Costco wins rulings over state's beer, wine laws

Distribution setup violates Sherman Act, judge says

By KRISTEN MILLARES BOLT AND DAN RICHMAN

SEATTLE POST-INTELLIGENCER REPORTERS

The way beer and wine is sold in Washington is going to change -- though it isn't known how just yet -- after a federal judge said in two separate rulings Wednesday that Washington's system for distributing beer and wine violates the Constitution and the Sherman Act.

Costco Wholesale Corp. won a battle against the Washington State Liquor Control Board, when U.S. District Judge Marsha Pechman ruled Washington 's three-tier system for distributing beer and wine breaks federal antitrust law.

Among other things, Pechman said, Washington state law improperly requires that producers and distributors of beer and wine mark up prices at least 10 percent above cost.

In a separate ruling on Costco's case, Pechman agreed with the Issaquah-based discount retailer's claim that the state law that allows in-state beer and wine producers to ship directly to retailers but prohibits out-of-state producers from doing so, violates the U.S. Constitution's Commerce Clause.

While neither of the rulings will immediately change the way beer and wine is sold in the state, Pechman's decisions set in motion a chain of events that both Costco and the Liquor Control Board think could lower beer and wine prices for consumers in Washington -- pending a March trial and the Legislature's upcoming January session.

In her ruling, Pechman stayed her judgment that the Constitution requires in-state and out-of-state producers to have equal distribution rights in order to give the Legislature time to act. She gave lawmakers until April 14 to either allow all producers of wine and beer -- whether in state or out -- to distribute their own products to retailers, or to prohibit any of them from doing so.

"Clearly, we have our work cut out for us," said Sen. Margarita Prentice, the Seattle Democrat who is chairwoman of the budget-writing Senate Ways and Means Committee. "One of the reasons that our liquor laws are a mess is that we've never been able to come to grips with it."

Prentice also said that a lack of public outcry over the state's laws has made her "resist making big changes, because the only ones interested in it are the ones who were going to make a profit," an apparent reference to the Issaquah-based retailer that brought the suit, and to the state's distribution industry that sided with the state.

Pechman also took no immediate action on the apparent illegality of Washington 's beer and wine regulations, leaving additional arguments about their constitutionality to trial.

Pechman ruled "that Costco has demonstrated that Washington 's posting, holding, minimum markup, delivered pricing, uniform pricing, ban on volume discounts, and ban on credit sale requirements are irreconcilably in conflict with federal antitrust law."

But she explained that "even if the challenged restraints are irreconcilably in conflict with the Sherman Act ... and not subject to antitrust immunity, they may nonetheless be shielded by the 21st Amendment to the United States Constitution."

That means that the state can argue in March that Washington 's beer and wine distribution system is defensible under the 21st Amendment, which repealed Prohibition but granted states the right to control alcohol importation.

Assistant Attorney General David Hankins, who was arguing the case on behalf of the Liquor Control Board, said that Washington law protects its citizens from the danger of alcoholism and other abuse by keeping prices higher than the market would dictate.

"Clearly, our main argument is that our system does work," Hankins said. "The core concern is: Does the system control consumption?"

Hankins plans to argue in the March trial that Washington 's system works "because you don't have prices so low that you have, in a comparative sense, a society like Russia , where they talk about how much people are drinking vodka."

But John Sullivan, the associate general counsel for Costco Wholesale Corp., argued that consumers are harmed under the current system, with fewer options.

"We hope to offer relief to the consumers through better value and more choices in purchasing beer and wine," Sullivan said. "That relief would expand the competitive options of Washington wineries and breweries as they become extensive drivers of the Washington state economy."

The Liquor Control Board's co-defendant, the Washington Beer & Wine Wholesalers Association, has said that removing the mandatory 10 percent markup for both producers and distributors would limit choice for both consumers and producers by running small wineries, breweries and distributors out of business.

But if the system is to be changed, both the Liquor Control Board and the wholesalers association advocate forbidding both in-state and out-of-state producers from shipping directly to retailers.

That could send some small wineries out of business, though, said Tim Hightower, president of the Washington Wine Institute. That lobbying group for state wineries has calculated that the vast majority of the Washington 's 385 wineries produce less than 2,000 cases a year -- too small, they say, to catch the attention of a member of the distribution system.

Bob Betz, of the Betz Family Winery in Redmond , is among those fretting over Wednesday's ruling.

