Interview: Stoli Not For Sale

Dear Client:

WSD had the chance to chat with Andrey Skurikhin, a minority shareholder for SPI (owner of Stolichnaya vodka), earlier this week. Despite media reports, Andrey insisted Stoli is not for sale and the company is instead focused on making improvements to the brand before seriously exploring any options. SPI also wants to put an end to litigation with the Russian government. Take a look below as you, dear reader, are a fly on the wall.

Wine & Spirits Daily: There are a lot of rumors in the press right now about Stolichnaya, and I understand that SPI would like to clear the air.

Andrey Skurikhin: Yes.

WSD: What will Stoli do after its distribution agreement with Pernod ends?

Andrey: We didn’t want to make any announcement now, but because of not fully correct information from the media we [felt compelled to say something]. It’s not our intention at the moment to sell the brand. We have had lengthy negotiations with Pernod Ricard about a possible deal...now, we are not looking for another partner to buy Stoli.

We believe that for the nearest future, we need to do some job on the brand side. I mean, right now we are restructuring the distribution, not only in the US but worldwide. You may have known that before 2004, we used to distribute the brand ourselves in the rest of the world outside the United States.

We are going to implement the same system now, as we do have relevant distribution experience and we are quite sure that by doing that, we will be able to better control the brand’s performance. In the United States, we are at the moment moving into the direction of establishing a new importer and hiring of a marketing team which will be in the United States representing our interest.

Then, we can explore different routes to market and ways of building up the sales team. We can do it ourselves and work directly with the local wholesalers in the States or we can create a joint venture with somebody, either a single brand, a great single brand company, or a larger company that has a significant portfolio at the premium level. Here, we still have not made the decision, some negotiations are ongoing, but the main decision has been taken that we’re not selling the brand and we want to do a better job on the marketing and distribution side in order to improve the brand’s positions and increase the volumes with time. Then we can come back later to the discussion on the possible sale.

Moreover, what I will call “Russian litigation” is still ongoing in some of the countries. We believe it must be finished in order not to distract from possible buyers of Stoli and not to be a factor when talking about the value of the brand.

Our chances are extremely high in the litigation. For instance, you may have heard in 2006 we won the proceeding in New York in the Southern District Court of New York in the United States,

WSD: Yes.

Andrey: Chances to win in the Russian litigation are very, very high according to the opinion of our lawyers and I am sure the lawyers of Pernod Ricard share this view. As you know, they are co-defendants in the court case.

WSD: The Court case has been stayed for a year, right?

Andrey: Correct, in order to agree on some amicable solution. When we won the court case in the United States, the economical ground behind the attack on Stoli disappeared because the United States in general is the major spirits market in the world. And for Stoli, it is by far the most important, both in volume and revenue.

The economical basis for the litigation, for the Russian government does not exist anymore and we believe having this in mind an amicable solution must be found anyway. Otherwise it’s absolutely a useless exercise on their side without any goal to be achieved.

We want these issues to vanish, to disappear before we move to the stage of the discussion of possible sale to whomever.

WSD: Okay. So I’m guessing there’s not much truth to the rumor that SPI hired the Lehman Brothers to explore a possible sale of Stoli?

Andrey: The situation is that in fact we’ve been working with Lehman for several years. We’ve been working with them on several assignments. We have been working with them on several projects in the development of SPI, but to say that we have hired them in order to sell the brand, it’s not correct at the moment.

WSD: There have been a couple of major vodka acquisitions recently, including Diageo and Ketel One, Pernod and Absolut, and Bacardi and Grey Goose. What are your thoughts on the major spirits companies racing to acquire vodka? How will this affect the industry as a whole?

Andrey: The trend is there, you are correct. Everybody wants to have their own brand in an important category and vodka is one of the most important categories in the spirits industry. Without it, it would be difficult to develop the other part of the portfolio.

I believe that in some time, how many years it wouldn’t be for me to define right now, but in some time Stoli will have to be a product in the portfolio of a larger group. This is an attractive trend and you cannot change it, but right now, this is not the moment when we should take this decision. We need to do something with the brand, as I said, and then we will find the good family for our brand. Whether it will be one of the current large companies or it will be a new company, I do not know.

The market is moving and somebody acquires somebody so you can then end up with one, two, three, more major companies in the world and Stoli can become part of those portfolios. If you look at the industry map, you will see that there are several players which on a single basis don’t have the whole portfolio, the whole line, and something can happen with them. They can merge, they can follow some acquisitions. It’s quite possible that there will be new players. For us, I would say too prematurely for us to start thinking where we will land. We need to do some work on the brand side and then in parallel, follow the development of the market. We will see.

WSD: Pernod always said it would acquire either Stoli or Absolut. What are your thoughts on Pernod purchasing Absolut instead of Stoli?

Andrey: There are some limits on what I can say out of confidentiality provisions, but the discussion, yes, took place for quite some time with Pernod. SPI did not have any strong or serious disagreements with them. I would say we had achieved our agreement on all major parts of the possible deal.

The issue is that the discussion included the Russian government. Unfortunately, I cannot say the Russian government acted in those negotiations very reasonably or wisely or swiftly.

All together, it led the situation to the point when Pernod Ricard had to take the decision. When the Swedish government announced the parties must file their initial bids by the end of January, it was in the very sense of business for Pernod Ricard to take that option. They should have finalized one of the possible deals either with Stoli or with Absolut and because the Russian government is not very predictable, they had to follow the option of Absolut. It was a wise decision which we thought would take place. It was not something unexpected for us. We really thought it would happen.

We just analyzed the history with our distributors for the last 10 years. As you know, within this period in the United States we have had several distributors. We realized that this frequent change of hands is not beneficial for the brand. The brand suffered. Stoli is a great brand – I would say one of the greatest brands of vodka in the United States and it has been in the market for almost 40 years. Everybody knows it.

WSD: Just today, I read an article in the New York Post that one of the presidential candidates, Obama, says he enjoys drinking Stoli in Chicago at the bar.

Andrey: It’s a great brand and it’s been really resilient. Because of that, change of the distributor was not very detrimental to the brand but we lost some momentum due to the lack of focus and consistency in the marketplace by different distributors. We believe this did not help the growth rate, which unfortunately right now is higher with our competitors than with us. We want to change that and then come back to the discussion to link Stoli with some other portfolio. First, we need to bring this focus on the brand back and then we’ll see.

WSD: Thank you for your time, Andrey.

MAXXIUM CHIEF RESIGNS, V&S EXITS JULY 31ST

Ben van Doesburgh, ceo of Maxxium Worldwide, will be leaving the spirits marketing and distribution joint-venture on July 31, the company announced today. After leading Maxxium for almost four years, he “will be starting a new chapter in his professional career.”

Vin & Sprit also announced it will be leaving Maxxium July 31st, which was expected after Pernod acquired the Swedish drinks group earlier this year. Remy announced in 2006 it would leave Maxxium in 2009.

Recall that Maxxium is currently owned by Beam Global, Remy Cointreau, The Edrington Group and Vin & Sprit

A temporary Maxxium Management Transition Group has been set-up to ensure a smooth transition. It is comprised of the existing Maxxium Executive Board, who will assume collective responsibility and report to the Maxxium Supervisory Board members Bill Farrar from The Edrington Group and Donard Gaynor from Beam Global, who will co-Chair the Group.

Donard Gaynor stated: “The Maxxium Supervisory Board would like to express its appreciation and thanks to Ben van Doesburgh for his contributions to Maxxium over the past four years.”

Immediate changes are as follows: Erik Juul-Mortensen, president of Maxxium global travel retail and Michael Sainsbury, global wine director will report to Brian Mackie, Maxxium Worldwide cfo, The Americas.

EU EXTENDS ANTI-TRUST REVIEW OF ABSOLUT

The European Commission said today that it extended its antitrust review of Pernod’s plan to acquire Vin & Sprit for almost $9 billion following Pernod’s agreement to make divestments. Specifics were not disclosed.

The deadline has been extended to July 17 from July 3 to let the EU survey customers and competitors about remedies offered by the parties. A Pernod spokeswoman said the deadline extension is part of the "normal process" of the EU's review.


Until Monday, Megan

“Love truth, and pardon error.”
Voltaire

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

Pernod USA Welcomes Paul Duffy

Dear Client:

As WSD reported this morning, Pernod Ricard USA announced that Alain Barbet, currently president and chief of Pernod USA, has been named chairman and ceo, Pernod Ricard Americas, effective July 1, 2008.

Barbet replaces Michel Bord, who has been named deputy managing director, Pernod Ricard, in charge of the company’s global distribution network. Barbet's successor at Pernod Ricard USA will be Paul Duffy, formerly chairman and ceo, Irish Distillers.

Duffy will be based at Pernod Ricard USA headquarters in Purchase, N.Y., and will report to Barbet, who will work at Pernod Ricard Americas headquarters in Montreal, Canada.

Thierry Billot, who currently holds the role of chairman and ceo of Pernod Ricard Europe, has also been named deputy managing director in charge of brands.

Billot and Bord join the group’s management team which consists of Patrick Ricard, (chairman and ceo), Pierre Pringuet, (managing director), Emmanuel Babeau, (deputy managing director in charge of finance), and Bruno Rain, (deputy managing director in charge of human resources).

From November 5, 2008, the date of the next annual meeting, the separation of the office of chairman of the board of directors and managing director will take place. The new group management team will then comprise a ceo, Pierre Pringuet, together with four deputy managing directors.

STUDY: MOST MINORS OBTAIN ALCOHOL FROM FRIENDS AND FAMILY

A four-year federal survey by the U.S. Substance Abuse and Mental Health Services Administration has found that the vast majority of underage drinkers are obtaining alcohol from non-commercial sources and are drinking it in their home or in someone else’s home. The study was based on responses of 158,000 young Americans from 2002 to 2006.

Ninety percent of underage drinkers were either given alcohol for free or had someone else purchase it for them. Eighty-four percent (84%) of underage drinkers were in their own home or someone else’s home when they had their last drink, while 9.4% were at a restaurant, bar or club. Among all underage current drinkers, 21.6% gave money to someone else to purchase the alcohol and 9.3% purchased the alcohol themselves. The remaining 69% of underage drinkers did not pay for the alcohol on their last drinking occasion.

