Business & Finance

Kimberly-Clark CEO: New products, value-oriented marketing helped during recession
Associated Press, Jan. 20, 2010

NEW YORK (AP) – Kimberly-Clark Corp. CEO Thomas Falk did things most executives ran from during the recession: He plunged money into innovation and marketing, and raised prices.

Those were risky strategies for a consumer products company during an economic downturn the likes of which hadn’t been seen since the Great Depression. They paid off. Third-quarter profit for the maker of Huggies diapers and Kleenex tissue jumped 41 percent from a year ago, and analysts expect its earnings for all of 2009 to climb more than 10 percent from 2008. It will report its year-end results on Jan. 22.

During his 26 years at Kimberly-Clark, Falk had many jobs — worked as an auditor, ran a diaper plant, and headed the infant and child care lines. But he had never encountered anything like this recession.

“You’ve had a whole generation of business leaders who have never been through a tough economy,” said Falk, 51, who has been CEO since 2002. “We all knew how to manage when things were getting progressively better every year, but there weren’t many people who had been through a difficult recession.”

Like many of his corporate rivals, Falk cut costs and staff — 1,600 of the company’s 53,000 workers. But he also launched products at premium prices, including Scott Naturals bath tissues and towels and Huggies Pure & Natural diapers.

Kimberly-Clark, based in Dallas, raised marketing spending by $95 million during the first nine months of 2009 and tried to impress on consumers that its products offered quality and more value for their money.

Here are excerpts from an Associated Press interview in New York with Falk.

Q. What has the recession taught you about how shopper behavior when times are tough?
A. (Consumers) were more sensitive around absolute price point and dollar outlay. And I think we even saw that change during a month. Where at the beginning of the month when your paycheck is in the bank, you feel like you can buy the better value per unit, so you might buy the big bundle pack at the super center or the large discount store. But at the end of the month, if you are out of a paycheck, you buy the quantity you can afford and still buy the other things you need to take care of your family. The mix was shifting more during the month than it usually would. We would want to stock large packs at the beginning of the month more than ever and make sure that retailers stocked the smaller packs late in the month.

Q. You said that a lot of consumers are focusing on value right now. How do you convey the message of value to them?
A. I was in the Philippines not long ago, where we do some advertising to consumers on how a Huggies diaper would last 10 hours. A mom who was buying a very low-tier diaper in a market like that would know that a private-label or a low-tier brand wouldn’t last 10 hours.You communicate it that way as a perception of value. If you look at marketers around the world across all categories, you see more marketing dialing up value messaging. We are all trying to communicate to the consumer that we are a good value relative to their other alternatives.

Q: Kimberly-Clark is a company built on developing and marketing consumer products. You started as an auditor. How did you get on the management track?
A: I wanted to develop as a general manager, so I went to work at a diaper plant. It was a great learning experience because it forced me to manage outside of my home discipline.I knew a lot about finance, and I could make a lot of decisions in finance easily. But in an environment working with engineers and operators running processes, it forced me to lead in another way. It taught me that your job (as a manager) is setting objectives, making sure you have the right talent on your team, and that they all know what they are trying to accomplish. You have to remove obstacles from them being successful, and then have them take responsibility for their results.

Q: Even though Kimberly-Clark’s profits have surged over last year, the weak economy had to hurt morale. How did you keep your work force motivated?
A: We communicated a lot and said don’t panic, stay calm and take care of yourself. This is a marathon, not a sprint. We told them to make sure you are getting enough sleep, exercise and do things that will help you sustain yourself through this process. We also treated people as adults. We needed to cut travel expenses by at least 25 percent.Initially, we thought we would tell people exactly how they should travel. Then we decided to give them the tools to help them buy their travel better so they can get the best deal. Guess what? They will cut travel by close to 40 percent because they were empowered and weren’t micromanaged.

