Jim Beam’s New Japanese Owners Remix Bourbon Brand
Suntory needs to boost sales after pricey acquisition; pushing Kentucky bourbon in Japan
By Tripp Mickle and Eric Pfanner
May 4, 2015
A temporary bar popped up in Tokyo’s Roppongi entertainment district last summer. Stacked on a long counter were 700 bottles of Jim Beam bourbon.
Young people were the target crowd for the Jim Beam Bar. The 30 cocktails on the menu used Jim Beam in ways likely to strike American bourbon drinkers as heresy. Among the popular ones-the Citrus Beam Highball, made with its namesake Kentucky bourbon, club soda and freshly squeezed lemon, orange or grapefruit.
That exercise in cross-cultural pollination was the work of Suntory Holdings Ltd., which bought Beam Inc. last year for $13.6 billion, creating the third-largest liquor company in the world. To help pay back debt amassed in the deal-one of the biggest-ever overseas transactions by a Japanese company-Suntory is trying to double global spirits sales by 2020.
Hitting that goal won’t be easy. Suntory will have to outpace industrywide growth in its two biggest markets, the U.S. and Japan, and expand into new markets. While bourbon sales have been on a tear in the U.S., pushing Jim Beam in Japan is another matter. And selling Japanese whiskies in the American market, where Yamazaki, Kakubin and other Suntory brands are largely unknown, is likely to be even tougher.
At the same time, another challenge looms: meshing two vastly different corporate cultures inside its new global liquor subsidiary, Deerfield, Ill.-based Beam Suntory Inc.
“We have to overcome the huge differences in the Japanese mentality and the American mentality,” says Takeshi Niinami, a Harvard Business School graduate who last year became the first president of privately owned Suntory from outside the founding family. “It creates misunderstandings.”
Jim Beam master distiller Fred Noe, a seventh-generation Jim Beam family member and former roadie for Hank Williams Jr., caused some to cringe at a recent promotional event in Tokyo when he described Suntory executives as his “buddies” and embraced one of them. Japan frowns on physical contact in a business setting.
Suntory’s global push comes during a heady time for the liquor industry, which rebounded quickly from the recession and is optimistic about world-wide growth prospects. Industrywide sales climbed about 5% a year between 2009 and 2014, according to research firm Euromonitor. In the U.S., liquor has been stealing market share from beer for five years. Liquor companies see developing countries as a largely untapped growth market.
Even so, Suntory is facing “big challenges,” says Jeremy Cunnington, Euromonitor’s alcoholic-beverage analyst. “They can carry on squeezing growth out of core markets, but it’s a tough thing for them to do. And abroad, they’re coming quite late to the party.” The world’s two largest liquor companies, Diageo PLC of Britain (Johnnie Walker Scotch, Smirnoff vodka) and Pernod Ricard SA of France (Absolut vodka, Chivas Regal Scotch) “have been working very hard,” he says.
Suntory had been looking to break out of the Japanese market for years. Founder Shinjiro Torii, an Osaka shop owner, in the 1930s created the first commercially successful Japanese whisky, modeled after Scotch. Over the years, the company diversified into a sprawling drinks empire that includes whiskies, liqueurs, canned highballs, wine, soft drinks and tea. Although Suntory made a few overseas acquisitions, including the $2.8 billion purchase of Orangina Schweppes Group in 2009, more than 90% of its spirits sales before the Beam deal came from Japan, a troubling prospect given the nation’s sluggish economy and aging population.
It saw Jim Beam as a ticket out. In the 1930s, James B. Beam had set up a distillery and turned a nearly 150-year-old family recipe into Jim Beam Kentucky Straight Bourbon. Beam expanded aggressively overseas after World War II. In 1968, the family’s business partner sold the company to a conglomerate that eventually became Fortune Brands. A 2005 deal added Maker’s Mark bourbon, Canadian Club whisky, Sauza tequila and Courvoisier cognac. In 2011, under pressure from activist hedge-fund investor William Ackman , Fortune spun off Beam as a public company.
In April of last year, Suntory acquired Beam, where sales had been climbing, at a 25% premium to Beam’s stock price. The deal, valued at $16 billion when debt is included, gave it the world’s top-selling bourbon and a global distribution network-a world-wide sales force of more than 2,200 across the company and its distributors.
Suntory decided to keep the headquarters in the U.S. and have the U.S.-based management team, led by British executive Matt Shattock, run the global liquor operation, including its Japanese brands.
“This was about bringing together complementary geographies, complementary portfolios and driving a growth story,” says Mr. Shattock, chief executive of Beam Suntory. “This was not an acquisition driven by cost synergy and overlap.”
Many of Beam’s 3,200 employees hoped joining a family-owned Japanese company that uses the slogan “sharing the profit with society” would provide a break from the Wall Street pressure, according to several former senior staffers.
Instead, they were introduced to a new monthly financial-reporting system that is standard practice in Japan. Mr. Shattock acknowledges that adopting it has been a challenge, but adds that it is “not a bad development for us” because it has forced the company to “get more granular in building budgets.”
Everyone had to grapple with two distinct business cultures: a Japanese one that stresses modesty, detail and consensus, and a Western one that emphasizes frankness, flexibility and speed. Mr. Niinami, Suntory’s president, says he favors the “blunt but honest” American approach.
