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Wine Business

Regarding the Diageo Announcement of Pending Cuts in their US Wine Business

The Diageo announcement that they will eliminate approximately 90 jobs within its U.S. wine business has been widely reported. Diageo also said that they may sell some wine brands and/or vineyards. These revelations follow Tuesday’s announcement that their CFO of 18 years, Nick Rose, has resigned and will be replaced by deputy CFO Deirdre Mahlan. On May 6, Diageo reiterated their expectation that profit growth for the current fiscal year would be “low single digit.” The following information provides a background that today’s announcements did not include.

During their March 2010, investors Q & A, Diageo CEO Paul Walsh stated the U.S. was a very competitive market overall and the company would step up promotional spending there by 1 - 2 %. Walsh also said that, for the fiscal year, sales in the U.S. and Europe were flat and the company’s growth was coming from Asia, Latin America and Africa. Of course, this all relates to the company’s total business, not just wine.

According to Diageo, it’s wine brands make up just 6% of the company’s net sales. First half sales for Diageo were 5.2 billion pounds (roughly $7.5 billion using December 31, 2009 exchange rates). That means that net sales for their wine brands during the first half of their fiscal year were approximately $447 million. It’s not clear how much their U.S. wine brands contributed to those numbers. Diageo does not split such data out in their public disclosures.

Their best known U.S. wine brands are Beaulieu Vineyard (Napa Valley), Chalone Vineyard (Monterey County), Sterling Vineyards (Napa Valley), and Rosenblum Cellars (based in the town of Alameda and sourcing fruit from a variety of areas). Diageo’s last U.S. wine acquisition was Rosenblum Cellars in January, 2008. Looking at North American wine only, the first half results for Diageo showed growth in volume of 6% but, due to decreasing prices, net sales were down 3%. That result isn’t out of line with the experiences of other large wine brands with high volumes in price categories below $20.

Diageo also owns non-U.S. wine brands. The most prominent among them are the Champagne houses of Dom Perignon and Moet & Chandon. They also have Blossom Hill which is the dominant wine brand in the UK, offering a wide range of low-priced wines based on grapes from various countries. Despite it’s apparent popularity, the Blossom Hill website has been “having a little nip and tuck” since sometime in 2009 and has not been updated since then.

Beer accounts for 22% of Diageo sales and includes such brands as Guinness, which they have designated as a “global priority brand,” and Harp Lager. The bulk of Diageo’s business is in spirits however. Spirits within their “global priority brands” are Captain Morgan, J&B, Johnnie Walker, José Cuervo, Smirnoff and Tanqueray. Other spirits brands they hold with which you might be familiar include Myer’s rum, Gordon’s gin, Pimm’s Cup, Ketel One vodka and the whiskeys of Bushmills, Crown Royal, and Lagavullin. They hold many additional brands and also distribute Cognacs for Moet Hennessy.

If you enjoyed this article, please share it! Icons for popular sharing services are at the right above and also below.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check outour comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved.

Data in this article was collected from official Diageo financial releases and supporting documents.

Updated: Sausal Vineyard and Winery Acquired by Silver Oak Family

Updates: The Sausal Winery tasting room is now open again, from 10am to 4pm, seven days a week. They are offering free tastings and selling Sausal wines. The wine club is still active, but is not currently accepting new members. To purchase wines for shipment without visiting, call the tasting room.

 

Sausal Winery, an Alexander Valley landmark, has sold to the Duncan Family, owners of Silver Oak and Twomey, for an undisclosed sum. The agreement was finalized late last week and Sausal Winery club members were notified of a sale on Friday by email. However, no details, including the purchaser's identity, were released until today. The Sausal tasting room was closed to the public as of Friday. Silver Oak has not announced if or when it will re-open, nor has it disclosed specific plans with the regard to vineyards, Sausal employees or brand.

SOArchTextSilver Oak Cellars was co-founded in 1972 by Raymond Duncan and Justin Meyer and dedicated exclusively to producing Cabernet Sauvignon that is aged and drinkable upon release. The winery makes two wines at two separate facilities: Napa Valley Cabernet Sauvignon in Oakville and Alexander Valley Cabernet Sauvignon in Geyserville. Twomey Cellars makes Pinot Noir, Merlot and Sauvignon Blanc from five California AVAs. "The Sausal Vineyard site presents us with an excellent opportunity to grow Cabernet Sauvignon with a variety of soils and conditions not previously available to us in the production of our Alexander Valley Cabernet," said David R. Duncan, President and CEO of Silver Oak and Twomey Cellars.  "We are excited to see what other opportunities it will afford us in the future."