Q: You’ve made it to the top. What advice would you give someone who just entered the ranks?
A: I tell them that you are the CEO of your career and a good CEO has to do three things. First, you have to deliver results. Then you need a plan. You don’t need your whole career planned, but what you want to do for the next four of five years. You also need to know how to build capability. As you assess what you are good at and what you need to get better at to get the role that you want, be thinking about where you need to build capacity. Do you need to go back to school to get an advanced degree? Do you need to get a different job experience? If you do those three things, you will do well and soon you will be helping other people manage their careers.

Q. How do you balance your personal life with your job?
A: We all have three forces in our life. Our career, meaning things we do for our job and how we invest in our career. There are things we need to do for our family, no matter how you define family. Then you should have things for yourself, whether that’s education or exercise. Those three forces are constantly competing for your time. If any one of them is too far out of balance for too long, you won’t be very happy. You need to recognize that you are constantly making trade-offs. I have been married for the same person for 30 years next June. I have a son that is 20 years old. I count those relationships as very important. While I wasn’t there for everything when they needed me, I was there for most of the important things.

Q: Any predictions on what could come in 2010?
A: We are planning for a long, slow recovery. I think you might see some positive signs that look like things are improving but it is really because things were so bad last year that on a relative basis it is a better. We are looking at relatively flat, low growth.

US real-estate-lending giant Capmark group files for bankruptcy
Associated Press, Oct. 27, 2009

CHICAGO: Capmark Financial Group, one of the largest US commercial real-estate lenders, has filed for bankruptcy protection amid mounting bad debt, becoming the latest casualty in the still turbulent US real-estate market. Capmark has been hurt by rising losses on mortgage loans, and has had to foreclose on properties such as the Equitable Building in Atlanta because borrowers were not able to make loan payments. In its bankruptcy filing Sunday in Delaware bankruptcy court, the company listed total debt of $21 billion and assets of $20.1 billion. It seeks to reorganize under court protection, reducing its debt while continuing to operate its businesses.

Many US banks and real-estate-investment trusts have been hurt by increasing losses on commercial real estate loans. With millions of jobs lost and office space remaining empty during the recession, developers have been forced to default on loans. Analysts predict that commercial real estate defaults will rise rapidly.

“We view this reorganization process as an unfortunate but necessary response to recent unprecedented conditions in financial and commercial real estate markets, which presented a significant challenge for Capmark and similarly situated finance companies,” said Capmark president and CEO Jay Levine, in a statement. “By constraining the availability of capital,these difficult market conditions had a negative effect on all our core businesses.” Last month, Pennsylvania-based Capmark posted a $1.6 billion quarterly loss, as it set aside $345.8 millionto cover loan losses during the quarter ended June 30.

The company had been in talks with lenders and bondholders in order to restructure its debt so that it could stay in business.

Capmark in September agreed to an option to sell its North American servicing and mortgage businesses to Berkadia III LLC – a joint venture of Warren Buffett’s Berkshire Hathaway Inc.and Leucadia National Corp.

Now that Capmark has been forced to file for bankruptcy protection, it will receive $415 million in cash and a $75 million note in the deal, minus any losses on a portfolio of mortgages. Had the transaction been completed outside of bankruptcy court, Capmark would have received $375 million in cash at the closing. Berkadia would have held $40 million to cover indemnity claims and pay the $75 million note.

Capmark was created in 2006 after a private equity group led by KKR & Co., Goldman SachsCapital Partners and Five Mile Capital Partners bought the commercial real estate business of lender GMAC LLC for $1.5 billion in cash.

According to the bankruptcy filing, the group owns 75.4 percent of the company. GMAC owns21.3 percent, with most of the remaining shares owned by employees and directors.

Messages left for KKR, Goldman Sachs and Five Mile were not returned on Sunday.

In a statement, Capmark said that its Capmark Bank subsidiary was not part of the bankruptcy filing. The bank, which recently received $600 million in new equity from Capmark Financial, will continue to serve its customers.

