Moderator
John Beaudette,
President and CEO,
MHW, Ltd.
Panelists
Charles Merinoff,
Chairman and CEO,
Charmer Sunbelt Group
Jim Squeo, President and CEO,
NABCA
Vince O’Brien, Senior
Counsel, Nixon
Peabody
Bill Earle, President,
NABI
Navigating Brand Entry & The
Three Tier System
• US Beverage Market Overview.
• The US Beverage Alcohol Distribution System.
– “Three Tier System” & Distribution Outlets.
– Open verses Control States.
– Understanding the past and looking to the future.
• Brand Approval-Federal / State Process, and Launch Time Line.
Navigating Brand Entry & The
Three Tier System
• Price Structures For Wine, Spirits, and Beer.
• New Brand Introduction Trends.
• Brand / Industry Valuation Discussion.
• Distribution Options / Partners / Approaches To Market Entry.
• Panel Discussion
2010 US Beverage
Consumption
50 Billion Gallons
0.4 Spirits
0.7 Wine
6.4
13.7
7
8
8
Soft Drinks
Coffee
Bot. Water
Milk
Beer
Tea
Juices
Pow. Drinks
Wine
Spirits
Source: Beverage Information
Group
2010 Beverage Consumption
Alcohol Trends
Source: Beverage Information
Group
The US Beverage Alcohol
Distribution System
• To understand it today and to consider where its going
tomorrow, history is important.
• Direct Shipping, privatization of control states, H.R. 1161.
• There is the potential for some changes over the next decade .
History Of Beverage
Alcohol In Us
History Of Beverage
Alcohol In Us
History Of Beverage
Alcohol In Us
History & Overview
• 1933 Repeal Of Prohibition And Enactment Of Twenty-First
Amendment.
• Protect Federal Tax Revenues.
• Protect The Public -Federal Regulations (BATF-Now TTB)
• Licensing qualified importers, manufacturers, wholesalers,
warehouses, not retailers). (Prevent Organized Crime)
• Approve labels and formulas -Certificate of Label Approval (COLA)
• Bans “tied-house”.
• Prohibits consumer deception and ensures quality with
standards of identity, labels and formula approval.
• Bans false advertising.
• Bans unfair inducements to retailers .
History Of Beverage
Alcohol In Us
History & Overview
• 1933 Repeal Of Prohibition And Enactment Of Twenty-First
Amendment (Continued).
– States Given Power To Regulate Sale & Distribution Of Beverage
Alcohol Within Their State.
• 32 “Open States” (Private enterprises working through
“Three Tier System”).
• 18 “Control States” and Montgomery Cty MD-State controls
products entering and sold in the state (primarily for spirits,
some wine).
— State Excise Taxes and Control
Three Tier System
PRODUCER
(Wineries, Brewers, Distilleries, Importers)
Wholesaler (Distributor)
Retailer
Consumer
Control States
Navigating Brand Entry &
Distribution
HR1161 – Community Alcohol Regulatory
Effectiveness (CARE) Act Of 2011
• Wholesalers looking to reaffirm states authority over beverage
alcohol (21st Amendment), limit litigation and reduce
unnecessary costs from those challenging the system (direct
shipper advocates)
---------• Suppliers want to leave the existing regulatory system as is,
fearing states might enact protectionist and anti-competitive
laws
Where does this take the industry in the near future?
Brand Approval / Launch
Timeline
Federal Label
(COLA) Approval
Caution• 1 to 8 weeks
depending on product New TTB
and complexity
Turnaround
State Registration &
Approval
• 1 to 8 weeks including
price posting where
required
Product Ships To
Wholesaler
Wine Brands Economics Example
750ML / 12 Bottle Case Imported $ 9.99 Retail Bottle Price
Supplier FOB (Varies-Packaging etc.)
