Agave Leaves a Mark on B-F

Brown-Forman experienced the same changing trends as other spirits companies in the recent period, namely a worsening economy and shift to the off-trade, but one thing was notably different: agave. A combination of bad weather and questionable farming practices left B-F short on the agave fruit that is vital in producing tequila in the first quarter.

CFO Don Berg said the company understood the volatility of an agricultural product when it acquired Casa Herradura. However, B-F experienced an abnormal loss rate of 25% in the quarter which is not entirely unique to the company. The recent agave glut has driven prices down. As a result, many farmers are leaving fields untended and instead producing corn which is in high demand.

The company owns a few agave fields, but most of its supply comes from land owned by others, in which B-F owns the plants and is responsible for the farming.

Berg pointed out that the majority of B-F’s agave plants are healthy, and that the company is “actively taking steps to prevent further plant losses.” He said the situation will not constrain the company’s “ability to build our tequila brands to their full potential.”

The company is re-launching el Jimador as a 100% agave product, and plans to expand distribution of the Herradura and el Jimador brands. Paul Varga, ceo, also said tequila is doing well in many U.S. states, not just the traditional California and Texas markets.

EFFECTS OF CONSUMER TRENDS. Spirits companies across the board, including B-F, have reported that consumers are shifting from the off-premise to the on-premise. As a result, Jack Daniel’s depletions were flat in the quarter and Southern Comfort was down mid single digits. Price increases partially offset Soco’s declining numbers.

"It is unlikely that SoCo trends improve near-term as we expect on-premise to remain weak," said Kaumil Gajawala of UBS.

After reporting disappointing results for Jack Daniel’s and Southern Comfort, B-F said it was confident the trends would pick up with increased off-premise promotional activities and discount programs. Recent Nielsen trends in the four weeks to July 26 reported 8% growth for Jack Daniel’s.

“We believe the first quarter had a fair amount of noise in it which depressed reported quarterly depletions in several key markets around the world. Every quarter has some of this noise in it, but this one seemed unusually high to me,” said Varga.

“As economic conditions improve, we expect that Jack Daniel’s global volume growth will return to the long term historical rate of mid single digits.”

Meanwhile, Gentleman Jack and Jack Single Barrel experienced strong growth in the quarter.

B-F also reported a shift between price categories, namely acceleration in volume growth for value brands in the U.S. and weaker trends for many of the brands in the premium and super premium categories.

Berg said consumers in the US are not trading up at the rates they were in the past, but B-F’s super-premium developing brands continue to buck this trend and deliver strong performance. These brands include Sonoma-Cutrer, Bonterra, Chambord, Tuaca, and Woodford Reserve, which all grew strong double digit net sales.

“Growth in premium and super premium brands,” said Varga, “are testaments to opportunities that exist for well positioned brands in this industry.” He said the company’s premium and super-premium brands will become "more important to Brown-Forman's profit picture" in the future.

Furthermore, margins felt some pressure in the first quarter because recent price increases did not outpaced cost inflations from grain and fuel. B-F said it has implemented some cost saving initiatives as a result. The company expects costs to increase, and will continue to look at inflationary pressures to determine to what extent it can pass those costs to pricing.

FORTUNE TERMINATES ABSOLUT, GAINS CRUZAN RUM

In not entirely surprising news yesterday, Fortune announced it has severed its joint-venture agreement with Vin & Sprit to distribution Absolut in the U.S. in exchange for some cash and Cruzan rum. Pernod Ricard now carries sole marketing and distribution rights to Absolut.

The j-v, otherwise known as Future Brands, was originally slated to end in February of 2012, but will now come to a close on October 1. In return, Pernod is paying $230 million cash to Fortune, which in return is acquiring Cruzan rum from Pernod at $100 million. It appears a win-win situation for both sides. The cost savings for Pernod that will stem from the early termination more than offsets the payout to Fortune.

“We believe these announcements are very positive for Pernod,” said Melissa Earlam of UBS.

At the same time, Fortune was able to acquire the fast-growing rum brand at a discounted price and obtain some cash for future acquisitions. V&S paid close to $200 million for Cruzan in 2005.

Fortune already owns Ron Rico, a low-end rum with limited distribution, but Cruzan is the fifth largest rum brand in the U.S. and grew double digits in 2007. As a result, it will fill a niche in Fortune’s portfolio and become its flagship rum offering.

Commenting on the agreement, Patrick Ricard stated:

“The immediate takeover of Absolut distribution in the US by Pernod Ricard USA is excellent news for the Group. We will now market and distribute the leading imported spirit and Premium vodka in the U.S., which greatly enhances our position. Through both our size and the quality of our portfolio, we are now the clear number two in the North American spirits market. These factors will allow us to strengthen our growth in this key market. I also wish all the best and a continued success in the future for the Cruzan rum brand and the Cruzan teams within Fortune Brands.”

WSD BRIEFS:

INTERVIEW WITH FOSTER’S EXECS. The Business Spectator featured an interesting interview with Foster’s chairman David Crawford, temporary ceo Ian Johnston and cfo Angus Crawford in which the execs explain why they want to shift Foster’s focus back to value market share. The first question, directed as Angus, asks: “Well gentlemen isn't it reasonable for shareholders to feel now that you've ruined a perfectly good beer business by going into wine?”

To check it out, click here.

PERNOD’S CHIVAS BROTHERS UNIT said it is selling the Glendronach distillery to The Benriach Distillery Company. The sell off will allow Chivas to concentrate on its 13 other distilleries, said the company. In addition, it has started “significant expansion plans” for The Glenlivet Distillery.

COBBLESTONE VINEYARDS, a family-owned winery in Napa’s Atlas Peak appellation, says it has “gone global” by acquiring a New Zealand vineyard specializing in pinot noir. Details of the transaction were not disclosed. It bought the small New Zealand hillside property from Jeff Barber, a Kiwi winegrape grower and winemaker, who will stay on as vineyard manager. The vineyard is situated on the Te Muna Terrace, an elevated and recently developed section of Marinborough.

Have a wonderful Labor Day Weekend!

Until Tuesday, Megan

“Plans are only good intentions unless they immediately degenerate into hard work.”
Peter Drucker

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Alert: Pernod and Fortune Agree to Early Termination for Absolut

Fortune Brands and Pernod Ricard today announced an agreement under which Fortune will receive compensation in exchange for early termination of the company's distribution agreement with Pernod's Absolut vodka and other brands.

Under the agreement, Pernod Ricard will pay Fortune Brands $230 million in pre-tax proceeds, and Fortune Brands will turn around and pay $100 million back to Pernod to acquire the Cruzan Rum brand. The agreement will result in the termination as of October 1st of the U.S. distribution agreement between Fortune Brands' Beam Global Spirits & Wine business and the U.S. business of V&S Group recently acquired by Pernod. The joint distribution agreement had been scheduled to remain in place through February of 2012.

"This is a win-win agreement that provides significant benefits to Fortune Brands," said Bruce Carbonari, president and chief executive officer of Fortune Brands. "In exchange for accelerating the end of our U.S. distribution agreement with Absolut, we'll receive a cash payment of $230 million. We're also pleased that we'll acquire a fast-growing premium rum brand. Rum is one of the most attractive spirits categories, and the addition of Cruzan fills a portfolio gap in premium rum with the category's fastest growing brand in the U.S."

"Importantly, by transitioning to a dedicated sales force focused solely on our brands, we'll simplify our route to market in the U.S. and enjoy greater control over our distribution," Carbonari added. "Our seven-year partnership with Absolut served its purpose, but our spirits business is a much bigger company today with the scale and leading positions in key spirits categories to fully leverage the strengths of a dedicated sales force."

"We believe moving forward now with this distribution solution will provide valuable clarity and sharper focus to our sales force, and will better support Beam Global's vision of 'building brands people want to talk about,'" said Tom Flocco, president and chief executive officer of Beam Global Spirits & Wine.

The company's Beam Global spirits business is the fourth largest premium spirits business in the world, and its case volume going forward will be the second largest in the U.S.

"This transaction serves shareholders significantly better than allowing the distribution partnership to expire in 2012," Carbonari said. "The termination payment from Pernod more than compensates for our higher costs of distribution over the remaining term of the joint venture agreement. From a strategic perspective, we'll also benefit from a dedicated U.S. sales force. And we see significant upside potential over the long term from the Cruzan Rum brand."

Until tomorrow, Megan

Diageo Solid in 2008

Diageo presented a solid fiscal year in 2008 where growth was led by North American and International markets. However, 2009 could bring heightened concerns on the economy and rising raw material costs.

Improving price/mix continues to be the company’s main focus by stressing value over volume. Diageo continued its strategy of focusing on the premium and super-premium brands in North America. As a result, the company saw strong performance in those brands which continued to drive growth in fiscal 2008, while value brands such as Gordon’s experienced weakness. The majority of the priority spirits, wine and beer brands gained share.

Price increases on 40% of spirits volume in the US drove net sales growth despite negative mix within the global priority brands due to the strong growth of Smirnoff and Captain Morgan.
Loss of share in the value brands resulted in overall share of US spirits being broadly maintained during the year at 28.3 percentage points, with share of priority spirits brands up 0.3 percentage points.

Volume was up 2% and net sales grew 5%. Net sales of spirits grew 7%, beer increased 6% and wine was up 12%, which was partially offset by a -10% decrease in net sales of ready to drink.

ECONOMIC AND COST PRESSURES. Price increases and premiumizing brands through marketing helped battle tougher cost pressures from energy, packaging and barley. With that said, Diageo tweaked guidance from 9% to between 7 and 9% for organic operating profit growth for fiscal 2009. The reduction was put in place because of rising input costs and broader economic conditions.

“We’ve seen a 3% increase in costs this year...forecasting expects costs to increase next year across the items we are reliant on, such as grain and packaging,” said Diageo ceo Paul Walsh.

"[The rise in costs] could be even worse. There is no sign of these cost pressures abating," said cfo Nick Rose.