As of Friday, Capmark and its units involved in the filing had more than $500 million of cash and cash equivalents available to fund operations. Capmark said it believed that it had enough liquidity at this time to allow it to pay vendors for goods and services and to pay salaries and continue benefits to its employees, and has filed motions with the court to allow it to do so.

“The Chapter 11 process will give Capmark the opportunity to restructure our balance sheet while continuing to focus on maximizing value for our principal stakeholders,” Mohsin Meghji, the company’s chief restructuring officer, said in a statement.

Capmark’s filing marks the latest in a string of commercial real estate-linked bankruptcies.

General Growth, the second largest shopping-mall owner in the US, in April filed for bankruptcy protection in the largest U.S. real-estate bankruptcy case in history with some $27 billion in debt. Extended Stay Hotels LLC in June also filed for bankruptcy protection, citing massive debt stemming from its 2007 acquisition by the Lightstone Group at the peak of the hotel market and a sharp decline in business travel due to the recession.

If you own expensive jewelry, make sure you also have sufficient insurance
Associated Press, Sept. 21, 2009

NEW YORK — Do you have expensive jewelry lying around at home that you worry could be stolen? Maybe you’re concerned about losing it?

If so, you probably should consider extra insurance because your homeowner or rental policy doesn’t likely cover the entire cost of replacing your most valuable items.

Here’s what to consider:

Check your policy: Find out how much jewelry your homeowner’s or renter’s policy includes and what circumstances are covered. While it depends on the individual company, most policies cover stolen jewelry, but just $1,000 to $2,000 worth, says Jeanne M. Salvatore, a spokeswoman for the Insurance Information Institute — a trade group for insurance companies.

“There will be some coverage, but it will be limited,” she says.

Homeowner’s insurance generally won’t cover your misplacing an item, says Salvatore.

Consider a floater: If you have items worth more than you’re covered for, consider buying an additional policy using a “floater” or “rider” for their replacement cost, which will also cover lost jewelry. For floaters, insurers typically charge a percentage of an item’s value and don’t levy a deductible.

To get an idea of a floater’s cost, at State Farm Insurance, covering an item worth $10,000 in New York City would run about $175 per year, says Kip Diggs, a spokesman for State Farm. In a different city or state, it might cost half that, he says.

Insure what you wear: Many people think they don’t need extra jewelry insurance until they get engaged and own a valuable ring, says Salvatore. But she advises insuring any items you wear regularly because wearing them increases the chance of losing them. She also recommends covering anything worth more than $1,000 and anything irreplaceable or of sentimental value.

Appraise everything: Before taking out an additional policy, have your jewelry appraised so you insure it for the right amount. The appraisal should include an in-depth description of the article with photographs.

Keep in mind that the appraisal doesn’t guarantee the value will remain the same in coming years, says Roger Sevigny, president of the National Association of Insurance Commissioners. So it’s good to have jewelry appraised every several years, especially given inflation and fluctuating prices for gold, silver and diamonds.

You can find jewelry appraisers in your area on the American Gem Society’s Web site, americangemsociety.org. You also can get referral from the American Society of Appraisers at http://appraisers.org/ASAHome.aspx or take your pieces to a jewelry store you trust, says Celia Santana, of Personal Risk Management Solutions, a New York-based insurance and financial advisory firm.

Document your assets: Document everything you have insured and hold onto the receipts for both your jewelry and your appraisals, then make photocopies of all those papers and keep them someplace separate.

As for the valuables themselves, always store jewelry in a safe location when you aren’t wearing it. And, if you have a burglar alarm, change the code frequently.

 

CEO Irene Rosenfeld pushes for Cadbury acquisition, hopes to boost productivity in Europe
Associated Press, Sept. 9, 2009

NEW YORK (AP) – Kraft Foods Inc. CEO Irene Rosenfeld said Wednesday that she will keep pushing to buy candy maker Cadbury PLC as part of Kraft’s focus on higher-margin brands and international markets, but ratings agencies were wary of the deal.

