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 e - NEWS

March 12, 2004


1. Diageo to Revert Cardhu to Single Malt After Row

2. 36 States Join Michigan in Urging the U.S. Supreme Court to Reaffirm States' Right

3. Consumers Think Guinness-in-the-bottle Ads are 'Brilliant!'

4. US: Guinness to Launch Smithwick’s in US

5. Youths Can Easily Sample Alcohol Web Sites, Study Suggests

6. Festivals to Remain Free From Alcohol

7. A Thirst for Flavor and Prestige Drives U.S. Spirits, Wine and Beer Consumption

8. Retailers Say Bill to Raise Liquor Tax is Far Too Strong


1. Diageo to Revert Cardhu to Single Malt After Row



The Publican.com

March 10, 2004

Diageo has bowed to pressure from the scotch whisky industry and agreed to scrap its Cardhu pure malt concept.

The company has announced it intends to reintroduce Cardhu single malt in all European markets and halt production of Cardhu pure malt – a blend of single malts bottled under the Cardhu name.

The decision is a remarkable climbdown for the drinks giant and ends fervent controversy that even reached the Houses of Parliament.

Ian Meakins, Diageo’s president of EU markets, said: “We believe that we have acted consistently in the best interests of consumers, but acknowledge that we underestimated the strength of feeling on this issue.

“We believe that our decision will put the distraction of the Cardhu issue behind us.”

The Scotch Whisky Association is thought to be introducing clearer whisky definitions so that distillery names can only be used on whisky that is made at that particular distillery.

Mark Reynier, chief executive of the Bruichladdich distillery on Islay, said: “It’s common sense. I’m very pleased that the largest distillery-owning company has bowed to public pressure to honour the authenticity of single malt whisky distilleries.

“Consumers felt let down and deceived. Let’s hope the term ‘pure malt’ gets dropped once and for all.”

Diageo has been locked in an on-going battle with the scotch whisky industry ever since it announced it was to stop producing the single malt brand last summer.

In an attempt to placate fellow producers Diageo agreed to change the packaging but the industry stood firm in its view that the term “pure malt” could confuse drinkers and damage the reputation of the industry.



2. 36 States Join Michigan in Urging the U.S. Supreme Court to Reaffirm States' Right to Regulate Alcohol

Source:  Wine & Spirits Wholesalers of America, Inc.

March 5, 2004

WASHINGTON / PR Newswire --Other States Supporting Michigan include: Ohio, Md., La., Minn., Kan., Mass., Ind., Hawaii, Utah, Okla., N.D., Texas, Ky., Tenn., Nev., Maine, N.J., Idaho, Ga., Miss., R.I., Va., Mont., Wis., S.D., Mo., Ore., N.M., Ill., Wash., Ala., Del., Iowa, Fla. and Conn.

Thirty six State Attorneys General, including Arizona's Terry Goddard, today joined the State of Michigan in urging the U.S. Supreme Court to reaffirm a state's right to regulate the sale and distribution of alcohol as guaranteed by the U.S. Constitution and federal law.

Today's action stems from a lower federal court ruling that struck down Michigan's long-standing ban on home shipments of alcohol by unlicensed out- of-state alcohol producers and retailers. Such shipments bypass Michigan's regulated alcohol tracking and distribution system -- known as the three-tier system.

In a petition filed with the nation's highest court, the supporting states asserted that "The decision by the [lower court] fails to respect the power granted to the States by the Twenty-First Amendment to regulate delivery or use of alcohol within the State. The States have a significant interest in exercising their police powers to protect the health safety and welfare of their citizens in the area of alcohol shipping."

The Michigan system, which is similar to those in many states, ensures that sales are properly tracked, taxes are collected, beverages are not tampered with, and products are not diverted outside the states' control and into the hands of minors.

On January 30, Michigan's Attorney General asked the Supreme Court to hear the case, Granholm v. Heald, and overturn that lower court. The Michigan Beer & Wine Wholesalers Association (MBWWA) filed a supporting petition. In addition to today's petition by the 36 State Attorneys General, a petition supporting Michigan was also previously filed by the National Alcohol Beverage Control Association and the National Conference of State Liquor Administrators.

"With 6,000 brands of wine registered for sale at 7,500 licensed Arizona retailers, the issue isn't greater consumer choice but rather out-of-state producers thumbing their noses at Arizona's laws and regulations," said Jack Braddock a spokesperson for the Arizona alcohol beverage industry.