This transaction brings to a close more than a century of involvement in the Northern Sonoma County wine industry by the Demostene-Ferrari family. My research also indicates Sausal was the oldest family-owned winery still in operation1 within the Alexander Valley AVA. The winery was established in 1973 on the 125-acre Sausal Ranch purchased by the Demostene family in 1956.

Sausal estate vineyards include what are thought to be the oldest Zinfandel vines in Alexander Valley. They are at least 135 years old, having been noted in a regional atlas of 1877. In addition to that “Century Vine Block,” the vineyard includes old vine Zinfandel in the “Private Reserve Block” and the “Family Block” with average ages of 95 and 55 years respectively.

The Demostene’s themselves have a long history in the area. Genoese-immigrant Manuel Demostene worked on ranches in Alexander Valley from 1901. His son, Leo, married Rose Ferrari in 1936. Her father, Abele Ferrari, had joined Italian Swiss Colony shortly after the turn of the century. He went on to operate the Healdsburg Machine Shop, where he invented and built the Healdsburg Crusher for wine grapes. In 1923, he purchased Soda Rock Winery2, which he restored and operated after the repeal of Prohibition.

Leo Demostene took over as winemaker at Soda Rock after his marriage to Rose. He held that post until his death, nearly 40 years later. In 1956, the couple acquired Sausal Ranch with intent to establish a winery there. They and their children (Dave, Ed, Peachie and Cindy) planted more Zinfandel, along with Cabernet Sauvignon, through the mid-1960‘s. They completed the winery in 1973, just after Leo’s passing. Sausal added a tasting room in 1986.

Sausal wines, all made from estate fruit, included Family, Private Reserve and Century Vine Zinfandel as well as Cabernet Sauvignon, Sangiovese, Petite Sirah and blends thereof, some including Carignane. The wines were made in a traditional, balanced style that expressed the unique terroir of Alexander Valley with fruit-derived complexity. The Zinfandel routinely scored high 80’s and above in major wine publications.

Dave Demostene has served as Sausal Winery’s winemaker from the beginning and his brother Ed managed the vineyard. Cindy has been responsible for operations. Peachie ran the tasting room until her retirement a few years ago. All four Demostene “kids” are now of retirement age, hence the sale.

Frequent visitors to Sausal Winery are well-acquainted not just with the wines but also Sophie and Gypsy, the winery cats. They were the inspirations for Sausal Winery’s Cellar Cat Red and Purrfect Petite. The cats have declined comment on the sale, but are happily making themselves at home with Cindy.

 

1Other longtime Alexander Valley wineries included Alexander Valley Vineyards (1975) and Johnson’s Alexander Valley Wines.

2Soda Rock Winery was sold to the Tomka family in 1978 who operated it for more than a decade. Ken and Diane Wilson purchased the name, buildings and non-vineyard property in 2000. Their restoration is nearly complete and it’s once again a popular destination.

 

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check out our comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2012 NorCal Wine. All rights reserved.

Way Too Much Wine

With the state of the economy today, there are a lot of businesses sitting on excess inventory. Some companies have limited production to avoid adding to the problem. Many have also dropped prices and/or offered sweet financing deals.

The wine business has been about as badly affected as any. It has seen plenty of discounting too, in all tiers of the market. In some places, consumers can buy wine for less than even off-brand bottled water. These price moves have lowered profit margins, or increased losses. As Xavier de Eizaguirre, chairman of Vinexpo, has said about the UK market, “retailers are the only ones making money.” Yet, despite the deep discounting, consumption hasn’t increased dramatically.

Nor has global wine production has declined substantially. Grapes grow every year. You can pull up vines, which costs money and limits future income. Or, growers can let the grapes fall to the ground, but they have little motivation to do so when someone is willing to pay them for the fruit. Frankly, production was at excessive levels in some regions even before the financial crisis. While business boomed for most of California’s grape growers and wineries, cheap wine from places like southern France, Bordeaux and Australia was starting to pile up.

Chris Losh, with the beverage industry analysts just-drinks, recently wrote about a newly released study done for Vinexpo by IWSR. He quotes the study as saying “between 2005 and 2009 the world’s average annual production was 3bn nine-litre cases.” Losh estimates average consumption during that period as 2.4bn cases. This doesn’t sound like a big delta, because the digits are small. What it really indicates, though, is an average excess of 1.45 billion US gallons. Every year. And now wine production in China is increasing rapidly.