Cadbury, the world’s second-largest candy maker, rejected the $16.7 billion cash-and-stock offer, saying it undervalues the company.

But Rosenfeld, speaking at a Barclays Capital conference, reiterated that merging the companies would strengthen Cadbury and boost Kraft’s presence in developing countries like India and Mexico where Cadbury has a strong presence.

“The time is right for this combination to happen,” Rosenfeld said.

Kraft, the world’s second-largest food maker, also said the acquisition could lift its revenue and earnings. Rosenfeld projected long-term growth of 9 percent to 11 percent in earnings per share and at least 5 percent in revenue.

If Kraft succeeds in acquiring Cadbury, their combined revenue would top $50 billion. Northfield, Ill.-based Kraft’s products, such as its namesake cheese, Maxwell House coffee and Oscar Mayer meats, are sold in 150 countries worldwide. Cadbury, whose brands include Dentyne gum and Halls cough drops, spun off its Dr Pepper Snapple beverage group last year.

Rating agencies said combining Kraft and Cadbury makes sense strategically but would significantly increase Kraft’s debt. As of June 30, it had $20.2 billion in debt and $1.7 billion in cash, according to Fitch Ratings.

Kraft has been trying to cut its debt since 2007 when it borrowed $7.6 billion to buy Paris-based Groupe Danone’s biscuit business. Executives said they are confident they can finance a Cadbury deal without costing Kraft its investment-grade rating.

But Fitch placed Kraft’s ratings on “watch negative” Wednesday based on the proposal. The agency said buying Cadbury would strengthen Kraft’s platform but increase its debt by at least $10 billion. Fitch said it would limit a potential downgrade to one notch, but that would leave it on questionable ground.

Moody’s Investors Service expressed similar concerns Tuesday and put the company’s rating on review for a possible downgrade.

Analysts expect Kraft will have to sweeten the deal, likely by offering more cash — which raises further concerns. Standard & Poor’s lowered its opinion on Kraft stock Tuesday to “sell” from “hold,” saying the risks of the deal overwhelm any benefits it would bring Kraft.

Chief Financial Officer Tim McLevish said Wednesday that the company expects significant short-term savings from cost-cutting. It already has streamlined production and cut unprofitable brands following its three-year turnaround plan.

Kraft expects operating income margins will rise to the mid-teens by 2011, from 12.3 percent in 2008.

Kraft boosted its 2009 earnings outlook last month after posting an 11 percent increase in second-quarter profit. The company expects earnings of at least $1.93 per share, up from previous guidance of $1.88. Analysts polled by Thomson Reuters expect $1.96 per share.

Mars Inc. is the world’s largest candy company, and Switzerland-based Nestle S.A. is the largest food maker worldwide.

Prom makeup doesn’t have to be pricey: 5 ways to look better for less
Associated Press, April 30, 2009

NEW YORK (AP) – Many high school girls who might once have dropped hundreds of dollars on salon treatments to accompany their picture-perfect prom dresses aren’t doing that this year.

As families cut discretionary spending, many teens are watching their budgets and seeking ways to look elegant without going overboard. The economy is making it hard for anyone to justify a trip to the salon, said Katy Walsh, a makeup artist at Paul Labrecque Salon in New York.

“It’s even tougher for younger people who don’t have enough money at their disposal,” she said.

Here are ways to get help creating glamorous looks with your makeup that don’t involve a high-priced makeover:

1. DISCOUNTS AND FREE SAMPLES: Salespeople at cosmetics counters are often willing to offer free samples in the hope of making you a return customer. Politely ask to sample a product, and chances are they’ll be happy to oblige.

Vanessa Elese, a New York-based celebrity makeup artist, suggests checking drug stores for promotions from cosmetics companies seeking customers to try their products.

