INITIAL ANALYSIS OF THE ECONOMIC IMPACT
OF WATER POLLUTION CONTROL COSTS UPON
THE WINE AND DISTILLED SPIRITS INDUSTRIES
The study is one of a series commissioned by the Environ-
mental Protection Agency to provide an initial assessment of the
economic impact of water pollution control costs upon industry,
and to provide a framework for future industrial analysis.
For the purpose of this initial analysis, the water pollution
control requirements were assumed to be those developed in 1972
as effluent limitation guidance by the EPA Office of Permit Pro-
grams. Costs were developed by the EPA Economic Analysis
Division on the basis of treatment technologies assumed necessary
to meet the effluent limitation guidance.
Because of the limitations of time and information avail-
able, these studies are not to be considered definitive. They
were intended to provide an indication of the kinds of impacts to
be expected, and to highlight possible problem areas.
This document is a preliminary draft. It has not been
formally released by EPA and should not at this stage be con-
strued to represent Agency policy. It is being circulated for
comment on its technical accuracy and policy implications.
-------
The Economic Impact of the Cost of Meeting
Federal Water Quality Standards on the
Wines and Distilled Spirits Industries
APPENDIX
ENVIRONMENTAL PROTECTION AGENCY
Washington, D. C.
January 5, 1973
This report is of a proprietary nature and intended solely
for the information of the client to whom it is addressed.
-------
BOOZ • ALLEN PUBLIC ADMINISTRATION SERVICES, Inc. 1025 Connecticut Avenue,N.w.
Washington D.C. 20036
(202) 293-3600
January 5, 1973
Mr. Lyman Clark
Environmental Protection Agency
Waterside Mall
Room 3234-A
401 M Street, S. W.
Washington, D.C.
Subject: Study of The Economic Impact of The Cost of Meeting Federal
Water Quality Standards on The Wines & Spirits Industries
Dear Mr. Clark:
We are pleased to submit the appendix to our final report on the
Wines and Spirits Industries. It is divided into two parts as follows:
Part A--Wine Industry
Part B--Distilled Spirits Industry
The report is being submitted under separate cover.
Very truly yours,
a subsidiary of BOOZ • ALLEN & HAMILTON Inc
-------
INDEX OF EXHIBITS
Following
Page
I. DISTRIBUTION PATTERN IN CONTROLLED
AND OPEN STATES
II. PRICE PROGRESSION FOR WINE PER
GALLON
III. PRICES OF TYPICAL AMERICAN WINES,
FIFTHS 10
IV. TABLE WINES MANUFACTURING PROCESS 10
V. DESSERT WINES AND BRANDY
MANUFACTURING PROCESS 10
VI. FRUITS USED IN BRANDY MANUFACTURE 13
VII. GRAPE PRODUCTION BY STATE, 1971 14
VIII. RAW MATERIALS FOR WINES, 1971 16
IX. AUTHORIZED U.S. WINERIES 16
X. CALIFORNIA WINERIES (LOCATION) 19
-------
INDEX OF EXHIBITS (Continued)
Following
Page
XI. U. S. WINERIES (LOCATION) 19
XII. WINE PRODUCTION 1971 BY STATE 19
XIII. WINE INDUSTRY EMPLOYMENT LEVELS
1965, 1969, 1970 20
XIV. NUMBER OF EMPLOYEES PER WINERY 1963,
1969, 1970 20
XV. WINERY WAGES, 1966-1972 20
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APPENDIX A
THE WINE INDUSTRY
-------
APPENDIX A (1)
A PROFILE OF THE WINE INDUSTRY
This appendix, presenting a profile of the wine industry, de-
fines and describes the industry in the following terms:
Product types
Distribution systems
Consumption
Pricing
Production processes
Raw materials
Plants and their locations
Employment
Operation results
Current problems
Changes in current status
1. WINE AND BRANDY ARE BOTH PRODUCED FROM FRUITS
Wine is produced by fermenting grape or other fruit juice
to achieve an alcohol content of 10-20 percent. Brandy is distilled
from wine to an alcohol content of 40 percent or more. Specific
product classifications are as follows:
Table wines
Fortified wines
Sparkling wines
Brandy
2. WINE CONSUMPTION HAS GROWN RAPIDLY DURING THE
1960's
Since 1958, total wine consumption has increased from 137
million gallons to 269 million gallons in 1971. Domestic table
wines in 1971 accounted for 59 percent of consumption in 1971
compared to 31 percent in 1958.
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APPENDIX A (2)
(1) Table Wines Are the Most Widely Sold of All Wines
Of the 269 million gallons of wine consumed in 1971,
table wine accounted for more than half--159 million gal-
lons. Table wine has an alcoholic content not in excess of
14 percent by volume. Most domestic wines are sold under
semigeneric names such as Burgundy or Rhine, names in-
dicating the types of European wine they resemble in color
and taste. The most expensive American wines, accounting
for 10 percent of production, are varietal wines bearing the
name of the grapes fermented to produce them such as
Pinot Noir, Chenin Blanc. Cabernet, Sauvignon. Low al-
cohol flavored wine, low alcohol fruit wine, and low car-
bonated grape or other fruit wine are also table wines. When
these "mod" or "pop" wines are included, the sale of table
wine assumes the dimensions of a boom. The sale of table
wine has increased every year since 1956, but in the last
three years the rate of gain has been accelerating with an
increase of 24 percent from 1970-1971.
Demographic trends point to continuation of the dynamic
growth of the wine market. Studies have shown that persons
under 35 years of age drink as much as five times more
wine than those over 35. The number of adults in the 20
through 34 age bracket will increase by 16.4 million between
1970 and 1980. Changes in state laws reducing the legal
age to 18 will further enlarge the group most likely to choose
wine. If present trends continue, table wine sales could
come close to doubling by 1976. The accelerating demand
for all wine was not retarded by the lagging economy of
1970, but continued prosperity will be required for wine
sales to reach the projected levels. This, too, is expected,
with an increase in annual per capita disposable income
projected from $3,200 in 1970 to about $5,600 in 1980.
The major markets for table wine follow population
distribution closely. For example, the top three states in
1971 wine consumption were California, New York, and
Illinois, with other populous states rounding out the top ten.
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APPENDIX A (3)
(2) Consumption of Domestic Fortified Wines Has Declined
Slightly Since 1958
Dessert wines, such as port, sherry, and muscatel,
aperitif wines, e.g., vermouth, and some flavored wines
are termed "fortified wines," because their alcoholic con-
tent is increased by the addition of wine spirits or beverage
brandy during production. Fortified wines have an alcoholic
content over 14 percent, but not in excess of 24 percent.
While the decline in apparent consumption of fortified
wine produced in the United States has amounted to only 5
percent since 1958 to 87.5 million gallons, this decline has
occurred during a time of rising population and affluence
when the total consumption of domestic wine increased from
146 to 269 million gallons. Fortified wine, which accounted
for 63 percent of sales in 1958, now accounts for only 33
percent. The shift from sweet, heavy beverages is apparent
in all segments of the beverage industries. To accommodate
this shift, California producers in 1971 abandoned their
previous insistence on 20 percent alcohol in dessert wine to
produce 17 and 18 percent types. While the decline in sales
of domestic dessert wines continued in 1971, it was not so
sharp as the 5.4 percent decline registered in 1970. In
addition to the trend toward "lighter" beverages, the decline
in sales of fortified wines is attributed to a shrinking of the
segment of the market who calculate the cost of the alcoholic
content of beverages--the "proof per penny market. "
American producers dominate the U.S. market for
dessert wine and fortified flavored wine (95 percent or more
of the total sales) but not the market for vermouth. Imported
vermouth accounted for just over 50 percent of sales in
1971. The market for flavored fortified wine and vermouth
has remained relatively stable for the last four years in
which statistics are available.
The present market for fortified wine is largely com-
posed of persons over 35 with consumption by area closely
tied to population.
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APPENDIX A (4)
(3) Sparkling Wine Sales Have Increased Dramatically
But Comprise Only 8 Percent of the Market
The sparkling wines include effervescent wines made
from grapes or other products, whether the gas contained in
the wine is produced by secondary fermentation as in cham-
pagne and sparkling burgundy, or is injected as in the pro-
duction of carbonated wine. The latter are reported with
the sparkling wines if they contain 7 percent or more of
carbon dioxide.
Consumption of sparkling wine since 1968 has more
than doubled, from 10.3 million gallons to 32.9 million
gallons in 1971 with the largest increase (6.6 million gal-
lons) in 1969-1970. From 1970-1971 consumption increased
by 2.6 million gallons.
Most use of champagne and sparkling wines in the
United States is confined to occasions such as weddings,
anniversaries, and holidays. In 1971, 31 percent of the
champagne and sparkling wine sold was sold in November
and December. As with other wines, consumption by area
is tied closely to population.
(4) Brandy Consumption Has Almost Tripled Since 1958
Brandy is a distilled spirit obtained solely from the
fermented juice, mash, or wine of fruit. Most brandy is
distilled at 140 to 170 proof and bottled at 80. Some 84
proof brandy is available. Brandy sales have progressed
steadily upward since 1958, making volume gains above the
average for other distilled spirits. This trend, supported
by the growing demand for after-dinner drinks, is likely to
continue.
Domestic brandies dominate the market by a consid-
erable margin. Christian Brothers brandy scored 24th
among the top-selling liquor brands in 1970 and alone
regularly outsells all imported brandies.
Brandy sells steadily the year around.
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APPENDIX A (5)
3. DISTRIBUTION OF WINE IS CONTROLLED BY EACH
STATE
Exhibit I, following this page, is a flow diagram which illus-
trates the distribution patterns for wines. Distribution patterns
are distinctly different in "Controlled" and "Open" states.
(1) In the 18 Control States, the State Government Liquor
Commission Distributes Alcoholic Beverages
Alabama, Idaho, Iowa, Maine, Michigan, Mississippi,
Montana, New Hampshire, North Carolina, Ohio, Oregon,
Pennsylvania, Utah, Vermont, Virginia, Washington, West
Virginia, and Wyoming are the Control or Monopoly States.
Population estimates of July 1971 of persons 18 years of age
and over credit these states with 41.1 million adults. In
monopoly states, the State Commission buys from distillers,
importers, and vintners either directly or through brokers.
Fifteen of the states operate state-owned package
stores. In North Carolina, the package stores are owned
and operated by individual counties. In Wyoming and Missis-
sippi, licensed package stores which are privately owned
buy at wholesale from the state. Michigan and West Virginia
operate state retail stores, but also sell at discount to
Specially Designated Distributors or agencies which may be
food, drug, or other retail outlets.
Bars, taverns, clubs, hotels, restaurants, and rail-
roads all sell liquor by the drink in all monopoly states ex-
cept North Carolina. As in the open states, on-premise
consumption is restructed legally and often capriciously
from state to state. Pennsylvania has more than 20 thousand
licensed on-premise outlets, and Ohio more than 11 thousand.
There are a total of 51,845 licensed on-premise outlets in
the 17 control states that permit such sale. Wine is sold in
grocery stores in 11 of the monopoly states.
-------
EXHIBIT I
Environmental Protection Agency
DISTRIBUTION PATTERN IN CONTROLLED
AND OPEN STATES
STATE-OWNED
PACKAGE
STORES*
BARS. TAVERNS
RESTAURANTS
ETC.
CONSUMERS
CONTROLLED STATES
WHOLESALE DEALERS
LICENSED
RETAIL
OUTLETS
BARS
TAVERNS
RESTAURANTS
CONSUMERS
OPEN STATES
•IN NORTH CAROLINA. COUNTRY-OWNED STORES; IN WYOMING AND MISSISSIPPI. LICENSED
PACKAGE STORES; IN MICHIGAN AND WEST VIRGINIA, DESIGNATED DISTRIBUTORS.
-------
APPENDIX A (6)
(2) In the 32 Open States and the District of Columbia.
Producers Sell to Wholesalers Who Sell to Retailers
Wholesale houses in open states may:
Handle one line of wine (and/or spirits) exclusively
Handle the brands of competitive producers and
importers
Handle other products like soft drinks and food
Not handle beer
In major cities, multiple distributorships are often main-
tained--two or more wholesalers handle the same brands in
one market.
