An Ever-Changing Landscape
A look at how the wine and spirits industry is faring in a wide range of legislative battles. By Andrew Kaplan

The sword seems to be cutting both ways for the wine and spirits industry these days when it comes to legislative battles. On a positive note, cash-strapped states are looking for new sources of tax revenue, potentially opening the door to more Sunday sales. But on a negative, wine and spirits companies may be hit with new taxes for the same reason. Here’s a look at just a few of the issues that are expected to see some action in 2010.

LIFO
“On the legislative front, particularly with respect to taxes, the biggest threat that we see as wine and spirits distributors is the threat to repeal the LIFO (Last In First Out) inventory accounting method,” says James Rowland, senior vice president, Government Affairs, Wine and Spirits Wholesalers of America, Inc. (WSWA). “It’s used by people who expect the cost of replacing their inventory to go up, and that certainly is the case in our industry,” he says. “If Congress repeals it, it will amount to a massive retroactive tax on previous profits and much higher taxes going forward.”

Federal Estate Tax
The tax had been allowed to drop to zero, but that was scheduled to only last for one year. If Congress fails to act, the Estate Tax will go back up to a 55 percent rate, with a $1 million exemption. “We’re all family-owned businesses, trying to pass the business on to the next generation, and that’s an onerous tax to say the least,” says Rowland. “And frankly, the uncertainty with regard to the tax is frustrating for family business owners, because they don’t know how to plan.”

Mandatory Ignition Interlocks
This was proposed in the House Highway Reauthori-zation Bill, says Rowland, where a state will lose a certain percentage of its federal highway funds if they fail to enact a first-time offender ignition interlock law. The amount of federal money they lose would increase the longer they fail to act. “The WSWA has a model bill on ignition interlocks that we think is a very reasonable alternative to a mandatory first-time offender ignition interlock bill. Our model bill calls for mandatory interlocks for repeat offenders and high blood alcohol offenders as opposed to all offenders,” says Rowland. “Our model bill also allows judicial disgression to determine whether an interlock or some other punishment is most appropriate for an individual offender, which allows the punishment to fit the crime. Otherwise, it’s a one-size fits all approach, and we know not every drunk driving offender is made of one size.”

On-Premise Tastings
One of John Corzine’s last acts at New Jersey Governor was to legalize off-premise tastings of beer and distilled spirits. “That is the latest state in a trend of states looking to modernize their tastings laws,” says Ben Jenkins, of Distilled Spirits Council of the United States (DISCUS). Forty-three states allow some form of tastings, whether on-premise or off-premise, and New Jersey became the 29th state to allow off-premise.

Sunday Liquor Sales
Progress is slowly being made here with Connecticut inching closer. “All of the groundwork has been done there,” says David Wojnar, vice president of state government affairs, for DISCUS. “However, it’s stymied in the legislature right now, and we’re trying to break that logjam.”

Other states currently considering Sunday sales include: Indiana, Minnesota, West Virginia, North Carolina, Georgia, Mississippi, Alabama and Texas (which held hearings on it in 2009.) Currently, 36 states allow distilled spirits sales on Sundays. Only three states—Connecticut, Georgia and Indiana—do not allow beer, wine or spirits Sunday sales.

On the Upside
In a tough economy, wine and spirit marketers find opportunities for potential growth.

Wine Sales Move Up in Down Economy
A recent survey conducted by Mintel, a Chicago-based market research firm, resulted in some uplifting results for the wine category despite the recession.

“The future of the wine market looks bright, at least for moderately priced segments,” says Sarah Theodore, Mintel senior food and drink analyst. “Value wines have helped consumers rethink their perceptions about wine. Domestic wines have proven to be somewhat recession-proof as economy-priced wines are fuelling recent sales.”

Mintel reports that the wine market has grown 20 percent from 2004-09 and as consumers begin to see signs that the worst of the recession might be behind them, Mintel forecasts the wine market will stabilize and increase by 2.1 percent in 2009 despite a 3.2-percent decline during the height of the financial crisis in 2008.

