October 6, 2015 § Leave a comment
There is an industry rumor circulating that Treasury Wine Estates (TWE) is contemplating a purchase of the Sterling brand from Diageo. Winemetrics, having done preliminary research on Sterling’s on-premise performance, is not certain this would be an appropriate fit for TWE. Sterling used to be an on-premise powerhouse; five years ago Sterling was a leading restaurant brand, ranked 7th by-the-bottle (BTB) in Winemetrics 2009 On-Premise Wine Distribution Report. However, the following year Sterling had dropped to 16th BTB. Since 2010, Sterling continued to lose distribution on-premise; in Winemetrics most recent 2014 survey, its BTB ranking fell to 50th place. Further analysis indicates that Sterling and Beringer, the flagship brand of TWE, have similar strengths, both with 29% of their on-premise distribution in Cabernet Sauvignon.
Perhaps a better choice for TWE would be one on Diageo’s Pinot Noir focused brands, such as Acacia or Chalone. On-premise distribution of Pinot Noir represents just 4% BTG and 5% BTB of TWE’s portfolio of brands. Meanwhile one third of TWE’s BTG and a quarter of its BTB distribution are devoted to White Zinfandel, a variety experiencing a slow decline on-premise. Of course, on-premise distribution may not be a deciding factor in a wine brand purchase. However, the well-known brands, that have recently been sold at a premium, (Meiomi is a perfect example) have had extensive restaurant distribution at the time of their purchase.
For more detailed analysis on the compatibility of Diageo’s brands with the Treasury Wine Estates portfolio. Please contact us at email@example.com.
July 28, 2015 § Leave a comment
Many wine industry insiders were surprised at the lofty price Constellation Brands paid for Caymus’ Pinot Noir powerhouse, Meiomi. A deal that did not include any vineyard land or grape resources, from what we understand. However, if you believe that on-premise distribution is the benchmark of brand equity (build brands on-premise, build volume off-premise), then there may be some justification for this tidy sum.
Winemetrics is about to release a new report introducing its Wine Equity Quotient™ (WEQ) and Brand Equity Quotient™(BEQ). Both of these valuations are based on a wine’s (or brand’s) on-premise distribution characteristics which include:
- total number of listings (either by-the-glass or by-the-bottle, there is a separate WEQ for each)
- total number of chain/restaurant groups where it has distribution
- The diversity by chain type (Casual, Upscale Casual, Fine Dining) of its distribution
- Average Price
When Winemetrics compared the top 3 Pinot Noir By-the-Glass by their WEQ values, we came up with the following numbers.
- Meiomi WEQ – 29
- Mark West WEQ – 19
- Mirassou WEQ – 21
Constellation paid $160 million for Mark West in 2012. While we are unable to precisely determine Mark West Pinot Noir WEQ for this year, we do know that since it’s purchase this wine has increased on-premise distribution by about 40% since 2012. Using that number of total listings with Mark West’s current WEQ calculation, it would yield a WEQ of 13.
Let’s use this Wine Equity Quotient™ value with Mark West’s purchase price to estimate what Meiomi might be worth in today’s market:
160/13 = p/29 where p would be the purchase price of Meiomi in millions of dollars
p = 357 or $357 million dollars.
Certainly Constellation Brands used far more sophisticated analysis than this to determine Meiomi’s fair market value, but I don’t think they overpaid.
Winemetrics Wine Equity Quotient™ (WEQ) and Brand Equity Quotient™(BEQ) will be introduced in Winemetrics’ new 2015 Wine Buyer’s Report, our first report targeting wine buyers, beverage managers and wine professionals who sell to this group. This report will be released August 1, 2015.
November 19, 2014 § Leave a comment
If you are a recipient of Winemetrics’ newsletter, you have already seen this headline. Casual chains cut wine listings considerably in 2014. We think the primary cause of this is greater competition from craft beer and cocktails, which are successfully challenging wine distribution in this dining segment. I have already outlined how craft beer and spirits outperform wine in profitability in a previous post. Still, it appeared that wine was holding its own in casual chains until this year. We were shocked to see all of the top 10 casual chains in our survey reduce their wine selections along with regional chains. Below is a partial list of chains with reduced wine selections in 2014:
The Cheesecake Factory
Overall reductions add up to over 17,500 lost By-the-Glass (BTG) placements and more than 22,600 By-the-Bottle (BTB) listings. A study reported by Cornell’s Center for Hospitality Research indicates that smaller list sell less wine overall so that wine revenues in these accounts will probably decline. This could become a self-fulling cycle in casual chains. “Reduce the wine list = sell less wine = reduce wine list further as the current selection of wines does not justify its investment” This sounds like a beverage program being run by accountants, not beverage professionals.
One thing is certain. The wine suppliers who were included in those lost -17,000+ BTG listings and -22,000+ BTB listings, will be selling fewer cases on-premise this year unless they find alternative outlets.
