call girl on the backside of every bus in New York. Star Industries owns the U.S. rights to the brand and in talks to pay Ashley Dupre a low six-figure amount to be this year’s Georgi “butt girl.”

WSD BRIEFS:

TIM MATZ WILL SERVE AS PRESIDENT OF LANGTRY ESTATE & Vineyards, replacing Easton Manson, who remains chairman of the board of directors. Matz joins Langtry after four years as president of Jackson Wine Estates International. He has also served as vp and gm for Beringer Blass Wine Estates and president of Americas of Southcorp Wines.

IDAHO LEGISLATURE PASSED A BILL Monday repealing the Blue Law banning Election Day sales of alcohol, according to the Distilled Spirits Council. HB 348, which passed the House in February, now moves to Governor Butch Otter's desk for final signature.

TENNESSEE GROCERS recommend that the state legislature pass a bill that would allow liquor stores to sell additional items normally associated with wine and liquor, such as ice, soft drinks, mixers and glasses. The amendments would also allow retail food stores to sell wine.

Until tomorrow, Megan

“A sense of humor is part of the art of leadership, of getting along with people, of getting things done.”
Dwight D. Eisenhower

--------- Sell Day Calendar ----------
Today's Sell Day: 13
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Global Wine Spikes New Trends

Wine was a once an (even more) fragmented industry confined mainly to old world countries, such as Italy, France and Spain. In recent years, however, the industry has become increasingly global as new entrants like Australia and California have led the industry in innovation and (gasp) marketing. Companies are merging and wineries are popping up everywhere, even China. As a result, wine is projected to grow faster than any other beverage alcohol category as more people flock to the once elitist elixir – old and young consumers alike.

Global wine consumption is projected to exceed 26.2 billion liters by the year 2010, according to a new report by Global Industry Analysts, Inc. The underlying driving forces for wine consumption include: health benefits, growing disposable incomes, rising affluence and sophistication and the resulting consumer shift towards premiumization. Developing countries such as Russia, China, Australian and India are becoming increasingly “westernized,” which is proving to be a major win for the growth in wine consumption, says GIA. In addition, younger drinkers are choosing wine over anything else – it is no longer a category confined to middle-aged consumers.

GIA also expects wine companies to improve traditional and non-traditional marketing and advertising in future years. As more players enter the scene and focus on “high voltage” marketing campaigns, wine is set to make gains globally at the cost of other alcoholic beverages. Europe, the largest wine market, is expected to see consumption cross 16.3 billion liters by the year 2015. Asia-Pacific is poised to become the fastest growing region, with the potential to grow at a CAGR of 4.6% over the period 2001 to 2010.

Stiff competition continues between the new world and old world, although older world regions are still the leading global wine producers. Rivals have managed to progress through large-scale production, clever marketing strategies, and competitive pricing, says GIA.
New and improved technology is helping producers from new regions such as Australia, California, and New Zealand to produce even higher quality wine as well. The Fortified wine market is projected to grow the fastest at a CAGR of 2.98% during the period 2011 to 2015.

So while times are good, there are several problems facing producers. The increased availability of wine in supermarkets and c-stores is helping to grow household consumption and spiking a change in consumer demands. The study suggests producers reposition their business and focus on innovation, while at the same time retaining brand loyal consumers. (Sounds easier on paper). Wine producers should pay attention to what consumers are drinking, as consumers – particularly women – increasingly experiment with non-traditional varieties.

Global wine makers are also reeling under intense price pressures, triggered by rising competition and global oversupply. Growing prominence of distribution networks is also aggravating pricing scenario, making competition fiercer, according to the study. They say consolidation is the key to the present and future of the fragmented global wine industry. Many players in the industry are on the lookout for growth through mergers, acquisitions, and joint ventures.

For more details about this research report, visit
http://www.strategyr.com/Wine_Market_Report.asp

ITALIANS CLAIM BRUNELLO LABEL FOR THEMSELVES

The significance of truth in labeling laws is being heard from oversees, in addition to Napa and Sonoma. Petroni Vineyards of Sonoma has come under fire by an Italian organization for using the name Brunello di Sonoma for its red wine. The association, Consorzio di Brunello di Montalcino, through its attorneys claims the term Brunello is protected under regulations governing the naming of Italian wines. As a result, it has asked Petroni to cease using the Brunello name.

"The name Brunello refers to the grape and not the place where it is produced," said Lorenzo Petroni, founder of Petroni Vineyards and proprietor of the North Beach Restaurant. "My wine is clearly labeled as coming from Sonoma, the location of my Poggio alla Pietra vineyard. Its label has been approved by the Alcohol and Tobacco Tax and Trade Bureau, the U.S. government agency that oversees all processes associated with winemaking and labeling."

No regulation prohibits the use of the term Brunello for United States-produced wines and at least three American wineries produce wines carrying the Brunello name, said the company in a statement.

"Wine sellers and consumers understand the difference between a wine labeled as an Italian product and one that clearly states its U.S. origins," said Phil Stefani in the press release, a Chicago restaurateur whose restaurants carry Brunellos produced in both regions. "The rules for naming U.S. wines differ from those in Europe, and our customers are accustomed to choosing U.S. wines by grape and vineyard. The Consorzio is protecting no one with this action."

RNDC PURCHASES N. GOLDRING CORP.

Republic National Distributing Company (RNDC) has purchased the N. Goldring Corporation in Pensacola, Florida. The N. Goldring Corp.’s 60 employees will join the RNDC-Pensacola operation. Bill Campion will serve as executive vice president and report to RNDC-Florida president Tom White.

RNDC already has Florida houses in Deerfield Beach, Tampa, and Jacksonville. This marks at least the fifth acquisition or agreement RNDC has struck since January.