"As a producer here in Washington that self-distributes, we would really want to persevere in being able to sell directly to retailers and restaurants," he said. "It's really part of our lifeblood and the reason we can survive."

Betz's operation produces about 30,000 bottles of red wine a year, mostly to customers on a mailing list or to local buyers. It pays more for supplies and equipment than larger growers, so it can't afford to cut prices to make room for a distributor's additional markup, he said.

"That (being required to go through a distributor) would put our business model under a lot of stress," he said. Self-distribution "is the one slight advantage a small producer can have."

As worried as small Washington producers are, some larger ones are unfazed.

"If everyone had to use distributors, that wouldn't affect our business at all," said Kirk Kauhane, head of sales and marketing for Washington Wine and Beverage Co., a large producer.

His company relies exclusively on distributors to put into the hands of restaurants and retailers the 600,000 bottles of wine it produces annually bearing the Hoodsport, Silver Lake and Glen Fiona labels.

And if in-state and out-of-state producers could all self-distribute, that wouldn't matter much either, he said.

As for the distributors, they stand mostly to gain business if the Legislature eliminates all self-distribution, but would lose some if all producers gain the right to self-distribution. One small distributor specializing in higher-end wines wasn't sure how the situation would affect his business.

"It could be very threatening, though I am not sure how it would all play out," said Michael Waissman, owner of C + G Wines, a Portland-based distribution company with a Seattle office and warehouse. "Because of the expensive costs of shipping wines, and billing terms, I don't know if it would be cost-effective for the producers to be paying ground freight or UPS ... it's hundreds of times more expensive than using trucking companies or water freight through us."

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Belvedere looks West with Marie Brizard buy

21 Dec 2005

Source: just-drinks

French vodka producer Belvedere has said its presence in Western Europe and the US will be strengthened after sealing an agreement to buy spirits group Marie Brizard & Roger International.

Belvedere finance director Alexandre Payet said the company would benefit from Marie Brizard's distribution muscle in Western Europe and across the Atlantic .

"Belvedere is already strong in Eastern Europe and the challenge for us is to sell our brands in the West," Payet told just-drinks today (21 December).

"It's a good opportunity for us to open up Western markets, especially the US , for our Polish vodka."

Belvedere, which is Eastern Europe 's biggest distributor of white spirits, struck a deal to buy a 69.3% stake in Marie Brizard from Duke Street Capital. Belvedere said it would pay the UK private equity group EUR141 (US$167.37) a share. The deal values Marie Brizard at around EUR320m, excluding debt.

Belvedere said it would finance the acquisition through a capital increase to which its key shareholder, Caribbean conglomerate CL Financial, would subscribe, and some debt.

CL Financial, which holds a 25.8% stake in Belvedere, said it would revise its public offer for Belvedere shares after the Marie Brizard acquisition. In September, CL Financial said it planned to launch a public offer for Belvedere shares at EUR131 a share. CL Financial aims to own more than 50% of Belvedere's capital and voting rights.

CL Financial's plan to take a majority stake in Belvedere was its first move towards its aim of becoming one of the world's top 10 spirits companies within the next three years.

The conglomerate, through its CL World Brands drinks division, boasts a portfolio including Angostura rum, Scotch whisky distiller Burn Stewart and Cognac producer Hine.

CL Financial still intended to buy a majority interest in Belvedere, Payet said, adding that the group would submit a fresh offer for Belvedere in "January or February".

Belvedere's move to buy Marie Brizard comes five months after it failed in its bid to buy Poland 's biggest state-owned distiller Polmos Bialystok.

Payet said Marie Brizard was "a better acquisition" than Bialystok .

He added: "With Marie Brizard, we have a very good opportunity to assemble a portfolio of brands (while) Bialystok was only two brands and the price for Marie Brizard is less than the price for Bialystok . It's a very good opportunity."

Marie Brizard's drinks stable includes the eponymous liqueurs range and was expanded in March when the company bought French spirits group William Pitters.

Marie Brizard officials were unavailable for comment as just-drinks went to press.

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Albertson's Is Near $9.6 Billion Sale

Grocery Chain to Be Split Among Three Buyers as Deal Highlights Market Pressure

By DENNIS K. BERMAN and JANET ADAMY

Staff Reporters of THE WALL STREET JOURNAL

December 22, 2005; Page A3

The future of Albertson's Inc., the nation's second-largest grocery chain, hung in the balance Wednesday night, as the company's board wrestled with whether to accept a $9.6 billion buyout offer from a consortium of industry and private-equity buyers.