Leading wholesalers market aggressevely. They main-
tain sales forces which:
Sell and advise the retailer
Place point-of-purchase advertising
Conduct advertising and sales campaigns
Promote new brands
While there are large numbers of wholesalers across
the nation, in each major, local market distribution of a
specific distiller or winemaker's product is handled by only
one or two wholesalers. Because of this, wholesalers have
significant local market influence, where state regulation
permits. Wholesalers can and often do launch true private
label brands, bottled under their own name or for individual
or chain retailers. Some wholesale dealers are importers
or divisions of firms which are also producers. Gallo, for
instance, owns wholesale firms in New York and other major
metropolitan areas and maintains a large sales force.
-------
APPENDIX A (7)
In some states the producers can sell directly to retail
outlets. California lists 555 wholesale dealers because all
the wineries are permitted to sell to retail outlets and to
consumers. Florida, Illinois, Massachusetts, New York,
and Texas are the only other states with more than 100
wholesale dealers. There are 2,291 dealers in all the open
states and D.C. combined.
Retailers sell wine and spirits to the consumer for
on- and off-premise consumption. States' licenses in the
open states are granted for both on-premise sales and off-
premise sales. California and New York grant no licenses
for both kinds of sales but they have very large numbers of
licensed outlets.
On Premise Off Premise
California 12,202 10,578
New York 23,308 5,070
Illinois grants only dual licenses. In all the license states
and D. C., there are:
76,026 licenses for on-premise sales
45,859 for off-premise sales
49,096 for on- and off-premise sales
In 17 of the 33 open areas, liquor may be sold in grocery
stores; 22 allow the sale of wine in grocery stores.
-------
APPENDIX A (8)
4. THE PRICE OF WINE HAS INCREASED ERRATICALLY IN
THE LAST FOURTEEN YEARS
(1) The Retail Price-Class of Wine for Off-Premise
Consumption is Established by the Brand Owner
The brand-owner selects the price class when he es-
tablishes his price (F.O.B.) to wholesalers and to monopoly
states. Based on his knowledge of freight charges, state
taxes, local taxes, if any, and markup, he can calculate
the approximate retail price of his brand. The price pro-
gression he uses to a typical low-priced table wine in New
York State are shown in Exhibit II following this page.
This price progression is typical of that for an open
state with freight a large variable. In this connection, note
that the cost of shipping wine to the large eastern markets
from California approximates the cost of shipping it from
Europe. The state tax per gallon varies from California's
low of $. 01 to $1.10 in Tennessee. Imported wine is usually
shipped already bottled, labeled, and cased. The importer
must figure the same price progression as the winery, with
the addition of the customs duty--37.5 cents per gallon.
The importer is often his own wholesaler as are the Califor-
nia wineries within their own high consumption state. Ranges
of taxes applicable to wines are shown below:
Excise New York Open States .
Wine Type Tax Tax Taxes Duty
Fortified $ .67 $ .10 $.02-2.50 $.21-1.00
Sparkling $3.40 $ .53 $.20-3.08 $ 1.17
Carbonated (17
percent or
more) $2.40 $ .26 $.20-3.08 $ 1.17
The excise tax on all the wine types has been stable
since 1955; 18 of the open states raised their tax on still
wine in the period 1969-1972; the duty on carbonated and
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EXHIBIT II
Environmental Protection Agency
PRICE PROGRESSION FOR
WINES PER GALLON
Winery Cost*/ $0. 87
Winery Markup 1.11
Advertising^' 0.09
Bottling and Packaging*/ 0.43
Federal Excise Tax 0.17
F.O. B. Price 2.67
FreightS/ 0.30
New York State Tax 0.10
Wholesaler's Cost 3.07
Wholesaler's Markup (25%)^ .77
Retailer's Cost 3.84
Retailer's Markup (50%)£/ 1.92
Retail Price (rounded)
per gallon 5. 80
per bottle, i.e., fifth 1.20
a./Assumes winery is large California plant
b/Average, 1971
£/Estimated
dfRange 5% to 45%
e/Range 34% to 50%
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APPENDIX A (9)
sparkling wines was reduced from $1.50 in 1967 to $1.17 in
1972 (the final Kennedy round reductions), while that on ver-
mouth and mar sal a dropped to $.21 and $.315 respectively.
The price progression in control states is simpler.
The state board (Liquor Commission) buys directly or
through brokers from vinters and importers, adds freight
charges, adds the markup (the markup formula often is a
percentage plus a flat amount per bottle) and sells retail.
The markup in Pennsylvania was recently reduced (7 mono-
poly states raised their markup formula between 1969 and
1972) from 58 percent plus 15 cents to 48 percent plus 18
cents. The theoretical gallon of table wine which the Penn-
sylvania Liquor Commission bought for $2.67 (see price
progression) would sell at retail then for $4.70 with the fifth
selling for about a dollar.
The control states buy wine (and spirits) at the vendor's
lowest price. Producers and importers are bound by each
state to an agreement which provides that no vendor may sell
a listed brand to any customer in the United States at a price
lower than that to the state. The agreement is called in the
trade The Des Moines Warranty. Each control state pur-
chase order states: "In accepting this order we warrant that
the price charged is the lowest tax paid price F.O.B. offered
any purchaser for the same merchandise." Thus, each of
the 18 states pays the same price and that price is usually
lower than to open state buyers. In this way a margin is
created in open states for timely "specials," i.e., vendor
discounts to wholesalers. Without this margin, prices to
control states would automatically drop whenever a vendor
discounted to wholesalers in open states. It is noted that
trade sources believe that the large volume states may
"revolt" and overthrow the Des Moines Warranty System.
(2) The Retail Markup of Wine for On-Premise
Consumption is High to Cover Tavern or Restaurant
Operating Expenses
A typical bottle of table wine which retails for $1. 95
would cost the retailer $1. 30 and would be sold for on-
premise consumption for $4 or more.
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APPENDIX A (10)
(3) Prices for Wines Have Risen Over the Last 15 Years
An examination of the 1958 and 1972 prices as displayed
in Exhibit III, following this page, reveals rather erratic
movement. California Clarets and Burgundies are up 42 per-
cent, while New York State Clarets and Burgundies are up
24 percent and some prices have nearly doubled without any
tax increases. The 1960 average price of California grapes
was $40.70 a ton, in 1969 it reached $57.20, then climbed
to $73.60 in 1970, and $83.80 in 1971. Some grape varieties
sold for $700 a ton. The 1970 eastern crop was good although
prices reached $175 a ton, above the previous $100-$125
price level. Prices in 1971 returned to that level.
The rising prices for grapes and wine reflect the
accelerating demand and the actual shortage of the best
grapes. Unlike the distillers who maintain an inventory
equal to a seven year supply, the inventory maintained by
American vintners is little more than a year's supply.
5. THERE ARE TWO BASIC PRODUCTION PROCESSES IN
THE WINE INDUSTRY
The wine industry has two basic or standard processes for
making its products. One is for the production of table wines; the
other for dessert wines and brandy. Both processes are depicted
on exhibits following this page:
The manufacturing process for table wines is
Exhibit IV, following Exhibit III.
The manufacturing process for dessert wines
and brandy is Exhibit V, following Exhibit IV.
Across the top of both exhibits there is a brief description of each
step of the production process. Along the bottom of each exhibit,
there is an identification of waste products--solid and liquid --
emanating from the various production steps.
-------
EXHIBIT III (1)
Environmental Protection Agency
PRICES OF TYPICAL AMERICAN WINES, FIFTHS
1958 1972
California Claret (Red Bordeaux)
Be ringer Brothers Private Stock $1.45 2.15
Charles Krug 1.35 2.17
Louis M. Martini Mountain 1.39 1.70
California Burgundy
Beaulieu Vineyard ' 1.65 2.43
Beringer Brothers Family Bottling 1.75 2.15
The Christian Brothers 1.55 2.00
Charles Krug 1.35 2.17
Louis. M. Martini Napa 1.39 2.20
Novitiate of Los Gatos 1.45 2.25
Wente Brothers Livermore 1.67 2.20
California Claret-Type (Cabaret Sauvignon)
Almaden Vineyards 1.50 2.65
Beaulieu Vineyard 1.65 3.82
Beringer Brothers Family Bottling 1.94 3.69#
Inglenook Vineyard Company 1.59 4.70
Charles Krug, Vintage 1.55 2.17
Louis M. Martini, Vintage 1.67 3.20
Paul Mas son, Inc. 1.65 2.60
Novitiate of Los Gatos 1.70 2.75
California Claret-Type (Zinfandel)
Beringer Brothers Private Stock 1.45 2.63
Buena Vista Vineyards 1.49 2.59
Charles Krug 1.35 2.69
Louis M. Martini Mountain, Vintage 1.39 2.45
California Burgundy-Type (Pinot Noir)
Almaden Vineyards 1.50 2.65
Beaulieu Vineyard Beaumont 2.00 4.15
Buena Vista Vineyards 1.79 3.49#
Inglenook Vineyard Company 2.19 4.15
Louis M. Martini Mountain 1.67 3.20
Paul Mas son, Inc., Chateau Masson Red 1.50 2.60
California Burgundy-Type (Camay)
Almaden Vineyards Mountain 1.50 2.65
Charles Krug, 1954 1.55 2.69
Paul Masson, Inc. 1.65 2.60
1958 New York State Posted Minimum Prices; October
1972 New York State Official Minimum Consumer Resale Prices
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EXHIBIT III (2)
1958 1972
New York Claret
Great Western Products, Inc. 1.55 1.95
The Taylor Wine Company, Inc. 1.55 1.85
Widmer's Wine Cellars Neapolitan 1.45 1.85
New York Burgundy
Gold Seal Vineyards, Die. 1.45 1.85
Great Western Producers, Inc. 1.55 1.95
The Taylor Wine Company, Inc. 1.55 1.85
Widmer's Wine Cellars Neapolitan 1.45 1.85
Ohio Burgundy
Meier's Dry 1.70 1.99
California Grenache
AImaden Vineyards Grenache Rose 1.35 1.92
Beaulieu Vineyard Grenache Rose 1.64 2.09
Novitiate of Los Gatos Grenache Rose 1.45 2.45
California Camay
Louis M. Martini Napa Camay Rose 1.39 2.20
California Rose
Beringer Brothers Private Stock Barenblut 1.45 2.15
Buena Vista Vineyards Rose Brook 1.79 2.49#
The Christian Brothers Napa Rose 1.55 2.00
New York Rose
Gold Seal Vineyards Gold Seal Rose 1.45 1.85
Great Western Prods. Inc. Gr. Western Rose 1.55 1.95
Widmer's Wine Cellars Canadaigua Lake Rose I lei. 50 1.95
Ohio Rose
Meier's Rose 1.70 2.19
California Rhine Wine
The Christian Brothers 1.55 2.00
Charles Krug 1.55 2.69
Paul Masson, Inc. 1.50 1.80
California Chablis
Beaulieu Vineyard 1.65 2.43
The Christian Brothers 1.55 2.00
Paul Masson, Inc. 1.65 1.80
Wente Brothers Livermore 1.49 1.99
California Sauterne and Dry Sauterne
Beaulieu Vineyard 1.65 2.75
The Christian Brothers 1.55 2.00
CVA Company Cresta Blanca 1.55 1.89
Charles Krug 1.35 2.17
Novitiate of Los Gatos 1.45 2.25
California Haut and Sweet Sauterne
Beaulieu Vineyard 1.65 2.75
The Christian Brothers 1.55 2.00
Charles Krug 1.55 2.69
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EXHIBIT III (3)
1958 1972
California Rhine-Type and Moselle-Type
(Johannisberg Riesling)
Buena Vista Vineyards 1.98 3.49#
Charles Krug 1.75 3.71
Louis M. Martini, Vintage 2.12 3.20
Cal. Rhine-Type and Moselle-Type (Grey Riesling)
The Christian Brothers 1.75 2.60
Wente Brothers Livermore, Vintage 1.67 2.50
Cal. Rhine-Type and Moselle-Type (Riesling)
Almaden Vineyards 1.50 2.65
Louis M. Martini Mountain, Vintage 1.57 1.99
Cal. Rhine-Type and Moselle-Type (Traminer)
Buena Vista Vineyards 1.98 3.49#
Inglenook Vineyard Company, Vintage 1.59 2.45
Charles Krug 1.75 2.69
Cal. Chablis-Type (Folle Blanche)
Louis M. Martini Mountain, Vintage 1.57 2.20
Cal. Chablis-Type (Pinot Chardonnay)
Almaden Vineyards 1.50 2.65
Beaulieu Vineyard Beaufort 2.00 2.65
Inglenook Vineyard Co., Vintage 2.19 4.70
Charles Krug Napa Valley 2.00 3.69
Louis M. Martini Mountain, Vintage 2.50 3.20
Wente Brothers Livermore, Vintage 2.35 3.50
Cal. Chablis-Type (Pinot Blanc or White Pinot)
Novitiate of Los Gatos 1.70 2.45
Wente Brothers, Livermore, 1953, 1954 1.67 2.80
Cal. Dry and Sweet Sauterne-Type (Sauvignon Blanc)
Beaulieu Vineyard Chateau Beaulieu, Sweet 2.00 3.41
Charles Krug, Semi Dry 1.75 2.69
Novitiate of Los Gatos 1.70 2.25
Cal. Dry and Sweet Sauterne-Type (Semillon)
Almaden Vineyards, Sweet 1.35 1.59
Almaden Vineyards, Dry 1.50 2.14
Charles Krug Dry 1.55 2.17
Paul Masson, Chateau Mas son, Sweet 1.50 2.10
Novitiate of Los Gatos Dry 1.70 2.25
New York Rhine Wine
Gold Seal Vineyards 1.45 1.85
Taylor Wine Company 1.55 1.85
Widmer's Wine Cellars Neapolitan 1.45 1.85
New York Chablis
Widmer's Wine Cellars Neapolitan 1.45 1.85
New York Sauterne and Dry Sauterne
Gold Seal Vineyards 1.45 1.85
Taylor Wine Company 1.55 1.85
-------
EXHIBIT III (4)
1958 1972
Ohio Dry Sauterne
Meier's Isle St. George 1.86 2.19
Ohio Sweet Saute rne
Meier's Isle St. George 1.86 2.19
New York Catawba
Gold Seal Vineyards (1 qt., semi-sweet) .97 1.69
Great Western Producers 1.55 1.95
Sweet
Ohio Catawba
Meier's Sweet 1.70 1.99
# Vintage
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PAGE NOT
AVAILABLE
DIGITALLY
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APPENDIX A (11)
6. FRUIT IS THE BASIC RAW MATERIAL FOR WINES
Grapes are used in the production of 99% of American wines.