CONGRESS CONSIDERS MANDATORY MENU LABELING

An Iowa Senator has introduced federal legislation to extend the requirements of the 1990 Nutrition Labeling and Education Act to food sold through restaurants and vending machines, according to NRN. The bill would require restaurant chains with 20 or more locations to make on-menu disclosures of the number of calories, grams of saturated fat, grams of trans fat and milligrams of sodium in all items.

Companion legislation to the Menu Education and Labeling, or MEAL, Act is pending in the U.S. House of Representatives.

WSD BRIEFS:

THE INTERNATIONAL INSTITUTE FOR ALCOHOL AWARENESS is mad at Diageo and Anheuser-Busch for promoting St. Patrick’s Day and petitioning Congress to make it a national holiday. The institute claims Diageo’s and A-B’s true motive is to encourage binge drinking, not to promote Irish heritage.

PERNOD RICARD IS ADDING Jameson Gold Reserve ($60 per 750ml bottle) and Jameson Rarest Vintage Reserve ($250) to its portfolio in the U.S. In addition, the company is launching new packaging for its Jameson 12 Year Old Special Reserve, Jameson 18 Year Old Limited Reserve, Jameson Gold Reserve and Jameson Rarest Vintage Reserve.

DON’T FORGET THAT THE COMMENT PERIOD FOR TTB RULE PROPOSAL NO. 77 AND 78 ends March 20. To get some background, click here.

Until tomorrow, Megan

“It is absurd to divide people into good and bad. People are either charming or tedious.”
Oscar Wilde

--------- Sell Day Calendar ----------
Today's Sell Day: 12
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Irish Whiskey Surpasses St. Patrick’s Day

Irish whiskey is currently the fastest growing whiskey category in the U.S., growing 20% last year to 860,000 nine-liter cases, according to David Ozgo, chief economist for Discus. In an interesting article by MarketWatch’s William Spain, David says Irish whiskey has been one of the fastest growing spirits categories for five years, although it is still small when compared to bourbon or scotch.

Pernod’s Jameson is the biggest Irish whiskey player. It jumped 23%in volume in 2007, according to Impact, and currently holds 65% market share in the U.S. Diageo’s Bushmill is the second most popular Irish whiskey in the U.S., but grew just under 9% last year. Other small players include C&C Group's Tullamore Dew, Michael Collins from Sidney Frank, Clontarf and Connemara.

The success of Irish whiskey has been attributed to “trading up” trends and the approachability of the product. It increasingly appeals to 25 to 35-year olds. To view the article in full, click here.

SPIRITS CONSUMERS BUY LESS, SPEND MORE

When shopping for spirits, consumers are reportedly buying less but are continuing to trade up. Analysts at UBS, including Melissa Earlam and Kaumil Gajrawala, teamed up with IRI to figure out spirits consumers buying patterns. Mainly, they found that consumers are buying less volume, but are continuing to trade up. As a result, “we believe premiumization and pricing should offset volume weakness and thus we do not see earnings risk in our covered spirits companies due to the US volume slowdown at this time.”

UBS says the U.S. spirits market is slowing based on the following reasons: (1) Less traffic on-premise, (2) weakness in the value spirits category, (3) little impact made by softening regulation, (4) and improved positioning/advertising from beer companies.

With that said, UBS found that volume is slowing but price/mix is not. The study confirms that consumers are drinking less but also that they are buying higher-priced spirits. The panel study shows repeat and infrequent consumers are increasing their spend per purchase. This is further supported by the mix effect in off-trade, which accelerated to 2.2% in 2007 (five-year CAGR of 1.6%).

“In 2008, we expect 4.5% value growth for distillers, on 1.7% volume, implying price mix of 2.8% (similar to 2007),” they said. “We thus see limited downside risk to earnings at the spirits companies we cover from a potential US slowdown.”

UBS reiterated its Buy ratings for Diageo, Pernod and Brown-Forman.

WINERIES ALLOWED TO SHIP DIRECT TO WISCONSIN

Wisconsin Governor signed SB 485 into law, allowing a winery in any state with a permit to ship wine directly to Wisconsin residents, effective Oct. 1. Individuals may receive no more than 108 liters of wine annually from any combination of licensees, says Ship Compliant. The individual is responsible for compliance with this annual limit.

All wine sales to retailers must go through a wholesaler, but the state put some safeguards in place:

“All wholesalers must work diligently to ensure that distribution channels are available for the sale of intoxicating liquor products through wholesalers to retailers in this state.”

The legislation isn’t clear about methods or consequences for wholesalers if they fail to adhere to this clause, says Ship Compliant. In addition, wineries that produce under 25,000 gallons of wine a year may group together to form a “Cooperative Wholesaler” to sell to retailers.

ITALIAN MOB SELLING FAKE WHISKEY

New reports claim the Italian mob is involved in selling fake antique whisky online through websites such as eBay. The mob is pouring modern spirits into antique bottles and then selling them for a huge profit. Labels can easily be copied, says The Scotsman, and the bottles usually come from distilleries such as Bowmore, Macallan and Highland Park.

WINE MORE DAMAGING TO THE BRAIN

Research has found that drinking too much wine damages the brain more than spirits and particularly beer, according to a study published in the medical journal Alcohol & Alcoholism. The study revealed that the hippocampus, the part of the brain involved in memory, spatial tasks and many other functions, was more than 10% smaller in people who drink more wine than beer. Scientists say alcohol content is not the culprit. Instead, they think there might be something in beer, such as B vitamins and folate, which partially protects the brain from the damage caused by wine.

SKYY PARTNERS WITH SEX AND THE CITY

Skyy Spirits will become the official spirits sponsor and promotional partner for the new Sex and The City movie. The company signed a multi-dimensional marketing campaign with New Line Cinema that includes product placement of Skyy Vodka and Cabo Wabo Tequila in the movie.

