Constellation Sheds Australian Assets

The common denominator in today’s issue is Australian wines.

Constellation announced yesterday evening that it plans to sell three out of ten production facilities – in Clare and Padthaway in South Australia and at Mount Barker in Western Australia – and twenty vineyards to reduce debt. It also plans to consolidate bottling operations, streamline its portfolio and rationalize more than 30% of the company's Australian stock keeping units (SKUs). All wine brands will be retained.

Roughly 350 employees, or 20% of Constellation’s Australian workforce, will be let go. The decision was made after a strategic review of its Constellation Wines Australia business, formerly known as Hardy Wine Co.

The president of Constellation Wines Australia, John Grant said most of the assets for sale were at the more attractive end of the market and were not as large as others in the business, but he said the company had paid too much for them, according to local reports.

SAID KAUMIL GAJRAWALA OF UBS: “We view this move as confirmation that STZ is an unlikely acquirer of FGL’s Wine business, should it be for sale.”

He also believes Constellation’s announcement highlights continuing tough conditions for Australian wine producers, which have been well documented. For years Aussies have dealt with oversupplies, but recent droughts have taken a chunk out of production. In addition, the Aussie dollar is strong, taxes are high in the UK and Australian winemakers are facing strong competition from other winemaking countries.

“While we support moves to re-base asset values & improve returns, the process could prove time-consuming with no guarantee of an adequate outcome. We look for signals of buyer appetite and price ($95m proceeds seem conservative versus other metrics),” Kaumil continued.

UBS rated Constellation “neutral.”

AUSTRALIAN WINES IN THE SPOTLIGHT. "Australia remains one of the most important and dynamic New World Wine producing markets, and our Hardys and Banrock Station brands are two of the most recognized and consumed wines in the world. Australia is the largest New World Wine exporter based on volume and value, as well as being the second largest producer, and it is the third largest consumer market for these types of wines,” said Rob Sands, Constellation ceo. “This assessment of our Australian business has led to the development and implementation of an action plan that we believe will allow us to better position this business for success around the world. We will continue to provide consumers with an excellent array of the highest quality, premium Australian wine brands, along with many other high-quality Australian products that are Constellation Wines Australia hallmarks."

Bob Ryder, Constellation Brands chief financial officer added, "We are eliminating less profitable SKUs, focusing on brand-building and increasing pricing to restore appropriate levels of profitability.”

In connection with the Australian initiative, the company expects to incur one-time cash costs of approximately $45 million and net one-time non-cash costs of approximately $95 million, for a total of approximately $140 million in net one-time costs.

FOSTER’S WINE. Speaking of Australian wines, Kaumil mentioned in the same research note that Foster’s will report is fiscal 2008 result in a few weeks, “however the strategic review of its Wine business may take longer in our view given the simultaneous search for a new CEO.”

“In Australia FGL’s portfolio appears superior to STZ but both companies need to improve returns,” he said.

Constellation’s asset sales do not bode well for Foster’s because it could squeeze prices and make it more difficult for Foster’s to offload wine brands in the future.

UBS rated Foster’s “neutral.”

DR. DRE COGNAC AND VODKA COMING SOON

Hip Hop mogul Dr. Dre’s cognac and vodka brand will hit shelves in the next two months. The brands are owned by a joint venture between Drinks America and Dr. Dre's Interscope Geffen A&M Records label, a unit of Universal Music.

Aftermath Cognac will come out first, followed by an unnamed 80-proof flavored and unflavored sparkling vodka, Drinks America said Monday in its fourth-quarter earnings statement. The vodka will ship to distributors in the next 60 days. Marketing for the brands will coincide with the release of Dr. Dre’s “Detox” album, which is expected to be out in November or December.

In fiscal 2008, the company achieved net sales of wine and spirits of $3.8 million on 39,635 cases. Growth was due predominately to the launch of Trump Super Premium Vodka in October 2006 and Trump Vodka Flavors in February 2008, said Drinks Americas.

Net sales of Trump Vodka for the fourth quarter fiscal ‘08 rose 244% versus the prior quarter fiscal 08, and 101% versus the fourth quarter of the prior year fiscal ‘07. Sales of Trump Vodka were $2.7 million for this year. The prior year volume was influenced by the sell in, launch and pipeline fill of distributor inventory of Trump Vodka.

In addition, the company said it is focused on expanding internationally and is currently negotiating with distributors in China, India and Europe.

"Our strategy of creating premium branded beverages in partnership with icons continues to prove its foresight and long term viability, with great brand value creation enhanced by reduced capital requirements and favorable production and supply contracts," said company CEO, Patrick Kenny. "We have demonstrated that we can place quality brands in the market quicker and more cost effectively, with instant brand recognition, on a domestic and international basis, leading to accelerated sales. This, in conjunction with great product and beautiful packaging, will assure our future."

PERNOD LAUNCHES GLENLIVET XXV

The Glenlivet XXV, the oldest permanent release in the range’s portfolio, is coming to the U.S. It is made from hand-selected vintage that has been finished in first-fill Sherry casks for at least two years before bottling, said the company. Glenlivet XXV was also signed off by four expert whisky-makers: Alan Winchester, who oversees the production process; Bill Lamb, who supervises the filling and warehousing of the casks; David Boyd, who regularly “noses” the whisky to inspect its progress and selects the casks for bottling; and Jim Cryle, The Glenlivet’s acclaimed Master Distiller.

Unlike other products in The Glenlivet’s permanent range, The Glenlivet XXV showcases a strong Sherry influence as a result of being finished in Oloroso Sherry casks, which adds a layer of nutty, spicy flavors to The Glenlivet’s light and fruity overtones.

“The Glenlivet XXV was created to live up to exceptionally high standards,” says Jim Cryle. “The craftsmen responsible – myself included – are immensely proud to put our signatures on the final product.”

With a suggested retail price of $350, The Glenlivet XXV will be available in the U.S. in limited quantity in the fall, 2008.

U.S. GIVES IT ANOTHER GO IN INDIA

The United States is not giving up its fight against hefty Indian import tariffs. As expected, the U.S. appealed a World Trade Organization decision that upheld India’s import taxes on alcohol, including California wine and American whiskeys.

India reduced the national tax it imposed on all imported alcoholic beverages last year to 150%, which falls within the WTO’s limits. However, some states continue to implement hefty tariffs going as high as 550%. The state of Tamil Nadu has even shut out foreign alcohol and only allows shops to sell domestic Indian spirits and wines.

Wine, beer and spirits companies are eager to export their products to India because it is one of the world’s largest markets. However, imports only account for a small portion of total consumption. Discus estimates all foreign liquor together make up less than 1% of the Indian market.

ROSEMOUNT FOUNDER LAUNCHES NEW WINE BRAND

The Oatley family, founders of Rosemount Estate, has returned to the U.S. by establishing Robert Oatley Vineyards in Petaluma, CA, which commenced distribution of their first wines this week. In a statement, the company said it “is poised to once again take Australian wine to the world” with the launch of “Robert Oatley.” It will be released in nine states this August.

The line includes 2007 Chardonnay (Mudgee), 2007 Shiraz (Mudgee), 2008 Sauvignon Blanc (Western Australia), 2008 Pinot Grigio (South Australia) and 2008 Rose of Sangiovese (Mudgee). The suggested retail price, nationally, is $18-20.

Robert Oatley, 80, founded Rosemount Estate in 1970 and sold it to Southcorp Wines in 2001. In 2006, he launched his new wine business, Oatley Wines, in Australia. The business is run by Oatley's eldest son, Sandy Oatley and Chris Hancock.

Robert Oatley Vineyards is focused on the family's seven individual vineyards totaling 1,200 acres which are nestled in the hills of the Mudgee wine region on the west side of the Great Dividing Range which divides it from the Hunter Valley.

ADMIRAL IMPORTS TO MARKET FABIANO WINES

Effective August 1, Italian wine producer Fabiano has appointed Admiral Imports as their new importer and marketing company for the U.S. Fabiano is one of Italy's renowned producers of Veronese wines since 1912.

"Our relationship both personal and business with Admiral Imports has existed for over 20 years and I am now very proud to be able to appoint Admiral my Fabiano wines," said Nicola Fabiano.

WSD BRIEFS:

WIRRA WIRRA WINERY is returning to the U.S. and they have selected W. Gillett Johnson of International Vines, Inc. to reintroduce the brand into the world’s largest wine market. The range launches this month with the label that made Wirra Wirra famous, “Church Block,” a classic blend of Cabernet Sauvignon, Shiraz and Merlot. It will join other McLaren Vale offerings, including Woodhenge Shiraz, Catapult Shiraz Viognier and the eponymous RSW Shiraz. The wines will be available at premium restaurants and select specialty wine stores from August 2008 for between $18 and $60 per bottle.