For the first time in a few years, however, Diageo is expecting a positive impact from the exchange rate in fiscal 2009 at about 60 million pounds.

The biggest challenge right now, said Walsh, is the current global economic environment.

Nonetheless, he said Diageo has entered the new fiscal year even stronger, driven by global diversity, strong brands across category, good routes to market, excellent marketing and deep consumer understanding. He said the company is also building strong relationships with customers.

On of the biggest economic effects in the U.S. is the consumer shift from the on-premise to the off-premise. As a result, Diageo is “helping consumers build their confidence to make the perfect cocktail at home that they drink at the bar.” The company said “successful” off-premise campaigns have helped increase off-premise sales in Smirnoff and Captain Morgan.

Common sense would suggest that the value category would actually perform better during slow economic times. However, Walsh said there is always a group of consumers that want to drink expensive alcoholic beverages despite economic pressure.

“Whether you agree with the social justice of this or not, there is still a nucleus of consumers around the world...that have the means and desire to consume the best. That isn’t going to change. The current economic situation will not impact that...they’ve got the money and they want the best.”

He also said people are not drinking more but they’re drinking better.

He called premium and super-premium brands an “affordable indulgence” that gives consumers “status at a very affordable price.”

ACQUISITIONS AND DIVESTMENTS. When asked if Diageo would consider selling some of its value brands, the president of Diageo North America, Ivan Menezes, said the company is happy with its current portfolio and there are no divestment plans.

He pointed out that the value brands are a very small proportion of Diageo’s profitability, and that at the moment “we have a good position across price points. We feel very comfortable that the center of gravity is at premium and premium plus categories.”

Value brands allows Diageo to “maximize value and gives us the position we want with distributors and retailers to grow our categories and continued premiumization trends in U.S.”

During the year Diageo added Ketel One, Zacapa rum and Rosenblum Cellars, which were “already successful brands and we intend to build on that success,” said Walsh.

Also, the company “continues to look at innovative ways to bring new brands to Diageo,” whether it be partnerships or acquisitions.

A CLOSER LOOK AT BRANDS. Smirnoff, Johnnie Walker, Captain Morgan, Crown Royal, Guinness, Sterling Vineyards and Chalone wines were again the performance leaders in North America. Price increases and strong growth of the reserve brands Cîroc, Don Julio and Johnnie Walker Blue Label drove net sales growth. Marketing excluding ready to drink was up 5% with strong investment behind the reserve brands.

The key driver of growth for Captain Morgan was its performance in North America. The brand grew 7% in volume and net sales were up 12% driven by Captain Morgan Original Spiced rum, which gained a further 0.6 percentage points of share despite the launch of two competitor brands in the rum category.

Meanwhile, Jose Cuervo’s performance continued to be affected by the growth of the ultra premium tequila segment in North America. Volumes of Cuervo were down -5% and net sales dropped -4% in the fiscal year. To help reposition the brand in an increasingly premiumized category, Diageo released Jose Cuervo Platino in the first half of 2008 to good consumer response, said the company.

Tanqueray outperformed the declining gin category in North America, gaining 1.6 percentage points of share driven by the continued growth of Tanqueray Rangpur. A price increase on the core brand drove price/mix improvement.

Crown Royal took share in North America and net sales grew benefiting from price increases and successful innovations. Volumes were up 5% and price increases drove net sales up 9%. Crown Royal continued to take share in the North American whiskey category, up 0.4 percentage points.

Smirnoff continued its strong performance from the first half and grew volume 8%. Price increases were taken in key markets, driving net sales growth of 12% and share up 0.2 percentage points.

Johnnie Walker also grew ahead of the category with volume up 5% and net sales up 10% driven by Johnnie Walker Black Label and the super deluxe labels, leading to share growth of 1.2 percentage points. Price increases were taken across the Johnnie Walker range.

The Baileys results were constrained by lower volume in Baileys flavors, which lapped the launch in fiscal 2007. Overall, volumes of Baileys were down -6% and net sales fell -3%. Baileys Original Irish Cream outperformed the category with volume up 3% and net sales up 7% as price increases were taken across most of its markets.

Local priority wines grew volume 6% and net sales were up 8% driven by strong performance of Sterling Vineyards and Chalone and price/mix improvement in Beaulieu Vineyards.

ANHEUSER-BUSCH INBEV. Walsh said he’s not “overly concerned” about Anheuser-Busch InBev.

“We’ll have to sit and wait...I’m not unduly worried about any attack on the spirits category. That said, we respect all our competitors and we will have people as we speak to propel further the market share gains in the US and accelerate spirits category growth. I don’t take anything for granted but I’m not overly concerned.”

JACK DANIEL’S FLAT IN Q1

Volumes of Jack Daniel’s were flat in the U.S. during the first quarter, where global depletions declined -1%. Net sales increased in the low single digits on a constant currency basis.

“Jack Daniel’s US volume trends weakened in 1Q, as depletions were flat following a low single digit increase during 4Q,” said UBS analyst Kaumil Gajrawala. “That said, BFB mentioned volume trends improved in July, driven by increases in promotional activity.”

Gentleman Jack net sales increased by double digits on both a reported and a constant currency basis for the period. Jack Daniel’s Single Barrel delivered solid net sales growth, said the company.

Finlandia net sales also increased by double digits, which reflects higher volumes and pricing gains. Global depletions grew in the high single digits.

Southern Comfort net sales declined in the mid-single digits during the quarter. Volume declines, due in part to softness of the on-premise channel in the brand’s major markets, were offset partially by price increases.

“It is unlikely that SoCo trends improve near-term as we expect on-premise to remain weak,” said Kaumil.

Net sales for Sonoma-Cutrer, Bonterra, Chambord, Tuaca, and Woodford Reserve grew at double-digit rates for the quarter. The Casa Herradura portfolio’s net sales grew by double digits on a reported basis and in the mid-single digits on a constant currency basis.

Commenting on the quarter, Paul Varga, ceo said: “The loss of agave plants has reduced our inventory, but we do not believe this will constrain our ability to build our tequila brands to their full potential. While these are certainly challenging economic times, we remain confident about the long-term growth opportunity for our excellent portfolio of premium and super-premium brands.”

More on Brown-Forman’s first quarter tomorrow...

MID-RANGE FRENCH WINES TAKE A HIT

Expensive and well known French wine exports continue to do well, but lower-quality wines are suffering at the hands of New World producers such as Australia, Chile and the U.S.

Volume growth was down in the first half but French producers made more money overall as consumers overseas continue to trade up. Ubifrance, the French export development agency, said in a report released this week that export volumes fell -8.7% in the six months through June. However, the value of French exports increased by 8.2% to $4.7 billion.

While expensive Bordeaux and Burgundy wines bring high returns, less expensive wines from lesser-known regions in France struggle.

Exports of mid-range regional and table wines fell dramatically in the first half, with the number of bottles down by -15.5% on the same period in 2007. As a sector, regional wine export sales fell this year by 3.5% to €488m (£392m).

The strong euro is also making French wines more expensive for American consumers, which takes a negative toll on the lower end of the market.

"The biggest difficulties were encountered in the Anglo-Saxon markets, which tend to like [regional wines]," the report said. "The current problems with the exchange rate have affected these markets in particular and with them these wines from an extremely competitive niche."

The champagne industry has also shown the first signs of suffering from the economic downturn, with both volume and value down by -4.2%and -1.3% respectively.


Until tomorrow, Megan

“There are some things you learn best in calm, and some in storm.”
Willa Cather

--------- Sell Day Calendar ----------
Today’s Sell Day: 20
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

Foster’s Stumbles in the U.S.

As expected, Foster’s wine business underperformed in fiscal 2008, but its beer unit “remains robust” and generated solid earnings. Recall that things came to a head in June when Foster’s ceo Trevor O’Hoy unexpectedly resigned and the company issued a $700 million write-down of its global wine business.

Foster’s acting ceo Ian Johnston and chairman David Crawford both said the wine results did not meet expectations and were unacceptable. David admitted the company underestimated some things, such as currency, when it purchased Beringer and Southcorp several years ago.

“None of us estimated the extent the dollar would move and we are not the only industry that has suffered there,” he commented during Foster’s fiscal report.

However, Crawford believes the global industry is undergoing a structural change rather than a cyclical transformation.

So how did Foster’s get in the position it’s currently in? For starters, there are currency issues with the strong Aussie dollar and weak US dollar, not to mention an economic slowdown. In addition, the 2008 Australian vintage was larger than expected, and has coincided with a decline in popularity of Australian wine in the U.S. Lower volumes and higher grape prices also took a toll.

WINE REVIEW. The wine review, led by Crawford, was put in place to give Foster’s a long term wine strategy. Whether the company decides to sell some assets or hold on to everything, Crawford stated that “all options are on the table.”

“We will emerge from the wine review with a very clear strategy and very clear focus on what management has to do to ensure we do produce acceptable returns across the company as a whole,” said Crawford.

Johnston listed a number of initiatives to help get the company back on track. First, he said there has been too much focus on EPS as a metric. Now, “volume and value market share and cost reduction is our new focus...if we got that right EPS will follow.”

In addition to building volume and gaining value share, Johnston aims to reduce business costs and continue building business capability. He also remarked that Foster’s had not had enough “big innovation” in the past.

As far as employees are concerned, Johnston wants to strengthen individual performance and offer more support to customers.

“I want to put a much stronger link between performance, individual delivery and reward structure...changing some behaviors in business such as putting people in sales force and putting specialist in the wine and beer area. I think we can do a better job at serving and supporting our customers out there that have perhaps been a little left behind in what wasn’t a well implemented strategy after the acquisition.”

“No one can promise anything, but despite the things we’ve done to shoot ourselves in the foot, we’re still holding share, we still have fantastic brands. We’ve got wines that win medals and that’s important to a point, but it shows it has high quality and we’ve got to transfer that to sales.”

In addition, the ceo search is progressing according to plan and Foster’s hopes to have a new chief by the end of the calendar year.

