News For Monday February 25th 2013
Black market spirits on the rise
February 24 2013
As the scandal surrounding beef products adulterated with horsemeat spreads, health regulators are also worrying about the growing problem of illicit alcohol. Cash-strapped countries have imposed higher excise taxes on spirits, raising prices and fomenting a thirst for fake tipple.
The problem was highlighted last year when 30 people died from drinking tainted rum in the Czech Republic, leading to a temporary ban of liquor sales.
The International Center for Alcohol Policies held a seminar in Brussels this week to warn European lawmakers that the illicit alcohol market has serious social and health consequences and represents a fiscal and trade issue. Illicit alcohol sales are spreading in eastern Europe and are pervasive in Asia and Africa.
“Clearly there needs to be standards,” says Marjana Martinic, ICAP’s deputy president. “What happened in the horsemeat scandal in the UK was an issue of cross-border trade, where a lot of the meat came from Romania and was counterfeit beef. It’s not dissimilar to what’s happening in the alcohol market.”
Illicit spirits made in places such as Latvia, Estonia and Poland are proliferating across Europe as tax increases have fuelled demand for cheaper alternatives in the black market, Dr Martinic says. Companies such as Brown-Forman and Pernod Ricard have been working with regulators to crack down on illicit trade and counterfeit bottles of their spirits. The companies have introduced new technologies such as hologram labels and caps to prevent criminals from refilling the bottles with other types of alcohol.
Dr Martinic estimates that 75 per cent of the alcohol consumed in Africa is illicitly sold. Southeast Asia also has a high proportion at 69 per cent, followed by Europe with 25 per cent and the UK with 10 per cent.
Attempted wine scams top £1.5m, UK trade warns
by Chris Mercer
Friday 22 February 2013
Wine merchant Berry Bros & Rudd warns European trade is being ‘bombarded’ by UK-based wine scams.
Wineries across Europe are being scammed out of hundreds of thousands of Euros by conmen impersonating buyers at bona fide wine merchants such as Berry Bros & Rudd.
A fraud unit set up by the UK Wine & Spirit Trade Association (WSTA) has tracked attempted wine scams worth an estimated £1.6m since May 2011. Around a third of those have been successful, the trade body has told Decanter.com.
‘There are probably more which have not been reported,’ said the WSTA’s David Tromans.
Scammers commonly pose as buyers at genuine wine merchants, such as Berry Bros or Bibendum. Recently, a person calling himself Sam Cocks has been emailing wineries, including Bordeaux chateaux, and negociants and posing as an employee from Berry Bros’ marketing department.
‘They use headed paper, VAT numbers and Coface insurance,’ said Berry Bros’ Bordeaux buyer, Max Lalondrelle, who has himself been impersonated by fraudsters. ‘If someone doesn’t know us, it’s very easy to get caught out.
‘They send the wine to these people, who collect it somewhere in London. Three weeks later, they call us and we have to tell them that we didn’t order any wine from them.’
Wine often gets shipped to an address in East London, sometimes to mass storage warehouses. ‘We don’t know what happens to it after that,’ Lalondrelle said.
He said he is constantly getting emails from suspicious suppliers. ‘It happens so often. The [scammers] send out the emails in batches, so I get ten to 15 emails every three or four weeks with people asking if it’s really us.’
Decanter.com understands that there is frustration in some parts of the wine trade at a lack of police action. However, WSTA has worked with London’s Metropolitan Police to produce guidelines in several European languages on how to avoid becoming a victim of wine scams.
It warns wineries and suppliers to check email addresses carefully and be wary of requests for speedy payment or strange delivery addresses.
Spelling and grammatical errors are also a giveaway. One scam email passed to Decanter.comrequests ‘Crystal Roederer’ Champagne, instead of ‘Cristal’, and Henri Jayer ‘Richbourg’, which should be spelt ‘Richebourg’.
SABMiller PLC: Getting rich too quickly?
Stock Rating/Industry View: Equal Weight/Neutral
Price Target: GBP 33.50 (from GBP 31.00)
Price (22-Feb-2013): GBP 32.38
Potential Upside/Downside: +3%
Tickers: SAB LN / SAB.L
Our analysis of the Consumer Staples sector over the last 12 months has been focused on the power of steadily compounding TSRs and associated ‘get rich slowly’ characteristics. SABMiller has a long track record of consistent earnings and dividend delivery. We expect this trend to continue, with margin leverage likely to improve further in the years ahead. However, investors have gotten rich quickly over the last three months as SAB shares have moved from a discount rating to its history, to a premium position. Although increased confidence in the deliverability of its business model and a return to sustainable double-digit organic EBITA growth should underpin this current rating, it is tough to argue for further upside. We downgrade to Equal Weight, with a revised price target of 3350p. We believe better returns are likely from Diageo and BAT in the near-term.
Earnings upgrades are now required to drive the shares forward: Although we believe momentum remains firmly skewed to the upside, we see little to drive major EPS revisions ahead of the group’s full year results on May 23. In the meantime, we see: 1) a likely weaker ZAR in prospect; 2) uncertainty created by index weighting changes in South Africa; and 3) bid premium optionality more than priced-in.
Switch into Diageo (OW, £20.40): Diageo has under-performed SABMiller by -19% since November. With the price/mix story in Spirits and Diageo’s core markets such as the US gathering momentum, and benefits to come from both a H1 13 consumer pick-up in China and the Sterling weakness; there is greater scope for relative upside in Diageo over the next three-months, in our view.
Darden warns on 3Q sales decline at top brands
Company estimates sales fell 4.5 percent at Red Lobster, Olive Garden, LongHorn Steakhouse
Feb. 22, 2013
Darden Restaurants Inc. warned Tuesday that U.S. same-store sales are estimated to have declined 4.5 percent across its top three brands – Red Lobster, Olive Garden and LongHorn Steakhouse – during the third quarter of 2013.
In a statement, the company blamed bad winter weather and economic pressure on consumers for the decline.
The company estimates U.S. same-store sales fell 1.5 percent at LongHorn Steakhouse, 4 percent at Olive Garden and 7 percent at Red Lobster locations for the third quarter.
Conversely, Darden reported that it expects same-store sales for its Specialty Restaurant Group, which includes Seasons 52, Eddie V’s and The Capital Grille, to rise 2 percent for the quarter.
“Our priority is reestablishing same-restaurant traffic momentum at our three largest brands,” said Darden chairman and chief executive Clarence Otis in a statement.
Otis cited payroll tax increases and rising gasoline prices as two macroeconomic difficulties that “put meaningful pressure on the discretionary purchasing power of our guests” during the third quarter.
“We recognize there is still more to do to further address affordability and to improve other important aspects of the guest experiences we provide,” he said. “We are confident, however, that we are taking the right steps for our guests and that these will result in same-restaurant traffic improvement as we move forward.”
As a result of the estimates, Darden updated its outlook for fiscal 2013. Total sales for the year should increase between 6 percent and 7 percent, the company said in a statement. Blended same-store sales at LongHorn, Red Lobster and Olive Garden are now expected to decrease 1.5 percent to 2.5 percent for the year.
Darden has struggled in recent quarters to gain a foothold for its three largest brands. During the company’s last earnings call, president and chief operating officer Andrew H. Madsen said the chains must respond more aggressively to guests’ need for affordable options.
During the second quarter of 2013, U.S. same-store sales fell 3.2 percent at Olive Garden, dropped 2.7 percent at Red Lobster and decreased 0.8 percent at LongHorn Steakhouse. Darden’s Specialty Restaurant Group reported a same-store sales increase of 0.8 percent during the same period.
Darden also announced three big executive moves during the third quarter. Will Setliff, formerly executive vice president of Darden’s Specialty Restaurant Group, was named senior vice president and chief marketing officer; David George, formerly president of LongHorn Steakhouse, was named president of Olive Garden; and Valerie Insignares, formerly Darden’s chief restaurant operations officer, was named president of LongHorn Steakhouse.
The third-quarter earnings warning comes just before the company’s analyst and investor meeting, which will be held Feb. 25-26 in Orlando, Fla., where Darden is based. The company plans to hold its official third-quarter earnings call on March 22.
Darden operates more than 2,000 company-owned restaurants systemwide.
(DRI): First Take: DRI pre-announces 3Q12, driven by February deceleration
Source: Goldman Sachs
DRI preannounced worse than expected fiscal 3Q13 (Dec-Feb) results. EPS are now expected to be in the $1.00-$1.02 range, which compares to the $1.12 consensus and is below our $1.03 Street-low estimate. DRI lowered its full year EPS outlook to $3.15-$3.31 from its prior $3.38-$3.58 estimate. Lower than expected SSS, and the associated de-leverage, drive the miss.
The blended SSS figure for Olive Garden/Red Lobster/Longhorn was -4.5% for the quarter. February was the worst month with Olive Garden -9.5%, Red Lobster -8% and Longhorn -3%. The company noted -90bp to SSS from winter weather, but attributed the majority of shortfall from macro headwinds including the payroll tax increase and rising gas prices.
It is notable that traffic declines made up the bulk of the SSS declines, but that check was also down 2-3% at both Olive Garden and Red Lobster suggesting that the company’s efforts to drive traffic through value may not be effective in the face of the current macro backdrop.