Of the 9.3% of minors who purchased alcohol for themselves, 5.2% bought it at a liquor, convenience or grocery store and 2.8% bought it at a restaurant, bar or club.

Over 40% of underage drinkers received alcohol for free from adults over 21, including 25.8% who were given alcohol by an unrelated person aged 21 or older, 6.4% who were given alcohol by their parent or guardian, and 8.3% who were given alcohol by another family member aged 21 or older.

In the past month alcohol use dropped 11% from 7.4% in 2002 to 6.6% in 2006 for youth aged 12 to 14. It declined 8% from 28.3% in 2002 to 26.1% in 2006 for youth aged 15 to 17, and remained flat at around 51% for 18 to 20 year olds in the same time period.

“Our country is making important progress in preventing and reducing underage drinking but much more needs to be done. Parents and the entire community working together can make a difference,” said Discus president Peter Cressy.

2008 COCKTAIL TRENDS

Diageo and Zagat have released new information about drinking choices in the U.S., based on results of “The idrinkwell.com 2008 National Survey on Cocktail Culture, Attitudes and Trends.” Here are a few results:

1. The Margarita, Daiquiri and Pina Colada are the most popular summer cocktails ordered by Americans

2. Brand name is the number one way consumers judge the quality of their cocktail, more so than price, the type of establishment, or drink presentation

3. When it comes to the person Americans are most likely to ask for a restaurant/drinking establishment recommendation, colleagues are considered highly reliable for business purposes (47%), and spouses are sought for their recommendations when going out for drinks for pleasure (45%)

4. Birthdays are the best reason to toast, surveyors said, while the next two most popular occasions for drinks celebrations were vacations, then job promotions

Recall that Diageo and Zagat joined to form drinkwellä (www.idrinkwell.com), which is a program developed to help consumers find the best drinks and drinking establishments.

FTC APPROVES ALCOHOL INDUSTRY’S MARKETING EFFORTS

The latest FTC report on alcohol marketing and self-regulation found that more than 92% of radio, television, and print ads met the 70% standard, which means that 70% of the audience consists of adults over 21 years old.

Because placements that missed the target were concentrated in smaller media, more than 97% of total alcohol advertising "impressions" (individual exposures to advertising) met the 70% standard. The report also notes that the wine, beer and spirits industries have now adopted systems for third-party review of advertising complaints.

The FTC recommends that the industry adopt the 70% standard for event sponsorships, and that self-regulatory review boards accept complaints from competitors and anonymous complainants.

However, it also found that a 70% placement standard has now been adopted for Internet advertising, at the agency's request.

The Commission vote to approve the Report on Alcohol Marketing and Advertising was 4-0.

JIM BEAM LAUNCHES “THE STUFF INSIDE.”

Jim Beam will launch a fully integrated marketing campaign beginning in July and lasting throughout 2008. Says the company: “Through this new campaign, Jim Beam will highlight individuals and organizations that share its own values and have “The Stuff Inside”, - those who act with character, do the right thing because it’s the right thing to do, help others who are less fortunate or persevere through a struggle.”

WSD BRIEFS:

FOSTER’S HAS APPOINTED MICHAEL ULLMER, a senior exec from the National Australia Bank, to its board as an independent director, effective the beginning of July. Ullmer is a former cfo of the bank and is now the bank’s deputy group ceo. The appointment comes as Foster’s undertakes a review of its wine business after admitting it paid too much for Beringer and Southcorp.

BARACK OBAMA URGED TESCO TO WORK WITH THE UFCW, United Food & Commercial Workers Union, in a letter to Tesco ceo Sir Terry Leahy, according to the Daily Telegraph. Tesco currently has a policy of non-engagement with unions in the U.S. with its Fresh & Easy stores, something the UFCW has battled against. The union backed Obama’s campaign to win the democratic nomination and also ran television advertisements urging voters to support him.


Until tomorrow, Megan

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

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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.

Alert: Alain Barbet Named CEO of Pernod Americas

Dear Client:

Pernod Ricard USA announces that Alain Barbet, currently President and CEO USA, has been named Chairman and Chief Executive Officer, Pernod Ricard Americas, effective July 1, 2008.

Barbet replaces Michel Bord, who has been named Deputy Managing Director, Pernod Ricard, in charge of the company’s global distribution network. Barbet's successor at Pernod Ricard USA will be Paul Duffy, formerly Chairman and Chief Executive, Irish Distillers.

Duffy will be based at Pernod Ricard USA headquarters in Purchase, N.Y., and will report to Barbet, who will work at Pernod Ricard Americas headquarters in Montreal, Canada.

Stay tuned...

Until later,
Megan

Wine Drinkers Still Trading Up

Table wine dollar sales grew 5.7% and volume rose 1.5% in the four weeks to May 18, according to IRI scan data, with growth of domestic wines far outpacing imports. Value of domestic wines grew 7%, while volume was up 2.4%. Dollar sales of imports, meanwhile, rose 1.7%, while volumes declined -2.5%. It looks like the weak U.S. economy is taking its toll on imports as consumers opt for less expensive domestics.

Red and white wines remained relatively steady, with red wine value rising 6% and white wine value growing 6.3%. Volumes of red wine grew 2.6%, while white wines were up 2.5% in the four weeks.

VARIETALS. The same varietals that have shown growth in recent years continued to surge ahead, while Merlot and Syray/Shiraz remained weak. Dollar sales of Cabernet rose 7.7%, while volumes grew 5.9%, according to IRI. Chardonnay sales, meanwhile, rose 4.7% and volumes were up 3.2%. Sauvignon Blanc values jumped an impressive 13.4% and volumes climbed 6.6%. Not far behind, dollar sales of Pinot Grigio climbed 10.3% and volumes rose 7.1%. Once again, Pinot Noir demonstrated the highest rate of growth, with sales up 19% and volumes up 21%. Zinfandel grew 11.5% in value and 6.2% in volume.

Meanwhile, dollar sales of Merlot declined -0.2% and volume was down -0.1%. Merlot has lost 0.7% of dollar share in the four weeks and -0.2% of volume. Syrah/Shiraz saw value fall -5.1% and volume decline -4.2%, with share points down -0.4% and -0.2%, respectively.

REGIONS. California, Oregon and Washington all performed well in the month, displaying dollar sales growth of 6.5%, 20% and 12.1%, respectively. Volumes of California wines rose 2.2%, followed by Washington (8.5%) and Oregon (13.4%).

Out of the big three importers – Australia, France and Italy – only Italy showed growth in dollar sales. Value of Australian wines declined -1.9%, while volume was down -1.7%. French dollar sales declined -2.7% and volume was down -5%. Value of Italian wines, meanwhile, rose 2.2%, but volumes fell -4.9%.

German wines rose 2.5% in dollar sales and fell -7.2% in volumes. Portuguese wines grew 7.5% in value and 1.8% in volume, while Spanish wines climbed 4.6% and 1%, respectively.

Other than Australia and South Africa, dollar sales of new world wines performed well in the four week period. Argentina displayed the highest rate of growth (37.8% in value and 19.7% in volume), followed by New Zealand (25.2% in value and 13.2% in volume) and Chile (6.3% in value and -1.3% in volume). Dollar sales of South Africa declined -14.6% and volume fell
-16.8%.

PRICE SEGMENTS. Meanwhile, higher priced wines continued to show promising growth in the four week period, indicating that consumers are still trading up. Dollar sales of the $20+ wine category rose 14.2% and volume grew 10%. Dollar sales of wines in the $15.99-19.99 range grew 14.1% and 13.3% in volume. Wines in the $11-14.99 category saw values increase 12.9% and volumes climb 12.4%. Dollar sales of wine priced $8-10.99 grew 9% in value and 6.9% in volume. Dollar sales of wine priced $5-7.99 grew 1.6%, while volumes grew 1.2%.

The following price categories experienced growth in dollar sales but declines in volume. Wines in the $3-4.99 range grew 1% in value but declined -3% in volume. Lastly, wines priced below $3 grew 0.3% in dollar sales but were down -3% in volume.

FOSTER’S COULD JUST SELL U.S. WINE BIZ

The Wall Street Journal revisited the issue of Foster’s in an article today, mainly touching on the well documented fact that Foster’s overpaid for its wine business. News that Foster’s may split its wine and beer business has people in the industry speculating over a possible takeover.

Merrill Lynch analyst David Errington, who has been a critic of Foster’s for some time, said, in his opinion, the board will “entertain any bid for any asset or indeed any bid for the entire company.”

Foster’s stock has slipped in recent days and most analysts are not upbeat. Not only did Foster’s overpay for Beringer and Southcorp, but the company has undergone a grape glut followed by a drought in Australia, competition from other winemaking regions and a strong Aussie dollar.

According to WSJ: “Deutsche Bank analyst Kristan Walker estimates that the Beringer and Southcorp acquisitions have together destroyed about A$1.1 billion in shareholder value.”

Although Foster’s could unlock some value by demerging its beer and wine biz, who’s brave enough to acquire its wine? Analysts say Foster’s could just sell its U.S. wine operations, which could be more attractive to smaller buyers. SABMiller, InBev and Heineken have been named as possible contenders for its beer operations.

ALCOHOL FATALITY STATS “GROSSLY EXAGGERATED”

As a guest columnist in the Seattle Post-Intelligencer, Sarah Longwell (managing director of American Beverage Institute) wrote an interesting article on what she dubbed “grossly exaggerated” drunk driving fatality statistics, lambasting some anti-alcohol lobbyists’ agendas. She points out that federal statisticians classified almost 18,000 deaths as "alcohol-related" last year, which does not mean alcohol-caused.

“In fact, that figure includes anyone killed in a crash in which at least one person (driver, pedestrian, cyclist, etc.) was estimated to have any alcohol. (If a sober driver recklessly crashes into and kills a family whose driver had enjoyed one drink, statistics reflect all their deaths as "alcohol-related."),” she writes.

She said that actual innocent victims make up only 12% of the widely reported statistic.

“Those [anti-alcohol] groups have used ‘crude’ statistics before, such as convincing the public that reducing the legal BAC limit to 0.08 percent would save 600-800 lives annually. Today, research proves it didn't work.”

