Retailers Rate Gallo as Industry Leader

FILED OCTOBER 1, 2009

Dear Client:

The 2009 CM Profit Group annual retailer research report shows that there has been improvement across the board with nearly all beverage alcohol suppliers, although spirits suppliers “edged out” wine and beer for the second year in a row in overall value among retailers, said Tom Fox of CM Profit Group. You'll recall that CM Profit group surveys over 100 retailers each year on all major alcohol suppliers on a variety of parameters.

E&J Gallo Winery again held the top spot among all beverage-alcohol suppliers, with retailers reporting comprehensive Category Management service and professional sales process as the reason why they continually score at leadership levels, said Tom. Constellation held a “strong second place position” in the wine category. The “big story,” though, is that Bacardi edged out Diageo in taking the top spot in the spirits category.

With that said, Tom noted that beer, wine and spirits “made nice gains and the overall gap between the categories has narrowed...[but] no individual supplier has been rated as “Fully Meeting Expectations” in all performance areas. In fact, average ratings in key areas such as solution based selling, supplier objectivity, pricing and analytical support, remain at or close to historical lows.”

While beer is still perceived as the # 3 beverage alcohol category behind spirits (# 1) and wine (# 2), beer had the biggest increase overall and is in a virtual dead heat with wine for # 2.

Despite the improvement, chain retailers continue to indicate that there is a further need to improve in the areas of:

--understanding their goals, strategies and tactics
--developing presentations that both identify opportunities and offer up executional solutions
--developing promotional suggestions that are creative and help them drive traffic into their stores
--evaluating past programs (new items and promotions) to learn and improve the process going forward
--objectivity - retailers continue to be frustrated that most suppliers are not positioning their service to help them win

SOUTH AMERICA, SONOMA AND PASO ROBLES BENEFIT FROM TRADING DOWN

A new study of wine consumers and the US wine trade by Wine Opinions measures how the trade-down trend occurs as prices transition from $10 to over $20 a bottle. Over one-third of consumers reported buying more wines costing $6 to $15, while over 40% had cut back buying wines over $30 and were not buying wines costing over $50 at all. “The financial effect is a key part, but not the whole story,” explains Christian Miller, director of research for Wine Opinions, “when we broke out consumers by financial condition, we found shifts in purchasing even among those consumers who were better off. And yet some of the trends that were in place before the recession have survived intact.”

Among imported wines sold for under $20, the greatest gains shown are for wines from Argentina, Chile, and Spain. Within California, wines from Sonoma County and Paso Robles showed the greatest increases in sales over the past 12 months, though most major regions showed at least modest gains. “There are some interesting divergences in purchase behavior among sub-segments of consumers,” notes John Gillespie, founder of Wine Opinions. “For example, while out-of-state wine consumers are modestly increasing their California wine purchases across most major regions, Californians themselves are shifting between regions within California.”

GRAPE GROWERS FACE TOUGH CHOICES THIS YEAR

If you read our Nielsen coverage yesterday on the state of the industry, you know that the economy has squeezed wines priced above $20. To cope, retailers and restaurateurs are dropping prices and turning away some high-end brands, which has hurt distributors and wineries and down the line to grape growers, who are feeling the pressure from wineries to sell their grapes at lower prices. A slight over-production in this year’s harvest is also adding to the pressure, along with increased competition from inexpensive bulk imports that are driving down the price on domestic grapes. As a result, warehouses are full of excess inventory, and even wineries are selling their own excess grape supply. While many growers are dropping their prices, some are also leaving grapes on the vine instead of investing more money in the harvest. An article in WineBusiness.com reveals that some growers are giving away grapes they can’t sell to “blue chip wineries with the stipulation that the winery will use the grapes to make special vintages and follow up with a secure contract the following year.”

Wineries cancelling contracts is usually a concern for most growers but this year it’s especially rough. Growers with grapes not under contract basically have three options: they can sell their grapes at much lower prices from last year; leave them on the vine; or partner with a crusher and produce their own wine. An article in the Press Democrat notes that half of Sonoma’s estimated 200k ton crop has been picked. A majority of 80% have been pre-sold under contracts to wineries, but the remaining 20% are struggling to find a home. Perhaps most importantly, growers fear it could hurt their reputation in the business if they fail to sell their crop.