WSD BRIEFS:

WE REGRET TO REPORT THAT Thomas Cekay died after a 14 month battle with pancreatic cancer on Friday, March 14, 2008. Tom was a retired Distilled Spirits Industry veteran. He held various Senior Sales & Marketing roles throughout his 31 year career with both Joseph E. Seagram & Sons and IDV/Carillon Importers. He is survived by his wife Jeanne Cekay, children Michael Cekay and Gregory Cekay, grandchildren Ryan, Taylor and Samantha, and his three siblings, Francis, Alice and Kenneth.

CABO WABO will once again join the A.J. Foyt Racing team this year as an associate sponsor of the No. 14 Indy car driven by Darren Manning in the IndyCar Series. The marketing partnership with Foyt’s IndyCar team marks the third straight year for the tequila, founded by Sammy Hagar.

OREGON WINERIES have crushed a record about of grapes for the third year in a row, says the US Department of Agriculture. In 2007, Oregon wineries sold 1.7 million cases of wine for over $207 million. High demand for Pinot Noir continues.

SOUTH DAKOTA GROCERY CHAINS are going to be allowed to obtain more than 3 off-sale liquor licenses in towns of at least 5,000 people, effective July.

Until tomorrow, Megan

“Mistakes, obviously, show us what needs improving. Without mistakes, how would we know what we had to work on?”
Peter McWilliams

--------- Sell Day Calendar ----------
Today's Sell Day: 11
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Brown-Forman CFO Steps Down

Brown-Forman announced that CFO Phoebe Wood will retire at the end of the fiscal year (April 30, 2008). Phoebe joined the company as CFO in 2001 after a 23-year career at the Atlantic Richfield Company and Motorola. She will be replaced by Donald Berg who is currently a SVP and director of corporate finance. Donald is a 19-year veteran of the company. Prior to joining B-F, Berg served in a number of financial positions within the pharmaceutical industry.

"Phoebe brought thoughtful, trusted oversight to Brown-Forman's financial functions, and she has helped lead our company during a period of strong financial performance and development over the last seven years," said Brown-Forman Chief Executive Officer Paul Varga. "I know that our shareholders join all of us at Brown-Forman in thanking Phoebe for her excellent service to Brown-Forman and in wishing her well in her new endeavors."

"Those who have worked with Don over the last two decades know him to be a proven leader with a deep analytical mind who has demonstrated that he is ready to take on the important responsibilities of chief financial officer for Brown-Forman," stated Varga.

SECOND ROUND OF V&S BIDDING ENDS SOON

The second round of bids for Vin & Sprit is due in the last week of March, sources familiar with the situation told mergermarket. The remaining four bidders are EQT/Investor, Pernod, Fortune and Bacardi. Swedish PE firm Ratos, Finnish wine and spirits company Altia and Italian spirits group Campari have all expressed their interest in parts of V&S.

According to the report in the Financial Times, investors consider EQT/Investor to be one of the likely parties to make it to the final stages, but some question whether it could afford a full price. The report also said that it could cost as much as $400 million to break Fortune’s US distribution agreement with Absolut, and that potential bidders could set up foundations in order to evade competition rules.

2008 INDUSTRY SNAPSHOT

In our annual Truth Squad survey, we asked our subscribers to give us a better idea of what’s going on in the industry right now by outlining current trends. Our readers had a lot of interesting things to say in addition to some of the more obvious trends: online marketing, trading up, a softening economy and consolidation. Here’s a snapshot of what you had to say:

“The globalization and consolidation of the wine industry into large multinational corps, the effects of climate change on vineyards, and the issues within the US economy and the worldwide ripple effects.

“Softness in brand Australia, even Yellow Tail. Volume outpacing value under $8, with producers like Constellation and Diageo moving their focus ever upwards in price points.”

“Large spirits companies are squandering their resources on new product introductions to the detriment of their core brands. The true innovators are small, one to three brand, narrowly focused companies such as Sidney Frank, Kettle One and Patron.”

“Growth of crisp dry whites and non-traditional varietals like pinot grigio as well as more obscure ones like sangioves and tempranillo.”

“Organic, green, artisan.”

“Extraordinary number of private label and exclusive label wine brands appearing on retailers shelves.”

“Outsourcing fulfillment for suppliers and increasing market opportunities for international brands.”

“Spirits mixed with energy drinks...shots are very big!”

“Big retailers selling respected brands at lower prices are winning. Retailers are looking closely at the number of SKUs they are bringing in. Stringent and absurd DUI laws are negatively impacting the on-premise business in depletions, total check ring and customer traffic.”

“Direct sales are increasing - long tail sales encouraging greater outreach via direct channel.”

“Flavored everything distilled, Americans still love their Kool-aid. Anything different in wine. Finally consumers are trying new regions and varietals.”

“Dessert wines, Malbecs and Spanish seem to be hot. But German Riesling and German-style wine are on a huge upswing in central and northern Wisconsin.”

“Green green and more green also, backlash to high alcohol in wines.”

“On the wine side, everyone's trying to move up, away from the bottom end, either by re-branding or re-pricing or just flat-out getting rid of their cheapest wine lines.”

“Experimentation with brands. As consumers get more educated or more comfortable with any consumable, they tend to stray away from brand loyalty.”

“Bartenders getting away from flavored vodkas. Adding more whiskeys, bourbon, and high end sipping rums.”

“Mojitos, Mojitos and more Mojitos!”

“Consumers are not making multiple purchases at one time. Many consumers would buy two to three items at one time, now it is just one.”

“My firm's research indicates Americans continue to enjoy premium and super-premium vodkas. But the real short term and mid-term growth will be in premium and super-premium Irish Whisky followed by growth in the Tequila, Rum and Scotch Whisky brands.”

“Alternative packaging like tetra and PET have so far been rejected by the American wine consumer. Given the cost savings in freight for these formats, enthusiasts might need to re-evaluate their love affair with the bottle in cork. Anyone brave enough to offer premium juice in an alternative package might just cash in.”

“Consumers appreciate more than they articulate. Quality products that provide value will continue to sell well. Novelty products will fade.”