The remainder comes from various fruits. American grape pro-
duction can be divided into two categories: Western vineyards that
have been developed from European grape varities; Eastern vine-
yards generally planted with native American varieties. Wine
products, for the purpose of this study, are classified either as
table wines or as distilled wines. The table wines are either still
or sparkling and contain up to 14% alcohol. Wines are identified
by their color: red, rose or white and by a label name. There
are three types of label names:
Generic, e.g., "California Burgundy" so names
for the region in Europe where the prototype
grape is produced.
Proprietal, e.g., Thunderbird, coined by the
wine maker.
Varietal, e.g., Chardonnay, referring to the
grape from which the wine is made. For a
wine to bear the varietal name, it must contain
at least 51 percent of that variety of grape.
There are literally hundreds of varietals and no
standardized system of nomenclature. More
important ones are listed below:
Varietals used in California white table
wine include:
Sauvignon blanc
Sweet sauvignon blanc
Semillon
Sweet semillon
Light sweet muscat
Grey riesling
White rie sling
Sylvaner
Gewurztraminer
Chardonnay
Pinot blanc
Chenin blanc
Folle blanche
French colombard
-------
APPENDIX A (12)
Varietals used in California red and rose
table wine include:
Cabernet
Zinfandel
Pinot Noir
Red Pinot
Barber a
Camay
Grignolino
Concord
Eastern grapes are labrusca types, different
from California varieties in their "foxy"
taste, winter hardiness and later harvest
season. The most common Eastern grape
variety is the concord. Other varieties
include:
Catawba
Delaware
Elvira
Ives seedling
Niagara
French hybrids
Fredonia
Still wines comprise 80 percent of production; sparkling wines,
7 percent. The latter includes:
Champagne, which is made from any neutral
white wine in the U.S. though some California
wineries are concentrating on using the same
varietals used in the Champagne District of
France.
Sparkling Burgundy which utilizes the least
attractive Burgundy grapes to make a sweet,
effervescent wine.
Cold Duck which is a blend of Champagne and
Sparkling Burgundy. A creation of the 1960's,
now joined by Cold Turkey.
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APPENDIX A (13)
Table wines are produced in the Eastern and Western United States.
Vineyards are usually close to the wineries which they supply.
Most California wineries and some Eastern wineries own vine-
yards but winery produces enough on its own land to meet its needs.
The rest is provided by independent growers on a year-by-year
contract. Most of these contracts by custom do continue with the
same grower year after year.
Distilled wines include brandy and fortified dessert wines.
Brandy is a distillation of the finest of the grape crop or one of
the other fruits listed on Exhibit VI, following this page. Des-
sert wines are fortified with brandy up to an alcohol content of
21 percent. They include port, sherry, and vermouth. Distilled
wines are produced primarily in the West; California alone pro-
duces more sherry than Spain. Production of distilled wines in
the East relies upon imports of brandy from California.
(1) The Production of Grapes is Expanding to Meet the
Growing Demand for Wines
U.S. wine production in 1971 was 380 million gallons,
up 44 percent from 1970. It takes about 10 pounds of grapes
to produce a gallon of wine. In wine producing areas, wine
grapes are replacing raisin and table grape vineyards and
new vineyards are being planted in former orchards and
agricultural cropland. California's acreage expansion has
increased that State's production one-third in the last ten
years. There too, most of the current expansion is occurring.
By 1975, California is expected to have 223,000 acres bearing
wine grapes, compared with 132,000 acres in 1970. Most
of this acreage increase is centered around the Fresno area
in the San Joaquin Valley. Established vineyards of average
quality grapes are being replanted with premium quality
varietals upon which demand is focused. In California,
varietal acreage doubled from 1971 to 1972; most of this new
acreage is in the San Francisco Bay Area. (Rising brandy
production also has added to overall grape requirement for
the California wine industry.)
New York State's total grape acreage is also expanding
and Concord production is decreasing to make way for more
French and American hybrid varieties. Imports of crush
from Canada fill gaps in years of low New York State
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APPENDIX A (14)
production. Expansion is occurring in the minor grape -
producing states, but California continues to dominate as
is shown on Exhibit VII, following this page.
(2) Despite Expanding Production, Grape Prices Have
Been Rising
The annual average price for a ton of California grapes
charts the upward climb:
Grape Prices
$/Ton
1961 49.60
1962 51.40
1963 38.80
1964 52.40
1965 34.90
1966 38.20
1967 47.40
1968 50.70
1969 57.20
1970 73.60
1971 83.80
The expanded production has not been able to keep
pace with expanding demand. It takes three to four years
for a new vineyard to begin producing the fruit of the vine;
five years to reach full production. Weather conditions play
an important role in determining harvest size and quality.
Small quality fluctuations have dire effects on independent
growers. Adverse weather is a major reason that Califor-
nia's 1972 crop is the smallest in thirty years. Because of
a severe spring frost and a summer "burn" in California,
-------
EXHIBIT VII
Environmental Protection Agency
GRAPE PRODUCTION BY STATE, 1971
1971 Crop
State . (tons)
California 3.510.000
New York 125,000
Missouri 4,200
Washington 75,500
Ohio 19.000
Pennsylvania 51,000
Michigan 68,000
Arkansas 11.170
TOTAL 3,863,370
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APPENDIX A (15)
grape prices are expected to remain high in 1973. Other
factors contributing to high prices include:
Trend toward premium varieties. Varietals
produce only an average two tons per acre com-
pared with 12 tons per acre for the lesser grapes.
Thus, the varietals command a premium price
especially in years of a crop shortage: Califor-
nia's Chardonnay are expected to reach $730
per ton--almost 10 times more than the average
per ton cost of all grapes in 1971.
Amount of acreage in the United States suitable
for premium wine is now severely limited. Land
is less of a constraint for average grape types.
Acreage expansion is limited to select areas
where the climate and the soil are perfect for
wine. The cost of such land has increased from
$500 to $2,500 per acre in 10 years. One es-
timate is the average developed vineyard land in
California is $5,000 per acre. The highest for
premium vineyards in the Napa Valley was
$10,000 per acre.
Most grapes for wine cannot be harvested by
machine. California's vineyards are often on
hillsides; many Eastern premium vineyards are
too small for mechanization. Labor costs have
been rapidly increasing recently as grape pickers
are unionized. Heublein agreed with Chavez to
use only union grapes. The majority of pickers
are not unionized but an attempt to retard union-
ization by improving pickers' working conditions
has also increased the price. Where possible
new plantings are designed to accommodate
mechanical harvesting and are being planted with
permanent sprinkler systems.
A major exception to this trend is Concord grape pro-
duction. Virtually all Concord picking is mechanized.
1970's good Concord crop was followed by a record crop in
1971, and Concord prices fell from $165/ton in 1970 to
$125/ton in 1971.
-------
APPENDIX A (16)
In an attempt to circuit the domestic price rise, it
appears that a few wineries in the New York area are im-
porting grape juice concentrate primarily from Canada for
for wine production. There is no agreement as to whether
this is taking place and if it would in fact be profitable.
By 1980, vjticulturalists foresee increasing grape
yields lessening the necessity for continued vineyard acre-
age expansion.
(3) Fruit Wines are Enjoying a Growing Popularity
These so-called "pop wines" introduced in 1958 are
sweet pure fruit or fruit-flavored and have a relatively low
alcohol content. Fruit wines are usually known by pro-
prietal names: Ripple, Thunderbird, Bali Hai. They are
made from a wide variety of fruits plus some from honey
and dandelions as shown on Exhibit VIII, following this page.
7. CURRENTLY 437 WINERIES ARE AUTHORIZED TO
OPERATE IN THE UNITED STATES
A profile of the national wine industry on a state-by-state
basis is presented in Exhibit IX, following Exhibit VIII.
Annual Average
Production Capacity*
Daily Average (gallons)
Winery Crushing Capacity Table/Fortified Brandy
Size (tons) Wine
Small 200 80,000 29,023
Medium 600 240,000 87,069
Large 1,000 400,000 145,116
* Assuming, in the case of table and fortified wines, 10 pounds of
grapes crushed for each gallon of wine produced; in the case of
brandy, 43 pounds of grapes crushed for each proof gallon
brandy produced.
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EXHIBIT VIII
Environmental Protection Agency
RAW MATERIALS FOR WINES, 1971
Kind Total
(Gallons)
Juice and concentrate:
Grape 30,918,651
Raisin —
Apple 2,762,794
Blackberry 201,377
Pear 108, 571
Cherry 97,095
Raspberry 46,197
Pineapple 39,710
Peach 36,677
Grapefruit 31,217
Strawberry 25,943
Rhubarb 19,870
Orange 18,409
Cranberry 13,721
Loganberry 11,796
Apricot 4,546
Elderberry 4,030
Current 3,862
Dandelion 1,225
Lemon 676
Blueberry 495
Honey 266
Total 34,347,130
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EXHIBIT IX (18)
( ) Numbers in parentheses indicate sales or volume for all wineries with same name or for firm.
- "Authorized" according to Department of Treasury, Bureau of Alcohol, Tobacco and Fire-
arms (BATF), Bonded Wineries and Bonded Wine Cellars Authorized to Operate, Publication
No. 655, July 1,1972.
- Other products include vermouth, special-flavored wine, vinegar.
o/
-' Small wineries have average crushing capacity of 200 tons per day. Where capacity data were
not available, winery was estimated as small if fermenting capacity was below 0.5 million gal-
lons; bottling capacity, below 3,000 cases per day; storage capacity, below 2.5 million gallons.
- Medium wineries have average crushing capacity of 600 tons per day during crushing season.
Where capacity data were not available, winery was estimated to be medium if fermenting
capacity was 0.5 to 5.0 million gallons; bottling capacity, 3,000 to 10,000 cases per day; stor-
age capacity, 2.5 to 10.0 million gallons.
