Consumers Making Lists, Checking Twice

FILED MARCH 24, 2010

Dear Client:

Wine & Spirits Daily attended (and was honored to speak at) the newly named SymphonyIRI (formerly Information Resources Inc) CPG Summit in San Antonio yesterday, where the theme was "I3: Insight, Innovation, and Impact." [Ed note: click
to view our slides.]

An overriding leitmotif of the confab was how brand marketers need to get down to the granular level, selling household to household rather than clustering around zip codes. SymphonyIRI chairman Romesh Wadhwani stressed the importance of monitoring store-level data to make daily decisions rather than relying on national syndicated data that is six weeks old.

Also, expect in-store promotions and POS to start being upstaged by in-home marketing, since 83% of shoppers now make detailed shopping lists at home prior to shopping, compared to 50% making more vague "category" lists previously. Mobile technology will also be big, as will social networking and the Internet, says Grant LaMontagne, Clorox chief consumer officer. Expect lots more direct-to-consumer marketing to occur via the Net to drive shoppers to brands, since many decisions are now made before the shopper enters the store. "The rules have changed from mass marketing to targeted, integrated and real marketing and messages," he said.

Later at a shopper panel, four out of five shoppers said they are less influenced by end-cap displays than in the past, and all on the panel said they make lists before shopping and largely stick to them (although all admitted to occasional impulse buys, so don't take down those displays yet). "A manufacturer that does not know that consumer is in charge is in peril," says Clorox marketer.

Other insights at the conference:

-Private labels are on fire, and national brands will have a tougher time taking share back from them even after the recession is over. Ignore at your own risk.

-Throw your price elasticity models out the door. Offering discounts will not provide the same lift as they did in the past, and don't look for price increases for some time.

-Channel shifting to larger format stores is rampant, yet average trips per week are increasing from five to six, to eight to ten. Shoppers are driving around more for deals, particularly as fuel prices have moderated.

-Health and wellness and organics are big. Look for wine to be the beneficiary of this as boomers age and switch from the nightly martini or scotch to the glass of Merlot.


Former Corona Extra importer-turned-wine-importer Carlos Alvarez outlined the challenges of building a wine brand in the US in the way he built beer brands (Corona, Pete's Wicked Ale, Shiner, Bridgeport, etc.). Carlos owns Old Bridge Cellars, representing a group of winemakers from Australia. And while its wine brands are known and respected entities down under, it's been an expensive and tough climb to make his brands "iconic." He repeated that quip that the "biggest way to make a small fortune in the wine business is to start with a big one." Carlos said he's brought plenty of financial support to "engage the company in branding and having a greater presence in the imported wine business in the states." While he says his results are "encouraging", it "going to take some time." He cited the success of Shoofly after garnering 91 points in Wine Spectator for only a $13 bottle, and the rollout of Frisk, a Riesling.


The latest development in the Diageo/Bacardi rum war saga involves a six-state boycott of Diageo products led by the National Puerto Rican Coalition (which Diageo alleges is backed by Bacardi). The Coalition is also putting pressure on politicians to support proposals that would ensure they continue to receive the largest chunk of rum tax excise funds from the United States.

Diageo spokesperson Zsoka McDonald told WSD: "Our position is the same as it was when we issued our press release a few weeks ago. We see it as unfortunate that Bacardi is using a Puerto Rican front group to protect its status as the largest recipient of rum cover-over money.... We call on Bacardi again to fess up to its activities and involvement here."

She went on to say that "we believe consumers and customers see through [the boycott]. This is just a desperate attempt by Bacardi and this front group to disparage Diageo and its brands."

POPULATION-BASED TAX DOLLARS. One of the Puerto Rican-backed proposals was introduced by George LeMieux of Florida and would completely change the way US rum-producing territories are paid. If passed, it would base subsidy payments on population rather than the amount of rum a territory makes, which is how the payments are currently determined. Under the current system, Puerto Rico stands to lose a lot of rum money once Captain Morgan moves its operations to St. Croix in 2012. If payments were based on population, however, Puerto Rico would greatly benefit since it has about 4 million people compared to the 10,000 living on the Virgin Islands.

CAP THE SUBSIDIES. A separate bill to be introduced by Puerto Rico Resident Commissioner Pedro Pierluisi would cap subsidy payments to companies at 10% of the total excise tax received by each territory. Right now St. Croix is offering a much larger chunk to Diageo in exchange for its business - reportedly to the tune of $2.7 billion over 30 years. Currently Puerto Rico gives back about 6% to distillers. If this bill were passed Diageo would likely leave US territories altogether, hurting St. Croix but benefitting Puerto Rico.

