Obama Proposes Calorie Posting - Is Alcohol Next?

FILED APRIL 4, 2011

Dear Client:

The Obama administration is proposing rules that would require eateries - including vending machines - with 20 outlets or more to post calorie counts of foods and non-alcoholic drinks on menu boards. Other nutrition facts will be available upon request. Right now alcohol is exempt from the rules, and so are establishments where food sales are not a primary business, reports WSJ in an article over the weekend. The rules are expected to take effect in 2012.

The FDA said it "tentatively" concluded that bars and restaurants don't have to post nutrition facts on beer, wine and spirits. That is because alcohol is regulated by a different federal agency, the TTB, "and that it was not clear Congress intended the calorie-label provision to apply to such drinks, given the different agency jurisdictions." But how long will that last?

HOW THIS APPLIES TO THE INDUSTRY. As you know, distillers led by Diageo are urging the TTB to pass a proposal first introduced in 2003 that would require all alcoholic beverages to display a serving facts panel (calories, carb, etc) on their labels and voluntarily display serving sizes in fluid ounces. This is an issue that large distillers generally support, but brewers and wineries typically oppose because some believe the push for serving facts is a stalking horse for equivalency.

In February you may recall that the USDA added an extra sentence to its definition of a drink in the 2010 Dietary Guidelines. The added sentence reads: "One drink contains 0.6 fluid ounces of alcohol." It caused some controversy because it is a major federal government agency taking us one tiny step forward toward the notion that all servings of drinks have the same amount of alcohol, something the beer and wine folks take issue with. DISCUS applauded the new language, but the Wine Institute did not, saying: "Consumers should not be misled into believing there is such a thing as a 'standard drink.'"

WI believes serving facts/nutrition labeling "should remain voluntary and that any requirements not be financially burdensome to implement," spokesperson Nancy Light told WSD in February. WI has said they would ask for generic labels with calorie and carb counts instead of having to have every individual wine analyzed.

So when it comes to nutrition facts, the industry is largely at a stalemate. But perhaps this latest proposal from Obama will prompt the TTB to act faster. It has already been over 7 years and it seems like beer, wine and spirits will soon need to reach a compromise. It is also interesting to note that low-calorie, pre-mixed spirits drinks are gaining popularity, much like light beer did years ago. We will be watching.

AS CRAFT DISTILLERIES GAIN GROUND, BREWERS PAY ATTENTION

It is apparent that craft distillers are getting more national attention, with several mainstream articles surfacing over the weekend. One article in the Denver Post highlighted craft distilleries in Colorado, saying: "Watch your back, Jack. Swelling numbers of craft distillers are flooding Colorado with artisanal spirits.." Colorado currently has 130-something breweries and 18 craft distilleries, making it the second-largest brewer and third-largest spirits producer in the country.

There are about 264 craft distilleries operating in the US today, up from 60 in 2003. And as the article says, "they are quickly gaining shelf space in liquor stores across the nation." Yes, these folks make up only a small piece of the US spirits industry, but they are quickly growing. Bill Owens, president of the American Distilling Institute, said they make up 1% of the business but the number of small distilleries grows 25% a year. What's the appeal? Same as craft beer. "These folks are thinking globally but acting locally, catering to their community," he said. "The future is going to be homegrown. It's part of the lifestyle renaissance happening in our culture right now."

Craft beer consumers are notorious cross-drinkers. They typically enjoy trying new things, which includes craft spirits and taking part in the cocktail movement. So that could be why craft brewers are starting to get into distilling more because, as San Diego's Ballast Point head brewer and distiller Yuseff Cherney recently told our craft beer reporter Jenn Litz, "a lot of these.brewers almost do it for themselves selfishly." Yuseff also believes that more brewers will realize that adding a still to their brewery makes good business sense because they already have many of the raw materials for certain spirits. Ballast, for example, uses washes from the brewhouse for distilling.

This sort of craft distillery acts more like a brewery in terms of tradition and portfolio, not just focusing on one product type. Ballast's spirits - which include gin, two rums (one unaged) and some bourbon - are so far pushing the envelope, as many from this camp will. Ballast's spirits sell well where they're sprinkled in Calif., Mass. and Conn., despite the fact that the aged rum, at $57 a bottle, is possibly BevMo's most expensive brand in that category. "Our rum is distillated into a brand-new American oak barrel heavily charred on the inside. Thinking that maybe 150, 200 years ago, that's how rum was made," said Ballast's chief of sales Earl Kight. Expect craft brewers to bring this sort of deconstructed approach to spirit-making.

But not everyone was a craft brewer first. There was also an article in the Dayton Daily News about newly launched Buckeye Vodka, which is set to hit shelves in the state this week. It retails for under $20 a bottle. It is owned by Jim Finke and brother-in-law Tom Rambasek, who owns and operates Crystal Water Company in Dayton. They got some advice from a vodka maker in Austin, Texas and also took "full advantage of the supply of high-quality water and equipment of Crystal Water." In Ohio, there are now 11 licensed distilleries, only two of which existed prior to 2006.

