Kroger Moves to "Knock Down Silos" between Bev Alc Categories

FILED NOVEMBER 16, 2015

Last month, sister publication Beer Business Daily broke the news that Kroger, the second largest grocery retailer in the country, would be teaming up with Southern Wine & Spirits, the largest wine and spirits distributor, to remodel its bev alc strategy [see WSD 10-27-2015].

Kroger has reportedly begun a series of town hall meetings on the matter and this is what sources who attended reported back to BBD:

As one of the fastest growing and highest margin categories in grocery, Kroger has deemed beverage alcohol a top priority. The retailer reported that beverage alcohol sales have grown over 7% and pricing is up compared to other categories.

Kroger intends to "knock down silos" between beer, wine and spirits to eliminate duplication and improve communication. The way it works now is each supplier has a team calling on Kroger, but the retailer has said it wants one entity calling on them with clear unified solutions to grow.

The newly formed Planogram Center of Excellence (PCOE) will have nearly 100 people in one building dedicated to growing the category for Kroger. They have earmarked $11 million to $15 million for year one. The center will be run by Southern Wine & Spirits, but funded by wholesalers and suppliers and "invoiced quarterly."

Instead of relying on existing data sets from third parties, the PCOE will create a data center from the ground up with a "blank check" to get it done. Going forward, their data set will determine how shelves are set.

Moreover, Kroger's shelf-set strategy will rely on fact-based information. Before this new strategy, Kroger handled category management by choosing a supplier to be a category captain (one for each bev alc category) and the other suppliers validated the set so that the captain who controls the mouse didn't get too greedy. Under the new strategy, They will create an "advisory board" of five suppliers from from each bev alc category. A detailed application process will begin in January. Harris Teeter is already doing this apparently.

On the one hand, there's the argument that smaller brands could be hurt if Kroger shelf-sets are based on sales or turnover rates, but on the other hand, there are multiple advisors for each category and the use of an application process indicates they could be of varying sizes.

We'd like to hear your thoughts on the topic and what they mean for your brand or distributorship, email emily@winespiritsdaily.com

CONSTELLATION ACQUIRES BALLAST POINT BREWING & SPIRITS

Constellation will acquire the San-Diego based Ballast Point Brewing & Spirits for $1 billion. Ballast Point, whose net sales for 2015 will reach nearly $115 million, will continue to operate as a stand-alone company with its current management team and employees running day-to-day operations.

"The team at Constellation shares our values, entrepreneurial spirit and passion for beer, and has a proven track record of helping successful premium brands reach the next level of growth and scale," says Ballast Point founder Jack White.

In addition to being a leader in the craft beer space, Ballast Point also has a small spirits portfolio that includes the Old Grove Gin, Barrel Rested Old Grove Gin, Three Sheets Rum, Three Sheets Barrel Aged Rum, Three Sheets Spiced Rum, Fugu Vodka, Fugu Horchata Vodka, Fugu Habanero Vodka, Fugu Pina Vodka, Fugu Jamaica Vodka, Devil's Share Single Malt Whiskey, Devil's Share Bourbon Whiskey, Devil's Share Moonshine Whiskey and Opah Herbal Liqueur brands. Last year, the brands brought in about $1.5 million.

Constellation senior director of communications Mike McGrew tells WSD Jack and his partner will retain the rights to the aforementioned spirits brands and will have a year to move production to a new facility where they will market and sell them independently of Ballast Point and Constellation. Meanwhile, Constellation has gained the ownership of the Ballast Point trademark for spirits and the distilling capabilities at the Ballast Point facilities. Constellation Chief Rob Sands says they are "very interested" in developing new spirits under the Ballast Point name and "will pursue that as an innovation and [new product development] opportunity after the transition period ends."

The transaction is expected to close by the end of the year, subject to customary closing conditions.

PA PRIVATIZATION BILL PASSES THROUGH HOUSE COMMITTEE

This morning, a Pennsylvania House committee passed Speaker Mike Turzai's latest privatization bill (HB 1690) by a vote of 14 to 9. Pennsylvania has been toying with privatization for some time now, but has made more headway in the last two years [see WSD 10-26-2015].

The fine print of HB 1690 includes:

-- Closing all state-owned liquor stores.
-- Creating 1,200 wine and liquor "enhanced permits," allowing for the sale of beer, wine and spirits. The permits would be available for purchase by licensed beer distributors for six months after enactment and then extended to any other qualified bidder.
-- Creating wine and liquor "expanded permits," allowing licensed restaurants and hotels to sell wine and spirits to-go.
-- Creating a grocery store permit to allow the sale of up to 12 bottles of wine and spirits in a single transaction.

Moreover, under the proposed legislation, the Liquor Control Board would lease out the state's wholesale system for 10 years. After the 10 years is up, the state's wholesale wine and spirits system would be divested, and those with a wholesale permit would then be granted a wholesale license "to continue operations."

