US Drinks Conference 2010
The U.S. Beverage Alcohol Industry:
Navigating Brand Entry & Distribution
Brought to you by:
Navigating Brand Entry & Distribution
• The US Beverage Alcohol Distribution System
– Historical Perspective
– “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.
U.S. Drinks Conference 2010
2
Navigating Brand Entry & Distribution
• Price Structures For Wine, Spirits, and Beer
• New Brand Introduction Trends
• Brand / Industry Valuation Discussion
• Distribution Options / Partners / Approaches To Market
Entry
• Summary
U.S. Drinks Conference 2010
3
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, HR 5034
• There is the potential for big changes over the next
decade
U.S. Drinks Conference 2010
4
History Of Beverage Alcohol In US
1830's
Temperance Movements begin advocating for abstinence from
alcohol
1851
The first prohibition law is passed in Maine
1855
13 states have enacted prohibition legislation
1869
The National Prohibition Party is founded.
1881
Kansas is the first state to have prohibition in its state
constitution
1890
The National Prohibition Party elects its first member of the House of
Representatives
1893
The Anti-Saloon League is formed
1917
The US Senate passes the Volstead Act on December 18th which is
one of the significant steps to the passage of the 18th amendment
1918
The War Time Prohibition Act is passed to save grain for the war effort
during World War I
U.S. Drinks Conference 2010
5
History Of Beverage Alcohol In US
U.S. Drinks Conference 2010
6
History Of Beverage Alcohol In US
1919
On October 28th the Volstead Act passes the US Congress and
establishes the enforcement of prohibition
1919
On January 29th, the 18th amendment is ratified by 36 states and goes
into effect on the federal level
1920's
The rise of bootleggers such as Al Capone in Chicago highlight the
darker side of prohibition
1929
Elliot Ness begins in earnest to tackle violators of prohibition and Al
Capone's gang in Chicago
1932
On August 11th, Herbert Hoover gave an acceptance speech for the
Republican presidential nomination for president in which he discussed
the ills of prohibition and the need for its end
1933
On March 23rd, Franklin D. Roosevelt signs the Cullen-Harrison Act
which legalizes the manufacture and sale of certain alcohol
1933
On December 5th, prohibition is repealed with the 21st amendment
U.S. Drinks Conference 2010
7
U.S. Drinks Conference 2010
8
History Of Beverage Alcohol In US
U.S. Drinks Conference 2010
9
U. S. Beverage Alcohol Industry
History & overview
1933 Repeal Of Prohibition And Enactment Of Twenty-First
Amendment
– Protect Federal Tax Revenues
– Federal Regulations (BATF-Now TTB)
• Licensing qualified importers, manufacturers,
wholesalers, warehouses, not retailers)
• 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
U.S. Drinks Conference 2010
10
U. S. Beverage Alcohol Industry
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)
U.S. Drinks Conference 2010
11
Three Tier System
PRODUCER
(Wineries, Brewers, Distilleries, Importers)
Wholesaler (Distributor)
Retailer
Consumer
U.S. Drinks Conference 2010
12
Control States
U.S. Drinks Conference 2010
13
Navigating Brand Entry & Distribution
HR 5034 - Beverage Alcohol and the Commerce Clause
Wholesalers and State Control (21st Amendment) verses
suppliers and consumers that prefer a Federal approach
consistent with other consumer products (Commerce
Clause)
U.S. Drinks Conference 2010
14
Direct Shipment Overview
Reciprocity
States
Limited Direct Shipping &
Permit States Allowance of
limited shipments
Direct Shipment
not possible
Powered By
SHIPCOMPLIANT
U.S. Drinks Conference 2010
15
Navigating Brand Entry & Distribution
Brand Entry - The Approval Process
Federal Certificate Of Label Approval (COLA)
– Submitted by licensed importer or domestic producer
– Approval process and timeline is dependant upon the
product, category (wine, spirits or beer) and specific
requirements of TTB
• Pre import approval, TTB lab and formula
submissions, statement of method of manufacture
and approvals, TTB flavor approvals etc
U.S. Drinks Conference 2010
16
Navigating Brand Entry & Distribution
Brand Entry - The Approval Process
State Registration and Approval
– Most states require the out of state entity (shipper) to
maintain certain state licenses and / or permits in order
to sell products to wholesalers
– Most states require the Federal COLA as a requirement
for brand approval
– Many states require paperwork submissions with fees
and return a formal approval prior to shipping
– Be aware of franchise states
U.S. Drinks Conference 2010
17
Brand Approval / Launch Timeline
Federal Label
(COLA) Approval
• 1 to 8 weeks
depending on
product and
complexity
Product Ships To
Wholesaler
State Registration
& Approval
• 1 to 8 weeks
including price
posting where
required
U.S. Drinks Conference 2010
18
States Have Unique Rules / Regulations
Outlet Differences
• Supermarkets/ grocery
stores/ drug stores,
convenience stores, gas
stations, Liquor Stores
selling beer, wine , spirits
Off Premise Sale
• Sunday sales (8 states still
prohibit)
• In store tastings (12 states
prohibit)
Promotion & Merchandising
• Discounts, consumer refunds,
sweepstakes, gift sets / combo
packs
U.S. Drinks Conference 2010
19
Wine Brand Economics Example
750ML / 12 Bottle Case Imported $9.99 Retail Bottle Price
Supplier FOB (Varies-Packaging etc.)