The company updated its FY SSS estimate for its 3 major concepts to -1.5%-2.5%, the midpoint of which implies -2% SSS in the company’s upcoming Mar-May fiscal 4Q. On margins, the company’s sales vs. EPS guidance suggests 8.5-9.0% operating margins versus Street estimates of 9.9% with de-leverage from the lower SSS presumably driving the delta.
We expect DRI shares to trade off on the news; however, downside is likely to be limited by its strong dividend support. It is currently trading at a 4.4% yield and $40 would represent a 5.0% yield. While the company’s Capex spending plans may be at risk, we do not believe its dividend is.
Our estimate and price target are under review.
Two Chinese liquor giants fined for price fixing
Source: New Kerala
China’s top two liquor makers, Kweichew Moutai and Wu Liangye, were fined a total of 449 million yuan($71.41 million) for price fixing, according to price regulators.
The Guizhou-based Moutai and Sichuan-based Wu Liangye were ordered to pay 247 and 202 million yuan in fines, respectively, according to statements from price regulators Friday.
It marked the harshest fines since the implementation of China’s anti-monopoly laws in 2008, reported Xinhua.
The statements said that the companies had restricted the lowest prices on its liquor products for resale at their distributors, with whom they had made vertical monopoly agreements.
The punishments have shown that the government makes no exception for any company when handling antitrust cases, as the two businesses that were fined are both state-owned, said Wang Xiaoye, a professor at Graduate School of Chinese Academy of Social Sciences.
But the fines were relatively light, Wang said, citing that they only accounted for 1 percent of the total revenue the two companies recorded last year. The figure can reach as high as 10 percent according to Chinese anti-monopoly laws.
The punishment added to the plight of the two liquor giants, as a recent government frugality campaign is expected to have a sizeable impact on sales of their products, which mainly target high-end consumers.
The penalties follow similar fines to Samsung, LG and four Taiwanese LED makers in January.
Orff with Diageo’s head!
Source: Sunday Times
By OLIVER SHAH
IT DOESN’T do to take the royal name in vain – just ask Booker prize-winning author Hilary Mantel. Drinks giant Diageo must be hoping it will escape a similar fate after a perplexing attempt to register the phrase “Royal Household” as a trademark in Britain. Insiders at the Guinness owner insisted it related to a whisky brand sold in Japan, with the application withdrawn due to an “error” in the submission documents. It was categorically not a brazen attempt to cash in on the royal name.
Either way, we are not amused.
Diageo may remove put option from USL deal
Source: Money Control
Kritika Saxena, Reporter, CNBC-TV18
On the January 31, CNBC-TV18 reported that Securities and Exchange Board of India (Sebi) had released its final observation on Diageo-UB group deal. Sources indicated that Sebi had asked for some changes, specifically in the put option clause in the share purchases agreement.
Diageo executives are in India currently as part of the United Kingdom (UK) Prime Minister’s delegation. Sources say that there has been an ongoing conversation between United Spirits Limited (USL) and Diageo. They are currently thinking over removing the put option clause.
Essentially, there is a put option clause in the share purchase agreement, which allows Diageo to buy out United Breweries (UB) Group’s stake within a span of around seven years. Now, according to Sebi, this violates the takeover norms, considering this is a forward contract.
Besides that, the market has been slightly edgy about the price of Rs 1,440 per share. Sebi hasn’t really asked for details on the pricing trajectory and hasn’t really asked for any major changes. The pricing may pretty much remain the same.
Also, Diageo is looking to discuss the issues that KFA lenders have with the deal. CNBC-TV18 had earlier reported that lenders may not probably want to go ahead with the open offer issue and that could actually create hiccup in the deal.
Diageo is looking to discussing this issue with lenders to understand their concerns to ensure that the open offer goes through or rather there is no hiccup in the open offer.
Buckfast firm takes legal action over police campaign
The distributors of Buckfast have started legal action against Scottish police after complaining the controversial tonic wine was being subjected to a “form of ethnic cleansing”.
Source: Daily Telegraph
By Simon Johnson, Scottish Political Editor
22 Feb 2013
J Chandler & Co lodged a case with the Court of Session in Edinburgh calling for Strathclyde Police to be barred from adding anti-crime labels to bottles of the beverage.
The tamper-proof stickers allow officers to trace bottles associated with crime to the store from which they were purchased. Buckfast, which contains caffeine, has been linked to youth disorder particularly in the west of Scotland.
However, the distributors argued yesterday that the police are stigmatising their product and illegally ordering retailers to withdraw it if they refuse to use the stickers.
In 2010, the force said the tonic wine, which is made by monks in Devon, had been mentioned in more than 5,000 crime reports over the previous three years.
Jim Wilson, of J Chandler & Co, said yesterday: “If they were doing it to all bottle, to all products of an alcoholic origin then that would be fair.
“We have the feeling that it’s a form of ethnic cleansing of brands of alcohol that police and politicians don’t like.”
He said Buckfast was only mentioned in 0.04 per cent of incidents reported to the police and they include incidents where a bottle has been stolen.
The firm has applied to the court for an interdict preventing police marking Buckfast bottles. If the force refuses, the distributors plan to “go to a full-blown court case”.
It became aware of the stickers after being contacted by a disgruntled shop owner, although police sources insisted they are voluntary.
The 15 per cent alcohol beverage recorded a record £39 million sales in the 2011/12 tax year, with Mr Wilson estimating that around half the bottles produced are sold north of the Border.
Strathclyde Police said they were unable to comment before receiving a court summons but Les Gray, the former head of the Scottish Police Federation, said the drink was viewed as a “badge of honour” among young hooligans.
“Buckfast, the distributors and the lawyers who act on behalf of the monks refuse, point blank, to take any responsibility for the anti-social behaviour that’s caused by the distribution and the consumption of Buckfast,” he said.
“Buckfast is a scourge on the young folk, they drink it to excess because of the alcohol content the caffeine content and basically it drives them crazy. They spend half the night running amok, engaging in anti-social behaviour.”
Willie Rennie, the Scottish Liberal Democrat leader, said: “Buckfast’s distributors need to call off the dogs and accept responsibility for the damaging effect their product has on local communities.
“Bullying the police force tasked with cleaning up the mess of anti-social behaviour caused by binge drinking stands in total opposition with the spirit of the Benedictine monks who founded the tonic wine.”
Wells Fargo’s Weekly Economic & Financial Commentary
Source: Wells Fargo
. Housing starts were a bit disappointing in January, but the number of permits, an indicator of future starts, increased.
. Furthermore, existing home sales were better than expected and home prices are up more than 12% since January 2012.
. Inflation remains low, allowing the Fed to maintain its accommodative policy.
. However, some Fed members suggest a reduction in asset purchases as early as mid-2013.
. The accommodative monetary policy that has been assisting the housing and stock market has not been providing the same boost to the manufacturing sector.
. Several manufacturing indicators suggest a potential disappointment to 1Q13 investment spending.
. The German GDP contraction in 4Q12 was driven primarily by a decline in exports; domestic demand actually expanded, growing 0.8%.
. Despite weakness in the rest of the world, German consumers remain somewhat optimistic.
. Recent data points suggest the German economy is back to growth in 1Q13.
. Investor sentiment improved while the Ifo Index of Business Sentiment was stronger than expected.
. Unfortunately, economic growth in other areas of the Eurozone appears to be muted.
. Real GDP growth in Brazil remains limited, but inflation concerns may force the central bank to increase interest rates.
Don’t turn up your nose: Blender lets wine ‘breathe’ faster
By Douglas Main
Decanting wine is a common tactic among some oenophiles, and involves pouring the drink through an aerator or into a special container to let it “breathe.” But inventor and amateur chef Nathan Myhrvold has an even better and faster way: Put it in the blender.
This agitates the wine and makes it react with air more quickly, performing the same role as decanting but faster, Myhrvold said in a speech here at the annual meeting of the American Association for the Advancement of Science on last Saturday.
But the real reason to do it? “The looks on people’s faces,” Myhrvold said. “If you do this with a wine expert in the room – it’s as if you committed some deeply unnatural act.”
“But it’s food,” he continued. “Why is it OK with daiquiris and not with Bordeaux?”
There are several possible explanations for why decanting, or blending, improves the taste, said Myhrvold, who holds nearly 250 technology-related patents and recently wrote a tome about the science of cooking, titled “Modernist Cuisine: The Art and Science of Cooking” (The Cooking Lab, 2011). The practice could lead to the oxidization of certain flavor compounds, vent pent-up gases such as sulfur dioxide or release other volatile components from the wine, he said. [Science You Can Eat: 10 Odd Facts About Food]
Myhrvold performed his magic for a Spanish duke, one of the top winemakers in Spain, throwing the royal’s favorite red wine into the blender. The duke did a blind taste test and preferred the blended one, but didn’t believe Myhrvold afterward. If he’d “been a duke from years of old he would have run me through with his sword right there,” said Myhrvold, who was once the chief technology officer for Microsoft and now chief executive officer of the patent company Intellectual Ventures.
‘Wine is not like shares or cash’
Source: Daily Telegraph
By Emma Wall
24 Feb 2013
When Sunday Telegraph reader Chris Unwin was promised an annual return of 13pc from the wine investment company DS Vintners, he immediately called his bank to look into freeing up the funds.
The pensioner from Surrey was fed up with the paltry return he was being offered in cash, and, not surprisingly, was attracted to such inflation-busting returns.
Though the scheme normally requires a minimum investment of £15,000, Mr Unwin (right) was offered a deal that would allow him access these potential returns for the smaller deposit of £5,000.
