As chief Paul Walsh recently stated, Diageo is undergoing an operational review across its global markets, which affects different regions in different ways. So far in the United States we've seen some bottling and warehouse closures, but the latest change has to do with Diageo's wholesaler network.
It appears that Diageo is in the process of working with distributors to increase the dedicated sales teams throughout their strategic distributor network and beefing up support. You'll recall it first started back in December when Diageo announced a new contract with Glazer's that included "enhancements to the fully dedicated sales coverage for spirits brands" and "enhanced resources" focused on on-premise, multicultural and innovation. Separately, Glazer's announced they had appointed Pete Carr (who was once the president of Diageo's open states and also president Diageo Guinness USA) to oversee a corporate team dedicated to Diageo and MH, as well as Glazer's in-market Diageo and MH teams.
Then in mid-June Diageo announced it had named Southern Wine & Spirits its new national broker in control states, who will provide "fully dedicated coverage" for Diageo's spirits brands across all 18 states. With that comes a number of key changes, said the company, which includes (1) "enhancements" to the teams representing Diageo brands, and (2) increased focus on multicultural and on-premise, which are "two areas that are designated as key priorities for future growth."
Seeing any patterns yet? Sources tell us that as a result, two things have happened. One, there have been some lay-offs at Diageo. And two, some employees are moving to the distributor's sales team to put them in a stronger position in the market place.
WSD reached out to Diageo, who gave us this statement: "As Diageo announced in May, the company is conducting a global review of its operating model to ensure that all our resources are deployed closer to the market and in those areas where the potential for growth is greatest. Ultimately, our goal is to ensure we have the right people focused on the right activities to drive our ambitious growth goals for the company."
So as a result of the strategic review, we will likely see similar announcements in the future. Commenting on the Southern announcement, Larry Schwartz, president of Diageo USA, hinted as much: "I am excited about our new national relationship with Southern Wine & Spirits, which begins the next phase of Diageo's route to market strategy and is a key step toward driving a national sales force approach with our distributors and brokers in North America."
WHERE SOUTHERN FITS IN. Note that as a result of the national Diageo brokerage agreement, Southern is entering two new control state markets: Michigan and Iowa. This is not the first time Diageo has gone with Southern in a new market. Recall Diageo left its current wholesaler (National Wine & Spirits) in Indiana to join Southern after it set up a warehouse last year.
TTB GIVES MORE DETAILS ON SLOTTING FEE CASE IN NEVADA
You may recall in May that the Alcohol and Tobacco Tax and Trade Bureau alerted the industry that after a 2 and a half year investigation it had accepted "offers in compromise" totaling approximately $1.9 million from six companies alleged to have violated the tied house "slotting fee" provisions of the FAA Act. How so? The allegations of tied house violations stem from the companies' participation in the 2008-2009 Harrah's Nationwide Beverage Program (HNBP) in the Las Vegas area. It marked the largest set of offers in compromise ever accepted by TTB for trade practice violations. As a quick refresher, the companies were: Diageo North America ($650,000), Pernod Ricard USA ($300,000), Moet Hennessey USA ($275,000), Bacardi USA ($262,500), Future Brands ($250,000), and E. & J. Gallo Winery ($225,000). As a part of the settlement agreements, each company denied violating any laws or regulations.
But there are still a number of questions left unanswered. A panel involved with the investigation gave more details at the NCSLA's annual conference, led by Desmond Wosser of the TTB's Trade Investigations Division.
He claims that these suppliers paid "$2 million to a third party controlled by Harrah's," who then purchased "things of value" for hotels and casinos owned by Harrah's Entertainment during the two-year period of the program. "Its only objective and reason for being was to participate in the Harrah's Nationwide program.to receive funds by the various suppliers and purchase things of value" for Harrah's, although he admitted that the suppliers would "probably disagree."
There were "a lot of other participants in the Harrah's Nationwide Program," but the TTB focused on the 6 companies mentioned above mainly because they are a small agency and short on manpower, he said. "Six is about as much as this agency can handle." These 6 suppliers were chosen "because of the size of payments to HNBP and the probability that payments resulted in exclusion of competing products." Although "we did find lots of evidence of brewers participating in these programs and benefiting," slotting fee laws do not apply to them. Desmond also pointed out that the law doesn't punish retailers for this type of activity, and that they "are getting more and more aggressive."