DIAGEO GAINS SHARE IN CONTROL STATES

Volumes of control state spirits declined -1.3% in August partly impacted by a late Labor Day, reports UBS analyst Melissa Earlam based on NABCA data. Dollar sales fell sharply, -1.9%, compared to 12-month growth of 2.7%. This means price/mix declined -0.6% in August from +0.7% in the last 12 months, which indicates that “discounting activity stepped up quite sharply.”

In August, Diageo took share in Scotch, vodka, rum, cocktails and cordial. It lost share in Canadian whiskey and tequila. In the last 12 months Diageo’s volumes grew 1.5% year over year.

Meanwhile, Pernod, Brown-Forman, Remy Cointreau and Skyy Spirits lost share in control states. Pernod’s volumes fell -7% in August. The company gained share in Irish whiskey and rum, but lost share in vodka, gin, cordials and again in Cognac/brandy. B-F’s volumes declined -4.6%, while Remy fell -7.3% and Skyy declined -2.5% due to “a weak month for Skyy.” This marks the first monthly share loss for Skyy since May 2008, notes Melissa.

WSD BRIEFS:

CRUZAN STRIKES DEAL WITH ST. CROIX. Fortune Brands, owner of Cruzan Rum, formed an agreement with the US Virgin Islands to continue making rum on St. Croix in exchange for marketing and other incentives whose value is projected to exceed $1 billion over 30 years, reports WSJ. Recall that St. Croix recently struck a similar deal with Captain Morgan producer Diageo.

WASHINGTON STATE LIQUOR CONTROL BOARD IS CONSIDERING banning certain alcohol ads at the end of the month. If approved, they could ban all billboard ads within 500 ft of a school or public park; bar alcohol companies from giving away merchandise with their logos at events considered "family friendly,” among other proposals.

A WISCONSIN SENATE COMMITTEE recommended bill this week that would increase penalties on drunk driving and increase the tax on spirits. The bill would make some fourth offenses felonies and cost as much as $73.7 million a year. To help fund the initiative, the committee recommended raising the tax on spirits by 50 cents a liter.

MISSOURI BENEFITS FROM ILLINOIS TAX INCREASE. Missouri is apparently benefiting from Illinois new tax increase on alcohol that took effect in September. According to local reports, Missouri received a boost in its liquor tax revenue last month, which translated to a loss of $2-$3 million in monthly Illinois tax revenues. The Illinois tax increase raises prices about four times higher than Missouri’s prices. For example, spirits are taxed at a rate of $8.55 per gallon in Illinois versus the Missouri rate of $2.

MONTANA BANS DIRECT SHIPMENTS. The Montana Department of Revenue, Liquor Control Division has confirmed that consumer are no allowed to receive direct wine shipments unless they have a connoisseur’s license. However, Ship Compliant reports that FedEx and UPS have not approved Montana for shipments.

BACARDI BUILDING PROTECTED. Miami’s preservation board unanimously voted to designate Bacardi’s iconic Biscayne Boulevard headquarters as historic, which protects the well-known modernist structure. It’s still unclear how the buildings will be used after Bacardi moves it headquarters to Coral Gables.

VINTANK RESEARCHS IPHONE APPS. To read an interesting review on I-Phone wine apps by VinTank’s Paul Mabray, click here. “But before you send out one of your marketers to research and develop,” he says, “I’d caution you to carefully think it through before proceeding.”

BACARDI WILL NOW DISTRIBUTE PATRON in Mexico under a new agreement between the companies.

GALLO CANADA has reached an agreement to represent six brands from Phillips Distilling Company, including UV Vodka, Prairie Organic Vodka, Feckin' Irish Whiskey, Phillips Union, Trader Vic's and Tomatin in the Provinces of British Columbia, Alberta, Ontario, New Brunswick, Nova Scotia, Newfoundland, Quebec, and Prince Edward Island, and the Yukon and Northwest Territories.

CORRECTION. We forgot to mention in our coverage yesterday that Nielsen also used scan data from liquor stores. It should have read: Nielsen used a combination of grocery, drug, liquor and convenience store data along with consumer panels through the end of August in preparing this report.

Until tomorrow, Megan

“Conceit is God's gift to little men.”
Bruce Barton
--------- Sell Day Calendar ----------
Today's Sell Day: 6
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YTD sell days Over/Under: 0


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