The company said it would not provide any specific earnings guidance for fiscal 2009 due to wine review currently underway.

When asked if the group could write-down the value of its wine business further, Johnston, said: "We certainly will not be expecting to have very significant [write-downs] like the ones this year."

FOSTER’S IN THE U.S. The Americas was hardest hit by an unfavorable exchange rate, a realignment of distributor inventories and lower volumes. As a result, wine net sales revenue in the Americas declined -8.9% in constant currency terms.

“The wine category in the US continued to show positive value, volume and revenue per case growth in fiscal 2008. However growth rates have moderated in the second half, particularly for wines sold on-premise,” Foster’s said in a statement.

Overall, Foster’s volume declined -9.6% in the U.S. and was impacted by a 0.9 million case reduction in distributor inventories and lower sales of Australian sourced wines. Distributor depletions declined -2.5%.

Foster’s said its California wines performed “in line with expectations” with strong growth in Chateau St Jean and Beringer Third Century.

Following a 20% price increase in January, volumes of Beringer White Zinfandel dropped as the company expected, but was partially offset by the successful release of the Beringer Californian Collection Chardonnay.

Distributor depletions of Foster’s Californian wines, excluding Beringer White Zinfandel, increased 5.3%. Distributor depletions of Beringer White Zinfandel declined -5.8%. In the second half, the brand declined -15.8% following the price increases in January.

On a constant currency basis net sales revenue per case increased 0.7% and included the benefit from price increases on Beringer California Collection which include Beringer White Zinfandel, and selective Californian and imported luxury products.

The Australian portfolio began to gain traction in the June quarter following the restoration of merchandising and promotional activity. In the December and March quarters, Foster’s had reduced merchandising and promotional activity in the U.S. which had an immediate impact on sales, the company. Performance was also impacted by lower growth in the Australian category. Depletions of Australian wine declined -6.1%.

“There wasn’t a conscience decision to load distributors because that’s a dumb move,” said Johnston during the conference call. “But we find ourselves where management decided not to deliver to a lot of these customers at a big cost,” he continued.

Johnston also acknowledged that “Australian exports to the US has slowed considerably.” However, he said demand in the US market “is holding up quite well” and that Foster’s is not “overly concerned” about its share although the company would “obviously like to do better.”

VINTAGE UPDATE. Despite rampant droughts, the Australian 2008 vintage was larger than expected, approximately 25% above the 2007 vintage. Total grape production was 1.8 million tons. As a result, the Australian wine industry is once again over supplied.

“Most wine companies expected the last [Australian] vintage to be modest...unfortunately, it was a bad move to buy water and increase quantity and cost, so we ended up with stronger vintage than we expected,” said Johnston.

Foster’s said it expects the upcoming 2008 California vintage to be of similar size or slightly higher than the 2007 vintage with further incremental increases in grape prices as supply tightens. Recent frost events in California are not expected to have a material impact on company owned vineyards.

IMPACT OF SOUTHERN/GLAZER’S. When asked if the Southern/Glazer’s joint-venture would impact Foster’s, Johnston said the following:

“That’s quite a big development and that new company is our distributor in 4 of the 5 biggest regions in the U.S. So it has to be something that will impact us.”

“Our relationship with these people is pretty good. We don’t see it has a big risk or threat to us.”

NO QUICK FIXES FOR FOSTER’S

Andy Kovacs of Macquarie Securities suggested in two research notes that there are no straight paths in Foster’s future. Here’s a recap of what Andy had to say.

FINDING A CEO

“Finding a CEO couldn't be easy given the uncertainty in what the job will entail (as the structure of the business is to be determined by the Wine Strategy Review). We continue to believe that there are no quick fixes.”

STZ AS A POTENTIAL ACQUIRER

“The performance of FGL’s wine business remains weak and FY09 will be another challenging year. While a takeover remains a hope it is very hard to find an acquirer – which means FGL is likely to have to go through the extremely difficult and risky process of trying to fix the business.”

“Constellation Brands (STZ) has been the only real acquirer of large wine assets over the past few years. However, we don’t believe it a likely acquirer of FGL for a number of reasons.”

U.S. WHOLESALER DE-STOCKING

“While the US wholesaler destocking activity hurt 2H08, we expect there is more to come in FY09. Other headwinds will include the global economic slowdown, reduced popularity of
Australian wine in the US, variable core wine brand health, and continued Australian oversupply.”

RESTORING PROMOTIONAL ACTIVITY:

“We are not convinced that this is a short-term hiccup for the Australian category. Nor that it can be solved (at least in a sustainable fashion) by simply ramping up promotions.”

“Our ACNielsen data doesn’t show a significant improvement in FGL’s Australian brands performance.”

BREAKING UP THE BEER AND WINE UNITS

“While a break-up is worth considering, it is also important to note that this wouldn’t be an easy process in practice. After spending three years combining the businesses (Beer + Beringer + Southcorp), a break-up is likely to lead to another round of pain.”

TIDE NOT TURNING FOR CASUAL CHAINS

There could be more bad news for on-premise wine and spirits sales as casual dining chains continue to suffer. According to the WSJ, Darden Restaurants (owners of Olive Garden and Red Lobster) reported a less than stellar first quarter that could continue struggling in the fall after undergoing a tough summer.

“Investors were spooked because, until now, Darden had been one of the few sit-down restaurant companies to withstand an industry slump that started more than two years ago,” said the article.

In an interview, Darden ceo Clarence Otis said he’s not expecting the overall industry to get “a whole lot better” in the next few months.

Restaurants have not been able to raise prices to cover higher ingredient, labor and energy costs as much as supermarkets because they are perceived as a better value than restaurants.

DOMAINE ALFRED TO SOON JOIN CRIMSON WINE GROUP

Crimson Wine Group says it hopes to complete the acquisition of Domaine Alfred Winery of the Central Coast by tomorrow, August 28, according to the San Francisco Business Times. Domaine Alfred specializes in high-end pinot noir and chardonnay, while Crimson is a new unit of New York investment group Leucadia National Corp. The price of the deal was not disclosed.

Crimson also owns Pine Ridge Vineyards in Napa, Archery Summit Winery in Dundee Hills, and Double Canyon Vineyards of Washington's Horse Heaven Hills.

WSD BRIEFS:

MICHAEL MONDAVI is introducing a new Cabernet Sauvignon this fall called “M by Michael Mondavi” through Folio Fine Wine Partners. The 2005 M by Michael Mondavi is made from 100 percent Cabernet Sauvignon sourced from Michael's Animo vineyard in the Foss Valley of Atlas Peak.

THE TOM MOORE DISTILLERY, home of 1792 Ridgemont Reserve, has joined the Kentucky Bourbon Trail and will begin offering tours on Oct. 1, the Kentucky Distillers’ Association announced today. This is the first time the Trail has expanded beyond its original seven members. The Bardstown landmark is owned and operated by Constellation Spirits.

TOURISM IN SONOMA COUNTY reached a record $1.32 billion last year. Hotels were receiving higher average daily room rates than the previous year and room occupancy was also higher. For one, baby boomers are increasingly vacationing in wine country. Also, the weak American dollar is encouraging more Europeans, Canadians and Britons to venture to the United States

ABSINTHE MATA HARI recently struck a distribution agreement with Young’s Market in California and Arizona, Johnson Brothers in Nebraska, Wisconsin and Rhode Island and Stoller in Illinois. Mata Hari now has distributor agreements in 32 markets in the U.S. including the 7 largest spirits states of CA, FL, NY, TX, IL, NJ, and WI.

KENTUCKY GOV. STEVE BESHEAR designated September “Bourbon Heritage Month.”


Until tomorrow, Megan

“Be courteous to all, but intimate with few; and let those few be well tried before you give them your confidence.”
George Washington

--------- Sell Day Calendar ----------
Today’s Sell Day: 19
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

Wine Consumption on the Rise

Overall wine consumption in the United States rose 3.2% in 2007 to 292.1 million 9-liter cases, according the Beverage Information Group's recently released 2008 Wine Handbook. This marks the fourteenth consecutive year of case gains, indicating positive long-term health and sustainability for the wine industry overall. Increased consumer spending on wine in both the on- and off-premise channels in 2007 mirrored the increase in consumption. Total wine retail dollars peaked at $27.9 billion last year.

The Group’s research reiterated that the U.S. will surpass both Italy and France as the largest wine market and wine importer in the world by the end of the decade.

Millennials, Baby Boomers and Hispanics are helping the industry overall. For example, Millennials, which constitute about 70 million people, are more willing to experiment with bottles at lower price points because they “are not as sophisticated about wine as proceeding generations.”

Conversely, the Baby Boomers – 77 million Americans between the ages of 43 and 61 – have more disposable income and are spending on the more exclusive, higher-priced wines. Hispanics are emerging as an important wine consumers group and the Echo Boomers are coming of age in rapid numbers.

Packaging trends are also boding well for the wine industry, said Beverage Information Group. Boxed wine is experiencing a resurgence in the U.S. as it is increasingly being used for premium and super-premium wines. Target's Wine Cube, produced by Trinchero Family Estates, and the super-premium Black Box Wines from Constellation Wines are prime examples. Screw cap closures are also gaining greater acceptance among consumers.

To order the 2008 Wine Handbook, visit www.beveragehandbooks.com or call Cynthia Porter at (630) 762-8709.

MUMM TESTS LIGHTER CHAMPAGNE BOTTLES

G.H. Mumm, the champagne house owned by Pernod Ricard, has completed a trial production of lighter bottles weighing 2kg when filled and 835 grams when empty, reports the Financial Times. Traditionally champagne bottles weigh a heavier 900g.

The experiment was prompted by increases in production and transportation costs, and done at the behest of the Comité Interprofessionnel du vin de Champagne, a French trade association for grape growers and champagne producers. Mumm cannot sell its bottles to consumers until it receives approval from the CIVC that they will not explode.

Mumm has put the lighter bottles it has produced in its trial run in caves where they will age for at least 2 ½ years. If the trials are successful, says the FT, the CIVC may recommend its other members start using the bottles.