The fight over rum money has pitted the Congressional Hispanic Caucus against the Congressional Black Caucus. Meanwhile Virgin Islands governor John deJongh plans to meet with tax writers to block such efforts from becoming law.


WSJ's David Kesmodel is reporting that Diageo is launching a vodka this summer meant to directly compete with Constellation's Svedka, which has been extremely successful. Swedish vodka Rökk is expected to sell for $13 per 750 ml bottle, similar to Svedka. It's "part of a flurry of new liquor products that the London drinks giant is rolling out in the U.S.," writes David. He points out that many of Diageo's new products are mid-priced, which shows "how Diageo is trying to appeal to drinkers who are reaching for relatively inexpensive-yet distinctive-brands in the sluggish economy." This is a far cry from 2007 and before when the industry was focused on trading up consumers. It could also suggest that Diageo doesn't expect a major turnaround anytime soon.

Diageo is also planning to introduce Ursus vodka to the US market, which sells for $11 per bottle and comes in flavors such as punch and blue raspberry. This vodka will directly target at-home consumption.

Peter McDonough, who runs marketing and innovation for Diageo North America, said that consumers are increasingly interested in Scandinavian vodkas and that Rökk is not attempting to mimic competitors. The vodka will be made by a third-party distiller in Kallby, Sweden.


Now that Wal-Mart is losing market share to other supermarkets, warehouse clubs and dollar stores, word comes this week that they're about to become much more competitive very soon. Wal-Mart Stores will cut food prices and mount a new ad campaign over the next six weeks, "a threat to other U.S. grocers that sent an industry shares index down more than 2 percent on Friday," says Reuters. Customers entering stores will be greeted by signs advertising price rollbacks on 10,000 items. The focus of the price cuts will be on food and other consumables. The changes, to hit stores by April 1, just before Easter, will be supported by a television and media campaign.

Meanwhile, the ceo of Kroger, David Dillon, says it's about more than just offering lower prices. He told listeners at the Citi Retail Conference yesterday that shoppers have a better experience at Kroger than at Wal-Mart and other discount competitors. Why? Not only do they offer low prices, but the stores are clean with speedy checkout lines, well-heeled employees and more assortment. He believes a positive shopping experience rather than price brings in more frequent shoppers, which is important for long-term growth.

Meanwhile, Wal-Mart has said it's taking steps to improve its stores with new store designs "that are clean, open and bright and easier to navigate in layout and signage," a spokesperson told the AP. Walgreens is also jumping on the bandwagon by expanding tests to make the stores more open, more colorful and easier to navigate. They're planning to rollout the new format to 2,500 to 3,000 stores by this fall. This is in addition to the fact that Walgreens is now offering alcohol in stores throughout the country.


NY WINE-IN-GROCERY LEGISLATION was put on hold this week when the state senate voted on a budget Monday that didn't include the Wine Industry Act. However, supporters of the proposal say they are still in negotiations. Interestingly, wine store Sherry-Lehmanns has come out as the first wine store to support the bill because it would allow wine and liquor stores to sell food and other items. Whether or not the legislation passes this year, we'll likely see it resurface in 2011.

CA REJECTS 5 CENT TAX INCREASE. Assemblyman Jim Beall's proposed 5 cent tax increase (AB 1694) on all alcoholic products died in committee this week. You'll recall his proposed "dime-a-drink" tax also failed to pass last year. He isn't giving up, though, and plans to reintroduce a similar proposal in April.

BRITISH TAX INCREASE IN EFFECT. As the industry feared, chancellor Alistair Darling said taxes on beer, wine and spirits will rise 2% above inflation as a part of the new budget, which comes out to an estimated 5% tax increase. Taxes on cider will rise a whopping 10% over inflation.

IOWA PASSES WINE BILL. Iowa Gov Culver signed senate bill 2088, which transitions Iowa from a reciprocal shipping state to a permit state and allows unlimited direct-to-consumer shipments, effective July 1.

MARYLAND SENATE KILLS DTC BILL. The senate voted 40-6 against legislation that would have allowed wineries to ship direct to consumers.

Until tomorrow, Megan

"It's kind of fun to do the impossible."
Walt Disney

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