Now that sounds like a lot of wine. But how much is it really? Well, the largest oil supertanker in the world holds 172 million gallons. It would take nine of those ships to hold a single year's excess wine. If all you have is a regular (huge) supertanker, you’ll need twenty.

supertanker-large-7-26-07
The Knock Nevis, aka Jahre Viking, is the world's largest supertanker.
Photo: Auke Visser's International Super Tankers

Supertankers are hard to relate to though. You don’t see them on the street every day. So let’s use the streets you do see every day as a reference. If you dumped all the excess wine from one of those years on the streets of Manhattan, it would cover the entire island to a depth of 3.5 inches. Splash all five years worth of leftovers out and the Big Apple’s citizens would be wading knee-deep in vin ordinaire.

The problem isn’t just excess inventory though. It’s also a tremendous waste of resources. Making a ton of wine bottles requires 1.2 tons of raw materials and 185 kWh of electricity. Of course much, perhaps most, of the excess wine never gets as far as a bottle. But production of grapes and wine is very energy intensive too; there’s diesel for the farm equipment, air conditioning for the wineries and warehouses, etc. Transporting the wine consumes a lot of fuel, generating carbon emissions in the process. And, in areas such as Australia where irrigation is required, a massive amount of increasingly scarce water is essentially being wasted.

Excess wine can be made into vinegar or used to produce other types of drinking alcohol. It can also be sold to producers of denatured alcohol or absolute ethanol. The latter can used as  industrial solvent, fuel, etc. But conversion from table wine isn’t necessarily the most efficient or cost-effective way to produce those substances. It would be better to decrease the overages by reducing grape and wine production.

That’s easier said than done. Growers won’t pull up their vines unless a governmental organization pays them to do so or it becomes consistently impossible to sell the grapes profitably. Now that governments are suffering from severe financial issues of their own, it seems unlikely that paying farmers not to grow things will be a popular expenditure. In the short run, the biggest decreases in production may come as a result of grower and winery bankruptcies and the elimination of unprofitable wine brands by the multinational drinks companies. Or these companies will act on the notion that they can be more profitable by making less wine but selling it at a higher price. We can hope.

If you enjoyed this article, please share it! Icons for popular sharing services are at the right above and also below.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check out our comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved.

See the Latest in Winery Management Software at the Wine Industry Technology Symposium

We often hear that great wine is made in the vineyard. There is a lot of truth in that. But that doesn’t mean it’s simple to carry the excellence of a vineyard all the way through to the wine. Nor is it easy to get that wine, profitably, into the hands of consumers who will love it. The locavore notwithstanding, we no longer live in a world where wine is made in rustic conditions and consumed within a mile or two of the winery.

The wine business is large, global and extremely competitive. Increasingly wineries are turning to technology to optimize their business. Technology is used to measure and control conditions in the vineyard and in fermentation tanks. It tracks inventory and sales, smooths the logistics of transport and ensures that wine club reps know customers’ preferences when they call.

wits-logo-new

The Wine Industry Technology Symposium (WITS) is a two-day conference that helps winery management learn about the latest developments in information technology and how they might best apply it. This year, WITS takes place on July 10 - 11 at the Napa Valley Marriott. Workshop topics will include Customer Relationship Management (CRM), managing transportation networks, winery value analysis, tracking direct-to-consumer sales and new vineyard technologies. There will also be sessions on social media, brand building, cloud payment technologies and more. A technology showcase will let winery management connect directly with the providers of products and services. There will also be plenty of opportunity for the person-to-person to kind of networking.

J. Smoke Wallin is one of the founders and a co-chairman of the Wine Industry Technology Symposium. While a vendor of software aimed at the drinks business, he found no conferences in the industry with a software focus. He contacted organizers of existing, general conferences and none wanted to increase their focus on technology. So, he banded together with other software companies and they created WITS. This will be the eight annual symposium.

The event has always been held in Napa and draws 300 - 400 attendees each year. Between all of those attendees and the many showcase exhibits, the Napa Marriott is the only event space in Napa Valley large enough to host WITS.

One way to measure the value of an event is by the percentage of people that attend more than once. According to Smoke Wallin, quite a few wineries have attended every one of the conferences and around 50% of the individuals in any given year have attended previously. To me, that means the content is compelling and fresh, but there are also enough new attendees to make networking interesting.

The content of WITS is driven by wineries themselves, especially through the advisory board which includes representatives from eight wineries. The symposium is intended to address the interests of major beverage companies such as Constellation and Gallo but also medium-sized family wineries. Attendees come from many different winery departments, including ownership and executive management, managers of IT, sales and marketing, winemakers and vineyard managers. Some distributors and retailers attend as well. Most attendees are from the North Coast, but others come from the Central Coast, the East Coast and even overseas.

