You'll likely recall, Australia's Treasury Wine Estates has faced some hurdles over the last calendar year (see WSD 08-22-2013). However, in its first half results ended December 31 the company touted positive progress that it expects will go a long way to regaining balance in the US.
KEY BRANDS DELIVER VOLUME GROWTH: For the 26 weeks to January 4, TWE's entire portfolio grew volumes 1% in Nielsen's food, drug and liquor store channel. The company's three largest brands, Beringer Classics, Founders' Estates and Lindeman's, all delivered growth in the period. Beringer, which represents nearly half of TWE's US volume, had its best performance in four years during the period, up 7%. Founders' Estate volumes grew 2% and Lindeman's grew 5%.
Meanwhile, Chateau St. Jean (13.4%), Matua (45.5%), Gabbiano (19%) and Sledgehammer (154%) all drove growth in TWE's "masstige portfolio" - wines $10-$20. This division started off slow in the beginning of fiscal 2014 because "we just didn't have enough wine, " Sandra LeDrew, TWE Americas chief commercial officer, told WSD. "Beringer Knights Valley is one of the great appellations and you can only make so much wine that comes out of there. We were literally out of stock in the first 90 days of our fiscal year." But in the face of supply constraints, they've been successfully taking price on the brand for the "past couple of years" and "will continue to lead luxury pricing in the marketplace," she said.
Meanwhile, 19 Crimes, the Australian red blend released early in calendar 2013 (srp $13), has exceeded the company's expectations and delivered 19% volume growth for the 26 weeks, said Sandra.
INVENTORY UPDATE: Shipments in the Americas were down 12.7% largely due to the inventory realignment in the US. Interim chief Warwick Every-Burns said during the company's earnings call that the realignment is progressing, "albeit slower than originally planned." Last fiscal year, TWE said it would ship up to 1.5 million cases less than it depleted (sold to retailers) in fiscal 2014. However, at the end of the first half, they had shipped only 450,000 cases less than distributors sold to retailers.
In order to hit that 1.5 million-case goal, TWE has initiated a special depletion allowance of $38.1 million with about 50% of the funding going to promotional programming. The program will include some "slight price reductions," but Warwick says the are in line with how the company always does business. They initially planned for the program to begin last fall, but it has been delayed to the current quarter.
When asked if they were having a hard time convincing distributors to run with the depletion program, Warwick said: "We're not having a tough time at all. It's being handled extraordinarily professionally, but it is taking longer initially for the distributors to get the right promotional slots. And we made it very clear to them we did not want to be putting the money into deep price discounting. It will still essentially be a 12-month program, but rather than kicking off shortly after the provision, it's essentially kicking off right about now."
ON APPOINTING MICHAEL CLARKE CHIEF: Yesterday, TWE also announced it had appointed former Kraft and Coca-Cola executive Michael Clarke as its new chief (see WSD 02-19-2014). TWE chairman Paul Rayner shed some light on why Michael is the guy for the job. "Mr. Clarke has a consistent record of delivering shareholder value and improved results. At Premier Foods, he went into the business that was a turnaround situation... with significant levels of debt many, many billions of pounds compared to market capital," said Paul. "If you look at his track record over a long period of time, it's predominantly about growth in market share and growth in profit."
PART II: MACARONI GRILL ON WINE MENU STRATEGY
Today, we'll continue our coverage of Macaroni Grill's wine strategy with Megan Wiig, senior manager of beverage, wine innovation for Ignite Restaurant Group. For the first part of our interview, see WSD 02-19-2014.
WSD: How often do you reevaluate the wine list?
Wiig: It was such a huge change last August that we haven't made any changes to it yet. Now that we have this solid, core list, our main goal is to teach it for a while. If we make changes, it will be this summer when we run one of our special campaigns.
Honestly though, there's so much to play with. The thing that's most fascinating to me, now that I've been here for a few seasons, is that people are buying seasonally without us necessarily pushing them to do so. I saw really strong sales of whites, especially our Italian moscato, as well as two of our other white wines in August and September. Into October, guests immediately transitioned into our lighter reds such as pinot noirs and merlots. Looking at our sales [now], we're seeing a huge uptick in cabernet sauvignon.
That is definitely consumer-driven; it's not being driven by our restaurant or anything that we're promoting. That's just the consumers coming in, and maybe it's a sign that they're more and more educated on wine and they're reading. For example, if you go and pick up a magazine in the summer, it's talking about white wine. If you go and pick it up now, it's talking about the big, bold reds.
WSD: What's the breakdown for glasses to bottles on the list?