WSD BRIEFS:

KOBRAND CORP. HAS SIGNED A MARKETING AND SALES AGREEMENT WITH J. WRAY & NEPHEW, Jamaica’s leading rum producer, effective May 1. The long term agreement includes the entire J. Wray & Nephew portfolio - Appleton Estate range, Appleton Special, Appleton White, J. Wray & Nephew Overproof, and Coruba dark rums.

WAL-MART CEO LEE SCOTT SAID the U.S. retailer is gaining momentum amidst the current cash crunch. "The discretionary dollars that (consumers) have are just simply less," Scott told reporters at the Wall Street Journal. "We are gaining momentum because people need us more than ever."

Until Monday, Megan

“Keeping score of old scores and scars, getting even and one-upping, always make you less than you are.”
-Malcolm Forbes

--------- Sell Day Calendar ----------
Today's Sell Day: 10
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Trendier Varietals Outpace the Trusty Three

Dollar sales growth of table wine slowed slightly in January (+4.9%) from December (+6.9%), as white wine and imports took the lead in dollar sales. According to Nielsen scan data, value of red wine in the four weeks to February 9 increased 4.3% and volume grew 1.3%. Red wine lost -0.3% of dollar share and -0.2% of volume share. White wine, meanwhile, grew 6.8% in dollar sales and 3.9% in volume. It gained almost a point in dollar share (0.7%) and volume (0.8%) since the same period last year.

Import value grew a little faster then domestic in January. Dollar sales of imports were up 5.3%, while domestics jumped 4.8%. Volume was a different story, however, with domestics increasing 1.8% and imports slightly behind with 1.4% growth. The weaker dollar has driven up prices of some imports in the U.S., particularly smaller brands from Europe and even Australia. With that said, value of Australian wine declined -1.5% in January and volume was down -1.2%. Australia lost -0.6% of dollar share and -0.3% of volume in January. French imports grew an impressive 8.5% in dollar sales and 5% in volume, gaining slight share in both (0.1%). Value of Italian imports grew 4.4% but lost -0.7% in volume. Dollar shares were flat, while volume share was down slightly (-2%). Argentina, South Africa and New Zealand showed the highest rate of growth in dollar sales and volume.

As far as varietals go, Riesling saw the biggest leap in dollar sales, up 20%, while Pinot Noir grew 13.7%. Volume of Pinot Noir, however, increased 18.3% and Riesling rose 18.8%. Dollar sales of Pinot Grigio, Sauvignon Blanc and Zinfandel were not far behind, rising 13%, 11.8%, 9.8%, respectfully. The trusty varietals Chardonnay, Merlot and Cabernet Sauvignon did not see the same rate of growth. Dollar sales of Chardonnay rose 4% and Cabernet grew 6.6%, but Merlot declined -2.1%. Chardonnay volumes were up 3.4%, Cabernet grew 5.5% and Merlot was down -1.6%.

Higher end wines continued to gain share in January, while wine prices $9 and below lost dollar share. Wines in the $12-$15 category saw dollar sales rise 16%. Wines priced beyond $15 grew 9%, along with wines prices $9-$11. The $3-$5.99 category grew 3% in dollar value, while $6-$9 rose only 1.5%. Wines prices $0 to $2.99 declined -0.5%.

SCOTCH DISTILLERS OUTRAGED

The Scotch whisky distillers are reportedly outraged at the new tax hike in the UK, says the Daily Telegraph. As you’ll recall, Chancellor Alistair Darling announced a rise in duty of 6% above inflation, with more tax rises over the next four years.

“The Scotch whisky industry, one of our premium industries now faces savage increases in duty. This runs the risk of encouraging international competitors to introduce punitive tariffs, and threatens our ability to export as well as the jobs this industry sustains," said Mr. Swinney, the Scottish finance minister.

Recall that Scotch producers have battled high tariffs in India in recent years which have made competition there nearly impossible. A Treasury spokesman pointed out that up to 90% of Scotch whisky is exported abroad, however, and won’t be affected by the tax increase.

FORMER DIAGEO EXEC JOINS FOSTER’S BOARD

Paul Clinton is joining the Foster’s Group board as an independent director, effective March 25. He was president and CEO of Diageo North America from 2000 until his retirement in 2003, and also held a position on the board of the Distilled Spirits Council of the US.

VODKA PRODUCERS TAKE ALTERNATIVE ROUTE

An interesting article in the WSJ explores the “new twists on vodka” that distillers are experimenting with to get consumers’ attention. Since smaller producers have a hard time competing with brands like Absolut and Smirnoff, they have to make their product stand out with innovative recipes that include flavors, caffeine and bubbles. To read the article, click here.

WSD BRIEFS:

SAN FRANCISCO may be the next city to approve a law that would require some chain restaurants to post nutrition information on their menu boards and menus. The Board of Supervisors unanimously gave initial approval earlier this week. If the requirement is passed, it could go into effect in about 6 months.

GEORGIA RESIDENTS may soon have the chance to vote on a bill that would allow Sunday sales. The bill unanimously passed the House Regulated Industries Committee and now moves to the House Rules Committee. Georgia is one of only three states in the entire country that prohibits Sunday alcohol sales of beer, wine and spirits

Until tomorrow, Megan

“Keeping score of old scores and scars, getting even and one-upping, always make you less than you are.”
-Malcolm Forbes

--------- Sell Day Calendar ----------
Today's Sell Day: 9
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

UK Market Even Tougher

The UK government released their 2008 financial budget, which includes excise tax details for wine and spirits. Excise taxes increased 14 pence (10.5%) per bottle, effective immediately. In the past, tax increases were generally in the range of 3-6p per bottle.

