Quality. Price. Simplicity. Why they Make a Winning Combo

FILED SEPTEMBER 16, 2016

Yesterday we heard from BW166's Jon Moramarco, who said the vodka category is starting to looking healthy again [see WSD 09-15-2016]. Subsequently, RBC Capital sent us a note on the godfather of the modern vodka category: Tito's Handmade Vodka. RBC looks at how Tito's has achieved 85% CAGR (compound aggregate growth rate) despite the challenging economic environment for vodka, and took its place as the third largest vodka manufacturer in the US.

The RBC/Nielsen chart shows, among other things, that Tito's was the only Top 8 vodka brand to gain share in the second quarter of 2016.

The secret? Quality. Price. Simplicity.

Quality and price--specifically a 21% discount to premium vodka category-- are nothing new to this industry, but the key takeaway from Tito's extraordinary success is the simplicity of its concept and what it could mean for the future of the category, according to RBC. Recall, counter to what the rest of the vodka category was doing at the time, Tito's growth over the past three years was driven by just one flavor sold in five different bottles sizes--in a bottle with a rudimentary label, we would add.

"We wonder if the success of Tito's is an early manifestation of consumers looking to have less choice to simplify the shopping experience. Less variants could also drive a perception of authenticity. Other brands that have limited variants (and are experiencing strong momentum) include Corona and Newport," writes RBC analyst Nik Modi.

TERROIR CAPITAL NOT OUT OF THE WOODS YET

Since Charles Banks was indicted for fraud a week ago, we've read a few articles that indicate his wine company Terroir Capital will probably not be affected [see WSD 09-15-2016]. However, we're not so sure that's the case if the California Alcoholic Beverage Commission (CABC) chooses to get involved.

QUICK RECAP. Charles Banks is the founder, managing partner and majority interest holder in Terroir Capital, which manages about $200 million worth of assets in hospitality and wine. Last week he was indicted on wire fraud charges as a result of his business with former NBA player Tim Duncan [see WSD 09-11-2016]. Tim, who remains an investor in Terroir Capital, sued Charles for allegedly urging him to invest in multiple hotels, wineries and beauty products without making him aware of Charles' conflict of interests in the businesses. However, the indictment and SEC lawsuit are solely focused on Charles' actions at Gameday Entertainment, a sports business where Charles was chairman.

Because Terroir Capital is not directly involved in the indictment or the SEC lawsuit, it stands to reason that the company would not be affected. But WSD has learned California's Alcohol Beverage Control Act states that an alcohol company's license can be suspended or revoked based on just one licensee's actions.

A CASE OF MORAL TURPITUDE. The CABC requires all persons who are officers, directors and/or holders of 10%+ shares of a corporation meet the requirements for alcohol licensing (see: ABC Act 23405, section D). Moreover, the department can suspend or revoke the license of a company based on one licensee's plea to a crime involving moral turpitude.

So what constitutes moral turpitude? Crimes that involve moral turpitude include thefts and fraud, ranging from defrauding the IRS to something simple as petty theft. The CABC has revoked licenses when licensees were convicted of issuing checks with insufficient funds; filing false income tax returns; and petty theft, according to "Pleading Your License Away" by attorneys Ralph Saltsman, Stephen Solomon and Stephen Jamieson (SSJ).

"Any crime where fraud is an underlying element will constitute a crime involving moral turpitude," write the attorneys. Since the term "fraud" is used in both the formal indictment of Charles and the definition of a crime involving moral turpitude, it is reasonable to think the CABC could apply the moral turpitude rule to Terroir Capital if Charles pleas, or is found guilty in the Gameday case.

A MATTER OF DISCRETION. But just because CABC has the ability to suspend or revoke a license doesn't necessarily mean they will in this case. When asked whether or not the CABC is obligated to suspend/revoke a license in a scenario where a licensee was involved a crime of moral turpitude, Ralph Saltsman, managing parter at SSJ, tells WSD the decision is "definitely in their discretion."

Hypothetically, if Charles is found guilty of fraud, Ralph says things can unfold in a variety of ways: (1) the CABC may conclude that there's nothing wrong with the company as long as Charles divests his interest; (2) it may revoke Terroir Capital's license altogether - a decision they can appeal; or (3) CABC can choose not to open a case against Terroir at all, as mentioned above.

The CABC general counsel did not return our call by press time, but regardless of how it could shake out, Charles' arraignment is set for next week, and WSD will be on-site to report back.

WSD BRIEFS:

LUXCO UNVEILS NEW WHISKEY DISTILLERY AS LUX ROW DISTILLERS. You may recall, Luxco announced plans to start building its first wholly owned distillery in Bardstown, Kentucky last December [see WSD12-11-2015]. The new distillery, dubbed Lux Row Distillers, will sit on 70 acres with an 18,000-square-foot building that includes six barrel warehouses, a tasting room and event space - a $27 million project. Lux Row is slated to open in Q4 2017.

PERNOD RICARD TO LAUNCH MARTELL BLUE SWIFT. Martell Blue Swift is an Eau de Vie de Vin made of 100% cognac VSOP finished in Kentucky bourbon casks and bottled at 80 proof. It will be available in Atlanta, Baltimore, Chicago, Detroit, Houston and DC starting this October at a suggested retail price of $50 a 750 ml.

PREISS IMPORTS ADDS DISTILLER'S ART COLLECTION TO PORTFOLIO. The limited Distiller's Art collection is produced by Hunter Laing & Co. The collection includes single malts chosen from bourbon and sherry casks and bottled between 96 and 116 proof. Preiss Imports carries: Caol Ila Distillery 32-year-old, Bunnahabhain Distillery 27-year-old, Girvan Distillery 25-year-old, Macallan Distillery 25-year-old, Craigellachie Distillery 20-year-old (Sherry Cask), Blair Athol Distillery 20-year-old (Sherry Cask), Glengoyne Distillery 20-year-old, North British Distillery 19-year-old (American Standard Barrel), Benrinnes Distillery 18-year-old (Sherry Cask), Laphroaig Distillery 15-year-old (Sherry Cask) and Benrinnes Distillery 7-year-old.

Until Monday,
Your Editors

Emily Pennington - emily@winespiritsdaily.com
Sarah Barrett - sarah@winespiritsdaily.com

"All I ask is the chance to prove that money can't make me happy." -- Spike Milligan

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