Pernod Does Well Despite Economy

Pernod’s overall third quarter earnings looked good despite softness in the U.S. Premium brand growth, strong pricing and strength in emerging markets helped Pernod rebound.

Pernod’s premiumization strategy gained momentum in the third quarter as the 15 strategic brands grew twice as fast in value (12%) as in volume (6%), which was helped by price increases and improved mix.

The French company acknowledged that the U.S. market has become “more difficult” as consumers continue to cutback spending and the U.S. dollar weakens. Beefeater, Chival Regal and Kahlua were hit the hardest in the third quarter, but those brands have struggled for awhile now. In all, North America organic growth reached 4.5%.

Depletions of Kahlua in the U.S. fell -6%. Nielsen data showed Kahlua volumes down -1%, while NABCA reported a decline of -10%. Beefeater’s depletions fell -4% in the U.S., with Nielsen down -1%. Stolichnaya’s depletions were down -1% due to price increases, the company said. Nielsen reported volume down -1%.

Spirits brands like Jameson, The Glenlivet, Malibu and Wild Turkey, which have performed well in recent years, experienced “vigorous growth” in the third quarter.

Nine month depletions for Jameson grew 23% in the U.S. Nielsen data shows Jameson growing 30%, while NABCA reported a 16% jump in volume. The Glenlivet, meanwhile, showed “continuing dynamism in the US” with depletions gaining 4%. Nielsen was up 4% and NABCA grew 2%. Malibu’s depletions increased 3%, with Nielsen up 9% and NABCA growing 15%.

Wine brands Montana, Perrier-Jouët, Mumm Napa and Campo Viejo all performed well in the U.S. Depletions of New Zealand’s Montana wine grew 19% in the third quarter. According to Nielsen, volume growth was up 28%.

Despite a softening economy, Pernod saw “continuing growth in the US, against the background of an increasingly difficult environment, due to the dynamism of premium brands.”

Pernod said very little about the Absolut acquisition in its earnings statement.

WAL-MART GAINS MORE AFFLUENT CUSTOMERS

In an analyst briefing, Eduardo Castro-Wright, CEO of Wal-Mart's U.S. division, told listeners that more affluent shoppers are going to Wal-Mart during the economic slump.

Shoppers with a household income of more than $55,000 to $70,000 are categorized by Wal-Mart as more affluent than its core customers, according to Dow Jones Newswires. Castro-Wright cited company research that showed that the number of more affluent shoppers increased 0.7% in February and was up 2.2% in March.

The company’s emphasis on low prices is keeping its core consumers loyal, while at the same time attracting more affluent shoppers looking to save. Wal-Mart also said it is in the position to keep those shoppers when the economy improves.

Wal-Mart said it will continue to focus on name brand labels despite having its own private label brands.

CRILLON IMPORTERS LAUNCHES GRANDE ABSENTE

Now that the U.S. is once again selling Absinthe, the famed “green fairy” is making a comeback. Starting this May, Crillon Importers is launching Grande Absente, Absinthe Originale in the U.S. Grande Absente is made in Province from an authentic, 148-year-old French recipe that features a full measure of the legendary botanical wormwood and other regional botanicals. The new absinthe is 138 proof and will be available nationwide for approximately $70 for a 750 ml bottle packaged with a complimentary gold-plated absinthe spoon.

“It’s a myth and a crutch that absinthe is supposed to taste bad,” said Jim Nikola, senior vice president of marketing, Crillon Importers.

I WILL BE OUT OF TOWN and out of pocket the rest of the week. See you Monday!

Until tomorrow, Megan

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

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YTD sell days Over/Under: 0

WINE & SPIRITS DAILY
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Send news and comments in confidence to: megan@winespiritsdaily.com

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

EU Adopts Wine Sector Reform

The European Commission formally adopted new EU wine sector reforms today as a way to take back share from new world wine producers. It follows the agreement reached by ministers in December 2007 after a long, drawn-out set of negotiations and compromises took place. The reform will take effect August 1.

One of the most controversial elements of the package is that the government will pay less-successful wineries to dig up vineyards and voluntarily leave the business. The scheme will last for three years and apply to a maximum of 175,000 hectares of vineyard in the EU.

The reform will also put an end to crisis distillation spending beginning 2012. In the past, the EU paid for thousands of liters of unwanted wine to be turned into industrial ethanol. The system cost about €1.269 billion annually and soaked up two-fifths of the EU’s wine budget.

Under the new plan, the EU will give national governments an allocated sum of money to spend on their wine sectors. The money can only be spent on promoting EU wines abroad, modernizing the production chain and other measures including harvest insurance plans.

Northern producers have also agreed to reduce the amount of sugar they use to fortify their wines.

A council statement said: “The reform provides for a fast restructuring of the wine sector in that it includes a voluntary, three-year grubbing-up scheme to provide an alternative for uncompetitive producers and to remove surplus and uncompetitive wine from the market.”

“The reform will allow us to concentrate on taking on our competitors and winning back market share,” said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development and mastermind behind the reform plan.

In the past decade, EU wines have lost share of the world wine trade and are hoping to make a comeback. In 2007, the EU held 62% of the global market share, down from an average of 79% between 1986 and 1990, according to the Organisation International de la Vigne et du Vin.

“Now we can get on with the final preparations for the entry into force of the new system in August. Instead of wasting money getting rid of unwanted surpluses, the reform will allow us to concentrate on taking on our competitors and winning back market share. I hope the Member States will make good use of the new tools available," Fischer Boel continued.

VINUM CAPITAL PARTNERS LOOKS FOR ACQUISITIONS

Equity fund manger Vinum Capital Management has formed Vinum Capital Partners, a $250 million private equity fund looking to acquire mid-size premium and super-premium wine properties producing between 20,000 and 150,000 cases a year. The company is interested in California’s North Coast and Central Coast regions, in addition to properties in Oregon and Washington.

"The focus of this fund is to acquire wine properties efficiently, grow them effectively with expertise and necessary growth capital, and ultimately sell them to strategic and financial acquirers,” said Thomas Thornhill, Managing Partner of VCM, who is also chairman of the Mendocino Wine Company and a former partner at Montgomery Securities.

The company is interested in wineries with solid brands but inadequate capital or eagerness to exit the business.

"Our objective is to help provide liquidity for family-owned businesses. Many of them have been in business 20 to 40 years and there may not be a second generation able or willing to take on the business," Thornhill continued.

The VCP team has strong experience in winery operations, vineyard management, financial management, and M&A transactions. It consists of winery professionals – whose experience includes Mondavi, Gallo, Beringer, Ravenswood, and Schramsberg – and investment professionals who collectively have bought, sold, managed, or brokered over $1 billion in winery transactions.

VCM's investment partners include Justin Faggioli, formerly coo of Ravenswood; Scott Setrakian, formerly director of Golden State Vineyards; and G. Craig Vachon, a financing and M&A expert. The fund's portfolio management team includes Bill Foster, formerly from Beringer; Jonathan Pey, formerly from Robert Mondavi and Fosters Wine Estates; Doug Rogers, formerly from Gallo, Southcorp, and Brown-Forman Wines; and Bob Steinhauer, formerly from Beringer and one of the leading viticultural experts in the world. Strategic Advisors include Don Brain with VinREIT and Global Wine Partners; and Tom Hakel, formerly with Stag's Leap Wine Cellars.

WSD BRIEFS:

EVANS & TATE SHAREHOLDERS will be asked next month to vote on a restructuring deal that will leave them holding just over 5% of the collapsed winemaker. They will also be asked to approve a name change to ETW Corporation intended to re-brand the company, which has been struggling to rebuild since falling into financial trouble in 2005 and closing its doors last year. According to local reports, if shareholder reject the plan and fail to pass any of the 12 resolutions, E&T will likely go into liquidation.

MARYLAND GOV. MARTIN O’MALLEY decided last week to temporarily postpone signing a law that would continue to classify RTDs as beer. If the bill is vetoed, the drinks will be taxed at $1.50 a gallon, the same rate as spirits, instead of the 9 cents a gallon of beer.


Until tomorrow, Megan

I had a monumental idea this morning, but I didn't like it.
Samuel Goldwyn

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

Australia Taxes RTDs Like Spirits

The Australian government has raised taxes on RTDs (ready-to-drinks) by 70% as a way to curb binge drinking among teenagers. The tax hike is effective immediately. Under the increase, RTDs will be taxed at the same rate as spirits, from $39.36 per liter of alcohol content to $66.67.

The new initiative is a part of Australian Prime Minister Kevin Rudd’s $53 million strategy to curb alcohol abuse. The government claims teenagers prefer RTDs, although the industry maintains 80% of the RTD market is young men over 25 who drink spirits mixed with cola.

Lion Nathan, Coca Cola Amatil and Foster’s Group distribute several RTD brands, and will likely be hard hit by the new tax.

The increase is expected to raise more than $2 billion in extra revenue over the next four years, which will reportedly be used to fund Australia's largest ever investment in preventive health, focusing on alcohol, smoking, diet and exercise.

RUTH’S CHRIS CEO FIRED

Craig Miller was ousted last week as chairman, ceo and president of Ruth’s Christ Steak House Inc. Ruth’s Chris confirmed in a statement that Miller had left the company but did not give a reason. Miller told the Orlando Sentinel that he was fired.

"I'm shocked," Miller told the Sentinel in a telephone interview late Thursday. "It's not every day you get terminated without cause."

"I'm not sure why the board decided to do this, but they did," he said.

According to the Sentinel, the board was displeased with Miller’s financial stewardship.

Miller said he was told last Wednesday (April 23) by the board.

The company, meanwhile, said it had hired a firm to begin an immediate search for Miller's successor. In the interim, Ruth's Chris has formed an executive committee that will provide leadership through the transition. The steakhouse chain also said Robin Selati, a managing director with Madison Dearborn Partners, the company's largest shareholder, will return to the role of chairman of the board. Selati held the position from April 2005 until September 2006.

To read more background, click here.

PENN. CONSIDERS WINE VENDING MACHINES

The Pennsylvania Liquor Control Board is considering proposals for a contractor to operate up to 100 wine kiosks throughout the state. Comparable to a refrigerated vending machine, the kiosk would hold up to 500 wine bottles and would be placed in grocery stores and similar locations. The kiosk has security identification measures such as fingerprints and biometric readings, according to the AP. Users would have to register and purchases would have to be made with credit card, debit card or PLCB gift card.

The five-year contract proposal calls for the kiosks to be operated at no cost to the state or Liquor Control Board. Vending machines selling alcoholic beverages have been in use in Japan, Singapore and some European countries, but security issues and restrictive liquor laws have made their development and use elsewhere limited.

RECESSION BEHAVIOR CREEPS INTO ALCOHOL

An article in the New York Times says Americans are finding “creative ways” to cut costs on routine items like clothing and grocery, including alcohol.

Sales of inexpensive domestic beers, like Keystone Light, are up. Sales of higher-price imports, like Corona Extra, are down, according to IRI data. Some consumers, meanwhile, are skipping alcoholic beverages altogether.

“The number of people ordering an alcoholic drink fell to 31% last month from 42% last summer, according to a survey of 2,500 people conducted by Technomic, a restaurant industry consulting firm,” according to the article.

WSD BRIEFS:

VINOSHIPPER.COM now offers 350 wines from over 100 wineries located in 13 states. VinoShipper.com is responsible for all of the compliance reporting and taxes for its clients when shipping directly to consumers.

CEO OF NY STATE LIQUOR AUTHORITY resigned last week. Joshua Toas, known as a tough reformer, will depart May 22.


Until tomorrow, Megan

“To sit in the shade on a fine day, and look upon verdure is the most perfect refreshment.”
Jane Austen

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Sell days this month: 22
Sell days this month last year: 21
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This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Control Spirits Weaken in March

Spirits volumes in control states fell -5.2% in March, reports UBS analyst Melissa Earlam based on NABCA data. Comps year over year were not challenging, with 3% growth in March 07. March 2008 was depressed by several reasons, including one less Saturday in the month and the fact that Michigan (15% of Control State volumes) and Utah (2%) had one less week of selling days in March year over year. Market volume growth in the year to March 2008 increased 2.1%

Both Diageo and Pernod lost share in vodka and rum, but gained share with whiskey.

Diageo’s March performance fell below the market at -5.9%. The company lost some volume share, notably in vodka (-3.5% decline y/y vs category decline -1.7% y/y), rum (-8.7% vs category -5.5%), and tequila (-11.3% vs category -5.4%). Melissa noted the decline is likely related to price increases introduced over the last several months.

Diageo gained some share in Canadian whisky (-3.9% vs category -6.8%), cocktails (-7.7% vs category -8.9%) and cordials (- 6.8% vs category -8.3). It broadly held share in Scotch and gin.

Pernod, Brown-Forman, Campari and Remy all lost share in March. Pernod’s volumes declined -8.3% in 2008, but grew 1.3% year over year in 2007. The company gained share in Scotch and Irish whiskey; but lost share in vodka (-9.3%), gin (-8.4%), rum (-5.9%), cordials (-9.5%) and brandy/Cognac (-52.8% vs category -10.6%) where it is de-emphasizing VS growth.

B-F volumes declined -7.6% (vs -0.9% in 2007). Campari declined -6.2% and Remy -9.3%.

UBS has buy ratings on Diageo, Pernod, Brown-Forman and Campari

“While we expect a slowdown in US spirits growth in a recession, we forecast market volume growth of 1.7% and 4.5% sales for 2008,” said Melissa.