PERNOD HAS APPOINTED Stephen Corrigan to the role of senior vice president of sales for Pernod Ricard Americas Travel Retail with immediate effect. In his new role, he will be responsible for North America and Brazilian duty-free, as well as Caribbean markets.

COSTCO’S JULY same-store sales rose 10%, with U.S. growth of 10% and international growth of 11%. Excluding gasoline price inflation, U.S. comparable sales would have climbed 6%, and excluding exchange rates, international comparable sales would have climbed 9%. Total sales in the four weeks to Aug. 3 rose 14% to $5.02 billion.

TO READ AN INTERVIEW WITH ALAN RICKMAN of Bottle Shock, click here.


Until tomorrow, Megan

“Cockroaches and socialites are the only things that can stay up all night and eat anything.”
Herb Caen

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

Premium Spirits Pick Up Globally

The globalization of spirits companies have changed the way countries drink as the big boys make inroads into emerging and even developed markets.

Vodka by far is the world’s most popular spirit, although whiskey, particularly Scotch, is experiencing “very good times,” according to an article in Business Week.

“With the opening up of Russia and Eastern Europe, the growing prosperity in Asia and South America, and above all the Westernization of popular culture, Western spirit brands have become the drink of choice for the emerging middle class from Shanghai to São Paulo—and the category that's leading the way is Scotch whisky.”

The fact that Scotch comes in blends, super-premium blends and single malts gives it an advantage. For example, single malt Scotch is growing at double digit rates in the U.S. and Britain, but blended Scotch is flat or declining. However, Scotch has never really been American’s cup of tea.

“The U.S. is somewhat of an exception to the worldwide Scotch story as it is vodka and rum that are the big growth categories here, largely the result of the current cocktail craze, followed by tequila.”

Americans prefer bourbon over Scotch, though American whiskey has not caught on as quickly in the rest of the world. However, some of the major labels including Jack Daniel’s and Jim Beam are entering markets such as Eastern Europe, Russia and China.

Recently, vodka surpassed Scotch as the top selling spirit in Britain, although Scotch remains the most popular in France. Interestingly, the U.S. is the largest market for cognac while the French have turned away from the category. India is the biggest consumer of “Scotch,” although it is usually domestic (and therefore not authentic) brands and not traditional Scotch that they drink. As a result, the Scotch Whisky Association has in the past and is currently fighting to dispel what they consider unfair tariffs on imported spirits in India.

ECONOMY WEIGHS ON WHOLE FOODS

High-end grocer Whole Foods missed Wall Street’s estimates this week when it reported the weakest same store sales in its history. Comparable store sales rose 2.6% and identical store sales rose 1.9%. CEO John Mackey blamed the U.S. housing slowdown and higher gas prices, saying “people aren't driving as far, as frequently to our stores as they used to."

Mackey said the company is misperceived in yesterday’s conference call. In effort to change its image, Whole Foods will offer more value brands and cutback its plan to open more stores.

"You have a company that used to post above the main-line grocery stores posting more in-line with grocery, so I think that's suggesting a share shift," Edward Jones analyst Stephanie Hoff was quoted saying in Reuters.

However, she doesn’t "think that it means it's a permanent shift. I just think the economy is weighing on everybody."

The grocer said it now expects sales growth of 6 to 10% for the coming year, rather than the previously stated 25 to 30% growth. It also said identical-store sales are expected to grow 0 to 4% down from the previously anticipated 7.5 to 9.5% growth.

The company's shares fell about 17% from $22.92 to $18.93 in trading after the bell yesterday on Nasdaq.

STUDY SHOWS AMERICANS CHOOSING WINE IN OLD AGE

A new study suggests Americans are drinking less alcohol and choosing wine over beer as they get older. The findings are based on a fifty year study of over 8,000 white adults in Massachusetts. Men and women in each generation drank less as they got older, and each generation drank less than previous generations. Participants also drank less beer and more wine as they got older.

Researcher Yuqing Zhang, DSc, of Boston University School of Medicine, told WebMD that he really doesn’t know why average alcohol use drops from generation to generation.

The results are published in The American Journal of Medicine. WebMD said it is not clear if the results apply to all U.S. adults.

SOCO LAUNCHES “SUSPENDED MOMENTS”

Southern Comfort is launching the brand’s new TV creative “Suspended Moments” on 14 cable networks in September, said the company in a statement. The effort is part of the heaviest advertising weight ever for the brand during September, November and December.

“Suspended Moments is an exciting new piece of creative and some of the best we’ve ever done,” said Campbell Brown, Vice President, Director Southern Comfort Americas. "We’re showcasing our SoCo & Lime focus by capturing those great moments where friends connect for a legendary night out, something that will resonate with most people.”

WSD BRIEFS:

BACARDI IS REPORTEDLY REVIEWING its multi-million dollar advertising roster, led by Adam Hillyer, Bacardi’s global marketing director, reports Brand Republic. WPP’s Y&R group currently handles the majority of Bacardi’s global creative, including its flagship rum. The publication asserts that Bacardi “is looking for a network agency with a strong presence in London, New York, and the sub markets of Spain, Russia and Germany.” Besides Bacardi rum, other brands that could be affected include Grey Goose, 42 Below, Bombay Sapphire and Martini.

SCIENTISTS ARE DEVELOPING an electronic tongue that can distinguish between grape varieties and vintages. The device is still in the early stages of development but researchers at the Barcelona Institute of Microelectronics hope it will eventually prove more reliable than the human palette. The e-tongue is based on an array of tiny synthetic membranes built onto a single silicon chip called a multisensory. It can already distinguish between four grape varieties: Airén, Chardonnay, Malvasia and Macabeu.

RUTH’S HOSPITALITY GROUP named Michael P. O'Donnell president and ceo Aug. 7. He also was named to the company's board of directors. O’Donnell most recently served as ceo at Champps Entertainment Inc. and has also served as ceo of Sbarro. Former ceo Craig Miller left the company in April amid slowed sales at Ruth's Chris Steak House and after the $92 million purchase of 22 Mitchell's Fish Market and Cameron's Steakhouse restaurants.

BRINKER INTERNATIONAL says it is looking to sell a majority interest in the Macaroni Grill chain after previously considering a sale of the entire brand, reports National Restaurant News.


Until tomorrow, Megan

“In the end, everything is a gag.”
Charlie Chaplin

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

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

Stoli Rumors Resurface

Reports surfaced yesterday that Frank Pesce International Group put a $1 billion bid on SPI Group’s Stoli vodka. Shareholder Andrey Skurikhin (who WSD interviewed in June) said the offer was too low and Stoli was “no longer on the market,” although he asked how much Frank Pesce would be willing to pay, reports the UK-based Daily Telegraph. Pesce said the opening bid was based only on US sales figures. The consortium also claims to have the funds in place to finance the acquisition.

The Daily Telegraph mentioned WSD’s interview with Skurikhin earlier this summer where he told us that SPI was no longer looking for a partner for Stoli.

However, the newspaper says “bankers suggest a sale is on the cards and SPI is jockeying to force a better price out of a potential buyer.”

There is also the issue with the Russian government. Unless SPI is able to resolve its differences, buyers may be reluctant to bid on Stoli.

Skurikhin told us that the Russian litigation “must be finished in order not to distract from possible buyers of Stoli and not to be a factor when talking about the value of the brand... Chances to win in the Russian litigation are very, very high according to the opinion of our lawyers.”

DOES INBEV HAVE EYES FOR DIAGEO?

Who will be InBev’s next acquisition target? After surprising the beer industry last month and aggressively striking a deal with Anheuser-Busch, many in the industry believe InBev is still not satisfied. An article in the Wall Street Journal asserts InBev may have its eyes on Diageo, the world’s largest spirits company.

“InBev's aggressiveness in nabbing Bud surprised the entire booze industry -- and has given the impression that the Leuven, Belgium, company will go after anything not latched down by family control or antitrust problems. Diageo, which brews Guinness along with such distillations as Smirnoff and Johnnie Walker, offers neither obstacle.”

WSJ points out that Diageo is similar to A-B. It has a $44 billion market value, a big free float, no poison pill and is primarily focused on one drinks category – premium spirits. But while InBev is paying down debt for A-B, Diageo has time to make a pre-emptive move to prevent it from being swallowed. One possibility is to acquire Heineken, although the family may be reluctant to give up control.

“Still, if there is anything Busch family members' struggle to keep Anheuser independent shows, it is that long-held assumptions about family fortresses can crumble rapidly,” the article pointed out.