Ocean Freight
Fed Tax/Duty (80 Proof)
PPU/BF/INS
Importers Margin (24% Margin)
Price to Distributor
State Tax
Freight
Distributor Margin (50% Mark Up/33% Margin)
Distrib. Price To Retail
Retailer Margin (50% Mark Up/33%Margin)
Retail Case Price
Bottle Price
$ 29.00
4.50
3.30
1.40
$ 12.14
$50.34
.71
2.50
26.37
$79.92
39.96
$119.88
$9.99
Spirit Brand Economics Example
750ML / 12 Bottle Case Imported $ 29.99 Retail Bottle Price
(Generally Sold in 6 Bottle Cases)
Supplier FOB (Varies-Packaging etc.)
Ocean Freight
Fed Tax/Duty (80 Proof)
PPU/BF/INS
Importers Margin (40% to 50% Margin)
Price to Distributor
State Tax
Freight
Distributor Margin (33% Mark Up/25% Margin)
Distributor Price To Retail
Retailer Margin (33% Mark Up/25%Margin)
Retail Case Price
Bottle Price
$ 65.00
4.50
26.00
1.40
$ 88.24
$185.14
15.30
2.50
67.65
$270.59
89.29
$359.88
$29.99
Premium Beer Brand Economics
Example
24 Bottle / 12 oz Case Imported $9.88 6 Pack
(Generally sold in 6 Packs)
Supplier FOB (Varies-Packaging etc.)
Ocean Freight
$ 11.00
2.00
Importers Margin (25% to 40% Margin)
1.30
.65
$ 5.05
Price to Distributor
$20.00
Fed Tax/Duty (80 Proof)
PPU/BF/INS
State Tax
Retailer Margin (33% Mark Up/25%Margin)
.60
1.75
7.38
$29.73
9.81
Retail Case Price
$39.53
Freight
Distributor Margin (33% Mark Up/25% Margin)
Distrib. Price To Retail
Six Pack Price
$9.88
Top U.S. Wine And Spirits
Wholesalers
Distributor
Markets
Sales
Revenue
2009E
(Millions)
2010P
Percent
Change
Market
2009E
Share
2010P
1
Southern Wine
& Spirits of
America
Alabama, Alaska, Arizona, California, Colorado, Delaware,
Florida, Hawaii, Idaho, Illinois, Kentucky, Maine, Mississippi,
Montana, Nevada, New Hampshire, New Mexico, New York,
North Carolina, Ohio, Oregon, Pennsylvania, South Carolina,
Utah, Vermont, Virginia, Washington, West Virginia,
Wyoming
$ 8,535
$ 8,765
2.7%
19.2%
19.7%
2
Republic
National
Distributing Co.
Alabama, Arizona, Colorado, Florida, Indiana, Kentucky ,
Louisiana, Maryland, Mississippi, Nebraska, North Carolina,
North Dakota, Ohio Oklahoma, South Carolina, South Dakota
Texas , Virginia, Washington, DC, West Virginia
$ 3,832
$ 4,365
13.8%
8.6%
9.8%
3
Charmer
Sunbelt Group
Alabama, Arizona, Colorado, Connecticut, Delaware, Florida,
Maryland, Mississippi, New Jersey, New York, Pennsylvania,
South Carolina, Virginia, Washington DC
$ 3,765
$ 3,755
-0.4%
8.5%
8.4%
4
Glazer´s Family
of Companies
Arizona, Arkansas, Indiana, Iowa, Kansas, Louisiana,
Mississippi, Missouri, Ohio, Oklahoma, Texas
$ 2,550
$ 2,750
6.1%
5.7%
6.1%
5
Young´s
Market Co
Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon,
Utah, Washington, Wyoming
$ 1,835
$ 1,895
3.3%
4.1%
4.3%
Top U.S. Wine And Spirits
Wholesalers
Sales
Revenue
2009E
(Millions)
2010P
Percent
Change
Market
2009E
Share
2010P
$ 1,455
$ 1,510
3.8%
3.3%
3.4%
Massachusetts, Maine, New Hampshire, Rhode
Island, Vermont
$ 950
$ 1,050
10.5%
2.1%
2.4%
Alabama, Arizona, Florida, Hawaii, Indiana, Iowa,
Minnesota, Nebraska, Nevada, New York, North
Carolina, North Dakota, Rhode Island, South
Dakota, Wisconsin
$ 860
$ 880
2.3%
1.9%
2.0%
$ 665
$ 705
6.0%
1.5%
1.6%
$ 605
$ 615
1.7%
1.4%
1.4%
Total Top 10
$ 25,055
$ 26,245
4.7%
56.4%
59.0%
Other Wholesalers
$ 19,380
$ 18,205
-6.1%
43.6%
41.0%
$ 44,435
$ 44,450
*
100.0%
100.0
%
Distributor
6
Wirtz Beverage
Group
7
Martignetti
Companies
8
Johnson
Brothers Liquor
Co
9
Allied Beverage
Group
10
Fedway
Associates
Markets
Illinois, Iowa, Minnesota, Nevada, Wisconsin
New Jersey
New Jersey
Total U.S. Market
* Less than 0.05%.