Shortly after the deal, Suntory sent Japanese advisers to Illinois to shadow Mr. Shattock and his executive team. The Japanese advisers observed meetings but didn’t participate, according to a former U.S. executive. Later, they held meetings of their own, unnerving the Americans, who felt spied upon and took to discussing business with one another in hallways, says the former executive.
Mr. Niinami of Suntory Holdings says the advisers, who remain in the U.S., are supposed to learn from American managers, not spy on them. Because American companies often hire top executives from other businesses, Mr. Niimani says, they have a broader skill set than Japanese managers, who tend to be promoted from within. “In the leadership space, I would say we have to learn from Beam Suntory,” he says.
In Frankfort, Ky., where the U.S. distilling operations long have been based, Beam Suntory began providing plant employees with uniforms: light-blue shirts, navy-blue pants and jackets, and safety shoes. Uniforms in the workplace are common in Japan but not in the Kentucky bourbon business.
Mr. Shattock says Suntory is developing a more consistent tasting process for its distilleries. He declines to elaborate, but it likely will mean changes to the current process in which employees are invited in the middle of the day to compare sips of new batches.
The company also is preparing to bring the Japanese concept of “kaizen,” or continuous improvement, to bourbon. The concept, ubiquitous in Japan, calls for companies to make minor improvements in all aspects of their business.
Mr. Niinami says the idea isn’t to change the Jim Beam formula, which has been the same for nearly 200 years, but to fine-tune the production process. “Quality improvement is an everyday issue,” he says. “It’s a matter of little-by-little improving its quality.”
Any suggestion that Jim Beam’s quality can be improved unnerves some company executives. The company claims its blind tastings show that consumers prefer Jim Beam to Jack Daniel’s Tennessee Whiskey, the No. 1 American whiskey world-wide. A Jack Daniel’s spokesman responds that it has “field testers in more than 160 countries who might take issue with those results.”
The Beam acquisition increased Suntory’s debt burden by about $10 billion, according to Moody’s Investors Service. Last May, the ratings agency downgraded Suntory debt to Baa2 from A3, partly because of the higher debt, according to Moody’s analyst Mariko Semetko. More than half of the debt is denominated in dollars, Suntory says. That means the company is likely to need more yen than initially expected to pay back the loans.
Doubling sales by 2020 is an ambitious goal. Global sales, by volume, of Suntory’s top seven brands-in order, Jim Beam, Courvoisier, Sauza, Suntory Kakubin, Maker’s Mark, Pinnacle vodka and Teacher’s Scotch-increased by 3% last year, according to industry-tracking service Impact Databank.
Beam Suntory currently sells about 10 million cases of bourbon and five million cases of Japanese whiskey a year, Mr. Shattock says. It aims to increase alcoholic-beverage sales, including beer and wine, by 18% in 2015, largely by boosting sales of whiskies, which account for more than 50% of sales.
That will mean turning Jim Beam into a stronger global challenger to Jack Daniel’s. Brown-Forman Corp. ‘s Jack Daniel’s sold nearly twice as many cases as Jim Beam in 2013, according to the most recent data from industry tracker IWSR.
Suntory has a global bourbon boom on its side. Over the past five years, sales have increased 35% in the U.S. and 50% overseas, according to the Distilled Spirits Council of the U.S. World-wide whiskey sales are growing at 5% a year, outpacing every other major liquor category, according to IWSR.
Suntory is trying to increase Jim Beam sales in India, Mexico and Brazil, Mr. Shattock says. The plan for Japan is to promote Jim Beam for use in mixed drinks, and Knob Creek, one of the company’s premium brands, as a “craft bourbon” in an effort to create new demand.
Suntory took over Beam’s distribution in Japan in 2013, the year before it acquired the company. Since then, it has increased Jim Beam annual sales in Japan to 253,000 cases, from 27,000 cases. Its goal is to sell 800,000 cases a year in Japan by 2020. Global sales totaled 7.4 million cases in 2014, according to Impact Databank.
‘Lost in Translation’
In the 2003 film “Lost in Translation,” Bill Murray plays a jaded American actor hired to pitch Suntory whisky in Japan. As part of its real-life marketing push in Japan, Suntory hired Rola, a Japanese model and TV personality, to pitch Jim Beam to young drinkers as a cool alternative to native whisky and sake. In a TV ad, she struts around a bar in a shimmering silver minidress, mixing a cocktail of bourbon, soda water and lemon on the rocks.
Another TV spot features American actor Leonardo DiCaprio. “Cool bourbon,” he says. “Jim Beam.”
As of February, Jim Beam was being offered in about 10,000 Japanese bars and restaurants, up from 4,000 a year earlier.
Queen of Chickens, a chain of rotisserie-chicken restaurants, was the second place in Tokyo to begin serving Jim Beam citrus highballs, says Hiroyuki Sakai, chief executive of the chain’s parent company.
“Jim Beam was perceived as cheap liquor in the past, so it didn’t really sell well to either deep bourbon fans or younger drinkers,” he says. “It was a very good idea to use Rola and Leonardo DiCaprio to reach out to the younger generation.”
Megumi Kawahara, 22 years old, was drinking a Beam highball with fresh grapefruit juice at Queen of Chickens one recent evening. “I thought bourbon was stronger, but it tastes light,” she said.
Toro Gastro Bar Tokyo in the Ginza district has a section of its menu dedicated to Jim Beam highballs.