Early in the evening New York time, Albertson's appeared poised to accept the $26-per share cash and stock offer made by drug-store chain CVS Corp., supermarket chain Supervalu Inc. and a group of real-estate investors including Cerberus Capital and Kimco Realty Corp. Press releases were ready to be issued Thursday morning, according to people familiar with the matter.

The deal now appears uncertain and could break down, a person familiar with the matter said. Part of the problem may be that the $26-per-share offer is at the lower range of what the company had been hoping to attract when it put itself on the auction block in September.

Should the deal fall apart, it could expose the company's stock to a steep drop and leave investors wondering about the retailer's future strategy.

Of course, there are elements of gamesmanship in all merger negotiations, as the two sides try to hammer out the best terms for themselves. The company could choose to sell off its drugstore division, hundreds of its underperforming stores and focus on its better performing assets in areas such as southern California and Washington State , while issuing fresh debt to award cash to shareholders.

The transaction under consideration involves several steps, said people close to the matter. Drug-store chain CVS would purchase Albertson's pharmacy business for as much as $4 billion. A group led by private-equity firm Cerberus Capital and Kimco Realty would buy poorly performing Albertson's stores in areas including Dallas, Florida, Northern California and the Rocky Mountains.

Lastly, grocery chain Supervalu would swap stock and cash for 1100 of Albertson's stores, which include stores operating under the names Shaw's Supermarkets, Jewel-Osco, Acme, Star Market and Bristol Farms and an additional 569 Albertsons-flagged stores in Southern California and throughout the West.

Supervalu was prepared to offer 0.182 of a share of its stock -- which closed yesterday at $32.38 per share. Supervalu, of Eden Prairie , Minn. , also would be assuming $6.1 billion of Albertson's existing debt, in a deal that would be immediately accretive to Supervalu shareholders, a person familiar with the offer said.

In all, shareholders of Albertson's, Boise , Idaho , would receive $26 a share, comprised of $20.25 in cash and the rest in Supervalu stock. The price represents about a 25% premium from the level at which Albertson's shares traded before it went on the auction block in September. After the transaction, Albertson's shareholders would own about one-third of Supervalu.

Representatives for Albertson's and CVS did not return calls seeking comment. A Supervalu spokeswoman declined to comment.

A deal would turn Supervalu, currently the nation's eighth-largest food seller by revenue, into a much stronger supermarket player. The company operates traditional stores under the Cub banner and has a growing group of deep-discount stores under the Save-A-Lot name that mostly target poor areas.

Until recently, supermarkets had long dominated the food-selling business, luring customers to prime locations with weekly specials. But in the 1990s Wal-Mart Stores Inc. began aggressively pushing into fresh groceries by blanketing the country with its supercenters. Its stores offer prices that are as much as 30% less than traditional supermarkets and fluctuate less from week to week. Such bargains persuaded shoppers to travel longer distances in search of deals. In 2001 Wal-Mart displaced Kroger Co. as the nation's largest food seller.

Initially, supermarket chains such as Albertson's responded by buying up smaller rivals. But scale hasn't been enough to compete against Wal-Mart and its low prices. Efforts to stem losses of market share, from sprucing up meat and produce departments to cutting costs, haven't worked.

With fewer traditional markets around, those shoppers that use them now drive about seven minutes to get to a traditional grocery store-almost twice as long as in 1982, according to Buxton, a customer-analytics company in Fort Worth , Texas , that tracks trade areas for retailers.

Aside from select groups of stores, rival grocers aren't likely to show strong interest in buying Albertson's outlets and keep them open as supermarkets. Recent grocery-store auctions have yielded little interest. When Winn-Dixie Stores Inc. put 326 stores up for sale this summer, only 81 were bought as continuing grocery stores.

An Albertson's deal also is likely to spark job losses in an industry fighting to retain its premium wages and generous health-care benefits. Labor laws may leave some room for new owners to renegotiate worker contracts. Major grocery chains have made lowering labor costs one of their top priorities, and have already enjoyed some recent success in persuading workers to pay more for their health care and move up the wage ladder at a slower pace.

The main grocery union, the United Food and Commercial Workers, could dodge many of the job losses because it doesn't represent workers at Albertson's most struggling divisions. Still, a big wave of cuts would come at a bad time for the union. It lost clout after failing to win better health-care benefits after workers in Southern California engaged in a more-than-four-month labor battle that ended last year.