ARIZONA JUDGE STRIKES VOLUME CAP CHALLENGE

Larger out-of-state wineries lost a court case in Arizona this week when a judge ruled that the current law does not give in-state wineries an unfair advantage. Judge Mary Murguia struck down a lawsuit seeking to overturn the current 20,000 gallon cap on wineries that can ship directly to consumers and retailers. The 20,000 gallon cap allows most Arizona wineries to ship direct, so out-of-state wineries argue the law is discriminatory and impedes interstate commerce.

According to AZ Central.com, Judge Murguia acknowledged that a 2006 law might be of more benefit to wineries in Arizona than elsewhere, but she ruled that the statute, by itself, does not discriminate.

"The simple fact that there are more out-of-state wineries than in-state wineries that produce more than 20,000 gallons of wine per year and are thus required to adhere to the three-tiered distribution system in order to gain access to Arizona's wine market does not by itself establish patent discrimination in effect against interstate commerce," the judge wrote.

"In fact, the number of out-of-state wineries that produce less than 20,000 gallons of wine per year and are thus able to take advantage of this direct-shipment exception dwarf the number of instate wineries that are able to take advantage of the exception," she said.

A decision has not yet been made whether to appeal. The suit was filed on behalf of Black Star Farms as well as several locals.

GOVERNMENT RELEASES DRUNK DRIVING REPORT

The Midwest reportedly has the highest number of drunk drivers according to a government study released earlier this week. In all, about 15% of U.S. adults have driven under the influence of alcohol in the past year. Another 4.7% of the drivers were discovered to be under the influence of illegal drugs, according to the survey by the Substance Abuse and Mental Health Services Administration. The study was based on information from the National Survey on Drug Use and Health.

Wisconsin is the state with the worst drunken driving rates in the country, with 26.4% of adult drivers reported driving under the influence of alcohol in the previous year. Wisconsin is closely followed by North Dakota (24.9%), Minnesota (23.5%), Nebraska and South Dakota.

The survey found that Utah had the lowest incidence of drunken driving. Only 10% of adult motorists were reported to be driving under the influence. Arkansas, West Virginia, North Carolina and Kentucky all had drunken driving rates of less than 11%.

Research professor Eric Goplerud told the AP that religion may be the reason there is more drunk driving in northern states. Religions and denominations in the south typically discourage drinking, which isn’t as common in the upper Midwest.

WILL KETEL ONE MAINTAIN ITS MYSTIQUE?

Business Week featured an interesting story on Ketel One yesterday and the effectiveness of its “white space” ads. The article also explores how the Nolet family and Diageo will come together and make Ketel One an even bigger vodka in the U.S. than it already is.

“The campaign's origin speaks to how much the brand runs in the veins of the Nolet family. In 2003, M&C Saatchi pitched the campaign on a single poster, lots of white space, no bottle, and a headline written in the Gothic-looking Bradley typeface: ‘Dear Ketel One Drinker. Thank you.’”

“The challenge confronting the Nolets is finding a way to retain the mystique that comes from not being understood by everyone while striving to double sales in the next five years with Diageo's help,” says Business Week journalist David Kiley.

To read the entire article, click here.


Until Monday, Megan

“To sit in the shade on a fine day, and look upon verdure is the most perfect refreshment.”
Jane Austen

--------- Sell Day Calendar ----------
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This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Beam: Absolut Not a Must Have Brand

How is the economy affecting Fortune Brands’ spirits portfolio? That’s the million dollar question. Most of the spirits companies (other than Brown-Forman) have been reluctant to admit that the U.S. economy has taken much of a toll. The general consensus is that consumers view spirits as an “affordable luxury.” Sure, there might be a slowdown in value spirits brands, but premium and super-premiums continue to grow. In an age of premiumization and trading up, spirits companies are generally more concerned with their premium and up brands anyways. Most spirits companies also seem to think they will have no problem bouncing back from a slowdown and that the dawning recession is merely temporary. Declines in the on-premise are perhaps the biggest thorn for distillers, but most claim it’s not a significant change.

“What we have seen a little bit is a little less consumption at bars and restaurants and more people buying at their local liquor store, but it's not that significant,” Fortune ceo Bruce Carbonari told WSJ earlier this month.

In the first quarter, spirits sales were flat in the U.S., but Fortune says some of that was a result of larger-than-usual seasonal reductions in distributor inventories.

"While our reported spirits sales were relatively flat, shipments of spirits were adversely impacted in the U.S. by larger-than-usual seasonal reductions in distributor inventories that don't reflect the health of our brands in the marketplace," Carbonari said in a statment. "Had distributor inventory movements been consistent with the prior year, our worldwide spirits sales would have been solidly higher.”

Spirits sales increased at the premium end of the portfolio, reflecting favorable mix shift and Fortune’s continued focus on growing premiums. On a depletions basis, Fortune’s global premium brands grew in the U.S. and demonstrated strong growth in the U.K., Spain and Germany, as well as in Russia, India and China.

Fortune expects U.S. spirits shipments to bounce back in the months ahead. However, given the uncertain U.S. economic environment, Fortune is narrowing its full-year target range. It is now targeting diluted EPS before charges/gains to be in the range of flat to down at a high-single-digit rate. That's versus $5.06 for 2007.

THE NUMBERS GAME. In the smallest seasonal quarter for the company, net sales were up high single digits in the U.S., reflecting large seasonal reductions in distributor inventories. Depletions were higher in the U.S. for key premium brands, said the company.

First quarter depletions for Jim Beam were off in the first quarter, but Fortune is still expecting another strong year for Beam. The next generation of Jim Beam’s market campaign will rollout in the second quarter.

Sauza had lower shipments overall in the quarter due to inventory movements and tough comps. Depletions were strong in the U.S., however, and super-premium Sauza Hornitos continued to see strong growth.

Courvoisier increased double digit net sales on strong increases in the U.S. Maker’s Mark also experienced strong depletions overall.

WEAKENING ECONOMY. There was a lot of economy talk in today’s conference call. Overall, Fortune maintains that the economy has not had a large impact on spirits sales, although it has taken a toll (albeit it small) on value brands and the on-premise. Florida and California in particular have experienced a slowdown.

“We have seen no significant changes in the U.S. market...we’ve seen some change on-premise versus off-premise...geographic slowdowns correlates to the housing market, which we are seeing most heavily in Florida and California, especially on-premise,” said Carbonari.

“We have not seen the softening U.S. economy have a meaningful impact on total consumer demand...we benefit from our strong premium position,” cfo Craig Omtvedt.

“We had a good Christmas season...we have not seen trading down. The premium brands grow more than the value side and we’ve seen this trend for awhile now. The cocktail is still an affordable luxury and people aren’t willing to give that up. We’ve seen very little trade down at this point,” said Carbonari.

INVENTORY REDUCTION. “Seasonal inventory comes down after the holiday season, at the end of the year...it was further down then we normally would have expected but that’s all it is...the depletions are still strong,” said Carbonari with regards to the inventory reduction.

ABSOLUT. Carbonari mentioned the company is “very comfortable with the outcome” of the V&S deal. Although Fortune believes Absolut would have been a good fit for the company, the final price was too high and would not bring good returns for shareholders. Instead, Fortune said it would focus on building premium spirits brands and repurchasing shares.

Carbonari reiterated that Fortune’s U.S. distribution deal with Vin & Sprit has significant protection until 2012. Pernod has also assured Maxxium that V&S will remain in the J-V for two more years.

Without Absolut, all is not lost. Carbonari reminded listeners that Fortune is the fourth largest spirits company in the world; doing excellent in the U.S.; and has leading positions in bourbon, tequila, cognac, scotch, Canadian whiskey, cordials and liqueurs.

When asked if Pernod has contacted Fortune about exiting the Future Brands J-V, Carbonari said: “There has been no discussion on that.”

BRAND ACQUISITIONS. When it comes to brand acquisitions, Fortune said it prefers to grow organically. But that doesn’t mean the company won’t pounce on a brand that would enhance its portfolio (such as bourbon) or fill any weaknesses (vodka or rum).

“If we can add on certain categories, either enhancing our strength in bourbon, tequila, or cognacs, we’ll do that. If we have the opportunity to look at various vodkas or rum where we aren’t that strong, we’ll do that as well. We have the financial flexibility to do that...the Absolut deal wasn’t a must-have acquisition,” said Carbonari.

LVMH ACQUIRES WATCH, IS LIQUOR NEXT?

LVMH announced today it has signed an agreement to acquire Hublot group, a top of the range watchmaker. After its earnings last week, LVMH ceo Bernard Arnault said the company may take advantage of the worsening economy and pick up a liquor or watch brand. So does this mean LVMH will or will not acquire a liquor brand now?

“There might be opportunities in a difficult market for a group like ours to round out our portfolio," especially if smaller, family-owned companies decide to sell, he said to Bloomberg.

He declined to specify any companies LVMH may be interested in.

NORTH COAST VINEYARDS COULD LOSE 10%

Grape producers in California’s North Coast vineyard region fear they may lose as much as 10% of their crops after enduring the worst spring frost since the early 1970s. But the real impact won't be known until June, when the first grapes start to actually show and farmers can take a count of what they expect to harvest.

Among the hardest-hit areas were Sonoma County vineyards in valley locations such as Dry Creek and Alexander. Farmers usually turn on their frost-protection machines a couple of times a year, but so far this year some had to activate them as many as 30 times.

JEPSON WINERY FOR SALE

Investment group Dbon Mendocino LLC is selling Jepson Winery less than three years after acquiring it. The winery, which is also licensed as a vodka and brandy distillery, hit the market last week for $10.5 million. Dbon originally bought Jepson with plans to develop high-end estates, but the soft housing market and building restrictions in Mendocino County halted those plans.


Until tomorrow, Megan

“A little drama wins more friends than boring.”
Scott Westerfeld

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YTD sell days Over/Under: 0

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.

Industry Squabbles Over Standard Drink

As WSD reported yesterday, the Distilled Spirits Council (DISCUS) issued a press release urging the TTB to alter its proposed requirements for alcoholic drink labels. Mainly, Discus and other consumer and trade advocate groups want labels to list the amount of alcohol per serving, the definition of a standard drink and the U.S. dietary guidelines on drinking.

A newspaper ad campaign launched yesterday (April 22) and was signed by 18 public health, nutrition and consumer organizations and officials urged Treasury Secretary Henry Paulson to change the labels on alcoholic drinks to include such information along with the products' nutritional details.

The TTB’s current proposal only requires that companies include nutritional information (carbs, calories, fat, ingredients) on the back of labels, much like you find on the back of all food and non-alcohol drink products.

Other trade groups, including the California Wine Institute and the Beer Institute, disagree with Discus and think labeling the amount of alcohol per serving could confuse consumers. Here’s what they had to say, according to the Associated Press:

"Use of fractional measurements of beverage volume and absolute alcohol content to prepare drinks or to make product comparisons requires complex calculations," the Beer Institute said in its January comments to Treasury, adding that this is "likely to mislead consumers."

Both trade groups also feel the standard drink size information does not have meaning for consumers, especially when they order a mixed drink in a bar.

Wendell Lee, general counsel for the Wine Institute said "Consumers may think they're getting a standard drink" at the bar but "it's not what happens in the real world."

TERLATO FAMILY INTRODUCES LUKE DONALD WINES

Terlato Wines has launched a new California wine in partnership with professional golfer Luke Donald. The new brand, named Luke Donald Collection, includes a Claret-style red wine blend from Napa Valley to release in April 2008 and a Chardonnay that will be released in March of 2009. Bill Terlato and Luke Donald are “longstanding” friends, according to the company, which helped inspire the new collection.

“We considered the possibility of making a wine together several years back," said Terlato. "Luke was always interested in fine wine and food, and expressed his interest in learning more about the winemaking process...We weren't interested in a celebrity endorser. We wanted Luke to be involved in the development of the wine from start to finish.”

The grapes used in crafting the Luke Donald Claret are 100% Napa Valley fruit, sourced primarily from renowned Napa Valley vineyards, including the Rutherford and Stags Leap District appellations. Suggested retail price is $40. A Luke Donald Collection Chardonnay from Carneros is scheduled to be released in spring 2009.

EOS Estate Winery Hires Director of Winemaking

The EOS Estate Winery of Paso Robles announced that Nathan Carlson will serve as its Director of Winemaking. In this capacity, Carlson will lead EOS’s winemaking teams, overseeing production of the Central Coast wine portfolios. Carlson has more than 10 years of winemaking experience on the Central Coast, most recently managing the two million gallon facility at Tolosa Estate.

In other news, EOS will complete a $5.3 million project this summer to convert its entire facility to solar power.

“EOS has taken a bold step to become the first large winery in Paso Robles to commit to using only solar power,” the company said.

TEQUILA HERRADURA OFFICIAL TEQUILA OF KENTUCKY DERBY

Churchill Downs has selected Tequila Herradura as the “Official Tequila for Kentucky Derby 134”, becoming the first tequila maker to sponsor the Derby. Herradura, which translates to horseshoe in Spanish, will join other official Brown-Forman brands at the Kentucky Derby 134 and Churchill Downs’ Derby-related events, including Woodford Reserve Bourbon, Early Times Mint Julep, Finlandia Vodka, Korbel California Champagne and Fetzer Wines.

PANNOTIA VINEYARDS UNVEILS GERMAN RIESLING

Pannotia Vineyards is releasing a German Riesling to help round out its international portfolio. Pannotia Vineyards Riesling 2007 debunks the too-sweet myth of traditional Riesling varieties, making it drier than most other Rieslings without losing any of Riesling's richness or character, says the company. Pannotia Riesling comes from the Rheinhessen region. It is priced at $11.99 and will be available nationally June 1, 2008.