WHAT’S NEXT FOR BACARDI

Yesterday it was announced that Bacardi ceo Andreas Gembler is retiring in September and will be replaced by former Colgate exec Seamus McBride, who has spent 25 years at the company. He also spent four years as the marketing director for Bass beer.

The move comes after Bacardi generated $5.5 billion in sales last year, which was the highest in Bacardi’s history, reports Brandweek. However, Bacardi rum’s global sales were off 1% and as a result lost its spot as top selling spirits brand in the U.S. to Smirnoff per Impact database.

Grey Goose made the U.S. top-10 for the first time in 2008 and grew 18% globally. Bacardi also continued its deal to distribute Disaronno Originale amaretto liqueur for an undisclosed sum of money. Brandweek said Bacardi spent $29.3 million in media for its eponymous rum while Grey Goose spent $20 million in ads claiming it is “The World’s Best Tasting Vodka,” according to Nielsen Monitor-Plus. Overall, the company spent $74 million in media in the U.S. in 2007.

So what’s next for Bacardi under this new leadership? Send us your opinions at megan@beernet.com. All emails are kept confidential.

ITALIAN GOVERNMENT GRUDGINGLY APPROVES BOXED WINE

Italians are starting to embrace boxed wine, if not whole-heartedly. Italy’s Agriculture Ministry said that some fine Italian wines can be sold in boxes as long as they have the government’s stamp of approval that quality is in tact. The ministry is offering its D.O.C. designation for some boxed wines, but D.O.C.G. is reserved for bottles along.

The NY Times featured an article on the phenomenon, claiming the economy is a big reason winemakers are more willing to try boxes versus bottles.

“There is little doubt among wine professionals that the recession has given the bag-in-the-box a boost,” says the article.

In the past 15 years boxed wines have become more acceptable in the industry although the stigma hasn’t completely disappeared in the U.S. and elsewhere.

WSD BRIEFS:

FOSTER’S GROUP was fined US$1.037 million (A$1.125 million) for exposing an employee to unsafe work conditions that resulted in his death. The machine he was operating resided in a “noisy area with no warning sounds or lights to alert workers," the judge ruled. Foster’s pleaded guilty to one count of failure to provide a safe workplace and one count of failure to provide adequate training and supervision.

CHARLES KRUG WINERY HAS NAMED David Galzignato winemaker after he served in that capacity from 2003 to 2006. During his earlier tenure at Charles Krug, David helped revamp Charles Krug’s wine portfolio and created a new line of Peter Mondavi Family vineyard-designated wines. In addition, the Peter Mondavi family says it is now focused on organic and sustainable viticulture in all of its prime Napa Valley vineyards.

JUAN-DOMINGO BECKMANN IS LAUNCHING MAESTRO DOBEL, the first-ever diamond tequila, according to a statement. Maestro was produced through proprietary blending and filtration technique. Due to extremely limited quantities, said the company, Maestro Dobel will be available in August 2008 at the “finest evening establishments” in Los Angeles, Chicago, Milwaukee and Atlanta as well as online where legal. It has a suggested retail price of $74.99.


Until tomorrow, Megan

“I have enough money to last me the rest of my life, unless I buy something.”
Jackie Mason

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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.

Andreas Gembler Retires

Seamus McBride, former president, North America of Colgate-Palmolive, is replacing Andreas Gembler as Bacardi’s new president and ceo, effective September 1. Rumors have swirled for several months that Bacardi had appointed headhunters to fine a replacement for Gembler, but it was believed Gembler would move to a senior executive role on the board. However, Bacardi announced today that Gembler will retire after leading the company in a “smooth transition” in handing over the reigns to McBride.

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

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

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

McBride has an impressive resume. He led Colgate’s business operations in the U.S., Canada, Puerto Rico and the Caribbean, and directed Colgate’s global commercial effectiveness program. He has more than 25 years of marketing and management experience at Colgate, said Bacardi, in positions of increasing responsibility in North America, Europe and Asia. In addition, he spent four years as marketing director for beer producer, Bass Plc.

“We want to thank Andreas for his extraordinary leadership and many contributions to Bacardi Limited. During each year of his tenure, our Company produced record sales, earnings from operations and net income. Andreas set the Company on a transformative path that will serve us well into the future,” said chairman Facundo L. Bacardi.

To read our coverage of the news this morning, click here.

WIRTZ ANNOUNCES NEW LEADERSHIP TEAM AND HEADQUARTERS

The Wirtz Beverage Group today announced a leadership team for the company’s national portfolio of wine, spirit and beer distributorships. The team, which will direct more than 3,000 employees and $1.5 billion in annual sales, will be headed by W. Rockwell “Rocky” Wirtz. It will include:

• W. Rockwell Wirtz: President

• Ed Callison: Senior Vice President

• Don Pydo: Vice President, Business Operations

• Glen Hoch: Vice President, Finance and Strategic Development

• Danny Wirtz: Vice President, Spirits Marketing and Sales

• Ken Fredrickson: Vice President, Fine Wine Marketing and Sales

• Tabatha Vece: Director, Human Resources

• Jennifer Gera: Director, Strategic Planning

These executives will assist Wirtz affiliates in Illinois, Iowa, Minnesota, Nevada and Wisconsin. They will mainly focus on managing the company’s strategic vision, which is “to become the leading luxury and premium beverage alcohol wholesaler by 2012.” The newly-established company headquarters will be in downtown Chicago alongside parent company, Wirtz Corporation.

“Our new model will involve technology, efficiency, value and, of course, one goal…to be the leading beverage distributor in the United States,” said Rocky Wirtz. “Our suppliers and customers expect nothing less. And, we will deliver nothing less.”

In a related move, Wirtz appointed Julian Burzynski as senior vice president and general manager of Judge & Dolph, LLC of Illinois. Recall that Judge & Dolph is a newly formed partnership with Texas-based Glazer’s Distributors.

Wirtz Beverage Group holdings is currently ranked sixth among U.S. spirits and wine distributors in 2007, according to Impact.

SPI GROUP REJECTS BID FOR STOLI

SPI Group, owners of Stolichnaya, has rejected a bid from US firm Frank Pesce International Group, reports Just-Drinks.com. The bid was set at $1 billion and rejected a couple of weeks ago, according to managing member Frank Pesce. Recall that Pesce is the exclusive importer of Russian vodka brand Cristall in the U.S.

“SPI informed Pesce, he said, that the brand was ‘not for sale at the present time’ and that its value ‘far exceeded’ the offer made. He added that he was unable to improve the offer unless SPI released more substantial information on Stolichnaya's recent market performance,” said Just-Drinks.

Analysts have said that a US company is most likely to acquire Stoli if there is a deal at all. However, ongoing disputes with the Russian government could scare potential bidders away.

A report last week in Russian newspaper Kommersant suggests the government was looking to increase its control over Stoli and several other vodka brands. SPI owner Yury Shefler was also quoted in the Kommersant newspaper as saying he was "ready to seek compromise with the Russian government."

Pesce also told Just-Drinks that he believed the Russian government would have to be "brought in" for a successful sale.

Other possible candidates for Stoli include Beam Global, Bacardi and possibly Brown-Forman.

DON SEBASTIANI & SONS LAUNCHES NEW CABERNET

Don Sebastiani & Sons is introducing a new “Cabernet-centric” wine brand called “B Side.” The Cabernets offered under the B Side label will be sourced from lesser known areas within premier appellations that have established a reputation for growing world-class Bordeaux varietals, said to Donny Sebastiani, marketing director for Don & Sons.

“Back in the days of vinyl, and later cassette tapes, fans discovered some of the most timeless musical treasures on the flip side, or the B Side of their favorite album,” he continued. “Likewise, some of the very best wines come from vineyards off the beaten path — the B side of the appellations.”

The first B Side Cabernet Sauvignon to be released is a 2005 vintage featuring grapes grown on the eastern slopes of Napa Valley.

B Side Cabernet Sauvignons will be offered in “very small lots” at price points from $20 to $30 a bottle and sold mainly at upscale restaurants and key independent retailers.

CLIMATE CHANGES COULD MAKE MENDOCINO THE NEXT NAPA

New evidence suggests Mendocino County could transform into a higher quality grape growing region than Sonoma or even Napa due to climate changes. The conventional wisdom is that Mendocino vineyards are too hot to produce quality grapes, but expert analysis of 50 years shows that the Ukiah Valley is now a cooler region than Napa, according to the Press Democrat. At the same time, Napa and Sonoma are reportedly getting warmer.

To read more, click here.