“I’ve been in this industry for nearly 20 years, and I’ve almost never seen women in their 20s order Jim Beam before,” says Chihiro Iwasaki, who is in charge of the restaurant. “Highballs make it easy for them to order bourbon.It’s difficult for beginners to enjoy bourbon on the rocks at first, so it’s a good entry point.”
Persuading American drinkers to try Suntory’s Japanese whiskies might be more difficult. Japanese whisky accounted for less than 1% of the $7.5 billion of U.S. whiskey sales in 2014, according to the Distilled Spirits Council of the U.S.
Mr. Shattock says the company intends to begin to “seed Japanese whisky” in the U.S. by introducing Hibiki Japanese Harmony, which the company says is similar to blended Scotch, later this year.
The company is pushing U.S. distributors to promote Suntory’s Japanese whiskies, helping to arrange tastings at bars and restaurants.
Tom Cole, president of Republic National Distributing Co., says: “They’ve made it clear they want those whiskies to see the light of day.”
Senators McConnell and Paul Introduce Bourbon Bill on 51st Anniversary of Congressional Bourbon Resolution
AGED Spirits Act is a pro-growth measure that will help provide a boost to our economy and help create jobs in Kentucky
Source: Senators McConnell and Paul
May 5, 2015
On the 51st anniversary of Congress designating Bourbon as a distinctive product of America, U.S. Senate Majority Leader Mitch McConnell and Senator Rand Paul are introducing legislation which corrects a provision in the tax code to ensure that Kentucky’s Bourbon producers are no longer at a disadvantage with their global competitors.
Earlier today, Senators McConnell and Paul introduced “The Advancing Growth in the Economy through Distilled (AGED) Spirits Act,” which would level the playing field for Bourbon producers by allowing deduction of interest expense related to Bourbon inventories in the year it is paid, thereby improving their competitive position.
“Kentucky produces 95 percent of the world’s Bourbon supply,” Senator McConnell said. “Over 15,000 jobs in Kentucky are attributed to the Bourbon industry and it brings in billions of dollars to our state’s economy. This legislation will not only put Kentucky’s Bourbon industry on a level playing field with its competitors, but it is a pro-growth measure that will also help provide a boost to our economy and help create jobs in Kentucky.”
“The Advancing Growth and Exports through Distilled Spirits Act will preserve Kentucky’s signature Bourbon industry by boosting job creation and establishing a level playing field between Bourbon and whiskey producers at home and their competitors abroad,” Senator Paul said.
Under current law, unlike most other spirits, Bourbon and whiskey producers in America must capitalize the interest expense incurred to finance inventories, and it is not deductible until the product is sold, which could be as long as 23 years after a lengthy aging process. However, in the United Kingdom all spirit producers are permitted to deduct interest expense the year it is capitalized. This discrepancy is harmful to American makers of distilled spirits as it contributes to increased costs that directly create a competitive disadvantage for American products in the global marketplace.
“Our bill would fix this discrepancy by permitting American Bourbon and whiskey producers to deduct interest expense associated with production in the year it is paid by exempting the natural aging process in the determination of the production period for distilled spirits,” Senator McConnell said. “Making this change in law is a matter of common sense. The situation under current law, where American Bourbon and whiskey producers are not allowed to deduct the expenses related to storing and aging their product until it is bottled and sold, is akin to a homeowner not being able to deduct the interest on a home mortgage until the sale of the house.”
Over the last several years, high-end premium American Bourbons and whiskeys have enjoyed significant growth in volume both here in the U.S. and in international markets. Bourbon production has increased more than 150 percent since 1999. Given equitable tax treatment, American Bourbon and whiskey products, as well as related jobs, could grow even more. This problem reveals just one of the many flaws in the nation’s broken tax code, which ultimately needs to be comprehensively reformed to promote even greater job creation and economic growth in our country.
“Fifty-one years after its official recognition, Bourbon is responsibly enjoyed by adults all over the world, and not just on Derby Day. The industry has grown and thrived, and I am sure it will continue to do so. I want to thank and congratulate all the hard-working Kentuckians who have contributed to building our state’s vibrant Bourbon industry,” Senator McConnell said.
Craft Beer Brewer Blows Whistle, Gets Own Distributor in Trouble
By Adam Vaccaro
Dann Paquette, the co-owner of local craft brewery Pretty Things Beer and Ale Project, took to Twitter last fall to blow the whistle on his own industry.
Paquette decried “pay to play” practices, in which bars take either cash or freebies from brewers or beer distributors in exchange for putting their beer on tap. He said the practice was keeping his beers out of bars. The tweets caused a stir, and a day after he typed them, The Boston Globe reported that the state’s Alcoholic Beverages Control Commission had begun investigating what Paquette described as a common practice across the state.
Paquette’s October tweets focused largely on the role of bars and restaurants in these arrangements. But it takes two to tango, with the second partner being either a brewer or a distributor. And how’s this for irony: The ABCC has accused Paquette’s own distributor of tangoing.
Craft Beer Guild in Everett, a big Massachusetts beer distributor whose wide portfolio includes Pretty Things, will face the ABCC in June to determine whether it paid or otherwise induced bars for tapline placement. While the company is accused of violating rules prohibiting the practice, there aren’t any details about how it did so or with what beers.
Martha Holley-Paquette, the co-owner of Pretty Things and Dann Paquette’s wife, confirmed to Boston.com that Craft Beer Guild is their distributor. Pretty Things has had no involvement in the state investigation, she said in an email.