$29.00
OceanFreight
4.50
Fed Tax/Duty (80 Proof)
3.30
PPU/BF/INS
1.40
Importers Margin (28% Margin)
12.14
Price to Distributor
$50.34
State Tax
0.71
Freight
2.50
Distributor Margin (50% Mark Up/33% Margin)
26.37
Distrib. Price To Retail
$79.92
Retailer Margin (50% Mark Up/33%Margin)
39.96
Retail Case Price
$119.88
Retail Bottle Price
$9.99
U.S. Drinks Conference 2010
20
Premium Spirit Brand Economics Example
750ML / 12 Bottle Case Imported $29.99 Retail Bottle Price (Generally sold in 6 Packs)
$65.00
OceanFreight
4.50
Fed Tax/Duty (80 Proof)
26.00
PPU/BF/INS
1.40
Importers Margin (40% to 50% Margin)
88.24
Price to Distributor
$185.14
State Tax
15.30
Freight
2.50
Distributor Margin (33% Mark Up/25% Margin)
67.65
Distrib. Price To Retail
$270.59
Retailer Margin (33% Mark Up/25%Margin) 89.29
Retail Case Price
$359.88
Retail Bottle Price
$29.99
Supplier FOB (Varies-Packaging etc.)
U.S. Drinks Conference 2010
21
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
Fed Tax/Duty
PPU/BF/INS
Importers Margin (25% to 40% Margin)
Price to Distributor
State Tax
Freight
Distributor Margin ( 3 3 % M a rk Up/ 2 5 % M a rgin)
Distrib. Price To Retail ( 3 3 % M a rk Up/ 2 5 % M a rgin)
Retailer Margin ( 3 3 % M a rk Up/ 2 5 %M a rgin )
Retail Case Price
Retail 6 pack price
U.S. Drinks Conference 2010
$9.00
2.00
1.30
0.65
7.05
$20.00
0.60
1.75
7.38
$29.73
9.81
$39.53
$9.88
22
Three Tier System
PRODUCER
(Wineries, Brewers, Distilleries, Importers)
Wholesaler (Distributor)
Retailer
Consumer
U.S. Drinks Conference 2010
23
Three Tiers Are Consolidating
Increasing Dominance Creates Worries For The Smaller Players
Sources: Impact Newsletter; Beverage Marketing Group Handbooks; USDA (Food Marketing System Briefing Room) and Food Marketing Institute (May 2008.
U.S. Drinks Conference 2010
24
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%
Source: 2010 Impact Databank
U.S. Drinks Conference 2010
25
Top U.S. Wine And Spirits Wholesalers.
Distributor
Markets
Sales
Revenue
2009E
(Millions)
2010P
Percent
Change
Market
2009E
Share
2010P
$ 1,455
$ 1,510
3.8%
3.3%
3.4%
6
Wirtz Beverage
Group
Illinois, Iowa, Minnesota, Nevada, Wisconsin
7
Martignetti
Companies
Massachusetts, Maine, New Hampshire,
Rhode Island, Vermont
$ 950
$ 1,050
10.5%
2.1%
2.4%
8
Johnson
Brothers
Liquor Co
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%
New Jersey
9
Allied
Beverage
Group
$ 665
$ 705
6.0%
1.5%
1.6%
10
Fedway
Associates
New Jersey
$ 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%
Total U.S. Market
$ 44,435
$ 44,450
*
100%
100 %
* Less than 0.05%.
