Diageo Restructures Wine Unit

FILED MAY 12, 2010

Dear Client:

Diageo has confirmed it is restructuring its US wine operations, complete with job cuts and other "fundamental changes," to make it a more nimble company. That includes possibly selling some non-core brands but nothing is final so far.

Diageo Chateau & Estate wines (DC&E) expects to lay off about 14%, or 93, of their 650 employees. In a statement to WSD, Diageo said this "will enable our wine team to focus resources on our core strategic brands and to make sure we have the right people in the right roles. This will mean that some jobs will be eliminated." Sources tell WSD it was a difficult decision but will result in positive changes for Diageo in the long run.

A complete review of the US wine unit led to the restructuring. Now DC&E is focused on "creating an efficient, entrepreneurial wine business" but shifting attention to their core strategic brands, including Beaulieu Vineyard wines, Sterling Vineyards, Chalone, Acacia, Rosenblum Cellars and Provenance.

This marks another big change for DC&E after bowing out of the Bordeaux business last year. In today's statement, however, they affirmed their "long-term commitment to the wine business."

Sandra LeDrew will continue as president of sales & marketing for DC&E, reporting directly to Larry Schwartz, president of Diageo USA. She will remain a member of the Diageo North America executive team.

Just yesterday Diageo unexpectedly announced its cfo Nick Rose would officially step down at the annual shareholders meeting on October 14. No reason was given for his departure.

In a third quarter trading statement last week, Diageo chief Paul Walsh said they have seen "some signs of recovery, albeit fragile in the mature markets."

DEUTSCHE BANK: CONSTELLATION "LOOKS TO BENEFIT" FROM IMPROVING TRENDS

Deutsche Bank has upgraded Constellation Brands to "buy." Analyst Marc Greenberg said in a note to clients that Constellation has experienced "a bumpy road" since reinventing itself "as a primarily domestic premium wine and import beer company." However, it "looks to benefit from some early signs that business is improving." That includes "a leaner organization, a more focused brand set and financial discipline."

There are other signs of improvement as well, including increased traffic on-premise and some trading up among consumers. Deutsche has learned through on-premise surveys and conversations with distributors that "traffic is picking back up and outlook for higher-priced wines has improved."

WSD BRIEFS:

WINE AND SPIRITS WHOLESALERS are in Washington DC today lobbying in support of the CARE Act (HR 5034), reportedly led by Southern, RNDC and Charmer Sunbelt.

MEANWHILE, THE WINE INSTITUTE tells WSD that "we have also reached out to every Member of Congress to highlight the major flaws in this legislation and its negative impact on consumer choice."

FRANCIS FORD COPPOLA WINERY plans on hiring over 100 new employees, ranging from waiters to lifeguards, for its newly renovated Geyserville winery, formerly Chateau Souverain. It's set to open July 4 and meant to appeal to families. It includes 2 pools, 28 changing cabins, a stage and amphitheater, poolside bar, restaurant and tasting room.

V. SATTUI WINERY has hired Ben Rotnicki as director of direct-to-consumer marketing and consumer relationship management.

CALLING ALL HANDS. We'd like to hear your thoughts. Are there heavy discounts in your area? Are consumers trading up? Will the industry see better days in 2010? Please take the time to answer this short, anonymous survey, and we'll post your responses in the coming days.


Until tomorrow, Megan

"It is not necessary to understand things in order to argue about them."
Pierre Beaumarchais

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