November 6, 2014 § Leave a comment
Syrah/Shiraz and Zinfandel, once among the top 10 varieties on-premise, have fallen to 16th and 15th respectively as reported by Winemetrics 2014 On-Premise Wine Distribution Report. Malbec now has more combined By-the-Bottle (BTB) and By-the-Glass placements than either and is ranked 11th. Red Blends, those non-traditional varietal mixes (not to be confused with Bordeaux Blends, Rhone Blends and Super Tuscans, which Winemetrics tracks separately) have jumped to 7th position.
Although Red Blends frequently incorporate Zinfandel and Syrah and often have similar flavor profiles, their catchy names and packaging, appeal more to Millennial consumers. More restaurants, especially casual chains with smaller lists, are dropping Zinfandel and Syrah/Shiraz from their wine lists.
September 6, 2014 § 1 Comment
Before I write another word, let me provide a brief background of my experience in this industry. I have a B.S. in Soil Science and have worked as a vineyard manager and winemaker. I began drinking wine as a college freshman and took a job upon graduation picking grapes in upstate New York to learn about wine, excuse the pun, from the ground up. That ocurred because I had, during the 30 hours a week that I worked while going to classes full-time, I managed to accumulate the funds to purchase a 1969 J.Grivot Vosne-Romanee and a 1966 Chateau Calon Segur, two wines that changed my life forever. I have worked every imaginable job in this industry, from production to sales and marketing. In the course of my wine industry career of over 30 years, I have launched a number of successful wine brands and products. I have also witnessed failures and collapses of wine segments and brands largely due to the arrogance and close mindedness of those responsible. Market conditions in some cases played a role in these failures but the changing market conditions were apparent and largely ignored by those that could have affected the necessary changes to avert disaster. Based on this experience and my position at Winemetrics, which has allowed me to track the progress of wine on-premise for the past decade, I offer the following heartfelt advice to my industry.
1. Start Innovating before it is too late
Innovation means creating compelling unique products, not a new name or label that you hope the consumer will find appealing. Look at what the artisanal spirits and craft beer industries are doing. New flavors, new processes, with exciting products as a result. Where are the new varieties to entice our wine consumers, where are the new production methods to create new flavors. Why not a Port barrel-aged Zinfandel or a Tannat-Syrah blend?
2. Listen to consumers and make something that fulfills a need
Do you think that the Master Distillers at Jim Beam woke up one morning and decided to create a Black Cherry flavored whiskey on a whim? There are currently more placements on cocktail lists of flavored whiskeys than there are for traditional ones, the same is true for vodka and rum. I’m certain the decision to make flavored products was not popular with the traditional production team but had they ignored this direction their companies would be out millions of dollars in profits. Fortunately, the distillers realized they were in the beverage business, not the whiskey business.
3. Discard the old models that are no longer relevant.
September 4, 2014 § 2 Comments
5 Reasons Why Wine Is Losing Share to Cocktails and Beer On-Premise
When I first began selling on-premise in the early 1980’s there was no competition to wine. Craft beer and spirits were rare and wine was the recognized companion to food. Fine dining restaurants eschewed beer and had, at best, rudimentary cocktail lists. Wine was the only option and it developed in a competitive vacuum. Those conditions no long exist and wine is having its primacy eroded.
Wine is the least profitable alcoholic beverage a restaurant can serve. Bottled beer is more profitable, draft beer, properly managed, is even more profitable and cocktails provide the best margin of all. This means it is in the best interest of the restaurant to promote these other beverages, not wine. This does not even factor in the fact that a cocktail and bottle/draft are guaranteed to be fresh, unlike a BTG serving of wine which may have been opened for over 24 hours prior to serving.
I have witnessed (and can objectively verify) the contraction and ‘specialization’ of BTG wine list at a time when cocktails and beer are moving in the opposite direction (see 4. Innovation). Given the options of a 20-ounce glass of iconic craft beer or imaginative cocktail versus a mass-market common varietal (which may be the most expensive of the three) what would the average Millennial choose? My guess is the wine would be dead last. Here is a concrete example. I was in a South American restaurant having dinner. There were no craft beers on the list (surprising that can still happen but it does) and a glasses of the most ubiquitous brands of the most common varieties were in the $9 range. For a dollar more I could purchase a grilled pineapple and cilantro margarita made with Don Julio Reposado and Cointreau. Which would you purchase? By the way, that margarita was magnificent and judging by the condition of the open wine bottles on the back bar, there was no choice.