“We have no idea who is and is not specifically responsible for engaging in pay to play,” she said. “It was and is our belief that the practice is pervasive in our industry in many states, involving breweries, bars, restaurants, liquor stores and distributors.”
So, if the charges brought against Craft Beer Guild are found to be true, what’s the feeling out of Pretty Things? Disappointment? Surprise? Neither? After all, Paquette’s complaint was that the practice was widespread, so maybe it makes sense that the resulting investigation would hit close to home.
Holley-Paquette declined to say how she and her husband would feel if the accusations are proven true, or how such a finding would affect their relationship with their distributor. “We aren’t interested in speaking hypothetically,” she said.
In addition to Pretty Things, Craft Beer Guild’s expansive list of beers it distributes includes Brooklyn, Allagash, Smuttynose, Abita, Yuengling, Mayflower, and many more local and national craft brews. The company did not comment for this article, but Beer Distributors of Massachusetts, the trade group representing the industry, issued a statement on its behalf, focusing on due process for the charges.
“Full cooperation has been provided to the ABCC investigation, and we look forward to a full and fair process to be administered by the commission. The ABCC’s process is the appropriate venue in which to address this issue,” the statement read.
Craft Beer Guild will face the ABCC on June 23. The ABCC’s investigation is ongoing, and it remains to be seen whether other companies will face similar accusations.
Reducing alcohol-related car crashes may help economy
By Andrew M. Seaman
The large reduction in alcohol-related motor vehicle crashes over the past few decades helped the U.S. economy, according to a new study.
Of the $200 million of compounded annual growth to the U.S. gross domestic product (GDP) since 1984 to 1986, about 5 percent is a result of reduction in alcohol-related car crashes, researchers report.
Economic gains will continue to accumulate as alcohol-related car crashes continue to become less common, said Ted Miller, a study author from the Pacific Institute for Research and Evaluation in Silver Spring, Maryland.
“We know where to move to get more reductions,” he said. “We need to hold the course and keep expanding it.”
The installation of breath-controlled ignitions or crash avoidance systems may help reduce alcohol-relate car crashes, Miller told Reuters Health by phone.
The researchers write in the journal Injury Prevention that previous cost estimates of alcohol-related car crashes don’t describe the effects to the economy. Instead, they took employers’ or societal perspectives.
The authors say analyzing those costs may not take into account ramifications throughout the economic system.
For example, Miller said, a person in an alcohol-related car accident may need hand surgery in a local hospital. If they weren’t in the accident, they may instead buy a diamond ring, which would likely benefit another country’s economy.
In that situation, the costs associated with an alcohol-related car crash may actually benefit the U.S. economy, because the money being spent on the surgery is staying in the U.S.
“That was something that concerned me that having a cast on your finger rather than a ring may be good for the economy, but it turns out it’s not,” he said.
The researchers found that about 12 percent of people involved in U.S. car crashes in 2010 were involved in an alcohol-related crash.
Miller said that’s about half of the proportion involved in alcohol-related crashes in 1984 to 1986.
They found that Americans drove 25.5 billion miles in 2010 with blood alcohol levels exceeding 0.05. Almost 14 billion of those miles were at blood alcohol levels above the legal limit of 0.08. Each of those miles cut U.S. economic output by $0.80, the authors say.
Overall, alcohol-related crashes reduced the U.S. GDP by $10 billion and cost 234,000 jobs, they found.
Healthcare was the only business sector that benefited from alcohol-related crashes, because of the increased demand for medical services after traffic accidents.
Miller said the economic growth is partially due to people not being out of work and being able to spend money on other services. It’s also due to employers not having to pay benefits for disability, paid time off and additional workers.
“What’s happening by reducing impaired driving, we’re reducing the fringe benefit bill that employers have to pay,” he said.
The researchers caution that their results are limited by the modeling they used. Also, they don’t account for premiums paid for workers to take high-risk jobs, or for the cost of prevention efforts.
Sinful Maybe, But Not How You Think
Source: Chuck Cowdery Blog
May 4, 2015
Sinfully Thinn is a new line of whiskey products from a micro-distillery in Ohio, near Lake Erie northeast of Cleveland. The sin? That there is nothing thin about it.
Don’t you expect that a product called Sinfully Thinn Light Whiskey will be lower in calories than regular whiskey? Comb through the web site. They make no such claim. They can’t. Ethanol is ethanol. It’s all the same. There is no reduced calorie version.
It works like this. All of the calories in whiskey come from ethanol. They say their 1.5 ounce serving contains 100 calories. A 1.5 ounce serving of whiskey at 40% alcohol-by-volume (ABV) is 0.6 ounces of ethanol, which contains about 119 calories at the standard for ethanol of 7 calories per gram. They say 100. Have they reduced the calorie count by 16 percent? I doubt it. If they had, they would say so. They’re just calculating it a little bit differently. There is no official standard for stating calories on beverage alcohol products, so there is no telling how that number was reached.
And don’t forget, they don’t claim to be reducing calories. It’s all in the implication of the name.
What they do make a big deal about is their vacuum distillation process. In beverage production, vacuum distillation is most commonly used to make gin and other infusions. MGP of Indiana uses vacuum distillation to make Seagram’s Gin. Vacuum distillation has no effect on calorie count.