Pommery, the champagne house owned by Vranken-Pommery Monopole, is the only big champagne group to date to use 835g bottles. It adopted them in 2003 and says it can now load 4,000 more bottles on every truck.

RISING COSTS COULD PROMPT SCOTCH PRICE INCREASE

Diageo may take another price increase on Scotch for the second time this year, reports the Sunday Herald. CEO Paul Walsh is expected to disclose this week that the group has seen a £100 million rise in its costs for items such as grain, energy, glass and packaging over the past year. The Scotch Whisky Association says the price of cereals has risen anywhere between 35% and 100% in the past year, while glass bottles have increased by up to 20% and other packaging by around 10%.

Diageo took a price increase in February in addition to a 9% duty rise in the spring.

"Obviously, the group concentrates much of its focus overseas, but Paul Walsh is determined to get more value out of the brands at home," said one analyst, according to the article.

It is now believed that the US market will have performed better than originally thought, but there are some concerns that the UK and Ireland may have suffered from the poor economy.

“BACARDI AND THE LONG FIGHT FOR CUBA”

The Washington Post featured an interesting article on a new biography titled “Bacardi and the Long Fight for Cuba,” which outlines the history of the Bacardi family and its ties to Cuba.

“Drinkers the world round know the name Bacardi means rum, but few non-Cubans know that this global enterprise was founded -- and is still owned -- by a Cuban family that played an important role in the island's social, political and economic history,” says the article.

“...The company has gone to great lengths in recent years to lobby for a tightened U.S. embargo and to fight the French liquor company Pernod's effort to market Cuba's Havana Club rum, a legal duel with Castro that the Bacardis viewed as a crusade to defend another expropriated Cuban brand.”

WSD BRIEFS:

FREDERICK WILDMAN AND SONS has promoted Martin Sinkoff to the position of Director of Marketing for the newly created Fine Wine Division. In his new role, Sinkoff will report directly to Richard Cacciato, ceo and President of Wildman and will be responsible for determining the company's overall fine wine strategy and marketing activities.

CANADIAN COMPANY DIAMOND ESTATES WINES & SPIRITS has acquired the Beamsville-based family-owned winery, De Sousa Wine Cellars. De Sousa Wine Cellars produces approximately 15,000 cases of wine annually and specialize in the production of both craft and value priced wines. The company also owns a retail operation in Toronto that serves as its direct-to-consumer outlet for purchasing its wines. Diamond Estates says it has invested over $20 million in the Canadian wine industry in the past 60 days, with the acquisition of 20 Bees Winery and now De Sousa Wine Cellars.

BLACK SWAN LAUNCHES NEW PACKAGING. Australia’s Black Swan Wines is unveiling a new label and look for bottles beginning this Fall. The six varietals will be differentiated by the colors used on the bottle cap and label to “better suit the fun, hip, and casual nature of the brand,” said the company. The bottles also feature 25 different equations printed on the corks, which include "Black Swan = Swan - Convention, "Text Message = Telegram - vwls," and "Crazy = Talking to Oneself - (cell phone + ear piece)."

KEN LAIRD BUYS STORAGE FACILITY. Napa Valley grapegrower and vintner Ken Laird has acquired a nearly complete $14 million-plus bulk-wine storage facility in south Napa from Vintage Wine Trust, which is liquidating its $170 million worth of assets. He purchased the 3.83 acre property for an undisclosed amount. Laird purchased the property as an investment and is leasing it to Butch Cameron, who owns a trucking company. The facility will be used for his Cameron Wine Storage venture. To read more, click here.

CLOS DU VAL WINERY PROMOTED John Clews as its new chief operating officer of production. Prior to the promotion, he was winemaker and vice president of vineyard and winery operations. Clews has been with the company since 1999. Before, he was general manager/chief enologist at Steele Wines in Lake County, and he’s also worked at Newton Vineyard in St. Helena, and Preston Vineyards in Sonoma County’s Dry Creek Valley.


Until tomorrow, Megan

“Be courteous to all, but intimate with few; and let those few be well tried before you give them your confidence.”
George Washington

--------- Sell Day Calendar ----------
Today’s Sell Day: 17
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

Absolut Names Executive Team

Pernod Ricard said today it has renamed its newly acquired Vin & Sprit Absolut Spirits “The Absolut Company.” As previously announced, it will be headed by the current president of V&S Absolut, Ketil Eriksen, who is slated to become ceo. He will be based in the new company’s global head office in Stockholm.

Matthias Aeppli will continue as the vp of global marketing at Absolut, while Kicki Alm will become vp of human resources. Krister Asplund will serve as vp of manufacturing and Andreas Berggren will take the roll of vp of commercial.

Paula Eriksson will continue as vice president of corporate communications. Stéphane Longuet is joining Absolut as vp of finance from Pernod Ricard Italia, where she recently served as CFO. Mikael Spångberg will take the roll of vp of legal affairs, continuing his prior legal responsibilities at V&S.

Most of these appointed executives either carried a similar title at V&S or worked at the company prior to Pernod’s acquisition.

Recall that Pernod split V&S’s operations in two separate companies, naming them The Absolut Company and Pernod Ricard Nordic. Absolut Vodka’s production will remain in Sweden.

FOSTER’S LIKELY TO DEMERGE OR SALE WINE ASSETS

Since Foster’s announced a review of its wine business in June, analysts have speculated that the company will likely demerge its beer and wine unit, and sale at least some – if not all – of its wine assets. An analyst at Goldman Sachs JBWere backed up the sentiment.

“We believe a demerger or partial sale of FGL’s wine business is a likely outcome from its wine review. Such a process would bring into focus sum-of-the-parts valuations,” said Goldman Sachs JBWere in a research note sourced by TheShout.

A spokesperson declined to discuss any potential outcomes while its strategic review is underway.

"As we've said since launching the review, all options to improve our wine business are being considered. It's premature to draw any conclusions while the review is underway," the spokesperson said.

Recall that in June Foster’s shook up the wine world when it announced CEO Trevor O’Hoy’s departure and a strategic review of its troubled wine business led by Chairman David Crawford. Also, Foster’s issued a $700 million write-down and transferred $600 million in goodwill to its beer operations.

In a letter to shareholders last month, Crawford said: “We own a great company. The beer division is delivering consistently strong financial returns and, while financial returns from our wine assets are not acceptable, we own leading international brands with excellent potential.”

He partially blamed economic conditions and the strength of the Australian dollar but has also admitted in the past that Foster’s paid too much for Beringer ($2.6 billion) and Southcorp ($3.2 billion).

To read more background, click here.

DIAGEO COULD SEE A TOUGHER 2009

Overall, Diageo seems to be in a good position but an uncertain economic future could eventually have a deeper impact. Analyst Melissa Earlam of UBS believes management will “comfortably meet” the 2008 fiscal guidance, but the 2009 fiscal year “will be key.”

UBS say pricing remains “very favorable,” especially for Scotch. Also, emerging markets will continue to outperform mature markets and currency will benefit Diageo’s reported estimates. Problems will stem from the increasing US unemployment (up 6%), weak macro data for Spain, UK and Ireland, and the Australian ready-to-drink excise increase.

The calendar year to date in the U.S. spirits market has grown by 2.58% in volume, while Diageo grew 2.11%. The slight loss in market share is a function of more aggressive price increases, says Melissa. On average, Diageo has taken prices up by 5% for 60-70% of its portfolio.

Weaker on-premise sales, higher competition in the on-premise and the poor economy pose risks for Diageo in the U.S.

“So far the spirits premiumization trend has proven resilient, but we await company comments how this trend will fare as unemployment rates increase (current unemployment is 5.7% compared to UBS estimates of 6.4% for 2009E),” noted Melissa.

The combination of rising unemployment and food and energy inflation will test consumer spending on spirits. UBS forecasts spirits market volume growth of 1.7% and sales up 4.5% in fiscal 2008. However, it believes fiscal 2009 “will see a further slowdown in market sales growth.”

“We believe Diageo should take value share given (1) its comprehensive spirits category exposure, (2) its dedicated salesforce through Next Generation Growth,” Melissa continued.

EOS WINERY CONVERTS TO SOLAR POWER

EOS Estate Winery in Paso Robles is on the track to becoming the largest winery in the Paso Robles AVA to convert entirely to solar power. According to an article in local paper Paso Robles Press, the winery’s new owner Jeff Hopmayer says he strongly believes in producing eco-friendly wines.

The $3.8 million project calls for installation of two-plus acres of ground mounted solar tracking arrays to provide the electrical power for its winery and tasting room. Additional roof mounted solar arrays will provide all the hot water needs. It is also the first winery in California to use an energy-efficient system that actively tracks the sun throughout the day, which will increase the solar system’s production.

The winery anticipates 100% of the wastewater that exits the building will be able to be re-used and sprayed on the vines.

Hopmayer estimated that the winery produces about 230,000 cases per year. Only a year ago when he purchased it, the winery was producing around 80,000 cases annually, he said.

EOS contracted with Sacramento-based SunTechnics for the solar installation.

In addition, the winery is renovating its facilities with a new laboratory, plasma TVs, wireless internet, interactive tour technology, handicapped access, an all-new bottling room, conference room with a community wine spitting mechanism running through the middle of the table and updated office spaces.

“It’ a very smart building, and it’s a green building,” Hopmayer said.

WSD BRIEFS:

ITALY IS EXPECTED TO PRODUCE more wine than France for the first time in this century, making it the leading European wine producer in 2008. Good weather has helped Italy harvest an estimated 47 million hectoliters, while bad weather in France has resulted in the smallest output since 2000, says France’s Agriculture Ministry.

ALAIN BARBET, chairman and ceo of Pernod Americas recently joined the board of directors of Canadian marketer and distributor Corby Distilleries, effective July 1. Claude Boulay, outside legal counsel of Pernod Ricard Americas, also joined the board.