The explosion of flavored and uniquely aged spirits as well as specially craft and aged beers and ciders has placed the United States in the forefront of innovation in these industries. Foreign beer and spirits producers are in awe of what has happened here. Fifteen years ago, American beer was still largely a joke in Europe, now we are making products that totally surpass most of what is offered there. I can find a better beer selection in my hometown bar in rural Pennsylvania (from mostly local producers) than I could in Frankfurt or Berlin. While America does not have this edge yet in spirits, we are most certainly the innovation leader is crafting superior cocktails from domestic and international ingredients. Our success in beer and cocktails can be directly attributed to disregarding the European models. The European model for beer was the Rheinheitsgebot, where pure, natural beer could only be composed of yeast, barley, hops and water. European cocktails used only local or country specific ingredients (English gin and Italian vermouth in the same glass, never!)
Wine no longer has a leading-edge image, it is the beverage of choice of Boomers (aka parents of Millennials) while Millennials themselves have more eclectic preferences. On of the reasons I started drinking wine was it was a beverage my parents didn’t drink. With wine as the Boomers top choice it is no surprise that their offspring are seeking out different libations. Craft beer and artisanal spirits have captured the imagination and discretionary income of this younger segment of the population.
August 7, 2014 § Leave a comment
Winemetrics has expanded its database to encompass a vast amount of drink list information. Our inaugural 2014 Drink List Report will be available for purchase next week. To give you a snapshot of this innovative report, which surveys the largest national and regional restaurant chains, please see our choices for the Top Casual, Upscale Casual and Fine Dining Drinks List Winners and Runner-Ups below. We have identified the exceptional programs, based on size, pricing, diversity and web presence.
Best Drinks Lists of 2014
Winner : Yard House
Web Presence: Excellent, detailed information by location but without pricing.
Wine BTG: Average in size but a diverse selection with excellent pricing.
Cocktail List: Well above average in size (35+) with a wide variety of imaginative libations.
Beer List: Off the charts, over 25 draft beers and more than 100 in bottles and cans
Pro: Most comprehensive beer list we have surveyed.
Con: Menu is the size of the Gutenberg Bible and drink prices are not listed online.
Runner Up: BJs Brewhouse
Web Presence: Excellent, detailed information by location but without pricing.
Wine BTG: Above average selection with 25 wines; very reasonably priced.
Cocktail List: A selection of 35, many from original recipes by BJ’s bartenders.
Beer List: Nearly 60 different brews, at least 10 of which are brewed in-house.
Pro: Entire menu and beverage list available on one sheet, the ultimate in convenience.
Con: Beer list selection lacks excitement.
Upscale Casual Chains
Winner: Lucky 32 (part of Quaintance-Weaver Restaurants and Hotels, a small restaurant group in NC)
Web Presence: Excellent, complete drinks lists in PDF, location-specific with pricing
Wine BTG: Excellent, 50 wines offered in 3 sizes, including 3 oz. tastes. Nearly every BTB selection is available BTG. Three wine flights offered. Superb value and diversity.
Cocktail List: Has 20 very imaginative offerings often with artisanal spirits, attractively priced
Beer List: Excellent. Over 40 brews, mostly local and nationally known craft beers.
Pro: Probably one of the best overall drinks list we have ever seen. Con: None
Runner-Up: P.F. Chang’s China Bistro
Web Presence: Excellent, detailed information and prices by location
Wine BTG: Superior, 40+ wines, nearly every BTB selection is available BTG. All wines available by the half-glass.
Cocktail List: A selection of 13 is about average for the segment, but their Asian-influenced libations are unique to this chain.
Beer List: A recent upgrade to the beer list has put it on par with its highly regarded wine selection. About 2/3 of the selection is composed of a diverse selection of fine craft beers.
Pro: Beer program has caught up with the category-leading wine list. Con: Getting to account specific information was a little cumbersome online.
Web Presence: Very Good. Lots of detail available but no prices. Lists must be perused segment by segment which is inconvenient.
Wine BTG: Superb, 90+ wines, the largest BTG selection of any major chain. Pricing on the high side, which is expected, given the support required for such variety.
Cocktail List: With 22 selections, Fleming’s cocktail list is slightly above average in size but also above average in pricing
Beer List: Solid list of 17 beers, half of them well-known craft brews,
Pro: Excellent wine selection carries the day here.
Con:Searching the selection online was somewhat difficult and lack of pricing and BTG designations omits vital information. As each Flemings has a wine list addendum specific to their restaurant, it would be beneficial if this information were provided online.
Runner-Up: Seasons 52
Web Presence: Excellent, detailed information with prices
Wine BTG: Excellent, 50+ wines, most BTB selections are available BTG. Very diverse and well-priced
Cocktail List: With just 12 libations, Season’s 52 is below average in this segment. It also appears to rely on just a handful of spirits brands.
Beer List: A serviceable list of 18 with a handful of craft beers.
Pros/Cons: Extremely convenient drink list both to read and download. The remarkable wine selection carries this beverage program but a few adjustments to the beer and cocktail list could make it a contender for the top spot.