Check the Web. Companies occasionally advertise free samples for people who buy other items online. And try Web sites such as http://www.promotionalcodes.com.

2. TINTED MOISTURIZER: Instead of spending money on moisturizer and expensive full-coverage foundation, which can look cakey in photographs, save money with a natural-looking tinted moisturizer.

You can even make your own by mixing your favorite face lotion with foundation and customize it to your skin tone by adding more or less color. Just make sure one of the products includes sun protection.

“To me, a tinted moisturizer is the most important product. You want skin to look flawless, and it’s great for girls who are in their teens,” Walsh said. “It’s something you can use all year round.”

Use your fingers to apply moisturizer, instead of a sponge, which often sucks up the foundation. But be sure to practice several times if you decide to make your own so you get it right before the big night.

3. RESEARCH: Why spend a lot of money for a session with a makeup artist, when there are scads of how-to videos on YouTube? Magazines also have lots of tips on how to create a professional look using makeup you already have. Seventeen magazine ran an article on moneysaving tips in its recent prom issue, and Real Simple “test drives” a variety of products in each issue.

Even better: Invite your friends over ahead of time and practice applying makeup on each other to learn new tricks.

4. USE VERSATILE PRODUCTS: One of the easiest ways to save money on cosmetics is to use products that can be applied more than one way.

A good lip stain can also be used on your cheeks. Instead of buying a separate eyebrow pencil, try applying a dark eye shadow with a brush to your eyebrows to make them more dramatic. And remember that you can use a good bronzer again in the summer.

“You can apply it all over your face, your forehead and chin, and even use it as eye shadow,” Elese said.

5. BEAUTY SCHOOLS: If the thought of going it alone is still too intimidating, check out cosmetology schools, which offer inexpensive beauty services from students, who are generally supervised by a licensed instructor. Makeup, manicures and hair styling services at a school can cost half of what salons charge.

Bearing in mind that there’s some risk involved in having a student create your look, bring a photo from a magazine or style book to show exactly what you’re going for; ask in advance about the school’s tipping policy; and expect that services may take longer than in a traditional salon.

Cupid misses wallets: Couples scale back on Valentine’s Day spending in loveless economy
Associated Press, Feb. 10, 2009

Even in this loveless economy, chocolate and a candlelit dinner have a date for Valentine’s Day. Diamonds and special-delivery flowers, though, are on the outs.

Lovers have their pick of promotions from restaurants and travel companies sensing an opportunity with Valentine’s Day falling on a Saturday this year. But that same calendar quirk may be making losers out of florists, since sweethearts won’t be ordering bouquets to the office.

Given the disappearance of more than 2 million jobs and many trillions in investments in recent months, many of the commercial trappings of romance may be in for a downsizing.

“A lot of people used to make Valentine’s Day a very big event. They’d buy frivolous gifts, a diamond necklace, there was even advertising for BMWs,” said Marcia Mogelonsky, an analyst for Chicago-based research firm Mintel International Group Ltd.

The growing trend toward frugality brings a clear break from that view of Valentine’s Day, and it’s likely to continue, says Standard & Poor’s retail analyst Marie Driscoll. “We think it will get worse before getting better,” Driscoll said. “People might just get chocolates this year.”

Research firm IBISWorld Inc. predicts spending for Valentine’s Day this year will fall to$28.6 billion, 4.8 percent below last year. The firm expects couples will choose chocolates or greeting cards instead of pricier gifts, such as jewelry and expensive dinners.

Consider Tyler Trettin. The recent college graduate — who was in downtown Harrisburg, Pa., this month to inquire about a job as a personal trainer — is considering a low-key dinner and movie with his girlfriend to celebrate both his birthday on Friday and Valentine’s Day.

The recession has made even decent part-time work, such as package delivery, scarce, he said. “I think it’s definitely on everybody’s mind, especially for my situation,” said Trettin, who is about to turn 25. “It’s tougher to find jobs right now.”

