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Top 10 drinks stories of 2011

It’s been an action-packed year in the drinks industry, and the drinks business has been there every step of the way to bring you the latest news, views and controversies from our dynamic sector.

From the collapse of Oddbins to concerns over this year’s vintages in California and Australia, via the break up of Foster’s and Beam Global going it alone on the stock market, 2011 has been a pretty tumultuous year for the industry.

Look back over the major stories of the year with us here.

1. Oddbins collapse

The collapse into administration of the UK’s leading high street off-licence chain was as upsetting as it was distressing for the global wine trade. While fingers of blame were pointed by all sides, those who took a step back to think about the long-term ramifications for the future of wine retailing in the UK were left with a bleak outlook.

Speculation about Oddbins’ financial health had been circling the trade for a good few months when it announced a strategic review in March. With memories of the collapse of First Quench Retailing and the subsequent painful financial fall-out still fresh in the minds of many, there were widespread fears of a repeat among wine companies awaiting remuneration from the chain.

Entry into a Company Voluntary Arrangement was confirmed on 11 March and Oddbins was placed into administration on 4 April after HMRC, by far the company’s biggest creditor, failed to agree to the terms of the CVA.

Simon Baile, managing director of the chain when it collapsed, pinned the blame on Castel, Oddbins’ previous owners though many pointed the finger of blame squarely at Baile.

Whoever was ultimately responsible, the fact remained that hundreds of wine companies were facing up to potentially catastrophic financial consequences of the collapse, with latest estimates suggesting unsecured creditors will get back as little as around six pence in the pound.

Those looking at the bigger picture also had reason to mourn for the high street. Figures released amid the Oddbins furore suggested that as much as three quarters of UK wine sales now come from the big four supermarkets. With Oddbins the latest to fall by the wayside, the picture for independent retailing looked bleak.

Deloitte, the administrator, is continuing to examine transactions between Oddbins and Ex-Cellar, which is controlled by Baile, actioned before the company went under.

The Oddbins name still remains on the front of 37 stores across the UK and last month the company presented a stripped back range of almost entirely new listings last night as the retailer showed off its makeover under the new ownership of Whittalls Wine Merchants, a subsidiary of EFB Retail.

2. Fosters break-up

This one had been rumbling on for a while when the Foster’s board finally confirmed what we were all expecting – that it was demerging its wine and beer divisions.

Once shareholders approved the move speculation was immediately rife over potential bids for either side of the business.

All of the noise on this front has come on the beer side of things, with the brewer subjected to a hostile takeover bid from rival SABMiller before eventually the board agreed to the terms of the offer, which valued the company at AU$9.9 billion.

Shareholders in the Australian company were, however unhappy that the board was so ready to do business with SABMiller when it said it expected beer sales to pick up again once the economy improved, prompting outraged shareholders at the group’s annual meeting to label the board “disgraceful”.

The wine business, Treasury Wine Estates (TWE), has had a comparably quiet year on the takeover front since the split, though chief executive David Dearie has been busy behind the scenes reshaping the business and bringing in a new management team, chief among whom are five brand managing directors for its major labels of Wolf Blass, Penfolds, Lindemanns, Rosemount and Beringer.

Meanwhile TWE recently unveiled its new Fine Wine team with which it is hoping to push its fine wine credentials. Focusing on selling wines at £15+ from TWE’s portfolio, the team hopes to make use of wineries that have not previously had much exposure in the UK and also push Australia’s regional message.

3. Bordeaux 2010

As ever, all eyes turned to Bordeaux as the industry’s buyers made the pilgrimage over to France for a tasting of this year’s en-primeur offerings.

The 2010 vintage had a hard act to follow following the almost universal praise for 2009, but perhaps surprisingly reactions were once again glowing.

A highly tannic vintage, observers pointed to the fact they expected 2010 – described as “a classic year with opulence” – to outlive 2009s, which was labelled “an opulent year with vivacity”.

The year’s en primeur campaign was slower off the mark than usual amid rumours of declining consumer interest, though by the start of June Gruaud Larose, Haut Batailley and Giscours released their prices, as well as second wines Echo de Lynch-Bages and Les Pagodes de Cos.