“I don’t have very much to invest and, in contrast to the marginal return you can get on cash at the moment, 13pc sounded very attractive,” the former loans clerk said. “I use my cash Isa allowance but have no hope of ever earning that substantial amount from a savings account.”
Luckily for him, the cashier at Lloyds was a touch more cautious and advised Mr Unwin to delve a little deeper before signing up, so he held off and contacted The Sunday Telegraph.
Mr Unwin’s tale is not one of fraud – DS Vintner know their wines – but a warning to investors not to turn a blind eye to the risks involved in chasing such high returns.
It’s not hard to see why these offers are now so tempting: before the credit crisis those in retirement could have earned 6pc plus on a high street bank account without taking undue risks with their capital. Today, the best they can hope for in a cash Isa – where the amount you can save is severely limited – is just 3pc.
For returns of 5pc or more, investors have been forced to “move up the risk scale” – with those holding cash now buying bonds, bondholders now turning to shares, and those who have always invested in blue-chip British companies now taking a punt on corporations based in Asian and emerging market countries.
It is hardly surprising that consumers are turning to investments they would never have previously considered.
An investment with DS Vintner may well return 13pc annually, but only on exit after the recommended investment period of 5-10 years. A spokesman also said DS Vintners would not store or insure the wine it bought on your behalf, which means investors have to pay these additional annual charges, further denting returns.
For experienced investors with a large diversified portfolio of shares, bonds and cash, alternative assets like wine can be a high-risk, high-return bet. Traders such as DS Vintners can fashion a portfolio that can increase in value over time. They can also fall, and as wine is an unregulated investment, none of your capital is protected.
But in haste to boost their income back to pre-credit crisis levels, savers are failing to consider these risks, and finding themselves in wholly unsuitable investments.
“Bottles of wine are not investments,” said Rick Ealing, head of investment solutions at Sanlam UK.
“Investments are supposed to earn you money, and yet wine pays no dividends, interest or rent. In fact, it has heavy storage costs. People invest in businesses expecting them to grow over time, yet all wine eventually peaks and decays. You’re at risk of counterfeiting, theft and fire. You will enjoy few, if any, of the protections offered to investors in regulated funds.
“If you love wine, know a great deal about it and have money that you are happy to place at considerable risk, then by all means own some wine ‘on the side’. But dusty glass bottles are no substitute for a proper portfolio of assets like shares, bonds, cash and property.”
Wine is not the only alternative asset to be packaged up as investments and promoted to savers desperate to make a decent return on their money. In recent years, stamp specialists Stanley Gibbons has marketed its unregulated investment plan under which investors could “easily earn returns of 698pc or more”.
At the time, financial advisers pointed out that they would not be able to make such claims about regulated investment plans.
Also at the time, Ian Lowes, the managing director of Lowes Financial Management, a firm of independent financial advisers, said: “Reading the marketing material made me shiver. It highlights how careful investors have to be when buying unregulated products – like stamps and other collectables.”
As he pointed out, many of these firms don’t always clearly explain the risks, or detail potential downsides, like early exit charges. “The direct marketing techniques used can lure consumers into making long-term investments that are highly unsuitable for them.”
This isn’t to say that such collectables won’t make you money. Many of these assets have risen in value in recent years but, as with any market, investors need to know what they are buying. For every bottle, stamp or antique that has quadrupled in value, there are likely to be less desirable items that will only lose you money.
One advantage of wine as an alternative investment is that supplies of past vintages invariably dwindle over time, pushing up prices of the remaining items.
While it is in the bottle your investment is improving all the time as more is being uncorked to drink. “Wine, like art, tends to be less correlated with other assets. This means that prices won’t automatically fall in the event of a stock market crash, for example. In the crisis of 2008, people realised that financial assets, like shares and bonds, were much more correlated than they thought,” said Victoria Rock of Coutts.
But only a very few investment grade Bordeaux wines increase in value exponentially, and these can’t be accessed with £5,000 – the kind of money that our reader was hoping to invest.
First-time wine investors are best leaving the bottle selection to the experts. Wine merchants such as Berry Bros & Rudd (bbr.com) or Bordeaux Index (bordeauxindex.com) will tailor a portfolio for you depending on how much you want to invest, your risk profile and how long you want to invest.
CHRISTIE’S RESULTS: Fine & Rare Wines, 21 February 2013
London – Christie’s sale of Fine & Rare Wines, held on the 21 February 2013 was sold 97% by lot and value.
The top lot was Château Lafite Rothschild, vintage 1982, 12 bottles, which fetched £34,500/$52,371 /?39,468
Chris Munro, Head of Wine department, London: “The first Fine and Rare Wines sale of 2013 realised tremendous results selling 97% by lot and by value, demonstrating the continuing strength of the market. The high demand for classic wine of Bordeaux and Burgundy that was witnessed during the second half of 2012 remains buoyant. The top lot of the sale was formed of 12 bottles of Château Lafite Rothschild, vintage 1982, which fetched £34,500, far exceeding its pre-sale estimate. We were also delighted with the performance of the 2011 magnums ‘Y d’Yquem’, directly consigned from the Château. Further highlights of the sale were five magnums of Château Lafite Rothschild 1947 that realised £20,700 against an estimate of £3,000-4,000. We look forward to our next London sale of Fine & Rare Wines including a Superb Private Collection of Rare Large Formats, which will be held on 21 March 2013.”
Champagne in China Seen Failing to Match Cognac Cachet
By Clementine Fletcher
Feb 24, 2013
As global champagne consumption goes flat, makers of bubbly are turning to China to make up the difference. After all, cognac has become a huge hit there, and the country now accounts for 22 percent of worldwide shipments, up from 5 percent in 2000.
“We think China could change the champagne market in the coming years,” said Charles-Armand de Belenet, head of marketing for the champagne division of Pernod Ricard SA. (RI) China is the second-biggest export market for Pernod’s Mumm brand and No. 3 for sister label Perrier Jouet.
Bottles of Perrier Jouet, left, and Dom Perignon champagne are seen at an All Bar One bar in London. Champagne is an expensive passion in China, with bottles selling for three times what they command in Europe due to import fees and hefty markups at bars, according to Mintel. Photographer: Chris Ratcliffe/Bloomberg
There’s a problem with that plan: champagne doesn’t have the staying power of cognac, its fellow French export. The fizzy drink has to be consumed immediately after opening. Cognac, by contrast, can be kept for years and offered to special guests when the occasion warrants, said Paul French, an analyst with researcher Mintel in Shanghai.
Most Chinese sales of cognac come around the just-finished Lunar New Year holiday, when Chinese often give friends and business contacts expensive bottles of cognac or baijiu — a local white spirit.
These gifts are displayed “on a shelf, like a vase,” said French. “There’s a massive over-expectation about China” among makers of bubbly, he said. “Champagne is quite a hard product to push.”
Global sales of the sparkling wine slid 4.4 percent in 2012, according to industry association CIVC. The decline was led by France, the world’s largest market with more than half of global consumption. In China, sales have jumped 33 percent on average in each of the past three years, according to market researcher Euromonitor.
As the world’s top luxury consumers, accounting for one- quarter of spending on high-end goods, according to consultants Bain & Co., the Chinese could in theory make up for lost sales in Europe. They’re no stranger to fashionable French wares, from Chanel sunglasses to Hermes (RMS) handbags.
Chinese cognac sales have fueled profits and buoyed the shares of Pernod and Remy Cointreau SA (RCO), maker of Remy Martin cognac, with both stocks outpacing the Bloomberg Beverages Index (BWBEVG) over the past year. Pernod said Feb. 4 it’s in talks to buy another producer, adding to its Martell brand, and Remy in December agreed to buy cognac maker Larsen.
Unlike cognac, which was first exported to China in 1859, champagne has only recently started gaining popularity in the nation’s $132.1 billion drinks market. While the Chinese are still getting used to its mineral taste and fizziness, there’s a strong appetite for the drink’s European cachet.
“Chinese people love France — the sophistication, the luxury that comes out of the country,” said Martin Riley, marketing director at Pernod Ricard. “It’s something quite deep-seated and puts products like cognac and champagne in a fantastic position. It’s a way of drinking the luxury lifestyle.”
That lifestyle is on full display nightly at Bar Rouge on Shanghai’s Bund, the colonial-era waterfront boulevard. There, champagne bottles are served with sparklers, and the bar offers a 10,000 yuan ($1,600) package of six liters of champagne, a three-liter bottle of vodka and soft drinks, carried out in a tub of ice by six employees accompanied by dancers.
“Even people who are not willing to drink champagne are willing to pay the money just to get the bathtub and the show,” said Mathieu Brauer, chief executive officer of Visual Orient Limited, the bar’s owner.
Despite such conspicuous displays, champagne drinking remains far behind cognac sipping. Drinkers in China bought 900,000 liters of champagne in 2011, according to Euromonitor, while cognac hit 25.5 million liters.
To lure more drinkers, brands use endorsements from local celebrities, sponsorship of exclusive parties and even iPhone apps to educate consumers on what they call the “protocols of champagne.” Mumm, owned by Pernod, holds tastings where consumers learn to choose and serve champagne. Brand representatives even demonstrate the art of “sabrage” — or whacking a bottle open with a saber.