Workers already are starting to worry. "That's going to hurt," said Mario Torres, who stocks shelves, answers phones and cleans bathrooms at a Jewel store in Chicago . Mr. Torres, 40 years old, said he is trying to save money to buy a house in the neighborhood near the store, where he has lived his entire life, and wants to start setting money aside for his retirement.

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Brown-Forman Corporation Director Adopts 10B5-1 Share Trading Plan

Source: Red Orbit

Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) announced today that Director Dace Brown Stubbs has adopted a personal stock trading plan pursuant to guidelines specified under the Securities and Exchange Act of 1934 and the company's policies with respect to insider sales.

Ms. Stubbs, a Brown family member, informed the company that she plans to sell up to 152,824 shares (valued at approximately $10.7 million) of Brown-Forman Class B nonvoting stock by or before January 31, 2006, as a part of a strategy to retire debt related to personal business interests. Ms. Stubbs said she "remains enthusiastic about the company's future prospects and is a committed long-term shareholder."

Rule 10B5-1 allows corporate officers and directors to adopt written, pre-arranged stock trading plans when they are not in possession of material, non-public information. Based on her public filings, shares to be sold under the Rule 10B5-1 plan adopted by Ms. Stubbs represent a small percentage of her personal holdings of Brown-Forman common stock. Transactions under this plan will be disclosed publicly through Form 144 and Form 4 filings as required by the Securities and Exchange Commission.

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Vodka to get a new twist?

Vodka made from grapes, instead of traditional potatoes and grain, may gain EU's legal green light.

December 21, 2005: 8:28 AM EST

BRUSSELS (Reuters) - Vodka made from an array of produce such as grapes and sugar cane could get the EU stamp of approval under proposed rules to open up the spirits market from traditional potatoes and grain.

Rejecting bids by Estonia , Finland , Poland and Sweden to protect their versions of "traditional vodka," the European Commission has now defined how vodka should be distilled. But it does not limit products used in the yeast-aided fermentation.

"It's all the same alcohol once you've distilled it. As long as you label what agricultural raw material has been used, it can be called vodka," one Commission official told Reuters.

The draft law will now be discussed by EU ministers and is almost guaranteed to spark controversy. An earlier version had stipulated that vodka should be fermented with yeast from "raw materials based on grain, potato, sugar beet and/or molasses."

EU experts have spent the past five years trying to nail down exactly what vodka should be made from and have stipulated that minimum alcoholic strength by volume will be 37.5 percent.

"The description, presentation or labelling of vodka shall indicate in the same visual field as the sales denomination the raw materials utilized to produce the ethyl alcohol of agricultural origin," the text of the draft law says.

The four countries, backed by Latvia and Lithuania , say vodka should only be distilled from the traditional origins of grain and potatoes. Keen to protect national industries, they say their vodka recipes have been around for centuries.

But several other EU countries want to be able to produce vodka from other items and want a looser list of base products to allow innovation in their spirits manufacturing.

The row was sparked by Diageo, the world's largest spirits group, which launched its Ciroc vodka in 2003 and markets it as the world's only vodka made exclusively from grapes.

In the past, the Commission has proposed a separate product class called "traditional vodka" based only on potatoes, but this has always been rejected by the industry, officials say.

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New Cruzan chairman announced

21 Dec 2005

Source: just-drinks

Cruzan International has announced the appointment of Ola Salmen as its new chairman of the board.

Salmen commenced the position at Cruzan, a US rum, brandy and wine supplier, last Tuesday (13 December). The company, based in West Palm Beach, Florida, imports alcoholic beverages as well as manufacturing vinegar and fine foods.

The Absolute Spirits Company took a controlling interest of Cruzan in September, acquiring the controlling stake from Angostura

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Port shippers go up for sale

21 Dec 2005

Source: just-drinks

Three Port shippers are for sale as consolidation continues to bite in the Douro Valley .

Industry sources have named the producers as Barros, Da Silva and Messias - representing about 10% of the industry - but it is understood that no deal for any of them is imminent.

Some Port shippers have been known to be looking for outside investment recently, but no names have been made public before now. The volume end of the Port sector has been suffering for some time from low pricing and fierce competition in markets like France and Belgium .