"Given downward pricing pressure from UK retailer, wine producers typically have been forced to absorb these excise tax increases, thus negatively impacting their margins. We estimate for roughly every 5p excise tax increase that STZ absorbs, earnings are impacted by roughly $0.05. We believe that due to the magnitude of
this year’s tax hike, pricing should move up across the entire category, but that some of the increase will probably still be absorbed by STZ," said Kaumil Gajrawala, senior analyst with UBS.

Spirits, however, took an even bigger hit. Excise tax rates rose 10% to 55p a bottle in the UK. All alcohol duties will be increased by 2% above inflation for the next four years. Just-Drinks reports that the UK units of Diageo and InBev described themselves as “disappointed” at the new tax policy.

CONSTELLATION RE-NAMES PREMIUM WINE UNIT

Constellation confirmed yesterday it has re-named its premium and super-premium wine unit from Vintas to VineOne after discovering that another company has “a different but similar name." The company was not identified.

Recall that Constellation announced a plan in January to restructure its wine business into three units, making room for the recently acquired Beam Wine Estates. The $885 million purchase gave Constellation a larger portfolio of premium and super-premium brands (including Clos du Bois, Gary Farrell and Geyser Peak), which is currently the fastest growing segment among consumers and Constellation’s new focus. Vintas, now VineOne, focuses on premium and super-premium brands, while Icon Estates carries ultra-premium and luxury brands, and Centerra focuses on specialty, fighting varietal and value brands.

In addition to acquiring Beam Wine Estates, Constellation also recently sold high volume value brands Almaden and Inglenook, along with the Paul Masson Winery in Madera, to Wine Group LLC late last month for $134 million.

"Knowing that the restructure would go into effect on March 1, in order to avoid confusion or issues with trademarks, etc., we decided to just change the name as of March 1," spokeswoman Nora Feeley said. She remarked that VineOne would be "a better name anyway."

WSD BRIEFS:

A MISSOURI BILL PLANS TO INCREASE TAXES on wine and spirits, and phase out the sales tax on food purchases over six years. The state-imposed sales tax on food is 1.225%. Grocers, c-storer owners, restaurants and suppliers are currently fighting the proposed legislation.

PREMIER VINEYARD BUYS WALLULA WINERY. The Den Hoed family of Washington has sold its Wallula Vineyard in the Horse Heaven Hills AVA to long-time vintners Allen Shoup, Augustin Huneeus, Sr., and other members of a small investor group called Premier Vineyard Estates, LLC.

WSWA HAS CREATED THE SIDNEY FRANK AWARD, named for the late industry figure renowned for his charitable contributions, revolutionary marketing vision and magnetic personality, said the trade group. The first-ever accolade will be awarded April 9th at the 65th Annual WSWA Convention and Exposition in Las Vegas.

Until tomorrow, Megan

“He not busy being born is busy dying.”
Bob Dylan

--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Moral Crusader Not So Moral

Known for taking an aggressively tough stance against corruption, New York Gov. Eliot Spitzer has been accused of taking part in an expensive prostitution ring. Formerly known as a moral crusader, Spitzer’s work has come back to bite him after it was revealed yesterday that his private life has been less then perfect. His work includes busting crooked Wall Street dealers, fighting big insurance companies, and even exposing prostitution networks (oh the irony!). Spitzer recently set his sights on the alcohol beverage industry in New York.

Recall that Spitzer accused several New York wine and spirits wholesalers and suppliers of “illegal marketing practices” in 2006 when he was still attorney general. New York State’s four largest wine and spirits wholesalers – Eber Bros., Peerless Importers, Charmer Industries, and Southern Wine & Spirits of New York along with their affiliates – agreed to pay $1.6 million and adopt a series of reforms after Spitzer claimed they were in violation of the state’s Alcoholic Beverage in Control Law. New York law prohibits manufacturers and wholesalers of wine and spirits from favoring select retailers and on-premise outlets with discounts, rebates, allowances, free goods and other inducements. The investigation alleged that wholesalers gave discounts to favored retailers, along with gifts such as AMEX gift cards, free trips, iPods, golf clubs and gas grills. In some cases, wholesalers apparently provided free cases of wine and spirits if the retailer was willing to buy certain products in certain amounts.

In a similar investigation, 15 New York wine and spirits suppliers agreed to reform marketing practices and pay $2.3 million in fines. Under the agreement, the suppliers would cease from making any illegal incentives, and were prohibited from financing illegal conduct by wholesalers. The wine and spirits companies that entered the agreement included: Bacardi U.S.A, Banfi Products Corporation; Brown-Forman; Constellation; Diageo North America; E & J Gallo; Future Brands; Absolut Spirits Company; Jim Beam Brands Co.; Kobrand Corporation; Moet Hennessey USA.; Pernod Ricard USA; Remy Cointreau USA.; Sidney Frank Importing Co.; Skyy Spirits.

As you’ve likely heard, Spitzer was caught on a federal wiretap arranging to meet in a Washington hotel room the night before Valentine's Day with a call-girl from the Emperors Club VIP, reports the AP. Spitzer has served as Governor for 16 months, promising to end corruption in the New York government. Many thought he was headed for the Whitehouse.

ARE YOU TRADITIONAL OR SAVVY?

Despite growing wine consumption in the U.S., consumers are reportedly still overwhelmed by wine and/or unwilling to branch out, according to Constellation’s “Home & Habits” study, the second phase of the company’s "Project Genome" study. With the use of Nielsen scan data and online interviews, “Home & Habits” found new insights into the six consumer segments: Enthusiasts, Image Seekers, Savvy Shoppers, Traditionalists, Satisfied Sippers and Overwhelmed. Constellation encourages the wine industry to pay more attention to the “overwhelmed” and “traditionalist” categories especially to ultimately increase their consumption and prompt them to try new brands and varietals.

OVERWHELMED. 23% of consumers fall in this category. Basically, they enjoy drinking wine but are overwhelmed by the huge selection on store shelves. They’d like to receive more help and information when shopping in the wine section at retail stores.

