INTERNATIONAL NEWS: October 2006

Smirnov/ff Family United – Diageo’s new Russian organisation brings together two rival brands divided by a bitter copyright conflict

Diageo has opened up a new joint venture in Russia. Developed in conjunction with A1 Group Ltd, Diageo Distribution (DD) finally unites two brands that have had a rather strained relationship in recent years, Smirnoff and Smirnov.

The Russian premium spirits market is accelerating at an impressive rate and Diageo hopes to maximise the potential of this growth through the new structure. DD currently employs more than five times the number of staff that Diageo previously had in Russia, and the ultimate objective is to employ over 250 staff. Alison Forrestal, former general manager of Diageo Russia, has been appointed DD general director.

The UK behemoth has a 75% stake in the venture. Andrew Morgan, president Europe Diageo, explains, “The opening of DD marks the beginning of a new era for Diageo.”

Just two years ago the company was embroiled in a drawn-out legal battle to protect its Smirnoff brand. The brand name originates from Pyotr Smirnov, the tsar’s official vodka supplier. One of his sons, Vladimir, travelled west and established the world’s leading vodka brand in the 1930s. Following the fall of communism, the original Smirnov brand returned to the market, prompting extensive legal wrangling over the copyright.

Diageo was eventually obliged to remove the Cyrillic typeface and Russian coat of arms from the Smirnoff label. Henceforth, the two brands will be united as part of the DD portfolio.

Drinkers earn more
Drinkers in the US will have an added incentive to enjoy a tipple this month; research published in the Journal of Labor Research has demonstrated that they earn 10%-14% more than teetotallers. The study was carried out by economics professor Edward Stringham and Bethany Peters at San Jose State University. “Drinkers typically tend to be more sociable than abstainers,” explains Stringham. “Social drinkers are out networking, building relationships … [they] may be able to socialise more with clients and co-workers, giving drinkers an advantage in important relationships.”

The research indicated that male drinkers earn about 10% more on average, but for women the figure was 14%. However, the drinking environment does appear to play a role; women who drink in bars at least once a month (as opposed to in restaurants or at home) earn less than their abstaining sisters.

Stringham says anti-alcohol legislation simply forces drinkers into less sociable surroundings, having a detrimental effect on the “increased social capital” that drinking affords.

The survey, commissioned by the Reason Foundation think-tank, directly contradicts the conclusions of a 2000 study by the Harvard School of Public Health.

All the tea in China

The chinese food and beverage authority (AQSIQ) is planning to introduce new rules to govern the ready-to-drink (RTD) tea sector. The category is experiencing massive growth in the rapidly evolving market, but this rate of growth (combined with the high level of counterfeiting that is rife in China) has resulted in many substandard products hitting the shelves. “Though this market is booming a lot of problems exist and more are coming out,” reports Ms Qian, a representative of the China Beverage Industry Association. “Some of the so-called tea drinks in the market are not real tea.”

RTD tea products have been a big hit across Asia in the last decade, and now command approximately 20% of the Chinese soft beverage market. The top-performing brands are Uni President and Kang Master.

More than 10% of samples examined by AQSIQ failed to meet basic hygiene and safety requirements. Many others were found to be loaded with undesirable additives or lacking basic ingredients that consumers would expect to find in tea drinks. AQSIQ aims to raise quality across the category by introducing basic standards outlining components, labelling and permitted additives.

Argentine land sale
Wine lovers and small operators are being given the opportunity to buy a small, but economically viable, parcel of land in the Argentinian region of Lujan de Cuyo, near Mendoza.

The Santa María de Los Andes, which has already been dubbed the Village of Vineyards, will incorporate 100 separate holdings, averaging about 12.5 acres. Each owner can either sell the grapes to a central organisation where they will be used to make Santa María de Los Andes, or the winery will produce specific wines that the producers can distribute themselves.

Matias de Bujan, director of the project, explains that land represents a smart investment as owners will share many of the costs. “This means that they can be competitive with the big wineries because of the economies of scale,” he says.

De Brujan believes the project will interest two types of investor. First, a number of people already in the industry, notably distributors, attracted by the financial model; second, successful professionals “who love the wine world and want to become part of it”.  He points out that land values in Argentina have still not fully recovered from the economic crisis of 2001, and he is also encouraged by the rising popularity of Argentinian wine on the international market.

The project is currently in the pre-sale phase, and the first land is scheduled to be ready for occupation by October 2007.

New Swaziland laws
Sweeping changes are afoot for the on-trade in Swaziland. Latest legislation drawn up by the government Liquor Licensing Board (LLB) will make it compulsory for all outlets dispensing liquor also to sell food.

The move, as reported in The Swazi Observer, will also require all shebeen owners to apply for a licence and provide lavatories. Sabelo Matsubela, LLB chairman, explains that any person applying to operate a liquor business will have to gain consent from the king. This will be immediately revoked if the licensee is found to be selling alcohol to an inebriated customer. “Every liquor outlet will now be obliged to sell food to customers because it is a necessity when one is drinking alcohol,” Matsubela reports.

Patrons will be able to enjoy their beer along with traditional staples such as emasi emabele, “ground sorghum mixed with sour milk” and umncwema, “uncooked dried meat”.

Germany’s vintage year
The German Wine Institute (DWI) is confident that this year’s favourable climatic conditions have laid the foundations for another excellent vintage. Speaking as the vines were entering the last stage of their development late last month, Karsten Weynard, chief winemaker at Binderer St Ursula, said the fruit was in a healthy condition.

She explained that conditions have been ideal in the Pfalz and Rheinhessen regions. “The hot and dry June and July gave the grapes a head start and it looks as though the yield will be greater than last year. If these conditions continue, 2006 will be a very good vintage,” she said.

Thomas Loosen of Weingut Dr Loosen reported similarly positive news from Mosel: “We are expecting to start harvest
in November so conditions in September and October will still have a big part to play in determining the final ripeness of the grapes. At the moment it looks as though the quality will be good.”

New taxation rules for Israel
The Israeli government has outlined new legislation governing the taxation of alcohol. The new rules will
be phased in from January and will stipulate a fixed rate based on alcohol content, rather than a percentage of factory or retail price.

The changes will be a blow to low-priced gin and vodka, which are traditionally very popular and subject to minimal taxes. It’s bad news, too, for the country’s significant duty-free trade, which has thrived on the massive taxes applied to premium alcoholic beverages.

However, the new legislation will be well received by Coca-Cola subsidiary Israel Beer Breweries Ltd, Spirits (IBBLS) and the local Diageo office. The RTD market will benefit as its lower-alcohol products become significantly cheaper. The new rules for spirits will not apply to whisky in the initial roll-out. Excellent news for the distributors of Johnnie Walker and Smirnoff Ice.

Wine overtakes spirits in Canada
Wine has over- taken spirits for the first time in Canada. The wine category posted growth of 6.5% to C$4.2 billion, with spirits at C$4bn, according to a report issued by Statistics Canada.

However, the brewers in this exceptionally strong beer market need not fear; the category dominates the alcoholic beverage market with sales of C$8.4bn, up 3.3% year-on-year.

© db October 2006