These were quickly followed by Pontet Canet, Calon Ségur and Phelan Ségur. Liv-ex reported that the average price increase of these bigger names was 20% up on 2009 prices, but Pontet Canet itself was a full 39% up on ‘09 with an ex-négociant price of €100 a bottle.

Hype was naturally ramped up further when Robert Parker offered his assessment of the vintage, saying: “It is an inescapable truth that 2010 has produced another year of compelling Bordeaux that will go down as a prodigious vintage alongside 2009.

“Take your pick – this news is either tragic or mythical, but I have tasted enough wines from 2005, 2009 and 2010 to realise that these may be the three greatest Bordeaux vintages I have tasted in my career.”

He added: “2010 exceeds 2009 in record-setting alcohols, but, paradoxically, it is the fresh acids, lower pHs and massive tannins that have dictated more precision in the mouth despite the record alcohol levels these wines attained.

“While massive and highly extracted, the 2010s are also fresh and incredibly pure. Moreover, they will enjoy astonishing longevity.”

Pricing for the vintage was, in the eyes of many, overly high, forcing Simon Staples, sales and marketing director for Berry Bros & Rudd, to speak out in defence of the pricing.

Amid fears that everyday consumers were being priced out of the fine wine market, Staples said: “The châteaux can charge what they like for their wine – if customers don’t want to buy it, then they just have to fish slightly further down stream.”

Staples was stoic about the fact that a lot of UK customers have been priced out of the market: “That’s life. It happens with virtually any product you come across.”

Meanwhile Asia, and Hong Kong in particular, continued to ascend to the position of the world’s biggest fine wine market.

In 2010 total wine sales at auction in Hong Kong rose by 157% year on year to US$165 million (HK$1,284m) – HK$11m above the US total for the same year.

4. Vintage woes

The year proved particularly challenging for winegrowers in both California and Australia.

Various growers told us of their disappointment at their crop – remarks which resulted in some fairly heated debate played out on our own website.

Joel Peterson, founder and winemaker at Ravenswood, spoke out about the “awful” 2011 vintage in California, telling us: “It was the most fungus-filled, botrytis-filled vintage I’ve ever seen, and I’ve been working a long time.”

He added: “The vintage was marked by two rains. The first loaded the gun and the second pulled the trigger.”

According to Peterson, the Bordeaux varieties really suffered. “Napa Cabernet never got ripe; it was a very bad year for Napa and Mendocino. We had to sort our Cabernet and Merlot in the field and crush straight away – I’ve never had to do that before.”

“We lost 40% of our crop to the rains. There will be some awful Cabernets – green, oxidized and botrytized. The quality of 2011 will depend on who sorted well.”

Chardonnay was also badly affected by the rains, with Peterson observing: “Cool climate Chardonnay was a disaster. The skins were floating in the juice after picking. The grapes had turned brown, it was awful.”

Winemakers Dennis Martin at Fetzer and David Graves of Saintsbury both said that 2011 was one of the most challenging years either of them had yet faced.

A late spring and lukewarm summer this year raised concerns, but many hoped that if it did not rain then harvesting in late October or even early November would yield a more attractive crop.

However, storms began on 5 October and hit Sonoma, and Russian River Valley in particular, very hard although other regions escaped lightly.

Two inches of rain fell in Sonoma, whereas Paso Robles further south had less than an inch.

Responding on our website, Daniel Moore wrote: “What about all of the great fruit that was harvested before October 5th? What about all of the great Cabernet that held fine through the rain and is being harvested now? Yes some varietals were hit hard by the rains-yet serious growers and winemakers diligently sorted in the vineyard and the winery. Is it the best vintage of the decade-hardly. Is it ruined- not even close.”

Meanwhile Maria Helm added: “The 2011 vintage was difficult but the plus side is that fruit had a longer cooler ripening time which provided some incredible complexity.