Until Monday, Megan

“My pessimism extends to the point of even suspecting the sincerity of the pessimists.”
Jean Rostand

--------- Sell Day Calendar ----------
Today’s Sell Day: 16
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

Wine Spectator: Unfairly Duped?

Earlier this week it was revealed that a fake restaurant was awarded Wine Spectator Award of Excellence. Since then, forums, blogs and industry publications have been blowing up with opinions over the issue.

Dr. Vino’s wine blog first covered the story on Tuesday with the opening words: “If you decided to get a Wine Spectator Award of Excellence for you restaurant wine list, what would you need? The answer according to Robin Goldstein is $250 and Microsoft Word. Restaurant not actually required.”

Goldstein, the author of The Wine Trials, stated on his website that he created a fake restaurant and submitted an application for the award as research for an academic paper. He named the restaurant “Osteria L’Intrepido,” which means “Fearless Critic,” submitted the application fee ($250), a cover letter, a copy of the restaurant’s menu, which he deems “a fun amalgamation of somewhat bumbling nouvelle-Italian recipes,” and a wine list. The so-called restaurant claimed to be in Milan.

As it turns out, the “reserve wine list” largely contained some of the lowest-scoring Italian wines in Wine Spectator over the past few decades, says Goldstein. You can view the wine list on his website, with scores and some excerpts from the Wine Spectator reviews.

Needless to say, Osteria L’Intrepido won the Award of Excellence, as published in print in the August 2008 issue of Wine Spectator.

“It’s troubling, of course, that a restaurant that doesn’t exist could win an Award of Excellence. But it’s also troubling that the award doesn’t seem to be particularly tied to the quality of the supposed restaurant’s ‘reserve wine list,’ even by Wine Spectator’s own standards,” stated Goldstein.

He presented his findings at the annual meeting of the American Association of Wine Economists in Portland over the weekend. According to Wines & Vines, Goldstein’s presentation focused on “whether or not wine value correlates with consumer appreciation of a wine's intrinsic qualities (not necessarily, he found).” Instead, Goldstein says high wine ratings and premium prices do not necessarily mean that a consumer will appreciate the wine any more that if it was bought at a lower price.

WINE SPECTATOR RESPONDS. Thomas Matthews, executive editor of Wine Spectator, posted a bulletin regarding the sting yesterday on the magazine’s online forum.

“Wine Spectator learned yesterday that, for the first time in the 27-year history of our Restaurant Awards program, a fictitious restaurant has entered its wine list for judging,” it begins.

Matthews stated that since the story has been picked up in the blogosphere, WS “would like to set forth the actual facts of the matter.”

In summary, he says the Awards program never claimed to review the restaurant as a whole. Instead, it has evaluated the content, accuracy and presentation of restaurant wine lists since its inception in 1981.

“We do not claim to visit every restaurant in our Awards program. We do promise to evaluate their wine lists fairly,” he stated.

“We assume that if we receive a wine list, the restaurant that created it does in fact exist. In the application, the restaurant owner warrants that all statements and information provided are truthful and accurate. Of course, we make significant efforts to verify the facts.”

Matthews said WS called Osteria L’Intrepido several times. Each time it reached an answering machine and a message from a person claiming to be from the restaurant who said it was closed at the moment. When they googled the fake restaurant, it turned up an actual address and location on a map of Milan. Even more elaborately, fictitious diners discussed their experiences at the non-existent restaurant on Chowhound, dating January 2008 to August 2008.

But how could such a poor wine list win an award? Matthews says Goldstein exaggerated on his website, which claims the fake wine list contained “some of the lowest-scoring Italian wines in Wine Spectator over the past few decades.” Instead, Matthews says only 15 wines out of the total 256 wines on the list scored below 80 points from Wine Spectator in the past.

“This act of malicious duplicity reminds us that no one is completely immune to fraud. It is sad that an unscrupulous person can attack a publication that has earned its reputation for integrity over the past 32 years. Wine Spectator will clearly have to be more vigilant in the future,” Matthews stated.

“Most importantly, however, this scam does not tarnish the legitimate accomplishments of the thousands of real restaurants who currently hold Wine Spectator awards, a result of their skill, hard work and passion for wine.”

Of course many in the industry are elated over the bad press for Wine Spectator, while others are defending the popular magazine. If you’d like to get in on the action, check our Dr. Vino’s blog, Goldstein’s website and the Wine Spectator’s forum.

DRINKING AGE UNDER FIRE

The drinking age debate has received loads of press – everyone from WSJ to Fox News – this week sparked by a group of 100 university presidents that call themselves the “Amethyst Initiative.” The presidents signed a petition to encourage open discourse on the minimum drinking age of 21, which has resulted in heated debate on all sides.

Even 60 Minutes is said to be preparing a show on the subject. This could end up being another “French Paradox,” where 60 Minutes sparked the wine industry by being the first national program to point out alcohol's positive health effects in moderation.

Of course, MADD is staunchly against the initiative and seems entirely closed to even debating the drinking age. One of their biggest defenses is that drunk driving deaths have been reduced since the National Minimum Drinking Age Act was put into effect. However, they do not take into account that the alcohol beverage industry stepped up campaigns against drunk driving around the same time.

We believe the drinking age requirement at least deserves some dispassionate debate and research among policy makers. Whether it’s the right decision or not, the issue shouldn’t be squashed without giving it the attention it deserves. As our sister publication Beer Business Daily stated: “But for crying out loud, if 100 college presidents – who know college students more than anybody and who have a vested interest in their well-being – think it should be looked at, why wouldn't everybody support that? Just study it.”

To read our coverage earlier this week, click here.

BEAM GLOBAL INCREASES OFF-PREMISE HOLIDAY MARKETING

Beam Global is upping its off-premise programming this holiday season with themed packaging and POS displays. It’s well documented that the on-premise has taken a hit during these slow economic times, and therefore spirits companies are turning their focus to the off-premise.

“This season’s holiday packaging, recipes and point-of-sale items will make the shopping and gifting experience easier for our consumers. We’re offering specialty glassware, festive recipes and new holiday-themed and value-added packaging, which will help our legal purchase age consumers entertain with added ease,” said Rory Finlay, senior vice president and global chief marketing officer of Beam Global.

WSD BRIEFS:

CARMEN WINERY is the first winery in Chile and in South America to “go green” with lighter glass wine bottles. The average bottle will be scaled down from 17.28 ounces to 14.81 ounces, a 15% reduction that will result in savings of more than 343 tons of glass per year.

HIRAM WALKER GINGERBREAD LIQUEUR will join Pumpkin Spice beginning Oct. 1 nationwide. Hiram Walker Gingerbread is the first nationally available gingerbread liqueur, said the company. The suggested retail price will be $8.99-11.99 for the 750ml.

BEAM GLOBAL IS LAUNCHING LE NEZ DE COURVOISIER program to educate distributors and the trade across the country about the House Style of Courvoisier. Along with the sales force, National Courvoisier Brand Ambassadrice Stephanie Mills will lead tastings, tell the history of Courvoisier and educate participants, said the company.


Until tomorrow, Megan

“A fanatic is one who can't change his mind and won't change the subject.”
Sir Winston Churchill

--------- Sell Day Calendar ----------
Today’s Sell Day: 15
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

Australia Aims for the High End

The Australian wine industry reportedly has some untapped opportunities in the U.S. market that would help it grow in both volume and value. According to investment bank Rabobank, Australians need to break away for the image of cheap wine and begin supplying more expensive, high quality bottles to secure a sustainable future.

The Australian wine industry already has the relatively low-priced, high volume segment of the export market cornered, said the report, but higher value Australian wines have “significant” potential in the U.S. The U.S. is the highest retail value wine market in the world, with dollar wine sales growing from $11 billion in 1991 to $30 billion in 2007.

Rabobank found that there is a gap in domestic wines prices in the $9-12 price point in the US, which gives Australian wines “a clear opportunity.”

“Over the last twenty years, the US has been increasing its wine consumption at a faster rate than any other major market, and in recent times most of that growth has been at the high-end of the market,” said report author and Rabobank analyst Vera Zelenay.

From 1991 to 2007 the US market grew by 83% (141 million cases) to 313 million cases. In the same period, sales revenues grew much faster than unit volumes, showing that
US consumers are trading up. Additionally, the US is expected to become the largest overall wine market in the world, surpassing Italy in 2008 and France around 2015.

Another component that makes the U.S. attractive to Australians: imports are gaining ground and steadily taking market share from Californian wines.

“The high average wealth in the US, combined with the relatively low per capita consumption of 9.4 liters suggests a significant market expansion opportunity for suppliers who can identify where and how to compete in this huge market and leverage brand, quality and distribution strength to best advantage,” the report says.

Australian exports have increased despite recent droughts and a strong Aussie dollar. However, Zelenay said the growth has been based on volume rather than value up through 2007.

“For the Australian wine industry this means improving its global perception in order to grow in value, encouraging consumers to trade up and to choose Australian when moving to a higher price point.”

“A more premium focused, value-oriented business will be less vulnerable to the type of production peaks and lows which have characterized the industry over the past five years,” she continued.

The report said the U.S. appears to be the best prospect for the Australian wine industry over the long term for several reasons. Its size and market share of higher price points, together with its low consumption per capita and the small proportion of wine drinkers represent a strong opportunity for growth.

“In spite of its current economic challenges, the trend towards trading up to higher priced wines continues, though at a slower pace. The market for higher priced wines is expected to continue growing over the next few years and the Millennials will be an important segment driving this trend,” Zelenay said.

However, challenges for Australians in the U.S. include our complex distribution system, elevated shipping costs from Australia, a weak US dollar and the looming recession.

“Australia is in fact in a much stronger position to launch this strategy than other exporting nations in the US market due to its hard-fought reputation for innovation and over-delivery on quality at a given price,” said Adam Morris, senior wine analyst for Rabobank.

FOSTER’S SEES A COMEBACK IN JULY

Foster’s Group showed signs of growth in the U.S., according to Nielsen data in the month of July. Foster’s US wine sales grew 2% in the month, thanks to brands such as Merdian and Penfolds (up 5%), Chateau St. Jean (21%), Gabbiano (8%), and Bohemian Highway (81%). Sales of Beringer and Lindemans remained flat, while Rosemount and Wolf Blass fell -15% and -10%, respectively.