She also said roving police patrols are more effective in catching drunk drivers than sobriety checkpoints.

WSD BRIEFS:

PIER 1 SAYS IT HAS ABANDONED PLANS TO TAKE OVER COST PLUS, saying it would be too expensive. The company said it still believes a merger could create “significant value for the stakeholders of both companies,” however. The Cost Plus board rejected the offer, calling it “distracting and ill-timed” during tough market conditions.

WALMART HAS LAUNCHED ITS NEW WEBSITE FOR MARKETSIDE, a new retail concept meant to compete with Tesco’s Fresh & Easy. The stores will open in Gilbert, Mesa, Chandler and Tempe, AZ. The concept focuses on prepared meals, fresh ingredients and emphasizes is smaller size. Check it out at www.marketside.com


Until tomorrow, Megan

“An intellectual is a person who has discovered something more interesting than sex.”
Aldous Huxley

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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.

A-B Partners with Winery Investor

Recent buying sprees of U.S. wineries and increased consumption among consumers has resulted in a wave of investment funds specializing in the wine business. And just in the nick of time as family-owned wineries are preparing to hand the business off to the next generation. Coincidence?

Here enters Bacchus Capital Management, a winery investment firm based in San Francisco, that formed last year by Seagram heir Sam Bronfman II and partners Peter Kaufman and Henry Owsley of the Gordian Group.

Gordian is known for its efforts to guide companies through restructuring and back to health, including Spiegel, Smithfield Foods, and, more recently, Summit Global Logistics, according to an article in The New York Sun.

One of their first ventures has been to launch a fund that will provide mezzanine capital and, to a lesser degree, private equity funding to wineries "maxed out at their banks," says Kaufman. Bacchus is prepared to lend at four to eight times earnings before income taxes, depreciation, and amortization, compared to banks who typically will only lend up to three times EBITDA. Most acquisitions in the field fetch prices as high as 12 to 18 times EBITDA.

In addition, Bacchus plans to have around 8-10 portfolio wine companies in the initial phase of the fund.

It has been well documented that most family-owned wineries are facing the challenge of how to pass the business onto the next generation without losing control. Silicon Valley Bank’s survey last month said 51% of family-owned wineries are anticipating a change in ownership by 2017. So, expect a lot more companies like Bacchus in the next couple of years.

Kaufman and Owsley can help wineries pass their business to the next generation, while Bonfman and recently hired colleague Mike Jaegar are proficient at running wineries and promoting brands. Recall that Jaegar is a former Constellation and Vincor USA senior exec, who became Bacchus president and coo in April.

ANHEUSER-BUSCH LIMITED PARTNER. Bacchus has also signed Anheuser-Busch as a significant limited partner. A-B is contributing money, a full-time employee (senior exec Keith Wesselschmidt) and use of its distribution system. Distribution is key since most wineries (96%) sell less than 100,000 cases a year and often have a difficult time gaining distribution through wholesalers.

"The key to success is distribution. There are only about 10 national distributors that matter, and a lot of wineries can't get distribution. Sam Bronfman is extremely conversant with these organizations and can be incredibly helpful. Worst case, some can game the system and make an end-run around the distributors, going through Anheuser," said Kaufman in the article.

According to The Sun, Kaufman says he’s not sure how Bacchus’s arrangement with AB might be affected by an anticipated bid from InBev.

TTB REJECTS NAPA AVA

The Alcohol and Tobacco Tax and Trade Bureau (TTB) have rejected a request to designate east Napa as the Tulocay viticultural area, according to the Napa Valley Register. Feds say the name does not have enough general recognition or support among local vintners. In fact, the TTB noted that several vintners in the area preferred the name Coombsville or Coombsville District, and that the name Tulocay is in little use.

“Tulocay doesn’t sound as redneck as the name Coombsville,” said Aaron Pott, a winery consultant and former winemaker at Quintessa. “Someone will have to resubmit an (AVA) application now, and if Coombsville goes through, people will know we’re redneck.”

The Napa Valley Vintners also favored the Tulocay designation. But of the 20 comments it received on the proposal for a Tulocay AVA, only eight favored a Tulocay name while 12 favored Coombsville or the Coombsville District.

According to the article, it is likely that vintners and growers in the area will formally seek a Coombsville designation.

The battle over the Calistoga AVA continues as vintners attempt to overthrow a proposal by the TTB to grandfather Calistoga Cellars and Calistoga Estates, which do not source their grapes within the proposed Calistoga designation.

DIAGEO TO BUILD RUM DISTILLERY ON ST. CROIX

Diageo says it will build a high capacity distillery on the island of St. Croix in the U.S. Virgin Islands. It will begin producing bulk rum in 2011, and will supply all of the bulk rum used to make Captain Morgan for the U.S. beginning 2012. It will have an estimated distilling capacity of up to 20 million gallons per year.

The distillery will be built through a public-private partnership with the U.S. Virgin Islands government. The estimated cost was not disclosed.

The company currently sources its rum for Captain Morgan products from a vendor in Puerto Rico.

WILD FIRES IN NORTHERN CALIFORNIA

Wildfires continue to rage in Northern California this week, with more than 800 fires burning from Big Sur to Humboldt County. Officials refuse to release the amount of acreage the fire could grow to, saying the potential would only “alarm the public,” according to the Press Democrat. The “wild fire” started northeast of Napa on Saturday and was 60% contained by yesterday. Health officials warn people to stay indoors, particularly at night, as smoke clouds the skies.

Hundreds of evacuated residents in Mendocino, Napa, Solano and Lake Counties do not yet know when they can return. About 125 homes are threatened and under mandatory and voluntary evacuation orders.

STANDARD & POOR’S RAISES OUTLOOK ON B-F

Standard & Poor's Ratings Services said it raised its outlook on Brown-Forman to stable from negative on sustained operating performance in fiscal 2008 and improved credit-protection measures. S&P affirmed the ratings on the company, including the 'A' long-term and 'A-1' short-term corporate credit ratings.

The 'A' rating reflects Brown-Forman's strong position in the spirits and wine industry in the U.S., stable cash flow and moderate financial policies.

The outlook is stable, reflecting restored credit-protection measures and successful deleveraging of the balance sheet following the company's $876 million debt-financed acquisition of Casa Herradura in January 2007.

OLD WHISKEY RIVER BOURBON UP 48% FROM ’07

Drinks Americas Holdings reports that sales of its Old Whiskey River Bourbon business are growing 48% ahead of last year. Drinks Americas has shipped more than $500,000 in bourbon sales through April 30, 2008, an increase of more than $120,000 over 2007. Shipments through the first quarter of the new fiscal year are continuing to show growth, tracking ahead 60% versus last year, with $55,000 in sales having shipped in May and early June, the company said.

The company says it plans to continue driving growth “by bringing together the American tradition of whiskey, music and barbeque through Old Whiskey River Bourbon Barbeque sponsorships.”

WSD BRIEFS:

THE U.S. TO LIKELY APPEAL WTO DECISION. The United States is likely to appeal against an unfavorable decision by the World Trade Organization (WTO) panel on India’s additional import tax on foreign wine and spirits. The EU may also re-visit a similar case. India levies 150% basic customs duty on imported liquor, which is compliant with WTO norms. Last summer India outlawed additional duties on imported liquor that were as high as 550%.

BELVEDERE WAS SUSPENDED FROM TRADING at its own request on the French stock exchange last Friday, which will remain in effect until after a shareholder meeting this Friday (June 27). The suspension occurred after Belvedere’s share value dropped 30% due to its credit rating being downgraded from B to B- by Standard and Poor’s. The poor rating was prompted by Belvedere violating its own rules and re-purchasing shares in 2007.

ISRAELI SCIENTISTS HAVE DEVELOPED A “HEALTHIER” WHITE WINE that has all the benefits and more of red wine. The white wine has a boosted level of plant chemicals and
polyphenols which are believed to fight heart disease. The researchers developed an incubation technique that increases white wine polyphenols six-fold, while preserving the taste, color and aroma.

COSENTINO WINERY HAS NAMED Shane Soldinger the new general manager. He began working at Cosentino Winery in June of 2000 and eventually became director of winery growth and development.

DISTRIBUTOR MARANI BRANDS has hired spirits industry vet Paul Fuegner to lead the company’s marketing efforts. Prior to joining the company, Fuegner was a VP of SKYY Spirits, in charge of its marketing department where he was responsible for raising the profile of SKYY Vodka, according to the company.

RUSSIAN STANDARD HAS APPOINTED Dmitry Shirshov to the newly created position of VP, marketing and sales. Shirshov comes to Russian Standard from U.K. brewer Scottish & Newcastle


Until tomorrow, Megan

“If I had to live my life again, I'd make the same mistakes, only sooner.”
Tallulah Bankhead

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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.

Rumors of Bacardi Shopping New CEO

Bacardi is allegedly looking for a new ceo to help lead the company in acquiring more brands. The Scotsman is citing sources who say Bacardi has appointed headhunters amid speculation that current ceo Andreas Gembler will move to a senior executive role on the board.

Earlier this year Graham Tetherington, formerly finance director at Allied Domecq, quit eight months after taking a job at Bacardi.

An analyst told The Scotsman: “They missed out on Absolut, they were not involved in the Allied deal and maybe there is a little bit of concern that the big deals are passing them by and they need someone more aggressive at the helm.”

“But it must be very difficult for if you work for Bacardi and see an acquisition. It is hard to raise a lot of money because your hands are constantly tied as the family do not want to float.”

Gembler was appointed ceo and president in June 2005.

Bacardi has declined to comment.

PAUL DUFFY APPOINTED NEW CEO OF PERNOD USA

Pernod Ricard has appointed Alexandre (Alex) Ricard as chairman and ceo of its Irish subsidiary, Irish Distillers. Ricard, 36, moves from his role as managing director of Pernod’s Asia Duty Free in Hong Kong. He is the nephew of Patrick Ricard, Pernod’s chairman and ceo.

The former leader of Irish Distillers, Paul Duffy, is assuming the post of chairman and ceo of Pernod Ricard USA.

Both appointments take effect on July 1.