WSD BRIEFS:

GEORGE WASHINGTON’S DISTLLERY is selling whiskey starting today (August 4), according to Discus. Gov. Tim Kaine signed special legislation to permit Mount Vernon to sell spirits products in the gift shops at the Distillery and the Mansion visitors’ center as a special Virginia State ABC store. Going on sale are special $25 George Washington Distillery commemorative gift sets and famous brands including Jack Daniel’s, Jim Beam, Wild Turkey and Maker’s Mark.

WTN SERVICES HAS APPOINTED Matt Wood as vp in charge of all retail and consumer operations for their Ambrosia consumer-direct luxury wine services. Matt was previously vp, retail operations, for Icon Estates and was responsible for all consumer direct sales at Icon Estates, which includes eight tasting rooms, twelve websites, and eight wine clubs.

LVMH APPOINTED RENAUD DUTREIL AS CHAIRMAN, effective September 1. He will be based in NYC and represent the group in North America, notably to public authorities and business community.


Until tomorrow, Megan

“Drawing on my fine command of the English language, I said nothing.”
Robert Benchley

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

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

Alert: Bacardi Names New CEO

It’s been rumored for sometime, and this morning Bacardi announced that Seamus McBride, 53, will replace Andreas Gembler, 65, as the company’s new president and chief executive officer effective September 1, 2008. McBride was elected by unanimous vote of the board of directors as part of a planned succession process, said the company.

McBride comes from the Colgate-Palmolive Company, where he served as executive vice president and president, North America and worldwide commercial effectiveness. He will be based at Bacardi Limited’s headquarters in Bermuda.

Gembler has held the position of ceo since 2005 and will continue the role until McBride’s succession, after which he will retire.

Stay tuned....


Until later, Megan

“One of the indictments of civilizations is that happiness and intelligence are so rarely found in the same person.”
William Feather

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Today’s Sell Day: 2
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.

Diageo Increases Foothold in China

Diageo said yesterday it has acquired an additional 6% stake in Sichuan Chengdu Quanxing Group Co., Ltd. ("Quanxing") increasing its ownership in the business to 49%. This investment also increases Diageo’s indirect interest in Sichuan Shui Jing Fang Co., Ltd., a leading super premium Chinese white spirits company listed on the Shanghai Stock Exchange.

Diageo first acquired a 43% stake in Quanxing in February 2007 and said it “continues to be pleased with the performance and the prospects for the business.”

"This increase in our strategic shareholding underlines the strength of our partnership with Quanxing, our belief in the strong prospects for the Chinese white spirits category and our increasing commitment to Sichuan and to China as an excellent place to do business," said Paul Walsh, Diageo ceo.

Diageo’s increase in ownership is just another example of spirits and beer companies expanding in emerging markets. Sales from India, China, Russia and others are helping make up for slower growth in the U.S., particularly while the economy is in the dumps.

WILL BOTTLE SHOCK HELP THE INDUSTRY?

The wine world is buzzing over the release of “Bottle Shock” next Wednesday, the movie based on the 1976 “Judgment of Paris” wine tasting that helped make California famous. The movie stars Alan Rickman and Bill Pullman. Another movie based on George Taber’s book Judgment of Paris is also under production. To read some background, click here.

So far, rottentomatoes.com gives Bottle Shock a rating of 58%, but not many critics have reviewed the film yet. One review said: “Rocky for wine aficionados.”

USA Today even featured an article on the movie.

“...A new and different set of potentially surprising judgments plays out every year at the major international wine competitions staged in this country. The difference is that instead of ‘California vs. the Old World,’ the compelling scenario now is ‘which up-and-coming state will show that some of its wines can stand alongside those from the West Coast?’” said the article. Interesting.

Another big question in everyone’s minds: is Bottle Shock the next Sideways? It’s a matter of opinion.

“...‘Bottle Shock’ celebrates the beauty of the business from a behind-the-scenes perspective in the same way 2004's "Sideways" captured amateurs' enthusiasm for wine. And just as ‘Sideways’ put Santa Barbara County on the map as a winemaking region, the panoramic helicopter shots of rolling vineyards in ‘Bottle Shock’ no doubt will provide a further boon to Napa tourism and could well make Chateau Montelena a household name,” according to an article in the Washington Post last month.

UTAH STRIVING TO LOOSEN LIQUOR LAWS

Utah residents are now allowed to purchase spirits and beer directly from distilleries and breweries. The Utah Alcoholic Beverage Control Commission approved the rule change earlier this week. The so-called Type 5 package license affects Salt Lake Brewing Co., Utah Brewers Cooperative and High West Distillery, all located in Salt Lake City, according to local reports.
Until now, only Utah wineries were allowed to sell their products on site under a bill passed by the Utah Legislature in 1991.

The new ruling is part of a larger effort to loosen Utah’s strict alcohol laws. Gov. Jon Huntsman Jr. is leading the charge to overthrow private clubs. Proposed legislation would basically turn private clubs into public bars. Proponents are also working to do away with glass partitions, or Zion Curtains, that separate diners from alcoholic beverages in restaurants.

Reportedly, Mothers Against Drunk Driving is pushing the idea of free, two-week membership cards for tourists in effort to appease hospitality leaders. Utah residents would still need to be members of a club to order a cocktail.

ASCENTIA MAKES ITS MARK IN SONOMA

An interesting article in The Press Democrat highlights wine startup Ascentia Wine Estate’s dedication in rebuilding its recently acquired brands from Constellation. To put it mildly, Sonoma’s wine industry is thrilled that the wineries are back in local hands as seen in the company’s “pulled up by the bootstraps” mentality.

“Jim DeBonis succeeded in pulling together a complex deal to buy five wineries for $234 million from Constellation Brands in June,” says reporter Kevin McCallum. “But seven weeks after the formation of DeBonis' Ascentia Wine Estates, Sonoma County's newest wine company remains a chaotic work in progress.”

Recall that earlier this summer Constellation sold all but two of the wine brands (Clos du Bois and Wild Horse) it had acquired from Beam Wine Estates in December for $885 million.

DeBonis, former coo at Beam, took it upon himself to purchase the remaining Sonoma wineries to “rescue them from the ‘corporate shell game.’” The new company is made up of “passionate people forgoing the stability of corporate life to take a risk on a new venture.”

NEW DISTILLERY LAUNCHES IN FINGER LAKES

A new distillery is coming to town in The Finger Lakes region of New York. In late April, construction started on a new micro-distillery, Finger Lakes Distilling LLC, located on the east side of Seneca Lake. It’s the brainchild of Brian McKenzie, a 30 year-old former banker from Elmira, NY, and looking to capitalize on two trends: the burgeoning wine tourism in our area and growth in premium spirit sales nationally. It is the only stand-along distillery in the Finger Lakes and will use local grapes to manufacture brandies and a premium vodka.

McKenzie is applying for a NYS Farm Distillery license which will allow the business to offer product tastings and retail sales onsite. As part of the license, the distillery will be restricted to sourcing from local farmers in New York State for its production.

Thomas Earl McKenzie, no relation to Brian, will be Master Distiller for Finger Lakes Distilling.

The building is designed to look like an old Scottish whisky distillery, complete with exterior finishes, a pagoda roof, said Brian. He anticipates being open for production in late fall and hopes to be ready to accommodate visitors soon after.

WSD BRIEFS:

THE U.S. ECONOMY TOOK ITS TOLL ON REMY COINTREAU’S 2008 fiscal earnings, in addition to extra costs in setting up its own distribution system before leaving Maxxium. Melissa Earlam of UBS says, “Remy has more exposure to US spirits than Diageo, Pernod and Campari... Remy also has greater exposure to the US on-trade, which has been cyclically weak. The US Cognac category is c50% on-trade (total market is c25%).” To read our coverage of Remy’s results earlier this week, click here.

DISCUS LAUNCHED a new website, ProhibitionRepeal.com, highlighting the history and legacy of Prohibition earlier this week. The website includes historical facts, photos, calendars, blog and news update. It also highlights “the Legacies of Prohibition, such as Sunday Blue Law liquor sales bans that continue to burden consumer convenience, small businesses and state and local economies, and a history of industry responsibility efforts.”


Until Monday, Megan

“One of the indictments of civilizations is that happiness and intelligence are so rarely found in the same person.”
William Feather

--------- Sell Day Calendar ----------
Today’s Sell Day: 23
Sell days this month: 23
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Tues.
YTD sell days Over/Under: +0

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

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

Spirits and Beer Lead July Growth

In the four weeks to July 13, overall alcohol volumes increased 2.3%compared to a -0.8% decline a year ago, according to Morgan Stanley based on IRI data. Dollar sales rose 4.7% versus a 3.2% jump last year. Spirits and domestic beer reportedly drove volume and dollar share gains. In the latest 4 weeks, spirits gained 30bps of servings share and 10bps of dollar share while domestic beer drove 10bps of volume share and 40bps of dollar share.