EUROPEAN DRUGMAKER BUYS RESVERATROL COMPOUND

GlaxoSmithKline Plc, Europe's biggest drugmaker, agreed to buy Sirtris Pharmaceuticals Inc. for about $720 million. Sirtris, based in Cambridge, Massachusetts, develops drugs that activate sirtuins, a class of enzymes involved in aging, Bloomberg is reporting. Its most advanced compound is a formulation of resveratrol, a substance found in red wine and plants that is thought to slow the effects of aging. Glaxo will get a foothold in a new area of research that may lead to treatments for diabetes, muscle wasting and neurodegeneration, the company said.

WSD BRIEF:

NYC STATE LIQUOR AUTHORITY is reportedly supporting community boards that approve liquor licenses only if the establishment closes by 2am. This means that more NYC bars could potentially be forced to close before the traditional 4am, reports the New York Post.


Until tomorrow, Megan

“It's amazing that the amount of news that happens in the world every day always just exactly fits the newspaper.”
Jerry Seinfeld

--------- Sell Day Calendar ----------
Today's Sell Day: 17
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Discus Urges Standard Drink Labels

Discus along with other consumer and public health groups (MADD, Consumer Federation of America, Dr. C. Everett Koop’s Shape Up America! and National Consumers League) is urging the TTB to reevaluate it proposal for alcoholic drink labels.

Under the TTB’s current proposal, companies would not be required to disclose the amount of alcohol per serving. The proposal would also prohibit a company from featuring “standard drink” information on labels. A “standard drink,” according to Discus, equals 1.5 fluid ounces for 80-proof distilled spirits, 12 fluid ounces for beer and 5 fluid ounces of wine. Spirits companies are in favor of the “standard drink” label because it dispels the idea that spirits are stronger then beer and wine.

Instead, the TTB would require that companies include nutritional information (carbs, calories, fat, ingredients) on the back of labels, much like you find on the back of all food and non-alcohol drink products.

The beer and wine industries are generally against the proposal for several reasons. One, a nutritional label would be expensive, particularly for small brewers and wineries. Two, they argue the “serving size” is misleading because the average consumer will drink more then what is suggested. Nutritional information also shines a negative light on beer and wine because they generally have more calories, for example, then a shot of liquor (without the mixer).

“We agree with public health organizations and consumers groups that alcohol per serving and standard drink information should be on any serving facts panel – not just the amount of calories, fat, carbohydrate, and protein,” said Peter H. Cressy, president of Discus.

In all, Discus wants the TTB to make the following changes:

1.) Serving sizes are 1.5 fluid ounces for 80-proof distilled spirits, 12 fluid ounces for beer, 5 fluid ounces of wine

2.) The amount of alcohol per serving is required to be disclosed in the “Serving Facts” panel

3.) The text in the panel states “a standard drink contains 0.6 fluid ounces of alcohol.”

MAINE DOUBLES WINE TAX

Maine Governor John Bladacci signed a bill that dramatically increases the tax on soda, beer and wine to help pay for a state health insurance program for small businesses and the self-employed. Excise taxes on beer will increase from 42 cents per gallon to 54 cents per gallon; wine excise taxes go from 30 cents to 65 cents per gallon; the syrup used to make soda will be taxed at $4 per gallon, and bottled soda will be taxed at 42 cents per gallon. The new revenues will be used to help fund a state health insurance program, Dirigo, the state motto.

DIAGEO LEADS MILLWARD BROWN TOP 10 BRANDZ

Diageo’s premium brands monopolized the first Millward Brown top 100 Brandz report for global spirits in 2008. Smirnoff took the lead, followed by Bacardi, Jose Cuervo, Johnnie Walker and Baileys. The top three markets for Smirnoff were the U.S., Great Britain and Canada.

Making up the rest of the top ten list was: Jack Daniels (#6), Absolut (#7), Chivas (#8), Gordon's (#9) and (#10) Martini.

NEW WINE TELEMARKETER SPRINGS UP IN CALIFORNIA

Jeff Stevenson (former venture capitalist turned vintner) and Richard Brucker (wine telemarketer) have launched a new wine telemarketing company, Provino Premium Wines, aimed at helping boutique winemakers spread the word and sell their wines. Provino was launched earlier this month, according to North Bay Business Journal, with a dozen artisan wineries. The company plans to double the wineries in the first three months.

Provino has hired Garrett Day, formerly the buyer for Michigan-based online wine retailer WineBuys.com and Napa's Ambrosia Catalogue of Fine Wine, now called The Winetast-ing Network. In addition, Provino plans to start with six contract salespeople who will be able to earn a stake in the firm.

A NEW WAY TO TRAVEL WITH WINE

I was at the airport on my way to Napa the day the TSA banned all liquids on airplanes (much to my dismay). On the way home I stored the wine I had bought in my checked luggage, wrapped in clothes and surrounding by shoes. Luckily nothing broke. However, there are now simpler ways to check wine bottles if you decide not to ship them home.

BottleWise Duo (designed by BottleWise) allows travelers to safely transport wine inside their checked luggage. You can check out the features at bottlewise.com.

In a survey conducted by BottleWise, the company found that 25% of people no longer buy wine when they are traveling by air. A little over 40% wrap bottles in clothing or bubble wrap and place it in their checked luggage. Only 18% ask the winery to ship the wine directly to them, while 10.4% reported no impact because they never travel with wine.

FREEZING TEMPS COULD SPELL TROUBLE FOR NORTH COAST VINTNERS

Frosty temperatures along the North Coast in California have kept vintners busy with frost-protecting devices, such as water sprinklers and wind machines in March and April. The extent of the damage won’t be known for several weeks, however. The worse case scenario? The early freeze could potentially result in a grape shortage. Stay tuned...

WSD BRIEFS:

ESTONIAN VODKA, SAAGA 1763, recently debuted in New York, California, Texas and Florida, as well as duty-free markets, at an estimated national average retail price of $33.99.
per 750-ml. Saaga 1763 is being distributed by Lieber Brothers in New York, Mexcor International in Texas, Prana in Florida and MHW Importers in California. Saaga is advertising in lifestyle publications, trade outlets and through word-of-mouth in the industry.

ORZEL VODKA, a premium vodka launched by Heritage Brands of Fort Lauderdale, is slowly making its way through the U.S. Produced in Poland by Polmos Lublin, Orzel will premier in Miami Beach today and hit Florida stores this week. It will also be sold in New York, New Jersey, Texas, California, Illinois and Georgia.

SAKE2ME, the first single-serve, ready-to-drink infused sake drink, is making its debut in Texas. Sake2Me is already distributed in California and Wyoming, and will soon make its way to Nevada, Arizona, Utah, Washington, Oregon, Hawaii, Montana and Michigan.

SONOMA-CUTRER WILL ONLY OFFER STELVIN SCREWCAPS at restaurants in Texas and Nevada for its vintage 2006 Russian River Ranches Chardonnay.


Until tomorrow, Megan

“To be stupid, selfish, and have good health are three requirements for happiness, though if stupidity is lacking, all is lost.”
Gustave Flaubert

--------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Vijay Mallya Wants Flavored Scotch

Speaking to the World Whiskies Conference last week, Mallya challenged the Scotch industry to open itself to Irish and American whiskies. He said the whiskey industry must unite and drop its stodgy image to make Scotch more appealing to younger demographics, the Scotsman reported. If not, Scotch could lose out to vodka or other categories.

Mallya suggested the industry experiment with natural additives and ingredients to create a “spectrum of flavors” – a practice that purists are very much against. He also called for a global whiskey association.

"The SWA spends too much time worrying about whether whisky is spelt with an 'e' or not when it should be broadening the appeal of Scotch whisky to take on other categories head on,” he said, as quoted in The Scotsman. “As an industry we should be looking at ways of making Scotch whisky far more appealing to a younger audience.”

"I have to say in the past the SWA has been a bit heavy-handed in its relations with India. Confrontation does not work in India, it just leads to stubbornness with a situation that a no is a no for the sake of politics,” he continued.

He of course refers to India’s clash with the Scotch industry, which claimed India imposed unfair tariffs on imports. The UK managed to have the national tax abolished last year, but Indian states have since imposed their own high duties on whiskey and other alcoholic imports.

WHO RELEASES DRAFT RESOLUTION ON ALCOHOL

The World Health Organization has released its draft resolution on reducing the harmful effects of alcohol, Harpers is reporting. The executive committee (compromised of 34 member states) of the WHO met in January and drafted a resolution to be submitted for adoption at the 61st World Healthy Assembly in Geneva, May 19-24, 2008.

The draft resolution makes a number of recommendations and requests. The main points are
as follows:

• Submit to the 63rd World Health Assembly in 2010, a draft global strategy to reduce harmful use of alcohol that is based on all available evidence and existing best practices...

• This strategy should optimally combine available measures and interventions that target the general population, vulnerable groups, individuals and specific problems

• This strategy's aim is to support and complement public health policies in Member States, with special emphasis on an integrated approach to protect at-risk populations, young people and those affected by harmful drinking of others

• To ensure that the draft global strategy will be composed of a set of proposed measures recommended for states to implement at a national level taking into account the national circumstances of each country,

• To collaborate with member states as well as with intergovernmental organizations, health professionals, non-governmental organizations and economic operators on ways they could contribute to reducing harmful use of alcohol.

BOSTON BANS BOTTLE SERVICE

Boston’s licensing board chairman Daniel Pokaski is banning “bottle service” at nightclubs, claiming the service violates state and city alcohol laws. Pokaski says bottle service forces alcohol consumption and violates the city’s “happy hour” law that bans establishments from serving more than two drinks at a time to patrons. A letter will be sent to club owners alerting them that the service is banned, according to local reports.

"We're not New York and we're not South Beach," he said. "The city of Boston has a lot more to offer than just getting people inebriated."

BAROSSA VALLEY LAUNCHES E MINOR CHARDONNAY AND SHIRAZ

The producers of the E&E Black Pepper Shiraz are introducing the latest addition to the Barossa Valley Estates portfolio: 2006 E Minor Chardonnay and 2005 E Minor Shiraz. Considered the "little brothers" of the E&E Black Pepper, both wines are sourced from select vineyards from within the grower co-operative in the Australian Shiraz region.

Barossa Valley Estate is owned by Constellation Wines Australia. E Minor wines are available nationally for a retail price of $12.99.

TEXAS WINES EVOLVE, BENEFIT FROM TECHNOLOGY

Here are some interesting facts: Texas is the fifth largest grape and wine producing state in the U.S. and has more than 220 family-owned vineyards in a $1 billion industry. How do we know this? Well, besides being from Texas, Bloomberg published an interesting piece on Texas wines today. Most (95%) of the wines are consumed in Texas, but producers are hoping to change that. For one, winemakers are using technology to help produce all wines, such as Rieslings and Pinot Noirs, despite the intense heat of Texas.

As reporter John Mariani put it: “I had a chance to taste about 50 Texas wines...and I came away impressed with how they have evolved over the past decade.”

“I also wondered if too much Texan swagger is getting in the way of planting the best grapes in the best vineyards. Wineries are trying to grow dozens of varieties, from pinot grigio to Riesling, in climates that can be unsuitable to them,” he continued.

NORTH CAROLINA MAKES A NAME IN WINE

North Carolina wines have received rave reviews lately in the press, according to the News & Observer. The Today show’s food editor Phil Lempert said North Carolina’s coastal region was even poised to replace Napa once global warming kicks in. Many of the North Carolina producers disagree with the comparison and insist on making their own mark on winemaking.

Jim Hofman, author of the online site Wine Trails USA, also said North Carolina wines “are among the best in the United States.”

The state has 70 wineries and ranks 10th in the nation for wine and grape production. The 2007 vintage is supposed to be especially good.

PALANDRI WINE GROUP FINDS BUYER

Global Wine Holdings has purchased “certain assets” of the ailing Palandri Wine Group (based in Australia), according to administrators Deloitte. Premium wine company Palandri Wines went into voluntary administration in February with millions of dollars in debts to 2,500 creditors.

Global Wine is a newly-formed private company controlled by Chinese entrepreneur Xibo Ma. Xibo was formerly the second largest shareholder of Palandri.

WSD BRIEFS:

CHINESE ENTREPRENEUR SPENT A RECORD $500K ON 27 BOTTLES OF WINE, London-based Antique Wine Company told Reuters. The anonymous buyer purchased a mix of vintages of Romanee Conti, a Burgundy wine and one of the world’s most exclusive. It is the highest price that has ever been achieved for a single lot.

PATRON HAS EXPANDED ITS DISTRIBUTION INTO SPAIN AND RUSSIA, the company said today. Distributors in the countries will carry Patron tequila and Pyrat rum.


Until tomorrow, Megan

“I am prepared to meet my Maker. Whether my Maker is prepared for the great ordeal of meeting me is another matter.”
Sir Winston Churchill

--------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Weekly Headline Round-Up

DIAGEO CAPITALIZES ON HILARY’S PUBLICITY STUNT

An article in Ad Age calls Diageo “as shameless as politicians,” claiming the company “pounced” on the free publicity after Hillary Clint’s shot-and-a-beer act earlier this week. As you’ll recall, Hillary took a shot of Crown Royal and drank a beer in front of TV cameras in an Indiana bar, and Diageo is apparently using the incident as a marketing opportunity (do you blame them?).

"It used to be that whenever the cameras came around, you'd see the politicians hiding their drinks behind their back," said a Diageo spokesman to reporter Jeremy Mullman. "But she was using it ... as a way of touching the people."