Wiig: That was another thing we were really aggressive with. You will find a lot of restaurants who will price their wines a lot higher than we do and looking to make a much bigger profit on their wine. We really, truly pass it on to the customer in terms of our pricing. It's extremely aggressive. Secondly, we offer two-thirds of the list by the glass. We have 32 wines and 22 of them are available by the glass.
WSD: What's the typical pour size at Macaroni Grill?
Wiig: We generally get four glasses to the bottle [just over 6 ounces], so we're a bit higher than industry average, which is at about 5 ounces.
WSD: We talked about what's popular seasonally, but what about the whole year of 2013 and going into 2014?
Wiig: One thing to mention about Macaroni Grill is that our house wine program is stronger than probably most [restaurants'] house wine programs because we do the honor system where the guest is offered the bottle and allowed to just pour it for themselves.
WSD: How does that work?
Wiig: It's called the honor system and, basically, when you sit down at the table, the server approaches you, they welcome you, and they are holding one of our bottles of house wine. We give them a taste, and if they say they like it, we just leave the bottle on the table. We take a crayon and we draw a wine glass, and put a tally with the crayon inside the wine glass. Then we say, "Here's the crayon. If you pour yourself another glass, just draw another line." Of course, we know that they'll forget a glass or two, and we don't care. It's supposed to evoke that whole dining experience in Italy where they'll put a carafe of the local wine on the table and do just that.
That said, people are talking about how moscato is not growing as fast as it was before. In our restaurants, it's certainly still very strong and this is a new phenomenon. I put a real Italian moscato from Moscato d'Asti on the list. We still sell a lot of pinot grigio, riesling, cabernet, malbec, and pinot noir, and chardonnay, of course. Macaroni Grill is extremely on trend with what you're seeing from the average American consumer, which helps when I'm putting the list together.
WSD: Anything that you think that was popular a few years ago that's just fizzled now?
Wiig: White zinfandel is not popular anymore. Five or six years ago, which in the grand scheme of things isn't very long, one of the house wines was a white zin. So we had a white, red and blush. That's a gigantic change. Selling house wine in a 1.5 L, you have to be able to justify that. It was there for a reason, because there was a large demand for it. Now it's number 20 out of 30 on the list. That's a massive consumer shift. The logical conclusion is that people, rather than starting their wine journey with white zin, they're starting that journey with moscato.
WSD: Let's talk money for a minute. Do you think that consumers are spending more money now as opposed to during the recession when most consumers cut back?
Wiig: Yes. I think the beauty of our house wine program is that it is recession-proof. You can always come into Macaroni Grill and have wine with dinner, and that's the whole point. It's supposed to be democratic that way. That said, I think people do trade to tea and water when the budget is tighter. So we continue to offer programming throughout the year that offers values aside from our house wines, so that we can continue to encourage them to enjoy wine with their meals because it just is so much more memorable when you do.
That's why we take into consideration, "What is the environment that our consumer is living in right now? What can we do to pull some levers to make wine more accessible?” We continued to do that this year. I think we are noticing that consumers are spending a little bit more right now.
WSD: Thank you for your time, Megan.
DIAGEO HAS CONFIRMED PLANS TO INVEST $2 million to renovate and expand the Stitzel-Weller Visitor Center at the storied distillery. The visitor center will feature the Bulleit brand as well as Diageo's "evolving" craft whiskey portfolio, which for now includes Orphan Barrel whiskeys. Diageo will begin working on the project immediately with plans to finish the first phase in time for Derby Day this May.
SAFEWAY SUPERMARKET CHAIN HAS ANNOUNCED THAT IT IS IN ONGOING discussions to be sold. Private equity firm Cerberus Capital Management is the likely buyer, according to Reuters.
IN HONOR OF BOOKER'S BOURBON'S 25th anniversary, Beam is releasing a limited edition: Batch No. 2014-1. Batch No. 2014-1 ranges in proof from 121-130, aged between 9-11 years and retails for approximately $100 a 750 ml. It is available nationwide next month in "extremely limited" quantities.
LUCAS BOLS HAS LAUNCHED ITS ELDERFLOWER LIQUEUR in the US after successfully growing the brand in Europe. Bols Elderflower comes in a 750ml bottle and retails for $18 with 15% abv. It is now available in both the on- and off-trade channels across the U.S.
Until tomorrow, Emily
"Writing is not an amusing occupation. It is a combination of ditch-digging, mountain-climbing, treadmill and childbirth. Writing may be interesting, absorbing, exhilarating, racking, relieving. But amusing? Never!"
- Edna Ferber
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