IMAGE SEEKERS. Consumers that view wine as a status symbol make up about 20% of all wine purchasers. They are generally still in the learning stages, and prefer merlot above all other varietals. The internet is their main source of learning about wine. As you can imagine, men and millennials make up the bulk of this category.

TRADITIONALISTS. About 16% of consumers enjoy wines from established wineries, are not as open to trying new brands, and believe wine is most appropriately used during a formal occasion.

SAVVY SHOPPERS. 15% of consumers are “savvy shoppers,” which means they enjoy discovering new wines and varietals on their own. They’re keen on specials, coupons and discounts. They are also more likely to buy a glass of the house wine when dining out to save a few bucks.

SATISFIED SIPPERS. These consumers (14%) do not know a lot about wine and are just fine drinking what they are familiar with. They tend to buy the same domestic brand and drink wine almost everyday. This consumer segment is also more likely to buy a large 1.5L bottle to save themselves a trip to the store. Wine pairings? Forget about it.

ENTHUSIASTS. 12% of consumers consider themselves knowledgeable about wine and enjoy entertaining at home. They tend to be in the middle to upper class and like browsing wine aisles and reading wine publications.

CONTROL STATES BODE WELL IN JAN.

Control state volumes were strong in January, says Melissa Earlam of UBS. Based on data released by NABCA, control states volume grew 2-3% in January 2008, while market volumes grew 3.2% in 2007. Diageo’s January growth was ahead of the market, up 7.5%. The company gained share in January, with strong performances in Canadian whiskey, vodka, gin, rum, Scotch and cocktails. It lost share in Cordials, tequila, domestic and Irish whiskey. Pernod, meanwhile, grew only 2.1% in volume. The French company gained share in rum, cordials and Irish whiskey, but lost share in vodka, Scotch and brandy/Cognac where it is deemphasizing VS growth. Recall that Pernod raised many of its prices at the start of August. In addition, volumes of Brown-Forman grew 2.2% in January, Campari rose 2.3% and Remy jumped 3.9%.

UBS has a buy rating on Diageo, Pernod and B-F. “While we would expect some moderation in US spirits growth in a recession, we still believe market sales growth of 4% to 5% for 2008E in achievable,” said Melissa in a note.

JOHN MACKEY RETAINS CHAIRMAN POSITION

John Mackey avoided another “close call” yesterday (March 10) after Whole Foods shareholders rejected a proposal to create separate roles for the chairman and ceo, according to a report by the Associated Press. Shareholder advisory firm Proxy Governance Inc. had endorsed an advisory resolution that recommended splitting the roles of chairman and chief executive, but the board of directors opposed the idea. Proxy Governance said Mackey embarrassed the company after it was revealed last summer that he had used a phony name to post derogatory comments on financial website about Wild Oats, which Whole Foods recently bought. Mackey also released internal memos and posted a blog on Whole Food’s website that blasted the FTC for attempting to block the Whole Foods/Wild Oats merger. Proxy Governance said Mackey “appeared to be an overly dominant CEO and that the company should bring in an independent chairman to oversee management,” reports the AP.

Until tomorrow, Megan

“We are always in search of the redeeming formula, the crystallizing thought.”
-Etty Hillesum

--------- Sell Day Calendar ----------
Today's Sell Day: 7
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

Traditional Martini Ranks Most Popular

Martinis, Mojitos and Red Bull and vodkas are the most commonly requested spirits drinks at bars and restaurants, according to an on-premise survey conducted by Information Resources Inc (IRI). In a study titled “Success In The Cities,” IRI surveyed over 500 on-premise accounts (bars, restaurants, hotels, and nightclubs) across the top metro-areas (New York, Chicago, Los Angeles, Boston, Dallas/Ft. Worth) to find out what’s hot and what’s not. Jager bombs are the most popular shots on-premise, while Chardonnay continues to be the number one requested table wine varietal. In addition, Moet Hennessy French Champagne brands have the highest distribution as compared to its competition.

Martinis reportedly account for 31% of all cocktail requests. The “traditional” martini is most commonly ordered, followed by apple martinis, miscellaneous fruit martinis, dirty martinis and chocolate martinis. Mojitos are the second most popular cocktail and Red Bull and vodkas are the third most popular.

The majority of people that order wine on-premise (40%) go for a chardonnay. White Zinfandel (23%) is the second most popular varietal, followed by Merlot (12%), Pinot Grigio (4%), Cabernet Sauvignon (3%) and Pinot Noir (2%). Interestingly, 10 of the top 12wine brands in distribution are domestic wines from California, according to IRI. The average establishment offers 10 wine brands.

Meanwhile, Jager bombs (mix of Jagermeister and Red Bull) are the most popular shots at bars and nightclubs. IRI says the average shots or “bombs” are typically offered as “drink specials” in the $3-$6 price range. This includes a shot of Jameson, a SoCo/lime shot, Jager bombs, Effen Cherry bomb, Bacardi bomb, Morphine bomb, Pear bomb and Patron Silver shot.

The top five sparkling wine/Champagne brands are: Moet & Chandon, Veuve Clicquot, Dom Perignon, Roederer and Perrier Jouet. As you can see, the Moet Hennessy portfolio dominates the on-premise. IRI found that more expensive Champagnes tend to have better distribution then moderately priced offerings. Korbel had 13% distribution, while Perrier Jouet had 18% and Veuve Clicquot had 24%, for example.

SKYY GOES ALL-NATURAL WITH INFUSIONS LAUNCH

Skyy Spirits, owned by Gruppo Campari, is launching a new Skyy Infusions in the U.S. – an all natural blend of Skyy Vodka and real fruit. Infusions will launch in five flavors: Citrus, Cherry, Passion Fruit, Raspberry and Grape. The product will begin rolling out in April 2008 with full national coverage by May.