“I am really excited to see what producers will do with this vintage, hopefully we can see some lower alcohols with a touch of herbal character that old world cabernet sauvignons are known for. However, overuse of grape concentrate, sadly, will produce wines with higher alcohol but lack of character. Let’s wait, see and taste what’s in the bottle before we condemn this vintage.”

Meanwhile, in Australia, Treasury Wine Estates chief executive David Dearie expressed concerns over poor-quality and low-priced Australian wine exports off the back of a rain-soaked and high-volume harvest had the potential to do long-term damage to the image of the Australian wine industry.

Justin Knock MW, managing director of the Purple Hand Wine Consultancy, pointed out that almost all grape growing regions suffered record levels of rainfall in 2010/11 which brought high disease pressure and dilution.

He also wrote on our site that it was important to be transparent about the problems faced and that there should be stricter quality controls when it comes to Australia’s bulk wine production.

Not everyone agreed that the Australian harvest was a disaster, however. Kate Giles, business development manager at Byrne & Smith Wines in Adelaide, commented: “Many of the wines produced this vintage are stunning. As in any vintage, there are highs and lows, and perhaps the water and mould factor will have some impact, but to write off the majority of production is unethical and incorrect.”

5. Fortune Brands does the splits

When Fortune Brands announced that it was pressing ahead with plans to let its drinks division – Beam Global Spirits and Wine – go it alone with its own stock market listing from October, speculation over the future of the company’s portfolio was immediately rife.

The move was announced at the turn of the year after activist investor William Ackman had forced Fortune into a corner because of its regular underperformance. Following the announcement of the split, Fortune’s shares had put on almost 25% by mid summer, but slumped back to their pre-Christmas level as world markets crashed.

Now known simply as Beam Inc, Beam’s brands include Courvoisier Cognac, Jim Beam bourbon, Maker’s Mark bourbon, Canadian Club whiskey and Sauza Tequila.

Analysts anticipated that the separate listing for Beam would lead to an auction of its various brands among the drinks industry’s biggest players.

“Rival groups will eye its plum brands to bolster their own portfolios, but the various competition authorities in Washington and Brussels would not let the whole of Beam fall into one single pair of hands,” we wrote back in August.

“Diageo, the world’s leading spirit company, would be keen on Jim Beam, but it is no secret that Paul Walsh, Diageo’s chief executive, wants the 66% he does not own of Moët Hennessy, not least because, along with Scotch, Cognac is the growth engine in emerging markets. Can he afford both, even despite the company generating free cash flow of £2 billion a year?

“Diageo would have to find buyers for Beam’s Courvoisier, which is a direct competitor of market leader Hennessy, while Sauza is the number two Tequila to Diageo’s José Cuervo. Diageo would also probably be barred from controlling Cruzan rum, which competes with Captain Morgan.”

Likewise, Pernod Ricard has also “run the numbers” over Beam, but like Diageo would likely face obstacles in bidding for the whole portfolio.

For its part, Pernod Ricard has promised shareholders that its focus until next summer is to further reduce debt following the 2007 takeover of Vin & Sprit, which brought Absolut vodka into its portfolio. But both Pierre Pringuet and Gilles Bogaert, respectively CEO and finance director, have been very careful in their choice of words of late not to close the door completely on acquisitions before mid 2012.

Pringuet, for instance, has spoken of possibly making “strategic” but not “tactical” purchases. His prime target would be to fill the major hole in Pernod Ricard’s portfolio with Sauza Tequila, which he sought to capture in 2005 only to be beaten by Fortune Brands.

Both Rémy Cointreau and Davide Campari stated with their results in the summer that they were looking to bolster their portfolios and VJ Mallya, head of India’s United Spirits, let it be known that he would be interested to look at any Beam brands that might come his way – an obvious target is Teacher’s.

Speculation will certainly continue well into 2012. Indeed, there is no promise of anything materialising from the gossip, but at least it keeps us all guessing.

6. Slamming organics and biodynamics

Dr Richard Smart (left) caused controversy when he labelled organic and biodynamic wines “a nonsense”.