- Large wineries have average crushing capacity of 1,000 tons per day during crushing season.
Where capacity data were not available, winery was estimated to be large if fermenting capacity
was over 5 million gallons; bottling capacity, over 10,000 cases per day; storage capacity, over
10 million gallons.
fi/
- Owned by Wine Art of America.
- Owned by Heublein.
-' 84 percent owned by National Distillers and Chemical Corp.
-' Owned by Pop Wines, Inc.
12! Owned by Nestle.
—' Owned by Brookside Enterprises, Inc.
12 Owned by Eleven Cellars.
-13/ A C. Mondari label.
—I Distributed by Fromm and Sichel, subsidiary of Distillers Corps..Seagram's Ltd; Paul Masson
Vineyards owned by Browne Vintners, subsidiary of Seagram's Corp.
—' Owned by Cucamonga Winery Co.
— A cooperative controlled by grower-members.
—f Owned by United Vintners, 82% of which is controlled by Heublein.
—I Distributed by Brown-Forman Distillers.
—' Owned by Schlitz Brewing Co.
—' Owned by American Industries.
—' An affiliate of Ranier (Brewing) Corp.
— Owned by Southdown Land Co.
•23/ Owned by Schenley Distillers, Inc.
— Owned by Tiburon Vintners.
—' Distributed by "21 Brands," subsidiary of Foremost-McKesson.
•25' Subsidiary of Coca-Cola Bottling Co. of New York.
— Owned by Crest View Winery (sales, $6 million).
— Subsidiary of Glen more Distillers.
—' Subsidiary of Universal Foods.
—' Controlled by Canandaigua Industries, Inc.
—/ Owned by Barry Wine Co.
^ R. T. French Co.
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APPENDIX A (17)
Most of the wineries are small operations; only 40 are medium
size; 39 are large. The large wineries account for most of the
wine produced.
With rare exceptions, all wineries produce table wines;
approximately 45 percent bottle distilled wines, but only 66 dis-
till brandy. The wastes peculiar to distilled wines are produced
at the winery where grapes are distilled for brandy. Often brandy
purchased from one winery is used in another winery to fortify
wine. Thus, all distilled wine bottled by New York State wineries
contains California brandy. Most of the wineries that distill bran-
dy also produce table wine making it difficult to classify a par-
ticular winery by type of wine. A few also produce related products,
e.g. vinegar. Some wineries have bonded wine cellars. Such
characteristics are indicated on Exhibit IX.
(1) The Number of Wineries is Growing
New wineries are being opened; established wineries
are being revitalized by new capital; wineries abandoned
during Prohibition are being reopened; all in response to
the growing consumer demand for wine.
(2) The Wine Industry Is Dominated by A Few Firms
As shown in footnote references on Exhibit IX, fol-
lowing page 16, large firms have interests in some of the
wineries. The role of large firms in the wine industry will
probably increase in the future. Increasingly, distilled
spirits firms are acquiring interests in the wine industry.
For example:
Brown-Forman has an interest in Korbel Champagne
Heublein owns Regina and Inglenook Wineries
Seagram's controls PaulMasson
Other large firms are getting into the wine making. In
1970, Coca Cola Bottling Company of New York bought
Mogen David. In 1971, Beringer Brothers Wineries became
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APPENDIX A (18)
a subsidiary of Nestle. Many of the smaller plants of both
industries surviving in this age of conglomerates are very
closely held.
When examined in terms of production, the importance
of the few biggest firms is even more apparent. Gallo alone
produces one-third of all wine consumed in the United States;
Gallo and United Vintners (Heublein) account for over half.
The others in the top ten are:
Guild Wine Co.
Canandaigua Industries
Taylor
Franzia Bros.
CWA (Eleven Cellars)
Almaden
Mogen David Wine Co.
Paul Mas son
(3) The Majority of the Wineries Are Modern
Automated plants using stainless steel vats and a
great deal of technology to assure a consistency in their
product dominate the wine industry. Modernization was
initiated as plants reopened after Repeal. Though only
50 percent of California's wineries are modern, these ac-
count for 75 percent of production. Eighty percent of all
Eastern wineries are modern and these account for 80 per-
cent of the East's production.
(4) The Range of Operations Centered in A Single Plant
Varies Widely
Gallo is an example of a highly integrated operation:
it makes the bottles, owns the trucks, and manages dis-
tribution to the retail level. Gallo is an exception, however.
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APPENDIX A (19)
Though many wineries do own vineyards and cellars, most
are small operations. But some of the highest quality wines
are produced by small, well established wineries. They
include:
Louis M. Martini
Beaulieu
Korbel
The small plant is at a disadvantage in today's industry if it
is unable to raise capital to expand or if it lacks the mar-
keting skill to broaden distribution.
(5) The Trend in Wineries is to Consolidate Product
Lines
Especially the small California wineries are finding it
advantageous to specialize on a few varietals in which they
excell. Even while a larger winery may be experimenting
in the pop wine market, it is limiting the range of table
wines offered under its label.
Both wineries are not limited to a particular product
by their production line. For instance, with minor adjust-
ments in equipment, a grape wine producer can make a
fruit flavored pop wine.
(6) The Wine Industry Is Concentrated Geographically
Of the nation's 437 wineries, 240 are in California,
including twenty-eight of the thirty largest plants. These
California plants produce three-fourths of all wine consumed
in the United States. Within California, production is con-
centrated in the Napa and San Joaquin Valleys as shown on
Exhibit X, following this page. New York State, especially
the Finger Lakes region, is another area of concentration
of wine production as shown on Exhibit XI, following
Exhibit X. There, 10 percent of all the nation's wine is
produced. Exhibit XII, following Exhibit XI, shows in
which states the remainder of wine in 1971 was produced.
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EXHIBIT X
Environmental Protection Agency
CALIFORNIA WINERIES (LOCATION)
6 •¥
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EXHIBIT XII
Environmental Protection Agency
WINE PRODUCTION 1971 BY STATE
(in wine gallons)
State
Arkansas
California
Colorado
Connecticut
Florida
Georgia
Illinois
Iowa
Kentucky
Maryland
Massachusetts
Michigan
Missouri
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
Texas
Virginia
Washington
Wisconsin
Total
Still wines
782,948
233.788.499
1.915
141.032
818.716
6.358.783
25,584
13,520
1,852.173
339,224
2,576
4,315.730
8,133
24.074.364
1,407,800
2.401
143.823
33.906
538.759
3.835
2,666,199
1 .486,979
21,721
278.828.620
Vermouth
3.320,328
2.000
240
337
1,051,390
948,262
18.465
5,341,022
Other special
natural wines
33,055.334
343,91 1
51,821
2,599
406.980
2.290
123,961
523,896
7,912
1,000
34,519,704
Source: Dept. of Treasury, IRS, Alcohol & Tobacco Summary Statistics, Publication 67(3-72)
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APPENDIX A (20)
8. APPROXIMATELY 8.000 PEOPLE ARE EMPLOYED BY
THE WINE INDUSTRY
State-by-state data is not available, but from limited infor-
mation, we can estimate that 70 percent of the wine industry em-
ployees are in California (25 percent at Gallo alone). With rare
exception, small wineries which might be adversely affected by
water pollution abatement standards are near larger operations
that could be an alternative source of employment.
(1) Employment Is Increasing in the Wine Industry
Exhibit XIII, following this page, traces the trend of
employment increases in the wine industry. Increases seem
to be due to:
Increased U.S. wine consumption
New wine products (e.g. , pop wines)
New wineries
(2) Production Workers Comprise Approximately 80
Percent of the Work Force in Wineries
As shown in Exhibit XIV, following Exhibit XIII, the
average winery employs 20 or fewer. Most of the produc-
tion workers are in unskilled jobs in bottling and warehouse
operations.
(3) Average Wages Received By Production Workers in
the Wine Industry Has Been Increasing
Exhibit XV, following Exhibit XIV, depicts the up-
ward climb of average wages of winery workers. It is based
on reports of union contracts in California. It is noted that
virtually all California winery workers are unionized.
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EXHIBIT XIII
Environmental Protection Agency
WINE INDUSTRY EMPLOYMENT LEVELS
1965, 1969, 1970
Number Production
Year Of Employees
1965 • 6,346
1969 6,856
1970 7,861
*Mid March estimates, Dept. of Commerce, Bureau of Census
data.
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1-3
YEAR employees
EXHIBIT XIV
Environmental Protection Agency
NUMBER OF EMPLOYEES
PER WINERY, 1963, 1969, 1970
4-7 8-19 20-49 50-99 100-249 250-499 500+
1963
1969
1970
73
43
44
35
35
28
44
53
43
44
37
38
15
15
20
7
15
12
3
2
3
1
1
2
U.S. Dept. of Commerce, Bureau of Census Data, Mid March estimates.
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EXHIBIT XV
Environmental Protection Agency
WINERY WAGES 1966-1972
YEAR WAGE (in dollars
PER HOUR*
1966 2.79
1967 2.90
1968 3.07
1969 3.25
1970 3.45
1971 3.97
1972 4.27
* General Winery Employee Wages reported by California Dept.
of Labor Statistic and Research.
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APPENDIX A (21)
9. WHILE THE NUMBER OF WINERIES HAS BEEN
DECREASING OVER THE LAST 15 YEARS. OPERATING
MARGINS FOR THE FIRMS IN BUSINESS ARE WIDE
It is clear that the reduction in the number of producing
facilities is not a. direct reflection on the financial condition or
potential of firms in either industry. Rather, closings have been
due to:
Lack of access to expansion capitol of small
producers
Lack of marketing "know-how" (i.e., sound
distribution systems) on the part of small
producers
Trend to larger plants
Lack of necessity for a small plant to produce
a unique product. (Most wineries can easily
convert to pop wine production as demand grows.)
(1) Profitability Has Been High As Compared with All-
Industry Norms
Data on profit margins for wineries are not readily
available as over half are privately held or cooperatively
owned. Yet, every indication points to wider margins than
those enjoyed in the distilled spirits industry i.e., 50 per-
cent (see Appendix B). One New York state firm that holds
recognizable shares of certain segments of the wine market
had a 43 percent margin in the late 60's. The Taylor Wine
Company, also of New York state and until recently the only
publicly held company doing business only in wines, had
operating margins of over 32 percent from 1967 through
1970 and The Taylor Wine Company's net income has been
well over 10 percent of sales for the last five years.
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APPENDIX A (22)
(2) Capital Requirements Are Increasing
The decade of the 70's promises accelerated consump-
tion--according to industry estimates--of 60 percent. This
means increased expenditures for:
Plant and equipment; Wine producers are ex-
panding production capacity to meet the projected
tremendous increase in consumption. Yet, 1971
production was only about one year's supply of
total consumption.
Distribution: Wineries are faced with distribu-
tion expenditures/investments. As consumption
increases, wineries must both expand and enlarge
the distribution "pipeline" with the addition of
more product.
All but the very largest wineries are faced with great
difficulties in obtaining financing. As a consequence, some
firms such as Franzia Bros., are going public and others
are allowing themselves to be purchased by large non-wine
firms to find the capital necessary for expansion. The sale
of Almaden to National Distillers several years ago exem-
plifies this. It is apparent that pressures on smaller
wineries will only increase in the next several years.
(3) Profitability Appears to be More Related to Marketing
Skills Than Size Per Se
It is difficult to characterize any one segment of the
industry as being more successful than another except to say
that those producers with strong marketing talents fare the
best. Included in this group are small, medium, and large
producers.
Brand competition is tremendous in almost every
product segment of the wine industry. This is due to the
ability of each producer to produce virtually the same
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APPENDIX A (23)
product as his competitor. A recent example is in pop
wines: the popularity of Boone's Farm spawned numerous
imitators virtually overnight.