Champagne is an expensive passion in China, with bottles selling for three times what they command in Europe due to import fees and hefty markups at bars, according to Mintel. Growth in spending on luxury goods in China is set to slow from 30 percent in 2011 to 7 percent this year, Bain & Co. estimates, as economic expansion weakens. And unlike, say, vodka, which features new flavors every year, there’s less opportunity to innovate with champagne because of tight controls on how it’s made.
Champagne’s slow progress in China is not unprecedented. Other Western luxury items with a short history in China, like fragrant perfumes, have still not been embraced.
Champagne “is growing, but it’s off a tiny base,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London. “There are many French products Chinese consumers don’t love.”
Liquor Barn co-founder Irving Rosenstein dies
February 22, 2013
Irving Rosenstein, a shopping center developer who helped found what would become Liquor Barn, died Friday. He was 90.
Nicknamed “Chief” by his family, Mr. Rosenstein helped develop shopping centers including those at the corner of Reynolds and Nicholasville roads and Versailles Road at Village Drive, said his son, Rob Rosenstein.
“He had a great vision of what could come because so much of Lexington was undeveloped at that time,” added his daughter, Ann Rosenstein Giles.
Around 1970, Mr. Rosenstein helped found Shoppers Village Liquors, the forerunners to today’s Liquor Barns, and opened them in some of his shopping centers.
Roger Leasor went to work for Mr. Rosenstein a year after the first store opened.
“I think my hair was halfway down to my waist, and I was wearing cowboy boots,” Leasor said. “Over the next few years, he was just so patient with me, as he was with everybody. That’s just the way he was.
“He turned me into a pretend businessman. And it wasn’t just me. There were hundreds of individuals over the years that you saw become bigger and better by being around him.”
Leasor is now director of community affairs for the company, which was sold to a Canadian firm in 2009.
“He had the amazing gift of valuing all work,” Leasor said of Mr. Rosenstein. “Whether you emptied the trash cans that day or you brought in carts or you created a newspaper ad or you negotiated a deal on a new store, it was all work that he valued.”
As Shoppers Village Liquors grew, Mr. Rosenstein handed over operation of the company to his son, Rob, who helped grow it into the Liquor Barn concept.
Mr. Rosenstein was also involved with organizations including Temple Adath Israel, Triangle Park, KET and Junior Achievement.
He is survived by his wife, Irma S.; daughter, Ann Giles; and son Rob Rosenstein; and grandchildren.
Visitation will be from 2-4 p.m. Sunday at Temple Adath Israel. Services will be at 9:30 a.m. Monday at Temple Adath Israel.
Willy Cellucci, 57: General manager of Atlanta Palm restaurant
Source: The Atlanta Journal-Constitution
By Michelle E. Shaw
Friends of Willy Cellucci loved to hear him tell stories. And it didn’t matter if it was his story, or someone else’s. It was going to be epic.
“He’d tell his story, and it’d be the best you ever heard,” said Lance Jaglarski, a friend and colleague. “But then he could take one of your stories and tell it, and it’d be the best you ever heard. He could make anything sound good.”
For the past 16 years, Cellucci was general manager of the Atlanta Palm, the steakhouse he opened in the former Swissotel, now the Westin Buckhead.
Jaglarski, who is also general manager and has had the title for about a year, said he still hasn’t settled into it.
“I don’t know if I’ll ever really feel like the general manager here,” he said. “The Palm in Atlanta will always be Willy’s.”
William Joseph Cellucci, known as Willy by all, died Sunday from complications of laryngeal cancer. He was 57.
A memorial service is planned for 2 p.m. Feb. 24 at the East Lake Golf Club, Atlanta. H.M. Patterson & Son, Oglethorpe Hill, is in charge of the cremation.
Cellucci couldn’t stay away from his birthplace of Los Angeles. His parents moved to the Northeast when he was child, but when they divorced he went back to LA with his mother. He traveled to France and attended what was then called the American College of Paris, then returned to the U.S. and enrolled at George Washington University in Washington, D.C., where he graduated with a bachelor’s degree in English, according to his corporate profile on the Palm website.
Cellucci learned the restaurant business the old-fashioned way. While in Paris he worked at a restaurant to pay off a bar tab he’d racked up during a pinball tournament. And in D.C., Cellucci started bartending.
“In the old days, that’s how restaurant people got started,” said his wife, Jonelle Cellucci. “They go to culinary school now, but (back) then they often started as bartenders and waiters and that sort of thing.”
After graduation he managed a few small restaurants in D.C. and then New York. He came back to D.C. and went to work at the Prime Rib, where he remained until joining the staff at Morton’s, his wife said. His career with Morton’s took him back to his beloved Los Angeles, where he stayed until he had an opportunity to open the Atlanta Palm, just in time for the 1996 Olympics.
Cellucci’s larger-than-life presence will always linger in the kitchen, dining room and nooks and crannies of the Atlanta Palm, his co-workers said. And his name will likely be called several times a night as his famous cocktail, “Willy’s Pinky,” lives on. Its recipe? A shot of orange Stoli and cranberry juice.
“Willy’s overwhelming goal was to make sure everyone who walked through those doors had a good time,” said Jeff Phillips, chief operating officer of the Palm Restaurant Group. “He defined the word ‘host.’”
In addition to his wife, Cellucci is survived by his sons, Daniel Cellucci of Ithaca, N.Y., and Jack Cellucci of Athens; and sister, Constance Borde of Paris.
Strong performance by steak in table service restaurants in 2012, driven by higher priced ribeye, filet, and veal
February 25, 2013
According to GuestMetrics, based on its proprietary database of POS transactions of over $8 billion dollars in transactions and over 250 million checks from restaurants and bars across the United States, steak achieved one of the largest share gains in the food category in 2012, only behind chicken wings, pizza, burgers, and tacos.
“In analyzing the 64% of table service restaurant sales that come from food, we see that steak had a strong year in 2012,” said Bill Pecoriello, CEO of GuestMetrics LLC. “Based on our data, steak revenues were up about 3%, the net result of the number of steaks ordered being up 1% despite prices being 2% higher than 2011 levels, likely at least partially due to the drought last year. Given steak has one of the highest average price points of any food item, the uptick in steak sales should be particularly beneficial to restaurant operators.” According to data from GuestMetrics, the average price for steak in restaurants is $23, which is only behind lamb ($33), halibut ($32), duck ($27) and lobster ($24), all of which saw their sales contract in 2012.
“In further analyzing the steak category, the top three types sold in on-premise in terms of their share were sirloin at 19% of steak revenues, ribeye at 17%, and filet at 16%,” said Peter Reidhead, VP of Strategy and Insights at GuestMetrics. “However, in terms of the growth seen in the steak category in 2012, this was driven almost exclusively by strength among ribeye, filet, and veal, while sirloin sales actually contracted from levels seen in 2011.”
“Additionally, given the fact the average price of those three types of steak are well above the overall steak average with ribeye at $29, filet at $35, and veal at $36, dialing up the focus on these steaks should be an especially attractive value proposition for restaurant operators to consider,” said Brian Barrett, President of GuestMetrics. “The only types of mainstream steak that have a materially higher average price point in on-premise are ossobuco at $37 and porterhouse at $51. Given steak prices were up 5% in December against the prior year, we will be monitoring closely the impact this has on overall steak sales as we progress further into 2013.”
About GuestMetrics LLC
GuestMetrics, LLC is revolutionizing how the hospitality industry operates. Despite the dawn of the Digital Age having begun more than three decades ago, the hospitality industry essentially functions the same way it did centuries before. GuestMetrics has cracked the code by collecting data from tens of thousands of restaurants and turning billions of raw transactions into intelligible data that is fundamentally transforming the business operations of everyone from the independently-owned bar/restaurant on the corner, to multi-national chains, to the food & beverage companies that supply them. Please visit www.GuestMetrics.com for more information and to arrange for a free demonstration.
BLMN: Moderating with the industry, but SSS still best-in-class; retain Buy
Source: Goldman Sachs
We raise our 2013/2014 EPS estimates to $1.08/$1.25 and introduce a 2015 estimate of $1.46. Our upward revisions reflect lower sales assumptions, which are more than offset by reduced interest expense and taxes.
We retain our Buy rating on BLMN shares as we believe the company is the best positioned Casual Diner in the group. While numbers are not as robust as previously expected, they are fawr outperforming their peers.
(1) BLMN SSS are running in the +0-1% range in 1Q13, +1-2% excluding the impact of leap year. This is far in excess of the down mid-single digit current industry average, suggesting BLMN’s concepts continue to take a meaningful amount of market share. It has strong future drivers in place with remodels, its ongoing lunch roll-out and increases in ad impressions.
(2) We see the potential for solid EBITDA margin expansion from cost cuts and fixed cost leverage. On the former, BLMN has demonstrated ability to reduce costs by $50mn+ a year and seems to have a solid project pipeline. On the latter, once the impact of weather clears, we think BLMN SSS are likely to rebound to 2-3%+, which is enough to leverage rent and labor.
(3) BLMN has a FCF conversation rate of over 100%. This allows for strong cash deployment towards remodels, new unit builds and debt reduction. In the future, we believe BLMN may also have room to institute a dividend and/or buyback shares. While its P/E may be modestly above some peers, its FCF yield is at parity, despite what we view as superior fundamentals.
We retain our $19 P/E and DCF-based 12-month price target.
Risks include a further deterioration of Casual Dining trends, a reduced pace of market share gains or renewed commodity inflation.