Foster’s corporate affair spokesman, Troy Hey, told The Shout that recent growth is a reflection of the company’s commitment to its US wine biz.

“We’ve restored promotional and marketing investment since earlier this year and the results are showing in the US market,” he said. “Our Australian imports are performing well in a tough market. Our Californian brands, especially Chateau St Jean, Founders Estate and Bohemian Highway are again winning share.”

Australian imports were down -1% in the period and once again lost market share to the US, Argentina, New Zealand and Spain, among others.

MERUS REPLACES FOUNDING WINEMAKER, MARK HEROLD

Merus proprietor Bill Foley has replaced founder and winemaker Mark Herold with winemaker Camille Benitah and consulting winemaker Paul Hobbs, reports Wine Spectator. Last year, founders of the boutique winery, Herold and Erika Gottl, sold it to the Foley Wine Group following the couple's separation. Foley Wine Group also owns Foley Estate, Lincourt and Firestone Vineyards in Santa Barbara and a majority share of Three Rivers winery in Washington's Walla Walla Valley.

Because of a non-compete clause, Herold won't be making his own Napa Valley Cabernet for at least three years. However, he can continue current consulting projects and will return to making Napa Cabernet once the non-compete clause expires.

NEW ZEALAND BREAKING NEW RECORDS

New Zealand wine exporters are expected to hit the $1 billion market by 2010. According to local reports, NZ Winegrowers have boosted their offshore earnings by 14% in the past year to a record $797.8 million. Wine volumes have risen at a compound annual growth rate of about 20% over the past decade, with this year's vintage survey showing the latest harvest was up more than 30% on the 2007 vintage, which experienced considerable droughts.

Challenges for New Zealanders include the economy and a significantly larger vintage in 2008.

The largest export market is Australia by value, up 37% to $247 million. Exports to the UK, which used to be NZ’s largest market, grew only 8% on 2007.

WSWA SPENDS $240K LOBBYING IN SECOND QUARTER

The Wine and Spirits Wholesalers of America spent $240,000 in the second quarter lobbying the federal government on food safety and tax issues, reports the AP based on a report filed July 15 with the House clerk's office.

The organization lobbied for a bill that would, among other things, assess and collect fees on food imported into the U.S. and provide research on the development of tests of imported food. In addition, the wholesalers lobbied on a bill to provide additional tax relief to low- and moderate-income individuals, and to reform corporate income taxes.

WSD BRIEFS:

NEW HAMPSHIRE LIQUOR COMMISSION gained a new member this week, Dick Simard. Commissioner Simard brings over 25 years of experience in business to his new position, according to a statement.

SKYY SPIRITS welcomes Jason Daniel to its marketing team as Senior Brand Manager for Skyy Vodka. In this role, Daniel will direct the national marketing programs supporting the flagship brand, as well as the new Skyy Infusions and SKYY90.


Until tomorrow, Megan

“The world is full of people whose notion of a satisfactory future is, in fact, a return to the idealised past.”

Robertson Davies

--------- Sell Day Calendar ----------
Today’s Sell Day: 13
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

Debating the Drinking Age

More than 100 college and university presidents nationwide, including leaders from Duke, Dartmouth and Ohio State, are calling on the public to rethink the drinking age. Other prominent schools in the group include Syracuse, Tufts, Colgate, Kenyon and Morehouse.

In a statement, top university officials said the current legal drinking age “is not working” and has dramatically increased the risk of binge drinking on college campuses. Instead, they believe the drinking age should be lowered from 21 to 18.

The movement called the Amethyst Initiative began recruiting presidents more than a year ago to kick start national debate about the drinking age, reports the AP.

ACCORDING TO THE WEBSITE. Why the name? According to its website, “The purple gemstone amethyst was widely believed to be an antidote to the negative effects of intoxication. In Ancient Greece, drinking vessels and jewelry were often made of amethyst and used during feasts and celebrations to ward off drunkenness and to promote moderation.”

"How many times must we relearn the lessons of prohibition?" Adults under 21 are deemed capable of voting, signing contracts, serving on juries and enlisting in the military, but are told they are not mature enough to have a beer," the group also said on its website.

It goes on to say "by choosing to use fake IDs, students make ethical compromises that erode respect for the law."

WHAT MADD IS SAYING. Each state has the authority to set its own drinking age, but in 1984 Congress passed the National Minimum Drinking Age Act, which says that states with a drinking age lower than 21 will lose 10% of their federal highway money. After that law passed, all 50 states raised their drinking age to 21. As a result, proponents of lowering the drinking age will first focus on repealing the “National Minimum Drinking Age Act.”

People who support the 21-year-old drinking age, such as MADD, say it has saved thousands of lives and has the support of the public. They believe that lowering the drinking would lead to more fatal car crashes and accuses the university presidents of looking for an easy, but unscientific solution.

"It's very clear the 21-year-old drinking age will not be enforced at those campuses," said Laura Dean-Mooney, national president of MADD.

In fact, MADD ceo Chuck Hurley said nearly all peer-reviewed studies looking at the change showed raising the drinking age reduced drunk-driving deaths. A survey of research from the U.S. and other countries by the Centers for Disease Control and others reached the same conclusion, said the AP.

PRESIDENTS RESPOND. However, the university and college presidents say they believe lowering the drinking age would help curb binge drinking and therefore make college campuses (not to mention the roadways) much safer. They say that underage students tend to drink as much as they can before they go to public places where they won’t be served.

In addition, the presidents want to focus on offering better alcohol abuse education on campuses. One of the biggest problems, they said, is that underage students tend to drink off-campus where they cannot be supervised.

Research has found more than 40% of college students reported at least one symptom of alcohol abuse or dependence. One study has estimated more than 500,000 full-time students at four-year colleges suffer injuries each year related in some way to drinking, and about 1,700 die in such accidents.

A recent Associated Press analysis of federal records found that 157 college-age people, 18 to 23, drank themselves to death from 1999 through 2005.

The statement signed by the presidents carefully avoids implicit language, and instead says it seeks “an informed and dispassionate debate” over the issue and the federal law that strongly encouraged states to make 21 the legal drinking age.

SWRA SUBMITS FINAL BRIEF ON TEXAS APPEAL

The Specialty Wine Retailers Association (SWRA) submitted its final brief yesterday in the case of Siesta Village Market v. Steen, now at the Fifth Circuit Court of Appeals.

SWRA is challenging a Texas law that basically prevents out-of-state retailers from shipping directly to residents. The comprehensive, sixty-page brief prepared by SWRA legal counsel Kirkland & Ellis LLP will be followed by oral arguments later this year to be delivered by Ken Starr, Of Counsel at Kirkland & Ellis.

In January, Judge Sidney Fitzwater of the U.S. District Court for the Northern District of Texas issued a mixed victory for wholesalers and retailers. He ruled that Granholm offers protection from discrimination to both wineries and retailers, which is good for SWRA. However, the judge ruled that the state of Texas has the option to force out-of-state retailers to purchase wine from Texas wholesalers, which ultimately leaves the decision up to the state.

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

Texas wholesalers and the state of Texas is appealing the part of the ruling that says Granholm was meant for both wineries and retailers. In other words, if in-state wineries/retailers are allowed to ship directly to consumers, then out-of-state wineries/retailers must be able to ship directly also.

SWRA is appealing the part that gives Texas the option to force out-of-state retailers to purchase wine from Texas wholesalers.

"By Judicially extending the Texas retailer permits to out-of-state retailers, the district court imposed a condition (the wholesaler purchase requirement) which has the effect of barring out-of-state retailers from Texas's direct shipping market. The reason is this: it is legally impossible for an out-of-state retailer to purchase wine from a Texas wholesaler without establishing a store in Texas,” said the SWRA brief.

GOOD WEATHER BENEFITS ITALIAN WINES

Italy’s Montepulciano region is forecasting a top-quality vintage, according to Reuters. Europe’s second largest wine producing nation is expecting a 10% increase in the 2008 harvest. Last year’s Italian vintage was the smallest in 30 years but quality was considered high.

Recall that Montepulciano and nearby producers of Brunello di Montalcino have faced a tough year in the U.S. after the Italian government began investigating claims of fraud.

However, the Consorzio del Vino Nobile di Montepulciano has forecast a five-star vintage, matching the highest ranking given to the vintages of 2006 and 2007.

FRANCE DETERRED BY APRIL FROST

Meanwhile, wine producers in the Pessac-Leognan area of Bordeaux say they may have lost 40-50% of their crop this year due to the April frost, according to Decanter. However, the quality of the remaining grapes is described as “exceptional” in the article.

STZ SEES INTEREST IN AUSTRALIAN ASSETS

Despite reports that Constellation may have a hard time selling $200 million of winery and vineyard assets in Australia, another paper says the future is looking rosy. Spokeswoman Sheralee Davies told Adelaidenow.com that private companies have sparked "strong initial interest" in the 10 wineries and more than 20 vineyards for sale.

"We've been very pleased by the initial interest across both wineries and vineyards...certainly it's private interest,'' she said.

The company reportedly hopes to sell the wineries by June 2009.

Analysts do not expect public winemakers to bid for the assets, particularly since Foster’s and Lion Nathan, for example, are reviewing their own assets. Other buyers are seeking premium labels rather than facilities.

Also, Australian Vintage and private companies McWilliams and Rathbone Wines recently bought the wineries and brands of Nepenthe, Evans & Tate and Xanadu.

OWNER OF ALEXANDER VALLEY VINEYARDS DIES

We regret to report that Alexander Valley Vineyards Winery owner Harry Herman Wetzel Jr. died at his home last Thursday at the age of 88. A memorial service for Harry will be at 11 a.m. Aug. 26 at Alexander Valley Vineyards. His wife Margaret died two months ago.