That growth is most likely to come from domestic or value wine brands, notes Theodore. “The down economy has given impetus to boxed wine,” she says. “Marketers have an opportunity right now to really play up the benefits of this type of packaging and finally eliminate its ‘cheap’ image.”

Nearly one in five respondents appears to be status-conscious when it comes to drinking boxed wine. Consequently, 35 percent of 21- to 24-year-olds say they would drink boxed wine at home, but not serve it to guests, compared to 19 percent of all ages.

Irish Whiskey Performs in Recession
Spirits in the United States did see some growth in 2009—2 percent in total volume and over 1 percent in total value, according to a Euromonitor International report—but not all spirit categories faired positively. Cognac, cream-based liqueurs and other liqueurs all experienced declines in 2009.

On the other hand, Irish whiskey recorded the fastest total volume growth in 2009, growing by 11 percent, with brands like Jameson and Bushmills among the strong brands in the category. “This growth is derived from a small base of 10 million liters in 2009, a 3 percent share of total volume sales of whiskey in the US,” says Brian Morgan, industry analyst for Euromonitor. “Irish whiskey in particular is intended to appeal to the 25- to 35-year-old male demographic, and it has benefited from such consumers switching from vodka-based cocktails or cheaper bourbon.”

A New Design, A New Line
Inside the production facility of Veuve Clicquot Ponsardin, Beverage World gets a first-hand look at Line 5. By Jennifer Cirillo

REIMS, France—Veuve Clicquot Ponsardin (VCP), the premium champagne brand that dates back to 1772, is often referred to as the brand with the “yellow label.” One of the best-selling champagnes worldwide with a production of 20 million bottles a year, the champagne house reports, its iconic label—the first yellow label didn’t appear until 1877—has helped the brand become widely recognized around the globe.

Over the years, VCP has been known for its innovations in packaging—the “ice bucket,” the ice jacket, and in 2007, to celebrate 130 years of the “yellow label,” VCP came out with a special ostrich leather label. Well, in 2009, the trend didn’t stop. The company introduced its “Design Box” with two objectives in mind: to enhance the brand’s luxury positioning on the store shelf and to reinforce the brand’s pioneering image, says Laurent Bernelas, packaging design manager for VCP. The Design Box is a combination of a standard carton and a presentation box that offers not only visibility, but better rigidity for protecting the bottle, improved printing capabilities supporting the brand’s luxury positioning and sustainable aspects including a 5.5 percent reduction in paper, a 33.4 percent reduction in the number of stocked pallets and a 36 percent reduction in delivery trucks needed, Bernelas explains.

The Design Box, however, resulted in challenges on the production line. VCP was in need of end of line automation for its Reims facility that offered flexibility in automated format changeovers, ensured protection of the product and high-speed productivity without adding to the footprint of its existing line.

While these specifications proved challenging, VCP and Cermex partnered to customize end of line automation, which was named Line 5.

“Cermex was able to put forward innovative technology and provide in-depth pre studies,” says Yorick Roullet, project engineering manager for VCP.

Line 5 was installed in July 2009 after about a year of development. It features several innovations: robotic integration and command of high speeds; ergonomics and format changeovers; packaging quality control and respect of product integrity; assistance in maintenance and line supervision and product orientation.

The production speed of 8,500 bottles per hour was achieved by combining two robotic systems, the AN110 gantry packer and two Fanuc M710-50kg robots. The Fanuc M710-50kg robots integrate with the multi-function WB45.80 case packer to handle the 16 required formats at up to 25 cases per minute. The two robots operate in synchronized motions, one loading eight bottles, top to tail, in two by four and the other four bottles, one by four, and then vice versa.

“Gripping head changeover is automatic on the robots and on the gantry packer, via the robots themselves,” Cermex says.

“The totally new movement carried out for the WB robot head changeover reduces the machine footprint while scrupulously complying with safety standards.”