Finally we come to this, the words ‘light whiskey.’ ‘Light’ means lower in calories, doesn’t it? Not in the case of light whiskey. According to the Federal Government’s Standards of Identity for Distilled Spirits, light whiskey is a high proof distillate from grain, distilled between 80% and 95% ABV, that has been aged in used or uncharred barrels. Made similar to Scottish grain whiskey, it was supposed to help American distillers compete better with scotch. It didn’t. It failed miserably.
‘Light,’ as used, means lighter in flavor, not calories. Light whiskey became legal in 1968 and had pretty much bombed out by the early 1970s, right about the time Miller Brewing decided that ‘light’ (or in their case ‘lite’) would henceforth mean, not lighter in flavor, but lighter in calories, and that’s how people think about it today.
So is Sinfully Thinn Light Whiskey a lower calorie whiskey? No, it’s not. It contains the same number of calories as other whiskeys of the same proof.
But what about light beers? They claim to have fewer carbs and fewer calories, how do they do it? By containing less ethanol. Some of the lowest are 2% ABV or less.
There are three expressions of Sinfully Thinn Light Whiskey, one unflavored and two flavored, blueberry and cinnamon. The flavored versions contain fewer calories than the unflavored one because they contain less ethanol. Light whiskey must be bottled at at least 40% ABV, but flavored light whiskey may be bottled at 35% ABV. (That’s about 104 calories per 1.5 ounce serving at 7 calories per gram.)
The maker of Sinfully Thinn is Seven Brothers Distilling Company in Painesville, Ohio.
Why Can’t You Distill Liquor That’s 100 Percent Pure Alcohol?
The highest proof alcohol you can buy is Everclear, at 190 proof. That’s nothing! Let’s get together and make an alcohol that’s 200 proof! Except we can’t possibly do that. There’s a physical limit to how pure alcohol can actually get, and we’ll tell you why.
Ethanol, the business molecule of alcohol, is more volatile than water. Given any set of conditions, it will be more likely to fly away than water molecules. This includes higher temperatures. Heat up a mix of ethanol and water, and more of the ethanol will go away. This proved a bane to liquor makers, until someone stumbled on the secret of distillation. Heat up a mixture of ethanol and water to a point where the alcohol boils but the water (except for the stray molecule or two) does not, and you can make a liquid that’s pure water and collect a steam that’s pure ethanol.
Few people actually wanted pure ethanol, though. Though a little extra kick was good, only the hardcore drinkers demanded pure alcohol – and they weren’t going to be repeat customers. So it took a relatively long time for people to realize that no one could make pure alcohol or pure water from ethanol and water.
This is because ethanol is not an ordinary mixture, it’s an azeotrope. Instead of boiling purely and separately at two different temperatures, its vapor will form a certain proportion. Steam from alcohol is 95.57 percent alcohol. Get a pot of 95.57 percent ethanol boiling and the steam will be 95.57 percent ethanol right down until the last drop evaporates. That’s the limit.
It seems like it should be enough. (There is, reportedly a Bolivian beverage, Cocoroco, that’s 96 percent ethanol. It’s not legal, but it does exist.) However, leave it to people to try and change it. Someone found a solution. Benzene, when added to a mixture of water and ethanol, will allow more alcohol to steam upwards. What a disappointment that benzene was found to be carcinogenic. Well, we still can dream.
How Much Did Wineries Really Make in 2014?
Source: SVB on Wine
Wine boss kick-back trial begins
Source: NZ Herald
May 4, 2015
Former New Zealand Wine Company chief executive Peter Scutts played a “double game”, receiving kick-backs from a wholesaler the company was supplying wine to, the Auckland High Court has heard today.
In a case brought by the Serious Fraud Office, Scutts is facing 16 Crimes Act charges of dishonestly using a document and one Secret Commission Act charge of receiving secret reward for procuring contracts.
He has pleaded not-guilty to all charges.
During her opening at today’s High Court trial, Crown prosecutor Rachael Reed said Scutts played a “double game” in early 2011, working for the New Zealand Wine Company (NZWC), which he later became chief executive of, while also receiving kick-backs from Australian-based wine wholesaler Liquor Marketing Group (LMG).
Scutts received AUD$1 for each case of wine supplied, the kick-backs ultimately totalling AUD$53,000, Reed said.
NZWC did not know of the reward paid and it was in direct conflict to his role with them, she said.
In his contract with NZWC, Scutts was able to provide services to other companies, provided that they did not conflict with the business of NZWC. However, the contract stipulated he was to inform the company if any conflicts of interest did arise, Reed said.
NZWC first supplied wine to LMG in May 2011 and Scutts proceeded to invoice LMG for what he recorded on the invoices as “marketing services”.
The invoices were in fact “thinly disguised brokerage payments” which were hidden from NZWC, Reed said.
Scutts told SFO investigators that LMG had asked for photographs of the head NZWC winemakers, but they had refused, so an agreement was come to where a photo of Scutts’ son Oliver was used instead for a fee of AUD$1 per case sold.
The explanation defied logic and commercial reality as it was common practice in the industry for wine makers to provide marketing materials and wine tastings for free, Reed said.
It also contradicted the evidence, as Oliver Scutts’ image only appeared on marketing materials for six-months, yet Peter Scutts invoiced for 15-months of “marketing services” from May 2011, Reed said.