Wine trailed total alcohol in servings and dollar growth. In the latest 4 weeks, wine lost 30bps of servings share and 20bps of dollar share as volumes for the segment increased 0.8% and sales increased 3.9%. Within wine, Constellation and Foster's lost volume and value share while Gallo, The Wine Group and Kendall-Jackson drove share gains. In the latest 4 weeks, Constellation’s volume and value share declined 70bps.

Wine by price has largely held up relative to prior performance. Industry trends remain soft for the lowest price wines (less than $3), where sales declined -4.3%. Sales for wines in the $3-7 range have picked up 11% but were flat to down this time last year. Wines in the $7-14 segment were down -4.2% in the latest 4 weeks but grew double-digits previously. Wines priced above $14 continue to grow at strong rates, up 20%, which is ahead of mid-teens growth seen last year.

OLYMPIC CELLARS COMES TO TERMS WITH OLYMPIC COMMITTEE

Olympic Cellars Winery and the U.S. Olympic Committee have reached an agreement that allows the winery to keep its name and website as long as wine sales east of the Cascade Mountains are not "substantial." Other terms of the agreement were not disclosed.

Olympic Cellars received a letter almost a year ago from USOC citing it for violation of the 1998 Olympic and Amateur Sports Act, which gives the committee commercial control of the word "Olympic," reports the Seattle Times. The act has been amended to allow businesses on the Olympic Peninsula to use the word in marketing west of the Cascade Mountains.

The winery has used the name since 1992 and is located on Washington’s Olympic Peninsula with a view of the Olympic Mountains.

"Though my Working Girl Wine brand was exempted from all restrictions, the bottom line is that I can't significantly grow a brand that incorporates the winery name, Olympic Cellars," co-owner Kathy Charlton said in a press release Tuesday. "We will be forced to remain small even though the term OLYMPIC is our birthright and heritage."

She called for Congress to amend the 1998 law again to account for changes in electronic commerce and the global economy.

FORTUNE ELECTS NEW BOARD MEMBER
After announcing earlier this week that Fortune’s board of directors had approved a plan to declassify the board beginning in 2010, the company also announced that Ronald V. Waters III has been elected to the board. The appointment was effective yesterday and increases the size of Fortune’s board to ten members.

Waters is currently president and chief operating officer of LoJack Corporation. Prior to joining LoJack in 2007, Mr. Waters was chief operating officer at Wm. Wrigley Jr. Company. In his seven years at Wrigley, Mr. Waters also served as chief financial officer. He previously held senior executive positions at The Gillette Company, and was a partner and practice leader at KPMG International.

"We are pleased to welcome Ron Waters to the board of Fortune Brands," said Bruce Carbonari, president and chief executive officer of Fortune Brands. "With his background in consumer packaged goods and unique blend of operating and financial experience, he will bring a valuable perspective to the work of our board."

With regards to the declassification, shareholders must approve the plan at the company’s 2009 annual meeting. To read more, click here.

CALIFORNIA GRAPE GROWERS IN BEST POSITION IN A DECADE

Wine grapes prices have reached their highest point in seven years, according to Allied Grape Growers, California’s largest wine grape grower cooperative. Nat DiBuduo, president of the group, said: “Wineries are offering better prices than any of the past seven years, and they are offering term contracts,” as quoted in an article in Western Farm Press.

California grape growers have had to grapple with low demand and even lower prices for many years. But as the article said, “the long-awaited and oft-predicted turnaround in California wine and concentrate demand is finally at hand.”

However, DiBuduo warns against over-planting, which is what usually happens when demand rises. Instead, he says to plant with contracts to meet winery needs.

The rise in demand is attributed to rising California wine sales, strong exports, lower import sales, lower bulk wine inventories and better quality grapes, among others reasons.

This year’s crop will likely be smaller because of weather problems, which ensures improved wine grape demand. However, farming costs are going up as well and “will challenge even the best growers,” said DiBuduo.

U.S. WINERIES “IN DENIAL”

According to one researcher, the United States is “doing nothing” to study the problem of climate change, reports Decanter. Professor Greg Jones of Southern Oregon University said the U.S. is “in denial” and that “it is absolutely clear that viticultural climates of tomorrow will not be as they are today.”

Predicted changes include warmer and longer growing seasons, warmer dormant periods, reduced frost damage in some areas, altered ripening profiles, and changes in soil fertility and erosion.

He said the Australian wine industry has already paid for numerous projects concerning the issue because “leaders in Australia see the risk and are reacting while the US is still mostly in denial.”

WSD BRIEFS:

DOS LUNAS SPIRITS has struck four distributor partnerships in four additional states. The tequila will be recognized in Arkansas by Moon Distributing Inc., in Kansas through Standard Beverage Corporation and Oklahoma and Louisiana will be represented by Republic National Distributing Company (RNDC). Dos Lunas Tequila is currently available in 18 states, including Texas, Florida, Arizona, Colorado, New Mexico, and can also be found in Wisconsin, Michigan, Connecticut, New Jersey, New York, Georgia, Illinois, California and Alberta, Canada.

HEAVEN HILL HAS ADDED two flavor extensions to Georgia Moon Corn Whiskey Brand, the top selling Corn Whiskey in the U.S. The company said it is “taking advantage of the unprecedented popularity of American Whiskeys, and the growing Corn Whiskey sub-segment, as well as the trend toward infusing fresh fruits into clear spirits,” by launching Georgia Moon Peach and Georgia Moon Lemonade Flavored Corn Whiskeys nationally. The new flavors will be offered in September at 70 proof in a 750ml glass mason jar.


Until tomorrow, Megan

“Americans will put up with anything provided it doesn't block traffic.”
Dan Rather

--------- Sell Day Calendar ----------
Today’s Sell Day: 22
Sell days this month: 23
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Tues.
YTD sell days Over/Under: +0

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

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

Foster’s Chairman: Letter to Shareholders

Foster’s “Considering All Options”

In a letter to shareholders yesterday, Foster’s chairman David Crawford said the company is working to fix its failing wine business rather than sell it, at least at the moment.

“The fundamentals of our business remain strong and the actions taken are measured and proportionate to the challenges that we face. Foster's retains a robust financial position and continues to generate outstanding cash flows,” he 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.”

Once again, Crawford partly blamed economic conditions and the strength of the Australian dollar for reducing earnings and returns. The company has also admitted in the past that it paid too much for Beringer ($2.6 billion) and Southcorp ($3.2 billion).

Crawford said the strategic review of the wine business will focus “on where we compete, how to capitalize on the growth characteristics of the wine category and the optimal structure and operation of our wine business into the future.”

However, Crawford said the company will “consider all options” in improving shareholder value.

“Our focus now is very clear - to consider all options to improve shareholder returns from wine and to exploit the growth potential of our leading portfolio of global brands.”

In our opinion, “all options” includes the possibility of a sell-off in the future. Analysts generally agree that it’s unlikely anyone would be willing to buy Foster’s wine business right now, although the usual suspects have been named as possibilities: Diageo, Pernod Ricard and Constellation Brands. Perhaps once the company is spruced up a bit, Foster’s wine will become more attractive to potential buyers. Or, just maybe, Foster’s is committed to remaining a multi-drinks company.

Anayst Andy Kovacs of Macquarie Group doesn’t believe Foster’s is in the position to sell, describing the company’s situation as “woeful” earlier this month.

“Furthermore, the weak operational performance highlights why this is a risky option, with acquirers, at least for the wine business, very difficult to identify,” he said in a research note.

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

OPTIONS FOR FOSTER’S. If Foster’s were to sell its wine business, an easier solution would be to break it up.

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

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

Analysts have also suggested that Foster’s separate its wine and beer business, namely because the beer business is more valuable to potential buyers (such SABMiller or Heineken) and it would allow management to focus more closely on the wine biz.

POSSIBLE REPLACEMENTS FOR O’HOY. Lots of speculation on who will replace Trevor O’Hoy as ceo is mounting among analysts. UBS has said an international brewing executive could be a good match.

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

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

QUICK BACKGROUND. On June 10 Foster’s announced a revised earnings outlook for the 2008 financial year, which included a $700 million write-down and a transfer of $600 million in goodwill to the company’s beer operations. The company also said it would reduce the level of U.S. distributor inventories at year end by approximately 1.4 million cases compared to the prior period.