The average format changeover time for the machines on the line—the F272.40 tray erector, the AN110 gantry packer, the multi-function WB45.80 wrap around packer and the P432.20 automatic palletizer—is less than 20 minutes. To achieve this, machines are servo-driven and automatic, pre-programmed per format. Selecting the new format on each Human Machine Interface (HMI), says Cermex, activates format changeovers and adjustments. Also, tooling was made more manageable for operators by limiting the weight to 5 kg. Otherwise, tooling manipulation is automated.

“It was important that this new machine could respect the product and protect it through each stage of packaging,” Bernelas says, especially in the knocking of bottles as each contains 7 kilos of pressure, Roullet adds. Suction cups are used to grip the bottles without scuffing them and robots ensure smooth handling and protection with specifically designed tooling for stacking filled trays and boxes. Quality control elements of the line include a detecting device at the outfeed of the tray erector to identify incorrectly glued trays; a cognex vision system at the labeling zone outfeed checks the presence and position of product labels on filled cases and a check-weigher and sorter validates the case is complete.

Product orientation is another innovation with Line 5. Cermex explains: “Bottles are turned via a specific vision system. The bottles are positioned onto a mobile stand. A camera placed above the bottle reads the position of the label and rotates the stand until the bottle is correctly oriented. This system is capable of reading 70 different label references.”

The U-shaped line in 25 linear meters runs two shifts for a total of 16 hours per day to accommodate the production demands of VCP where over 90 percent of its product is exported, the top three markets being the US, England and Italy.



Toast to Wine and Spirits
The 67th annual WSWA Convention and Exposition features a new location and a headline-grabbing keynote speaker. By Heather Landi

The Wine and Spirits Wholesalers of America (WSWA) 67th annual Convention and Exposition, slated for April 6 through 8 in Las Vegas, will offer a number of new features and new opportunities for wholesalers and suppliers to network and grow their businesses. A premium industry event, the convention connects America’s wine and spirits distributors with producers and marketers throughout the world seeking to highlight their products across the US marketplace.

Responding to previous convention attendees’ feedback, WSWA has relocated its convention from Bally’s/Paris to Caesars Palace to offer attendees, exhibitors and sponsors an exceptional convention experience. With larger floor space and more suite options, the new location better accommodates convention participants, according to Craig Wolf, president and CEO, WSWA.

The organization also has announced that Sarah Palin, former Governor of Alaska and 2008 Republican vice presi?dential nominee, will be a keynote speaker for the opening general session.

“We want to start the convention off with a bang. We choose our keynote speakers not based on a person’s politics, but because they are interesting and it adds some excitement to the convention. Let’s face it, when you bring in a former vice presidential candidate and former governor who just wrote a million-dollar selling book, that’s going to generate excitement,” Wolf says.

The addition of Gov. Palin to the general session will help kick off the convention with a program that also includes the annual presentation of the Sidney Frank Award and the address of WSWA’s incoming chairman and National Wine & Spirits, Inc. COO, John Baker. The convention’s speaker roster also includes previously announced closing general business session speaker Robert Sands, president and CEO of Constellation Brands, Inc.

This year’s convention also features a wine and spirits tasting competition, which debuted at last year’s convention, allowing attendees to put their best products to the test.

“Last year we had over 300 entries and I expect that number will only continue to grow this year,” Wolf says.

Other convention programs include the Taste of the Industry, Hot Brand Awards and a number of networking receptions.

“We’re going to have a media preview at the Taste of the Industry to make sure the suppliers get enough attention for their new products,” Wolf says.

There also will be break-out sessions and panel discussions on topics and trends affecting wine and spirits wholesalers today.

“In terms of big topics and trends, the economy is going to be on everybody’s mind and whether trading down is going to continue,” Wolf says. “The political environment also is a big topic as what happens politically affects us as an industry.

People are interested in knowing what the future holds for the industry and what can we do to stay ahead of the curve.”

From Beverage World February 15, 2010