Barros is well-known for its aged tawnies and colheitas, and boasts two A-grade vineyards in Quinta de S. Luiz and Quinta Doña Matilde. It is understood that the company has been courting investors for some time.

Meanwhile, Da Silva is primarily an own-label supplier, and Messias sells mostly on the domestic market, where price competition can also be fierce.

Prime candidates to snap up one or all of the shippers include The Fladgate Partnership – which recently bought the assets of Osborne – the Symington family, Sogrape and Galician bank Caixa Nova, which owns Cálem and recently bought Burmester.

None of the three companies would comment on the situation.

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Southern appoints retail vice-president

21 Dec 2005

Source: just-drinks

Southern Wine and Spirits of Illinois has appointed Steven Taylor as vice-president of retail spirits.

Taylor will lead and direct retail spirit sales in the Chicago market from 2 January 2006.

Southern's Illinois and Kentucky vice-president and general manager Will Conniff said: "Steve Taylor has spent most of his career in the wine and spirits industry and has proven that he can manage and run a division with the high quality skill and leadership we require in our company leaders."

Taylor most recently worked as division vice president for Connecticut-based Allied Domecq Spirits, USA , before Allied Domecq was taken over by Pernod Ricard, in July this year.

"I am extremely excited about joining this world-class organisation and look forward to working closely not only with Will, but the entire Chicago-area sales and operational team here at Southern," Taylor said.

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U.K. Private equity group springs surprise bid for Unwins

By Ben Harrington, M&A Correspondent (Filed: 22/12/2005)

DM Private Equity, the investment firm that only last week applied to place off-licence chain Unwins into administration, is understood to be one of the bidders for the retailer's assets.

Yesterday bidders for Unwins, which has been put into administration by the group's creditors HBOS, were racing against an end-of-the-day deadline to submit offers.

Unwins Limited was put into administration last week

In a bizarre twist, one source said "there are number of parties you would expect to be bidding and you should expect DM to be among them".

Apart from DM Private equity, other bidders for Unwins include Oddbins-owner Castel, Wine Cellar and Whittals Wines.

Its understood that Castel and Wine Cellar could team up together to mount a rescue bid for all or some of Unwins' assets.

However, if DM Private Equity does submit a bid for some of Unwins, the move is likely to raise questions about what it plans to do with the retailer.

Only last week, directors of Unwins Wine Group and Unwins Limited lodged a formal application to place Unwins Wine Group and Unwins Limited in administration.

One source familiar with the situation said: "It's not like they have the infrastructure and they are never going to get the landlords' consent."

The adminstrator needs to sell Unwins as quickly as possible. The only value for the bidders is in the leases on the stores and there is a risk that the landlords may want to repossess the stores.

One Unwins landlord, who wished to remain anonymous, said he was already threatening to repossess the property. "My solicitor is writing to Unwins asking for the premises back," he said.

DM Private Equity, which bought Unwins last year for £32m, said in a statement it was planning "to seek full restitution and damages resulting from its acquisition of the Unwins Wine Group Limited and its subsidiaries". Included in the list of possible targets for its legal action is the company's auditors Grant Thornton.

In its statement, DM Private Equity also claimed its advisers had identified "gross accounting mistreatments and errors" totalling £2.4m between 1999 and February 28, 2005. These, added to another deficiency of £1.3m in Unwins net assets, meant the company had a total deficiency of £3.7m compared with positive net asset value of £9.5m at the time it bought the business. It said this represented a variance of £13.2m.

However, a source with knowledge of Unwins' accounts before the sale last year, said yesterday that DM Private Equity's claim was "rubbish" and "completely wrong".

The source said "There was no way there was such a gap (in the accounts)".

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Anheuser-Busch: Cheap Beer

Source: Kiplinger.com

The maker of the King of Beers has won the attention of some value hunters, including managers at Longleaf Partners.

Anheuser-Busch (BUD), the nation's dominant beer company, has had a year full of worries. The company has been hurt by a resurgent Miller brand and even more so by Americans drifting away from beer and toward wine and spirits.

Although the company is trying to reignite U.S. sales and get its profits back on track, Wall Street isn't betting on a big comeback anytime soon. And Busch's shares are slumping in the meantime. The share price has declined 11% for the year and is off 16% since July 2004.