WSD is not yet clear on where Alain Barbet, the current ceo and chairman of Pernod USA, is moving.

JACK DANIEL’S DISTILLER SUED FOR HARASSMENT

Former Jack Daniel’s master distiller Jimmy Bedford is being sued over claims of sexual harassment, according to an article in the Louisville Courier Journal. Company spokesman Phil Lynch said Bedford was given the choice of either retiring or being fired after the sexual harassment claims were made. After serving 20 years as master distiller, Bedford chose retirement. He was 68 at the time.

In the lawsuit filed last week in a Texas state court, Bedford is accused of “inappropriately touch and groping” Claudia Falkenberg, the market brand manager for Jack Daniel's in the Houston area, during a five-day trip to Texas last November. Falkenberg is seeking damages of up to $3.5 million. As the Courier stated, the lawsuits only give her side of the story.

B-F isn’t named as a defendant in the lawsuit, but a separate compliant against the company is currently before the U.S. Equal Employment Opportunity Commission, according to the plaintiff’s lawyer.

Brown-Forman has a strict policy that forbids all types of harassment, spokesman Lynch said, and all of the company's 4,000 employees are required to attend periodic training.

"As soon as our HR department learned of the complaints, we investigated them thoroughly and took action and Jimmy Bedford left the company," Lynch continued.

The lawsuit says Falkenberg is now undergoing therapy and taking medication, and is suffering from emotional distress. She reportedly still works for Brown-Forman, but plans to leave shortly.

MICHEL ROLLAND: NAPA SECOND ONLY TO FRANCE

Famed French winemaker Michel Rolland said Napa Valley has more great wines than any other country besides France.

In an interview with the Napa Valley Register, Rolland said: “Napa Valley has one of the highest ceilings in the world. Napa Valley is a place where we can find a lot of great wines now.”

“There are more great wines in Napa Valley than in Italy.”

He has been visiting Napa for 22 years and says “they don’t need me much in the vineyards. They know what to do after 20 years.” Instead, he assists more with blending.

Interestingly, he said good wines can be made everywhere, although great wines can’t be made everywhere.

“Even at $2.99, you can make a good wine,” he said. “People (growers and vintners) will be disappointed if they don’t accept that.”

He also said he likes working with American wineries because they have “more energy and creativity than elsewhere” and are quicker at making decisions.

“I was born in Bordeaux, and I know French behavior. You need five years to convince people to do something.”

REMY POSTPONES FULL YEAR FINANCIAL RELEASE

Remy Cointreau said it has postponed the release of its full-year earnings to next week due to a disagreement over the valuation of distribution joint-venture Maxxium, of which Remy has a 25% stake. Remy announced in 2006 it would exit Maxxium by March 2009 and is currently organizing its own distribution networks. In addition to Remy, Fortune Brands, Edrington Group and Vin & Sprit have a stake in Maxxium, but V&S has also indicated it would likely exit Maxxium upon being acquired by Pernod Ricard.

Remy said Maxxium’s board of directors met in Amsterdam Jun. 19 but wasn't able to approve Maxxium's financial statements

"In the context of Remy Cointreau's exit from Maxxium on March 30, 2009, and with the likelihood of Vin&Sprit also leaving the network due to its acquisition by Pernod Ricard, which is currently under negotiation, no consensus was reached between the four shareholders on the value, at March 31, of the goodwill initially recognized in Maxxium's financial statements on its incorporation in 1999," Remy Cointreau said.

Maxxium's shareholders have decided to allow more time to continue their discussions and will not disclose the group’s full year financial statement “for the time being.”

"Depending on the value adopted, a provision for depreciation will or will not be recognised in the net result of the joint venture," Remy said.

The French company estimated the impact on its consolidated net profit would be less than 10% of its estimated net profit.

A new meeting of Maxxium's board will take place on July 29.

CENTRAL COAST GOES SOLAR

Three big systems in Paso Robles are switching their wineries to solar power, including EOS winery, J. Lohr Vineyards and Meridian. Together, they will generate more than 2.5 million kilowatts of power, more than all solar-powered wineries in Napa and Sonoma counties combined, according to an article in the San Luis Obispo. EOS will be the largest winery in California to provide 100% of its electric power needs using solar energy.

“At EOS, we believe strongly in producing our wines in a way that is friendly to the land and the environment as a whole,” Jeff Hopmayer said in the article. “We’re trying to be environmentally friendly and do this the right way.”

MAJESTIC FINE WINES EXPANDS

Majestic Fine Wines, the sales organization for Jackson Family Wines, has filled twelve newly created positions to support the expansion of its super-premium and luxury wine sales.

"The United States is poised to become the leading wine consuming country in the world," says Bill O'Connor, Vice President/National Sales Manager. "Despite the current economic slowdown, we at Majestic Fine Wines are expanding our sales efforts to meet the expected long-term consumer demand for fine wines nationwide."

HIRAM WALKER INTRODUCES TWO NEW SCHNAPPS FLAVORS

Hiram Walker is bringing two new schnapps flavors to shelves: Hiram Walker Blueberry Passion Schnapps and Hiram Walker White Peach Schnapps.

“Recent research shows the blueberry based flavors are the top new flavor choice of bartenders polled while retail consumers chose peach as their number two flavor just behind sour apple which is showing a decline in popularity and sales. We are confident this modern version of peach – White Peach – will be a hit,” said Cort Kinker, Hiram Walker brand director at Pernod Ricard.

Blueberry Passion and White Peach Schnapps are available at a suggested retail price of $9.99/750ml.

WSD BRIEFS:

REMY COINTREAU USA HAS APPOINTED Xavier Desaulles as senior VP, sales strategy. Xavier will be charged with organizing Remy Cointreau USA's wholesaler network and implementing the changes resulting from Remy's distributor alliance with Bacardi and Brown-Forman. Xavier joined Remy USA from its headquarters in Paris, where he was the director of business development.

VINEXPO HAS APPOINTED XAVIER DE EIZAGUIRRE AS PRESIDENT of Vinexpo Bordeaux, the international wine and spirits exhibition. Eizaguirre, general manager and member of the management board of Baron Philippe de Rothschild, succeeds Jean-Marie Chadronnier, director of CVBG Dourthe Kressmann. Chadronnier presided over the exhibition during the three Vinexpos in Bordeaux in 2003, 2005 and 2007.

LIQUOR CONTROL COMMISSION DIRECTOR HERBERT BRAVERMAN of the Ohio Liquor Control Commission was fired after six months on the job. Local papers report that liquor control chairman Michael Shaheen said Braverman was dismissed because “of a series of concerns” about his performance.

DISCUS HAS LAUNCHED A RADIO AD IN DELAWARE assailing a proposed 50% alcohol tax increase on beer, wine and spirits. Discus says legislators are being hypocritical by spending millions of dollars toward boosting tourism, while at the same time proposing high taxes on tourism-related businesses and their workers.

FAMILY WINERIES OF WASHINGTON STATE is a new organization formed to advocate for issues of importance to small, artisan wineries. The new organization intends to function much like Family Winemakers of California. It will work closely with the Washington Wine Institute (WWI), while independently addressing issues that are important to smaller family wineries.

FRESHDIRECT CEO LEAVES FOR SUPERVALU. Online grocer FreshDirect is losing its ceo, Steve Michaelson, who is leaving to become CMO of Supervalue supermarkets. FreshDirect Chairman Richard Braddock will add the title of CEO.


Until tomorrow, Megan

“Life is a long lesson in humility.”
James M. Barrie

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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.

Vodka Still Holding Court

Dollar sales of spirits grew 3.4% in the four weeks to May 18, 2008, according to IRI scan data. Vodka grew 6.5%, followed by brandy (4.4%), whiskey (4.3%), rum (3.5%), gin (3.1%), tequila (1.9%) and cognac (-3.1%). This indicates that pricing is either on the rise or people are trading up to more expensive spirits brands (improved mix/shift).

Volume of spirits rose 2.2% in the four week period, with vodka showing the most volume growth (6.3%) and cognac declining the most at -5.9%. Volume of brandy grew 3%, followed by gin (2.1%), rum (2%), tequila (1.9%) and whiskey (1.5%).

Most of the growth in whiskey comes from the Irish whiskey category, which grew 31% in value and 31.7% in volume.

INDIVIDUAL BRANDS. Dollar sales of Smirnoff rose 5.9% in the four week period, followed by Bacardi (1.2%), Captain Morgan (2.9%), Jose Cuervo (-3.6%), Jack Daniel’s (2%), Absolut (0.8%), Crown Royal (10.7%), Skyy (15.1%), Jim Beam (2%) and Sauza tequila (2.2%), according to IRI.

Hot brands like Grey Goose were up 6.2%, Jagermeister up 11.4%, Patron up 23.3%, Tanqueray up 0.4% and Svedka up 60%. Some of the other super-premium vodkas did not see the same rate of growth as Grey Goose in the four weeks. Ketel One was down -3%, Belvedere declined -4.7%, Stoli (-8%) and Chopin (-9.2%).

PRICE CATEGORIES. According to the data, trading up continues among consumers albeit at a slower rate. Dollar sales of ultra-premium vodka rose 6.4% and volume was up 5.6%. The highest rate of dollar sales growth of vodka, however, came from its mid-value price category. Dollar sales of mid-value vodka rose 7.6% and volume grew 6.8%. The highest rate of growth for volume came from vodka’s premium category, up 8%.

In all other spirits categories, its ultra-premium offerings showed the highest rate of dollar sales growth. Sales of ultra-premium whiskey grew 9.1% but volume was down -1.4%. Value of ultra-premium rum was up 72% and volume grew 82.4%. Ultra-premium tequila saw sales rise 14.9% and volume grow 14.5%. Lastly, ultra-premium gin rose 11.7% and volume increased 0.5%.

Other than rum, the spirits categories saw stronger volume growth in varying price categories. Volume of popular whiskey grew the highest at 1.4% out of the whiskey category. Super-premium tequila saw the highest volume growth rate (16.1%), while value gin grew the most at 3.4%.