Harris Teeter Said to Draw Interest From Retailer Ahold
By David Welch
February 22, 2013
Harris Teeter Supermarkets Inc. (HTSI), the Matthews, North Carolina-based grocery chain exploring a sale, has attracted interest from Royal Ahold NV (AH), the Dutch owner of Stop & Shop stores, said people with knowledge of the matter.
Ahold has contacted JPMorgan Chase & Co., retained by Harris Teeter to evaluate options, and is seeking more information on the sale process, said one of the people, who asked not to be named because the negotiations are private. Ahold hasn’t made a formal bid, according to that person.
“We regard Harris Teeter as a likely deal for Ahold,” Patrick Roquas, an analyst at Rabobank, wrote in a report today. A transaction wouldn’t hurt Ahold’s stock as it’s unlikely that the Amsterdam-based company is willing to put its “credible track record at risk” by paying too much.
Harris Teeter’s market value tops $2 billion. Buying the chain would help Ahold expand further in the southern U.S. and Washington, D.C., and its acquisition history and previous expansions position the Dutch chain as a probable bidder, said BMO Capital Markets analyst Karen Short.
Ahold “appears to have more than adequate capacity on its balance sheet to complete a transaction,” she said in a Feb. 20 research note. She also listed Lakeland, Florida-based Publix Super Markets Inc. (PUSH) and Cincinnati’s Kroger Co. (KR) as possible suitors.
Harris Teeter shares advanced (HTSI) 1.5 percent to $42.12, the highest price in more than six months, at the close yesterday in New York. Ahold rose as much as 0.3 percent to 11.01 euros and was trading up 0.2 percent at 12:11 p.m. in Amsterdam. The stock has gained 8.5 percent this year.
Harris Teeter disclosed this month that it hired JPMorgan after receiving advances from two private-equity firms, which the company didn’t name. Representatives at Harris Teeter, JPMorgan and Publix declined to comment, while a spokesman for Ahold said the company doesn’t comment on market rumors. An official at Kroger didn’t immediately return a call seeking comment.
Harris Teeter was co-founded in 1960 by two North Carolina grocers, according to its website. It has more than 200 stores in North Carolina, South Carolina, Virginia, Georgia, Tennessee, Maryland, Delaware, Florida and Washington, D.C. The company reported $4.54 billion in revenue for the year ended Oct. 2, 2012.
Earnings before interest, taxes, depreciation and amortization over the same period amounted to $306.5 million, according to data compiled by Bloomberg. Grocery companies typically sell at 7 to 10 times Ebitda, said one of the people familiar with the situation, indicating Harris Teeter’s sale value could be as much as $3.1 billion.
About 60 percent of Ahold’s sales come from the U.S., where it also owns Giant stores, according to data compiled by Bloomberg. The company has sold assets in the country over the last 10 years after an accounting fraud at an acquired business in the U.S. This month the Dutch company said it agreed to sell its 60 percent stake in Swedish grocery chain ICA for more than $3 billion.
Some brokerages including Barclays expressed skepticism that Ahold would buy all of Harris Teeter, suggesting that returning proceeds from the ICA deal to shareholders would be a better option than buying a grocer that competes against grocers including Wal-Mart Stores Inc. (WMT)
“We have already assumed in our model that Ahold will return the ICA proceeds to shareholders in the second half via a share consolidation,” Barclays analysts, including James Anstead in London, said in a note. “If the cash was instead spent on significantly increasing Ahold’s exposure to an industry which is undoubtedly competitive, then we would expect shareholders to be unimpressed.”
Pennsylvania: Making liquor convenient comes at a cost
Washington state recently privatized state stores, providing lesson for Pennsylvania
Source: The Morning Call
By Scott Kraus
February 24, 2013
A year ago, if Tom Dieker wanted to pick up a bottle of Stolichnaya vodka, he had to drive to one of the small state stores near his suburban Seattle home.
Now, almost eight months after Washington state sold off those stores, chances are he can find it at his local Safeway supermarket, one of roughly 1,700 private retailers now selling liquor in the state.
“If you want just sort of a popular brand, you can find it at grocery stores now,” said Dieker, 46, vice president of sales for a consulting firm. “If you want a really nice bottle of scotch, something not so run-of-the-mill, there are some nice wine and liquor stores.”
It’s a level of convenience Pennsylvania consumers can only imagine, but not one without drawbacks. Average liquor prices have increased in Washington, small business owners have struggled to compete with large retailers, and reports of shoplifting have law enforcement officials calling for better liquor theft tracking.
Prices tick up
According to the Washington State Department of Revenue, the average retail price of a liter of liquor was up $2.64 in December compared with a year ago, when the state stores were the only game in town. The higher prices have prompted some residents to go over the border to Idaho and Oregon.
With an average price per liter that is more than $5 lower than in southern Washington, the 12 Oregon liquor stores on Washington’s border, operated by private contractors paid a commission by the state, have seen a 34 percent increase in sales since Washington privatized, said Oregon Liquor Commission spokeswoman Christi Scott.
That hasn’t dampened sales in Washington. With the number of liquor outlets more than quadrupling, overall liquor sales are up slightly, said Liquor Control Board spokesman Brian Smith. It’s a matter of availability, he said.
“You have more volume, you went from 329 to 1,700-plus stores,” Smith noted.
That has meant increased liquor tax revenue to supplement the $31 million the state raised by auctioning off the rights to operate its state stores to private owners. Smith said the state expects to more than break even.
Privatization supporters attribute the higher average prices to Washington’s high liquor taxes, which were left untouched, and a combined 27 percent in new fees levied on gross sales at the wholesale and retail levels. Those fees will drop to 22 percent in two years.
Washington’s privatization push began in 2010 but faltered when voters – worried about the potential loss of state revenue and the prospect of Jack Daniels bottles displayed next to the Ruffles at every 7-Eleven – defeated a privatization initiative at the polls.
The plan was reworked by Costco and food retailers in 2011 to limit liquor sales to stores with 10,000 or more square feet of retail space. It was put back on the ballot and coupled with a massive ad campaign funded primarily by Costco. The new plan left the state’s liquor tax structure in place and added surcharges of 10 percent at the wholesale and 17 percent at the retail level to prevent a decline in state revenue.
Voters passed the new initiative in November 2011, and by last April, the state had auctioned off the rights to operate its 329 state liquor stores and issued more than 1,000 additional licenses to retailers like Costco, Safeway and Trader Joe’s to sell liquor at their locations. In June, the system went live.
There are some key differences between Washington and Pennsylvania. While Washington once controlled the sale of spirits like whiskey and gin, residents in the state that is home to Starbucks and Microsoft have been able to buy wine and beer at supermarkets and other retailers for decades.
Liquor in Washington is taxed at a rate of 20.5 percent, plus $3.77 per liter. Its state stores collected a 51.9 percent markup on liquor before privatization. Now the state imposes 27 percent in new fees at the wholesale and retail level to recoup those profits. Retailers and wholesalers tack on their profit on top of that amount.
In Pennsylvania, consumers pay an 18 percent Johnstown Flood Tax in addition to a 6 percent sales tax and various smaller levies. State stores collect a 30 percent markup that contributes to an annual profit the system contributes to state revenues each year.
Unlike Washington, Corbett has no plan to impose new fees on wholesale and retail dealers to make up for that profit. Instead, his plan proposes making up for the revenue with flat annual license renewal fees.
Corbett took Washington’s experience and that of other states into consideration in putting his plan together, said spokesman Eric Shirk.
Corbett’s plan would replace the state stores with 1,200 licensed private wine and spirits retailers. It would also expand beer and/or wine sales to convenience stores, drug stores, supermarkets and big box retailers. Legislation implementing the plan is expected to be introduced in the House in March, and would need to pass the House and Senate.
Privatization is working for Washington consumers, said Ed Cooper, spokesman for Total Wine & More, a national chain that has opened three superstores in Washington and plans to open 10 more. If they shop around, they can find cheaper prices, he said. Like any other product, liquor is offered at different prices by different retailers, making the average price somewhat irrelevant.
“If they are after convenience, they may pick it up in their grocery store,” Cooper said. “The products may be more expensive in a grocery store than they would be in a specialty store like ours. It’s all about understanding retail prices.”
The chain is one of several eyeing Pennsylvania as a potential market if the state stores are eliminated.
University of Washington graduate student Colin Sowder said his buying habits have changed dramatically since privatization. He now buys most of his liquor at Fred Meyer, a combination supermarket and general merchandiser whose products include televisions, lawn furniture, breakfast cereal and now, Bacardi rum.
If he’s looking for something basic, Sowder, 27, of Seattle, said he typically buys whatever is on sale. That’s new because before privatization, the state had uniform pricing.
If he’s looking for something special, chances are Fred Meyer doesn’t stock it, so he’s still forced to make a special trip to a smaller, privately owned liquor store.
“If I went to my store – the old state store – and was looking for Four Roses bourbon, they generally had it,” Sowder said.
Selection varies. While the old state stores carried about 1,500 products, supermarkets, drug stores and all-purpose retailers will stock several hundred varieties while retailers like Total Wine stock a few thousand.
Specialty products, especially those produced by local distilleries, have become more readily available in some areas of the state, said Noriko Kaji, a 36-year-old entertainment company worker from Seattle. “The local stuff you can get at supermarkets,” she said. “A lot of the Seattle grocery stores, the high-end grocery stores, have focused on the local distillers.”