Perhaps most importantly, the Board accepted former ceo Trevor O’Hoy’s resignation. Ian Johnston, a non-executive director on the Foster's Board since September 2007, has agreed to assume the interim role of acting ceo while the company looks for a permanent successor for Trevor.

FORTUNE FACES SETBACKS IN SECOND QUARTER

Fortune’s faced some setbacks in the second quarter due to a combination of factors including the softening consumer environment and higher commodity costs, The tax increase in Australia on ready-to-drink spirits products took the industry by surprise and has “inversely impacted” Fortune’s business as well. Nonetheless, ceo Bruce Carbonari maintained that the U.S. spirits market remains resilient, although its growing at a more moderate pace, and outperformed beer in April and May.

"While our double-digit increase in brand-building investments and the Australia RTD tax increase adversely impacted operating income in our spirits business, we drove solid revenue and volume growth for several key premium spirits brands in the U.S. We also benefited from the anticipated rebuilding of U.S. spirits distributor inventories,” said Bruce in a statement.

THE U.S. FACTOR. He said the spirits industry performs well in most economic conditions. Overall, the U.S. market, which accounts for over half of Fortune’s spirits sales, remains healthy. Consumers continue to trade up though at a slower pace. The biggest change is that consumers are shifting from the on-premise to the off-premise, opting to drink at home to save money. Fortune has also seen some softness in areas hit the hardest by the housing correction, namely California and Florida. As a result, Fortune has realigned its business to fit the changing consumer shift from on-premise to off-premise.

A LOOK AT THE BRANDS. The company managed to drive revenue growth at a faster rate than volume growth in the second quarter. YTD depletions in the U.S. for Hornitos were up double digits and Gold and Blanco were up in the high single digit range. YTD depletions of Canadian Club “are solidly higher” following the “damn right” advertising campaign, reversing years of declining growth.

U.S. depletions for the Jim Beam brand were “off,” said cfo Craig Omtvedt, remarking that the brand has only just begun its new marketing campaign.

In all, Bruce said Fortune is performing in line with the market, with softness coming from the DeKuyper’s line “mostly because Apple Pucker was on fire for a number of years and it’s not as hot of a drink right now.”

REVENUE DEPLETIONS OUTPERFORM. Net sales were up high single digits in the U.S. as shipments rebounded from the larger than usual distributor inventory takedowns in the first quarter. The company also benefited from higher pricing. On a revenue basis, depletions grew significantly faster (3-4%) than depletion case volumes, particularly for premium brands in the U.S. Volume depletions were flat as the company focuses on building revenue and premiumizing their brands.

Like other spirits companies, Fortune said it is experiencing growth in emerging markets such as Russia, India, China and Brazil.

ACQUISITION QUESTION. In the question and answer portion of the conference call, Bruce said the company was most focused on internal growth. However, he said the company continues “to look for acquisitions that would help our portfolio or round out our portfolio both in gaps that we have or enhance some of the positions we currently have in certain categories as well as acquisitions that would help us in the emerging markets, those markets being what we believe will be the high growth markets.”

GOOD DISTRIBUTOR RELATIONS. Bruce also said relations with distributors are still very strong. He said there is always speculation over whether the company will make another acquisition, but “we’re well positioned in the U.S. with some of the best distributors, and I think it’s business as usual. We have great brands and those brands work especially well in the U.S.”

As we mentioned on Monday, Fortune completed the repurchase of Vin & Sprit’s 10% minority interest in Beam Global for $466 million. Fortune now owns a 100% of Beam.

Lastly, the company boosted dividends 5%, or 8 cents, to an annual rate of $1.76 per share from $1.68 per share. Share buybacks exceeded 4.3 million shares of its common stock since implementing on March 31 an authorization to repurchase up to 15 million shares.

REMY HEADED FOR A TOUGH YEAR

Remy Cointreau’s shares sunk today after the economic slowdown in the U.S. and weak dollar resulted in lower sales for the fiscal year. In addition, the company said it’s headed for a tough year.

“The 2008/09 financial year will be one of transition and enhancement of its distribution since the Group will leave the Maxxium network on 30 March 2009.”

“The slowdown noted in economic activity in the US and the unfavourable movement in the EUR/USD exchange rate will adversely affect the Group’s prospects for the year while other very significant geographical regions for the Group maintain their strong momentum
As a result, taking into account the temporary additional costs already announced for the setting up of the new distribution network, the Group does not anticipate organic growth in its current operating profit in 2008/09,” said the company in a statement.

The company initially withheld its year end results because of a dispute between Maxxium participants. Remy said they are “continuing their discussions and have noted the effective acquisition of V&S by the Pernod Ricard Group on 24 July 2008. These discussions focus notably on finding an agreement on the net asset value of Maxxium at 31 March 2008.”

Remy said the distribution activity in the US comprises mainly the distribution of the Scotch whisky brands, The Famous Grouse and The Macallan, and wines. It also reflects the transfer of Russian Standard to its own distribution network.

APPEALS COURT REOPENS WHOLE FOODS, WILD OATS CASE

A federal appeals court said a trial judge was wrong in dismissing the FTC’s challenge to the August 2007 merger of Whole Foods and Wild Oats, says the WSJ.

"The court should have taken whatever time it needed to consider the FTC's evidence fully," the ruling said.

It also said U.S. District Judge Paul Friedman "underestimated the FTC's likelihood of success on the merits" when he denied the agency's request.

The three judge panel’s (although one dissented) ruling revives legal proceedings over the $565 million transaction and may give the FTC a shot at forcing Whole Foods to sell some operations to meet competitive concerns raised by the merger.

Whole Foods said it was disappointed by the decision and could seek a review by the full appeals court. Meanwhile, it would carry on "business as usual."

Meanwhile, the FTC hopes the ruling will allow it to undertake a full review of competition issues raised by the merger.

"We are pleased by today's decision of the appeals court in the Whole Foods matter and are looking forward to future proceedings before the district court, leading to a full trial on the merits before the Commission," said Jeffrey Schmidt, head of the FTC's competition bureau.

NEW RESEARCH ON CONSUMER IN-STORE BEHAVIOR

A new study disproves the idea that 70% of consumer decisions are made at the shelf. According to a study from OgilvyAction, 39.4% is the actual number of consumers who decide what to buy at the store. About 10% change their minds while in the store and 20% decide against buying a product they previously planned to purchase. Nearly 30% of consumers buy something they didn’t intend on buying.

"The good news for marketers is that a product display and sampling can build brand equity," Jeff Froud, senior strategic planner for OgilvyAction, told AdAge.com. "No matter what rulebook you studied when you were studying marketing, price promotions don't build any brand equity and in some cases can be equity destroyers."

EXTREME SPIRITS RELAUNCHES WOKKA SAKI

Extreme Spirits are rebranding their eclectic ‘east meets west’ vodka, Wokka Saki. Starting August 1, the brand will be known as Wokka-Fusion Vodka. Simultaneously, the company is launching a quarter size version (20cl) bottle known as Mini Wokka. WOKKA is a micro distilled grain vodka with a subtle blend of Japanese sake infused with Asian fruit.

Wokka Saki was launched in South Beach Miami on April 2005, and is now exported internationally to 10 countries.

WSD BRIEFS:

BENNIGAN'S AND STEAK & ALE casual dining chains have filed for bankruptcy. Not Chapter 11, but Chapter 7 liquidation, proving it's tough out there in the casual dining industry. They are shutting more than 300 sites and letting go of thousands of employees, and they are unlikely to reopen. The told managers Monday to close the stores as they didn't have enough cash to make payroll that week. Filing does not include Ponderosa and Bonanza restaurants. Earlier this year, Bakers Square, Village Inn and Old Country Buffet filed for Chapter 11 bankruptcy protection, and many other dining chains are struggling, from Outback Steakhouse to Ruby Tuesday.

ABSOLUT ON THE WALK OF FAME. Absolut vodka will receive the first "Friend of the Walk of Fame" honorary star on Hollywood Boulevard. The brand is receiving recognition for being the inaugural donor to the restoration of L.A.’s historic “Walk of Fame.” The announcement is tied in with the launch of Absolut Los Angeles (made of blueberry, acai berry, acerola cherry and "fruity notes of pomegranate"), which debuted this month nationwide.

Until tomorrow, Megan

“Three o'clock is always too late or too early for anything you want to do.”
Jean-Paul Sartre

--------- Sell Day Calendar ----------
Today’s Sell Day: 21
Sell days this month: 23
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Tues.
YTD sell days Over/Under: +0

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

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

Bacardi Buys Stake in Patron

John Paul DeJoria, co-founder of Patrón tequila, will become the principal owner of parent company Caribbean Distillers Corporation. In addition, Bacardi Limited will purchase a significant, although unspecified, minority stake in the company through a subsidiary, according to Barry Kabalkin, vice chairman of Bacardi Limited. Specific terms of the agreement were not disclosed.