Restaurants and hotels hurting from months of sluggish sales are ramping up promotions and discounts to woo Valentine’s spenders.

The Ruth’s Chris Steak House chain is offering a three-course meal it’s calling “Ruth’s Classics” for about $40 — far below its average $75 guest check and the $150 special for two it rolled out last year at Valentine’s Day. Chief Executive Michael O’Donnell told investors last month that Ruth’s Chris is lowering its prices because fewer people are celebrating special occasions at the suffering chain.

Many hotels wouldn’t bother offering an overnight package if Valentine’s Day fell on a weekday, when it creates little or no bump in occupancy. But a weekend Valentine’s Day could bring in an additional $250 million in room revenue to U.S. hotels, said Mark Lomanno,president of Smith Travel Research.

Cutbacks in travel spending have helped push rates lower this year. Three- and four-star hotels in New York, Miami, San Francisco and Los Angeles are charging 15 percent to 20 percent less than last year on Valentine’s Day weekend, according to Hotwire, an online travel agency that specializes in discounted rooms.

A three-star hotel in New York’s trendy SoHo neighborhood is asking $96 for a room and a three-star in Miami’s South Beach is asking $136. But at the Rosewood Hotels & Resorts luxury hotel management firm — which is offering a two-night Valentine’s deal for $799 and up at some properties that includes a Ralph Lauren fragrance and monogrammed cashmere throw — business is strong, according to Chief Operating Officer Bob Boulogne. “At the very high end of the market, there are people spending,” Boulogne said.

More typical are florists offering discounts or deals on shipping to avert a wipeout because the holiday falls on a Saturday.

Owner Mark Pinn at Katrina Parris Flowers in Manhattan expects business to drop 15 percent this year, partly because of the economy and partly because couples will make weekend plans rather than sending flowers to the office. “Most guys will make dinner plans and other arrangements,” said Pinn, who founded the store with his wife in 2002.

Jewelers, still stumbling from the dismal holiday season, don’t expect business to pick up, despite their price cuts and move toward more-affordable offerings.
Tiffany & Co. cut prices on diamond engagement rings 10 percent to stem the tide of customers gravitating to cheaper rings and even postponing engagements.

People are waiting until they can get credit more easily to buy a more expensive ring or can shop without worrying whether they’ll still have the income to pay for their purchases, analysts say.

Ara, the one-named designer and CEO of jeweler Versani, said things look “bleak,” even after his company, which has stores in Manhattan and Miami, shifted its focus from items priced in the thousands of dollars and boosted offerings priced in the hundreds. “We found that it helped a little bit, but it did not make the big difference we expected,” Ara said.

Chocolatiers and candymakers are bracing for shoppers to spend less, but still to spend.

Fewer people may buy the $75 Aphrodisiac Red Fire Hatbox from Vosges Haut-Chocolat, said Katrina Markoff, founder of the Chicago-based company. But she predicted more will buy the $42 box of 16 Gatsby truffles — chocolate swirled with champagne and topped with a rose petal.

The Seattle Chocolate Co. is targeting couples who opt for a money saving night of dinner and a movie at home with “Date Night” — two chocolate bars and two romantic independent movies on DVD for $27.

“That was our little recession idea,” said Chief Executive Jean Thompson. “What we’re saying is, ‘It’s better than what you can get at the movie theater eating Junior Mints, and it’s less expensive.'”

Tiffany trims yearly earnings forecast following ‘most challenging’ holiday in 21years
Associated Press, Jan. 14, 2009

NEW YORK (AP) – Tiffany & Co. on Wednesday said the 2008 holiday season was the most challenging since it went public 21 years ago and lowered its 2008 profit forecast as a result.