But small liquor store owners who paid tens or hundreds of thousands of dollars for licenses to take over the old state stores say they can’t compete with large grocery stores and chains like Costco, which sells liquor the way it sells everything else, discounted and in large volumes.
Dieker’s local state store in the small town of Sammamish, for example, was taken over by private owners, who won the right to open Plateau Wine and Spirits at the same address.
But they, like many shop owners, are struggling to compete with supermarkets and big box stores, said Michael Cho, co-founder of the Washington Liquor Store Association, a newly formed trade group that looks out for small store owners. “It has been an absolute disaster for local liquor store owners who bought their licenses from the state,” Cho said.
They are losing money because customers have turned to more convenient options for their everyday purchases, he said, and many are talking about shutting their doors.
Some 25 closed within the first six months, Smith said.
They’re also facing competition from liquor superstores like Total Wine & More and Bev-Mo, mega-retailers that offer volume pricing along with a huge selection of wine, beer and liquor.
Reviews on websites like Yelp show these adult beverage theme parks are wowing customers. “Every superlative word applies here. Pick your jaw off the shiny clean floor,” gushed Sharon H. of Seattle about Total Wine’s Bellevue, Wash., store.
Easier to steal
Anecdotal evidence that bottles of hard liquor have been walking out of supermarkets and into the hands of teenagers was enough to prompt the Washington Association of Sheriffs and Police Chiefs to push for a law to force retailers to report liquor theft losses. Supermarkets have balked at the request.
Wine and beer have been in supermarkets for years, said Mitch Barker, the association’s executive director, but they’re less attractive to shoplifters.
With liquor now displayed on the end of supermarket aisles, near exits and at self-service checkout kiosks, the association would like to know how much is being shoplifted.
“Sliding a bottle of hard liquor up your sleeve is a lot easier than boosting a couple of cases for the high school party,” Barker said. Organized rings of thieves have popped up in some places, shoplifting liquor for sale to teenagers at a sizable markup, he said.
Shirk pointed out that under Corbett’s plan, grocery stores would not be permitted to sell hard liquor in Pennsylvania.
Spokane resident Daniel Hall, a 38-year-old father of two small children, doesn’t like that the supermarkets are full of heavily promoted hard liquor that draws his kids’ curiosity. His wife, who works at a local supermarket, says they’re having a huge problem with shoplifters.
Hard liquor is suddenly ubiquitous, appearing in supermarket circulars and beckoning across the store as you pick out a steak for the grill, he said.
“Every grocery store has it. Now there are all these independent liquor stores that are popping up,” he said. “It is just more readily available now. I’m just not sure that is a good thing or a bad thing.”
Pennsylvania: CAN YOU TRUST GOV. CORBETT ON PRIVATIZATION?
Just as we learned that Governor Corbett couldn’t be trusted when he said his Lottery privatization plan was legal, we now know that we can’t trust what the Governor says about his scheme to dismantle the PLCB to help his corporate backers make more money.
The Corbett Book of Lies doesn’t change the true facts: Jobs will be lost. Prices will increase. Convenience will suffer. State revenues will fall. Your constituents will pay the price. The state could lose as much as $400 million on the deal, according to Tom Corbett’s own math.
We simply can’t trust this Governor to tell the truth about PLCB privatization.
LIE #1: Money will fall from the sky for our public schools.
Gov. Corbett says, “We will raise $1 billion over 4 years.”
FACT: The wild estimates from an auction of licenses keep dropping and dropping. Corbett’s own revised study, conducted by Public Financial Management, Inc. (PFM), issued last month, is down significantly from the $1.3 – $1.9 billion promised in the initial PFM report issued just two years ago.
FACT: Gov. Corbett’s $1 billion calculation doesn’t take into account the PFM study’s estimated $1.4 billion in transition costs over five years, including unemployment compensation for laid off workers, expenses related to increased licensing and enforcement demands, and other costs to phase-out and liquidate the current system. (Page 186)
PFM calculates that about $112.5 million will come from 750 of PA’s 1,100 beer distributors willing to pay $150,000 for an ‘enhanced’ license. But the beer distributors adamantly oppose this bill. The Malt Beverage Distributors Association (MBDA) and newspaper articles from across the state say that very few beer distributors can afford a $150,000 license fee.
The original Corbett PFM report calculates that there will be over $64 million in unemployment compensation costs over the course of four years. They also calculate there will be an additional $14 million in paid leave costs for displaced employees. (Page 181-182).
PFM’s original report also estimates that there will be other residual PLCB costs including police enforcement funding, controller operations, and transfers to Department of Health. This will be another $27-$35 million a year in costs. (Page 182)
FACT: Gov. Corbett’s $1 billion revenue calculation does not take into account additional social costs and the negative multiplier effect, which also will have detrimental impacts. These impacts should be considered in any transition cost.
PFM claims there is not enough evidence to evaluate if there will be a negative financial cost due to social impact. Yet the independent U.S. Centers for Disease Control and Prevention found that there will be increases in excessive consumption and other detrimental social impacts with any further privatization of alcohol sales. On a per capita basis, the economic impact in the U.S. is approximately $746 per person (2011 American Journal of Preventive Medicine Study, peer-reviewed).
PFM also dances around pricing the impact of the negative multiplier effect of over 2,300 PLCB employees who will go on unemployment, by PFM’s own admission. They claim “while definitive judgment of multiplier effects of a privatized system cannot be made without additional information, it is likely that direct and indirect effects will depend on levels of retail activity compared to the current system.” (Page 212) In other words, what PFM really means is “yes, there will be a negative multiplier effect, but the Governor did not want us to price it.”
FACT: Gov. Corbett’s privatization plan creates an annual $408 million gap in revenues for the state.
The PFM report estimates that $408 million is needed each year to make privatization fiscally neutral for the state, but provides no details on how that gap would be filled. (Page 7-8).
LIE #2: Your constituents will have more convenience.
Gov. Corbett says, “Why don’t we have convenience like 48 other states?”
FACT: The Governor cites South Carolina, a state where he vacations, as a model. But do we want to be South Carolina? That state does not permit the sale of spirits past 7:00 p.m. any night of the week or on Sundays. In 39 of the state’s 46 counties, the sale of wine and beer is also prohibited on Sundays.
There are 16 other “control states” that have government control of the wholesale and/or retail sale of alcohol and 11 of these have state-run or state-contracted liquor stores.
Nine states (eight of which are “private states”) restrict the sale of liquor on Sundays (affecting about 66 million people – 21% of Americans). Pennsylvania does not. There are also laws and rules put in place in other states and counties that restrict the sale of wine and beer on Sunday as well.
In at least 15 states, consumers cannot purchase beer, wine, and liquor in the same store, restrictions that affect 122 million people or 40% of our nation.
LIE #3: Your constituents will pay lower prices and will have more selection.
Gov. Corbett says that in a private market, prices will go down. [Corbett Press Conference, 1/30/13]
FACT: Corbett’s PFM study shows that prices will increase in many parts of the state, and other states that have privatized recently have experienced price hikes.
After Iowa privatized, “Price increases were gradual and totaled 7.4 percent above what they would have been if the State had retained its stores”. (Page 235)
Voters in Washington State are paying anywhere from 10 percent to 30 percent more for wine and spirits since that state privatized last year. [Huffington Post, 6/2/12]
The private wholesale markup in WA has been as high as 72% – more than double the PLCB. [Reuters, 6/2/12]
Corbett’s plan will eliminate the buying power of the PLCB. This will lead to higher acquisition prices for private wholesalers.
Corbett’s plan would impose a private wholesale markup, the 18% liquor tax, and a private retail markup on your constituents.
Gov. Ridge’s 1997 Price Waterhouse Study projected the combined wholesale and retail markups under a privatized system to be at least 49% for wine and 44% for spirits. Those markups are significantly higher than the 30% markup under the current system.
FACT: Some stores in our border states don’t even carry many of the 50 most popular brands your constituents currently enjoy. [Testimony of Wendell Young, House Liquor Control Committee, 8/11/11]
The average PA Wine and Spirits store stocks between 3,000 to 5,000 items; the smallest stores stock at least 1,000 items. [Pennsylvania Liquor Control Board]
Store selections are much more limited in privatized states. For example, Costco, the leading proponent of privatization in Washington State, stocks only 140 wines and 32 spirits on its shelves. [Testimony of Auditor General Jack Wagner before the PA House Liquor Control Committee, November 30, 2011]
Nowhere in the “other 48 states” do consumers have the selection and service available in Pennsylvania. Why do we want to be like those other 48 states?
LIE #4: The Wine and Spirits stores make no money for the state of Pennsylvania.
“Right now, our retail system is not making money, it is being completely subsidized by the wholesale system.” [Harrisburg Patriot News, 2/20/13]
FACT: This is one of the strangest lies of them all, as the Wine and Spirits stores profitability has continued to grow year after year.
The Wine and Spirits stores continue to show incredible agency-wide profit for the PLCB. The Net Income Percentage for Retail Operations has grown from 10.0% in FY ’10-’11 to 13.3% in FY ’11-’12. [Pennsylvania Liquor Control Board]
The mid-year financials of the Wine and Spirits stores show a 14.8% Net Income Percentage, even higher then the previous two years. [Pennsylvania Liquor Control Board]
The agency as a whole, the retail and the wholesale, contributed over $530 million to the state of Pennsylvania from taxes and profits. This revenue has continued to trend upward for the past decade. [Pennsylvania Liquor Control Board]
The PLCB’s mid-year financials for ’12-’13 show that the PLCB is on pace to shatter its record contribution to the state, which helps fund valuable services for the taxpayers of Pennsylvania. [Pennsylvania Liquor Control Board]
LIE #5: Nobody will lose their jobs.