But the beaten-down stock has won the attention of managers at Longleaf Partners, a mutual fund company. Founder and co-manager O. Mason Hawkins and his colleagues are finding bargains among "the type of companies we love to own but rarely have the opportunity to buy -- high-quality businesses with dominant market shares and entrenched brand names." Busch is one of Longleaf's new holdings.

The majority of brokerage analysts don't recommend buying the stock right now, but some stock analysts, including Value Line's Kenneth Nugent, remain confident in the company's long-term story and suggest patient investors take a look.

Matthew Reilly, an analyst at Morningstar, notes that Busch's big competitive advantages have "stacked the deck heavily in the company's favor." He likes its unrivaled distribution power as well as its impressive brands, which include Budweiser, Bud Light and Michelob, among others. And he points out that Busch controls nearly 50% of the U.S. beer market.

The shares appear priced to buy according to Reilly's analysis -- although he cautions that the company will likely struggle into 2006, "with significant improvement not occurring at all until 2007."

The company is also growing sales abroad, particularly in China .

At $44, shares sell for 17 times the 2006 consensus earnings estimate of $2.54 per share. The stock yields 2.4%.

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Split in boutique wine team Greg & Greg in court

BY JEFF QUACKENBUSH

STAFF REPORTER

SEBASTOPOL – Viticulturist Greg Bjornstad and winemaker Greg LaFollette came together as Greg & Greg Inc. four years ago and won accolades in the wine press for their boutique brand Tandem. But "making great wine with friends" as Greg & Greg has dissolved into Greg v. Greg in court.

Mr. Bjornstad, 40 percent owner of Tandem Wine Co. with Mr. LaFollette and others, has sued him and the company in Sonoma County Superior Court alleging he was unfairly forced out of the business.

In the complaint, he claims he was barred from the company winemaking facility in the former Vacu-dry apple processing plant in Sebastopol in July and told not to return. The complaint alleges Mr. LaFollette turned the other owners against his leadership.

Mr. Bjornstad said he had no warning of problems brewing.

Mr. Bjornstad seeks $367,500 for the four years of wages he claims he is due per an employment contract with Tandem in October 2001. A case-management meeting is slated for March 13, but Mr. LaFollette said he wants to pursue arbitration.

Mr. LaFollette would not discuss the specifics of the allegations, saying that his attorney, John Mackie of Carle Mackie Power & Ross in Santa Rosa , would be filing a response shortly.

"Sometimes relationships don't work out, but that does not put down the wine we made," Mr. LaFollette said.

Before July, Mr. Bjornstad was managing partner of Tandem Wine. Mr. LaFollette had taken the winemaker position at 110,000-case De Loach Winery in Russian River Valley in September 2004.

That was the time when the pair sold their high-end custom winemaking company Greg & Greg to Owl Ridge Inc., producer of Owl Ridge Wines and Willowbrook Cellars. Tandem Wine Co. remains one of Greg & Greg's 20 winemaking clients and has grown to become a 5,600-case brand.

Tandem recently garnered a high 91 score from "Wine Enthusiast" magazine for its $48-a-bottle 2003 pinot noir from the Van der Kamp Vineyard on Sonoma Mountain . Plans call for more single-vineyard designates, according to marketing director Linda Gomez.

Since July, Mr. Bjornstad has been restarting his vineyard consulting business and will release his own Sonoma Coast chardonnay and pinot noir label via GB Wines LLC in 2007. He's making the wine at a new custom-processing facility at Moshin Family Winery in Russian River Valley .

He is working with several winegrape growers who don't have labels yet. Previous clients have been Peter Michael, Bissler, Stag's Leap Wine Cellars, Paul Hobbs and Patz & Hall.

Mr. Bjornstad is being represented in the suit by Santa Rosa law firm Bernheim & Hicks.

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Goose Island may partner with maker of Budweiser

By Ameet Sachdev

Tribune staff reporter

Published December 21, 2005

Change may be brewing at Goose Island Beer Co.

The beer industry has been buzzing for weeks about talks between Chicago 's largest microbrewery and Anheuser-Busch Cos., fostering speculation the St. Louis beer giant may be interested in buying an ownership stake in Goose Island .

Goose Island president and founder John Hall confirmed that the maker of Honker's Ale and other brands is in talks with Anheuser-Busch, but those discussions have been limited to "distribution issues," he said. He declined to comment further on the nature of the talks.

Anheuser-Busch, brewer of Budweiser and Bud Light, declined to comment, citing its policy not to discuss potential business partnerships or other transactions.

