Bruce Carbonari Speaks on Spirits Outlook

Wall Street has seen several financial upheavals this week but luckily there is a silver lining for the alcohol biz…people are still choosing to drink. In a presentation at the Bank of America Investment Conference, Fortune Brands ceo Bruce Carbonari addressed the state of spirits trends in the U.S. and Western Europe.

Trend #1: People are drinking more at home

“In the U.S. we’ve seen some changes,” said Bruce. “The market is built 20% on-premise (bars, restaurants, nightclubs) and 80% off-premise…slowdown in the on-premise side really driven by casual dining places where people would go out to dinner and have a cocktail or whatever else. We’ve seen an increase off-premise where people are going to the liquor stores and are buying spirits and having their occasions at home.”

Trend #2: Volume growth will slow this year

“It is a market that historically has grown 2-4% on a volume basis. Our take is that we’re going to be at the lower end of that growth this year, about 2-2.5% on a volume basis and there is still room for price.”

Trend #3: Value brands are picking up but premiums take the cake

“In the mix of the business we’ve also seen that we have had a heavy premiumization trend going on in ultra premium and premium. That has slowed down. When you look at premium, standard and value, value has picked up but premium is still growing faster than any other category, it’s just slowed down a little bit.”

Bruce said Western Europe is one of more concern. The company first saw problems it in Spain, which is a market that is 50% on premise and 50% off premise. He said “that business slowed dramatically in the second quarter.”

The UK and Germany are a little bit softer and trends are slowing there as well, but like the U.S. they are more off-premise markets. “Our company is doing well in Germany and the UK in a more difficult economy but it is still growing,” he continued.

BUILDING A NEW SALES FORCE. After Pernod paid Fortune $230 million to terminate its Future Brands joint venture with Absolut, Fortune is working to build its own dedicated U.S. sales force. Bruce pointed out that Fortune has grown a lot in the last decade, and now it needs it own team to drive brands and no longer needs a distribution partner.

WHERE WILL STE. MICHELLE END UP?

Wine blog “The Wine Knows” named several possible suitors for Ste. Michelle. Recall that it was announced last week that UST was being sold to Altria, and chances are it will shed its newly acquired wine asset.

Constellation is the most likely candidate since it’s the largest wine company and is focused on premiumizing its portfolio. Gallo was another company named because – quite frankly – it has the cash to make the deal. The Wine Group is another possibility, but as insiders point out, it generally deals in low-end California wines. Case in point: the company recently purchased Almaden and Inglenook from Constellation for $134 million.

Kendall-Jackson and Trinchero Family Estates could also look to expand into Washington, although we feel this is less likely. There could always be a venture capitalist out there looking to buy St. Michelle, and there’s also the chance that Altria won’t sell. Only time will tell…

Let us know your thoughts at megan@winespiritsdaily.com

WSD BRIEF:

THE EU MAY SUE INDIA again at the World Trade Organization, claiming the country is still making it difficult for European wine and spirits to enter because of high taxes. The Indian government overturned high national taxes, but several states have compensated by raising their tariffs dramatically. Will the U.S. follow its lead?

Until Monday, Megan

“Careful. We don’t want to learn from this.”
Bill Watterson

——— Sell Day Calendar ———-
Today’s Sell Day: 15
Sell days this month: 22
Sell days this month last year: 20
This month ends on a: Tues.
This month last year ended on a: Fri.
YTD sell days Over/Under: -1

WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com

© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.