In their petition, the 36 states further stated, "The possibility that federal courts may eviscerate the States' ability to maintain their liquor control systems ... is of paramount concern to all States." It cited past U.S. Supreme Court rulings noting that, "the States' Twenty-First Amendment power is such that 'the states have virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system.'"

Additionally, the petition reads, "The [lower court's] erroneous decision presents an immediate threat to the core concerns protected by the Twenty- First Amendment -- consumption by minors, maintaining an orderly market, and collection of taxes."

"The vast majority of states recognize that we'll have alcohol anarchy if the influential, billion-dollar wine industry succeeds in getting alcohol sales to become unregulated, unaccountable and anonymous," President and CEO of the Wine & Spirits Wholesalers Association, Inc. Juanita D. Duggan said. "The fact is that the wine industry is putting soaring profits ahead of sound policy, with no concern for kids, communities or common sense. Today's action deals a significant setback to the billion-dollar wine industry's concerted effort to make alcohol sales as easy as point, click, drink."

The issue of the importance of the three-tier system has generated significant activity within the courts. Since Michigan filed its request, the Second Circuit Court of Appeals, on February 12, acted to protect New York's alcohol regulatory system. It affirmed the state's constitutional right to ensure out-of-state alcohol providers comply with New York's alcohol laws. Citing the U.S. Constitution's Twenty-First Amendment, the Second Circuit Court of Appeals noted that, "changes in marketing techniques or national consumer demand for a product do not alter the meaning of a constitutional amendment."

In the New York opinion, the court also said that, "in 2000, there were over 2100 wineries in the country," and that, "requiring New York officials to traverse the country to ensure that direct sales to consumers (no matter how small) comply with New York law would render the regulatory scheme useless." The number of wineries has since grown to as many as 3,000.

Today's filing was signed by the State Attorneys General from Arizona, Ohio, Maryland, Louisiana, Minnesota, Kansas, Massachusetts, Indiana, Hawaii, Utah, Oklahoma, North Dakota, Texas, Kentucky, Tennessee, Nevada, Maine, New Jersey, Idaho, Georgia, Mississippi, Rhode Island, Virginia, Montana, Wisconsin, South Dakota, Missouri, Oregon, New Mexico, Illinois, Washington, Alabama, Delaware, Iowa, Florida and Connecticut.

More Background

In Michigan's filing at the end of January, the state defended the three- tier system saying that it was intended "to protect against the collusion, price-fixing and monopolization problems that existed before Prohibition." It also argued that its three-tier structure ensures an orderly distribution and importation system that helps prevent illegal sales to minors and intoxicated persons and also helps ensure that taxes are collected.

"Section 2 of the 21st Amendment is plain and clear. It provides direct authority to the states to regulate the sale, transportation and importation of alcohol ... " Michigan said. However, it noted that "federal courts across the nation are inconsistent and in conflict with the interpretation of this constitutional amendment when it intersects with the Commerce Clause."

All 50 states have a system of safeguards they maintain or rely on to ensure a proper chain of custody for all alcohol products. Within the state of Michigan, beer and wine are distributed under a three-tier regulatory system, which flows from producers through wholesalers (or the state acting as a wholesaler) to retailers. Wholesalers act as an extension of the state's alcohol regulatory system, guarding against product tampering and impurities, ensuring revenue collection for the state, and tracking sales to consumers.

A handful of alcohol producers and so-called wine connoisseurs are systematically suing states to undo longstanding, strict alcohol laws and public safeguards. These groups advocate bypassing the existing state regulatory and tracking systems, relying instead on voluntary reporting of sales and payment of taxes.

Lawsuits to dismantle local alcohol controls have been filed in Arizona, Florida, Indiana, New Jersey, New York, North Carolina, Ohio, Rhode Island, Texas, Virginia and Washington. Michigan and the 36 other supporting states believe the U.S. Constitution gives states the sole authority to regulate alcohol under the Twenty-First Amendment, which, in part, reads:

21st Amendment Section 1: The eighteenth article of amendment to the Constitution of the United States is hereby repealed.

21st Amendment Section 2: The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.



3. Consumers Think Guinness-in-the-bottle Ads are 'Brilliant!'

By Theresa Howard, USA Today

March 7, 2004












Guinness' ads promote portable bottles.













NEW YORK — The luck of the Irish has not been enough to help Guinness battle big U.S. brands such as Bud, Miller Lite and Coors in bottled beer sales.