The Australian viticulturalist and consultant on viticultural methods told the Wineries for Climate Protection conference in Barcelona in June: “Many of the concepts behind organics and biodynamics are nonsense. They’re not good for the environment.”

He added: ““When people buy food they don’t mind choosing products that have been grown on land treated with chemicals, so why should they care about how a wine has been treated?”

Smart spoke passionately about the need for winemakers to wake up to the fact that CO2 is a pollutant. “Oenologists are environmental vandals of the worst type. CO2 is the greatest pollutant and winemakers are releasing it back into the atmosphere, undoing all the good work in the vineyard.

“We need to figure out how to capture CO2 from fermenters, recover the volatiles, and put them back into the wine.”

To say his comments provoked a backlash would be something of an understatement.

“Not So Smart!” screamed Jem Gardner on our site. “What a well-reasoned case Richard Smart makes against organic wines (I am a specialist importer of these, just to be clear).

“I love the ‘logic’ behind ‘when people buy food they don’t mind choosing products that have been grown on land treated with chemicals, so why should they care about how a wine has been treated’. Err…what about the people who DO mind choosing food grown on land treated with chemicals? And in any case is it about what people ‘mind’ or about what is agriculturally sustainable?”

Roger Kerrison added: “I have always enjoyed Dr Smart’s provocative nature – but to say that winemakers are destroying all the good work of the vineyard by fermenting grapes is crazy.

“If those grapes were not taken into wineries by the environmental vandals (I’ve always preferred Yeast Technicians as the most derogatory term for my ilk) what would happen to them – yes that’s right they would rot on the vine and create the same amount of CO2 as winemaking (and consumption) from their decomposition.”

Smart then spoke out in defence of his stance, writing in the September edition of the drinks business: “I am as dedicated to preserving the environment and passing it on to the next generation as any of your readers.

“However, I remain to be convinced that organic and biodynamic methods of viticulture are better for the environment.”

Smart continued: “I can understand the angst this caused some readers. I mentioned in passing the use of chemical fertilisers on land for food production, and drew a parallel with permitted chemicals used in wine and food production.

“Interestingly, the recent poisonings in Europe due to mutated strains of E. coli were traced to an organic farm. E. coli is encouraged to mutate in animal guts, and so animal manure can be a source of these dangerous microbes.”

He was backed up by Paul Verdegaal, who wrote on our site: “Remember that before WWII everyone was organic, by definition.

“Life expectancy was less than 60 years and most people lived and worked on a farm for more than 8 hours a days. Organic can assuage the guilt; while Biodynamic serves as a form of religious pennance.”

Still the debate continued, with John Newton writing: “Smart’s statement ‘Interestingly, the recent poisonings in Europe due to mutated strains of E. coli were traced to an organic farm. E. coli is encouraged to mutate in animal guts, and so animal manure can be a source of these dangerous microbes’ is simply not true. This was refuted by government sources.

“And as for his sneering at biodyamics – how does he explain all the biodynamic winemakers – like the Carpenters at Lark Hill – who are scientists?

Jennifer Fluteau attempted to add some balance to the argument. “Why does one system have to be better than another?” she asked.

“Perhaps there are lessons to be learned on each side of the debate. My husband and I run a vineyard of nine hectares in Champagne, and the one thing you can be sure of when you work hands on in a vineyard is that there are always choices that need to be made, and each decision, reached after much debate, is more often than not a compromise.”

Speaking at an organic and biodynamic debate at the WSET in London in December, winemaker and writer Monty Waldin has admitted he still gets “ridiculed” for practising biodynamic farming.

He urged the trade to “sit up and take notice” of the biodynamic movement.

“Over 5% of the world’s vineyards are now organic and biodynamic, so the message seems to be getting across,” Waldin said.

He confessed he didn’t know how biodynamics works, but that it does seem to work. “It’s not a perfect system, but we’re moving in the right direction. The “voodoo” perception is lazy journalism. It’s easy to knock something weird.”

The debate over natural, organic and biodynamic wines is another that is sure to polarise opinion throughout 2012.

Our forthcoming Trends Report 2011 predicts that the natural wine movement will grind to a shuddering halt. Do you agree?