10. THOUGH THE OUTLOOK FOR THE WINE INDUSTRY IS
GOOD, A FUTURE PROBLEM IS INCREASING DOMESTIC
WINE PRODUCT TO MEET EXPECTED CONSUMER
DEMAND
The wine industry in the United States appears to have every-
thing going its way in the seventies. Consumption is expected to
double for many reasons:
Per capita consumption is currently quite low
in comparison with many countries
Frequency of use is also quite low
The "youth" market is most predisposed to
drinking wine and it is the fastest growing
market in numbers
The entertainment boom is also fostering wine
consumption as an "occasion" drink
The problem basic to meeting a greatly increased demand is that
of increasing production to meet it. Even though 1971 was a record
production year with an increase of over 44 percent more than 1970,
total production was barely more than a year's consumption. On
the other hand, distillers have 6 or 7 years' consumption require-
ments on hand. As such, the industry must increase its produc-
tion and storage capacities to be more in line with current and
potential demand.
Increased production ultimately--in wine production much
more so than in spirits--means more raw material (grape) produc-
tion and/or use of imported crush. While U.S. producers are
attempting to make the production investment necessary, it is
possible that the acreage suitable for use in wine production is
now severely limited.
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APPENDIX A (24)
A note on the investment necessary--at present, while there
are a large number of firms producing wine, in reality most of the
production is in the hands of two very large wineries--Gallo, an
independent and United Vintners, a subsidiary of Heublein--and a
few firms owned or controlled by distillers. These firms, by
their size or the size of their parent firms, presumably, have good
access to money markets for investment funds.
It is noted that the basic alternative to limited increases in
domestic wine production is that of imports. And, particularly in
the East, imports have been rising steadily. Imports have quad-
rupled between 1956 and 1971 to 13.5 percent of total U.S. sales.
If shortages in production occur, it seems likely that imports will
reach 20 percent of sales in a few years.
11. THE WINE BOOM IS ON
The most remarkable feature of the wine industry is that it
is changing/restructuring to meet the demands of the seventies
and beyond. The entire alcoholic beverage industry has always
(since Repeal) been legally controlled at each stage--supplier,
wholesaler, and retailer. As a consequence, the component
industries--wine, spirits, and beer--have buried themselves in
"traditional" practices as apparently dictated by the laws and regu-
lations under which each must live. It appears, at present, that
the wine industry is ready to break--however so cautiously--with
tradition, as it experiences its biggest boom period to date. Every
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APPENDIX A (25)
factor--with the possible exception of increased grape production--
seems to be going in favor of wine producers. Several trends in
the wine industry are appearing now:
Centralization of distribution--mass wine dis-
tributors will become more and more important
as wholesalers cease being order-takers and
become positive marketers. Centralization also
refers to the 50 top metropolitan areas accounting
for two-thirds of the nation's wine consumption
and the consequent limited number of whole-
salers handling very large volumes. Suppliers
also will demand that wholesalers be more
attentive to wines.
Nationalization of Distribution and Demand--
wines will be promoted and sold on a national
basis more than ever before.
Mergers and Acquisitions of producers of non-
alcoholic producers are entering the wine field--
Pepsi Co., Nestle, and Coca Cola Bottling of
New York in 1971. In addition, a very high pro-
portion of total case volume is controlled by
just a few suppliers--two may control more than
half the total market.
Retailing--the number of retailers will hardly
change even though sales will double. Yet,
chain retailers will sell more and more pro-
portionately of total sales. The chain retailers
will emphasize price as a component of value--
thus enhancing competition with spirits for the
consumer's dollar.
The sum of these trends is that the wine industry--although one of
man's oldest--is in its infancy in the United States. The current
outlook holds that great jumps in consumption will bring a more
sophisticated industry in terms of distribution and suppliers at
all levels.
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APPENDIX B
THE DISTILLED SPIRITS INDUSTRY
-------
INDEX OF EXHIBITS
Following
Page
I. PRICE PROGRESSION FOR DISTILLED
SPIRITS PER CASE OF 12 FIFTHS
II. RETAIL PRICE OF LEADING BRANDS
OF DISTILLED SPIRITS, FIFTHS
III. DISTILLED SPIRITS MANUFACTURING
PROCESS 10
IV. DISTILLED SPIRITS: MATERIALS USED,
OTHER THAN FRUIT, BY KINDS, BY
STATES, 1971 11
V. AUTHORIZED U.S. DISTILLERIES 12
VI. KENTUCKY DISTILLERIES (LOCATION) 15
VII. U.S. DISTILLERIES (LOCATION) 15
VIII. DISTILLED SPIRITS PRODUCTION, 1971 15
IX. EMPLOYMENT LEVELS 1965, 1969, 1970
IN THE DISTILLED SPIRITS INDUSTRY 16
-------
INDEX OF EXHIBITS (Continued)
Following
Page
X. NUMBER OF EMPLOYEES PER
DISTILLERY, 1963, 1969, 1970 16
XI. DISTILLERY WAGE LEVELS 1970-1972 17
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APPENDIXB (1)
A PROFILE OF THE DISTILLED SPIRITS INDUSTRY
This appendix presents a profile of the distilled spirits in-
dustry, defining and describing the industry in the following terms:
Product types
Distribution system
Consumption
Pricing
Production processes
Raw materials
Plants and their locations
Employment
Operations results
Current problems
Changes in current status
1. DISTILLED SPIRITS ARE PRODUCED FROM FERMENTED
MASHES OF GRAIN (OR SUGAR BY-PRODUCTS IN THE
CASE OF RUM).
Mashes of grain (of sugar by-products in the case of rum)
are fermented and distilled to produce distilled spirits which con-
tain 40-50% alcohol. Specific product classifications are as follows:
Whiskey
White whiskey (gin, vodka)
Rum
Cordials
Bottled mixed drinks and beverage ethyl alcohol
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APPENDIX B (2)
2. MORE WHISKEY IS PRODUCED AND CONSUMED IN THE
UNITED STATES THAN ALL OTHER DISTILLED SPIRITS
COMBINED, BUT THE MARGIN IS NARROWING
(1) Whiskey is an Alcoholic Beverage Distilled From a
Fermented Mash of Grain at Less Than 190 Proof,
Bottled at Not Less Than 80 Proof
Among the American style whiskeys described in the
Internal Revenue Service labeling regulations (27 CFR
5.21) are rye, bourbon, wheat, malt, rye malt, and corn
whiskey. Any of these whiskeys aged under prescribed
conditions or unrectified mixtures of any of these can be
labeled "straight" whiskey.
"Blended whiskey" must contain at least 20 percent
by volume of 100 proof straight whiskey and separately or
in combination, whiskey or neutral spirits; the mixture
bottled at not less than 80 proof. Two new whiskeys, the
production of which was authorized in 1968, came to retail
sale on July 1, 1972: "light whiskey" and "blended light
whiskey. " Unlike the straight whiskeys which, with the
exception of corn whiskey, must be aged in new charred oak
barrels, light whiskey is aged in used or uncharred new
oak cooperage. Blended light whiskeys are less than 20
percent by volume of 100 proof straight whiskey. Bottled-
in-bond whiskeys are straight whiskeys that are the pro-
duct of one distillery and one distilling season, aged at least
four years, and bottled at 100 proof in an Internal Revenue
Service bonded warehouse under Federal Government
supervision.
(2) The Market For Distilled Spirits is Restricted to
Adults Who Buy Their Beverages From Legitimate
Retailers
It is against industry principle to attempt to increase
per capita consumption or to convert non-drinkers to
drinkers. The industry did not seek the new market of the
newly emancipated adults aged 18 to 20 years. The size
of the market has grown as the adult population has in-
creased, as dry areas have gone wet (Mississippi was the
-------
APPENDIX B (3)
last state to go wet, in 1966), and as family income, especially
disposable income, has increased. Trade sources have indica-
ted that high rates of gain in annual levels of apparent consumption
have been scored since 1955 as the result of another combination
of economic and social changes.
Home entertainment boom
Dining out trend
Movement of population to the cities where
there is a more liberal attitude toward the
use of alcoholic beverages
Movement to the suburbs with increases in
leisure time business entertainment
Adult per capita consumption of distilled spirits has
increased steadily from the 1955 low of 1. 95 wine gallons
to the 1971 all-time legal high of 3. 06 wine gallons. Pre-
vious adult per capita consumption had fluctuated consider-
ably from year to year.
Total consumption of distilled spirits increased from
350 million gallons in 1968 to 407 million gallons in 1971,
a gain of 16 percent. From 1970 to 1971 consumption in-
creased by 3. 2 percent, a rate significantly lower than that
for wine.
(3) Domestic Whiskey Captured 52 Percent of the Market
for American Liquor or 38 Percent of the Market for
all Liquor in 1971
The domestic whiskey market share decreased signi-
ficantly since 1962 when whiskey accounted for 56 percent
of the total liquor market. Introduction of the new "light"
whiskeys is intended to improve the competitive position of
American whiskeys vis-a-vis imported whiskeys (Scotch
and Canadian) and the white whiskeys (gin and vodka), and
rum which have enjoyed high rates of gain in recent years.
-------
APPENDIX B (4)
Blended whiskey sales which had remained static--
27 to 28 million cases per year—for 14 years, slipped
below 26 million cases in 1971. "Blended lights. " unlike
spirit blends, are quite similar to Scotch and Canadian
which have more than doubled their sales in the last
decade.
Straight bourbon is the top-selling distilled spirit in
the United States and is likely to hold that position in the
immediate future. Consumption of straight whiskey (98
percent of which is straight bourbon) is estimated at 28. 8
million cases for 1971, down from 29. 2 in 1970 and 29.8 in
1969--the 15-year high. Established statistical trends for
the 1966-71 period project a 1976 market of 30. 2 million
cases. Apparent consumption of bottled-in-bond whiskey
declined to 2 million cases in 1971, steadily down from its
1956 high of 5 million.
Whiskey consumption patterns are closely tied to
population distribution as is the case with wines.
(4) Gin and Vodka, the White Whiskeys, Made Gains
in Sales in the Last Ten Years
Most of the gin marketed in the United States is of the
type called "dry" gin, or "London dry" gin, unsweetened
and colorless, having a slightly perfumed odor dominated
by that of juniper oil. It is the product of distillation from
mash or redistillation of distilled spirits, and is not aged.
The four leading domestic gins--Gordon's, Gilbey's,
Fleischmann's, and Seagram's are bottled at 90 proof.
In the 1962-1971 period the sale of domestic gin rose
from 28. 8 to 36. 5 million gallons annually; that of imported
gin from 1. 6 to 4.1. In the same period vodka sales rose
from 23 to 57 million gallons per year. Vodka enjoys
several competitive advantages:
Extreme versatility
Relatively low price
Appeal to persons who drink frequently but
do not like the taste of traditional beverages
-------
APPENDIX B (5)
Vodka is a neutral spirit, bottled between 80 and 110
proof without distinctive character, aroma, or taste.
Consumption of these beverages follows population.
(5) Sales of Rum More Than Doubled From 1962 to 1971
Most rum consumed in the United States is light in
flavor, the product of relatively rapid fermentation of sugar-
cane juice or blackstrap molasses. Distilled at proofs be-
tween 180 and 190, it is bottled at 80. Of the 13. 8 million
gallons entering trade channels (apparent consumption) in
1971, 10. 6 million gallons were produced in Puerto Rico,
0.2 in the Virgin Islands, 2.8 in the states, and 0.2 in foreign
countries.
Rum is heavily advertised. In 1970 magazine and news-
paper expenditure promoting rum and rum brands averaged
$.89 per case. Most rum drinkers are under 35 years of
age. Bacardi is the major brand with 63 percent of the
market. As is the case with other distilled spirits, con-
sumption is tied to population.
(6) Cordials Have Posted Consistent Annual Sales Gains
for 15 Years of 6-7 Percent
High and low proof cordials and liqueurs (the words
are synonymous in trade usage), varying widely in quality,
compete for the favor of the consumer. Government statis-
tics for cordials include prepared, pre-mixed cocktails,
sloe gin, flavored vodka, and kirschwasser; but inclusion
of these products only skews the statistics by a small
percentage.
Cordials are liquid products obtained by mixing or
redistilling neutral spirits, brandy, gin, or other distilled
spirits with, or over fruits, flowers, or other natural
flavors or extracts in addition to sugar or dextrose. Some
are bottled at 100 proof—40 proof is required.