Earlier Wednesday, Tiffany cut its yearly profit outlook because of weak consumer spending,which is likely to persist for most of this year, sending shares down as much as 7.5 percent earlier in the session before recovering to add a penny at $22.01 in afternoon trading. So far this year, shares of Tiffany have declined 6.8 percent.

Many jewelers have struggled to post robust sales because shoppers have curbed discretionary spending. “The 2008 holiday season was the most challenging in the 21 years since Tiffany became a public company,” said Mark Aaron, Tiffany’s vice president of investor relations.

Aaron, speaking on a conference call with analysts, said the company’s Manhattan flagship store, which generates about 10 percent of yearly revenue, was hurt by a slowing in international tourists to the area.

“The slowdown in sales to European visitors that affected the New York flagship store was probably consistent with the recent industry report of a slowing in overall tourism to New York,” Aaron said.

Chief Financial Officer Jim Fernandez also said Tiffany will offer an early retirement program to about 800 U.S. employees to help cut costs. The company will record one-time charges that are yet to be determined in the fourth quarter for these moves.

Tiffany expects fourth-quarter earnings between 76 cents and 81 cents per share, excluding charges. Analysts polled by Thomson Reuters, who usually exclude one-time items, expect 89 cents in earnings per share.

Results in the fourth quarter were hurt by a 24 percent drop in same-store sales for the holiday season, which represents the largest portion of fourth-quarter sales. Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance since they measure growth at existing stores rather than newly opened ones.

For the full-year, Tiffany now anticipates profit of $2.25 to $2.30 per share, down from its November projection of $2.30 to $2.50 per share, and below Wall Street expectations for $2.40 per share.

Tiffany also said it has reduced diamond engagement ring prices in the U.S. by an average of 10 percent to boost its position in the category. “Our store managements tell us that the reduction has generated some incremental business, but the reaction was not sufficient to offset customer reluctance tied to economic factors and for some who might even be postponing their engagements,” Aaron said.

Stifel Nicolaus analyst David Schick, in a client note, expects Tiffany’s sales to remain pressured this year because of turmoil in the financial and housing markets, unemployment and declining foreign tourism.

Schick, who rates the stock “Hold,” said there have been “unprecedented” changes in employment in New York, London and Tokyo — which are very important markets to Tiffany. Schick estimates these cities represent 25 percent of Tiffany’s total sales.

Foley Wine Group buys Sebastiani Vineyards as acquisitions stir California wine country
Associated Press, Dec. 23, 2008

NEW YORK (AP) – After more than a century in business, a family-owned California winery has sold itself to a southern California conglomerate as consolidation swirls in wine country.

Amid increasing competition and consolidation in the wine industry, Foley Wine Group has purchased Sebastiani Vineyards for an undisclosed sum, according to a statement released by Sebastiani. The sale includes the Sebastiani winery, a Sebastiani tasting room and event center in downtown Sonoma, Calif., and 100 acres of vineyards.

Sebastiani’s history begins in 1904, when Samuele Sebastiani bought vineyards in northern California after immigrating to the U.S. from Tuscany, in Italy, in 1895. Shortly after Sebastiani died in 1944, his son August and his wife, Sylvia, purchased the winery. Their daughter, Mary Ann, joined the winery in 1980.

“They really have exemplified a sense of heritage and history,” said Honore Comfort, executive director of Sonoma County Vintners, which represents wineries in the region. “They were always looking to innovate and grow but have kept the business within the family. The sale of the winery is a departure from that.”
Comfort said it was probably difficult to operate on a large scale as an independent winery, as competition in the wine industry has increased. “We know the family is making the best decisions, but we’re all a little sad to see one of our hallmark family wineries move out of the hands of the family,” Comfort said.

The industry has been ripe with consolidation, following Constellation Brands’ 2007 purchase of Beam Wine Estates, a wine company in Sonoma County. Constellation Brands, which is based in Fairport, N.Y., also snapped up the Robert Mondavi Winery in 2004 for about $1.35 billion.