EQUIVALENCY OUT THE DOOR AT BARS AND RESTAURANTS

The Chicago Sun-Times has an interesting article on equivalency, which argues that there is no such thing as a standard drink at bars and restaurants. William Kerr and colleagues with the Alcohol Research Group hit several bars in northern California and found that “the typical wine, beer or mixed spirits drink in bars is larger than a standard drink, often by 50 percent or more.”

The average glass of wine was 43% larger than a standard drink and the average draft beer was 22% larger than the standard 12 ounces. The team did no testing of bottled beer. And while shot glasses “are pretty uniform,” mixed drinks with liquor were 42% larger than the standard serving.

Factors such as glass size and the percent of alcohol by volume help make the on-premise drinks stronger, according to the study. However, Kerr said “probably the most important factor is the intentions of management and the bartender.”

For example, restaurants and bars tend to pour large glasses of wine so customers feel like they are getting their money’s worth.

The research, sponsored by the National Institute on Alcohol Abuse and Alcoholism, will be published in September in the journal Alcoholism: Clinical and Experimental Research, but was released online this week.

WINE INSTITUTE ELECTS NEW BOARD

The California Wine Institute has elected Margaret Duckhorn as the board chairman for the 2008-2009 fiscal year. She is co-founder and executive vp of industry relations at Duckhorn Wine Company, which includes Duckhorn Vineyards in St. Helena, Paraduxx in Napa Valley and Goldeneye in Anderson Valley.

Also elected were Raymond Chadwick of Diageo Chateau & Estate Wines, headquartered in Napa, first vice chairman; Tom Klein of Rodney Strong Vineyards in Healdsburg, second vice chairman; David Kent of the Wine Group, headquartered in San Francisco, treasurer; and Kathleen Heitz Myers of Heitz Wine Cellars in St. Helena, secretary.

LVMH BEATS ECONOMY WITH EXPENSIVE BOTTLES

In an interview with Bloomberg, Xavier Ybarguengoitia, chief executive of Paris-based Estates & Wines, a division of LVMH Moet Hennessy, says the company’s strategy is selling expensive bottles despite the tough economic conditions. He said demand for wines that cost $15 or more has risen, and Estates & Wines will focus on that top 1% of the market. As a result, he said, the Estates & Wines division has experienced “double-digit growth” in the past six years, outpacing Moet Hennessy.

Ybarguengoitia said the company doesn't need any more vineyards at the moment, but may consider “buying some more in 2011,” particularly in a premium wine area that focuses on the top end of the market.

NEW YORK TIMES ON BRUNELLO BAN

The New York Times featured an article on the Brunello upset in Italy. Wine journalist Eric Asimov calls news that the TTB has dropped its threat to block imports of brunello into the U.S. “a step forward, given that the laboratory analysis apparently takes a long time and the margin for error is great.” Instead, the U.S. will accept certification from the Italian government that the wines comply with the rules.

WSD BRIEFS:

CALIFORNIA MAY SOON TAX BEER AND MALTERNATIVES THE SAME AS LIQUOR, according to our sister publication Beer Business Daily. The California State Board of Equalization has issued regulations that would increase state taxes on FMBs by 1,660%, which would also apply to all beer unless each manufacturer applies to the state to be reclassified as beer. That means beer would go from $0.20 per gallon to $3.30 per gallon. Wine is exempt.
Diageo is suing, claiming the BOE has exceeded its jurisdiction. The form hasn't been finalized but is expected to be ready by July 10.

FOSTER’S WINE ESTATES has appointed Matthew Parish to the position of vice president of premium winemaking in the US. Parish will oversee Foster's Americas winemaking activities for all premium brands and report to Michael Kluczko, vp of wine production in California. Parish most recently worked at Constellation as director of group winemaking for California, the Pacific Northwest, and internationally.

UB GROUP OF INDIA HAS DEVELOPED A DIET WHISKY AND VODKA by using Garcinia fruits, says chairman Vijay Mallya. He said it has been successfully tested for calories and was developed and patented in the U.S. Mallya said manufacturing and marketing was delayed as he haggles over classification with the European Union.


Until tomorrow, Megan

“To invent, you need a good imagination and a pile of junk.”
Thomas A. Edison

--------- Sell Day Calendar ----------
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Sell days this month: 21
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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.

French Wines Kick Up Their Advertising Heels

French wines are taking things up a notch (or two or three) with a new promotional campaign in the U.S. Calling it an “ambitious” three year marketing blitz, the “Wines of France” are hoping to “boost gains” and “build consumers’ knowledge of French wines.” The umbrella campaign will see an increased annual spend of $2.6 million for 2008 and cover all avenues of promotion.

Wines of France says it will launch “an aggressive sales promotion campaign” across the U.S., but focus mainly on the key markets of New York metro, Washington DC metro, South Florida, California, Illinois, Texas and Massachusetts. This will include tastings in both the on- and off-premise, as well as a host of promotional materials for all stores backed by French music.

The promotional campaign will be accompanied by a new website, www.wines-france.us that went live earlier this week. It’s aimed at educating Americans about grape varietals and French wine regions, in addition to featuring interviews and a “Question of the Week.” Wines of France spokesperson Sheri Sauter Morano, Master of Wine, will also choose “My Top French Wine Picks,” which features wines that fall in the $8 and $25 range.

It’s no secret that French wines have struggled in recent years as U.S. consumers (among others) have increasingly opted for cheaper, easier to read labels. Earlier this month France approved a five-year plan to modernize its wine industry and help it better compete internationally. The most controversial initiative was a proposal to create three categories of French wines. A new mid-quality category, called the “Wines of France,” most closely mirrors New World wines by including the grape varietal on the label (instead of grape origin) and using cheaper production practices, such as adding wood chips and tannins.

Recall that the EU recently passed a new wine system to cut down production and help European wines better compete internationally as well.

TTB BAN OF BRUNELLO GOES INTO EFFECT JUNE 23

The TTB has issued a notice that the U.S. will not release shipments of Brunello wine on or after June 23 unless the importer submits to the Customs and Border Protection (CBP) a statement attesting that the wine meets the requirements of the Brunello di Montalcino Denominazione di Origine Controllata e Garantita (DOCG) and is acceptable for sale in Italy. A copy of the required statement must be maintained at the importer's premises. If these requirements are not followed, the TTB says it may suspend or revoke the importer’s basic permit.

WSD BRIEFS:

KMART CMO BILL STEWART IS LEAVING THE COMPANY to work on a campaign to protect gay marriage in California. Stewart joined Sears Holding in April 2006 and held marketing jobs at Coca-Cola and General Mills. He now plans to be a full-time volunteer for Equality for All, a group working to protect gay marriage in California.

R.H. PHILIPS AND TOASTED HEAD FOUNDERS BUILD NEW WINERY. John and Lane Giguiere, who founded R.H. Philips Winery and the Toasted Head brand have begun construction on the first stage of a 150,000-gallon winery to house their new company, Crew Wines.

THE VALUE OF WINE GRAPES IN SONOMA COUNTY declined 4% from $433 million in 2006 to $417 million in 2007, despite vintners taking a price increase. Reasons for the decline include vineyard owners getting few dollars per ton and bad weather, according to a local report.


Until tomorrow, Megan

“On the whole human beings want to be good, but not too good, and not quite all the time.”
George Orwell

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

The Changing Face of Retail

Tesco says it will continue its store expansion on July 2 after taking a three month hiatus, which prompted speculation that its Fresh & Easy stores in the U.S. were failing. According to Dow Jones newswires, a Tesco spokeswoman dismissed those fears and said the business was “thriving.” She also reiterated Tesco’s prior commitment to opening 200 U.S. stores by February 2009. Tesco has not yet released any sales figures for Fresh & Easy, but did reveal higher than expected sales densities per square foot in April.

WAL-MART AND SAFEWAY COMPETE. Tesco must be viewed as something of a threat (despite reports of failure) because Wal-Mart and Safeway are coming out with new, competitive grocery store formats. Wal-Mart has created Marketside, which will be built around a premium rather than low-cost offering. Fresh & Easy tends to focus more on price. Marketside will be 15,000 square feet and offer meal solutions prepared and served on the premises.

Safeway also launched its “Market by Vons” in Long Beach, CA last month to compete with Fresh & Easy.

TIM MASON SPEAKS. Tim Mason, chief executive of Tesco’s US operations addressed the company’s negative press earlier this year in an interview with the Financial Times. Here is a snippet of what he said:

“I think there are plenty of people who don’t have any great desire to see us successful and, you know, they will say stuff that is not, but you have to put up with it and get on with it.”

On Marketside and The Market by Von’s:

“You always have to assume that competitors will respond...I have been to the Safeway, it is a very pretty store."

But “it [Market by Von’s] is very expensive and it has got an awful lot of service counters in it, a meats counter, a bakery counter, a fish counter which take an awful lot of service in a small store so it is doing a slightly different thing... we are hoping that our business has a broader appeal.”

WAL-MART’S OAK LEAF THE NEW TWO BUCK CHUCK?

In a world where cheap wines generally hail from other countries, Wal-Mart’s private label Oak Leaf wine is joining the ranks of Two Buck Chuck, selling for less than $3 a bottle but to a much bigger consumer base than Trader Joe’s. Oak Leaf took gold and bronze at this year’s wine competition at the Florida State fair and even appeared in Oprah’s “O” magazine. Wal-Mart partners with The Wine Group to produce Oak Leaf. Oak Leaf is almost sure to see a spike in sales as the sour economy encourages consumers to save money, trade-down, and – as you’d have it – shop at Wal-Mart.

NEW ZEALAND SEES LARGEST VINTAGE

New Zealand has just recorded its biggest ever vintage, with yields up almost 40% from last season, according to the New Zealand Wine Growers. Data shoes that 285,000 tons of grapes were harvested in 2008, due mainly to a combination of an increased producing area and favorable growing conditions.

New Zealand is reportedly seeing strong demand in Australia, the UK and the U.S., among other markets. Could New Zealand wines replace Australia as the next big import?

WSJ ON CONSUMERS TRADING DOWN

Consumers’ annual income could determine the amount of money they spend on a bottle wine, reports the Wall Street Journal. Which category do you fall in?