History often repeats itself. As the major beer companies consolidated in recent years, craft brewers multiplied and ultimately took share from the likes of Miller Light and Bud Light. Now beer distributors are clamoring to add craft beer to their ranks. Could we see something similar in the artisanal spirits industry? We say yes.

PERNOD SELLS STAKE IN SUNTORY

Suntory Holdings bought back Pernod Ricard's approximately 1% stake in the company for $55.5 million (4.66 billion Yen). Pernod said the sale "does not change the close relationship between the two groups and the ongoing development of their joint business in Japan, which continues to distribute certain Pernod Ricard brands, principally Ballantine's, Beefeater, Kahlua and Malibu." Pernod was advised by Nomura and Nagashima Ohno & Tsunematsu.

NAT DIBUDUO OPTIMISTIC ABOUT GRAPE PRICES

The wine-type grape acreage for 2010 is estimated at 535,000 acres by the USDA's National Agricultural Statistics Service (NASS). Of the total acres, 497,000 were bearing and 38,000 were non-bearing. Table grape acreage totaled 94,000 acres with 9,000 non-bearing. The leading wine-type varieties continued to be Chardonnay and Cabernet Sauvignon.

This is good news for California grape growers who have struggled in recent years. Increased competition from bulk wine imports and consumers trading down in the recession drove down prices for growers, often time lower than the cost of production, reports Western Farm Press. Nat DiBuduo, president of Allied Grape Growers said he is "'bullish about wine grape prices this year.'" Now grape production is more in line with winery demand and overall wine sales are improving. This has resulted in "aggressive buying from wineries for 2010 wine grapes, especially for San Joaquin Valley wine grapes," said the article. And despite a huge 2010 wine grape crop, "'we are still seeing interest from wineries for grapes this year,'" Nat added.

You can view the report here.

WSD BRIEFS:

JOSE CUERVO IS LAUNCHING A NEW READY-TO-SERVE Authentic Light Margarita that boasts under 100 calories per serving. It uses Jose Cuervo Especial Gold, Triple Sec and a twist of lime. Also joining the Jose Cuervo ready-to-serve family is Jose Cuervo Authentic Watermelon Margarita. They both sell for a suggested retail price of $15.

THREE OLIVES VODKA ANNOUNCES $10 M AD CAMPAIGN. Proximo is announcing the U.S. launch of a new $10 million advertising campaign for Three Olives Vodka. It debuted March 28 and beings with the classic joke, "Three guys walk into a bar." The ads are part of a fully integrated marketing program that includes print and online advertising. You can view the commercials at YouTube.com/TheThreeOlivesVodka.

LUNAZUL TEQUILA IS INTRODUCING a new marketing and print advertising campaign with the tagline: "Totally Agave.Totally Smooth. Sacrifice Nothing." The 100% agave tequila is owned by Heaven Hill Distilleries and Tierra de Agaves. The campaign will run from April through September and marks the first major consumer advertising effort for Lunazul.

SWAN NECK VODKA is launching newly designed packaging and a new pricing structure, with a suggested retail price of $30 a bottle. "Consumer response to the Alambic distilled French grape vodka has been fantastic, and the vodka itself has consistently received rave reviews; however, the original packaging was difficult to see on bar and retail shelves," said founder David Laverne.

REPUBLIC NATIONAL ANNOUNCES MANAGEMENT CHANGE. Charles Andrews, President of the Eastern Region and Control States for RNDC, will be leaving the company effective April 30. "As the industry and RNDC continues to evolve, it is an appropriate time for me to pursue new challenges within our industry. That said, I wish RNDC continued success," he said in a statement. They did not include details of a replacement.

DIAGEO HAS APPOINTED LIQUOR GROUP WHOLESALE'S distribution network to implement the initial 2-year US distribution strategy for Diageo's Mey Icki Portfolio, which is lead by Binboa Vodka. Binboa comes in flavors including: Red Apple, Satsuma, Red Orange and Strawberry. Binboa's marketing approach includes such slogans as: "On a Night Out, 95% of Party Goers Meet New People, 5% Remember Their Names Afterwards..." and "On a Friday Afternoon, 4% of People Work, 96% Pretend To Work."

MCCORMICK & SCHMICK'S received a $137.3 million buyout offer Monday from Tilman Fertitta and his LSRI Holdings Inc. group, which is a subsidiary of Landry's Restaurants Inc. Tilman is the founder of Landry's Restaurants and already owns a 10.1% stake in McCormick & Schmick's.


Until tomorrow, Megan

"Old age is the most unexpected of things that can happen to a man."
Leon Trotsky

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