While Diageo isn’t planning to use Clinton’s image in any Crown Royal ads, the company reportedly plans to send bottles of its obscure Jeremiah Weed Bourbon Liqueur to all three remaining presidential campaigns. Diageo hopes to boost the brand through sampling, word-of-mouth, and a brand website launched yesterday.

When asked why the company wasn't using the "watershed" moment to promote Crown Royal, the spokesman pointed out: "Well, you all are doing that for us."

ROBERT PARKER TOUTS FRENCH WINES AS THE BEST

Infamous American wine critic Robert Parker thinks French wines are the best in the world, outperforming California and every other region. In an interview with Le Figaro newspaper, he said: "French wines remain the benchmark for all countries producing great wines. Their boldness and intrinsic quality are indicators that influence winemakers in other countries," reports the AFP.

"French wines have considerably improved in quality, even during difficult years," said Parker, considered the world's leading Bordeaux expert.

With that said, he wasn’t too impressed with the 2007 vintage. He told the newspaper that the majority of the 2007 production was bland, "with a hereby taste... Overall, they are disappointing." Ouch.

VIRGINIA LAUNCHES STATE WHOLESALER

Virginia wineries have found a way to sidestep independent wholesalers through the Virginia Winery Distribution Company, a private, nonprofit state wholesaler that begins operation this week. The Virginia General Assembly agreed to the new venture last year after the state banned direct wine shipments in 2006. Virginia wineries that choose to participate may distribute up to 3,000 cases of wine per year through VWDC, which is associated with the Virginia Department of Agriculture and Consumer Services.

The VWDC basically acts like a less-expensive wine wholesaler for small Virginia wineries. Wineries will continue to market their wine to shops and restaurants, but will place orders and make wholesaler deliveries through the VWDC. The VWDC will provide electronic purchase orders and invoices, collect and remit taxes, and submit government reports. By contract, VWDC and the winery share delivery workers, bonded warehouse space and delivery vehicles. The cost to Virginia wineries using the services of VWDC will be $5 per transaction initially, reports Wine Business. So far, 52 wineries and farm wineries have signed up to use VWDC, with 18 more pending.

WSD BRIEFS:

FANTESCA ESTATE & WINERY HIRED HEIDI BARRETT as the new winemaker, according to local reports. Robert Parker, Jr. named Heidi “The First Lady of Wine” after she became the only winemaker ever to have received five perfect scores from the top wine critics in the country. This marks her first venture since leaving Screaming Eagle.

TESCO WILL LAUNCH 10 additional Fresh & Easy stores in Las Vegas.


Until Monday, Megan

“All the world's a stage and most of us are desperately unrehearsed.”
Sean O'Casey

--------- Sell Day Calendar ----------
Today's Sell Day: 15
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

Remy Retains Momentum in U.S.

Remy Cointreau said the US “retained its momentum” in the 12 months to March 31. The company reported 11.5% organic growth for Cognac, followed by 4.3% growth for liqueurs and spirits and 15.4% growth for Champagne.

The company said it continued to benefit from its position in cocktails in the US and Europe, while Cognac held steady in the U.S. despite 5-10% price increases. Piper-Heidsieck Champagne achieved the strongest growth in its traditional markets, including the US where “demand remained strong.”

Meanwhile, Partner Brands including Russian Standard vodka and Edrington Scotch continued to grow strongly in the American market.

Remy said it has benefited from its strategic plan to sell less-profitable brands in order to focus on premium spirits and Champagnes in recent years. Analysts worried yesterday that Remy’s results would follow in the path of LVMH, but the company did surprisingly well despite the economy.

"It seems that the weakness in third-quarter cognac volumes was indeed a matter of phasing and some inventory reductions by wholesalers in the U.S., and not entirely end-demand driven," noted Goldman Sachs analysts.

“Due to this US shipment phasing, we expect a weaker Q109FY. Remy continues to see premiumization in the US. A key difference in the US (based on Control States data) is that Remy has only 26% of volumes from lower growth VS and Hennessy over 90%,” said UBS senior analyst Melissa Earlam in a note.

BEAM GLOBAL DEFENDS BOURBON AT WORLD WHISKY CONFERENCE

In a statement today, Beam said it hosted the first “Great Whisk(e)y Debate” ever held in Scotland. The debate was hosted for the World Whiskies attendees to discuss the history, heritage, qualities and tasting notes of Bourbon whiskey and Scotch whisky, the company said.

Fred Noe (great grandson of Jim Beam) “vigorously defended” bourbon, while Scotch whisky was championed by Richard Paterson, third generation master blender of the Dalmore Scotch Whisky distillery. The debate was moderated by Jim Kokoris, former president of the Kentucky Bourbon Circle.

Beam Global ceo Tom Flocco told the audience during his keynote speech “that loving one is not cheating on the other. In this industry, you really can serve two masters...Kentucky produces 95% of the world’s bourbon; almost two-thirds of it comes from us.”

The company called bourbon “one of the world’s most loved and misunderstood whiskeys.”

Flocco continued, “We house the world’s finest portfolio of Bourbon and Scotch whisky...This is a win-win for us and for our distributor and retail...We will continue to host Great Whisk(e)y Debates around the world as consumers discover and discuss the finer qualities of all whiskeys.”

FORTUNE CONSIDERING SEVERAL ACQUISITION OPPORTUNITIES

After Fortune passed on an opportunity to acquire Absolut last month, the company is exploring new business opportunities in the spirits segment. CEO Tom Flocco told Just-Drinks that the company is looking at the following categories: vodka, premium and super-premium rum and gin, and Irish whiskey.

When asked if Beam was interested in acquiring Stolichnaya, Flocco said: “Stolichnaya is a good brand, but it is a brand that, based on what I've read, some smart people worked very hard to get out of the dual ownership structure...but if it were to become available, would we look at it? Sure.”

Recall that Pernod Ricard spent almost three years in negotiations with SPI to buy the Stoli brand.

LVMH EXPECTS “SIX MONTH RECESSION”

As we reported yesterday, LVMH’s wine and spirits sales sank -15% in the U.S. during the first quarter after the company raised prices and was hit with de-stocking issues. Management remained confident, nonetheless, that figures would rebound later in the fiscal year. When asked about the economic slowdown, ceo Bernard Arnault said he expects the U.S. will experience a six-month recession with growth picking up at the end of the year. He added that LVMH has a policy of taking price increases in the markets hit by a slowdown.

LVMH says it may take advantage of the worsening economy and pick up a liquor or watch brand, Bloomberg reports.

“There might be opportunities in a difficult market for a group like ours to round out our portfolio," especially if smaller, family-owned companies decide to sell, he said.

He declined to specify any companies LVMH may be interested in.

JESS JACKSON PARTNERS WITH NAPA TRUCKERS

Jess Jackson (owner of Kendall-Jackson) has formed a joined-venture with Napa trucking firm Biagi Brothers to control the distribution of his brands and other premium wines in California, reports the Press Democrat. The new company, Vin Lux, is distributing more than 60 domestic and international wines handled by Jackson’s distribution arm, Regal Wine Co. Vin Lux will operate from a warehouse in Napa and another in Southern California, and serves 9,000 on-premise accounts with a fleet of 35 trucks. The company hopes to attract other winery clients by offering a higher level of service, including hybrid delivery trucks and sophisticated wine tracking systems.

Jackson began self-distributing all of his wines in California in 1996 after a high-profile break with Southern Wine and Spirits.

THE WINE GROUP TAKES ON NEW SPANISH WINE

The Wine Group (TWG) has become the exclusive distributor for Spanish wine producer Osborne in the U.S. Two of Osborne brands, Montecillo and Solaz, currently rank among the top five Spanish wine brands in the U.S. market. The rest of its portfolio includes Osborne (Jerez y Oporto), Senorio del Cid (Ribera del Duero y Rueda) and other brands of brandies and spirits.

The transaction was executed by the New York-based Mergers and Acquisitions Advisory group of Rabobank International, a division of Rabobank Nederland.

WSD BRIEFS:

BELVEDERE GROUP has reportedly had discussions with a major vodka distillery in Russia about terms and conditions of a possible combination. If the project moves forward, said the company, it would allow Belvedere to strengthen its position 'very significantly' in the world’s number one vodka market. Reports have speculated that Belvedere is in talks with Kristall.

INERTIA BEVERAGE GROUP announced today that it has opened its REthink Compliance tool for use free of charge to any winery, fulfillment house or compliance company. The service allows wineries to ensure they are in compliance with shipping regulations in fifty states and generates necessary paperwork to ship direct.

NYC MENU LABELLING WILL GO INTO EFFECT April 21 after a federal judge ruled in favor of the city’s health department yesterday. Despite legal challenges by the New York State Restaurant Association, the city will require chains of 15 stores or more to post calorie contents on their menu boards. The regulation will not be enforced until June 4. The NYSRA plans to appeal the decision.

SNOOP DOG AND MYSTIQUE BRANDS has signed a long-term brand partnership to promote Landy Cognac in North America. This marks the latest in a long line of spirit brand endorsements by hip-hop artists.

CORNELL UNIVERSITY PLANS TO LAUNCH A TEACHING WINERY at the Cornell Orchards this fall for students studying enology and viticulture.


Until tomorrow, Megan

“All the world's a stage and most of us are desperately unrehearsed.”
Sean O'Casey

--------- Sell Day Calendar ----------
Today's Sell Day: 14
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Pernod Tests Banks with Loan

The 12 billion euro ($19 billion) loan for Pernod Ricard's acquisition of Vin & Sprit is set to test the company's banking relationships, sources told Reuters today. The loan is the largest non-investment grade corporate loan in Europe. As a result, many consider it a test by for European lending as money remains scarce.

Pernod will leverage its strong cash flow and consider selling some of its non-core brands or brands from V&S. Pernod has a strong borrowing track record and relationship banks are expected to support the deal.

"This is an off-market deal; it's not priced correctly, so it will hang on relationships, but it's clearly a company people want to do business with, as it's a good performer and they do business often," a banker told Reuters.

"This is the least risky deal Pernod has ever done; they're buying a successful brand, there is no overlap, and the distribution network is already in place," another banker said.

FRESH & EASY BREEZY IN THE U.S.

Tesco said it’s had a solid start with its new U.S. Fresh & Easy stores, despite critics who claimed the retailer was doomed. People especially thought Fresh & Easy was failing after Tesco halted the rollout of new stores last month. However, Tesco said it is “very encouraged by the start Fresh & Easy has made” in its earning statement.

"The response of customers to our offer has surpassed our expectations...sales are ahead of budget and sales densities are already higher than the US supermarket industry average, with our best stores exceeding $20 per square foot per week," said the company yesterday.

"We begin the new financial year confidently - with a good start in the UK, excellent progress in our established international markets and promising early performance from our investments in future growth, particularly in the United States, China and Turkey," said Tesco ceo Sir Terry Leahy.

PAUL WALSH BATTLES INDIAN LEVIES

Talks have reportedly heated up again between the Scotch Whisky industry and India. Diageo ceo Paul Walsh (and chairman of the Scotch Whisky Association) said that although progress towards a fair market was made last year, challenges remain, according to Just-Drinks. Recall that India abolished the additional duty on imported spirits, but individual states in the country have since introduced their own exorbitant taxes.

He warned that Indian states must “ensure the introduction of non-discriminatory tax treatment of domestic and imported products.” If they are unable to do so, he said the Association “will not hesitate to return to the WTO in the future to secure fair market access in line with international trade rules and standards.”

"Countries that are increasingly taking the benefits of a rapidly globalizing world on one hand, cannot look to protect their own domestic industries and markets on the other," he continued. Touché.

INDIA’S REBUTTAL. Just-Drinks is also reporting that Vijay Mallya, head of India’s UB Group, accused the Scotch Whisky Association of being a “paranoid organization.”

"We in India not only welcome the Scotch whisky industry, we acknowledge the Scotch whisky industry, and we wish to wholly co-operate with the Scotch whisky industry,” he said.

"If that were not the case, I would certainly not have invested GBP600m (US$1.17bn) in acquiring Whyte & Mackay."

LVMH WINE & SPIRITS DISAPPOINT

LVMH’s wine and spirits segment did not fair so well in the first quarter. U.S. sales fell
-15%, partly due to bigger than expected de-stocking by retailers and price increases. Executives were optimistic, however, saying they expect “much better figures” the rest of the year.

WSD BRIEFS:

CONSTELLATION WILL CUT 30 JOBS AT WIDMER’S WINE CELLARS in Naples, New York by the end of May. Most of the affected jobs are in production, but some are in the wine gift shop and tasting room. The lay-offs are a part of Constellation’s new initiative to premiumize its wine portfolio and off-load value and regional brands.

THE WHITE HOUSE WILL SERVE Sebastiani Vineyards and Winery’s rich, oak-aged 2005 Dutton Ranch Chardonnay at a dinner honoring Pope Benedict XVI’s first visit to the United States and his 81st birthday. The pope reportedly won't be able to attend the dinner, a Bavarian feast in honor of his German heritage.

THE DOLLAR FELL TO A RECORD LOW against the euro after European inflation accelerated in March. The dollar has dropped more than 13% in the past year amid the fallout from the collapse of the subprime housing market.


Until tomorrow, Megan

“A lie can travel halfway around the world while the truth is putting on its shoes.”
Mark Twain

--------- Sell Day Calendar ----------
Today's Sell Day: 13
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Do Aussie Wines Have an Image Problem?

Australian wines have been wildly successful in the U.S. in recent years, but there is a chance their luck is running out. Years of over-supply met with one of the worst droughts in recent history, a depreciating U.S. dollar and image problems have left the Australian industry scratching its head. Can Australian wineries improve their image with American consumers and make a comeback?

