We've Come a Long Way in '09

FILED AUGUST 1, 2009

Dear Client:

We’re a little over the halfway mark in 2009 and decided to take a look back at an already exciting/tumultuous year, depending on what side of the fence you’re on.

A unifying problem that we’ve all been faced with is that dirty little word “recession.” We get tired of reporting on it and you probably get tired of reading about it. But it’s a very real issue that has reared its ugly head since October of 2008. Lay-offs have been rampant among the big companies and so have “restructurings.” Some resulting trends: value brands have risen after years of declines; imports are down; and everyone is drinking and eating at home.

The scariest part of a recession is that no one knows what the future will hold. Predictions and strategies vary depending on who you’re talking to. Some believe consumers will take years to return to their old spending habits, while others believe it will rebound in early 2010. When will people start dining out again and visiting bars and nightclubs? Also, what’s the best spending strategy? Should you drop prices and cutback on marketing, or continue taking price increases and amp up the advertising? These have all been major themes in WSD over the past 7 months.

BRAND SWITCHEROO. Several companies and brands changed hands since January but things have certainly slowed from prior years. With the economy down, people are usually less eager to shake the bucket. Perhaps one of the more notable acquisitions, though, was when Campari acquired Wild Turkey from Pernod Ricard for $581 million. This marks a big change for Campari who is now even better positioned in the U.S. market.

Aside from Wild Turkey, let’s go back to the beginning. Recall that in January Constellation announced it had sold its value spirits business for $334 million to New Orleans-based Sazerac Company. Effen Vodka essentially hung in a limbo for several months and was eventually bought by Beam Global from Sazerac.

Compliance company Inertia purchased New Vine Logistics this summer after NVL filed for bankruptcy in late May. This led people in the industry to question whether Amazon will enter the wine business after all since it had a partnership with NVL.

CONSOLIDATION – A RECKONING FORCE. Consolidation continued to make its mark in 2009. The announcement surrounding Constellation and its distributors this summer was perhaps the biggest of the year. It was a very heated subject for distributors as you can imagine. Southern Wine & Spirits ended up winning Constellation’s portfolio in the most states (including CA, NY and FL), while Republic National Distributing Company came in second. National Wine and Spirits and Johnson Brothers won the brands in Indiana and Iowa, respectively.

Other notable consolidation moves include Bacardi and B-F appointing Charmer Sunbelt Group (CSG) as its distributor in Arizona, Colorado, Florida, Maryland, Washington, DC, South Carolina and Delaware. Charmer also gained Stolichnaya in several states, including NY, FL and PA. Meanwhile, Beam Global extended its brands to SWS in Arizona and Kentucky.

With that said, we’re still waiting on some deals to be finalized: Wirtz and Young’s and Southern and Glazer’s.

MAJOR APPOINTMENTS. With all the consolidation and realignments, we saw many new appointments. For example, Fortune Brands appointed Matthew Shattock as ceo of Beam Global to replace Tom Flocco. After announcing the results of its Strategic Wine Review, Foster’s said Scott Weiss, former managing director of Foster’s Americas, would be leaving, and Stephen Brauer was eventually named as his replacement. But with these appointments there were lay-offs as well in all the major companies.

SPECULATION SURROUNDING MAJOR DEALS. These deals would fit in the “consolidation” category if they’d actually taken place. Since Foster’s started its Wine Review last year, analysts and industry members alike have speculated it would split its beer and wine unit and sell one or both. Either has yet to happen, but analysts resurrected the rumors earlier this week by claiming the split could take place in the next 6 months.

Meanwhile, speculation surrounding Diageo and Moët Hennessy really heated up in the springtime. Diageo already has a 34% stake in Moët Hennessy but reports started surfacing that Paul Walsh was ready to make a full acquisition. Not only do the two companies enjoy a good relationship, but Diageo is missing Champagne and Cognac in its portfolio. LVMH repeatedly denied the rumors, however.

And there you have it. We’re sure the rest of the year will be marked by big news and surprises, so stay tuned...

AUSTRALIAN WINEMAKERS PREPARE FOR CLIMATE CHANGE

Winemakers in Australia’s Adelaide Hills are starting to plant other grape varieties due to the climate change. This includes wine giants Foster’s Group and Constellation Brands, which are both experimenting with a number of techniques (such as planting Spanish varieties) to adapt to changing temperature, according to an article in Bloomberg. Foster’s is now harvesting on average three weeks earlier than two decades ago because of global warming. The company is also experimenting with mist spray to cool the grapes, and employing technologies such as infra-red sensing to maintain quality. Constellation, meanwhile, is building underground watering systems and planting Tempranillo, Montepulciano and Vermentino in some regions in Australia.

Australia’s average annual temperature has reportedly risen 0.9 degrees Celsius in the past 100 years, according to the Bureau of Meteorology. In grape growing regions, the weather could become a further 2.6 degrees Celsius warmer by 2050, according to modeling by the University of Melbourne.

WSD BRIEF:

MICHIGAN BEER & WINE WHOLESALERS ASSOCIATION has named Don Klopcic Jr., owner of West Side Beer Distributing, as the chairman. He previously held the offices of vice president and treasurer in the state organization, and in 1999 chaired the National Beer Wholesalers Association.


Until Monday, Megan

"He has no enemies, but is intensely disliked by his friends..."
Oscar Wilde

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

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