Mid-tier consumers who fall in the $50,000 to $100,000 income range is "selectively deselecting" in what Thom Blischok, president of IRI Innovating and Consulting, called a "substitution strategy." They're choosing to trade-down and buy cheaper wines.

People who earn $100,000 and above are “deprioritizing.” They are “asking themselves, 'Do I really need a $100 bottle of wine? Wouldn't a $40 bottle do,'" said Blischok.

GINA GALLO EMPHASIZES FAMILY

The Press Democrat’s Virginie Boone conducted an interesting interview with third-generation winemaker Gina Gallo, Julio’s granddaughter. Here’s an excerpt:

“The philosophy for our family is, sure, we have our family wines that we produce and create, but we know there’s a thirst out there to try other wines. We have to be sustainable and our way is not just buying, buying, buying but partnerships with families. They’re all family relationships.”

WSD BRIEFS:

ABSINTHE MATA HARI has signed 21 distributors (including Georgia Crown and Opici) in the U.S. after receiving TTB approval six weeks ago, the company said. It will hit shelves in the beginning of July in the central U.S. with markets from Texas, Louisiana, and Missouri up through Indiana. Mata Hari is imported from Austria.

DIAGEO NAMES NEW TRAVEL RETAIL LEADER. Diageo has announced that Phil Humphreys will take over as managing director of the company's Global Travel and Middle East (GTME) division from July 7. Former Diageo GTME managing director Ron Anderson will become the company's first chief customer officer from July 1.

P.I.N.K. VODKA IS NOW AVAILABLE IN AUSTRALIA as the first 80-proof ultra-premium vodka infused with caffeine and guarana.


Until tomorrow, Megan

“Slow down and enjoy life. It's not only the scenery you miss by going too fast - you also miss the sense of where you are going and why.”
Eddie Cantor

--------- Sell Day Calendar ----------
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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.

Stoli Could Sell for $3 Billion

Stolichnaya could soon become the subject of a bidding war between some of the biggest spirits companies in the world. Russian owner SPI has hired Lehman Brothers to explore options that could result in the sale of Stoli for up to $3 billion. Another option is selling the distribution rights instead of the entire brand. Possible bidders for Soli include Bacardi, Campari and Fortune Brands.

Spokesmen for SPI and the beverage companies either declined to comment or couldn't be reached, according to the Wall Street Journal.

Fortune Brands was considered the top contender for Absolut in a bidder war earlier this year, but Pernod Ricard succeeded in acquiring the Swedish vodka for over $8 billion. Industry insiders speculate that Fortune might be the top bidder for Stoli as a result. Not only does the company want a major vodka brand, but it raised a significant amount of cash after selling its wine business to Constellation in an attempt to acquire V&S.

After announcing the deal to acquire Vin & Sprit (which owns Absolut), Pernod said it would sell its international distribution rights to Soli once its deal with V&S closes in a couple of months. Pernod gained access to Stoli when it acquired Allied Domecq and currently distributes the vodka in every market outside of Russia.

Sources tell WSJ that Lehman has been working on a possible deal for Stoli for a long time but that the closing of the V&S deal could give a transaction renewed momentum.

PROBLEMS WITH STOLI. Past complications with the Russian government, however, are unlikely to dissipate. Pernod was in negotiations with SPI and the Russian government for three years to acquire the entire rights to Stolichnaya, but was unable to strike a deal. Vladimir Putin, the Russian prime minister and former president, brought legal proceedings against SPI in 2001 to try to bring Stolichnaya into state control, reports the Daily Telegraph, which broke the story yesterday.

People familiar with SPI's plans told the Telegraph that a sale process would begin within the next few weeks.

WHAT POSSIBLE BIDDERS ARE SAYING. In an interview with Just-Drinks in April, Jim Beam Brands president and ceo Tom Flocco said the following when asked if Fortune would be interested in acquiring Stoli:

“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.”

According to Thomson Financial news, a Campari spokeswoman said: “As regards Stolichnaya, we have seen the media reports. As you know, our sector is going through a period of change.”

“Therefore we are curious to see the developments, confirming our interest in examining new opportunities, above all in spirits.”

Campari stated on numerous occasions that it would take advantage of acquisition opportunities in the aftermath of the V&S and Pernod deal.

Some of the world’s biggest vodka brands have been sold in recent years. Recall that Sidney Frank sold Grey Goose to Bacardi for over $2 billion in 2004.

FOSTER’S FORMER CEO DEFENDS HIS DEPARTURE

Former ceo of Foster’s Group, Trevor O’Hoy, defended his resignation over the weekend. He said his departure and his actions as ceo were in the company’s best interest, reports The Age.

“I don't think any time in my career I've done anything that I did not believe was in the best interests of Foster's shareholders,” he said.

“It's clear I haven't got every decision right, but the decision I made last weekend was in the interests of Foster's shareholders.”

O’Hoy was at Foster’s for 33 years until he quit last week, taking full responsibility for the company’s troubled wine business.

He denied suggestions that he was pushed into resigning, stating: “I want you to know that I resigned. It was my choice.”

Foster’s has hired Heidrick & Struggles to search for a new ceo, which they expect to find this year. O’Hoy has agreed to stay at Foster’s to help the transition.

MORE BACKGROUND ON CONSTELLATION DEAL

It turns out that the newly formed Ascentia wine company only paid $94 million for the eight wine brands acquired from Constellation, according to an article in Wines & Vines. Ascentia owns the brands, inventory and personal property, while VinREIT bought the real estate for the remaining $115 million. VinREIT, headed by Vic Motto, said his group would have bought the land and wineries from Constellation no matter who bought the brands.

VinREIT and Ascentia have signed a long-term lease for Ascentia to farm the land and use the buildings, and at the end of the term, Ascentia could buy the property or make other arrangements. VinREIT is owned by Entertainment Property Trust and Motto's Global Wine Partners, a wine industry investment bank based in St. Helena, Calif. Motto is CEO of Global and a principal in VinREIT.

SAM’S CLUB NAMES NEW WINE DIRECTOR

Sam’s Club has named Dex McCreary the new merchandise director of wine, beer and spirits. Most recently, he was the national wine buyer for Wal-Mart, joining the company in 2007, where he lead the successful launch of Wal-Mart’s private label wine Oak Leaf. Prior to joining Wal-Mart, McCreary served as National Account Manager at Beam Wine Estates.

"We are looking forward to further advancing our wine and spirits offering for our members and growing this important category with Dex," said Greg Spragg, executive vice president of merchandising at Sam’s Club.

WSD BRIEFS:

CHATEAU MONTELENA COULD BE FOR SALE, according to Wine Spectator. Sources tell the publication that the famous Napa winery was recently put on the market and bidders have presented offers in excess of $100 million. The Barrett family is allegedly weighing those offers. When contacted by Wine Spectator, Bo Barrett, the winemaker and son of founder Jim Barrett, refused to comment.

DIAGEO IS INVESTING $18 MILLION IN ITS PLAINFIELD, ILLINOIS BOTTLING FACILITY to help support growing demand of Smirnoff. The money will go towards adding processing and storage capacity and upgrading packaging lines. The facility produces more than 12 million cases of spirit a year.



Until tomorrow, Megan

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

--------- Sell Day Calendar ----------
Today's Sell Day: 11
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
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.

Interview with Bill Deutsch

This has been one of the biggest weeks for the wine industry in recent memory. Not only did Foster’s ceo Trevor O’Hoy surprisingly resign on Monday, but Constellation Brands announced it had sold 7 of its wine brands to the newly-formed Ascentia Wine Estates for up to $234 million.

Based in Sonoma, Ascentia is led by Jim DeBonis (former exec at Beam Wine Estates), and is backed by several investors, including W.J. Deutsch and San Francisco-based private equity firm GESD Capital Partners. Deutsch will serve as the sole marketer and distributor of the brands, while GESD helped finance the deal.

WSD has the chance to sit down with Bill Deutsch, founder and Chairman of W.J. Deutsch. He founded the company in 1981, which now carries such brands as Yellow Tail from Australia, Kunde Estate and Esser Vineyards in California, Georges Duboeuf and HobNob Vineyards of France and J. Vidal Fleury and Pierre Sparr of Italy. Bill’s son Peter is ceo of Deutsch, giving the company two generations of leadership.

Wine & Spirits Daily: What is your prospective on Ascentia and why did Deutsch decide to enter the deal?

Bill Deutsch: We decided to go into the deal because we want to expand our portfolio in California. We want to remain diversified. And we think these are fabulous brands that will compliment our import and even our California portfolio, which right now includes Kunde Estate Winery and Esser Vineyards. And these are good complimentary brands.

We also believe that the wine business has a fabulous future and as long as we have two generations in place here owning the company why not do what our distributor’s would like us to do and expand the portfolio.

WSD: In your opinion, what is the future of these brands?

Bill: Oh we’re very, very optimistic. We think these brands are known. The wines are well made and we are looking to taking each one to even greater heights.

WSD: What do you see as the growth opportunity in the U.S. market?

Bill: I think more people are drinking more wine. I think that the health aspect is something that the American consumer is very cognizant of. I think these wines all fit into an affordable price point that people who are looking for wine enjoyment will want to try. Good wines are here to stay and they’re a welcome addition to our portfolio.

WSD: How does this deal help change Deutsch and the company’s ultimate growth strategy?

Bill: It gives us more of an equity position. We have the organization already in place to market and sell these new brands. And it makes us even more important to our valued distributors throughout the United States. And fortunately the brands do not conflict with what we already have in our, what we consider a very prestigious portfolio.

WSD: How long have you been working on this deal?

Bill: Since early February of this year. I was down in Florida for a mini vacation. Received a confidential phone call and there it went. There went my vacation.

So we had a real team effort working on this very closely with GESD, the financial people. And I had occasion to speak with Rob Sands, Chairman, two weeks ago, and told him that both his dad and grandfather, who are now deceased, both of whom I knew, would be very proud of what has been accomplished here. And he got a little choked up and agreed because I knew both his dad and his grandfather.

WSD: How is Yellow Tail doing? Australia is kind of going through a rough spot right now and a lot of their exports to the U.S. are struggling. Has Yellow Tail seen any of that?

Bill: Well, the growth, which has been phenomenal, is now in excess of eight million cases and has pretty much leveled off.