We spoke with Stephen Rannekleiv, Vice President Food & Agribusiness Research and Advisory for Rabobank International via email on the topic and found his insights fascinating. Here’s a snippet of his email (with his permission of course) for your enjoyment:

“The future of Aussie wine in the US? That's the $64,000 question. I think it really depends on 2 things.

1. As you point out, they are no longer in over-supply, but years of discounting have left them with an image problem. No one wants to pay much for Aussie wine. They fully recognize the need to move up in price points, as they have low volumes and much higher production costs and also exchange rate challenges as the US dollar continues to be quite soft- but the question is "how"?

If they can get their act together and really show the US that they have some good quality wines, I think they could do quite well. They have some top notch wines that sell at much more attractive price points than most of the top California brands. By all rights, they should be doing MUCH better in this market.

2. The other issue is just how long this recession thing goes on. The growth is still at the high end of the wine market, but it seems to be slowing a bit, and there are lots of signs of trading down in other categories (i.e. beer, where you see trading up and trading down simultaneously). If consumers start to become more price sensitive, but still want good quality, Australia might have some options. The issue for the Aussies will be to convince US consumers that they can deliver on quality, and I think that may be a tough sell. Australian wines seem to have lost some of their initial luster among the public, and I think consumers may be moving on, looking for the next destination to explore.”

So I guess, in summary, I would say that Australia has great potential. They have the opportunity to show the US market that they can deliver excellent quality wines at very reasonable price points. However, if they haven't been able to get that message across by now, I have to wonder about their ability to do so. I don't really see a strategy in place that will realistically change US consumers' minds about Aussie wine. I expect them to continue plodding along at mediocre price points in the US, in bottles with cute little critters.

Argentina, on the other hand... Now that's a different conversation. I think it goes to show that its always easier to start at the higher end of the market and move down than to start at the lower end of the market and try to move up.”

Thanks Stephen!

WINE AND HEALTH HITS THE WIRES

News on the health benefits of wine is always good press for the industry, and as luck would have it several things surfaced this week.

One study found that women who drink wine are less likely to develop dementia in middle-age, particularly women that drink wine exclusively. Women who reported drinking wine, beer and spirits were 40% less likely to develop dementia. The risk dropped almost 70% in women who consumed only wine. By contrast, women who drank liquor had an increased risk of dementia. The study is based on a random sample of nearly 1,500 women living in Gothenburg, Sweden who, beginning in 1968, were followed for 34 years.

So what makes wine so special? Researchers said antioxidants found in wine and not beer and liquor might help prevent dementia. Also, the wine drinkers may have certain characteristics the researchers are unable to measure.

Another study found that resveratrol, a compound found in red wine, may kill pancreatic cancer cells. Researchers at the University of Rochester Medical Center found that resveratrol in combination with radiation, but not alone, helped fight pancreatic cells.

"While additional studies are needed, this research indicates that resveratrol has a promising future as part of the treatment for cancer," lead investigator Dr. Paul Okunieff said in a university statement.

One study, however, gave the industry something to blush about. New research confirms what researchers have long suspected: alcohol increases women’s risk of breast cancer. Researchers from the University of Chicago found that post-menopausal women who drink even moderately (one or two drinks per day) raise their risk of developing the most common form of breast cancer. Women who had three or more glasses of alcohol a day increased their chance for developing breast cancer by 51%. Drinking was also blamed for the rising numbers of women with liver and fertility problems.

HSBC DOWNGRADES B-F

HSBC bank downgraded Brown-Forman to “neutral” from “overweight,” according to Reuters.

"Although company fundamentals remain solid, in our view, we expect Brown-Forman to be impacted by weakening consumer sentiment and higher costs over the near term," the brokerage said.

In the long term, the company will continue to benefit from its strong brand equity and pricing activities in the US, as well as from its growing international presence, HSBC said.

MAKER’S MARK APPOINTS NEW MASTER DISTILLER

Kevin Smith, who joined Maker’s Mark in 1998 as assistant vice president of operations and Master Distiller-in-training, has been promoted to vice president of operations and Master Distiller for America’s iconic bourbon. Kevin succeeds David Pickerell, who has left Maker’s Mark after more than fourteen years with the brand. He will report to Bill Samuels, Jr.

FUTURE APPOINTS INDUSTRY VET TO VICE PRESIDENT

Future Brands, the U.S. joint-venture between Beam Global and the Absolut Spirits Co., today announced the appointment of Pryce Greenow to vp, sales-west region. Pryce reports directly to Bill Newlands, senior vp of U.S. commercial development for Beam Global. Prior to joining Future Brands, Pryce worked at Beam Wine Estates and Allied Domecq Wines USA.

BACARDI EXTENDS DISARONNO AGREEMENT

Bacardi says it has renewed its contract with Illva Saronno S.p.A. for U.S. distribution rights to Disaronno Originale, an Italian Liqueur. Bacardi first secured Disaronno distribution rights in 1998.


Until tomorrow, Megan

“A man's silence is wonderful to listen to.”
Thomas Hardy

--------- Sell Day Calendar ----------
Today's Sell Day: 12
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

Skyy Pokes Fun at Absolut Situation

Skyy is capitalizing on the supposed out-cry surrounding Absolut’s “anti-American” ad in Mexico. As you’ll recall, the ad featured a 1830s-era map when Mexico included California, Texas and other southwestern states before the Mexican-American war. The tagline “In an Absolut World” is displayed at the bottom. The ad only appeared in Mexico, not the U.S.

Skyy took the opportunity to issue a press release in support of the Treaty of Guadalupe Hidalgo which officially ended the Mexican-America War last week as a tongue-in-cheek response.

“Like Skyy Vodka, the residents of states like California, Texas and Arizona are exceptionally proud of the fact that they are from the United States of America,” said Dave Karraker, Skyy Vodka. “To imply that they might be interested in changing their mailing addresses, as our competitor seems to be suggesting in their advertising, is a bit presumptuous.”

Skyy also took the opportunity to highlight its Made in the USA status, since, as we all know, Absolut is produced in Sweden and now owned by a French company.

In response, BoycottAbsolut.com sent a press release commending Skyy.

"This is the first time we have ever seen an American brand stand up, recognize, and support US Sovereignty against an import that is pandering to illegal immigration supporters," said William Gheen of ALIPAC. "We want to thank Skyy Vodka for showing themselves as a patriotic and top shelf alternative to Absolut."

Adage.com also posted a blog entry on the issue. To check it out, click here.

BRUCE CARBONARI TALKS ABSOLUT WITH WSJ

Our friend David Kesmodel from the Wall Street Journal sat down with Fortune ceo Bruce Carbonari last week to discuss the failed Absolut deal and the company’s future. As David put it, Bruce was generally hailed on Wall Street for his restraint in the V&S deal, but now people are wondering which brand Fortune will set its eyes on next (namely Stolichnaya and Patron).

Bruce said the company is exploring several acquisition opportunities in the spirits business. When asked about the effects of the economy, he said that consumers are drinking a little less at bars and restaurants and more people are buying at liquor stores, but it's not a significant change. Oh, and incase you’re wondering, his favorite drinks are Laphroaig on ice and Maker’s Mark with Diet Coke.

To read the interview in full, click here.

INTERVIEW WITH IVAN MENEZES

In an interview with the Miami Herald, Diageo North America president Ivan Menezes talks economy, trading up and explains why the U.S. market has been so successful. He says shifting demographics has helped the recent boom in the spirits industry, along with the perception that super-premium spirits drinks are an “affordable luxury.”

When asked what areas Diageo is focusing on in terms of innovation, Ivan said: “A space we're very excited about is our premium prepared cocktails, like the Jose Cuervo Golden Margarita with Grand Marnier and line of cocktails under Smirnoff, the Vodka Mojito and a Cosmopolitan.”

“We also see premium spirits as a very exciting space for innovation,” he continued, adding that Diageo has introduced two ultra-premium line extensions for Crown Royal and Johnnie Walker.

To read the interview, click here.

CHILEAN WINES MAKE NEW HEADWAY IN THE U.S.

The value of Chilean wine exports to the U.S. increased 24% and expanded by $40 million in 2007, according to a year-end Gomberg-Fredrikson report. Chile’s export volume to the U.S. rose by 13%, totaling over six and a half million cases. Chile is the fifth largest wine exporter to the U.S. with 4% of U.S. market share.

The greatest growth occurred in Chile's red blends, rising 33% over the past year, according to the report. In 2007, 1,034,300 nine-liter cases were imported to the U.S., an increase of 258,800 over last year. Chilean Sauvignon Blanc also saw higher demand in 2007, increasing by 47%, with approximately 141,000 more cases than last year having entered the U.S. market.

"These numbers show Chilean wines are increasingly gaining favor among U.S. wine drinkers," said Juan A. Somavia, managing director of Wines of Chile.

SAUZA GETS A MAKEOVER

Beam Global is introducing the new “Expect Fresh” marketing campaign for Sauza Blanco and Sauza Gold Tequilas. The "Expect Fresh" campaign emphasizes refreshment and mixability and will be accompanied by a new “sleek bottle design” for Sauza. The company will also update Sauza’s ready-to-drink margarita mix with new recipes and a new mango flavor.

"Sauza is focused on doing things a little differently in this category and we're really excited to introduce our new packaging and 'unexpected' drinking experiences to consumers," said Mara Melamed, associate brand manager, Sauza Tequila. "We believe the 'Expect Fresh' campaign will resonate with consumers, especially with women who are looking for a refreshing way to enjoy tequila."

FUTURE FLOOD OF WINERIES FOR SALE
Financier Bill Price, a vineyard owner and co-founder of Texas Pacific Group, told vintners at a conference in Santa Rosa last week that now might be a good time to sell their winery. Citing a recent study by Silicon Valley Bank, Bill said up to a thousand family-owned wineries in California, Oregon and Washington could be sold in coming years because the next generation is either unprepared or unwilling to follow in their parents’ footsteps, according to an article by Kevin McCallum of the Press Democrat. Bill said that if wineries sell now, they’ll likely make more money then if they wait based on the history of consolidation in other industries.

"If you spent 20 or 30 years building up a business and say 'Hey, things are really pretty good,' that's not necessarily a bad time to sell," Price said. "Because when things aren't going well, buyers are going to want to take advantage of the situation."

WSD BRIEFS:

CONSTELLATION HAS NAMED Michael Walker to the newly created position of vice president for external affairs effective today. Walker will be based in San Francisco, and report to Jim Finkle, senior vice president for external affairs.

ALASKA LEGISLATURE approved a bill that requires state residents to renew their drivers’ licenses after they turn 21 and pass an eight-question test about drugs and alcohol and their relation to driving.

COLORADO GOV. BILL RITTER SIGNED A BILL TO REPEAL A BAN on Sunday alcohol sales, according to Discus.


Until tomorrow, Megan

“Half of the modern drugs could well be thrown out of the window, except that the birds might eat them.”
Dr. Martin Henry Fischer

--------- Sell Day Calendar ----------
Today's Sell Day: 11
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Wholesalers and Retailers: It’s Complicated

Wholesalers and retailers often have a hard time seeing eye to eye, so we asked our readers in our annual Truth Squad Survey what their relationship is like with retailers or vice versa. Most people said good, while others said the relationship was on the rocky side. Issues arising from consolidation seemed to be a trend among survey-takers, along with productivity and communication. Here’s what you had to say:

“When they back you, they are great!”

“Good, many times wholesalers think short term and focus on "flavor of the month" rather than focusing on long term brand building.”

“Some are great business partners, others aren't. As a distributor you go out of your way to help your good partners, but when it comes down to making a tough number you do what ever it takes, sometimes in spite of yourself.”

“I'm a supplier so with some it's great and others just OK. It's luke warm most of the time. I wish they would let me help them more. Many are distrusting it seems cause of the restrictions they endure with the 3 tier system.”

“For the most part it is very healthy, we are family owned and work with are retailers when possible.”

“Adversarial with wholesalers. Most of them can't be bothered to respond to consumers unless they are bribed tricked or forced.”

“Solid. Open, honest, informative.”

“Very good. They are our partner. We both are accountable and we have a responsibility to promote our product in a controlled and safer arena.”

“We are working every day to develop a better relationship with our retailers . . . this is a relationship business . . . speaking only of wine . . . there is no brand that someone has to have.”

“Try to build and maintain good relationships with retailers who share our vision and are open to working with brands that are not necessary the top sellers or controlled by the large suppliers and distributors.”

“The small independents are not happy about the wholesaler relationships with the big stores, ie Walmart and grocery stores.”

“Smart retailers seem to like smaller quality brands, helps them compete against "the lowest price" mentality that often exists for the most well known brands.”

“Wholesalers are under increasing pressure from multi-nationals who have to keep the investment bankers happy. As a result unrealistic pressures from wholesalers are severely straining relationships. Ridiculous surveys must stop!”

“The big guys are getting worse and worse with the consolidation. Their service is greatly affected.”

“Relationship is OK. Big retailers/grocers/Club stores getting more demanding than ever, squeezing us on price, delivery, and service demands.”


Until Monday, Megan

“Half of the modern drugs could well be thrown out of the window, except that the birds might eat them.”
Dr. Martin Henry Fischer

--------- Sell Day Calendar ----------
Today's Sell Day: 10
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

Industry Trends on the Horizon

A lot has happened in the past several months that many could not have predicted just last year. Consolidation especially seems to be one of the main recurring themes. Just recently we’ve seen mergers between distributors (Glazer’s and Judge and Dolph in Illinois, for example) and mergers with suppliers (Constellation and Fortune, V&S and Pernod and Diageo and Ketel One, to name a few).