Gov. Corbett promises jobs and “a smooth transition” for those working in the current system. The fact is that more than 2,000 PLCB workers and as many as 10,000 beer distributor employees could lose their jobs.
FACT: Thousands of jobs will be lost.
Corbett’s own study, released by Public Financial Management, Inc. (PFM), states that:
Minimal workforce will be hired by existing retailers, who will make up the majority of the licensees.
2,302 full-time equivalent employees who work for the PLCB will go on unemployment. (page 179)
“Employees in rural counties will have fewer opportunities for state reemployment”. (page 201)
Big box/large grocers . “have sufficient existing employees to manage the registers will tend to reallocate store space.” (page 178)
Drug Store/Convenience . “will also reallocate store space and therefore hire additional minimal staff”. (page 179)
Small retailers. “will also be unlikely to create a large number of jobs”. (page 179)
Other/Miscellaneous outlets . “will also be unlikely to create a large number of jobs”. (page 179)
“Since PLCB currently contracts out the majority of wholesale operations, the number of net jobs created is likely to be minimal”. (page 179)
LIE #6: “I have not had one person . . . tell me this is a mistake.” [Philadelphia Inquirer, 1/31/13]
FACT: There is a chorus of voices telling Corbett that privatization is a mistake. Here are just a few.
An independent U.S. Centers for Disease Control and Prevention Task Force recommended against privatization because it encourages binge drinking and negatively affects public health. [U.S. Centers for Disease Control and Prevention (CDC), Task Force on Community Preventive Services, April, 2011]
Monongahela beer distributor Adam Cox said the Corbett plan “would probably ruin our business and many of the smaller family-owned businesses.” [Tribune Review, 2/20/13]
Rostraver beer distributor Brian Campbell said: “The 1,200 distributors in this state – this would ruin them. Eventually it would bleed us out and kill all our businesses. . . They’re destroying two industries – state stores and distributors – and won’t create one extra job.” [Tribune Review, 2/20/13]
Pennsylvania consumer Diane Mellish said: “I’ve lived in Texas, Delaware, New Jersey and Pennsylvania, and I find I enjoy shopping at the Pennsylvania liquor stores more. Why? The service is comparable, and the prices are competitive, if not better . . . By privatizing we give up lots of buying power, which is a much more significant price discounter than what we would gain from privatization. Gov. Corbett is trying to bribe us with education givebacks, but he is only taking away from Peter to pay Paul. In the long term, our taxes will have to make up the difference.” [Allentown Morning Call, 2/11/13]
Connecticut: Liquor Law Shakeup: Plan To Alter Minimum Pricing Worries Some Package Store Owners
Source: The Hartford Courant
By BRIAN DOWLING
February 23, 2013
The brisk wind of competition could be ripping through Connecticut package stores again this spring.
That competition could result from a change in the state’s minimum bottle pricing system, which now sets the lowest price that can be charged for a single bottle of alcohol, whether it’s bought by itself or a case.
The law protects small stores, which often buy single bottles, from the purchasing power of larger stores that buy in bulk. But state officials and some experts say it hampers competition.
“Connecticut has a minimum pricing system unlike any in the country,” said Brian Durand, the governor’s deputy chief of staff.
The new law would alter the minimum pricing system, allowing lower prices. “We’re doing this to benefit consumers,” Durand said.
At risk is the careful pricing balance between large and small stores, say critics of the change, while advocates see an estimated $2.6 million in taxes to the state from customers who now head over the border to states with lower prices, especially Massachusetts.
The critics say it could mean fewer small mom-and-pop shops, who would see their profit margins shrink, and less choice among the shops that survive. Those shops may limit inventory, or try to distinguish themselves with personalized service or events, such as wine tastings, that woo customers.
Carroll Hughes, head of the Connecticut Package Store Association, said it’s commonplace for stores in this state to carry seven different labels of Polish vodka, for instance, or 13 types of Irish whiskey. “In many [other] states you might find three, maybe four,” he said.
“Stores like me will not be able to compete in that market,” said Greg Nemergut, owner of West Side Wine & Spirits on Raymond Road in West Hartford. “It’s going to impact selection.”
Overall, the package store owners association is skeptical about the governor’s proposal, especially given the results of another liquor-store measure last year.
The march to a more liberal, less-regulated business environment for beer, wine and spirits began in May 2012, when Connecticut finally eliminated the ban on Sunday and holiday sales. There were expectations that it would increase revenue and sales, but, so far, the increases have been small.
If the measure to alter minimum pricing is passed, the new competition could attract big-box stores to the state that have a higher tolerance for low prices because they can sell more to offset losses from selling lower, said Mike Bradley, manager of Crazy Bruce’s Liquors in West Hartford.
“They’ll be like the Home Depots and the CVS’s,” Bradley said, adding that they could edge out smaller operations.
Bradley said expects that Malloy’s proposed change will result in lower prices for core brands but that higher-end labels could go up in price. “You have to make your money somewhere,” he said.
William Rubenstein, commissioner of the state Department of Consumer Protection, which regulates alcohol sales in Connecticut, said the new measure would be plus for consumers overall.
“It’s one small piece that’s needed, but it’s a very significant one, freeing up retailers to decide how they want to compete with each other,” Rubenstein said.
As an example of a possible change under the new proposal, a case of Maker’s Mark bourbon – with six bottles – cost $293.46 in February, said Jim Ransford, owner of CT Beverage Mart on Hartford Road in New Britain. At the case price, each bottle costs $48.91, but the state’s minimum bottle pricing law dictates that Ransford can’t sell it for lower than what it costs to buy a single bottle, which is $51.99.
The proposed law would change all that. The floor for pricing on wine and spirits would no longer be the bottle price – it would be simply the bottle’s cost, plus delivery, regardless of whether the store owner acquired it as a single bottle or in a case. Beer is already sold this way.
For Ransford, it means he – and all his competitors – could sell the Maker’s Mark for closer to $48.91 a bottle. “The guy down the street will definitely lower his prices,” Ransford said, “and I will have to lower mine.”
That means lower margins for big stores like his, Ransford said, which is already stressed after Sunday sales failed to raise profits.
But for the hundreds of smaller package stores that purchase more often by the bottle, the impacts will be deeper.
Those smaller stores that now buy single bottles of Maker’s Mark for $51.99 – because they don’t sell enough to buy the bourbon by the case – will have to compete with larger stores that buy cases and can sell for a significantly lower price.
“The big stores are interested in the large volume items,” said Gary Dunn, who owns Spiritus Wine Store in Hartford. “They have the deep pockets to purchase in large volumes and sell on very low margins to squeeze out some of the competition.”
Malloy’s battle to capture sales from Connecticut residents who drive north for cheaper alcohol is an uphill one, said Hughes of the state’s package store association. Massachusetts lacks a sales tax on alcohol, immediately putting Connecticut 6.35 percent higher, retail prices aside. For all types of alcohol, Massachusetts has lower excise taxes as well.
But the conversation that circles around prices, case and bottle purchasing, and product offerings seems to ignore things customers value other than price: service and convenience.
Some retailers might be able to maintain their customer base, selling a diverse supply of wine and spirits that are still bought by the bottle. These stores might be able to sell the value of tasting events and employees that can offer personal help. In short, the box store across town might sell for a dollar or two less, but that’s not the deciding factor.
“That will keep a few medium or larger sized stores in business,” said Patrick Monteleone, owner of Harry’s Wine & Liquor on Post Road in Fairfield. “You may keep a few bodegas in business because they’re hyper-local and people are passing by them.”
Connecticut: Mixed Results on Sunday Alcohol Sales
Supermarkets Pleased, Package Stores Not
Source: Hartford Courant
By CHRISTOPHER KEATING
February 24, 2013
Nine months after the controversial Sunday alcohol sales proposal became law, supermarket operators are pleased and package store owners are not – just as critics predicted last year.
Consumers, who were at the heart of the legislation, have been pulling beer off the supermarket shelves at an increased pace with the added convenience of 10 a.m. to 5 p.m. on Sundays and summer holidays.
Stan Sorkin, the president of an association that represents about 300 supermarkets statewide, said beer sales are up about 8 percent overall statewide in their stores.
“Stores near the border are up approximately 20 percent,” Sorkin said. “For us, it’s worked out the way we thought it would. . To tell the consumer you can’t buy beer on a Sunday is a very negative connotation. That was a very backward policy.”
But most of the state’s package store owners are not pleased, saying they aren’t seeing the same increase. They say they have failed to make any substantial profits and essentially have broken even since the new law took effect last May 20.
“If there was an increase in beer [sales], it didn’t go to my people,” said Carroll Hughes, chief lobbyist for the Connecticut Package Stores Association.
Instead, Hughes said, the retailers have seen higher costs and not much in the way of increased sales on Sunday, according to a survey he conducted after the busy Christmas and New Year’s season.
“They don’t feel they did anything more with this noble experiment of Sunday sales,” Hughes said. “They’re telling me they broke even. I’m not surprised on the conclusions of my people. Even if you break even, you’ve increased your expenses.”