In all, the TTB focused on 9 Harrah's properties in the Las Vegas area only. "Probably half of all the alcohol beverage sales that Harrah's purchased during 2008-2009 were probably from these 9 properties," he said. So what exactly were the unlawful inducements paid for by the third party company? Although the Harrah's agreement included allowable exceptions, "mechanical bulls" are not one of those things," said Desmond. Other items that were purchased by the third party company include items like high-end speakers that cost $10-$15k, DJ services, catering fees, high-end television, pool renovations and money. He claims that HNBP built into the program in writing that if you were selected to participate, they would get "preferential product and display locations" in Harrah's properties "for the well and back bar display locations." It covered roughly 136,000 cases and $8.5 million in supplier sales, he said.
"The key is we felt there was a slotting fee there because there was a requirement to put these particular brands into wells and back bar displays.. Slotting fees are one of those things that we really take seriously." Desmond noted that this was an abnormal investigation because alcohol sales overall were softer because the recession had just hit. But they were able to show that products by the suppliers being investigated "increased in sales during this time when the category itself decreased."
So how much of the money went to unlawful inducements? "The highest percentage of unlawful inducements.was about 85% of total funds that were given were given for stuff that was unlawful inducements.the lowest percent was 40%."
Any finally, how did they settle on the fines listed above? "The FAA Act allows the TTB.to basically fine suppliers up to $500 per offense," or case sold. Obviously the fines could have been a lot higher since it is estimated that 136,000 cases were involved. But the TTB hopes this will serve as a warning to the rest of the industry. "We hope this is something we won't have to do again," but "this is the type of thing that the TTB is going to get involved with."
Desmond made a point to say that the suppliers involved were cooperative in the investigation. Although the TTB "made extensive use" of the FAA's subpoenas for record and testimony, it wasn't necessary for the suppliers. "We requested information from the suppliers, and they in fact did respond to that and gave us" the information.
DINNER TRAFFIC IS UP, INCLUDING FINE DINING
That's according to new research from The NPD Group, reports Nation's Restaurant News. Since the recession began in 2007, dinner traffic has been falling, particularly at casual dining restaurants. But total visits have turned positive in the past three quarters, up 1% in the third and fourth quarters of 2010 and up 2% in the first quarter of 2011. The bulk of that growth comes from quick-service restaurants, however, while traffic at midscale and casual-dining restaurants fell -2% in the first three months of 2011. Fine dining rose 5%, but that represents a small portion of overall dinner traffic. So what does this mean? Unemployment and consumer confidence may be improving, but NPD analysts believe rising food costs have also narrowed the gap between dining in-home or going out.
7-ELEVEN EXPANDS WINE LIST. 7-Eleven is adding a pinot grigio to its private label offerings, reports Convenience Store News. VitAlma will be available in the retailer's locations in California, Washington, Oregon and Florida. It is produced and bottled in the Lombardy region of Northern Italy and carries a $7.99 price tag. It joins 7-Eleven's other private label brand wines, Cherrywood Cellars, Sonoma Crest and Yosemite Road, which are produced in California.
LOWER FUEL PRICES EXPECTED. Just in time for Independence Day, gas prices are expected to drop 20 cents a gallon to $3.40 per gallon or lower, according to a USA Today report. The U.S. and the International Energy Association announced plans yesterday to sell 60 million barrels of oil from emergency reserves.
GREY GOOSE HAS NAMED R/GA its global digital agency of record. Its work will encompass a range of duties including advanced platform development and mobile and social initiatives. R/GA also represents McCormick & Company.
DRINKS AMERICAS HOLDINGS has entered into a definitive agreement with Worldwide Beverage Imports, who will acquire up to 49% of Drinks. In exchange, Drinks will receive the sales and/or importing and distribution rights for specified areas of up to 39 spirits and beer products from Worldwide, which includes Kah Tequila, Agave 99 and Ed Hardy Tequila.
Until tomorrow, Megan
"Many a small thing has been made large by the right kind of advertising."
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