7. Constellation sells up

Constellation, the world’s biggest wine company, agreed in January to sell 80% of its Australian and British wine business to Champ Private Equity of Sydney in a deal valued at around AUD$290 million.

The transaction included almost all of Constellation’s Australian, UK and South African brands, wineries and vineyards, as well as its 50% stake in Matthew Clark.

As a result of the deal, Constellation Wines Australia and Europe was renamed Accolade Wines by its new owners.

Brands within the Accolade portfolio include Australian heavyweights Hardys and Banrock Station, Kumala and Fish Hoek from South Africa and US brand Echo Falls.

Observers questioned the timing of Champ’s entry into the wine market at a tricky time for the industry, but John Haddock, managing director of Champ, remained confident that the strength of Accolade’s portfolio puts the company in a healthy position.

“I think everyone knows there are a number of challenges facing the wine industry but it’s an important industry and we will be enthusiastic advocates for it,” he said.

“We see Accolade Wines as a company with strong fundamentals, a sound competitive position, a capacity to grow and an opportunity to re-invigorate its brands.”

Speaking of the company’s strategy following the rebrand, chief executive officer Troy Christensen said: “Our vision is about getting more people to enjoy our wines, our strategy is to drive value growth and enhance profit and margins in key markets including the UK and Europe by using consumer and category insight to build our brands and drive industry leading innovation.

Explaining the rationale behind the new name, Christensen added: “The new name Accolade Wines is all about applauding everything we do and celebrating our key company assets – our award-winning wines and facilities like Accolade Park and our great people.

“It’s also about being recognised for responding quickly to customer and consumer needs.

8. Campo in the dock

As the year draws to a close, a scandal currently holds the wine industry in thrall.

The Institute of Masters of Wine (IMW) announced in December that it was opening an investigation into the conduct of Pancho Campo MW following allegations the president and founder of The Wine Academy of Spain charged Spanish wineries up to €40,000 for a visit from Jay Miller of The Wine Advocate.

Announcing the formal investigation, an IMW statement said: “Membership of the Institute and the right to use the title Master of Wine is reserved for those individuals who have passed all aspects of the Masters of Wine Examination, agreed to abide by the Institute’s formal Code of Conduct and who remain members in good standing.

“In the event that a breach of the Code is proven, a range of sanctions is available to it.

“Having received a formal complaint into Pancho Campo MW’s alleged conduct, the Institute of Masters of Wine has opened an investigation.”

Campo had already moved swiftly to deny any wrongdoing, issuing a statement through The Wine Academy of Spain which said: “The Wine Academy of Spain never requested from any wineries monies for the visits of Jay Miller or for tasting their wines.

“All the expenses for Jay Miller to travel to Spanish wine regions to taste and review wines were covered by The Wine Advocate, including his transportation, accommodation, meals and any other related expenses,” the statement continued.

According to Campo, the only occasion when fees had been charged were for “the organisation, setup and management of events that included seminars, conferences, masterclasses and guided tastings, which were open to the public,” but that “None of these fees were ever paid to The Wine Advocate.”

Miller has since resigned from The Wine Advocate, but denied his stepping down had anything to do with the Spain debacle. “Some may believe my stepping down is in response to my critics, nothing could be further from the truth,” he said.

“I have never accepted (or request) fees for visiting wine regions or wineries.”

The wine world will wait with baited breath for the outcome of the IMW enquiry in the new year.

9. Diageo storms emerging markets

Never one to sit back and watch market developments unfold before it, Diageo this year made significant progress in its efforts to increase its share of developing markets in Asia and elsewhere.

Back in June, Diageo finally gained regulatory approval in China to acquire an additional 4% stake in Sichuan Chengdu Quanxing Group (Quanxing), taking its total holding in the company to a controlling 53%.

The £13 million deal gave Diageo indirect control of leading Baijiu brand Shui Jing Fang, in which Quanxing holds a 39.7% stake. The £25 billion Baijiu market currently accounts for more than 30% of the booming Chinese alcoholic drinks sector.