Sales volume of this heterogenous group is now very
high and propsects favorable. In 1971, 25. 2 million gallons
of cordials entered trade channels compared with 12.1 in
-------
APPENDIX B (6)
1962. Most cordials consumed in the United States are
domestic in origin. Imports, which are mostly high-
priced specialities, supplied about 11 percent of consumption
throughout the decase. Consumption patterns are in line
with population with particularly heavy sales around
Christmas time.
(7) The Market for Bottled or Canned Prepared Cocktails
in 1971 Was 1. 6 Million Cases; That for Beverage
Ethyl Alcohol. Less Than a Thousand
The market for prepared cocktails is evenly split
between the bottled and canned beverages, the latter, a
recent packaging innovation. The estimated size of the mar-
ket has grown slowly in the past decade and the low rate of
gain is projected to continue, but the total value is insigni-
ficant—1/2 of 1 percent of the total domestic production.
3. THE DISTRIBUTION OF DISTILLED SPIRITS IS
CONTROLLED BY THE STATES
The distribution patterns for distilled spirits are distinctly
different in "controlled" and "open" states, as is explained in
Appendix A.
4. THE PRICE OF DISTILLED SPIRITS HAS BEEN
RELATIVELY STABLE OVER THE LAST
FOURTEEN YEARS
(1) The Retail Price of Distilled Spirits is Established
in a Manner Similar to That for Wine
As is the case in wine, the distiller establishes the
price class of his brands through the price to wholesalers
or state liquor commissions. Exhibit I, following this page,
shows the price progression from distiller to consumer
in New York for blended and straight whiskeys. The ini-
tial price of blends is less because neutral spirits require
no aging. But traditionally, the distillers' markup for
-------
EXHIBIT I
Environmental Protection Agency
PRICE PROGRESSION FOR DISTILLED
SPIRITS PER CASE OF 12 FIFTHS
Proof
Whiskey!/
Neutral SpirJ±s£'
Warehousing
Rectification Tax
($0. 30 per proof
gallon)
Federal Excise Tax
($10.50 per proof
gallon)
Bottling & Packaging!'
Advertising £/
Distiller's Total Cost
Distiller's Markup
F.O.B. Price
Freight df
New York State Tax
Wholesaler's Cost
Wholesaler's Markup
(20%)
Retailer's Cost
Retailer's Markup
(30%)
Retail Case Price
Retail Bottle Price
Straight
Bourbon
80
$ 2. 13
0.85
Blended a/
20.16
1.59
1.00
25.73
11.81
37.54
2.00
2.50
42.04
8.40
50.44
15. 13
65. 57
$ 5.55
Whiskey
80
$ 1.44
. 0.96
0.30
0.57
20.16
1.59
1.00
25.33
12.21
37.54
2.00
2.50
42.04
8.40
50.44
15. 13
65.57
$ 5.55
Gin
90
_
$1. 17 b/
—
-
22.68
1.59
1.00
26.44
5.99
32.43
2.00
2.50
36.93
7.38
44.31
13.31
57.60
$ 4.80
Vodka
80
_
$ L.OOJ)/
—
-
20.16
1.59
1.00
23.75
5.68
29.43
2.00
2.50
33.93
6.78
40.71
12.21
52.92
$ 4.41
- Not Applicable
a/Blended whiskey is 35% straight whiskey; 65% neutral spirits;
we assume the straight whiskey is aged
b^/Include cost of processing
£/1971 average
d/Estimated
e/ Assumes distillery is large plant
Source:
-------
APPENDIX B (7)
blends is higher so the consumer's price for blends and
straights is about the same. In most locations the progres-
sion of markups from distiller to retailer is well known and
in the past has tended to remain generally stable. There
is strong evidence, however, that retailer markup main-
tenance is breaking down where regulations permit due to
the growth of high volume retail outlets and competition from
wines. However, New York State maintains a minimum re-
sale price which is 12 percent over retailer cost and Califor-
nia vigorously enforces Retail Fair Trade Minimum prices.
Thus, the distiller can "control" retail prices in these two
states in addition to the monopoly states.
(2) The "Des Moines Warranty" is Effective in Maintaining
a Single Low-Price F.O.B. to the Control States
In the price progression detailed for a typical open
state. New York, the F.O.B. price for a typical blend and
typical bourbon whiskey was $37. 54 per case of fifths. The
necessity for maintaining a margin for dealing in the open
states implies that the control states will buy for less than
$37.54 at all times. Note that Pennsylvania, the largest
buyer of distilled spirits in the world, cannot bargain for a
better price than Idaho. The markup on delivered cost varies
from Mississippi's 17 percent to Oregon's 87.5 percent.
Most of the control states add various other charges (flat
amounts or additional percentages per bottle or case) to
arrive at the per package selling price.
(3) Prices for Distilled Spirits Have Risen Only Moderately
Since 1955
An examination of the New York prices in 1955 and
1972, as displayed in Exhibit II, following this page, reveals
-------
EXHIBIT H
Environmental Protection Agency
RETAIL PRICES OF LEADING BRANDS OF
DISTILLED SPIRITS, FIFTHS*
Blended Whiskey
Light (Blended) Whiskey
Straight Whiskey
Bonded Whiskey
Scotch Whiskey
Canadian Whiskey
Gin
Rum
Brandy
Vodka
Blackberry Cordial
Manhattan
1955 1972
Seagram 7. Crown 4.50
Four Roses Non Existent
Old Crow 4.95
Old Forester 6.59
Haig 6.19
Seagram V.O. 6.15
Gordon's 4.05
Bacardi 4.45
Christian Brothers 4.78
Smirnoff 80 Proof 4.16
De Kuyper 4.37
Hiram Walker 3.87
55
55
,55
,39
,25
.40
,95
,39
,39
.40
5.49
4.60
5.
5.
5.
7.
7.
7.
4.
5.
5.
5.
1955 New York, October 1972, New York Metropolitan Market
Suggested Retail Prices
-------
APPENDIX B (8)
an average increase of 25 percent in prices of typical brands
of 10 domestic distilled spirits, quite remarkable because:
Consumer product prices rose 50 percent in the
same period
There was an increase in the New York State tax
in 1962 from $1.50 to $2.25
The price of the two imported products rose an average of
19 percent in the same period. There were five annual de-
creases in the duty on Scotch and Canadian Whiskey from
1967 through the final reduction in January 1972. Scotch
went from $1.02 to $.51 and Canadian from $1.25 to $.62
per gallon--net per proof gallon. The tariff on spirits that
are less than 100 proof is charged as if they were 100 proof.
Excise taxes are calculated on actual proof.
(4) The Consensus of Persons Close to the Industry is
That Consumer Resistance to Price Increases Takes
the Form of Brand Switching Rather Than Type
Switching
The type(s) of alcoholic beverages chosen by a consumer
is governed by a complex series of personal, social, and
economic factors:
Family customs
Ethnic background
Status seeking
Response to advertising
Peer group customs
Disposable income
Taste preferences
To express price resistance, a consumer will switch to a
cheaper brand of his accustomed beverage, rather than
make the large psychological jump to a different beverage.
-------
APPENDIX B (9)
Industry people like to think that most consumers, after ex-
pressing their resistance for three or four months, return
to their accustomed brand.
(5) Price Stability in the Market for Distilled Spirits Has
Been Maintained by Various Economic and Social
Changes
Domestic whiskey prices have not been raised as much
as they might have been due to the strong competitive pres-
sure from Scotch and Canadian Whiskey and gin, rum, and
vodka. The imported and white whiskey brand owners were
motivated to hold prices down to solidify and enlarge their
recent gains. High annual rates of gain in apparent con-
sumption of distilled spirits allowed all segments of the in-
dustry to absorb cost and tax increases and yet remain
profitable. In addition, 1955 prices were high relative to
costs and to the value of other consumer goods. Also,
spirits' prices have been held in check by the growing pre-
ference for wine.
Another reason for price "stability" is that mandatory
"Fair Trade" laws have been abandoned. Only California
vigorously enforces such a law. Voluntary fair trade laws
have been weakened by the steady shift of population and
sales volume to large metropolitan areas. In these areas.
retail stores are close together with proximity increasing
price competition.
Large chain stores (grocery, drug, and department)
have become part of the retail structure for distilled spirits.
These stores build volume for their entire operation by
-------
APPENDIX B (10)
price cutting and loss-leader merchandising, thus helping
to keep all prices lower than otherwise. After factors in
keeping prices lower over the last decade include:
There is an oversupply of bourbon and of the new
light whiskey. The seven year inventory which
the industry carries is too large as whiskeys
over four years of age do not appreciate in value
faster than they evaporate and. in general, over-
aged whiskey is not in demand.
Private label brands compete on the strength of
price alone
All segments of the industry may have now used
up all the slack they had in 1955
The Federal Price Freeze had little effect on the price
structure by-the-package at retail because prices have been
checked by competitive pressure for the last few years
anyway.
5. ALL DISTILLED SPIRITS ARE MADE FROM ONE BASIC
PROCESS
One basic process depicted in Exhibit III, following this
page, is used to produce all kinds of distilled spirits. Across the
top of it is a brief description of each step of the process. Along
the bottom is an identification of waste products--liquid and solid--
emanating from the various production steps.
The various types of spirits produced in this process result
from the use of different raw ingredients and /or flavoring, blending,
aging, and cutting among other discretionary steps in the produc-
tion process.
-------
PAGE NOT
AVAILABLE
DIGITALLY
-------
APPENDIX B (11)
6. GRAIN IS THE BASIC RAW MATERIAL FOR DISTILLED
SPIRITS
Corn is the major grain used in the production of distilled
spirits. Other grains which are distilled to produce spirits are
shown on Exhibit IV, fpllowing this page. Listed below are the
types of distilled spirits products, their basic grain ingredient,
and relative importance:
Bourbon is distilled from a fermented mash of
not less than 51 percent corn. The balance is
generally rye and barley malt. • The new light
whiskey is distilled from more corn to produce
a higher alcohol content. Rye is distilled from
a mash of grain containing at least 51 percent
rye grain. Together these whiskeys account for
60 percent of the distilled spirits produced in
the United States.
Gin, made from neutral spirits flavored with
juniper berries, represents 11% of production.
Rum, distilled from molasses or other sugar
cane products, represents 1% of U. S. production.
Vodka, made from neutral spirits customarily
distilled from grain (not potatoes), represents
17 percent of U.S. production.
Cordials or Liqueurs are distilled from herbs,
fruits, flowers or other real and imitation
flavoring materials.
(1) Only One Percent of the U.S. Grain Crop is Used in
Distilled Spirit Production
The farmlands of the Great Plains States are the source
of most of the grain distilled by the spirits industry. A few
isolated distilleries in Kentucky depend on local farm pro-
duction. The majority of the grain is purchased on the
Chicago grain market. The distilleries of one firm may
purchase their grain supplies together (one firm owns 11
grain elevators in Indiana and Illinois), but there is no in-
dustry-wide cooperative bidding and purchasing.
-------
PAGE NOT
AVAILABLE
DIGITALLY
-------
APPENDIX B (12)
It takes about 11 pounds of grain to produce a proof
gallon of liquor, i.e., a gallon 50 percent by volume. The
quantity of the total crop used by the industry is so small
that its demand has no effect on price and supply (except,
perhaps for those few Kentucky distilleries depending on
local sources). The cost of the grain input represents such
a small portion of the total costs of producing a fifth of
bourbon that the fluctuations in grain prices have little effect
upon the production costs of a distillery.
(2) The Quality of Grain Used for Distillation is Essentially
an Average Quality Feed Grain
The relative price of grains may have some effect on
the production of neutral spirits for vodka or gin. Any
grain can be used to produce neutral spirits and so a rise
in the price of corn, relative to sorghum might cause a shift
from corn to sorghum in neutral spirits production. Often
however, the label on name brand vodka or gin proudly
specifies "neutral spirits distilled from American grain,"
probably initiated when Publicker was making neutral spirits
from molasses imported from Cuba.
During World War n distilleries were cut off from
grain supplies. Grain production potential in the United
States is now so high that it seems unlikely the industry
would be restricted from grain supplies again.