There have also been a lot of changes in the legislative arena, particularly as states battle it out over direct-to-consumer sales and wholesalers look to spread their wings. For example, who would have predicted that Southern would enter Texas just a couple of years ago? As far as consumer trends go, we know that Americans are trading up, drinking vodka and more open to experimenting then ever before. But what’s next? We asked readers what they see as the next big trend in the wine and/or spirits industry, and here’s what they had to say:

“Organic/biodynamic/environmentally friendly products will receive more interest, and the super fresh herbal/aromatic cocktail craze will continue to grow.”

“Pernod Ricard.”

“Distributors becoming Suppliers.”

“Pisco from Peru.”

“Consolidation of players as climate change makes agricultural pursuits a little tougher. Potential shift to varietals more suited to warmer weather. Greater scarcity for cool-climate types, leading to greater price stratification.”

“Continued growth of non-major wine areas. High end Rum growth and continued growth of Bourbon.”

“If I could predict trends I'd be on a yacht in the Greek Islands rather than filling out this survey.”

“Wine will continue to succeed with big red blends, and the exposure of less popular varietals that are more consumer friendly (Petite Sirah, Tempranillo) Also look out for off the wall stuff ie.(the ever popular Pomegranate).”

“Continued innovation in packaging, flavors and premixed cocktails.”

“In my area a move away from oaky wines.”

“Fresh ingredients in cocktails with still more upside on premium liquors.”

“Higher end brands will leverage their brands in lower-tier products. Big retailers will lower prices and profit margins throughout the retail industry. Retailers outside of the big-box stores will need to develop a strong value proposition to lure and keep consumers.”

“Far east products.”

“Reemergence of imports other then Australian, continued consolidation lead to the slow disappearance of regional and specialty brands. Continue private label growth for large chains.”

“Spanish Brandies; Armagnacs; artisan brandies; more limited editions and vintages in all categories.”

“More private or custom label brands taking up shelf space/ menu space in chains.”

“Implosion of the theory that 21-25 years olds like wine...it’s just not true.”

“Innovative use of technology to better customize retail selection, better inform distribution and supply. Consumer blogging will have huge and unexpected impact.”

“The number of folks going out of biz. Not consolidation. More like abandon ship.”


Until tomorrow, Megan

“There is no cure for birth and death save to enjoy the interval.”
George Santayana

--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Wine Imports Lag in February

Domestic table wine faired far better then imports in the four weeks to February 24, according to IRI supermarket food and drug scan data. Dollar sales of domestic table wine rose 4.7%, while imports declined -1.1%. Volume of domestic wine grew 1.2%, while imports decreased nearly -5%. Overall, table wine increased 3.3% by value and volume was flat.

There are several possible factors at play. One, the diminishing dollar and sturdy euro may have already taken a toll on imports, particularly those from Europe. Two, Australian imports are expected to take a price increase after a recent drought dramatically reduced grapes supplies. Three, it could always have something to do with mix and comps.

The rate of growth for white wine continues to surpass red wine, according to IRI data. Red table wine grew almost 3% in value and declined -0.1% in volume. Meanwhile, dollar sales of white wine grew 4.8%, while volume was up 1.8%.

Merlot and Syrah/Shiraz showed the great weakness in February. Dollar sales of Merlot declined -3.8%, while volume was down 3%. We thought the “Sideways effect” was over, but perhaps not. Syrah/Shiraz, meanwhile, showed an even slower rate of growth. Value and volume both declined -6.1%. Some say Australia is experiencing a backlash in the U.S., with a mix of rising prices and a perceived “cheap” image among consumers. Perhaps Shiraz sales are hurting as a result – of course, we’re only speculating and it could simply be a result of mix/shift.

Cabernet, Pinor Noir and Zinfandel all exemplified growth in February. Cabernet Sauvignon dollar sales grew 5.3% and volume was up 3.5%. Pinot Noir showed the highest rate of growth yet again among the reds, with value growing 15.5% and volume increasing 17%. Lastly, Zinfandel grew 13.4% in value and 12.1% in volume.

The varietals most responsible for growth among white wines were Sauvignon Blanc/Fume Blanc, Pinot Grigio/Gris and trusty Chardonnay. Dollar sales of Sauvignon Blanc rose 12.4% and volume grew 8.9%. Pinot Grigio’s value and volume increased 9% and 6.6%, respectively. Chardonnay saw dollar sales grow 3.2% and volume jump 2.3%.

Australia, France and Italy showed the biggest decline in growth rate, while South Africa, Argentina and New Zealand were on the up and up. Dollar sales of Australia declined -3.4%, while France and Italy were down -4.5% and -5.5%, respectively. Volumes of Australia decreased 3%, followed by France (-6.5%) and Italy (-12.2%). The poor U.S. economy negatively impacted Australia, France and Italy, as you can see. Australia has been successful, however, with getting consumers to trade up to more expensive wines from the land down under.

Meanwhile, dollar sales of South Africa surged 44.2%, followed by Argentina (37%) and New Zealand (23.7%).

Out of the domestic wines, Oregon showed the most growth with dollar sales up 23.5% and volume up 17.1%. Washington wines rose almost 11% in value and 7% in volume. Lastly, California saw dollar sales gain 4.2% in February and volume rise 1%.

Overall, wines priced in premium ($11-$14.99) and super-premium ($15-$19.99) categories posted the highest rate of growth. Premium wines grew 12.4% in value and 12.3% in volume, while super-premium wines grew 17.2% in dollar sales and 18.7% in case sales. Growth rates for wines priced $8.99 and below were all in decline.

The top five wine brands by dollar sales all posted growth. Dollar sales rose the following amount, starting with the number one brand: Yellow Tail (2.4%), Sutter Home (4%), Franzia (2.6%), Woodbridge (0.6%) and K-J Vintners Reserve (4.3%).

NEW WSWA BOARD OFFICERS

The WSWA announced its new board officers this week at the trade group’s annual convention. The new board roster includes: Chairman Jack Goldenberg of Quality Wine & Spirits; Vice Chairman W. Rockwell Wirtz of Wirtz Beverage Group; Senior Vice President John Baker of National Wine & Spirits; Vice President Robert Harmelin of Allied Beverage Group; Secretary Charles Merinoff of Charmer Sunbelt Group; and Treasurer Douglas Hertz of United Distributors.

Todd Epsten of Major Brands Premium Beverage Distributors was named a board representative from the association’s Large Member Caucus, joining Vern Underwood of Young’s Market Company in that role.

UNITED SPIRITS DENIES BACARDI TALK

United Spirits (USL), owned by Vijay Mallaya, denied media reports that Bacardi is in talks with USL to acquire a stake.

"The company is not in conversation with anyone in this regard. The published news item is purely speculative,'' United Spirits said in a filing to the Bombay Stock Exchange yesterday.

The Economic Times reported last week that Bacardi’s ceo Andreas Gembler had indicated the company was interested in USL's potential move for private placement of treasury stocks with a strategic partner.

WSD BRIEF:

SHIPCOMPLIANT AND THE WINE INSTITUTE jointly launched a new version of the direct shipping portal within the Wine Institute website (wineinstitute.shipcompliant.com). The portal provides state by state shipping rules, carrier shipping policy table, direct shipping permit applications, state contact information, and a volume conversion tool for use in reporting, all available to the public.

Until tomorrow, Megan

“Reprove thy friend privately; commend him publicly.”
Solon

--------- Sell Day Calendar ----------
Today's Sell Day: 7
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0

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.

Tequila Surges Ahead in February

The rate of growth for spirits slowed in the four weeks to February 24, with dollar sales up 2.1% and volume up 0.4%, according to IRI food and drug scans. In comparison, spirits sales in January increased 7.8% and volume rose 5%.

The fastest growing spirits category continues to be tequila, with dollar sales growing 8.7% and volumes up 5.3%. Vodka remained in second place in terms of dollar sales (up 4.7%), while volume grew 3.4%. Meanwhile, the rate of growth for rum slowed a bit in February after coming slightly ahead of vodka in January. Dollar sales of rum grew 3.5% and volume rose 1.8%. Brandy surprisingly fared better then rum, with dollar sales up 4.1% and volume up 4.3%.

Sales of whiskey and gin were virtually flat, both up 0.8%, respectively, while volume declined
-1.7% for whiskey and -2.1% for gin. Cognac was once again in big declines, both in dollar sales (-4.8%) and volume (-6.8%). Irish whiskey continued to show the highest rate of growth for whiskey in February. Dollar sales grew 25.4% and volume rose 24.4%. Scotch whisky dollar value rose 0.3% and North American was up 0.5%.

PRICE CATEGORIES. Mid-value vodka did slightly better then ultra-premium vodka, with mid-value dollar sales up 5.4% and ultra-premium sales increasing 5.2%, respectively. Volumes of ultra-premium vodka, however, were much higher, up 7.5%, while mid-value vodka rose 5.8%.

Ultra-premium whiskey was once again the fastest growing price category in terms of dollar sales, rising 6%. Volumes, however, declined -1.6%.

Ultra-premium rum again made huge leaps in value, rising 134.2%. Volume grew 161.4%. The second fastest growing price category, value rum, was far behind in dollar sales (3.5%) and volume (1.2%).

Expensive tequila is apparently all the craze today, with ultra-premium taking the cake. The value of ultra-premium tequila rose 30%, while volume grew 33%. The next in line, super-premium tequila, increased 18.2% in dollar sales and 22.7% in volume.

Gin, meanwhile, only saw dollar sales grow in the premium price category. Premium gin’s retail value grew 3.7% in February, while volumes grew 3%. Ultra-premium gin declined a whopping
-8.5% in value and -8.8% in volume.

BRAND RANK. Diageo’s Smirnoff Vodka gained 0.8 share points and its dollar sales rose 8.7% from the same period last year. Bacardi lost -0.5 share points but gained 2.2% of dollar sales. Captain Morgan (owned by Diageo), meanwhile, gained 0.2 share points and jumped 4% in value. Jack Daniels’ (owned by Brown-Forman) share was flat in February as it rose 0.4% in dollar sales. Lastly, Absolut gained 0.6 share points and rose 10% in dollar sales.

As we mentioned earlier, higher priced tequila is performing especially well in the category. Jose Cuervo (Diageo) was down -0.3% in value and lost -3.3 share points. Sauza was up 3.1% in value, but lost a share point. Patron, meanwhile, is on fire, growing 33.2% in dollar sales and gaining 3 share points.

WIRTZ ANNOUNCES STRATEGIC ALIGNMENT

Rocky Wirtz, chairman of the Chicago-based Wirtz Corporation, announced today that the company’s national portfolio of wine, spirit and beer distributorships would be united under a new organizational operation of the Wirtz Beverage Group (WBG). Additional announcements, including corporate leadership, operational efficiencies and strategic partnerships will be forthcoming.

Companies under the new structure include Judge & Dolph and Callison Distributing of Illinois; Hawkeye Wine & Spirits of Iowa; Griggs, Cooper & Co. and Mark VII of Minnesota; DeLuca Liquor & Wine, Coors of Las Vegas, and Silver State Liquor & Wine of Nevada; and Edison Liquor Corporation of Wisconsin.

The new operation will be led by Rocky and include an executive committee to manage the strategic direction of the Wirtz Beverage companies. Each distribution affiliate will report to a state general manager who will oversee state operations under, for example, Wirtz Beverage Nevada. These general managers will comprise the Wirtz Beverage Group operating committee to manage the short-term cross function issues and human resources, finance, IT, sales and marketing and operations functions of the state distribution affiliates.

There’s been a lot of movement in the Wirtz Corp. in the past couple of weeks. Recall that last month, Wirtz Beverage announced a deal with Glazer’s Distributors of Texas to form the largest wholesale distributor in Illinois. We have a feeling that 2008 will see many more changes in the distributor world.

ABSOLUT APOLOGIZES FOR ‘ANTI-AMERICAN’ AD

Several people in the U.S. are angry over an Absolut ad in Mexico that they are calling un-American. The ad depicts what a map of North America might look like “In an Absolut World.” It features a 1830s-era map when Mexico included California, Texas and other southwestern states before the Mexican-American war.

Absolut has reportedly received numerous complains about the ad, which never ran in the U.S. The ad ran for about two months in Mexico and is scheduled to end this week.

Critics say the advertisement adds fire to already heated immigration issues, which Absolut says was not its intention. Calls to boycott Absolut were all over the internet this weekend.

"In no way was it meant to offend or disparage, nor does it advocate an altering of borders, nor does it lend support to any anti-American sentiment, nor does it reflect immigration issues," Absolut said in a statement.

Absolut said the ad was designed for a Mexican audience and intended to recall "a time which the population of Mexico might feel was more ideal," reports the AP.

ITALIAN WINES UNDER INVESTIGATION

Italian authorities are investigating value wines and luxury wines for incidents of adulteration and fraud. Police are reportedly examining the cheap end of the market amid claims that the wine was being cut with sugar, sulphuric and hydrochloric acid, according L'Espresso. Twenty companies are currently being investigated. Two companies based in Taranto and run by the local Sacra Corona Unita mafia were the main source of the bootleg beverage, the report said.

Reports of contaminated wine come more than a week after several countries banned Italian buffalo mozzarella due to fears it was tainted with dioxins from illegal waste burning near Naples, says Reuters.

Italy assured the EU that its wine was safe to drink on Friday (April 4). Italian authorities claim only water and sugar was added to the wines and there is no health risk.

Separately, 600,000 bottles of vintage Brunello di Montalcino have been seized by investigators, who suspect winemakers used grapes other than Sangiovese.