The deal was hugely significant in that it marked the first time a foreign company has gained control of an important Chinese brand.

In August, the world’s biggest drinks company announced it had received regulatory clearance for the £1.3 billion acquisition of Mey Içki, the leading spirits company in Turkey.

The company originally announced its intention to acquire Mey Içki in February this year as it sought to strengthen its position in the fast-growing Turkish spirits market.

Mey Içki’s key brand Yeni Raki accounts for around 67% of the group’s total revenues, while it also has a presence in the vodka, wine, gin and liqueur markets.

It is the company’s strength in the Turkish raki market which convinced Diageo to make its move, with the drink being by far the most popular spirit in Turkey, accounting for 80% of total spirits consumption in the country.

Diageo will commence global distribution of the Yeni Raki brand from January.

Elsewhere, Diageo successfully closed a public offer to acquire an additional 5.07% stake in Hanoi Liquor Joint Stock Company (Halico) in Vietnam for approximately £6.4 million. The public offer opened on 21 July and closed on 19 August.

A Diageo statement said: “Diageo’s public offer to increase its equity stake in Halico further demonstrates Diageo’s commitment to working with Halico as its strategic partner in the rapidly growing Vietnamese branded spirits sector.

Gilbert Ghostine, president of Diageo Asia Pacific, added: “Diageo is confident that, by partnering with Halico, we both can successfully leverage Vietnamese consumers’ growing demand for branded spirits such as Vodka Hanoi.”

Speaking at the company’s annual results conference in August, Diageo chief executive Paul Walsh said: “Emerging markets are the growth engine of the business.”

Today they provide 60% of the group’s profits and in four years time they will be the source of half of all its sales, he predicted.

Building on the “existing strong platform” to generate expansion in faster-growing markets combined with “sharper focus” on costs will “maximise cash and returns” and “underpin faster dividend growth”, he said.

During the year, Diageo spent £1.6 billion on mergers and acquisitions, which also involved taking controlling stakes in Serengeti Breweries in Tanzania and Zacapa premium rum.

Such acquisitions give access to burgeoning local populations and at the same time provide enhanced routes to market for Diageo’s existing portfolio.

It’s a strategy that will doubtless continue throughout 2012.

10. Rémy Cointreau sheds Champagnes

French group Rémy Cointreau shocked the Champagne world back in March with the announcement it had entered into exclusive negotiations with privately-held company Société Européenne de Participations Industrielles (EPI) with a view to possibly selling its loss-making Champagne division, including the Piper-Heidsieck and Charles Heidsieck brands.

While most industry observers anticipated bids to come in from established players in the Champagne region, EPI only counted a single, relatively unknown Château among its existing assets.

Although powerhouses LVMH and Pernod Ricard ruled themselves out of the bidding soon after Rémy Cointreau announced its intention to sell off the Champagne arm, rumours of interest from the likes of Nicolas Feuillatte and Boizel from the Champagne region itself, plus Davide Campari, suggested that an established drinks company would take over the brands.

Nevertheless, the talks proved successful and Rémy Cointreau announced the sale of its Champagne division to EPI for €412 million in the summer.

EPI, a family owned group run by Christopher Descours, owns a number of French trademarks in the upmarket goods market, such as JM Weston, Bonpoint, Alain Figaret, François Pinet and Michel Perry, as well as Château La Verrerie. EPI also carries out a diversified investment policy.

In addition, Rémy Cointreau and EPI signed a global distribution agreement for the Piper-Heidsieck and Charles Heidsieck brands, as well as for Piper Sonoma in the US.

Rémy Cointreau chief executive Jean-Marie Laborde said: “The sale is entirely consistent with the acceleration of our value strategy, which focuses on our international liqueurs and spirits brands and businesses. The proceeds of the sale will enable us to fund our development in major markets of today as well as in markets with strong potential for future growth.

EPI chairman Christopher Descours added: “This new initiative will strengthen our commitment to wine-making, initiated 20 years ago with Chateau La Verrerie (Lubéron.)

“Given the very favourable environment for the Champagne market, this acquisition represents an exceptional opportunity.”

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