He will be buried in the old Alexander family plot on the estate, near the grave of Cyrus Alexander, and beside his wife.

In addition to his granddaughter Sarah, Wetzel is survived by his daughter Sally Fallon Morell of Washington, D.C., his son Hank Wetzel of Healdsburg, his daughter Katie Wetzel Murphy, also of Healdsburg, 13 grandchildren and three great-grandchildren.

WSD BRIEFS:

BRINKER INTERNATIONAL agreed to sell an 80% stake in Romano's Macaroni Grill to an affiliate of San Francisco private-equity firm Golden Gate Capital for $131.5 million, reports Dow Jones. The deal is set to close by year's end. The deal should cost about $42 million to $47 million.

FRANK FAMILY VINEYARDS are opening a new tasting room on Larkmead Lane in Calistoga in the original Craftsman house on property. The original tasting room was demolished last week. According to a statement, Frank’s national distribution is growing and their wines may be found in at least 20 states throughout the country.


Until tomorrow, Megan

“The world is full of people whose notion of a satisfactory future is, in fact, a return to the idealised past.”

Robertson Davies

--------- Sell Day Calendar ----------
Today’s Sell Day: 12
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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.

Pennsylvania Debates Wine Legislation

Direct-to-consumer wine shipments are currently legal in Pennsylvania, but most out-of-state wineries are wary to ship to Pennsylvanians because of legal uncertainties.

Wineries are hoping to smooth out legislation and open direct wine shipments once and for all. However, many think House Bill 2165 is still too restrictive, while others think it’s not restrictive enough. Under the proposed bill, wineries that produce less than 80,000 gallons of a wine a year can ship orders to the state Liquor Control Board, which would then send the wine to the consumer for a fee.

In the past, out-of-state wine shipments were banned in Pennsylvania until Granholm in 2005. A federal judge ruled in 2005 that Pennsylvania's prohibitions against out-of-state wine shipments were unconstitutional and ordered the state not to enforce the bans. Since then, the state has struggled to become compliant

Out-of-state winery proponents don’t like the volume cap or the Liquor Control Board as a middle man. Instead, they are urging the state to follow in the footsteps of New Hampshire and the 12 out of 19 control states that allow direct shipments.

New Hampshire requires direct shippers to use licensed carriers, such as Federal Express or UPS, and to report the shipments to ensure that taxes are paid. The shipments must be clearly marked as containing alcohol, and an adult must sign for them at delivery.

Critics say putting a volume cap in place unfairly allows in-state wineries to ship direct but not most out-of-state wineries. According to local reports, the bill’s sponsor, Rep. Paul Costa, admitted the volume limit was implemented for that reason.

Wholesalers and distributors who sell liquor to the LCB believe the proposed bill poses a number of problems as well. For one, out-of-state shippers would undercut state store prices, which include a 30% markup over wholesale prices, a 6% sales tax, and an 18% "Johnstown Flood tax." Wholesalers also argue that direct shipments make it harder to collect taxes but make it easier for minors to access alcohol.

The legislature is likely to be in session only briefly before the November election. Costa said he would reintroduce it next year if it didn't pass this year.

DISCUS SPENDS $1.1M ON LOBBYING

Discus spent nearly $1.1 million in the second quarter lobbying the federal government on underage drinking prevention, tax issues and other matters, according to the Associated Press. The trade group also lobbied on measures to prevent drunk driving, to lower the tax rate on distilled spirits, and on a bill that would allow the production of distilled spirits in dwelling houses.

In addition, Discus lobbied on advertising and marketing practices for distilled spirits and for the Federal Trade Reauthorization Act of 2008, as well as on food safety import measures and free trade agreement negotiations with Colombia, Korea and Panama.

TTB INVESTIGATES EIGHT FRENCH WINES

The TTB is continuing to investigate eights wines from France’s St. Emilion region on charges of fraud. Wines from Chateaux Pavie Macquin, Troplong Mondot, Belfont Belcier, Destieux, Fleur Cardinale, Grand Corbin, Grand Corbin Despagne and Monbousquet, are understood to be the focus of the investigation by the American Alcohol and Tobacco Tax and Trade Bureau (TTB), reports Decanter.

A French ruling last month demoted St. Emilion wines to the 1996 classification after it was promoted Premier Grand Cru Classe or Grand Cru Classe in 2006. The ruling was made after several “disgruntled” chateaux contested the promotion. The St Emilion classification is reportedly revised every ten years.

TEQUILA COULD SOON FACE A SHORTAGE

The tequila market could face an agave shortage in the next several years as more Mexican farmers turn to the increasingly profitable corn, beans and other food crops. Worldwide, farmers are cutting back on their trademark crops in hopes of making more money on corn or grain. However, the switch to corn could eventually result in an agave shortage and increased tequila prices. To combat this, large tequila distillers are growing their own agave or contracting with brokers.

Another concern: Mexican farmers are currently faced with an agave glut, so prices are down. As a result, they are abandoning agave in favor of more profitable crops. An agave plant takes five to seven years to mature, which makes it an unpredictable and often demoralizing investment.

In June, world food costs had risen 62% since early 2006, according to Oxford Economic Forecasting, a British consulting firm. The worldwide price of cereals such as corn and wheat was up 120%.

WSD BRIEF:

TESCO IS OPENING A CORPORATE OFFICE in Chicago, after which it will launch Fresh & Easy convenience stores in the region. A Tesco spokesperson said that Matthew Price, a real estate director at Fresh & Easy, will lead its property acquisition team in Chicago, reports Convenience Store News. However, Tesco said it is currently focused on opening stores on the west coast.


Until tomorrow, Megan

“Men who never get carried away should be.”
Malcolm Forbes

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

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.

Retailers Rate Suppliers

CM Profit Group just released its 1st annual survey of On-Premise Chain Retailers, (after researching off-premise establishments for six years). The spirits category edged out beer and wine as the “Leading Category for On-Premise Value and Service,” with Future Brands performing the best overall.

SURVEY BACKGROUND. The survey is conducted by interviewing the 50 key decision makers from top retail chains, including casual dining, hotel, concession, sports recreation, sports bar, transportation and military segments. The questions focused on national accounts value added services and account call performance by all the major beer, wine and spirits suppliers. The scale ranges from 1 to 4: 1= Does not meet your expectations; 2= just short of meeting your expectations; 3.00 = Meets your expectations; and 4.00 = Exceeds your expectations.

WHO’S PERFORMING BEST? Now for the meaty stuff. The first question asked retailers to gauge their overall impression of suppliers in general. Three spirits suppliers achieved average ratings above 3.00 with Future Brands coming out on top. In fact, the spirits (averaging 2.90) and beer (2.82) categories outperformed wine (2.65), with spirits taking the lead. Gallo was the top wine supplier “by a wide margin,” and Boston Beer edged out Anheuser-Busch for the top position among beer suppliers.

WHERE ARE THEIR STRENGTHS? The second question asked retailers to rate and identify which supplier, by category, receives their highest rating and why. “Responsiveness/Listening/Communication” was fairly consistent across all three categories, with wine taking the lead at 60%. Beer ranked 49.1% and spirits ranked 45.5%.

However, retailers indicated that information and data analysis were not being adequately addressed by suppliers. The spirits category (20.5%) performed the best, however, followed by beer (9.4%) and then wine (8.6%).

CM Profit Group expressed “surprise” on “how little trust and objectivity there was between trading partners.” Beer (0%), wine (2.9%) and spirits (2.3%) all scored very low.

“Apparently, even among the best of trading partners, there is very little trust and demonstrated objectivity.”

WHO BEST UNDERSTANDS RETAILERS? In the third question, retailers were asked whether beer, wine or spirits best understand the beverage category’s goals, strategies and tactics and how it relates to the overall business. Beer and wine suppliers were rated about the same as a group. Beer supplier’s average rating was 2.70 and wine averaged at 2.62. Spirits clearly outperformed with an average rating of 2.87.

In addition, said researchers, “the spirits category had the highest rated supplier across all 3 categories and its lowest rated supplier was significantly higher than the lowest rated beer and wine suppliers.”

THE PRINCIPLES OF CATEGORY MANAGEMENT. Only 50% of on-premise retailers said they practice category management. CM Profit Group said it believes that many answered affirmatively because they have “attempted to manage their beverage alcohol business...as independent sales and profit centers.” However, researchers also believe fewer retailers are using a formal partnering process, or Category Captain, to manage categories with suppliers.

“We believe this ratings performance indicates that many of you [retailers], as a group, don’t believe your suppliers have earned or have shown the objective expertise necessary to move on to higher levels of business partnering...the services that suppliers do provide are perceived as being too self-serving, non-objective and not focused on meeting your [retailers] specific needs.”

ABOVE AND BEYOND THE CALL OF DUTY. In the last question, retailers were asked to identify a specific example within the past year of a supplier going above and beyond expectations. Beer suppliers received more total mentions (17) than either wine suppliers (9) or spirits (10), but there was reportedly a “distinct difference” in the commentary.

Beer suppliers typically expended more resources or physical effort. Wine, however, focused more on training, menu selection and product segment development. Spirits focused on long term initiatives that impact the entire category or helped grow specific segments. Spirits suppliers were also commended for helping retailers by providing detailed solutions.

OVERALL HIGHLIGHTS. As we mentioned above, spirits outperformed beer and wine overall as the leading category for on-premise value and service. Across all questions, only Future Brands, Gallo and Anheuser-Busch achieved average ratings between 2.90 and 3.00.

Said researchers: “This means that no supplier is meeting retailer expectations across all of the performance areas addressed by this survey.”

Across 10 different criteria, Future Brands was the #1 ranked spirits supplier in seven. Gallo remains the top wine supplier and had a comfortable lead against #2 rated Trinchero.

On-premise Retailers said industry and consumer Information is their #1 need when it comes to support services. Among beer suppliers, this was their poorest performing area, while 4 out of 7 wine suppliers were rated higher. Among spirits suppliers, 2 out of 7 criteria were rated higher.