You may recall, Pennsylvania Gov. Tom Wolf proposed a plan in September to hand over the management of the alcohol system to the highest bidder, but allow the state to retain ownership [see WSD 09-17-2015].

PERNOD RICARD CHIEF MAKES STATEMENT ON PARIS ATTACKS

In the days after the devastating terrorist attacks in Paris, Paris-based Pernod Ricard chief Alexandre Ricard released an internal memo informing staff that all its employees were safe. Here it is in its entirety:

Dear colleagues, friends,

The attacks that struck at the heart of Paris have also struck each and every one of us. While our Parisian affiliates have reported that no Pernod Ricard colleagues, nor their family members, were among the victims of these atrocities, our hearts and thoughts go out to everyone who has been touched by these acts of the utmost barbarity - to the dead and the wounded, and to their loved ones.

The victims of this outrage were simply out having a drink on a pavement terrace or going to a concert; enjoying time with family or friends. We all know, perhaps better than most, what these moments of joy, of celebration and of sharing mean: they are our raison d'être, our purpose. It's this connection, this bond, that terrorists want to destroy. And it's this same bond that we'll continue to protect and preserve with our consumers and our clients, bartenders and restaurateurs, both in France and around the world.

It's in times like these that our values assume even more meaning: reaching out to others and embracing our differences. Making a new friend every day. Let's not give in to the temptation to turn in on ourselves, to give in to withdrawal and mistrust. Our method of fighting back is both the easiest but at the same time the most difficult: it is to keep on living, together.

In the words of Martin Luther King, "Darkness cannot drive out darkness; only Light can do that. Hate cannot drive out hate; only Love can do that."

Now however is a time of mourning and should you wish to do so, you may of course join in the national minute of silence that will be held in remembrance of the victims. Your affiliates will inform you of local arrangements as soon as they're confirmed.

Once again, all our thoughts go out to the victims and their families.

Alexandre

WSD BRIEFS:

ZACA MESA WINERY, VINEYARD AND RANCH UP FOR SALE. John Cushman of real estate firm Cushman & Wakefield, is putting up the 750-acre Zaca Mesa winery in the Santa Ynez Valley for sale, after more than 40 years of running the estate. The assets of the sale include, a 24,000 square-foot winery production facility and tasting room, 150 acres of estate vineyards, plus the surrounding ranch. Currently, the winery produces 40,000 cases a year but the permit allows production of up to 100,000 cases and the vineyard can be expanded by more than 100 acres. "I am ready to pass it on to a new steward who can take it to new levels of success and preserve its unspoiled beauty," says John.

MARRIOTT AND STARWOOD HOTELS COMBINE. Hotel chain Marriott International has initiated an acquisition of Starwood Hotels & Resorts Worldwide for a cool $12.2 billion (in cash and stock), which would create the world's largest hotel chain, according to Reuters. Last month, we reported that it was the Hyatt chain in final negotiations to acquire Starwood, but Marriott swooped in [see WSD 10-29-2015]. The combined company would own or franchise 5,500 hotels. The deal is expected to close in mid-2016.

MA GROUP SEEKS WEED LEGALIZATION BALLOT VOTE. Last week, the Campaign to Regulate Marijuana Like Alcohol group reported to have collected more than 100,000 signatures (way over the requirement of 64,750 signatures needed) to get an initiative legalizing marijuana on the 2016 ballot in Massachusetts, reports a local affiliate. There is also a competing campaign, the Bay Repeal, that wants to legalize marijuana without any new restrictions or taxes like alcohol has. MA decriminalized possession of small amounts of marijuana in 2008 and legalized medical marijuana in 2012. Pending legislative approval or the need of additional signatures, looks like it will be on the 2016 ballot.

NM GROUP PROPOSES LARGEST ALCOHOL TAX INCREASE IN US. The group's director, Peter DeBenedittis, says they are looking to increase the excise tax to 25 cents for every standard alcoholic drink, costing the average casual drinker an additional $10 a year. According to Peter, this would lead to about a 10% overall reduction in alcohol consumption and add $154 million to the state's annual revenue. If this gets approved, it would be "the largest increase in alcohol tax in the United States."

HEAVEN HILL DEBUTS LUNAZUL LIMITED EDITION. Available now through the end of the year, Lunazul Tequila has launched a Double Barrel Reposado. The 100% agave tequila is first aged in American white oak barrels, finished in 11-year-old wheated bourbon barrels, and then married with extra anejo tequila. Double Barrel Reposado retails for approximately $40 a 750 ml and will continue to offer unique limited editions of the product on a regular basis.

Until tomorrow,
Emily

"Peace cannot be achieved through violence, it can only be attained through understanding." -- Ralph Waldo Emerson

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