That's important, because U.S. drinkers tend to belly up to the bar for bottles, not pints. Bottles represent 90% of beer sales, vs. 10% for draft, says Benj Steinman, president of newsletter and tracking firm Beer Marketer's Insights.

Guinness, owned by Diageo, has less than 0.5% of U.S. beer business. It sold the equivalent of 11.1 million cases in 2003, while Bud Light alone sold 525 million, Steinman says. "It's a solid, profitable niche brand, but comparatively small."

Now, Guinness is pushing to promote and distribute bottles of the draft formula. "We felt we weren't getting our fair share of Guinness drinkers outside the pub occasion," says Chris Parsons, Diageo's beer marketing director.

Guinness has sold cans for 10 years, but most buyers still pour it into a glass to get what he calls the brown brew's "surge" and creamy foam head. Bottles rolled out in 2001, but only recently have been pushed. They contain a "Rocket Widget" that releases nitrogen to mimic in the bottle the texture and head of Guinness on tap.

The idea might not be rocket science, but according to Guinness marketers it's "brilliant!" That's the theme for their $14 million ad campaign to promote the "brilliance" of bottling Guinness.

"It seems ridiculous that we would have to tell people to drink from a bottle," Parsons says. But for bottle sales to succeed, "we absolutely had to give them a message that tells them to drink it straight from a bottle."

The ads feature two animated Irish brewmasters with the faces from real — but long deceased — men available in stock photographs. Styled in the spirit of Monty Python, the ads mix cartoon and live action.

In the ads by BBDO, New York, the brewers compare the simplicity of drinking Guinness from a bottle with other simple inventions, such as sliced bread and can openers. The concept was created by the BBDO team on the train on the way to Diageo's office to pitch other Guinness ads. "Brilliant" made the cut once the team acted out the storyline.

In one ad, a brewmaster explains that he has discovered a way to fill a bottle with authentic Guinness draft. His colleague says it's "brilliant!" to be able to drink beer straight from the bottle. In another, one brewmaster explains that they fill "the bottle with authentic Guinness draft. We walk outside. We bring it to a party and drink it." In a third ad, one brewmaster explains that he's "figured out how to carry six beers at the same time" (bottles in a six-pack). His colleague: "Carry six beers at the same time? Brilliant!"

Consumers think the ads, are, ummm, brilliant, according to Ad Track, USA TODAY's weekly consumer survey: 28% like the ads a lot, vs. Ad Track's 21% average. Although 80% of Guinness drinkers are male, the ads appeal to both genders: 31% of men and 24% of females like them "a lot."

So far, Diageo would agree. Sales for Guinness climbed 7% for the six months ended Dec. 31, vs. the same period in 2002. But Diageo wants to take care not to weaken the brand's core appeal as a draft product. Once it convinces consumers that Guinness from a bottle is OK, "We'll probably revert to an overall product campaign," Parsons says.



4. US: Guinness to Launch Smithwick’s in US

Source:  just-drinks.com editorial team

March 10, 2004

Guinness USA is to launch Smithwick's Irish Ale into the US market, in time for St. Patrick's Day celebrations. It is the first time that Smithwick's will be available in the US.

"The Irish tradition of brewing is world renowned, and the introduction of Smithwick's to the U.S. market further demonstrates Diageo - Guinness USA's commitment to expanding an unmatched portfolio of Irish beer brands," said Patrick Hughes, Diageo brand manager. "We are proud to add the exceptional Smithwick's ale to the stellar line up of Guinness stout and Harp lager that we offer to the US adult consumer."

Smithwick's will be available in draught form in hundreds of Irish pubs across the United States. Key markets include New York, Boston, Chicago, San Francisco and Los Angeles.


5. Youths Can Easily Sample Alcohol Web Sites, Study Suggests

By Jim Salter  - Associated Press Writer – Courier Journal

March 10, 2004

ST. LOUIS - Alcohol company Web sites are offering a "cyber playground" for underage youths despite promises from the companies to limit their access, according to a study released Tuesday.

The study by the Center on Alcohol Marketing and Youth at Georgetown University estimated that alcohol company Web sites received nearly 700,000 visits by underage people from July through December. Many played video games and downloaded music, e-mail gadgets and icons _ all the while immersed in the marketing of beer and liquor, center director Jim O'Hara said.

"These alcohol Web sites are a virtual cyber playground with no adult supervision," O'Hara said. "If a liquor store were this ineffective in policing underage visits, the community would be up in arms."

