A Peak at the Big Brands

FILED APRIL 18, 2011

Dear Client:

A few of the top spirits brands posted impressive growth in the 52 weeks ending March 5, based on The Nielsen Company's food, drug and liquor store scan data. But it is evident that several of the large brands are still struggling and that discounting continues. In total, spirits grew 3.1% in dollar sales and 2.8% in volume at the off-premise.

As you will see below, Johnnie Walker, Hennessy and Crown Royal posted strong sales growth, while Jack Daniel's and Absolut were flat and the rest of the brands declined, with Jose Cuervo struggling the most.

The Top 10 Spirits Brands by Dollar Sales (in order by size):

Smirnoff: -0.2%
Bacardi: -1.3%
Jack Daniel's: 0.2%
Captain Morgan: -0.7%
Absolut: 0.1%
Johnnie Walker: 7.4%
Hennessy: 11.1%
Grey Goose: -2.8%
Crown Royal: 5.6%
Jose Cuervo: -3.9%

Smirnoff, Bacardi, Captain Morgan and Jose Cuervo did a little better in volume, which might suggest some discounting. Svedka posted the most volume growth out of the big brands, with Absolut and Jim Beam coming in second and third place. It's clear that Absolut is benefitting from its recent price adjustment.

Top 10 Spirits Brands by Volume:

Smirnoff: 0.5%
Bacardi: -1.5%
Captain Morgan -0.3%
Svedka: 18.4%
Absolut: 4.7%
Jack Daniel's: 0.2%
E&J Brandy: -0.6%
Jose Cuervo: -3.2%
Skyy Vodka: 3.6%
Jim Beam: 4.5%.

ENERGY DRINK COCKTAILS IN THE SPOTLIGHT

A new study is putting the spotlight on cocktails mixed with energy drinks, saying the added boost gives drinkers a false sense of alertness but does not lessen the effect of alcohol. This can cause people to overindulge, said Cecile Marczinski, a psychologist at Northern Kentucky University, who ran the study. "Stimulation may not be a good thing when you're drinking because you may drink longer, decide to stay at a party where you're drinking longer, and drink far more than you originally intended."

Also interesting, she believes caffeine is not the main problem. Rather, study participants that consumed cocktails mixed with energy drinks containing ingredients such as taurine, glucose and ginseng reported feeling more alert than those who drank beverages made only from caffeine powder.

"Given the dramatic escalation in the popularity of alcohol mixed with energy drinks among young people, more controlled laboratory studies are needed to determine if alcohol mixed with energy drinks are escalating risky drinking practices in a demographic group with high levels of binge drinking," said Marczinski and coauthors in conclusion.

THE STUDY. Marczinski and colleagues studied 56 college students between the ages of 18 and 33 who are all social drinkers. Participants were assigned to one of four drink groups: 0.65 g/kg of alcohol, 3.57 mL/kg of energy drink, alcohol mixed with an energy drink, or placebo.

You can read more about the study here at Medpage Today. The study is published online in advance of the July 2011 print issue of Alcoholism: Clinical & Experimental Research.

BIG PICTURE. It is studies like this that eventually led the FDA to declare Four Loko and other caffeinated malt beverages "unsafe" in November 2010, causing them to be taken off shelves. Although they did not include caffeinated spirits in the list of "unsafe" products, experts with the FDA hinted it could happen in the future. Dr. Josh Sharfstein, M.D., principal deputy commissioner at the FDA, said at the time that he expects these "serious" warning letters "to be read across the industry," and is asking other manufacturers that add caffeine to their products to review the safety of that practice. He also said the FDA and the TTB will be looking into other caf alcs.

Don't forget that in 2009 the FDA sent a warning letter to a number of products. Although the list was dominated by malt beverages, there were a few caffeinated spirits: P.i.n.k. Vodka, Lotus Vodka, 3am Vodka, Belvedere IX, Gravity Vodka and V2 Vodka with Caffeine. It seems that coffee-based brands like Kahlua are so far off the hook because caffeine is not artificially added.

Already we've seen proposed legislation in various states, such as SB 50 in Illinois, calling for a ban on premixed caffeinated beverages, including malt-based and spirits products. So will the government soon shift its focus to caffeinated spirits? And what about energy drink cocktails? The subject has certainly come up before. Recall NABCA chairman Dan Gwadosky released this statement following the FDA's decision in November: "We must educate the public, especially our youth, to the dangerous practice of mixing alcohol and energy drinks and the dangers of over-consumption." We'll be watching.

CONSTELLATION IN A POSITION TO MAKE ACQUISITIONS, SAYS ROB SANDS

Constellation chief Rob Sands said the company "can now be acquisitive again" after paying down debt over the past couple of years. In speaking with Erik Schatzker on Bloomberg Television's "InsideTrack," he said: "Now today when we look at our capital structure we're in the mid-threes of debt to EBITDA which is very comfortable for us. We've been generating a lot of cash flow. We've been very successful in our efforts.we can now be acquisitive again but they have to be the right acquisition. They have to be strategic, they have to fill a niche, they have to provide us growth, they have to meet our financial criteria and we're very disciplined in that regard. Therefore, it is an opportunistic kind of thing. There has to be a willing seller, as well as a willing buyer. We can't predict when that is going to happen.. We have plenty of room without getting overleveraged to make acquisitions."

When asked whether the company is planning any future divestitures," Rob said: "Relative to anything material, I would say we've pretty much completed what we set out to do."

LVMH SEES "STRONG DEMAND" IN Q1

LVMH's wine and spirits group saw "strong demand" in the first quarter of calendar 2010, "notably in the United States and Asia," said the company. Total revenues for the division were up 17% on an organic basis. Globally, champagne volumes grew 8% and the prestige cuvees "enjoyed particularly rapid growth." Hennessy cognac volumes grew 16% and "continued the excellent momentum seen at the year-end across all its qualities of cognac."

WSD BRIEFS:

UBS VALUES TREASURY AT $2.6 BILLION. Foster's Group will spin off its wine unit on May 10, making Foster's an independent beer company and Treasury Wine Estates an independent wine company. Lindy Newton, a senior analyst at UBS, values TWE at about $2.6 billion (A$2.5 billion). The "bull case for TWE's valuation is increased M&A appetite for Wine assets and earnings recovery potential. The bear case is ongoing earnings headwinds including FX [foreign exchange], global oversupply and retailer consolidation." she wrote.

$15-$20 WINES THE "NEW NORMAL?" The LA Times recently published an article calling $15-$20 wines the "new normal," which means "more - and better - bottlings available than ever before" in that price range. The article claimed wines in the $50 to $150 range are "almost a thing of the past."

SPI GROUP has purchased a "significant" stake in Argentina winery Achaval-Ferrer for an undisclosed sum. Financial details were not disclosed.

LOUIS ROYER COGNACS announced that Miami-based Lapham Import Company is its new importer. At the same time, Estelle Ngo was named Brand Ambassador North America, effective immediately.


Until tomorrow, Megan

"No man ever listened himself out of a job."
Calvin Coolidge

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