In defence, Scutts’ lawyer John Billington said the “key and central difference” between the crown and defence case was the timing of the agreement between Scutts and LMG.
The agreement came about when the wine was on the water and it was realised that NZWC did not have the resources to market the wine in Australia, Billington said.
The agreement was also a good one for NZWC as Scutts supplied a significant amount of Marlborough Savignon Blanc to the market for a profit, during the time of a wine glut in the Australasian market and when NZWC was under the scrutiny of its bankers and on the brink of insolvency, Billington said.
NZ Wine Company, whose stable included Grove Mill, Sanctuary and Frog Haven brands, merged with Foley Family Wines in September 2012 after shareholders agreed to California-based billionaire Bill Foley taking an 80 per cent stake in the company.
The trial, which is being held before Justice Mary Peters, is set down for the rest of this week.
China’s Wine Industry Explodes, But Not Yet On The World Stage
By Michelle FlorCruz
May 03 2015
China is in the midst of another red revolution, but this one involves red wine. Over the past 15 years, its fledgling wine industry has expanded dramatically, with vineyards now occupying more than 3,000 square miles of land, according to a report by the International Organization of Vine and Wine. That’s more than 10 percent of the world’s total vineyards, and a larger area than any nation on earth after Spain — more than vineyards in France, Italy, Australia and the U.S.
The growing popularity of wine in China stems in part from the country’s breakneck economic development and the rise of a moneyed consumer class: Newly minted aficionados buy wine as a symbol of sophistication. Two years ago, China became the world’s largest consumer of red wine, snapping up 155.4 million cases, compared with 150 million cases in France and 141 million in Italy, according to a report by Vinexpo, an international wine and spirits exhibition.
Roughly one-half of China’s wine sales are racked up by foreign producers, with Chinese wineries still generally occupying the middle to low end of the market. But international wine critics are now giving favorable ratings to high-end offerings made in China. And given the scale of the Chinese wine industry and its growing ambitions, restaurants from New York to London could add Chinese bottles to their wine lists — eventually.
Years ago, both Chile and South Africa managed to transform themselves from veritable wine pariahs, churning out massive volumes of low-grade product, into sources of often prize-winning bottles. Although experts see no onslaught of Chinese wines on the world market anytime in the immediate future, they recognize the potential — particularly as reputable European vintners bring their know-how and brands to the mission through joint ventures with Chinese producers.
“It takes time. Vines aren’t something you can plant and have good wine that year,” Master of Wine Debra Meiburg told Agence France-Presse last year. “China will rock our wine world — we just have to wait a little longer.”
If foreign capital and skill succeed in helping make China a wine power, that would reprise country’s recent history: Winemaking was among the first industries that saw domestic and foreign investors join forces as part of the nation’s first tentative experiments with market-based economic reforms.
The roots of China’s wine industry date back to 1892, the tail end of the Qing dynasty, with the establishment of the Changyu Winery in Yantai, a city in the coastal province of Shandong — an area that remains among the country’s largest wine producers. Nearly two decades later, in 1910, the Beijing Winery opened its doors, producing wine used in the performance of religious rites by China’s Christians.
The first company built with the help of foreign funding emerged in 1979: the Great Wall Wine Co., which used equipment imported from France, Germany and Italy. The following year, the French company that is now Remy Cointreau, the maker of Remy Martin cognac and Cointreau liqueur, invested in Tianjin to create Dynasty Wines. French capital and know-how helped Dynasty establish European-style quality-control and management practices. That early investment paid off handsomely: Changyu, Great Wall and Dynasty — often called the Big Three of Chinese wine — now own a majority of the country’s wineries, with combined revenues estimated at $8 billion, and are increasingly recognized as producers of quality wines.
The involvement of major French brands has been a powerful spur to generating Chinese consumer interest in domestic wine, lending the imprimatur of international authority. Urban, affluent Chinese consumers tend to be highly brand-conscious. Just as taste in cars and clothing has drawn luxury consumers to foreign brands such as Audi and Armani, the growing Chinese appetite for wine has similarly centered on prestige names — not the least of which is Chateau Lafite Rothschild, owned by France’s Domaines Barons de Rothschild, one of the five archetypal producers of Bordeaux.
The popularity of the French import led Rothschild to start its own Chinese vineyard in 2013, cultivating 37 acres of land in Penglai, a peninsula in Shandong. There, Rothschild grows predominantly cabernet sauvignon, the primary grape in Bordeaux reds.
The French luxury group LVMH Moet Hennessy now aims to capture a piece of China’s wine growth, claiming 163 acres in the north-central province of Ningxia — one of the poorest areas in the nation — in addition to 74 acres in the southwestern province of Yunnan.
“I think as consumers increasingly buy based on taste, we are going to see more diversity in terms of grape varieties, and we’ll hopefully see which do best in China,” said Jim Boyce, a Beijing-based food and beverage writer and blogger at Grape Wall of China.
If reviews are any indication, wine experts have already begun to see China as a legitimate producer of quality wines.
“Real wine — deep-colored, full-bodied, tannic, but with a lot of fruit — that could have held its own with cabernets from other countries,” read a 2010 review in the Wall Street Journal of a Great Wall 1998 cabernet, which cost about $72 a bottle in Shanghai.