Other prominent sales in California wine country include Stag’s Leap Wine Cellars, which was sold last year for $185 million to a joint venture partnership of Washington state-based Chateau Ste. Michelle Wine Estates and Marchese Piero Antinori of Italy.

While the reasons vary, Nick Frey, president of the Sonoma County Winegrape Commission, said he has noticed a trend of bigger companies snapping up smaller wineries. “Sometimes the founders are essentially tired of running the business and want to convert the assets back to cash,” Frey said. “Other times in a multigenerational family, there’s a generation that doesn’t have an interest in the business.”

Tim Matz, president of Foley Wine Group, said the purchase of Sebastiani broadens Foley’s portfolio and will more than double Foley’s total wine production.

Matz said this is the company’s first property in Sonoma County. Foley’s other properties are located in Santa Barbara, Calif., Walla Walla, Wash., and California’s Napa Valley.

Animal retailers struggle to fetch strong sales as consumers cut back on spending
Associated Press, Feb. 13, 2008

NEW YORK (AP) – It’s been a dog-eat-dog world lately for pet retailers as U.S. consumers scale back on spending, and big-box retailers emerge as stronger competitors.

Falling home prices, higher energy costs and job cuts have Americans paying close attention to how they spend their money. And while pet owners love their animals, recent outlooks from pet-focused retailers and veterinary service companies suggest that some consumers are trying to cut corners.

“The economy is definitely having an impact,” said Morningstar analyst John Owens, who covers Phoenix-based PetSmart Inc. “Declining home values and rising gas prices are putting a squeeze on consumer spending.”

The market for pet care and supplies in the U.S. is huge. Around 63 percent of American households own a pet, according to the American Pet Products Manufacturers Association. The group estimated spending on pets at $40.8 billion in 2007, up nearly 6 percent from $38.5 billion last year.

Bob Vetere, president of the association, said while ownership has leveled off slightly, spending on pets has been on the rise, as Fido is considered part of the family.

Such is the case for Kim Wolff, who watches her three-year-old Japanese Chins via Webcam while she’s at work. “It’s really boring because they lay around all day, but it makes me feel like I get to be at work with my dogs,” said Wolff, who lives in Brooklyn’s Dumbo neighborhood.

Wolff, 30, not only keeps an eye on her dogs, but she also tries to keep her spending from going overboard. “You go in these pet stores, and the dog really wants to play with this stuff. Then all of a sudden, you have a bunch of $8 to $12 items in your bag,” Wolff said. “I still have the urge to get new things, but it’s got to stop because it’s too much.”

Blaming sluggish sales, pet specialty retailer PetSmart last month lowered its fourth-quarter profit. The company reports results on March 5, and analysts wonder to what extent consumers doted on their pets during the all-important holiday season when retailers record a large portion of sales.

“We believe that sales fell off during the holidays,” Deutsche Bank analyst Mike Baker said.

Also, as Morningstar’s Owens notes, PetSmart faces competition from Wal-Mart Stores Inc. and Target Corp., which sell pet food and other items, like collars and leashes.

Animal health care has also showed signs of weakness. Last week, Los Angeles-based VCA Antech, the largest pet-health provider in the U.S., forecast fourth-quarter sales below expectations.

VCA Antech has turned its focus on diagnostic testing for animals, where it has been making a good chunk of money, according to Morningstar analyst Debbie Wang. “It’s their ‘crown jewel,’ a super high-margin business for them,” Wang said.

However, as the economy slows, pet owners may delay treatments to cut back on expenses. “If it’s not absolutely necessary, I suspect people are going to either postpone it or not do it at all. But if the need is acute, it will happen, and people will pony up the money,” Wang said.

Long-term, Wang offered a bright outlook in an industry dominated by empty-nesters and single people wanting to become pet owners. “If economic conditions are good and people feel like they’re getting ahead, I would predict that folks will be happy to spend money on their pets,” Wang said.

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