BACARDI LOOKING EASTWARD

Bacardi ceo Andreas Gembler say the company is ready to actively pursue acquisition opportunities in India and China after taking a slower-moving approach in the past. It has traditionally lagged behind Diageo and Pernod in the pursuit for emerging markets, where Bacardi says it will push its Scotch portfolio.

"The message to the team is: premium, premium, premium. The thrust will be on the premium age profiles of Dewar's scotch, and not on the standard offering (Dewar's White Label)," Gembler told the Economic Times.

He also indicated that Bacardi would be interested in a potential move by Vijay Mallya’s United Spirits (USL) for private placement of treasury stocks with a strategic partner.

WSD BRIEFS:

MORE ABSOLUT. Speaking of Absolut, the company is releasing two new print ad executions centered on homosexuality. The ads touch on the issue of gay marriage and the idea that all men are created equal. "As a company, we respect gay men and lesbians not simply in advertising messages, but behind the scenes as well,” said Jeffrey Moran, Absolut spokesperson.

DON SEBASTIANI & SONS are repositioning Smoking Loon and Pepperwood Grove with new upscale packaging, the company said today. In addition to the updated labels, both brands will go up about a dollar in retail price in most markets.

CHAIRMAN OF CONSTELLATION EUROPE, Christopher Carson, has left the company to join Gruppo Italiano Vini as ceo. Carson stepped down as ceo of Constellation Europe in 2005.

WILLIAM GRANT & SONS has appointed Ted Roman as the new senior VP of Sales of William Grant & Sons USA, effective immediately. Roman comes to William Grant & Sons from Pernod Ricard USA where he held the same position.

DISTELL USA has appointed Joanne Newborn to head up Marketing for their North American Wine Division. Her focus will be on several key brands in Distell’s wine portfolio, including Two Oceans, Nederburg, Durbanville Hills, Obikwa and Fleur du Cap in both the United States and Canada.

TODAY’S BORDEAUX. If you are interested in learning more about Today’s Bordeaux wine expo in New York (April 14th), Chicago (April 15th), and Los Angeles (April 17th), click here: www.todaysbordeaux.com


Until tomorrow, Megan

“Youth would be an ideal state if it came a little later in life.”
Herbert Henry Asquith

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California Wine Sales in ‘07

Fueled by strong gains in premium California wine volume, California wines sales in the U.S. continued to increase in 2007 to a record high 457 million gallons (192.1 million nine-liter cases), up 2% over the previous year, reports the California Wine Institute. The retail value of these shipments increased 6% to $18.9 billion, according to the year-end summary in the Gomberg-Fredrikson Report.

Total California winery shipments to all markets in the U.S. and abroad increased 3% to 554 million gallons (233.2 million nine-liter cases) last year.

"The long-term trend for California wine is favorable with the U.S. wine market growing for 14 consecutive years, increasing 66% by volume from 1993 to 2007," said wine industry consultant Jon Fredrikson. "Wine continues to enjoy a positive standing with the press, government and consumers, and many positive news reports on moderate wine consumption and health have also contributed to its positive image. Though the economy is slowing, wine is gaining traction among American adult consumers, and it is likely that wine consumption will continue to expand over the next decade."

DIRECT TO CONSUMER SALES. While more than 95% of wine is delivered through the three-tier system, many wineries have focused more on direct-to-consumer sales since the 2005 U.S. Supreme Court decision in spite of legislative problems and the economic slowdown, says the Wine Institute.

"Direct sales in 2007 increased 7.4% from 2006 while the previous year's direct sales grew 33%. The effect of the Supreme Court verdict that accelerated 2006 direct sales growth may be settling, and the slowing economy and increased complexity of the direct sales legislation are also factors, but, the industry appears to be cautiously optimistic as wineries continue to invest in direct sales marketing," said Katie Hoertkorn, founder and ceo of New Vine Logistics, a direct sales wine fulfillment company.

U.S. LARGEST RETAIL MARKET. California wine sales in the U.S., other states and foreign producers rose 4% compared to the previous year to 745 million gallons (313 million cases) for a total retail value of $30 billion. This value makes the U.S. the largest retail wine market in the world. Of the total volume, table wine sales were 650 million gallons; dessert wine 62 million gallons; and sparkling wine 33 million gallons. California wine's 457 million gallons shipped in the U.S. accounted for a 61% market share of the volume sold.

MORE WINE SHOPPING IN GROCERY. Wine purchased by consumers in U.S. food stores increased by 2.4 million cases, up 4% in 2007, according to Nielsen. By volume, Chardonnay (19%), Cabernet Sauvignon (11%), Merlot (10%), and White Zinfandel (8%) accounted for a 48% share of market in U.S. food stores. Cabernet Sauvignon grew the most, expanding by 723,000 cases, up 11%, with notable gains for Pinot Noir, Zinfandel, Sauvignon Blanc, Riesling and Pinot Grigio. Nielson reported that U.S. consumers are making fewer shopping trips as they look for ways to combine errands and save money in an effort to battle rising gas prices and other economic pressures. Retailers increased store openings to respond to the consumer desire for convenience and value.

CONSUMERS LOVE THE BUBBLY. Sparkling wine/champagne consumption edged up 1% in 2007 to a total of 33 million gallons (13.7 million cases), compared to the previous year. California accounted for 55% of the total volume sold. The sparkling wine/champagne category represents about 4.4% of all wine sales in the U.S.

U.S. EXPORTS REACH NEW HIGH. U.S. wine exports, 95% from California, totaled $951 million and 453 million liters (120 million gallons) in 2007, and increased 8.6% in value and 12% in volume, compared to 2006. In Europe, where the U.S. ships more than half of its sales abroad, exports totaled $474 million. Wine exports to Canada were $234 million, up 23%, compared to the previous year. The long-term trend of California wine exports shows steady expansion, says the Wine Institute, with the 2007 number representing a 77% increase in exports by value in the last decade.

ON THE DOWNSIDE. Although California wines are showing momentum in the U.S., imports continue to grow at a faster rate and take more market share. Younger drinkers in particular seem to prefer imports. In addition, on-premise establishments, such as restaurants and bars, are seeing a slowdown as consumers try and save a buck in these tougher times. As a result, some restaurants are stocking less high-end wines for fear they’ll never be bought.

V&S BUTTERFLY EFFECT

Since Pernod surprised the industry earlier this week by acquiring Absolut, a lot of questions are hanging in the air. In a research note yesterday, UBS analyst Melissa Earlam attempted to answer some of those questions, including: What is the future for Fortune Brands and Maxxium? Who will distribute or acquire Stolichnaya vodka? Could Remy Cointreau or Patrón tequila be acquired?

As Melissa put it, “the neatest solution” would be Fortune acquiring Stoli, which could end up benefiting everybody involved. If Fortune succeeded in doing so, it could partially offset the loss of Absolut by taking the US Stoli distribution from Pernod. Fortune would gain a premium vodka, and Pernod would have the chance to start distributing Absolut sooner in the U.S.

“This would plug Fortune’s premium vodka gap and could cause the Future Brands JV to be terminated ahead of “early 2012”. This would accelerate the release of synergies for Pernod. Fortune could thereafter possibly even acquire Stolichnaya (UBSe US$3-3.5bn),” said Melissa.

UBS speculates that Campari could acquire Plymouth Gin, which Pernod will eventually sell, and could even distribute either Remy or Fortune Brands’ portfolios in certain markets. Meanwhile, Bacardi or Brown-Forman could eventually snatch Remy Cointreau, while Pernod, Bacardi and even Diageo might duke it out for Patron.

“Pernod’s 20.8x EV/EBITDA paid for V&S highlights the scarcity value of premium spirits (even more so for Cognac and Champagne),” said Melissa.


Until Monday, Megan

“Man is a credulous animal, and must believe something; in the absence of good grounds for belief, he will be satisfied with bad ones.”
Bertrand Russell

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Constellation: The Year of Premiums

A number of temporary issues negatively impacted Constellation’s results in the fiscal year, but overall the company had a solid performance. Issues between the Australian and UK businesses resulting in lower sales continue to take a toll on Constellation, albeit small, in addition to the recent reduction in U.S. distributor inventory in the second quarter. Those factors were partially offset by the benefits of the Vincor, Svedka and Fortune Brands acquisitions and favorable foreign currency.

In other words, Constellation has been busy this year with the following: the acquisition of Svedka and the Fortune Brands wine portfolio, selling the Almaden and Inglenook brands, completing Crown Imports transition, reducing U.S. distributor wine inventory and the creation of a j-v for Matthew Clark.

Distributor inventories were at STZ’s targeted levels by the end of February, and the company does not have any plans to reduce the inventories further.

“We finished it pretty much in the second half of last year and we’re very comfortable with distributor inventory levels. No intention at this stage to reduce them further...reduction in Fortune inventory was also completed at the end of last year,” said Rob Sands, president and ceo.

U.S. NET WINE SALES. In the fiscal year, branded wine sales decreased -3% in North America, which reflected solid growth in Canada, but was offset by the distributor inventory reduction during the first half of fiscal 2008. Sales to retailers grew in the low to mid-single digits.

Fourth quarter branded wine net sales decreased -5%, as the completion of the inventory reduction earlier in the year resulted in a timing shift for the company's U.S. wine sales. Under new shipment patterns, and after the peak holiday selling period in the third quarter, the company returned to the lower distributor inventory levels achieved at the end of the second quarter, which negatively impacted fourth quarter growth.

“There was positive depletion growth in the fourth quarter for North American wine and yes, there was a -5% decline in sales, but as we told you in the past that was primarily related to the change in shipment patterns as result of distributor inventory reduction. Historically, we shift more production in the fourth quarter than what will be our new shipment patterns. The sales, consequently, downturn was fully expected and not reflective of underlying sales trends,” said Rob.

He also remarked that the depletions from the 3rd quarter to the 4th quarter improved.

SPIRITS. Total spirits net sales increased 26%, primarily due to the March 2007 acquisition of Svedka, and grew 9% in organic net sales.

"Svedka continues delivering phenomenal sales performance and remains the fastest growing major imported premium vodka brand in the U.S.," said Sands.

ECONOMIC SLOWDOWN. The execs at Constellation do not think the current economic slowdown will have much of an impact on the premium and super-premium wine biz. Rob said that so far “it’s been business as usual,” but acknowledged there has been a shift from on-premise to off-premise.

“We do tend to see venue shifts in economic downturns. We’ve seen some shift from on-premise to off-premise, particularly a shift from off-premise to mass merchandisers away from chain and specialty wine accounts. In general, the wine business has been pretty strong.”

“In wine we continue to see much of the same trends...strong growth in the premium and premium-plus categories, especially in the super-premium category where we’re seeing very, very strong double digit growth, and strong trading up trends in the wine business. The very highest price tiers in the wine business may see some slight softness as result of the economy but basically that’s immaterial to the wine business as a whole.”

“We don’t anticipate that these categories should show any different momentum then they have in the past. Our acquisitions in general are performing extremely well and have added a lot of value to the company.”

MONDAVI BRANDS. Premium and super-premium wines are apparently doing well, but what about the Mondavi brands? As one analyst pointed out, the Mondavi brands suffered during the last recession roughly five years ago. Rob said, however, that things have changed since then, most notably the California harvest.

“I think the Mondavi brands are really strong brands and have even gotten stronger since that time. Our having acquired them and our execution against those brands has been superlative and we have strengthened those brands...brands like Woodbridge grew 6% last year. I can tell you right now that we would not have conservatively estimated that the brand would have grown at that rate but we were very pleased with the way it’s been performing,” said Rob.

“In the time period that you’re citing, there is a big factor between then and now. There was a big oversupply of grapes at that particular time that created some of the phenomenon in the marketplace like Two Buck Chuck, and we don’t have the same level of marginal players that we had in that timeframe...we also now have the strongest organization in the industry selling and marketing the Mondavi brands..”

UK AND AUSTRALIA. As Constellation as said in the past, the UK and Australian business continue to be impacted by pricing pressures driven by the large grocery retailers, Australian wine over-supply and U.K. duty increases. Due to these competitive pressures, the company's profitability in the U.K. and Australia businesses has decreased over the past few years.

Sands said the company believes “in the long-term value of both of these businesses, and are confident we are taking the right measures to improve operating efficiencies and our competitive position.” He also expects things to get better in fiscal 2009and beyond.

With that said, cfo Bob Ryder stated later in the call that problems with Australia were not anticipated when acquiring Hardy Wine Co. several years ago.

“The Hardy acquisition was a unique thing...the profits from Australian is a lot less then what we expected when we acquired Hardy.”

“The situation with Australian and the UK is a very unique set of circumstances...its bottomed out, we’re pretty optimistic at this stage that there’s only upside opposed to downside, and we’re talking about 10% of our EBIT. Its importance has greatly diminished...if you look at those factors, we’re pretty optimistic as we move forward,” said Rob. “Nature has helped us a little this year because of the low harvest in New Zealand, Australian ad the US as well.”

The company also said they do not anticipate impairment issues with any other acquisition.

ACQUSITION PROSPECTS. When asked whether there were any acquisitions on the horizon, particularly on the heels of Pernod buying V&S, Rob kept things pretty general:

“We’re pretty focused on optimizing our existing business and generating efficiencies...acquisitions remain a part of our strategy. So we won’t rule out acquisitions at this point...we are very well positioned for the future.”

“If it makes sense to dispose of anything and there’s a buyer and the right price can be attained, that’s always a possibility,” he continued.