Under the agreement, Bacardi will hold one seat on the board of directors of Patrón’s parent company. Kabalkin will be appointed to the board position.

The transaction will result in an unspecified payment to the estate of the late Martin Crowley (co-founder of Patron) in exchange for its interest in the company. In accordance with the terms of Crowley’s will, the estate will contribute the money to the Windsong Trust, a charitable trust created by Crowley to support the education of underprivileged children across the globe.

Recall that Crowley teamed up with DeJoria, who is also the co-founder and chairman of the Board of John Paul Mitchell Systems, to found Patrón in 1989.

Bacardi and Patrón intend to operate independently from each other and the agreement does not provide for changes in the day-to-day operations of Patrón or in Patrón’s management or distributor network. However, the companies said the “relationship is expected to lead to beneficial synergies.”

The parties intend to close the transaction, which is primarily subject to certain court approvals, within approximately 60 days.

“Bacardi and its brands have set many standards in the spirits industry and its worldwide experience can certainly help us grow in markets both inside and outside of the U.S.,” said Ed Brown, President and ceo of Patrón. “We look forward to gaining from their international experience as we continue to grow Patrón around the world.”

“Patrón is one of the fastest growing products in the entire spirits industry, and becoming a significant shareholder is a fantastic opportunity for Bacardi,” said Kabalkin.

BACKGROUND. Last year Bacardi launched a lawsuit at Martin Crowley’s estate to stop the payment of nearly $755 million to help underprivileged children in the third world. Crowley’s executors agreed in January 2007 that DeJoria would pay the estate $755 million for Crowley’s remaining 50% shares. The settlement was then blocked by Bacardi, which states in court papers that it had a prior agreement from 2004 with the executors to buy the stake for $175 million.

The industry has speculated for years that Bacardi, among others, may eventually acquire Patron entirely.

PERNOD TO SELL NON-CORE WINE AND VODKA BRANDS

Last week, Pernod announced it will dispose non-strategic brands over the next 12 to 18 months in effort to decrease debt levels after acquiring Vin & Sprit. Sources say that Pernod Ricard will likely divest non-core wine and vodka brands to help pay down debt, according to an article in the Financial Times.

Allegedly, the company’s wine assets are no longer considered strategic. As a result, “important wine assets in Spain and Argentina, inherited from the acquisition of Allied Domecq, are likely to be divested,” industry sources told mergermarket. French analysts slated Bodegas y Bebidas, a Spanish wine company and owner of Campo Viejo, as the most likely wine divesture. The Argentinean company Graffigna, which Pernod also inherited from Allied, is also likely to go. FT cited Constellation Brands as “a logical bidder.”

In terms of spirits, Gronstedts Cognac in Sweden is the biggest disposal planned, sources said. Up for sale is also Dry Anis in Finland, Serkova vodka in Greece, Lubuski gin in Poland and Star Gin and Red Port.

Sources were mixed on whether Pernod would consider selling Chivas, Beefeater or Kahlua, noting all brands have suffered in the current climate but were still considered strategic. Kahlua seemed to be the likeliest divestment out of the three.

NABCA VOLUMES FLAT IN JUNE

Spirits volumes for control states were flat in June, up 2.5% year to date, reports UBS analyst Melissa Earlam. Premium brands were still growing faster than the market, but at a slower pace than prior periods. For example Grey Goose grew 4.3%, Ketel One rose 4.9% and Patron was up 19%.

Diageo’s volumes declined slightly in June, falling -0.2%. The company took share in Canadian whisky (1% versus category 0%) and cocktails (6.6% vs category 1%y/y). It lost volume share in vodka (0.2% vs category 3.4%), rum (-2.5% vs category -1.9%), gin (-3.8% vs category -3%) and Scotch (-5.9% vs category -4.1%). UBS said it believes this is related to 5% price increases introduced in the U.S. over the last months.

Pernod’s volumes declined -6%. It gained share in Irish whiskey (23% vs 18%), and Scotch
(-2.8%). However, it lost share in vodka (-2.5%), gin (-5.5%), rum (-12.4%) and brandy/Cognac (-73% vs category -4%) where it is de-emphasizing VS growth.

Brown Forman volumes declined -2.8% and Remy declined -1.8%. Campari grew 4.1%, driven by strong vodka growth of +5.9%.

UBS rated Pernod and Campari Buy. Diageo and Brown-Forman were rated Neutral. It expects a slowdown in US spirits growth during the recession, but forecasts market volume growth of 1.7% and 4.5% sales for 2008.

FORTUNE BRANDS TO DECLASSIFY BOARD

Fortune Brands board of directors has unanimously approved a plan to declassify the board beginning in 2010. The plan will be subject to shareholder approval at the company's 2009 annual meeting.

The company's directors are currently divided into three classes and are elected to staggered three-year terms. If the plan announced today is approved by shareholders, the company will phase-in annual election of directors beginning at the 2010 annual meeting. As of the 2012 annual meeting, all directors would be elected on an annual basis.

A non-binding shareholder resolution calling for annual election of directors received the support of 54% of the shares outstanding at the company's 2008 annual meeting. The classified board was originally approved by shareholders in 1986.

TROUBLE FOR PAX WINE CELLARS

Pax Mahle has been fired as winemaker from his eponymous label Pax Wine Cellars and replaced by Tyler Thomas, reports Wine Spectator. Meanwhile, Mahle, his wife Pamela Schaab, and Pax’s majority owner, Joe Donelan, are locked in a legal battle over the winery.

Mahle founded the winery in 2000 along with his wife and Connecticut-based investor Donelan, who owns a 55% share. The partners have supposedly disagreed over several winemaking and management decisions, and Mahle expressed a desire for a buyout or outright dissolution of the brand. Donelan rejected a buyout offer and filed a suit against the couple.

Donelan told Wine Spectator that he intends to continue the Pax label. Mahle, meanwhile, is building a winery in Sonoma, where he plans to make a variety of wines.

FORMER PRESIDENT OF JOSEPH PHELPS DIES

We regret to inform you that Tom Shelton, the former president of Joseph Phelps Vineyards, died on Saturday night after a long battle with brain cancer. He was 55.

Shelton joined Phelps in 1992 as vice president of sales and was promoted to president in 1995, a position he held for 13 years. He was also a spokesperson for the Napa Valley Vintners, which worked to protect Napa Valley producers and to develop less restrictive direct-to-consumer shipping laws.

In a statement released Monday, the Shelton family said: "Tom was a wonderful husband, a loving father, and a great friend who will be missed very much. We are all so blessed to be touched and inspired by such a caring and outgoing individual.”

B-F INVESTS $6M IN JACK DANIEL DISTILLERY

Brown-Forman is reportedly set to invest more than $6 million in its Jack Daniel Distillery in Lynchburg, Tennessee to improve efficiency and increase output of 20 million liters a year. In all, the distillery plans to add 9 fermenters to its already 48 fermenters to increase the amount of spirit yielded from each batch of grain. Through cost savings, B-F believes it will recapture the cost of the investment in just a few months.

WSD BRIEFS:

PERNOD RICARD USA has appointed Thomas G. Krekeler, a veteran beverage alcohol Operations executive, as Plant Manager at the Wild Turkey Distillery in Lawrenceburg, KY. Krekeler will join Pernod on August 18, 2008, reporting to Dan Denisoff, senior vp, operations.

THE LOUISIANA STATE LEGISLATURE has named the Sazerac the official cocktail of New Orleans during their recent legislative session. The drink contains Sazerac Straight Rye Whiskey, Herbsaint and Peychaud's Bitters.


Until tomorrow, Megan

“Be thou the first true merit to befriend, his praise is lost who stays till all commend.”
Alexander Pope

--------- Sell Day Calendar ----------
Today’s Sell Day: 20
Sell days this month: 23
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Tues.
YTD sell days Over/Under: +0

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

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

Bacardi Buys Minority Stake in Patron

**Alert**

John Paul DeJoria, co-founder of Patrón tequila today announced an agreement that will make him principal owner of the parent company of The Patrón Spirits Company. In addition, Bacardi Limited will purchase a significant minority stake in the company through a subsidiary, according to Barry Kabalkin, vice chairman of Bacardi Limited. Specific terms of the agreement are confidential

The transaction will result in a payment to the estate of the late Martin Crowley (co-founder of Patron) in exchange for its interest in the company. In accordance with the terms of Crowley’s will, the estate will contribute the money to the Windsong Trust, a charitable trust created by Crowley to support the education of underprivileged children across the globe.