“With SKYY Infusions, we are going a completely different direction. We are introducing a proprietary infusions process that allows us to really capture that ‘true-to-fruit’ taste, while meeting a real consumer desire for all-natural products,” said ceo Gerry Ruvo.

The new bottle is still blue, but is taller, sleeker and more contemporary than the original, says Skyy. SKYY Infusions will be available in 50ml, 750ml, 1L and 1.75L (Citrus only).

In addition, the brand will be supported by a 360 degree marketing campaign anchored by the tagline “Go Natural.” An ad for Skyy Infusions Raspberry features BTI scores and the tag line: "Why drink artificially tasting vodka when you can go natural?"

Skyy has discontinued its previous flavor line.

CALIFORNIA ASSEMBLY VOTES FOR “TRUTH IN LABELING”

The California legislature approved a measure to oppose two rule changes proposed by the TTB that were generally unpopular in the wine industry. The bill requires the TTB to withdraw the two controversial proposals, one concerning Calistoga and the other concerning the AVA approval process altogether. TTB’s Notice No. 77 would create a “grandfather” clause allowing at least one winery that doesn’t source its grapes from Calistoga to continue using “Calistoga” on its label. The other proposal (No. 78) would have altered the approval process in creating AVAs within AVAs (such as Calistoga AVA within the Napa AVA). To read more background on the story, click here.

LEGISLATIVE UPDATES:

FLORIDA LEGISLATORS have introduced two sets of companion bills that would put a volume cap on wineries shipping directly to consumers. HB 1293, HB 693, SB 1096 and SB 1736 would ban winery-to-consumer shipments from any medium-sized or large winery producing more than 250,000 gallons. If one of these bills passes into law, Florida would be the largest state ever to rescind its winery-to-consumer shipping privilege. A summary judgment is expected this spring, according to Free The Grapes.

MARYLAND LEGISLATORS, meanwhile, rejected a bill that would allow Maryland consumers to buy wine directly from internet sellers and wineries in a House committee last week. The bill was also debated in the Senate, but its chance of being passed is unlikely, according to local reports.

WSD BRIEFS:

SCOTCH WHISKY PRICES ARE EXPECTED TO RISE in the next 18 months, says the Scotsman, as a result of rising production costs, an increase in duty and growing global demand in emerging markets. Prices will have risen by 40% since 2005 and premium brand will cost more that £30 a bottle next year. A weak dollar and strong pound also make Scotch exports to the U.S. more expensive.

ABSOLUT MANGO will be introduced in global travel retail next month, according to Maxxium. The launch is set to be unveiled at the Duty Free Show of the Americas in Fort Lauderdale.

Until tomorrow, Megan

“To have a right to do a thing is not at all the same as to be right in doing it.”
G. K. Chesterton

--------- Sell Day Calendar ----------
Today's Sell Day: 6
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.

Consolidation Making or Breaking the Industry?

Consolidation in the industry has been rampant in recent years as retailers, wholesalers and suppliers rush to gain scale in order to stay competitive. But how is this affecting your business? In our annual Truth Squad survey, readers gave us a wide range of opinions on the issue, everywhere from “no affect at all” to “too few suppliers” to “the end of small business as we know it.” Almost everyone hopes consolidation will drive down prices, but some respondents think it is unlikely to happen. People also believe consolidation will result in small brands being left behind. However, the one thing readers could agree on is that consolidation is only going to become more prevalent. Here’s what they had to say:

“More money pooled by the larger corps will result in better competition between the big players, hopefully driving prices down. However, this is to the detriment of the small/unique wineries and distillers.”

“Gaining distributor share of mind will be increasingly difficult for all but the largest suppliers. Independent retailers and restaurants are going to feel even more squeezed on margin by the chain and big-box stores' aggressive promotions of national brands.”

“This kind of supply/surplus power can drive the boutique wineries' volume and/or pricing down to stay competitive.”

“Makes it more inviting to smaller innovators willing to focus resources on the distributor network and directly at the point of purchase, especially on-premise.”

“I think as consolidation continues more states will see two dominate wholesalers and the opportunity for smaller specialty wholesalers will grow.”

“I think with pending consolidation, companies will get leaner and meaner, and really up the competition.”

“Suppliers will continue to move from distributor to distributor. With shrinking sales, distributors will have to leverage important relationships with suppliers and customers. Competitors will have opportunities to snatch brands that are not focused on. In the end, those with the best strategy, relationships and execution will win.”

Its the Wal-Martization of the wine industry. A lot of mediocre products under one roof that will appease the masses. For me it opens up the boutique/independent market a bit because those types of accounts won't touch the tainted brands of the conglomerate. Unfortunately that still leaves me with a relatively small slice of the pie.

“Consolidation and corporatization of the wine business has been, in balance, a bad thing. Good brands get bought, production is quadrupled, quality drops. Wines taste more the same. Wine identities become fictions manufactured by corporate marketers. As for my small business, the corporate mindset hinders creative winemaking and common-sense marketing, so there's less of interest to report on as a magazine, and less support from the industry.”

“By gentrifying the market place....does Blackstone/Gallo Gamily Vineyards/Twin Finn/Red Truck really taste much different? Full of sugar and manufactured beyond varietal accuracy.”

“I think we are going to see a lot more small wholesalers popping up. The bigger wholesalers can not take care of the small boutique wineries and the mid size companies.”

“It just means there will be less support available to wholesalers and retailers as these companies try to streamline their business, getting more productivity from current staff that is already struggling to manage the current portfolios.”

“Consumers will be turned off by big brands and move toward niche offerings.”

“The wine market is still extremely fragmented and consumers are not particularly brand-loyal, meaning there's very little impact on consumers.”

SOFTNESS IN WINE, STRENGTH IN SPIRITS

Wine and beer was reportedly soft in the latest four weeks, according to Morgan Stanley’s Bill Pecoriello, while spirits volumes were up. Based on IRI data, domestic beer and wine drove softness for the alcohol industry, which saw volumes fall -0.1% compared to 1.2% growth a year ago. In the latest 4 weeks, domestic beer volumes declined -0.6%, wine volumes declined -0.3%, imported beer volumes advanced 0.6% and spirits volumes were up 1.7%. The average price per case for spirits increased 1.6%.