VINCOR CANADA ACQUIRES MEDALLION WINE MARKETING

Vincor Canada today acquired the business of Medallion Wine Marketing, Inc., its affiliated company in Western Canada. Terms of the transaction were not disclosed.

As a result of the acquisition, Vincor Canada will assume direct responsibility for the distribution and sale in Western Canada of the wines of its affiliated companies, including Robert Mondavi, Hardys and Nobilo. Vincor will also become the western distributor for its sister company, Constellation Spirits.

Additionally, Vincor Canada will become the distributor for Quails’ Gate and CedarCreek VQA estate wineries from the Okanagan in the provinces of British Columbia, Alberta, Manitoba and Saskatchewan. Quails’ Gate Estate Winery remains owned and operated by the Stewart family. CedarCreek Estate Winery remains owned and operated by the Fitzpatrick family.

JACK DANIEL’S NAMES NEW MASTER DISTILLER

Jeff Arnett was named master distiller at the Jack Daniel Distillery at Lynchburg, Tenn., on Wednesday (April 2). He succeeds his mentor for the past seven years, Jimmy Bedford. The 41-year-old Arnett becomes just the seventh master distiller of Jack. Bedford retired last month after a 40-year career at Jack Daniel's, the last 20 as master distiller in which he became the promotional face behind the product.

WINE & SPIRITS CONTRIBUTE BILLIONS TO THE ECONOMY

The wine and spirits industry contributes over $137 billion to the U.S. economy every year, including more than 1.1 million jobs that pay almost $71 billion in wages, according to an economic study commissioned by the WSWA. For every dollar spent on wholesaling, according to the study, the economy realizes $1.41 in total value.

“Unlike countries without an independent wholesaler tier, the U.S. system is explicitly designed to prevent a black or gray market and keep all transactions for beverage alcohol in the U.S. on the books,” said ceo Craig Wolf.

View the entire study at www.wswa.org.

WSD BRIEF:

COLORADO LAWMAKERS VOTE NOT TO RAISE TAXES on beer, wine and spirits.
The House Finance Committee voted 9-2 Wednesday (April 2) against House Bill 1341, which would have raised taxes 2%. The measure would have also required the approval of Colorado voters this fall. Colorado has the lowest taxes on alcohol sales of any state in the country that taxes beer, wine and spirits, according to local reports.


Until tomorrow, Megan

“I finally figured out the only reason to be alive is to enjoy it.”
Rita Mae Brown

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Pernod to Sell Plymouth Gin and Fris Vodka

Pernod said today it plans to sell the Plymouth Gin and Fris Vodka brands it won as part of its deal with V&S. Speaking in a press conference, Emmanuel Babeau, Pernod's deputy managing director in charge of finance, said the company aims to sell Plymouth Gin within 6 months of the deal closing, which Pernod expects this summer, according to a report in Reuters. He declined to discuss what Plymouth might sell for.

There may also be some regional brands that Pernod may seek to unload, but "the idea is really to keep V&S as it is," Babeau said.

Pernod also said it plans to keep Cruzan rum, another brand it will get from the V&S buyout.

In the past, Campari Group said it might consider buying brands that are sold off once V&S is purchased. Perhaps the Italian company is in the market for a premium gin?

PERNOD WILL “FULFILL” BEAM’S CONTRACT WITH ABSOLUT

In a press conference this morning, Alain Barbet, ceo of Pernod Ricard USA, said Pernod will honor the distribution contract between Beam Global and V&S, which ends in 2012. (Beam currently distributes Absolut in the U.S. through the Future Brands joint-venture). In other words, Pernod will not attempt to break the contract and pay a fine in order to start distributing Absolut sooner in the U.S.

"It is a clear contract we will fulfill," he said, "It cannot be a unilateral decision," according to a report by MarketWatch's William Spain.

Alain also commented that the acquisition was not about “vanity,” but a “well-considered strategic move.”

With regards to the price, Alain said Pernod paid “a very good price,” pointing out that Pernod paid a lower multiple then Diageo did for Ketel One or Bacardi did for Grey Goose.

Alain declined to comment on how long Pernod will continue distributing Stoli before giving up the distribution rights. As you recall, the company said it would continue pushing Stoli for a transitional time until SPI could find another distributor.

Pernod also remains upbeat amid a looming recession in the U.S., despite taking on debt to pay for Absolut. Alain said that while they are seeing a slowdown, premium brands continue to do well, particularly in the off-premise.

“We are not seeing a lot of the doom and gloom that other industries are right now,” he said.

MAXXIUM SAYS “BUSINESS AS USUAL”

Now that Pernod has snatched V&S, the Swedish drinks company will be the second to leave Maxxium after Remy Cointreau. (Recall that Maxxium is a global distribution company, jointly owned by Beam Global, Rémy Cointreau, The Edrington Group and Vin & Sprit). Maxxium issued an announcement yesterday saying everything is “business as usual” until the V&S sale is finalized and approved by regulatory authorities.

"Maxxium is proud to have supported the success of V&S, and especially the Absolut brand, to its current market value, through the exceptional growth we delivered for seven years in a row,” said Ben van Doesburgh, ceo of Maxxium. “Together with our shareholders, we will define the future beyond the eventual V&S exit to ensure Maxxium remains a superior builder of premium spirits and wine brands in the markets in which we operate.”

Maxxium also confirmed that Pernod “has stated its intention to exit Maxxium at the latest two years after the sale is completed, and it is our intention to work with them to ensure a smooth transition for all our customers.”

NINTH CIRCUIT DENIES COSTCO A RE-HEARING

In yet another victory for distributors, the three-judge panel of the Ninth Circuit Court of Appeals unanimously denied Costco's petition for a re-hearing. Recall that the panel ruled in January that most of the Washington state regulations challenged by Costco are constitutional, which basically overturned a lower court’s decision that favored the retailer. Costco argues that the regulations restrict competition.

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

That means the only recourse for Costco is to take it all the way to the US Supreme Court. Are they willing to take it that far? One can never be sure, but if it goes there, and the Supreme Court agrees to hear it, we'll again have more language on the future of the three-tier system.

The decision in this case creates an important precedent for future courts to consider. As you’ll recall, this is the second federal circuit court to rule favorably for wholesalers and regulators.

NBWA president Craig Purser said in a statement: "This decision is a great victory for the people of Washington State, and it upholds the right of states to set alcohol policy as their citizens see fit."

To read more about the Costco case, click here.

CONTROL STATES VOLUMES GROW 5.7%

Spirits volumes in control states grew 5.7% in February, based on NABCA data as reported by UBS analyst Melissa Earlam. Year on year comps were easy with +1.6% for Feb 2007. Furthermore, Feb 08 had one extra day this year which also fell on a Friday. Adjusting for this market volume growth would have been 2.1%, according to Melissa.

Diageo’s February volume growth fell below the market at +4.8%. It lost some volume share, notably in Scotch, vodka, rum cordials and tequila, which UBS believes could be related to price increases. Diageo saw strong growth in Canadian whiskey, gin and cocktails.

Pernod’s volume performance continued to be weak in February at +1%. It gained share in rum and Irish whiskey, but lost share in vodka, gin, Scotch and brandy/Cognac where it is de-emphasizing VS growth.

B-F grew 1.4%, while Campari grew 6.9% and Remy grew 5.9% y/y.

UBS put a buy rating on Diageo, Pernod, Brown-Forman and Campari

Until tomorrow, Megan

“I never think of the future - it comes soon enough.”
Albert Einstein

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

Pernod Reigns Second in Command

As Pernod said yesterday in a statement, the French company is now “the world's co-leader in the wine and spirit industry” after acquiring V&S, second only to Diageo. Acquiring Absolut, in addition to Seagram’s and Allied Domecq in the past, was a part of Pernod’s ultimate plan to become the industry leader, the company said.

As you can imagine, there are lots of opinions being thrown around today concerning the V&S purchase. One of the market’s biggest concerns is whether Pernod over-paid. Most agree that, yes, $8.9 billion is a hefty sum, but well worth it for what Pernod will get out of the acquisition. Namely, Pernod filled the missing vodka niche in its portfolio with one of the biggest spirits brands in the world. Pernod is now also the second biggest wine and spirits company in the world and moved from fourth place to second place in the important U.S. market.

HOW PERNOD STAYED AHEAD. So how did Pernod execs manage to strike a deal with the Kingdom of Sweden? Pernod’s commitment to keeping V&S in tact as well as putting forth the highest bid ($8.9 billion) reportedly helped seal the deal. The Financial Times is also reporting that Pierre Pringuet speaks Swedish, which helped win over the Swedish government and ultimately land Absolut.

"It [Pernod] was a very clear winner," said Mats Odell, Sweden's financial markets minister, adding: "It was the only bid that would not cut the company into pieces," as quoted in the FT.

Recall that Fortune and Bacardi reportedly planned to split V&S with their respective private equity co-partners, Nordic and Ratos.

Acting coy was another part of Pernod’s strategy. By keeping mum in recent weeks, Pernod allowed the market to speculate that Fortune would be the clear winner, while Pernod remained “hugely committed” to buying Absolut.

As we mentioned before, analysts and industry insiders are touting a number of pros and cons in the Pernod/V&S merger. Here’s what people are saying:

PROS. The driving “pro” is that Absolut gives Pernod much more scale, which many think outweighs any negatives. Lower than expected penalty fees and high synergies will hopefully help offset the high price Pernod is paying for Absolut, according to analysts.

Meanwhile, Absolut gives Pernod a much bigger playing field against Diageo in the U.S., the world’s biggest and most profitable spirits market. Prior to acquiring Absolut, Pernod’s share of the U.S. spirits market was 8.6%. Now it is 14%, which is a marked improvement but still pales in comparison to Diageo’s 26% market share.

True, vodkas such as Grey Goose have stolen some of Absolut’s thunder in recent years, but Absolut still has 9% of the U.S. vodka market share by volume. That puts Absolut in second place behind Diageo’s Smirnoff, and first place among imported spirits brands.

It’s also possible that Pernod won’t have to pay such a high penalty cost to exit the Maxxium distribution j-v. In a statement yesterday, Pernod said exiting Maxxium would result in “a low contractual cost.”

Managing Director Pierre Pringuet said yesterday costs for exiting Vin & Sprit’s Maxxium distribution venture were likely to be in the range of $31.55 million.

"We were told it is a reasonable number," he told Reuters at a news conference.

“We believe the V&S acquisition ticks all the major outstanding boxes for Pernod’s investment case,” said UBS analyst Melissa Earlam in a note. “With the reality of M&A now in the open, we believe that the market should focus on (1) the potential upside from Absolut synergies, (2) the strength of Pernod’s organic performance.”

CONS. It always comes down to money. Everyone agrees that Pernod paid a premium for V&S, which the French company is funding through loads of debt. Execs promised that the debt will be paid off quickly, but some analysts are not convinced, particularly amid a slowing economy.

Pernod expects growth in Europe and other countries to help offset softness in the U.S. wine and spirits market, but some analysts warn that the cash crunch could affect alcohol sales globally. Also, the economic downturn could turn more severe then Pernod is betting, causing the company to take longer to raise more capital.

Pernod will have to focus on improving Absolut’s sales outside of the U.S., such as Asia, in addition to improving its image in the U.S. Total sales grew 9% last year, but US sales rose just 2% and sales outside the U.S. jumped 15%.

Leaving Maxxium may be more expensive then Pernod is betting. Remy Cointreau is reportedly paying $240 million to exit Maxxium next spring. Could Pernod end up paying more? Pringuet commented yesterday that the cost to exit Maxxium is not as high as Remy’s.

Lastly, will this begin a new wave of expensive deals in the spirits world? It appears that nothing comes cheap in this industry, which could mean that spirits companies are going to have to get used to paying a premium for brands. Other industry insiders predict that the Absolut acquisition could spark a wave of purchases in the industry, so stay tuned...

FEDERAL EXPRESS NOT LIABLE FOR UNDERAGE DELIVERY

In a blow to Internet wine retailers, The Massachusetts Supreme Court ruled last week that Wine.com, the Internet wine merchant, cannot lay blame for shipping wine to an underage girl on their common carrier, FedEx. The court upheld a five day suspension of Wine.com's license in the state.

A 19 year-old woman ordered wine from Wine.com, which was delivered to her home by FedEx without an ID check. Wine.com pays FedEx two dollars per package to check verify age of the buyer, but the FedEx deliveryman failed to do so. The Massachusetts ABC issued a suspension of Wine.com's license. Wine.com sued and it went to the Supreme Court.

TRUCKERS PREPARING TO STRIKE

Many independent truckers are planning a nationwide strike starting April 1 through April 3 as diesel fuel surpasses the $4 mark across much of the nation. Truckers say soaring diesel prices are making it difficult to support their families or pay bills, so they are encouraging fellow truckers to stop delivering loads over the next couple of days. Truckers that work for companies are usually compensated for gas, so they are less likely to participate.

WSD BRIEFS:

GEORGIA LEGISLATURE passed a bill that would allow residents to order up to 12 cases of wine directly from wineries each year over the Internet or phone. The measure now awaits Gov. Sonny Perdue’s signature, a conservative who is generally against pro-alcohol bills.

TRINCHERO FAMILY ESTATES is now importing Angove’s Vineyard Select Riesling. The Australian wine will be available in top wine shops and restaurants nationally with a suggested retail price of $17.99. According to Nielsen reports, Riesling sales in the U.S. were up 23% last year in supermarkets alone, adding up to $120 million. Australian Riesling grew 65% last year.


Until tomorrow, Megan

“Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity.”
Socrates

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Sell days this month: 22
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YTD sell days Over/Under: 0

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.