7. CURRENTLY 72 DISTILLERIES ARE AUTHORIZED TO
OPERATE IN THE UNITED STATES INCLUDING THE
VIRGIN ISLANDS, HAWAII, AND PUERTO RICO
A profile of the national distilled spirits industry on a state -
by-state basis appears in Exhibit V, following this page. For
-------
EXHIBIT V (1)
Environmental Protection Agency
AUTHORIZED* U. S. DISTILLERIES
LOCATION
CALIFORNIA
\. Union City
2. Menlo Park
CONNECTICUT
3. Hartford
FLORIDA
4. Lake Alfred
5. Auburndale
GEORGIA
6. Albany
HAWAII
7. (North Kono)
Kahakiu
8. (Maui)
Puunene
ILLINOIS
9. Pekin
10. Peoria
INDIANA
1 1 . Lawrencetaurg
12. Lawrenceburg
IOWA
13. Muscatine
14. Clinton
DISTILLERY
The American
Distilling Co. 4/
Heublein, Inc. 4/
Heublein, Inc. IS/
Todhunter £/ 6/
International. Inc.
Jacquin-Flad/ jV
Viking Distillery
Hawaiian
Distillers
Joseph E.
Seagrams & Sons, Inc.
American
Distilling Co.
Hiram Walker
& Sons, Inc.
Joseph E. Seagrams
& Sons, Inc.
Schenley U
Distillers, Inc.
Grain Processing
Corp.
Fleischmann §/
Distilling Corp.
OPERATIONS
Distiller-industrial
Distiller— beverage-grain
X
X
X
X
X
X
X
X
X
X
X
X
X >
X >
X
X
X
X
X
X
X
X
Distiller-beverage-rum
C X
C X
X
X
X
111*
HHi M
JjliriaSJsS
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
DIS-
TILL-
ERY
SIZE
Si
? E?;
111
w E J
X
X
X
X
X
X
X
X
X
X
X
X
X
X
SALES
(SMIL-
LION)
( 583)
(1150)
1 669)
85
EM-
PLOYEES
(4850)
(6400)
1116
( 600)
* "Authorized" according to Dept. of Treasury, Bureau of Alcohol, Tobacco & Firearms,
Distilled Spirits Plants Authorized to Operate. Publication No. 654. July 1972.
( ) Numbers in parentheses indicate sales or employees for all distilleries of that firm
-1^ Small-sized distilleries have daily average mashing capacity of 2000 bushels &
production capacity of 10,182 proof gallons daily
— Medium-sized distilleries have daily average mashing capacity of 6000 bushels &
production capacity of 30.545 proof gallons daily
— Large-sized distilleries have daily average mashing capacity of 20.000 bushels &
production capacity of 50,909 proof gallons daily
— Distillery is small part of total operations and therefore not representative of plants
sized or sales.
$L Distill citrus wastes to qualify for Florida tax break
§L Largest distillery in the United States
21 Largest distillery of Glen Alden Corp.
& Fleischmann is a subsidiary of Standard Brands.
-------
EXHIBIT V (2)
LOCATION
KANSAS
15. Atchison
KENTUCKY
16. Louisville
17. Louisville
18. Louisville
19. Bardstown
20. Lawrenceburg
. 21 . Owensboro
22. Bardstown
23. Beam
24. Frankfort
25. Cynthiana
26. Shirley
27. Louisville
28. Hodgenville
29. Owensboro
30. Frankfort
31. Frankfort
32. Bardstown
33. Anchorage
34. Bardstown
DISTILLERY
Midwest Solvents
Co., Inc. 9/
Schenley
Distillers, Inc.
Schenley
Nat'l Distillers
& Chem. Corp.
Barton
Brands, Inc.
Joseph E. Seagrams
& Spns, Inc.
Fleischmann
Distilling Corp.
Barton
Brands, Inc.
James B. Beam
Distilling Co. gi/
Old Grand Dad
Distilling Co.l°/
Joseph E. Seagrams
Stitzel Weller
Nat'l Distillers
& Chem. Corp.
Joseph E. Seagrams
Glenmore
Distilleries Co.
Old Crow
Distillery Co. !fl/
Old Taylor
Distilling Co.lQ/
Waterfill & Frazier
Distilling Co.
Grosscurth
Distillers Co.
Heavenhill
OPERATIONS
.E X p « o
Mhf*'
fii^ip, Ei
lllljjiil Jl
ii ii ill i"j || i
.£ .£ ,Z .£ o O OJ O O 9 9 O
QQQQttmoeoQaSaQm
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
•>
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
DIS-
TILL-
ERY
SIZE
S
= I*
III
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
SALES
(SMIL-
LION)
10
( 669)
( 120)
( 130)
15
EM-
PLOYEES
235
(6400)
( 650)
( 625)
200
275
S/ Subsidiary of McCormick Distilling Corp.
^ Subsidiary of National Distillers & Chemical Corp.
^Subsidiary of American Brands
-------
EXHIBIT V (3)
LOCATION
35. Louisville
36. Meadowlawn
37. Loretto
38. Nicholasville
39. Owensboro
40. Lawrenceburg
41 . Bardstown
42. Ben F. Medley & Co.
43. Fairfield
44. Lawrenceburg
45. Deatsville
46. Frankfort
47. Clermont
48. Louisville
49. Louisville
50. Louisville
MARYLAND
51. Baltimore
52. Baltimore
53. Lansdowne
MASSACHUSETTS
54. S. Boston
DISTILLERY
Joseph E. Seagrams
Old Boone
Distilling Co.
Star Hill
Distilling Co.
Kentucky River
Distilling Co.10/
Medley Distilling
Co.
Austin, Nichols
Distilling Co. ]2J
Widen Distilling Co.
Joseph E. Seagrams
Hoffman Distilling Co.
T.W. Samuels
Distillery, Inc. U/
Schenley
Distillers Inc.
James B. Beam
Distilling gi/
OPERATIONS
.£ .£ e To a
i, 2 1 '= 1 ^
_ TT T S S «|
= S & S>? 1 i ? is
IJlfilffl ?!
iiiil|fef-T2£'f
• •••isilipsssss
l{=!«eetSe?SS?
£ .£ .S .£ o O V O 5 °* wo
DQOOmmoccomQQcQ
Glenmore Distilleries 14/
Brown Forman t5/
Distillers Corp.
Brown Forman
Distillers Corp. IS/
Joseph E. Seagrams
Joseph E. Seagrams
Majestic Distilling
Co., Inc.
Felton & Sons, Inc. 14/
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
x«
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
DIS-
TILL-
ERY
SIZE
^
CM
— 3 M<
ill
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
SALES
($ Ml L-
LION)
7
( 144)
( 219)
4
EM-
PLOYEES
50
(1280)
(1900)
60
U/ Taken over by an importer
\2I Subsidiary Ligett & Meyers
1_3/ Foster Trading Co.
14/ Subsidiary of Glenmore Mfg, Whiskey Holding Co.
IS/ Early Times Distillery Co.
-------
EXHIBIT V (4)
LOCATION
MISSOURI
55. Weston
NEWJERSEY
56. Linden
NEW YORK
57. Peekskill
OHIO
58. Cincinnati
PENNSYLVANIA
59. Philadelphia
60. Philadelphia
61. Schaefferstown
62. Schenley
63. Philadelphia
TENNESSEE
64. Lynchburg
65. Tullahoma
VIRGINIA
66. Sunset Hill
(Herndon)
"
DISTILLERY
McCormick
Distilling Co.
Distillers Co., Ltd.
Fleischmann
Distilling Corp. 4/
Nat'l Distillers
& Chem. Corp.
Continental
Distilling Corp. !£/
Publicker
Industries, Inc.
Pennco Distilleries
Inc. of Pa.
Schenley Distillers
Inc.
Publicker
Industries, Inc.
Jack Daniel
Distillery 127
Tenn. Dickel
Distilling Co. IS/
A. Smith Bowman
Distillery 127
OPERATIONS
!!!l!ss
1 ifilllf , i
SSfegii^Sg 3 «
.E.o.o.S-^-^j;®0? "i" "c
Iiii^|si-|||T
llllfllllell
.£ ._ .— .— a a 5 -J
X
X
X
X
X
X
X
X
X
X
X
X
SALES
(SMIL-
LION)
( 40)
50
8
EM-
PLOYEES
( 500)
(2000?)
340
50
Publicker Industries is subsidiary of Crowell Collier & Macmillan
Ml Subsidiary of Brown Forman
-------
EXHIBIT V (5)
LOCATION
VIRGIN IS.
67. St. Thomas
68. St. Croix
PUERTO RICO
69. San Juan
70. San Juan
71. San Juan
72. Medicitia
DISTILLERY
Meyer's IS/
Virgin Is.
Rum Distillery
Ltd. IS/
Bacardi Corp.
Puerto Rico !_£/
Distillers Inc.
Old San Juan
Distilling Co. tfl/
Distilleria
Serralles Inc.
OPERATIONS
•- •- E is a,
7"f ? *• 5 « »
tnSSS'TlCQW^ E £
30)0>4>J,mVC 3M
TJ?'?'?5S™°'cl'1'~
||||lllii||i
.12 .!2 .£ >!2oowOOWVO
QOOQeamCCGQIfiQQCD
X
X
X
X
X
X
DIS-
TILL-
ERY
SIZE
N
^ E?>
— 3 Ml
•S 5 ?
IIJ3
X
X
X
X
X
X
SALES
(SMIL-
LION)
74
EM-
PLOYEES
331
l§/ Subsidiary Joseph Seagrams Sons Inc.
\S/ Subsidiary Schenley Inc.
-------
APPENDIX B (13)
the purpose of this study, the EPA classification of distilled
spirits producers according to size has used:
Daily-Average Daily Average
Distillery Crushing Capacity Production Capacity*
Size (bushels) (proof gallons)
Small 2,000 10,182
Medium 6,000 30,545
Large 20,000 50,909
Of the 72 U.S. distilleries, 24 are large; 14. are medium-
sized; 34 are small. Large plants account for most of the U.S.
production.
Of 72 distilleries in operation in the United States including
the Virgin Islands and Puerto Rico, eight distill both grain and
fruits. Plants distilling only fruit brandy are considered to be
a segment of the wine industry and are discussed in Part A. Only
a few isolated rum distilleries are located in the continental U.S.;
most are in Puerto Rico and the Virgin Islands. The wastes from
rum are very different from those of grain spirits. Molasses,
a by-product of the sugar industry, is the raw product of rum
production. Some of the distilleries also produce industrial alcohol
on a separate line. (The process for this product is similar to
that for producing beverage alcohol except that any raw product
containing starch or sugar can be used.) One distillery may rectify
and redistill spirits produced at another distillery.
(1) The Number of Distilleries is Declining
The number of distilleries on the other hand appears
to be declining. Big firms are buying small plants and con-
solidating them. Old-fashioned operations are unable to
compete in a field dominated by modern technology.
Assumes 56 pounds per bushel and 11 pounds of grain used per
proof gallon of spirits produced; 260 operating days per year.
-------
APPENDIX B (14)
(2) The Distilled Spirits Industry is Dominated by a
Few Firms
Fifty-five distilleries are owned or controlled by one
of the large firms in the industry. Many of the small dis-
tilleries are owned by a large firm; as in the case of
wineries, the larger firm deliberately keeps some of the
distilleries it controls small for marketing (prestige)
purposes.
Ten firms account for 90 percent of U. S. distilled
spirits production:
Seagrams (Distillers Corp.)
National Distillers
Hiram Walker
Schenley Industries
Heublein
Brown Forman
Publicker Industries
Glenmore Distillers
Of these, four: Distillers' Corporation Seagrams,
Schenley Industries, National Distillers, and Hiram Walker,
alone account for almost 80 percent of U. S. production.
(3) Most Distilleries Are Modern
Though some fine name labels claim they make whiskey
like they always have for 200 years, the distilleries industry
is dominated by automated plants using stainless steel vats
and a great deal of technology to assure a consistency in their
product. Modernization was initiated as plants reopened
after Repeal. Currently, 75 percent of all U. S. distilleries
are modern.