High-end Western restaurants and hotels in Shanghai are already stocking some of China’s best wines, mostly from the city of Yantai and the far-western province of Xinjiang. Wines made in Ningxia recently received international accolades from Decanter Magazine. Several other wines from China have received positive reviews by Robert Parker, a leading American wine critic, with 18 of 20 wines scoring average or better on his scale.
Most of China’s higher-end wineries are essentially boutique operations, producing at such small scale that they cannot compete on volume or price against competitors in Australia, Europe or the U.S. “While there are several dozen producers making decent wines now, the prices are quite high by international standards,” Boyce said. This is why China is unlikely to become a major exporter anytime soon.
Most Chinese wines that do make it overseas generally land in the low-price bin, said Karl Storchmann, an economist at New York University and editor of the Journal of Wine Economics. This is little different from the course of wine history in Chile, South Africa and California: They evolved beyond producing massive quantities of lower-end wines to eventually yield a handful of strong names distinguished by their quality.
China “will need a few flagship brands to be able to compete at the high end,” Storchmann said.
Among international consumers, not even China’s Big Three have gained much traction. In New York, tracking down a bottle of Chinese-made grape wine was nearly impossible.
After several calls to liquor stores, large wine distributors and restaurants, International Business Times was able to find only a couple of Chinese imported grape wines. Even New York’s high-end wine shops that keep a stock of international wines didn’t carry any Chinese grape wine. The only success was at Chinatown’s Yoshi Wine and Liquor, which carried a limited selection of cheap Chinese wines. The two available — Chefoo red wine, a brand owned by Changyu, and a Kuei Hua Chen Chiew dessert wine, produced by Beijing’s Dragon Seal Wines — were each priced at $4.50. (Their quality, after a quick tasting in the newsroom, was largely deemed to be consistent with their rock-bottom price.)
For now, China’s bid to export higher-quality wine remains limited largely to Hong Kong and Macau. “There’s far more money to be made at home than in selling abroad,” Boyce said.
With China’s growing middle class expected to surge to half a billion people by the end of this decade, that gives Chinese winemakers an extraordinary opportunity: They can continue to reap the spoils of a burgeoning domestic market. Meanwhile, wine buyers outside are not yet likely to encounter bottles bearing Chinese labels.
“The appetite for ‘made in China’ wines outside China is very limited,” Chan said. “If you think about wine, China would not be the place that comes to mind.”
At least, not yet.
Ignite reports $22.2M loss in 1Q
Results reflect sale of Romano’s Macaroni Grill
May 4, 2015
Ignite Restaurant Group Inc. reported Monday a $22.2 million loss for the first quarter ended March 30, reflecting its sale in mid-April of Romano’s Macaroni Grill.
The Houston-based casual-dining company reported a loss of 87 cents a share, which widened from a loss of $265,000, or one cent a share, in the first quarter a year ago. The loss from continuing operations, which excluded Macaroni Grill, was $3.2 million, or 12 cents a share, compared with profit of $145,000, or one cent a share, in the same period last year, the company said.
Ignite’s revenue for its two remaining brands, Joe’s Crab Shack and Brick House Tavern + Tap, fell 0.7 percent, to $122.2 million, from $123.1 million in the prior-year period.
Same-store sales declined 3.8 percent at Joe’s Crab Shack in the quarter and rose 5.4 percent at Brick House Tavern + Tap.
Ray Blanchette, Ignite’s president and CEO, said he was pleased with the momentum at Brick House, and added that company was addressing trends at Joe’s.
“While sales challenges persisted at Joe’s Crab Shack, we have streamlined our organizational structure to allow us to refocus our management team, reduce costs and position ourselves to create momentum heading into the summer,” Blanchette said.
Last month, the company announced a restructuring of its management team. The effort was to make Ignite a “leaner, more efficient organization,” Blanchette said on April 17, upon closing the sale of 171-unit Macaroni Grill in an $8.2 million deal with Phoenix-based Redrock Partners LLC.
During the first quarter, Ignite opened two company-owned Brick House restaurants, one in Princeton, N.J., and one in Grapevine, Texas.
Ignite has 161 casual-dining restaurants, including 138 Joe’s Crab Shacks and 23 Brick House units.
Texas Roadhouse 1Q profit rises 22%
Same-store sales rise 8.9 percent at company restaurants
May 4, 2015
Texas Roadhouse Inc. reported Monday a 22-percent increase in net income during the first quarter ended March 31, amid rising same-store sales and new restaurant development.
Same-store sales in the quarter rose 8.9 percent at company restaurants. The momentum continued in April, when same-store sales rose 8.4 percent, the company said. Same-store sales rose 8 percent at franchisee-owned locations.
“We are off to a strong start for the year with another quarter of solid revenue growth driven by increasing guest counts and new restaurant development,” CEO Kent Taylor said in a statement. “We credit our success to our value proposition with consumers and our ability to execute at the restaurant level even in the face of continued commodity inflation.”
Net income was $32.3 million, or 46 cents per share, rising from $26.5 million, or 37 cents per share in the same period a year ago.
Restaurant margins, however, decreased 20 basis points, to 19 percent of sales. Commodity inflation of 5.2 percent, especially for beef, offset higher average unit volumes. Food cost inflation for the year is expected to be 3 percent to 4 percent.
Total revenue at the Louisville, Ky.-based operator increased 16 percent, to $460.2 million, from $397 million in the same period a year ago.
The company expects to open 25 to 30 company restaurants this year. The company currently has 455 restaurants in 49 states.