Source: Impact Databank
New Wine Brand Introductions
120
US
Italy
France
Australia
S. Africa
Argentina
Spain
New Zeal
Chile
Others
100
80
60
40
20
0
2005 2006 2007 2008 2009 2010
269
257
307
260
152
232
Source: Beverage Information
Group
New Distilled Spirit Brand
Introductions
100
90
80
70
60
50
40
30
20
10
0
Vodka
Rum
Tequila
Cord& Liq
Other
2005 2006 2007 2008 2009 2010
153
200
186
225
183
266
Majority Are
Imports!
65% in ‘10
Source: Beverage Information Group
Brand Sales & Valuations
• Spirit Brands Commanding Huge Prices.
• Major Beverage Companies willing to pay big for growth brands caught
in early stages of development.
• Valuation Ranges/Methods:
• Annual Case Multiples (ACM) $300 to $1,500 (spirits)
• Revenue Multiples (1 to 3 Times)
• EBITDA Multiple (6 to 14 Times)
• Historical Brand Sales
• Grey Goose stretched the multiple
• Campari (Carolans, Frangelico, Irish Mist), Grey Goose, 42 Below,
Hpnotiq, Wild Turkey, Chambord, Svedka, Absolut, Ketel One, WinesBig House, Red Truck, Rex Goliath, many others.
Foreign Supplier Approaches To
U.S. Market
OPTIONS AND ALTERNATIVES
Major US Importer And National
Distributor
Small / Medium Sized Importer
National Import & Distribution Service
Companies
State Wholesalers With Import
Licenses
US Based Internet & Direct Mail
Distribution Systems
Establish US Based Import Operation
PROS
CONS
Key References For Foreign
Suppliers
MHW, LTD.
REGULATORY &
INFORMATION
Nationally Licensed Import And
Distribution Services, As Well As
Consulting
-TTB (Formerly BATF) (online)
-State Web Sites
-Wine Institute
-NABCA (Control States)
-Beverage Information Group
(Provided the statistical data for this
presentation)
-Beer Institute
ORGANIZATIONS
-NABI (National Association Of
Beverage Importers)
-WSWA (Wines & Spirits
Wholesalers Association)
-The Brewers Association,
-Distilled Spirits Council of the
United States
www.mhwltd.com
John Beaudette
www.ttb.gov
www.wineinstitute.org
www.nabca.org
www.beveragenet.net
www.beerinstitute.org
www.nabi-inc.org
www.wswa.org
www.brewersassociation.org
Panelists
Charles Merinoff,
Chairman and CEO,
Charmer Sunbelt Group
Jim Squeo, President and CEO,
NABCA
Vince O’Brien, Senior
Counsel, Nixon
Peabody
Bill Earle, President,
NABI