-------
APPENDIX B (15)
(4) The Range of Operations in a Single Distillery
May Be Narrower than its Authorization Indicates
It appears that the operations of many distilled spirits
plants are more limited than their equipment or their authori-
zation. Grain distillation may not in fact take place at
several of the plants listed on Exhibit V. Operations may
concentrate on redistillation, rectifying, and subsequent
product finishing steps. In some other plants, distillation
may take place but only on a limited basis for a part of the
year. (Most distilleries close down one month each year
for repairs and employee vacations. Within three days
after reopening, the largest distillery has resumed full-
scale operations. )
(5) The Trend in Distilleries is to Consolidate Product
Lines
As in the case of wineries, product line consolida-
tion continues. Even those distilleries experimenting with
the new white whiskeys, generally are concentrating sales
efforts for their regular whiskey on less, rather than more,
labels.
Like wineries, distilleries are not limited to a parti-
cular product by their production line. With minor adjust-
ments in equipment, a plant traditionally used to distill
bourbon can be used to produce vodka.
(6) The Distilled Spirits Industry is Geographically
Concentrated in Kentucky
Over half of the distilleries are located in Kentucky,
and most of these in the Louisville area. (See Exhibit VI,
following this page. ) Kentucky's production represents about
60 percent of the total national production of distilled
spirits. A few large plants are located in near-by states
as shown on Exhibit VII, following Exhibit VI. And the
contribution of those states to national distilled spirits' pro-
duction is shown on Exhibit VIII, following Exhibit VII.
-------
PAGE NOT
AVAILABLE
DIGITALLY
-------
APPENDIX B (16)
8. APPROXIMATELY 20.000 PEOPLE ARE EMPLOYED BY
THE DISTILLED SPIRITS INDUSTRY
State-by-state data is not available, but from limited infor-
mation, we can estimate that approximately 30 percent of the dis-
tilled spirits industry employees are in Kentucky, over half of
these in Jefferson Comity alone. With rare exception, small plants
which might be adversely affected by water pollution abatement
standards are near larger operations that could be an alternative
source of employment.
(1) Employment is Declining in the Distilled
Spirits Industry
Exhibit IX, following this page, shows the recent
employment decline in the distilled spirits industry. This
recent trend has been explained by:
An overproduction in the late 1960's
The general economic recession
The disappointing sales of the new "light"
whiskeys
Trends in consumer taste toward nonwhiskeys
and imported whiskey types
(2) Production Workers Comprise Approximately 80
Percent of the Work Force in Distilleries
As shown in Exhibit X, following this page, majority
of distilleries employs 50 to 250 people. In the typical large
modern distillery employing about 2000, fewer than ten men
per shift can run the distillery. Most of the production
workers are in unskilled jobs in bottling and warehouse
operations.
-------
EXHIBIT IX
Environmental Protection Agency
EMPLOYMENT LEVELS 1965, 1969*. 1970
IN THE DISTILLED SPIRITS INDUSTRY
PRODUCTION
YEAR EMPLOYEES
1965 17.171
1969 19,469
1970 18,980
*Mid March estimates, Dept. of Commerce, Bureau of
Census data.
-------
EXHIBIT X
Environmental Protection Agency
NUMBER OF EMPLOYEES
PER DISTILLERY, 1963, 1969, 1970
EMPLOYEES
YEAR 1-3 4-7 8-19 20-49 50-99 100-249 250-499 500
1963
1969
1970
7
8
6
6
3
5
5
13
15
33
26
27
18
26
24
17
26
26
9
12
12
12
9
10
Source: U. S. Dept. of Commerce, Bureau of Census Data,
Mid-March estimates
-------
APPENDIX B (17)
(3) Average Wages Received By Production Workers in
Both Industries Have Been Increasing
As Exhibit XI, following this page, shows, the average
wage levels for production workers in distilleries averages
around $4 per hour; wage levels are high relative to the
national average considering the level of skills required by
these jobs. The work week averages five days. In addition,
most distillery workers enjoy a month's vacation when the
plant is closed in the summer for maintenance--unusual
among American workers. All except a very few workers
are members of a single national union.
9. WHILE THE NUMBER OF DISTILLING PLANTS HAS BEEN
DECREASING OVER THE LAST 15 YEARS, OPERATING
MARGINS FOR THE FIRMS IN BUSINESS ARE WIDE
It is clear that the reduction in the number of producing
facilities is not a direct reflection on the financial condition or
potential of firms in either industry. Rather, closings have
been due to:
Lack of access to expansion capitol of small
producers
Lack of marketing "know-how" (i. e.. sound
distribution systems) on the part of small
producers
Excess capacity
Trend to larger plants
Lack of necessity for a small plant to produce a
unique product (with only one standard process
in the distilled spirits industry, any plant
can produce a specific product)
-------
EXHIBIT XI
Environmental Protection Agency
DISTILLERY WAGE LEVELS,
1970-1972
1970 1971
1972
Total Employees
(1000's)
Women (1000's)
Production
Workers (1000's)
Average weekly
earnings
Average hourly
earnings
Average weekly
hours
23.2 22.9 N/A
7.5 7.5 N/A
18.1 17.3
39.4 40.2
N/A
$147.75 $164.42 N/A
$3.75 $4.09 N/A
N/A
Source: U. S. Dept. of Labor
-------
APPENDIXB (18)
(1) Profitability Has Been High As Compared with
A11-Industry Norms
Standard & Poor's reports that distillers have enjoyed
profit margins approximately 50 percent higher than those
of its aggregate of 425 industrials.
Distillers as a group have had net income ratios (of
sales) of approximately 50 percent more than Standard &
Poor's 425 industrials. However, some distillers have
experienced reductions in income ratios as they have been
forced into price competition among brands, diversified
into other areas offering lower returns, and/or have had
heavier expenditures for brand promotion. This tendency
to reduced profits may become the rule primarily due to
price competition.
(2) Capital Requirements Are Increasing
The decade of the 70's promises accelerated consump-
tion—according to industry estimates--of 6 percent for
distilled spirits. This means increased expenditures for:
Plant & Equipment; In distilled spirits, however,
production in the late sixties was probably too
great and stocks on hand are now at 6 or 7 years
volume of consumption. Increases in produc-
tion will be geared to various products as de-
manded by consumers.
Distribution; Distillers push brands--new or
established--to create or increase markets.
Besides promotional expenditures, heavy pro-
duct inventories are needed and must be in-
vested in years in advance due to aging.
Standard & Poor's reports that currently most
distilleries are financing these expenditures internally.
-------
APPENDIX B (19)
(3) Profitability Appears to be More Related to Marketing
Skills Than Size Per Se
It is difficult to characterize any one segment of the
spirits industry as being more successful than another ex-
cept to say that those producers with strong marketing
talents fare the best. Included inthis group are small,
medium, and large producers.
However, some distillers have experienced reduc-
tions in income ratios as they have been forced into price
competition among brands, diversified into other areas
offering lower returns, and /or have had heavier expendi
tures for brand promotion. This tendency to reduced pro-
fits may become the rule primarily due to price
competition.
Brand competition is tremendous in almost every
segment of the industry. As an example, there are over
55 brands of bourbon for which newspaper advertisements
.were placed in 1971. Since the products within each cate-
gory are only marginally different, the distillers' market-
ing organizations are all-important in creating sales. On
the one hand, advertising helps "pull" sales through re-
tailers; while, on the other, sales are "pushed" through the
retailers by heavy reliance on price-cutting "deals" which
permit the retailer to pay less for a given brand while
giving him a higher gross profit margin as he sells to the
consumer. In addition, distillers supply in-store adver-
tising aids and allowances either directly or through
their wholesalers.
10. THE OUTLOOK FOR THE DISTILLED SPIRITS INDUSTRY
IS GOOD THOUGH SOME PROBLEMS LOOM AHEAD
As previously noted, distilled spirits consumption is
expected to rise, though not as dramatically as wine consumption.
Industry sources temper the estimates of increased sales with
some anticipated problems and/or caveats.
-------
APPENDIX B (20)
(1) Distilled Spirits May Be Hurt By the Wine Boom and
a Price/Profits Squeeze
Ironically, the distilled spirits industry may be hurt
the most in coming years by the phenomenal increase in
wine consumption. While spirits and wines can be comple-
mentary products in that a consumer may enjoy spirits
before a meal and wine with it. they are really substitutes
for each other. Today's trends to lighter taste, lower
proof in spirits consumption can easily and logically carry
the consumer into the wine market and out of the spirits
market. Additionally, this is reinforced by the "youth"
market which has turned on to wine more than any other
market. As the youth market matures, it may very well
stay with wine and not "graduate" to spirits.
Another problem identified by the industry itself--
as has been for years—is that of taxes. The industry,
always burdened by excise taxes at the Federal, state,
and, often, local level, has always been afraid that exces-
sive taxation will drive its consumers away. The fear of
rising taxes is real enough--government spending at all
levels continues to rise. It is apparent that the industry
will attempt to meet/solve the taxation problem through
lobbying at all levels of government.
A third industry-identified problem is that of a price-
profit squeeze. That is, the industry--particularly at the
retail level and because of product-by-product comparisons--
has made price a component of the value a consumer now
seeks in purchasing spirits. Of course, the industry
itself cannot take total credit or blame for this develop-
ment; it is surely a reflection of the "consumerism" trend
of recent years which has made price a component of the
value of each and every thing that the consumer buys.
Regardless of real cause, the lowering of price levels is
shown in that average prices of product types (e. g., Scotch
or Bourbon) have come closer together and average prices
within categories have dropped. This is perhaps due to
heightened competition among the various product types.
The trend toward lighter whiskey has brought about a general
diversification movement--an adding to product lines per-
haps beyond true consumption or demand and with result-
ing price competition.
-------
APPENDIX B (21)
In addition to these problems, another far-reaching one
is that of the rise of chain retailing operations. Until re-
cently, most open states have forbidden chain retailers--
i. e., one individual or corporation could not own more
than one license for a retail store. Many states are now
"liberalizing" their laws and regulations to permit chains.
The feared net effect--by the distillers--is that chain re-
tailers will ultimately influence consumer demand more
than either they (the supplier) or the wholesalers.
As real as these problems are to the industry that
sees them, it must be noted than these problems are either
of its own making or "normal" in that any given industry
has certain problems facing it at any given-time. In par-
ticular, the price-profit "squeeze" for the distillers is:
More one of changing consumer preferences and
consumer awareness of price as an essential
element of value in an industry where brands are
only marginally different in characteristics.
One of the industry's own preception vis-a-vis
its own traditional higher-than-average profit
margins.
11. THE DISTILLED SPIRITS INDUSTRY IS ADOPTING A
DEFENSIVE POSTURE TOWARDS THE FUTURE
For an industry characterized by a limited number of domes-
tic producers--38 firms operating 72 distilleries--yet with retail
sales of over $10 billion and a projected 6 percent rise in con-
sumption during the seventies, the distilled spirits in industry
seems to be cautious. At present this is due to several factors:
Public relations problems--traditionally, the
industry is cautious about marketing its pro-
ducts to certain segments of the population;
the industry is not certain how it can approach
the 18-20 and 18-24 market as has the wine
industry. Denied radio and TV promotion, the
-------
APPENDIX B (22)
spirits industry is limited to print and outdoor
advertising to reaching an audience more re-
ceptive to advertising on radio and TV. Addi-
tional public relations problems are found in the
tax area. Alcohol has been viewed as govern-
mental revenue source since Repeal. The
industry--although active lobbyists at levels
of government--has a continuing problem of
attempting to keep taxes from the point of dis-
couraging sales or shifting demand to lesser
taxed product lines such as beer and wine.
Profitability--although largely a self-defined
problem (i. e., lower profitability than it has
been accustomed to), the industry is attempting
to come to grips with price competition at
the retail (and ultimately back at the supplier)
level.
Distribution- -chain retailers will be the domi-
nant force in the industry by the end of the
seventies--thus, dictating demand more than
the suppliers.
Inventories--at present, distillers are holding
a 6-7 year supply in storage. Recent over-
production has accounted for this. Readjust-
ments will have to be made as storage is costly
both in maintaining the facilities for storage and
in evaporation losses over time.
The Wine Boom--if wine gains are realized, pro-
jected spirits gains may not be achieved because
of the substitution effect the products have for
each other. As mentioned above, the spirits
industry will have to find some way to reach
the "youth" market of the seventies to prevent
or stymie substitution.
The above trends notwithstanding, the spirits industry has a .
challenge in the seventies that it can realistically seek to meet
and overcome. Its pressures are primarily marketing oriented
and not financial at present.
------- |