Recall that Crowley teamed up with DeJoria, who is also the co-founder and chairman of the Board of John Paul Mitchell Systems, to found Patrón in 1989.

Bacardi and Patrón intend to operate independently from each other and the agreement does not provide for changes in the day-to-day operations of Patrón or in Patrón’s management or distributor network. However, the companies said the “relationship is expected to lead to beneficial synergies.”

“Bacardi and its brands have set many standards in the spirits industry and its worldwide experience can certainly help us grow in markets both inside and outside of the U.S.,” said Ed Brown, President and ceo of Patrón. “We look forward to gaining from their international experience as we continue to grow Patrón around the world.”

Under the agreement, Bacardi will hold one seat on the board of directors of Patrón’s parent company. Mr. Kabalkin will be appointed to the board position.

“Patrón is one of the fastest growing products in the entire spirits industry, and becoming a significant shareholder is a fantastic opportunity for Bacardi,” said Kabalkin.

The parties intend to close the transaction, which is primarily subject to certain court approvals, within approximately 60 days.


Until later, Megan

“To be great is to be misunderstood.”
Ralph Waldo Emerson

--------- Sell Day Calendar ----------
Today’s Sell Day: 20
Sell days this month: 23
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Tues.
YTD sell days Over/Under: +0

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

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

Sweden Sells Beam Stake to Fortune Brands

Sweden has officially agreed to sell its 10% stake in Beam Global to parent company Fortune Brands for $466 million. Fortune now owns 100% of Beam.

Pernod struck a deal in March to acquire Vin & Sprit from the Swedish government, but did not purchase V&S’s 10% stake in Beam Global, Absolut’s U.S. distributor owned by Fortune.

Since then, Fortune had been looking to exercise a clause allowing it to buy the V&S stake, although the companies initially failed to agree on a price. Fortune had offered $350 million for the Beam stake but V&S wanted $1.1 billion, which would include “few $100s (of millions)” in debt.

“It (the Beam deal) is a good deal ... We are very pleased with it,” Swedish Financial Markets Minister Mats Odell spokeswoman Sarah Lundgren said, according to Reuters.

“The price established for the repurchase of the equity minority interest is good news for our shareholders,” said Fortune chief Bruce Carbonari. “Because this valuation was below the $543 million value we carry on our books, we have recorded a gain in our second quarter results.”

Vin & Sprit finalized its purchase by Pernod Ricard last week as well.

IS STOLI THE NEXT SUBJECT OF A BIDDING WAR?

Now that the Vin & Sprit acquisition is final, some analysts are saying that Stolichnaya (owned by SPI) will soon be the target of a new bidding war, according to an article in the Scotsman. Some are predicting that SPI could make as much as £1.5bn if Stolichnaya went up for auction.

Possible contenders are Bacardi, Campari, Beam Global and Brown-Forman, the report said, while Diageo was ruled out after buying 50%shares of Ketel One. Stoli currently controls about 5% of the vodka sector in the U.S., where vodka consumption is growing by over 6% a year.

The article also went on to speculate that Pernod Ricard may consider selling several non-core Scotch whisky brands to reduce debt following the completion of the V&S acquisition. The brands include Prince Charlie, Passport, Royal Salut and White Heather because of “unprecedented interest in the mid-tier of the whisky industry.”

“Scotland on Sunday” revealed earlier this month that Pernod is understood to be in final negotiations to sell its Glendronach malt whisky distillery. Chivas Brothers has allegedly received a first round of bids for the malt and is close to sealing a £30m deal for the Huntly distillery.

EUROPEANS LOOKING TO SNATCH U.S. WINERIES
It is likely we will see more interest in U.S. wineries by foreign investors as long as the U.S. dollar stays weak and other currencies remain strong.

The big news last week was when Bordeaux chateau Cos d'Estournel announced it was in negotiations to purchase Chateau Montelena.

"It's time to go winery shopping if you're a European," said analyst Jon Fredrikson, owner Gomberg, Fredrikson & Associates. "There are lots of bargains out there."

An article in the Press Democrat says the “number of foreign individuals, major wine companies and investment groups feeling out the California market” has increased dramatically as the euro surges.

Furthermore, U.S. vineyard and winery values have held up well unlike the residential real estate market, making properties in Napa and Sonoma increasingly attractive.

But “for every completed deal there are innumerable cases of inaction, with potential investors holding back out of fear, confusion about the U.S. market, or just not being able to get their act together quickly enough, brokers say,” the article continued.

YOUNG’S MARKET MAKES NEW APPOINTMENTS

Young's Market Company and Young's-Columbia jointly announced they have promoted several key executives, including John Klein, Dennis Barnett, Dan Ewer, Andy Lytle and Brian Young.

John Klein, formerly the president of Young's Pacific Northwest division has been promoted to president of Young's Market Company. Dennis Barnett, formerly the president of Young's Market Company-California has been promoted to the newly created position of president of Young's Market Company-Southwest.

Dan Ewer, formerly the executive vp of sales/marketing for Young's-Columbia of Oregon has been named to replace John Klein as president of Young's-Columbia Pacific Northwest division.
Andy Lytle, formerly the vp of sales and marketing for Mt. Hood Beverage Company has been named to replace Dan as vp of sales/marketing of Young's-Columbia of Oregon.

Brian Young, formerly the president of Young's Market Company Brokerage-Washington State has been promoted to the newly created position of president Young's Market Company Pacific Northwest Brokerage where he will oversee the company's brokerage activities in Oregon, Washington, Utah, Idaho, Montana and Wyoming.

FREDERICK WILDMAN AND SONS MAKE CHANGES

Frederick Wildman and Sons says it will increase staffing by 50% in the next year throughout the United States and its headquarters

The company’s portfolio consists of over 50 brands from around the world including wines from Italy, Australia, France, Argentina, Chile and Spain. The portfolio will now be divided into two divisions, National Brands and Fine Wine. National brands have higher volume and a broad market appeal, while Fine Wine focuses more on boutique wineries in the above mentioned countries as well as Portugal, South Africa, Austria and Germany.

The National Brands division is now operating with sales directors based in the east, midwest, south and west/southwest. The Fine Wine Division, meanwhile, includes two divisional managers – an eastern and a western manager.

WSD BRIEFS:

B-F APPROVES CEO’S SALARY. Brown-Forman said its board's compensation committee approved a base salary of $1.01 million for chairman and ceo Paul Varga for the current fiscal year. It becomes effective August 1 and includes a holiday bonus. The committee also approved a short-term incentive compensation target of $1.25 million based on “depletion-based operating income.”

BEER'S LEAD OVER WINE AND SPIRITS grew this year to double digits, according to the latest Gallup poll. The trend back to beer reflects a shift among drinkers aged 30 to 49 years old, the survey indicates. From 2004 to 2005 concludes wine and beer were almost equally preferred. But, wine as a favorite peaked at 39% in 2005 and has since slipped to 31%, while beer is now chosen first 47% of the time, the poll said.

THE EUROPEAN COMMISSION began the release of $8.5 million in grants last week to European Union wine producers. The money will pay for “public relations, promotional or publicity. highlighting EU products'.quality, hygiene, food safety, nutrition, labelling, animal welfare or environment-friendliness.”

THE HEAD OF WINE AUCTIONS AT CHRISTIE’S, vp Richard Brierley, is leaving the auction house’s North American division after eight years to return to the UK. Charles Curtis MW will take the place of Brierley in New York and serve as head of wine sales in the US. Curtis was previously director of wine and spirits education at Moët Hennessy USA.

LOW COUNTRY IMPORTS WILL MERGE with Grape Expectations Wine Imports, both corporately based in Raleigh, NC, to form Low Country Imports as of August 1. Low Country Imports’ best known brands are are Dyed in the Wool, Zintry, Soiree, Vindelocks, Vin Dillon and Premonitions. Brands of Grape Expectations include Charles Wiffen, Mt. Difficulty, Zilzie, Gemtree and Castillo Perelada.

TOTAL WINE & MORE OPENED ITS FIRST PHOENIX STORE last week, making it the retailer chain’s 54th store in 10 states. The store was named Beverage Dynamic's 2008 Retailer of the Year and is known for its wide selection and low prices.


Until tomorrow, Megan

“To be great is to be misunderstood.”
Ralph Waldo Emerson

--------- Sell Day Calendar ----------
Today’s Sell Day: 19
Sell days this month: 23
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Tues.
YTD sell days Over/Under: +0

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

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