More details and registration for the Wine Industry Technology Symposium can be found at their website.

 

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check out our comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2012 NorCal Wine. The WITS logo is the property of the Wine Industry Technology Symposium. All rights reserved.

9 Risks to Consider when Investing in Wine

Articles espousing wine as an investment are published regularly. They seem to be even more common now that so much doubt exists about the safety of more conventional investments. The latest of these articles was published yesterday by Bloomberg. The article discusses the conclusions of two Swiss economists who found investment in certain wines of the past two decades to have outperformed the Russell 3000. But should you really put your money where your mouth is?

The Bloomberg article is well balanced. It offers commentary from a number of good sources, both pro and con wine investment. It’s a good article. However, such articles always get picked up by others who simplify and add hype. Shouty titles such as “Wine a Better Investment than Stocks” ensue and readers may be misled.

The following nine points focus only on the negatives of wine as an investment. It’s not that I don’t see positive aspects to investing in wine. I just think current sentiment may be minimizing the negatives. Since understanding risk is a vital part of responsible investing, I’ve chosen to only highlight the risks of wine investment.

profit-lossPast performance is not indicative of future results.
This is a stock market mantra, but the same is certainly true of wine values. Tastes change. Wine quality is ever changing. The world economy changes. Wine production levels change. Despite current excitement over the 2009 vintage,
Bordeaux en primeur and pricing models are troubled. All of this tells us that investing money in a new wine today, because certain vintages of that wine from two decades ago have appreciated, is risky.

High returns are based, in part, on scarcity, but the amount of great wine available is increasing rapidly.
Certainly, the amount of wine produced by the “blue chip” wineries of Bordeaux is not substantially increasing. However, due to modern vineyard and winery techniques, they are producing more great vintages than they did in the 20th century. And, they have more and more competition from very good wines produced elsewhere in Bordeaux or the world. While their production levels are much lower and their vintages have been more consistent, the same basic issues exist with regard to “cult” wines from Napa.
If more great wine is being produced, a large percentage of the “blue chip” wines will be purchased by investors rather than consumers. This in turn means that more of the wine will remain unconsumed in the coming decades and that means greater availability at auction and lower prices.

The quality of wine is not static.
Wine ages and changes. The way it does so is affected by many variables including the way it was made, transported and stored. The quality of individual corks obviously has an impact too. All of this means that investment in wine must include careful study of the wine to be purchased and an investment in secure storage with consistent and appropriate temperature and humidity. The wine must also be protected from light and vibration.

Wine investments need to be insured.
Since wine can be damaged or destroyed, if one is keeping it for investment purposes, it should be insured against theft, fire, flood, earthquakes, etc. The cost of such insurance can be high and needs to be factored into any profit and loss calculations.

Ironically, wine is less liquid than more traditional investments.
Of course, the wine itself is a liquid. But, from an investment standpoint, it is more difficult to sell, or liquidate, than stocks, bonds and many commodities. There is less demand for investment grade wine and fewer channels for selling it. Laws also make it necessary for owners to sell their wine through licensed companies which take a cut. In this respect, wine is much harder to sell than precious metals or gems.

It may be tempting to consume one’s investment.
Unlike most other investments, wine is deliciously consumable. While we may use this as an excuse to invest in wine – “if it doesn’t appreciate I’ll just drink it” – it can also lead to poor decisions. Wine may be purchased because, somewhere deep in our subconscious, we really want to drink it rather than hold it for resale. Or we might, on some drunken evening, stumble into the cellar with our friends and guzzle our nest egg.

Wine does not increase in value indefinitely.
Because wine does change as it ages, it ultimately becomes less desirable as a beverage. At that point, the value starts to decrease rather than increase. Knowing exactly when to sell isn’t significantly less difficult than timing the stock market. In the end, the value of a wine as a beverage is based on the perception of others and that is hard to predict.

Counterfeiting of investment grade wines is a problem.
While you may be sure the wine you buy as an investment is genuine, you need to be able to convincingly demonstrate the wine’s authenticity when you sell it. That requires written proof of origin and, in some cases the sacrifice of a bottle for tasting. And, to the extent that counterfeit wines do find their way to auction, they diminish the value of your wine by satisfying some of the demand and because general concern about authenticity diminishes the enthusiasm of bidders.

The price of investment grade wines at release has increased substantially.
The high price of these wines from the outset reduces sales to wine drinkers and the opportunity for appreciation. Buy low, sell high is a better tactic than buy high, sell higher.

If you enjoyed this article, please share it! Icons for popular sharing services are at the above and below.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on FacebookAlso check outour comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. Graphic by Mark Stay. All rights reserved.