I was with the Casella’s two weeks ago in Cicely where they had a four day convention and brought their importers in from all over the world in non-Asian countries to meet at the birthplace of John Casella’s two parents. It was a phenomenal meeting and the winery is now up to thirteen million cases of exports around the world.

The US leads in volume, and we’ve leveled off. However, we’ve gotten some great publicity on the very good Pinot Grigio made by Yellow Tail. Consumers report just wrote it up as the best buy Pinot Grigio.

WSD: Congratulations.

Bill: And we think we can build that to a million cases. So might see some new increases coming along. We also see growth in the blends, the various blends of Yellow Tail. They’re beginning to grow. Where Shiraz and Chardonnay have leveled off, we’re definitely seeing growth in the blends.

WSD: Interesting.

Bill: And Casella has the wine with all of the rainfall, the shortages, and what have you. They’re fabulous connections with growers in Australia have resulted in them being able to acquire enough grapes to fill the worldwide needs. This was discussed at the convention.

WSD: Is there anything else you’d like to discuss?

Bill: Well, we’re very, very excited.

I told you about the family aspect. I mean that’s something very nostalgic to Rob Sands and his brother and myself. That’s not financial that’s just nostalgic. And I go back to 1963 with his grandfather. So what goes around, comes around. And we’re very proud to be representing these wineries.

And with Jim DeBonis out on the West Coast, who has a tremendous feel for these brands because he was involved with them years ago with Beam Estates. It’s the perfect compliment. And we’re looking forward to working together. Peter and I are looking forward very much to working very closely with him.

WSD: Thank you for talking with us today, and again, congratulations on the Ascentia deal and your success with Yellow Tail.

UK DRINKERS CHOOSE VODKA OVER BLENDED SCOTCH

Vodka has replaced blended Scotch whisky as the UK’s best selling spirits in the off-premise for the first time in generations. Young drinkers and an influx of Eastern European vodka has helped grow the trend. Vodka brands like Smirnoff, Absolut and Wyborowa are outselling traditional blended whiskies including Bell’s, Teacher's and Famous Grouse, according to Off Licence News. Although total whisky sales, including expensive single malts, still out perform vodka, experts predict that vodka will take the top spot by the end of the year.


Until Monday, Megan

“We are continually faced with a series of great opportunities brilliantly disguised as insoluble problems.”
John W. Gardner

--------- Sell Day Calendar ----------
Today's Sell Day: 10
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
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.

Foster’s Wine Worth $3.6 Billion

As you know, Foster’s Group’s ceo Trevor O’Hoy departed earlier this week as the company admitted it paid entirely too much for its Beringer and Southcorp acquisitions. As a result, Foster’s issued a $700 million write-down and transferred $600 million in goodwill to its beer operations.

In Foster’s investor and media briefing earlier this week, the company was rather vague on just about everything, including whether it will sell its wine business. The mood was tense and analysts were, as you can imagine, rather disgruntled.

POSSIBLE WINE SALE. David Crawford on Foster’s selling its wine operations:

“It would be improper of me or anyone else to speculate as to what the outcomes of that review may be. We will be considering all alternatives, but nobody should be taking the fact that we have commenced a wine review to mean that we have said we are going down a particular course of action with our business.”

One analyst sarcastically replied: “Thanks for such an ambiguous answer.”

NEW CEO. David said Foster’s will consider both internal and external candidates in the search for a new ceo, who will also help in the strategic wine review. He was vague on credentials, though:

“Clearly we want somebody who has knowledge of the beverage industry. We’d by choice like somebody who is an expert across the whole sector. But what we need to do is look at the candidates and assess their various characteristics. We’re not going out and saying we just want a wine person or we don’t want a beer person.”

FOSTER’S IN THE U.S. When asked about Foster’s performance in the United States, David said the following:

“Going forward, I think the US market will remain a challenging market, for one the Australian category, and two also the economic clouds that hang over that market will make general trading conditions difficult. So we’re certainly not foreshadowing that we’re seeing a kink in the curve that would imply that business is going to suddenly start performing to all of our expectations. We believe it will be a slow build.”

DISTRIBUTOR INVENTORY. Angus McKay on the plan to de-stock 1.4 million cases of U.S. distributor inventory:

“We have actually seen positive depletion performance in the April month versus prior period. It’s just not at the levels that may and we want to see.”

“We are already taking steps to short ship distributors over the balance of this month and thereby, make sure that those distributors don’t have stock either transferred into their warehouses or dispatched from Australia.”

TREVOR O’HOY: Analysts repeatedly questioned David about Trevor, who was not present at the conference call. When asked why Trevor resigned, David said the following:

“Trevor, as you all know him, is an extraordinarily decent person who has been very honest and open in all of his dealings. He takes responsibility as CEO for where the company currently is and believes that it is appropriate that he resign, step down and allow a new management team to come in.”

SOUTHCORP. David on when it first occurred to him that Foster’s paid too much for Southcorp:

“It would be fair to say that since I stepped into the role as chairman, I’ve been visiting many of our shareholders and speaking with many analysts, etc. and a number of them have voiced that view during those discussions. That’s clearly been an issue which has been on the table with the board. But we’ve been fundamentally looking at the performance of wine and the performance of wine has been such that it hasn’t justified the price that we paid. So be it; that’s a conclusion we drew.”

WINE BIZ WORTH $3.6B. Foster’s Group’s wine business is worth about $3.6 billion, according to Credit Suisse analyst Larry Gandler. Foster’s spent about $6.4 billion, or 44% more, on creating the business. As Australia’s largest brewer, Credit Suisse values Foster’s beer business at about $9.5 billion.

When beer sales started stalling in the mid ‘90s, Foster’s paid A$482 million for Mildara Blass. In 2000, it bought Beringer Wine Estates of California for A$2 billion and in 2005 paid A$3.2 billion for Southcorp. Foster's also took on more than A$1 billion of debt from the acquired companies. Altogether, Foster’s is the second largest wine company in the world behind Constellation Brands.

Foster’s must be rejoicing at least a little bit over the news that InBev has presented Anheuser-Busch with a takeover bid, which has helped take some of the heat off Foster’s. InBev’s all cash bid comes out to $65 a share and is unsolicited and non-binding. The overall price is $48 billion.

NEW WORLD WINE GAINING IN POPULARITY

The International Organization for Vine and Wine (OIV) forecasts that the Southern Hemisphere will grow 5% to 51.4 million hectoliters in 2008. They expect a rise in the Southern Hemisphere's share of world wine exports to almost 25%. Key markets include the U.S., Britain and Germany.

Production growth is helped by “aggressive marketing,” according to the report. Some Chilean producers are even molding their wines to appeal to the U.S. palate, as consumption in the U.S. steadily rises.

WINE GROUP MOVES MARKETING UNIT TO LIVERMORE

Wine Group has reportedly expanded its East Bay operations and moved its marketing unit from San Francisco to Livermore. The Livermore facility consists of Concannon winery and related bottling operations and offices for Kent and Wine Group sales and marketing execs. The San Francisco office is now manned by a skeleton crew.

The company is adding a 45,000 square foot production facility in Livermore to the original Concannon Vineyard. It is expected to be completed by the 2008 fall harvest.

RNDC EXEC DAVID FRIEDLAND DIES

We regret to inform you that David Friedland, CEO of RNDC Nebraska, died yesterday (June 11th) morning. David is survived by his wife, Nancy, daughter Melissa and husband Gary Steiner, daughter Paula and husband Matt Boggust, son Edward (Ted) Friedland and wife Jamie, and eight grandchildren.

Services will be held on Friday, June 13th at 2:30 P.M. at the Temple Israel, 7023 Cass Street, Omaha, Nebraska. In honor of David Friedland, RNDC Nebraska will be closed at noon on Friday. Memorials are suggested to The Rose Blumkin Home or the Omaha Humane Society.

WSD BRIEFS:

PIER 1 IMPORTS OFFERED TO BUY COST PLUS WORLD MARKET, a smaller rival, for about $88.4 million in stock. In addition to its home-furnishings, Cost Plus is known for its wine selection and specialty groceries. The offer is valued at $4 a share.

INTERNATIONAL WINE ASSOCIATES Principal, Robert Nicholson, served as advisor to Constellation Brands in the sale of some of its California and Pacific Northwest wine assets to Ascentia Wine Estates for up to $234 million.


Until tomorrow, Megan

“How my achievements mock me!”
William Shakespeare

--------- Sell Day Calendar ----------
Today's Sell Day: 9
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
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.

Foster’s Headed for an Uncertain Future

Most analysts are saying that Foster’s best bet at this point is to split its wine and beer business, although they generally acknowledge that the likelihood of a de-merger anytime soon is slim to none.

There are several reasons why splitting the beer and wine operations would help Foster’s. One, the beer business is much more valuable to potential buyers. Two, it would allow management to focus more closely on the wine biz. And three, the resignation of Trevor O’Hoy, announced earlier this week, is an indicator that a break-up could happen eventually, although analysts warn it will not be a quick fix for Foster’s Group.

DE-MERGER. If the beer and wine businesses were de-merged, a likely bidding process for the high-value beer operation would erupt. The beer business could be attractive to a global brewer (such as SABMiller, Inbev or Heineken), but the wine business would be a much harder sell.

Analysts agree that splitting the wine and beer operations would benefit Foster’s, but the company has yet to say whether they would put their businesses on the chopping blocks.

“The board’s outlook still appears tainted with optimism (‘innovation pipeline healthy’, ‘US showing improvement’), while the review appears to be operational versus ownership focused – with no conclusions expected until late CY09,” said Andrew Kovacs of Macquarie Research.

As a result, he says, a break up or auction is unlikely to happen anytime soon.

“A break up and/or auction process therefore appears off the agenda for now. Even if this were to eventuate the big challenge is finding a bidder for the wine business...we don’t believe this a likely outcome in the short term and is also accompanied by significant risk.”

Foster’s wine business is not very attractive at the moment. Not only has the business done poorly in recent years, but conditions are difficult for Australian wine at the moment due to the strong Australian dollar, bad weather conditions and the weak U.S. economy.