Frank Coleman of the Distilled Spirits Council in Washington called the study a publicity stunt aimed at generating fund raising. He said the Federal Trade Commission has "reviewed our ads and said they were directed to adults, that our Web content is directed to adults and that 99.9 percent of them had age verification in place, in addition to having responsible drinking messages throughout."

For the study, the Internet audience-measuring service comScore Media Metrix used its panel of U.S. residents as a statistical sampling of Internet users. The study was not a survey but instead monitored actual Internet usage, O'Hara said.

The study showed that about 13 percent of all visitors to 55 alcohol company Web sites were under the legal drinking age of 21. The most popular sites among young people involving distilled spirits, beer and so-called "malternatives," generally sweet-tasting alcohol products.

Bacardi's site _ www.bacardi.com _ received about 59 percent of its visits from underage persons, according to the study. The two sites receiving the most total hits from underage users were both affiliated with St. Louis-based beer giant Anheuser-Busch Cos. Inc. _ www.budlight.com and www.budweiser.com. Both received more than 90,000 estimated visits during the six-month study period.

Parental controls on computers block some, but not all sites, O'Hara said. The study found that while six of eight parental-control programs studied blocked access to the Bud Light site, only one kept underage users away from Bacardi's.

The sites themselves generally require age verification, though there is no way to verify the truthfulness of the user.

The study found that games were featured on 10 of 15 beer Web sites, seven of 19 sites for distilled spirits and four of 12 for so-called malternatives

"There are a lot of features that appear to be in conflict with the industry's own marketing and advertising codes, where they shouldn't be using toys and games," O'Hara said.




6. Festivals to Remain Free From Alcohol

By William Mikesell - The Daily Iowan

March 11, 2004

IOWA CITY -- Iowa City's two largest summer festivals will not sell alcohol on downtown streets despite an expanded city ordinance that might allow them to legally do so, the events' coordinators said Wednesday.

Worried about increased insurance rates and greater liability, the Iowa City Jazz Festival and Iowa Arts Festival directors said they will not risk jeopardizing their events' futures despite the potential for large profits. Both the Jazz Festival, which will host 12 bands in July, and the Art Festival's gala with more than 100 artists, said in interviews they had considered the idea

"If you get sued one time, you're done," said Jazz Festival head Steve Grismore. "The jazz fest would be gone, period."

The Jazz Festival already has a $1 million insurance policy, but selling alcohol during the event would force it to buy additional insurance, Grismore said. The Arts Festival organizers, likewise, cited insurance costs, time constraints, and community relations as reasons.

Although festival officials said they plan to keep the street fairs dry this summer, they may reconsider in future years.

Neither of the festivals' directors suggested that Iowa City City Councilors vote to expand the ordinance to allow alcohol sales for nonprofit organizations at their meeting March 2. The ordinance, which passed 6-1, awaits two more rounds of consideration.

Jim Clayton, a co-coordinator of the Stepping Up Project, said he is concerned that the council's rush to add beer to the family environment will change the event's culture.


"We've spent seven years going in one direction - limiting access and availability," he said, saying beer tents may cause competitive pricing wars and lower prices. "Do we have to constantly show our children the only time to have fun is with a drink?"

The thriving downtown bar scene provides plenty of opportunities to find a drink, said Jazz Festival board member Mark Ginsberg.

"The last thing we want to do is compete or take away business from the bars," he said.

A festival beer tent would be open to minors under the 19-ordinance and would likely be staffed by volunteers who "would be less apt to order [underage] people out without the police being there," said Iowa City police Sgt. Brian Krei.

City Councilor Connie Champion said she voted to expand the ordinance so festivals could find additional sources of revenue. She is not concerned alcohol consumption will dampen the cultural activities.

"It's alcohol abuse that makes it a problem, not where it is consumed," she said. "I think they'll do as good of a job [to enforce laws] as the bars do downtown."


Coralville allows people to bring beer to parks and permits alcohol sales on special occasions, yet no liability suit has ever been filed against the city. Differences between the two cities make any comparisons difficult, said Coralville City Manager Kelly Hayworth.






7. A Thirst for Flavor and Prestige Drives U.S. Spirits, Wine and Beer Consumption

Source: Adams Beverage Group

March 10, 2004

Consumer demand for products with flavor and panache drove U.S. spirits and wine case-sales in 2003 to heights not seen in more than a decade, according to the recently released 2004 edition of Adams Handbook Advance published by Adams Beverage Group.