Beer and wine lost volume share. In the latest 4 weeks, beer lost 20bps of volume share and wine lost 10bps of share while spirits share of total alcohol was up 30bps. On a dollar basis, share was flat for all segments.

Despite softness, high-end wines continue to drive growth within the segment priced $7 and above growing and wines below $7 declining. Major wineries continue to struggle to maintain their position. On a volume basis, Gallo and The Wine Group managed to drive share gains while none of the majors managed to drive share gains on a dollar basis.

Foster's price increase was captured in the latest data. Foster's volumes declined 8.1%, share declined 60bps as average price per volume increased 3.8%, ahead of the flat pricing in 2007. Constellation's volume and dollar share did marginally better than what was seen in 2007. In the latest 4 weeks, STZ lost 100bps of volume share and 50bps of dollar share.

WSD BRIEFS:

SOBIESKI VODKA has signed a multi-year marketing agreement with Madison Square Garden and Radio City Music Hall, effective March 1.

NEW HAMPSHIRE AUTHORITIES FINED FEDEX EXPRESS $5,000 after a driver left a wine delivery at a residence without getting the signature of a recipient over the age of 21.

FORTUNE CHAIRMAN NORMAN WESLEY received $3.1 million in 2007, when he also served as ceo. Norman was replaced by Bruce A. Carbonari as president and ceo on Jan.1, 2008.
Apart from his 2007 compensation, Wesley realized about $12.4 million from exercising stock options and $2.5 million from vesting stock awards, according to the AP.

Carbonari's compensation package for 2007 included a salary of $865,000 and performance related bonus of $1.1 million. He also received about $625,000 in other compensation and stock and option awards that were valued at about $2.1 million on the days they were granted.
In addition, Carbonari realized $442,000 from vesting stock awards during the year.

EDRINGTON GROUP ACQUIRED A MAJORITY STAKE in the Dominican Republic’s Brugal Co. for £200 million ($392m).

JESS JACKSON FELL 121 SPOTS ON FORBES’ annual list of the world's richest people, according to the Press Democrat. Forbes estimated Jess is worth about $2.2 billion, but he sank to number 553 on the list, down from No. 432 a year ago. His estimated worth has not changed since then.

Until Monday, Megan

“I am always doing that which I can not do, in order that I may learn how to do it.”
Pablo Picasso

--------- Sell Day Calendar ----------
Today's Sell Day: 5
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

First Celebrity Perfume, Now Wine

Many reports have surfaced in the past two years on the growth of critter brands (wines with cute little animals on their labels) and why consumers buy them. However, a new report by Nielsen suggests so-called celebrity wines and spirits could replace critter brands as the new hotness among Americans. Celebrities associated with popular wines include Francis Ford Coppola, former NFL coach Mike Ditka, professional golfer Greg Norman, Martha Stewart, Paul Newman and don’t forget Paris Hilton. Is there anything these people can’t make money on?

Celebrity wines are up nearly 19% in grocery store sales since last year and represent 0.9% ($41.8 million) of total wine sales, says Nielsen. Celebrity spirits sales show the same growth rate (19%) in grocery stores and represent 0.3% ($7.5 million) of the total spirits category. In liquor stores, celebrity spirits are growing at an even faster rate, showing a nearly 21 % since last year, compared to celebrity wines’ liquor store growth rate of 8%.

Some celebrities lend their names to wine and spirits because they personally like the category or they think it represents their lifestyle. (For example, a rapper perceived as having a luxurious lifestyle decides to market an upscale Champagne.) Richard Hurst, senior vp, Beverage Alcohol, The Nielsen Company, says that putting a celebrity’s name or face on a brand helps small companies promote their product without launching a big advertising and promotional campaign.

WHY THE GROWTH? Hurst says celebrity wines are growing for three main reasons. One, existing brands are entering celebrity line extensions. Two, celebrities are becoming increasingly interested in launching their own brands and/or have suppliers launch products under their names. Three, marketers are able to leverage the ‘celebrity’ benefit with more marketing initiatives, including retail and outdoor events, traditional platforms (magazines) and online media (Perezhilton.com).

Nielsen found that celebrity brands are not necessarily receiving more retail support. Much like the regular table wine category, about 50% of celebrity wine volume is sold on promotion. When it comes to pricing, however, consumers are paying an average of $8.50 per 750ml bottle of celebrity wine, versus $5.75 per bottle of table wine. Most celebrity wines are priced between $12 and $15.

It turns out the west coast is most receptive to celebrity brands. (I suppose they’re more used to the concept.) Nielsen’s analysis of grocery store sales in 52 U.S. markets shows that consumers in Phoenix purchase 68% more celebrity wine compared to table wine, relative to their national share, with Los Angeles and San Francisco, Dallas and San Diego also showing above average sales.

AUSSIE WINE EXPORTS TO RISE OVER THE NEXT 3 YEARS

Good news for Australian grape growers and exporters: the days of cheap bulk wine could be coming to an end, at least for now. Australian wine grape prices are expected to increase over the next three years thanks to low yields and the increasing value of wine exports, reports ABC News. Prices are expected to increase by to $155 per ton.

"It's good news for the wine grape growers that provide the input to the production of wine, and keeping them more viable than has been possible over the last couple of years of drought," said ABARE's senior economist, Brenda Dyack. "We have said that there's going to be a slow recovery of the next two years back up to the potential that we know is there."

WSD BRIEFS:

VIRGINIA GOV. TIMOTHY KAINE signed HB 908 allowing ABC stores to be open on Sunday in any city with a population of 100,000 or more. Since 2004, ABC stores may be open on Sunday, at the