Foster’s Chairman David Crawford said yesterday that it was too early to tell if Foster’s would sell its wine business, but he also indicated that the board will consider “all alternatives.”

Merrill Lynch analyst David Errington said in a note: “The board will, in our opinion, entertain any bid for any asset or indeed any bid for the entire company.”

FIXING THE WINE BIZ. Trevor O’Hoy reportedly issued his resignation on Monday evening after the company uncovered just how bad its wine business is really doing. Analyst Lindy Newton of UBS suggested that other resignations could soon follow for that very reason.

To help make up for the expensive Beringer and Southcorp acquisitions, Foster’s issued a $700 million write-down and transferred $600 million in goodwill from its wine division to its beer, cider and spirits division.

However, Merrill Lynch analyst David Errington said the write-downs were inadequate for the failing wine biz: "The write-off should have been in the billions (of dollars), not hundreds of millions," he said.

He also pointed out that Foster’s underlying performance could get worse, since O’Hoy’s resignation could cause instability within management and the wine business in the U.S. continues to be challenging.

POSSIBLE REPLACEMENTS FOR O’HOY. Most analysts agree the likelihood of Foster’s selling its wine business is unlikely to happen before the end of the year, when the review of the wine business is complete and another ceo has been appointed.

Lots of speculation on who will replace O’Hoy as ceo is mounting among analysts. UBS says an international brewing executive could be a good match.

“In our view there are a number of Beer executives who could be considered for the CEO role at FGL especially post the Heineken / Carlsberg takeover Scottish & Newcastle in January 2008 and the US merger of Molson Coors and SABMiller,” said UBS analyst Lindy Newton.

In her opinion, possible contenders include: Tony Froggatt (former ceo of Scottish & Newcastle), John Dunsmore (who succeeded Froggatt at Newcastle), Dan O’Neill (former Molson Coors Brewing Co. exec), Leo Kiely (ceo of MolsonCoors) and Tom Long (who heads Miller), according to UBS. We somehow doubt that Tom Long or Leo Kiely would take the position, especially since Tom was just named president and chief commercial officer of the new MillerCoors j-v and Leo was appointed ceo. It is an interesting notion nonetheless.

UPDATE ON THE ASCENTIA DEAL

We’ve written several articles on the Constellation, W.J. Deutsch and Ascentia deal over the past couple of days, and figured you might appreciate hearing from someone else for a change. If you’re interested, check out an article by the San Francisco Chronicle.

This is what struck us most: “In an era when California wineries are being snatched up by global corporations, a Healdsburg company has bought five well-known California wine brands.”

“The purchase is a major reversal in the industry - local ownership by a smaller, wine-focused company.”

Here’s a fact you may not have known: Lou Giraudo, the co-founder and senior managing partner of GESD (an investor in Ascentia) is also chairman of Pabst Brewing company.

COSTCO LITIGATION OFFICIALLY OVER

David Burman, an attorney representing the Costco warehouse club, notified the Washington AG in a letter that Costco would not seek an appeal before the U.S. Supreme Court.

They've reportedly called it quits on the Costco v Hoen case because Costco “has accomplished much of what it sought” which includes the end of post and hold and direct shipments. “In a broader sense,” writes Burman, “Costco also fully vindicated its position that almost all of the restraints harm consumer interests, are of a nature that would amount to a per se violation of federal antitrust law, and were not intended to and do not serve temperance purposes.”

Burman ended the letter by saying: “Judge O'Scannlain [of the Ninth Circuit Court] affirmed the power of state government to treat its citizens in violation of federal law. We believe the Task Force should conclude that such power should not be exercised without good cause, and certainly not to serve the financial interests of private wholesalers.”

CLARIFICATION. We want to clarify a comment we made in yesterday’s newsletter. When we referred to Constellation possibly being interested in a “certain Australian wine business” we were hinting at Foster’s, not Yellow Tail. We have been assured that Yellow Tail is definitely not for sale. It was mere speculation on our part, and just for the record, we don’t believe it’s likely that Constellation or anyone will acquire Foster’s wine business anytime soon. We apologize for the confusion.


Until tomorrow, Megan

“Nobody got anywhere in the world by simply being content.”
Louis L'Amour


--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
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.

Foster’s CEO Quits, Constellation Sheds Wines

Clearly, it has been a big news day in the world of wine. Two of the world’s largest wine companies, Foster’s Group and Constellation Brands, came out with breaking news in the past 24-hours. Let’s take a look.

Foster’s Group announced yesterday evening that the board has accepted the resignation of ceo, Trevor O’Hoy. The news is not entirely shocking since Foster’s has had a bad run lately and O’Hoy has endured a lot of criticism from analysts.

In addition to paying too much for recent wine acquisitions, Foster’s has also suffered from a difficult Australian wine industry (including gluts and droughts in the past several years), the slowing U.S. economy and the strong Aussie dollar.

As a result, the company said it will reduce the level of U.S. distributor inventories at year end by approximately 1.4 million cases compared to the prior period.

Earlier in 2008, company management apparently instituted a review of Foster’s global wine strategy and operations, although we’ve yet to hear their plan of action. The review includes analysis of Foster’s wine markets and will consider the “optimal structure and operations of our wine business into the future.”

QUICK BACKGROUND. O’Hoy was appointed ceo in March 2004, replacing Ted Kunkel, after successfully heading the company's Carlton & United Breweries beer division since November 2002. Before that, he was Foster's chief financial officer.

Before O’Hoy took over as ceo, Foster’s purchased Beringer Wine Estates for $2.6 billion, which most analysts believe was far too expensive. Despite problems in the U.S., O’Hoy led Foster’s in acquiring Southcorp in 2005 for $3.2 billion as part of a move to become the world’s largest premium wine company.

“We believe this will be not only a transformational acquisition for Foster's but also one for the global wine industry,” O'Hoy said at the time.

As they say, hindsight is always 20/20.

O’HOY’S FAREWELL. “It’s been a privilege to devote my working life to Foster’s and to lead a team of talented and passionate people through major change and significant challenge over the past four years,” Trevor said. “It’s now time to stand aside and allow the next generation of management to lead the business forward.”

Trevor has agreed to stay on to facilitate a transition until the appointment of his successor, says the company.

CHAIRMAN COMES CLEAN. In our opinion, Foster’s chairman David Crawford handled the news graciously. He acknowledged that the company overpaid for Southcorp and that “wine returns are not acceptable.” Here’s an excerpt of his statement released yesterday:

“Trading conditions have been tough and the continued strength of the Australian dollar has hit us hard.

The reality is we did not execute the Southcorp integration as well as we expected and operating conditions are now more challenging. We must also recognize and acknowledge that we paid too much to acquire wine assets.

While we acknowledge that our performance in wine has been disappointing, there have been some notable performance highlights. Our innovation agenda has accelerated and our future innovation pipeline is very healthy.

On behalf of the Board, I sincerely thank Trevor for his hard work and dedication throughout his 33 year career with the business.”

Crawford went on to say that the board will begin “a rigorous international search to identify a successor.”

O’Hoy did not attend the conference call today, but Crawford said he turned in his resignation during an emergency board meeting on Monday after an internal review revealed the extent of the deterioration in the US wine business.

“He takes responsibility as chief executive for where the company currently is, and believes that it is appropriate that he resigns, steps down and allow a new management team to come in,” Crawford said.

FUTURE OF FOSTER’S. So where will Foster’s go from here? Right now the company is refusing to say whether it will sell its wine business. Analyst Andy Kovacs of Macquarie Research believes the company would be an easier acquisition target if broken up. Otherwise, a takeover is unlikely, at least in the short-term.

“We continue to believe a takeover is unlikely in the short term. The wine business is clearly in poor shape, and full of uncertainty. Furthermore it is very difficult to find acquirers of large wine assets...wine therefore acts as a poison pill for anyone interested in the beer business.”

“Furthermore a new CEO (whoever that may be) is unlikely to be a quick fix - as we believe much of the problems in wine are due to the difficult industry rather than poor operational management.”

“Nevertheless, if broken up it would be an easier acquisition target...”

We’re sure that Foster’s will be the subject of intense speculation in the coming months.

In the conference call today, Crawford told listeners that the company would entertain various possibilities, but it was still too early to determine if the assets would be sold or kept.

BY THE WAY, we read a lot of coverage of the Foster’s story today, but our favorite article was in The Australian by Bryan Frith. If you are interested in reading it, click here.

Here’s an excerpt from the article:

“O'Hoy wasn't responsible for Beringer -- that was a mistake of his predecessor Ted Kunkel. But O'Hoy cannot escape responsibility for Southcorp -- he had been in charge for several months when that acquisition was made.”

CONSTELLATION SELLS LOWER VOLUME LABELS

Constellation confirmed today it has agreed to sell seven wine brands to newly-formed Ascentia Wine Estates (based in Sonoma, CA). The brands hail from Washington, California and Idaho, and include Geyser Peak, Buena Vista, Gary Farrell, Atlas Peak and XYZin, Columbia Winery, Covey Run and Ste. Chapelle. The deal does not include the Atlas Peak vineyards or winery.

Recall that Constellation acquired Geyser Peak, Buena Vista, Gary Farrell, Atlas Peak, and XYZin from Fortune in December 2007 for $885 million.

Collectively, these brands represented approximately one million cases of wine sold in calendar 2007. They are mostly in the ultra-premium category where cost of production is highest.

Ascentia will be lead by Jim DeBonis, former coo at Beam Wine Estates, and it backed by several investors, including W.J. Deutsch and San Francisco-based private equity firm GESD Capital Partners. Deutsch will serve as the sole marketer and distributor of the brands, while GESD will help finance the deal.

Jim DeBonis will serve as ceo of Ascentia, while Peter Ekman, the former ceo of Wine.com, will take the position of chief sales and marketing officer.

Under terms of the agreement, Constellation received $209 million in cash, and could receive up to an additional $25 million in payments if certain objectives are achieved by the buyer. In all, Constellation could make up to $234 million. The company said it will use the proceeds from the sale to reduce borrowings.

Constellation’s shares rose nearly 2% in the morning trade.

"Sale of these assets will aid in streamlining Constellation's U.S. wine portfolio by eliminating brand duplication and excess production