CALIFORNIA GRAPES SURVIVE DRASTIC WEATHER

So far so good for the 2008 California harvest, says local growers. For awhile things were looking iffy after a difficult year weather wise. Not only did grapegrowers have to deal with drought, pests, high winds, extreme frosts and intense heat, but California wildfires were ever-looming.

The season began with a dry spring, followed by unseasonal frosts. However, frost damage in April was minimal despite ominous warnings early on (“worst frost in 30 years”). In addition, a dry growing season isn’t always a bad thing because it focuses the vines’ energy on the grapes. Many think the smoke from wildfires may have actually shielded the vineyards from the hot summer days and agree the smoke did minimal damage.

In a press conference, the Napa Valley Grapegrowers said yields will be lower than average this year, but the quality “exceptional.” Several AVA’s are predicting that the harvest could be 10% to 20% below average.

A lighter harvest will result in higher grapes prices for most growers, who are generally seeing lower cluster counts with small berries. However, some say it’s still too early to tell.

HARDY’S VINEYARDS WAITING ON A BUYER

Constellation may have a hard time finding buyers for more than $200 million of winery and vineyard assets in Clare and Padthaway in South Australia, as well as Mount Barker in Western Australia, reports The Australian. Constellation will retain the wine brands and essentially offer the new vineyard owners contracts to buy the grapes they produce.

Possible buyers, including Foster’s, Lion Nathan, Australian Vintage (formerly known as McGuigan Simeon), and privately held companies such as McWilliams do not appear in the position to buy at the moment. Either they are low on money or lack initiative to make a major purchase. As a result, the Australian suggests Hardy (owned by Constellation) should come down on its price.

Only Brand New Vintage (with a market capitalisation of just $8 million) said it is actively looking for acquisitions. However, ceo Sam Atkins declined to comment to the newspaper on whether BNV would be interested in any of the Constellation assets.

WHOLE FOODS TO CUT 49 JOBS

In an unusual move, Whole Foods said this week it is cutting 49 jobs at its Austin headquarters, reports local paper American-Statesman. The announcement came after the high-end grocer reported financial results for one of its most disappointing quarters last week, which it blamed on the ailing economy.

"Due to the current economic environment and the impact it is having on our business, Whole Foods Market regrets to announce that we are eliminating 49 out of its 650 positions that report to our global headquarters in Austin," the company said in a statement.

It’s not currently clear which departments will be affected.

WSD BRIEFS:

CHALK HILL WINERY HAS NAMED PEGGY FURTH co-chairman and CEO of Chalk Hill Estate Vineyards & Winery, the Healdsburg estate founded by husband and noted anti-trust attorney Fred Furth. Interestingly, the couple is in the midst of a divorce, said the San Francisco Business Times. Longtime Chalk Hill CFO Ken Born will be the new president and COO.

DIAGEO SPENT $550,000 on lobbying in the U.S. in the second quarter, reports the AP. Diageo North America Inc. lobbied on provisions to reduce underage drinking and encourage responsible drinking habits, according to a form filed July 21 with the House clerk's office. In
April-June, Diageo also lobbied for regulations on alcohol labeling, dietary guidelines, lower taxes on spirits and regulations on flavored malt beverages.

BROWN-FORMAN has named Shannon Donnell to the new position of Grower Relations Representative/Luxury Brands, focusing on ultra-premium brands Sanctuary, Sonoma-Cutrer and Fetzer Coro Mendocino. Cindy Johnson has also been named to B-F’s Grower Relations Team as Grower Relations Representative for the Central Coast and Northern Interior growing regions.

WASHINGTON’S LIQUOR CONTROL BOARD is implementing a year long pilot program where thirty grocery stores statewide will offer wine and beer tastings beginning Oct. 1. The liquor board will submit a report in December 2009 that includes public complaints and comments.


Until Monday, Megan

“My own business always bores me to death; I prefer other people's.”
Oscar Wilde

--------- Sell Day Calendar ----------
Today’s Sell Day: 10
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

A Talk with Constellation’s Jim Sabia

Wine & Spirits Daily had the chance to talk with Jim Sabia, the new Executive Vice President of Marketing for Constellation Spirits. Before joining Constellation a little over a year ago, Jim spent 17 years with Coors where he was the creator of Blue Moon and most recently served as VP of Coors and Coors Light.

One of the new up and coming brands for Constellation is Effen Vodka (trademarked as EFFEN Vodka), which continues to gain popularity in the United States. Jim shared some insights on Effen Vodka, along with other trends in the spirits industry. So sit back and relax, dear reader, as you are a fly on the wall.

Wine & Spirits Daily: Can you give us some background on Effen and how Constellation acquired the brand?

Jim Sabia: Effen Vodka, which is a Dutch word for smooth, even and balanced, was created in 2002 by a group of Chicago-based entrepreneurs. It was really interesting the way they went about developing this brand–they used bartenders’ insights. They talked to bartenders about what they wanted in a vodka brand and what they thought consumers would want in a vodka. What kind of brand could cut through the clutter and be successful? Every aspect of the product from the no-slip rubber sleeve to the taste profile was developed with these bartenders’ insights—it really was developed by bartenders for bartenders.

Effen Vodka and Effen Black Cherry were introduced in the market in 2003. By 2004, Constellation (then Barton Brands) formed a joint venture called Planet 10 Spirits with jstar, the brand’s developers. In January of this year, 2008, Constellation Spirits acquired the remaining 50 percent equity stake in the joint venture. That gives you a brief background on the brand, which is about five years old.

WSD: How is Effen performing in the U.S. market? Which regions is Effen performing best and where does it need improvement?

Jim: We’re very pleased with the performance of Effen. By looking at Food & Drug IRI data back four, 13, 26, and 52 weeks, Effen is growing double digits in each of those time periods, so we’re very pleased with the current performance of the brand. We continue to see growth in what I call our original core markets, the markets in which the brand was first developed. We’re also starting to see good volume trends in the other markets where we’re focusing our efforts.

WSD: Okay, great. Where do you see Effen in the next five years?

Jim: Well, we’re investing a lot of time, energy and resources on consumer research to truly understand our core user—what is it about Effen Vodka that they love, how are we are doing, and what can we do better? Our research indicates that we have a lot of loyal users, so naturally we want to hold on to them and attract new users to the brand, as well.

We’re looking at all different ways to engage our consumers and provoke their interest. I think that implementing our current go-to-market strategy will prove extremely effective for us. If we continue to execute our disciplined go-to-market strategy and use innovative advertising– like the “Effen is a five-letter word” campaign we’ve developed– we’re going to be in a good place in the next five years with this brand.

WSD: Obviously right now, vodka is immensely popular in the United States. As a result, it seems like a hard category to compete in because there are so many vodkas. How does Effen differentiate itself and how is it capitalizing on vodka’s success?

Jim: That’s a good question. I believe there were close to 60 new vodka introductions in 2007. There is a lot of competition, and we’re in the very active super-premium part of the segment.

One of the biggest brand assets is the liquid itself. The consumer research we’ve done really validates how great the liquid really is. We also feel that the influence of bartenders in the brand’s development helped a unique offering, not just the taste profile but the sleek packaging and the engaging name, as well.

WSD: Right.

Jim: Vodka represents almost 29 percent of the spirits industry--it’s a very popular spirit throughout the world because it’s a very versatile product. It’s a great canvas to be creative with.

WSD: Do you think vodka is just going to keep chugging along as the most popular spirit in the next 10 years or so? I know it’s hard to tell.

Jim: Yes, exactly. But we do think that its popularity will continue. In the foreseeable future, I don’t think it’s going to slow down. With legal drinking age consumers getting into the spirits category a little bit sooner than the previous generation, we see a big opportunity and upside for Effen. I think there is a whole new generation of consumers participating in the cocktail culture. For legal drinking age consumers in their early and mid 20’s, spirits are becoming an important part of the drinking repertoire —which is a great thing for us.

WSD: Absolutely. Do you see any other categories emerging in the spirits industry? I know there’s a lot of talk of whiskey getting bigger, brown spirits making a comeback and even gin…

Jim: We’re really excited about the bourbon and rum categories. Our 1792 Ridgemont Reserve is doing very well for us. It’s really reaping the benefits of the bourbon growth that’s going on. Research tells us that a lot of guys in their mid-20s are starting to experiment with bourbon and they’re really starting to make bourbon part of their brand portfolio.

As for rum, Olo, our new Brazilian super-premium offering, is showing great potential.

WSD: Is bourbon predominantly a male drink?

Jim: The category skews more male, that’s for sure, but there are also female users.

I think vodka crosses both, though, because it’s so versatile. You have females, you have males, you have younger consumers and you have older consumers. It’s such a versatile product, a big reason why it’s 29 percent of the spirits category.

WSD: What kind of toll is the current economic climate taking on spirits? I know we’re seeing a shift from the on-premise to the off-premise. Any insight you could give would be great.

Jim: We do see a slight downward shift in the frequency that consumers are visiting on-premise establishments, so as a result, off-premise traffic is up. In the super-premium category that Effen plays in, we’re doing pretty well. It might be because those consumers haven’t been affected by the economy as much as some of the mid or low-tier income consumers. I think it depends on the price segment you’re selling your products in.

WSD: Right. I would guess that Effen would be strongest in nightclubs and higher-end bars. Is that correct?

Jim: You’re right, we do very well in those types of accounts, but as the brand gains more acceptance and as we engage more consumers, we’re becoming available in the local corner bars, too.

We’re also making headway in our off-premise business, too. Effen continues to show nice distribution increases at local grocery and liquor stores.

WSD: Thanks for your time Jim.


Until tomorrow, Megan

“Discovery consists of seeing what everybody has seen and thinking what nobody has thought.”
Albert Szent-Gyorgyi

--------- Sell Day Calendar ----------
Today’s Sell Day: 9
Sell days this month: 21
Sell days this month last year: 23
This month ends on a: Fri
This month last year ended on a: Fri.
YTD sell days Over/Under: +1

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

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

An Inside Look at Southern/Glazer’s