The negotiations are a sign of challenging times in the beer industry. Consumer interest in beer is waning, as more drinkers turn to wine and spirits. At Anheuser-Busch, which controls roughly half of the U.S. market, domestic sales to wholesalers declined 1.4 percent in the third quarter.

A bright side in the industry is that microbrews, also known as craft beers, have enjoyed a resurgence this year. Through the first six months, volume, as measured by number of barrels produced, was up 7.1 percent compared with the same period a year ago, according to the Brewers Association in Boulder , Colo.

Goose Island has become a local favorite since opening its first brewpub in 1988. It later expanded by adding a second brewpub and building a brewery and bottling plant on the West Side .

It produced about 50,000 barrels last year--peanuts compared to the more than 103 million made by Anheuser-Busch--and its beers are distributed in eight states.

But Honker's Ale, Goose Island 's best-selling brand, has trailed category growth. In 2004, its retail sales fell 5.4 percent, to $1.46 million, compared to the year before, according to Information Resources Inc. Through the first 11 months of 2005, sales were up 1.4 percent.

Some of Honker's sales this year may have been cannibalized by the company's newest beer, 312, a wheat ale, which has become the company's third-biggest seller, with sales of nearly $440,000.

IRI only tracks sales at grocery stores and mass merchandisers, excluding Wal-Mart Stores Inc.

Goose Island 's distribution has been somewhat unsettled since it terminated its relationship with its sales and marketing agent last year and brought that function in-house. The company had been using United States Beverage LLC since 2000 to help with marketing to retailers and bars and also to assist in contracting deals to use excess brewing capacity at the West Side plant.

But parting with United States Beverage was not easy. The Connecticut-based company sued Goose Island , accusing it of unfairly ending its relationship. Goose Island settled the suit for an undisclosed amount, according to a Goose Island investor.

Forging distribution ties with Anheuser-Busch could expand Goose Island 's reach in the Midwest by bringing more clout to retailers and bars.

"They will get better coverage at the retail level," said Jim Doney, president of Chicago Beverage System, which distributes Miller beer products in the Chicago area. "It means more trucks on the street and more sales people. That's what matters."

For Anheuser-Busch, adding a small brewer would satisfy its wholesalers' thirst for new products.

"Its wholesalers are clamoring for high-margin, growth brands," said Benj Steinman, editor of Beer Marketer's Insights, an industry newsletter. "Anheuser has promised to deliver them, but they can't just create them."

This would not be the first time Anheuser-Busch has struck a deal with a microbrewery. In 1994, it formed a distribution alliance with Redhook Ale Brewery Inc., based in suburban Seattle .

But the beer giant also purchased a 25 percent stake in Redhook, leading to speculation that Anheuser-Busch might be seeking a similar deal with Goose Island .

One potential sticking point in the negotiations looks to be Goose Island 's existing distributor relationships. Union Beverage Co., which has been Goose Island 's distributor in Illinois for the last decade, is aware of the talks and has no plans on relinquishing its distributor rights, said Bob Collins, vice president of sales and marketing.

"We are doing a phenomenal job with their brands, and our plan is to be a long-term Goose Island distributor," Collins said.

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Screw caps shown to improve shelf-life of certain wines

Screw caps are better than corks when it comes to preserving the fruity aroma of sauvignon blanc, a study from the University of Auckland in New Zealand has found.

21 Dec 2005, 13:57 GMT

The two-year study commissioned by the wine industry's screw cap initiative found that aromas of passion fruit and box tree were 23% higher in the bottles using screw caps than in those sealed with corks. Tropical fruit aromas deteriorate when they come into contact with oxygen, which is why wines such as sauvignon blanc can lose their fruity character after one or two years.

The research team found that while both closures were equally effective at keeping oxygen out, the loss of fruity aromas may be a result of aromas either being absorbed by the cork, or possibly due to more oxygen entering the bottle at the moment of corking.

George Fistonich, managing director of Villa Maria Estate, supports the findings, "At Villa Maria, we have conducted comparative tastings in sauvignon blanc and other varietals after 12 months and two years in bottles, with professional tasters in both our US and UK markets, as well as in New Zealand.

"In all cases, the opinions on the wines sealed with screw caps were that they were fresher and retained their varietal aromas much better than corks. We have sealed all our wines with screw caps since 2002 and have almost totally eliminated our credit returns from oxidised and cork-tainted wines."