Sysco tries to salvage merger with US Foods
Faceoff with FTC will determine fate of Sysco-US Foods combination
May 4, 2015
Sysco Corp. will face off with the Federal Trade Commission in a federal court Tuesday at the start of a seven-day hearing that will likely determine the fate of the company’s proposed merger with US Foods Inc.
The merger could have significant consequences for the restaurant industry, which depends on companies like Sysco and US Foods to get the ingredients they need to produce the products they sell to consumers. But how exactly the deal would impact restaurants is at the core of the argument between the companies and the federal government.
To block the merger, the FTC must prove that combining the two largest, most influential food distributors in the market will hurt competition and drive up prices for consumers.
Meanwhile, Sysco argues that the FTC has misjudged the market, and suggests that there is plenty of competition and that its combination with US Foods would lower prices.
“One of the challenges for the FTC is how you define the relevant market,” said Mike Keeley, antitrust litigator with the Washington law firm of Axinn, Veltrop & Harkrider LLP. “The government has to define the relevant market, the national market and national providers, and how that squares with local school districts. They can presumably turn to local providers not competing nationally. The legal burden is on the FTC. They have to make their case.”
Sysco and US Foods proposed the $8.2 billion merger in December 2013. In February, the FTC decided to sue the companies to block the combination. The hearings that begin Tuesday will be over a preliminary injunction the FTC is requesting to block the merger.
The result of the hearing will determine the merger’s fate, because the loser is expected to drop its case. If the FTC loses, the merger would proceed. If Sysco loses, it will likely cancel the merger with US Foods.
“It’s quite rare that at the end of a preliminary injunction hearing you don’t know whether the deal is dead or alive,” Keeley said.
Keeley suggested that the deal could be settled in the midst of a hearing, although that is uncertain at this point. Sysco and US Foods have already offered to sell 11 US Foods facilities, with $4.6 billion in annual revenue, to a smaller competitor, Performance Food Group.
The FTC argues that combining Sysco and US Foods would eliminate competition in the market and create a single, dominant, national broadline distributor. It argues that restaurants and other foodservice companies would pay higher prices as a result, and those prices would be passed onto consumers.
But the FTC’s five-member commission – three Democrats and two Republicans – was split along party lines over whether to pursue a lawsuit. Historically, that’s rare, Keeley said, but it’s less rare now amid a debate within the FTC over how aggressively to block challenges to mergers.
Defining the market has proven difficult. The FTC argues that the distribution market is divided between specialty distributors, systems distributors, cash-and-carry stores like Restaurant Depot and broadline distributors like Sysco. A combined Sysco-US Foods entity would have 75 percent of the market for national broadline distribution, the company argues.
It also argues that Sysco would have more than a 50-percent market share in 32 cities, including 100-percent market share in San Diego.
But Sysco argues that there is no market for national broadline distributors, and that it would have just 25 percent of the distribution market after the merger and the sale of the US Foods facilities to PFG. The company argues that foodservice distribution is a $231 billion industry with 16,000 companies.
“The totality of the evidence reveals a vital marketplace,” Sysco wrote in a recent court filing. “Customers’ diverse and plentiful buying options will more than constrain the behavior of the merged entity.”
Sysco also argues that efficiencies resulting from the merger will enable the company to lower costs, which would make the deal a win for consumers.
The FTC must prove that the merger would enable Sysco-US Foods to increase prices and hold them there without fear that a competitor could come in with lower prices, Keeley said.
Both companies will likely take testimony from restaurant executives, other competitors and economists.
“In these cases, what the customers say is always important,” Keeley said. “Pay close attention to the accounts of customers.”
New York: Under Cover, Minors Buy Alcohol at Many Stores in New York City
Source: New York Times
By THE ASSOCIATED PRESS
MAY 3, 2015
Under-age decoy buyers were able to purchase alcohol at more than half of the hundreds of pharmacies, grocery stores and liquor stores in New York City that the State Liquor Authority targeted in an undercover investigation last year, officials said on Sunday.
As part of the investigation, the buyers went to 911 stores across the city between April and September, about 10 percent of the city stores that have liquor licenses. They were able to get alcohol at 58 percent of the businesses, the city’s health department said.
The health commissioner, Dr. Mary T. Bassett, said the department would take steps to reduce under-age alcohol consumption. A letter was to be sent on Monday to all stores that sell alcohol reminding them to check identification and to make sure employees are trained to avoid selling to people younger than 21. The department has also translated the Liquor Authority’s handbook for stores into Arabic and Chinese, the most requested languages.
The department said it would sponsor training for stores in the next few months that would help with things like recognizing fake identification.
A store that sells alcohol to a minor faces penalties of $2,500 for a first-time offense, and up to $10,000 for repeat violations as well as license suspensions or revocations. The investigation found that stores that had recent violations were less likely to sell to minors.
The Liquor Authority’s investigation was paid for by a grant from the health department.
Utah: New Utah liquor ordering system divides DABC leader, employees
Source: The Salt Lake Tribune
By KATHY STEPHENSON
May 04 2015
Boxes no longer block the aisles at some Utah state liquor stores, and there often are empty racks where bottles of chardonnay, merlot and sherry once perched.
While some days it may look as if there’s been a run on high-end wines and spirits, the reduced inventory is the result of a controversial new ordering system implemented by the Utah Dep