In a compromise after decades of avoiding Sunday sales, the package stores agreed not to fight the legislation last year after Gov. Dannel P. Malloy made a major push for changes in the liquor industry. Malloy had wanted a series of other changes, but the compromise was 52 Sunday openings, plus the Memorial Day, Fourth of July and Labor Day holidays that Hughes noted were sunny, warm days with brisk sales.
Since Sunday sales are still optional, Hughes said about 50 of the state’s 1,150 package stores have chosen to remain closed that day. The increased sales on Sunday, he said, clearly went to supermarkets, which are allowed by law to sell beer but not wine or hard liquor.
“It all went to the supermarkets, which is where people are on Sunday,” Hughes said. “It didn’t cost the food stores a penny to get an extra two percent of the business. . We said all along that the people are in the supermarkets on Saturday and Sunday.”
Dominic Alaimo, who operates an Enfield package store that is two miles south of the Massachusetts border, has a completely different view. For years, Alaimo has been the most outspoken supporter of Sunday sales among package store owners – refusing to join Hughes’ association or pay dues.
“For me, it’s been going fantastic,” Alaimo said in an interview. “I’d like them to add more hours to Sunday as an option – two more hours.”
Alaimo rejects the complaint from other retailers that paying for utilities on Sundays is an issue, saying overhead at his small store is minimal.
“The utilities are running even when I’m not there,” he said. “The coolers are on.”
Alaimo predicts that, on a full-year basis, he could generate an additional $100,000 per year in gross sales, about $2,000 for each Sunday.
Noting that his Route 5 store is a straight shot down the road from the Massachusetts border, Alaimo concedes that the success or failure of Sunday sales is often reliant on geography.
Some officials say nine months is not enough time to draw firm conclusions.
Ben Jenkins, a spokesman for the national Distilled Spirits Council of the United States, said his group would need at least a full year of data in order to analyze the results. Known as DISCUS, the group has testified consistently in favor of Sunday sales in Connecticut and around the country. Along with the Connecticut Food Association, which represents supermarkets, DISCUS paid for full-page newspaper advertisements to push for Sunday sales.
Sorkin, the president of the supermarket association, agreed that a year’s worth of data would be more conclusive.
“A lot of these guys were not happy with the law,” Sorkin said. “They didn’t aggressively go after the Sunday sales business. We’re also in a bad economy. I think you’ve got to cycle a year.”
Statistics from the state Department of Revenue Services show that the number of gallons of beer sold increased by 3.11 percent from May through the end of November to nearly 33 million gallons. The gallons of wine went up by 2.25 percent, and distilled liquor went up by 4.89 percent. In addition to the extra gallons sold, the overall taxes collected on alcoholic beverages went up by 4.65 percent through the end of January, according to the tax department. The additional tax collected is $2.169 million, which some officials attribute largely to Sunday sales. The highest revenue came in June, followed by November and December.
Brian Durand, Malloy’s deputy chief of staff and chief aide on liquor issues, said that even the package stores have increased sales under the new law.
“Connecticut retailers sold more wine and beer and spirits in 2012 than they did in 2011,” Durand said in an interview. “If you look at the gallonage, you can’t buy wine and spirits at supermarkets. It can only be bought at our package stores.”
He added, “From our perspective, the numbers point to a success for Connecticut and for retailers. This was an effort to increase consumer convenience. It did what we hoped it would do – keep people in Connecticut stores” and discourage them from crossing the border.
But some of the biggest liquor retailers in the Greater Hartford region say that Sunday sales have not been profitable for them.
“My customer count went up, but my average transaction went down, which caused my sales to go down,” said Mike Bradley, the operator of Crazy Bruce’s Liquors in West Hartford. “People do not have to keep an inventory in their house anymore because we’re always open. When people had the inventory in their house, they drank more.”
Jim Ransford, the owner of the large Connecticut Beverage Mart in New Britain near the Westfarms mall, said Sunday sales have backfired.
“Since we’re open on Sunday, our Saturday sales are a joke,” said Ransford, who has 33 years in the business. “We get more sales on Friday than Saturday. It’s simple economics of supply and demand. . No one would believe us. Sunday is our slowest day of the week. All these grand promises last year. People coming in from all over the country making promises. Where are you guys now?”
He added, “A lot of the stores on the shore are closed on Sundays now. They gave up. Summertime for them is like Christmas-time for us. When the sales down there didn’t happen on Sunday, we said, ‘This is not good.’ . I hope Sundays work out to be the greatest thing ever, but right now, it isn’t. And that’s fact. That’s in red ink on my paper. I would switch in a heartbeat” back to six days per week.
Both Ransford and Hughes said that some package stores are afraid to close on Sunday because they fear they would lose even more business.
“The 1,100 stores spent $7 million and did minuscule business, but few plan to change anything,” Hughes said.
Alaimo agreed with Hughes that he has not made much money on the extra new items that have been permitted for sale, including lemons and limes.
“There’s not big money in that, plus they go bad,” he said. “You’ve got to refrigerate them.”
“The money is in potato chips, Slim Jims, beer nuts,” Alaimo said. “If you come into my store, you can’t buy potato chips. But if you go into Stop and Shop, you can buy all the chips and beer you want. Does that make sense?”
Maine: Maine Voices: Liquor deal’s critics look to undercut lucrative public-private partnership
Under Maine Beverage, the growth of the state’s liquor business has far exceeded original projections.
Source: Portland Press Herald
By MICHAEL PETERS
The 2003 decision to lease Maine’s liquor business was both bold and smart.
Today, that debate is raging again. Some politicians suggest the decision was unwise and ask whether we should do it again. It is obvious to me that today’s criticisms of this decision and the company holding the liquor contract are unfair.
Prior to 2003, the state’s liquor business was a mess with an uncertain future.
Projections of future revenue, based upon past performance, did not look good. Agency stores complained about lack of deliveries, shortages and poor selection. Although the business was bringing in about $26 million per year, it was underperforming and growing slowly.
In 2003, Gov. John Baldacci took office facing a nationwide recession and a $1.3 billion budget deficit. Baldacci was committed to balancing our budget without raising broad-based taxes, while avoiding taking an ax to necessary services.
To do this, he moved to enact a long-discussed idea — lease the state liquor business for 10 years.
His decision, made with the blessing of the Legislature, not only provided needed money quickly, but it also allowed the state to maintain ownership of the asset. The competitive bidding process that followed was hard-fought between four companies with significant resources.
After an exhaustive vetting process, the state awarded the bid to Martignetti Cos., a company with a 70-year history in the liquor business, because it offered the best deal for Maine taxpayers.
That deal — which required Martignetti to pay $125 million up front — also had the most lucrative revenue-sharing offer of all the competitors, splitting annual revenues with the state for each year of the contract.
This has turned out to be a good deal for Maine. It has helped grow state revenue and avoid tax increases and cuts to important programs while modernizing the liquor business.
Today, there are folks, looking to win the next contract or seeking political gain, who are saying this was a bad deal. They’re wrong.
Since it was privatized in 2003, Maine’s liquor business has grown rapidly, far outpacing original projections. The number of agency stores has grown from 260 to more than 480. The number of deliveries has grown by 85 percent. The number of cases sold is up nearly 25 percent to 940,000 per year, and the annual revenue-sharing payment to the state has grown from $1.2 million to approaching $9 million.
The reason is straightforward. Martignetti, which formed the Maine Beverage Co. to run the state liquor business in partnership with some of its initial competitors, is a skilled corporate partner that provides quality private-sector jobs for more than 150 Mainers while bringing a new level of customer service and expertise to work for Maine.
We should be celebrating the success of this public-private partnership, not attacking it.
Experience counts. The company has made the state’s asset more valuable for whoever runs it for the next 10 years.
Here is the bottom line. I’ve served on the Maine Liquor and Lottery Commission for the past seven years. From a front-row seat, I’ve seen not only this transformation, but also the professional way the company has managed our state’s business and its own affairs. The misleading political attacks on Maine Beverage are disappointing and an attempt to gain an unfair advantage.
In considering this contract, the Legislature should recall the clause that allows for a renewal negotiation, a result of the competitive and transparent original request-for-proposal process.
Our Legislature should also consider requiring an up-front payment of at least $20 million, while requiring that any bidder have 20 years of superior and demonstrable performance in the liquor business.
No one can truly know what would have happened to the state’s liquor business had it not been leased. Today’s critics suggest that the state would have somehow miraculously become good at the liquor business. Not without Maine Beverage.
The 2003 decision gave the state the financial options it needed. And today the state is on the verge of capitalizing on the enhanced value of its asset, to bring in needed revenue to address our budget challenges. That’s a record we can be proud of.
Michael Peters is the former chairman of the Maine Liquor and Lottery Commission.
Michigan: Bill would end some Michigan alcohol regulations
Source: Battle Creek Enquirer
Feb 22, 2013
Legislation in the Michigan Senate would overhaul regulation of the state’s alcohol industry.
Sen. Howard Walker said Thursday the bill he introduced this week would eliminate outdated regulations and increase the size of the industry. The Traverse City Republican wants to let microbrewers have off-site tasting rooms and to allow more resort liquor licenses and beer and wine festivals.
One change would make it harder to prosecute those who sell alcohol to someone who’s intoxicated. The bill says stores and bartenders would have to “knowingly allow” an intoxicated person to be served rather than simply “allow” it.
The legislation incorporates many recommendations unveiled last summer by Gov. Rick Snyder’s Office of Regulatory Reinvention.
Beverage producers and police and school groups opposed some changes.