Source: 2010 Impact Databank
U.S. Drinks Conference 2010
26
Click
to edit
title style
Overview
TheMaster
U.S. Retailer
Tier
There are over 340,000 Beverage Alcohol retailers divided into the
on and on-premise channels with several sub-segments each
There Are 342,739 Retail Outlets That Sell Spirits
On Premise
230,207 Outlets
Off Premise
110,161 Outlets
Other Premise
2,371
Bar/Night Club
79,521 Outlets
Liquor Stores / State Stores
35,913 Outlets
Military On/Off
1,666 Outlets – Under Reported
Dining
92,458 Outlets
Grocery
8,977 Outlets
Transportation
519 Outlets
Lodging
12,719 Outlets
Drug
2,784 Outlets
Other
186 Outlets
Recreation
36,000 Outlets
Warehouse Club
310 Outlets
Catering
3,715 Outlets
Convenience Stores
11,438 Outlets
Other
5,794 Outlets
Other
50,739 Outlets
U.S. Drinks Conference 2010
27
Source: TDLinx
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
269
257
U.S. Drinks Conference 2010
2007
2008
2009
307
260
152
28
New Distilled Spirit Brand Introductions
80
70
60
Vodka
Rum
Tequila
Cord& Liq
Other
50
40
30
20
10
0
2005
2006
153
200
U.S. Drinks Conference 2010
2007
2008
2009
186
225
183
Majority Are
Imports!
74% in ‘09
29
Brand Sales & Valuations
• Spirit Brands Commanding Huge Prices
– Grey Goose stretched the multiple
• Major Beverage Companies willing to pay big for growth brands
caught in early stages of development
• All categories involved in the rush to market-intent to sell
• Discussion on brand valuations and brand sales
– Campari (Carolans, Frangelico, Irish Mist), Grey Goose, 42
Below, Hpnotiq, Wild Turkey, Chambord, Svedka, Absolut, Ketel
One, Wines-Big House, Red Truck, Rex Goliath, many others
U.S. Drinks Conference 2010
30
Distribution Approaches For Foreign Suppliers
• 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
• Other
U.S. Drinks Conference 2010
31
Foreign Supplier Approaches To U.S. Wine Market
OPTIONS AND ALTERNATIVES
PROS
CONS
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
U.S. Drinks Conference 2010
32
Entering The US Beverage Alcohol Market
ANSWERS
CHALLENGES
•
•
•
Initial Market Research Is Critical
Committed Approach To US
Market Including Adequate
Resources (Time!!)?
Finding The Right Importer And
Distribution Approach
•
•
•
– Test market where possible
•
• Monitoring Sales & Brand
Activity (Keeping Sales
Pressure Up & Understanding
Market Conditions)
• You Must Be Active!!
•
•
Key Organizations And
Memberships With Critical
Contacts
Key Trade Shows
Industry Law Firms For TTB
Licensing, Contracts etc.
Industry Consulting And / Or
Service Companies (Outsourcing
Operations for Efficiencies etc.)
Independent Sales & Marketing
Agents / Brokers
Key Industry Reference Material
– Brand Ambassadors etc.
U.S. Drinks Conference 2010
33
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 Site
-Wine Institute
-NABCA (Control States)
-Beverage Information Group
(Provided the statistical data for this
presentation)
-Beer Institute
ORGANIZATIONS
U.S. Drinks Conference 2010
NABI (National Association Of
Beverage Importers)
WSWA (Wines & Spirits
Wholesalers Association)
www.mhwltd.com
John Beaudette
www.ttb.gov
www.wineinstitute.org
www.nabca.org
www.beveragenet.net
www.nabi-inc.org
www.wswa.org
34
THANK YOU
John Beaudette
President
272 Plandome Road
Manhasset, NY 11030
516-869-9170
jbeaudette@mhwltd.com
U.S. Drinks Conference 2010