And despite a slight dip in beer consumption, all three segments of the business posted record retail dollar sales.

"Growth in beverage alcohol sales continues to be driven by flavorful and high-end spirit products, continued interest in varietal wines and the ongoing popularity of imported brews," said Tiziana Mohorovic, director of information services for Adams Beverage Group.

Spirits sales climbed 3.8% in 2003 reaching more than 159 million 9-liter cases. Wine consumption climbed 4.9% to the highest levels since the 1980s. And despite a slight dip in beer case sales overall, imports, lights and domestic superpremium offerings continued their upward climb. Total beer consumption fell 0.6% to 2.8 billion 2.25-gallon cases last year.

"Consumers spent $8 billion more on spirits, wine and beer products last year compared with the previous 12 months," said Mohorovic.

 faster pace than case sales in 2003. Retail dollars climbed 6.0% to $145.4 billion, whereas overall industry case sales were essentially unchanged.

"Imported products in all three segments of the beverage alcohol market grew at twice the clip compared with domestics. As with virtually every other consumer goods category, beverage alcohol continues to benefit from the trading up trend," said Mohorovic.




8. Retailers Say Bill to Raise Liquor Tax is Far Too Strong

By David Twiddy – The Business Journal

March 1, 20004



KANSAS CITY, MO -- Owners of Kansas liquor stores, restaurants and bars can't blink while the Legislature is in session this year.


State senators earlier this month shot down a bill that would have nearly doubled some taxes on alcohol but also would have allowed communities throughout Kansas to decide whether to allow Sunday alcohol sales.


Almost immediately after the bill failed, new legislation was introduced in the House that brings back the tax increases but not the Sunday sales language.


House Bill 2786 delivers a double hit to liquor stores: It would assess a one-time tax on each gallon of alcoholic beverages in a store's inventory on July 1 and increase the tax the store pays on each gallon it buys from a wholesaler.


If passed, it would require stores to pay 7 cents a gallon on beer, 10 cents a gallon on wine and $1 a gallon on liquor. Ongoing taxes would go from 18 cents a gallon to 25 cents a gallon on beer, from 30 cents to 40 cents a gallon on wine and from $2.50 to $3.50 a gallon on spirits.


Missouri retailers pay 6 cents a gallon on beer, 42 cents a gallon on wine and $2 a gallon on spirits.


The bill's sponsor, Rep. Larry Campbell, R-Olathe, said he wants alcohol retailers and consumers to reimburse the government for such things as enforcement of drunken driving laws, alcoholism and other problems associated with overindulgence.


"If you're creating a burden on society or cost on society, you should pay your way," Campbell said, adding that state economists haven't determined how much the new taxes could generate.


It doesn't hurt that Kansas lawmakers are struggling with a number of potential tax increases this year aimed at patching holes in the state budget and that "sin" taxes on alcohol and cigarettes often are more politically palatable.


"In a year when the Legislature is looking to raise every kind of tax you can think of, it makes sense to look at that as well," Campbell said, noting that the "gallonage" taxes haven't gone up since the 1970s.


Opponents say the bill unfairly targets liquor stores and will put the state's alcohol industry at a competitive disadvantage, especially in communities along the border with Missouri.


They said that although the gallonage taxes have stayed level, lawmakers have added other taxes on alcohol sales through the years.


"If they hit us with gallonage taxes and extras, we'll have to pass those on to the customers," said Larry Knackstedt, owner of Knocky's Liquors in Overland Park. "All that's doing is opening up more traffic going to Missouri to buy liquor and wine. Right now, frankly, I think Kansas' greatest export is money."


Added Amy Campbell, executive director of the Kansas Association of Beverage Retailers: "There's not much more revenue you can wring out of an industry without crippling it."


Meanwhile, lawmakers haven't entirely given up on clarifying state law regarding Sunday alcohol sales. Attorney General Phill Kline and many lawmakers want to re-establish control of Sunday sales, which currently are permitted because of a Wyandotte County District Court decision.


The decision allowed communities to vote to opt out of state laws prohibiting the sale of liquor on Sundays because the court found that the law was not applied uniformly.


The decision is on appeal to the Kansas Supreme Court, but some worry that communities might try to exempt themselves from other parts of the law -- such as the minimum drinking age -- if the state doesn't create a uniform policy.


After the vote to deny passage, senators agreed to reconsider the bill, meaning it could come back up for debate later in the session.